Chapter 6

ASCERTAINING APPLICABLE LAW

ChapterScope This chapter is concerned with how federal and state courts determine what law to follow. For instance, in a diversity case, is the federal judge required to apply the law of the state in which she sits, or is she free to decide on her own, following other federal cases, what the law should be? In a state case involving a subject of federal concern (e.g., U.S. government bonds), to what extent is the state court obligated to apply principles formulated in federal cases?

The bulk of this chapter is concerned with the choice of law in diversity cases. The choice of law in federal question cases, and in state cases involving matters of federal interest, is treated at the end of the chapter.

Key concepts in this Chapter are:

• Erie v. Tompkins: Under Erie Railroad v. Tompkins, in diversity cases the federal courts must apply state judge-made law (“common law”) on any substantive issue where there is no federal statute on point.
  • “Forum shopping”: A key reason for this rule is to prevent “forum shopping.” “Forum shopping” occurs where a plaintiff chooses between federal and state court based on which system is more favorable to her substantive case. Applying state substantive law in federal diversity cases thus removes the benefits of forum shopping.

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