Brief Fact Summary
York (Plaintiff) brought a class action suit against Guaranty Trust Co. (Defendant) in federal court on diversity jurisdiction.Â The action was barred in the state courts by the statute of limitations and summary judgment was granted to Defendant on that basis.
Synopsis of Rule of Law
In all cases where a federal court is exercising diversity jurisdiction, the outcome of the case should be greatly the same, so far as legal rules determine outcome, as it would be if tried in state court.
York (Plaintiff) brought suit in federal district court in New York on behalf of a class of persons allegedly damaged by Guaranty Trust Co.’s (Defendant) breach of trust.Â The suit was brought in 1942, but complained of transactions occurring in 1931.Â Guaranty Trust (Defendant) was granted a summary judgment on the grounds that the action was barred by the New York statute of limitations and that this suit being heard on diversity jurisdiction was governed by the statute.Â The court of appeals reversed, stating that suits in equity were not controlled by the state statute of limitations.
Where a suit brought in federal court on diversity jurisdiction would be barred by statute if brought in the state court, may the federal court still hear the case on its merits?
(Frankfurter, J.)Â No.Â Since this Court’s decision in Erie v. Tompkins, 304 U.S. 64 (1938), a considerable amount of separation has developed over what matters are procedural or substantive.Â Since these two concepts are fluid and controlled by situation in most instances, the debate misses the underlying rationale of Erie.Â When sitting in diversity jurisdiction, a federal court is but another state court.Â The controlling factor is whether, by reason of application of differing federal rules, a very different outcome would result than if the case were brought in state court.Â The rules of law applied to the case cannot allow or bar recovery in the federal court where an opposite result would occur in the state court.Â For that reason, the summary judgment granted by the trial court is sustained.Â Reversed and remanded.
The outcome determinative test expressed in this case developed to the point where many observers and members of the judiciary felt that the federal courts had become unnecessarily mindless to the states.Â The cases developed to a point where, in one instance, a corporation qualified to sue by federal law was barred from bringing suit in a diversity action since it would not be qualified to bring suit in the state court.Â Inevitably, the pendulum began to swing back as shown by the next two cases, in particular Hanna v. Plumber, wherein the federal courts reasserted their independence.