Law applied by federal courts - Federal common law

Learning Outcomes

After reading this article, you will be able to explain when and why federal courts apply federal common law, distinguish its proper scope, identify the main categories where it is used, and apply the Erie doctrine to determine when state law governs. You will also understand the limits on federal judicial lawmaking and recognize key MBE pitfalls on this topic.

MBE Syllabus

For MBE, you are required to understand the circumstances in which federal courts apply federal common law instead of state law. This includes knowing the boundaries of federal judicial lawmaking, the Erie doctrine, and the main areas where federal common law is recognized. You should be able to:

• Identify when federal courts may create or apply federal common law.
• Distinguish federal common law from state law under the Erie doctrine.
• Recognize the main categories of federal common law (e.g., disputes involving the federal government, interstate disputes, admiralty, and foreign relations).
• Apply the rules for preemption and the relationship between federal statutes, federal common law, and state law.
• Analyze MBE questions involving the application of federal or state law in federal court.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. In a federal diversity case, which law generally governs substantive issues?
   1. Federal common law
   2. State law of the forum state
   3. Federal statutory law only
   4. The law of any state with an interest
2. Which of the following is a recognized area for federal common lawmaking?
   1. All contract disputes
   2. Disputes between two states over water rights
   3. All tort claims between private parties
   4. All property disputes
3. Under the Erie doctrine, when may a federal court create federal common law?
   1. Whenever Congress has not legislated
   2. Only in areas of uniquely federal interest or where Congress has authorized it
   3. Whenever the federal court disagrees with state law
   4. In all diversity cases

Introduction

Federal courts sometimes apply rules that are not found in statutes or the Constitution—this is known as federal common law. However, the power of federal courts to create or apply such law is limited. Most civil cases in federal court, especially those based on diversity jurisdiction, are governed by state law for substantive issues. The main exception is where there is a uniquely federal interest or Congress has authorized federal courts to develop federal rules. Understanding when federal common law applies, and when it does not, is essential for MBE success.

Key Term: Federal Common Law Judge-made rules of decision applied by federal courts in the absence of controlling federal statutes or constitutional provisions, but only in limited, recognized areas of uniquely federal interest.

Federal Common Law: Scope and Limits

The Erie Doctrine

The Supreme Court’s decision in Erie Railroad Co. v. Tompkins established that, in diversity cases, federal courts must apply state substantive law rather than general federal common law. This means that, except in certain limited areas, federal courts are not free to create their own rules of decision.

Key Term: Erie Doctrine The principle that federal courts sitting in diversity must apply state substantive law and may not create general federal common law, except in specific, authorized areas.

When Is Federal Common Law Permitted?

Federal common law is only allowed in a few categories:

• Disputes involving the federal government: For example, contracts to which the United States is a party, or cases involving federal officers’ liability.
• Interstate disputes: Such as boundary or water disputes between states.
• Admiralty and maritime law: Federal courts may develop common law rules for maritime cases.
• Foreign relations and international law: Federal courts may create rules affecting foreign affairs or treaties.
• Congressional authorization: If Congress expressly or impliedly authorizes federal courts to develop federal rules (e.g., in some federal statutes).

In all other areas, federal courts must apply state law.

Key Term: Uniquely Federal Interest An area where the federal government’s interests are so dominant that federal law must govern, and federal courts may create federal common law if Congress has not spoken.

Federal Common Law vs. State Law

If a case falls outside the recognized categories, federal courts must apply state law—even if there is no federal statute on point. This includes most contract, tort, and property disputes between private parties.

Key Term: Preemption The principle that federal law (including valid federal statutes and, in rare cases, federal common law) overrides conflicting state law under the Supremacy Clause.

Worked Example 1.1

A federal contractor sues the United States in federal court for breach of contract. There is no federal statute directly governing the dispute. Should the court apply federal common law or state law?

Answer: The court may apply federal common law because the case involves a contract to which the United States is a party—a recognized area of uniquely federal interest.

Worked Example 1.2

A federal court hears a negligence case between two private citizens from different states. There is no federal statute on point. May the court create a federal common law rule for negligence?

Answer: No. Under the Erie doctrine, the court must apply the substantive law of the forum state. Federal common law is not permitted in ordinary tort cases between private parties.

Exam Warning

On the MBE, do not assume that federal courts may create federal common law whenever there is a gap in federal statutes. Unless the case falls within a recognized area of uniquely federal interest or Congress has authorized it, state law governs.

Revision Tip

If the fact pattern involves the federal government as a party, interstate disputes, admiralty, or foreign relations, consider whether federal common law may apply. Otherwise, default to state law.

Summary

Federal courts may only apply federal common law in limited, well-defined areas. In most cases, especially diversity cases, state law governs substantive issues. The Erie doctrine is the default rule, with narrow exceptions for uniquely federal interests or congressional authorization.

Key Point Checklist

This article has covered the following key knowledge points:

• Federal common law is only permitted in limited, recognized categories of uniquely federal interest.
• The Erie doctrine requires federal courts to apply state substantive law in diversity cases.
• Federal common law may govern disputes involving the federal government, interstate disputes, admiralty, and foreign relations.
• Congressional authorization is required for federal courts to create federal common law outside these areas.
• Preemption allows federal law to override conflicting state law, but only when federal law validly applies.

Key Terms and Concepts

• Federal Common Law
• Erie Doctrine
• Uniquely Federal Interest
• Preemption