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State Law In Federal Courts

A. History

1. Rules of Decision Act
Located in Section: 34 of the Judiciary Act of 1789, the Rules of Decisions Act directed federal courts to apply “the laws of the several states, except where the Constitution, treaties, or statutes of the United States shall otherwise require or provide .”

2. Swift v. Tyson (1842)
Justice Story’s decision held that:

a. State law should be applied in federal court only when ruling on matters of purely local concern (e. real estate).

b. Federal courts were free to evolve their own “general” common law regarding state laws.

3. The Advent of Forum Shopping
The creation of federal common law encouraged forum-shopping. Since litigants could choose between two distinct bodies of common law, the party would choose the forum with the most favorable law. This unsatisfactory state of affairs lasted for nearly a century.

B. Erie Railroad Co. Tompkins (1938)

1. The Holding
Justice Brandeis’ decision ended the Swift v. Tyson era in its tracks. There the court:

a. Held that state law, including both statutory and common law, must be applied to substantive issues in cases based on diversity jurisdiction.

b. Expressly overruled Swift v. Tyson as “an unconstitutional assumption of powers by the Courts of the United States.”

c. Eradicated federal general common law.

2. Underlying Policies

a. Elimination of uncontrolled forum-shopping, and b. Avoidance of inequitable administration of laws.

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