Klaxon Co. v. Stentor Electric Manufacturing Co.

Brief Fact Summary.

Stentor Electric Manufacturing Co. sued Klaxon Co. in federal district court in Delaware for breach of contract and obtained a money judgment. Based on a New York state statute, Stentor then moved to recover interest on the judgment from the date the action was brought. The district court granted the motion, and the Court of Appeals affirmed. The Supreme Court granted certiorari.

Synopsis of Rule of Law.

A federal court in a diversity case must follow the conflict of laws rules prevailing in the states in which they sit.

Facts.

Stentor Electric Manufacturing Co. sued Klaxon Co. in federal district court in Delaware, alleging that Klaxon failed to perform its obligations under a contract to use its best efforts to manufacture and sell certain patented devices. Stentor obtained a money judgment upon a jury verdict. Stentor then moved to recover interest on the judgment from the date the action  had been brought, which was awardable based on a New York state statute. The district court, concluding that the parties’ rights were governed by New York law, granted the motion; the Court of Appeals affirmed. The Supreme Court granted certiorari.

Issue.

Did the federal court, in this diversity case, correctly apply New York law to determine the parties’ rights?

Held.

No. A federal court in a diversity case must follow the conflict of laws rules prevailing in the states in which they sit.

Discussion.

The Court of Appeals determined that the “better view” was to apply New York law, without regard to Delaware law. The Supreme Court determined that the prohibition on such independent determinations by federal courts, as articulated in Erie Railroad v. Tomkins, should be extended the to the field of conflicts of laws; Delaware should be free to determine whether a given matter was to be governed by the law of Delaware or some other forum.