I.

THE ERIE PROBLEM AND CHOICE OF LAW A. Basics of Erie problem 1. When a case is in federal court based on federal question jurisdiction, federal law must apply b/c Supremacy Clause says federal law is the supreme law of the land. 2. Rules of Decision Act (RDA), codified as 1652: federal courts must apply state law as the rules in civil cases except when federal law applies 3. vertical choice of law: federal court chooses to apply federal or state law a. horizontal choice of law: state or federal court chooses which states law to apply (i.e. which state the contract was entered, where the tort was) B. Why was Swift unconstitutional? 1. Swift: federal courts dont have to apply state law on all aspects of a diversity case, which Erie overruled 2. Vertical disuniformity: law is different within a state depending on whether the case is in federal or state court, which creates an incentive to forum shop 3. Litigant inequality: those who can use diversity jurisdiction to go to federal court have more options than those who must go to state court, even for the same issue a. There must be litigant equality- ppl in similar situations should be treated similarly- shouldnt matter if a case is in state or federal court. 4. Violated 10th Amendment: powers not delegated to the US by the Constitution, nor prohibited by it to the States, are reserved to the states. a. No such thing as federal general common law. C. When does Erie apply? 1. In diversity cases, federal court must apply state choice of law rules of the state where that federal court sits, but can apply federal procedural law. a. Rules of Decision Act & Erie require state law be applied only for rules of decision. i. Purely procedural matters arent rules of decision. 2. Erie didnt decide which topics state law governed in diversity cases. 3. Twin aims of Erie guide outcome determination. a. Discourage forum shopping b. Avoid inequitable administration of the laws D. Dont be obsessed w/ outcome equality. 1. Guaranty Trust: outcome determinative test: requires the federal court to make sure the result doesnt differ from the result in state court a. Turned a concern w/ litigant equality into an inflexible rule of outcome equality. b. But Erie didnt say that, it said the outcome should be the same in federal & state court, so far as legal rules determine the outcome. i. This is bad b/c federal courts in diversity would just be clones of state courts. E. What if the outcome is ambiguous? 1. Apply Byrd balancing test: for matters of form & mode, apply state law only if not doing so would be outcome determinative & if no federal system interest in the allocation of duties outweighs the state interest a. Balance how state substantive policy could be furthered w/ countervailing federal interests. F. Apply Hanna prong if theres a conflicting FR (BIG F BIG R): Is there a valid, federal directive on-point rule (applies to case) under REA? Enforcing state law would dismiss action, while enforcing FR would allow case to go forward. Clearly outcome determinative. When jurisdiction is based only on diversity, service should follow federal law. 1. Dont use Erie, outcome determination, RDA, or Byrd when FR applies. a. FR is Congresss instruction to apply that provision, as long as its valid. 2. Step 1 of Hanna prong: Use REA (28 USC 2072) to determine whether FR is valid. a. 2072(a): Congress gives SC the power to promulgate rules of practice & procedure for federal courts b. 2072(b): any amendments or new FRs cant abridge, enlarge, or modify any substantive right. i. 10th Amendment: states keep powers not given to federal government. c. Rules which incidentally affect litigants substantive rights dont violate 2072 if reasonably necessary to maintain the integrity of that system of rules. d. Federal law trumps state law b/c of the Supremacy Clause- federal law is the supreme law of the land. 3. Step 2 of Hanna prong: Is the federal directive on-point? 4. SO, once a court determines that a federal directive 1) applies to the cases facts (on -point) & 2) is valid, the Supremacy Clause requires it to be applied. G. Apply Erie prong: If Hanna prong doesnt apply, argue both Erie/Rules of Decision Act- twin aim & Guaranty 1. If the difference between applying state law & ignoring state law would influence P in choosing the federal court, federal court should lean toward state law. H. If the competing state & federal legal rules cant rly be classified as either substantive or procedural (small f small r), then do Erie analysis & apply modified Hanna outcome-determinative test. 1. 1) Forum shopping encouraged? 2) Would application of fed rule resul t in substantial variation between outcomes in state & federal courts? 2. Gasperini: Must be sensitive to important state interests & regulatory policies.

a. Interpret federal directives narrowly & dont overuse Hanna. I. Is there substantive federal common law? 1. If federal common law rule has a federal interest, then that common law defense can be used in federal court. a. Boyle: If theres no constitutional or statutory provision on-point, the only federal law available is federal common law. b. Federal common law is justified to accomplish congressional policy that Congress was unclear about or to protect federal interests. i. These federal interests include uniquely federal interests (also include proprietary roles like when the US is a party itself (i.e. entering contracts), international relations & admiralty). Is there a federal rule or statute? Yes HANNA Is the FR controlling? (Walker) Y N (go to Erie) --------------------------------------------- >> Is there direct conflict w/ FR + state practice? Y N (FR applies) Is the FR constitutional? Does it regulate substance or procedure? Procedural Substantive (FR cannot be enforced) FR is constitutional and is a statute or rule? Rule statute (FR applies) Apply REAdoes it define legal rights? Y (substantive, cannot apply) N Procedural or ambiguous. Does it abridge, enlarge, or modify? Y N Is there strong federal interest and small effect on substantive right? Y N (not enforced) enforced No ERIE Substantive, procedural, or ambiguous? (cant apply) (1) Does it encourage forum shopping? (2) Different outcome? YY Y/N NN

Byrd balancing: (1) Is there a state substantive policy? (2) Is there a countervailing federal interest? Y/Y Y/N (federal) Outweighed by federal interest? N/N (State)