It didn’t take long for the substance/procedure problem implicit in Erie to begin to emerge. The very next term the Court decided Cities Service Oil Co. v. Dunlap, 308 U.S. 208 (1939), which raised an issue much closer to the line between substance and procedure than the tort issue in Erie: which party had the burden of proof on a question of title to land. Texas law placed the burden of proof on validity of title on the party challenging the title, but federal procedure placed it on the party who brought suit, in this case the holder of the record title. The federal Court of Appeals concluded that Erie did not require use of the state rule, since the issue was “a matter of practice or procedure and not a matter of substantive law.” 101 F.2d 314, 316 (1939). However, the Supreme Court reversed, holding that the burden of proof issue “relates to a substantial right” so that Erie mandated application of state law. 308 U.S. at 212.
The Dunlap decision must have sent shock waves through the legal community. The decision suggested that Erie required diversity courts to defer to state law not only on “substantive” rules but also on matters of procedure that related to the enforcement of state rights. If the federal court had to apply state law on burden of proof in a diversity case, why not on the time for filing a complaint, the right to amend, or the admissibility of evidence? At its most extreme, this would mean that federal courts would have to abandon the Federal Rules of Civil Procedure in diversity cases and apply instead the entire procedural law of the state in which they sat. Federal courts would then operate under a dual system of procedure: the Federal Rules in federal question, admiralty, and other types of cases within federal subject matter jurisdiction, but state procedural law when jurisdiction was based on diversity.
The next major post-Erie case did little to allay these concerns. In Guaranty Trust Co. v. York, 326 U.S. 99 (1945), the issue was whether a federal diversity court must apply the state statute of limitations to a claim, or whether it was free to apply its own more flexible “laches” doctrine to the case. The Court, speaking through Justice Frankfurter, refused to distinguish Erie on the basis that it involved state “substantive” law while York involved “procedure.” Instead, the Court held that the state limitations statute must be applied, in order to implement the “policy” of Erie that
in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court.