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a. Swift v. Tyson: For many years the definitive Supreme Court opinion on the subject was contained in Swift v. Tyson, 16 Pet. (41 U.S.) 1 (1842). There, the Court held that:

i. the federal courts were bound by state court opinions which construed the state’s constitution or statutes, or which pertained to real estate or other essentially local, immobile matters;

ii. in all other questions, such as “general commercial law” (which was what was at issue in Swift) the federal courts were free to evolve their own common law irrespective of what state courts were doing. In other words, the phrase “laws of the several states” in the Rules of Decision Act did not encompass “general” common law.

b. Swift in disfavor: During the first decades of the last century, the Swift doctrine gradually fell into disfavor.

i. Ideal theory rejected: The legal philosophy which seemed to justify Swift—the view that the common law was an ideal entity which judges could not “create” but only try to “discover”—had been rejected by the best legal minds. Wr., 371-72. This “ideal entity” theory formed the foundation of the Swift v. Tyson doctrine; it was because judges do not “make” law but only “discover” the true common law that the federal courts should be free to engage in their own search for that truth. When legal writers began to express the view that judges “make” common law in much the same way that legislatures make statutory law, common law came to be seen as a “law of the state” just as statutes are laws of the state. Swift S distinction between statutory and common law therefore had less meaning.

ii. Forum-shopping: On a more pragmatic plane, the practice of “forum-shopping” was becoming notorious. “Forum-shopping” was the process by which a party tried to maneuver into a federal court in order to evade a state body of law that he found unfavorable, or into a state court to avoid the application of unfavorable federal common-law principles. The party (often the plaintiff, but sometimes the defendant using his right to remove to federal court) was said to be “shopping” for the most favorable forum in which to try his claim.

(1) Discrimination against citizens: Forum-shopping often allowed non-citizens to gain an advantage against citizens of the state where the federal court sat.

Example: Assume that in 1935, P, an Ohio resident, wants to bring a tort action against D, a Kansas resident. The relevant events took place in Kansas. Assume that Kansas judge-made tort law would be favorable to D, but that the federal courts in Kansas, if left to their own devices, would apply federal common-law tort principles favorable to P.

The doctrine of Swift v. Tyson would give P the choice between federal or state court in Kansas. Therefore, P can select federal court and profit at D’s expense. So even though the litigation is taking place within Kansas, P, the non-Kansan, will get an advantage over D, the Kansan.

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