Guaranty Trust Co. York

Brief Fact Summary. Plaintiff sued a bond trustee in a Federal diversity action. State
substantive law governed. Defendant argued that the suit was barred by the state’s statute
of limitations.
Synopsis of Rule of Law. A matter is considered substantive, for the purposes of
determining whether state or Federal law should apply in a diversity action, when it
significantly affects the result of litigation.

Facts. Plaintiff York sued a bond trustee in a Federal diversity action alleging
misrepresentation and breach of trust. New York substantive law governed. Defendant
Guaranty Trust Co. invoked the New York statute of limitations. Plaintiff argued that the
statute of limitations did not bar the suit because it was on the equity side of the Federal
court. The second circuit ruled that the suit was not barred and this appeal followed.

Issue. What constitutes a substantive issue such that state law will apply in a Federal
diversity action?

Held. The Supreme Court of the United States reversed the case and remanded it for
further proceedings, holding that a matter is considered substantive, for the purposes of
determining whether state or Federal law should apply in a diversity action, when it
significantly affects the result of litigation. It is immaterial whether statutes of limitations
are characterized as either substantive or procedural in state court opinions

Discussion. Here the Supreme Court reaffirmed the general distinction that in diversity
cases, state law applies for substantive issues, while Federal law applies for procedural
issues. However, rather than rely on the label placed on a statute by a state court as either
substantive or procedural, Federal courts will make their own determination based on
whether or not the statute is outcome determinative.