Law applied by federal courts - State law in federal court

Learning Outcomes

After reading this article, you will be able to explain when and how federal courts apply state law in diversity cases, distinguish between substantive and procedural rules under the Erie doctrine, and identify the correct approach to conflict-of-laws issues in federal court. You will be equipped to answer MBE questions on the application of state law by federal courts, including the impact of federal rules and statutes.

MBE Syllabus

For MBE, you are required to understand the principles governing the application of state law by federal courts. This includes knowing when federal courts must follow state substantive law, how procedural rules are determined, and the role of conflict-of-laws in diversity cases. Focus your revision on:

• The Erie doctrine: when federal courts apply state law in diversity jurisdiction.
• The distinction between substantive and procedural law in federal court.
• The application of state conflict-of-laws rules by federal courts.
• The effect of federal statutes or Federal Rules of Civil Procedure on the choice of law.
• The concept of federal common law and its limited scope.

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 governs the statute of limitations for a state-law claim?
   1. Federal Rules of Civil Procedure
   2. Federal common law
   3. State law, as determined by the forum state's rules
   4. The law of the state where the defendant resides
2. When does a federal court sitting in diversity apply the conflict-of-laws rules of the forum state?
   1. Always, for both substantive and procedural matters
   2. Only for procedural matters
   3. Only for substantive matters
   4. For determining which state's substantive law applies
3. If a valid Federal Rule of Civil Procedure directly conflicts with a state law, which law does a federal court apply?
   1. The state law
   2. The federal rule, if it is valid and on point
   3. The law of the state with the greatest interest
   4. Federal common law

Introduction

When a federal court hears a case based on diversity jurisdiction, it must decide whether to apply federal or state law to each issue. The rules for this decision are critical for the MBE and are governed by the Erie doctrine. Understanding how federal courts distinguish between substantive and procedural law, and how they resolve conflicts between federal and state law, is essential for exam success.

The Erie Doctrine: State Law in Federal Court

The Erie doctrine requires federal courts sitting in diversity to apply state substantive law and federal procedural law. This ensures that the outcome of a case does not depend on whether it is heard in state or federal court.

Key Term: Erie Doctrine
The principle that federal courts must apply state substantive law and federal procedural law in diversity jurisdiction cases.

Substantive vs. Procedural Law

A federal court must first determine whether the issue is substantive or procedural. Substantive law affects the outcome of the case, such as elements of a claim, burdens of proof, or statutes of limitations. Procedural law governs the process, such as pleading standards or discovery rules.

Key Term: Substantive Law
Law that defines rights and duties, and affects the outcome of a case.

Key Term: Procedural Law
Law that governs the methods and means by which rights are enforced in court.

Federal Rules and Statutes

If a valid Federal Rule of Civil Procedure or federal statute directly conflicts with a state law, the federal rule or statute controls, provided it is within the scope of the Rules Enabling Act and does not abridge, enlarge, or modify any substantive right.

Key Term: Rules Enabling Act
The federal statute authorizing the Supreme Court to prescribe general rules of practice and procedure for federal courts, provided they do not affect substantive rights.

Conflict-of-Laws in Federal Court

In diversity cases, federal courts must apply the conflict-of-laws rules of the state in which they sit. This determines which state's substantive law applies when more than one state is connected to the dispute.

Key Term: Conflict-of-Laws Rules
Legal principles used to determine which jurisdiction's law applies to a case with connections to multiple states.

Federal Common Law

Federal common law is rarely applied. It is limited to areas where federal interests are dominant, such as disputes between states or cases involving the rights and obligations of the United States.

Key Term: Federal Common Law
Judge-made law in federal courts, limited to specific areas where federal interests require uniformity.

Worked Example 1.1

A resident of State A sues a resident of State B in federal court in State A for breach of contract. The contract was negotiated and performed in State C. State A's conflict-of-laws rules would apply State C's law to contract disputes. Which state's substantive law does the federal court apply?

Answer: The federal court applies State A's conflict-of-laws rules, which direct the court to apply State C's substantive contract law.

Worked Example 1.2

A federal diversity case involves a state-law claim for personal injury. The forum state's law requires claims to be filed within two years, while the Federal Rules of Civil Procedure do not specify a limitations period. Which law applies?

Answer: The federal court applies the forum state's statute of limitations, as this is considered substantive law under the Erie doctrine.

Exam Warning

The most common MBE trap is confusing whether a rule is substantive or procedural. Statutes of limitations, burdens of proof, and elements of a claim are substantive. Pleading standards and discovery rules are procedural.

Revision Tip

Always check if a valid Federal Rule or statute directly addresses the issue. If so, it controls over conflicting state law. Otherwise, apply state substantive law.

Key Point Checklist

This article has covered the following key knowledge points:

• Federal courts in diversity cases apply state substantive law and federal procedural law (Erie doctrine).
• Substantive law includes elements of claims, burdens of proof, and statutes of limitations.
• Procedural law includes pleading, discovery, and trial procedure.
• If a valid Federal Rule or statute conflicts with state law, the federal rule or statute applies.
• Federal courts use the forum state's conflict-of-laws rules to determine which state's substantive law applies.
• Federal common law is rarely used and is limited to specific federal interests.

Key Terms and Concepts

• Erie Doctrine
• Substantive Law
• Procedural Law
• Rules Enabling Act
• Conflict-of-Laws Rules
• Federal Common Law