Erie Railroad Co. v. Tompkins

April 25, 1938:

U.S. Supreme Court delivers its opinion in Erie Railroad Co. v. Tompkins and overturns a century of federal common law. Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), was a decision by the Supreme Court of the United States in which the Court held that federal courts did not have the judicial power to create general federal common law when hearing state law claims under diversity jurisdiction. In reaching this holding, the Court overturned almost a century of federal civil procedure case law, and established the foundation of what remains the modern law of diversity jurisdiction as it applies to United States federal courts.
Erie began as a simple personal injury case when the plaintiff filed his complaint in diversity in the United States District Court for the Southern District of New York. As explained by the Second Circuit in its decision below, Harry Tompkins—a citizen and resident of Pennsylvania, was walking next to the Erie Railroad's Erie and Wyoming Valley Railroad tracks in Hughestown, Pennsylvania, at 2:30 a.m. on July 27, 1934. A friend of Tompkins had driven him to within a few blocks of his home, which was located on a dead-end street near the tracks. Tompkins chose to walk the remaining distance on a narrow but well-worn footpath adjacent to the tracks. A train approached, and in the darkness an object protruding from one of the cars suddenly struck Tompkins knocking him to the ground. When he fell down, his right arm was crushed beneath the wheels of the train.
The train was owned and operated by the Erie Railroad company, a New York corporation. Tompkins sued this railroad company in a federal district court—the United States District Court for the Southern District of New York. The district court, following the federal law at that time, applied neither New York nor Pennsylvania common law, but instead applied federal common law, which applied an ‘ordinary negligence’ standard in determining the duty of care owed to persons not employed by the railroad or otherwise acting in the course of their employment walking along railroad tracks, instead of Pennsylvania’s common law ‘wanton negligence’ standard for the duty of care owed by railroads to trespassers. The case was decided by a jury which was instructed by Judge Samuel Mandelbaum in accordance with this negligence standard. It found in favor of Tompkins and awarded him damages. The railroad appealed to the Second Circuit, which affirmed, then petitioned the Supreme Court for certiorari, which was granted; Justice Benjamin Cardozo granted the railroad a stay of its obligation to pay the judgment in Tompkins' favor until the Court decided the case.

 By the time the Supreme Court's decision in Erie was handed down, it had long been settled that when a federal court hears a state cause of action brought in federal district court in diversity, the statutory law of the state would be applied. However, in the case of Swift v. Tyson, 41 U.S. 1 (1842), the Supreme Court had held that the federal courts need not also apply the court-made common law of the states. This had led to forum shopping, a litigation tactic whereby plaintiffs would seek to sue in federal court instead of state court in order to have a different substantive law applied. In light of this inequity, the Supreme Court had to determine whether federal courts should apply state common law.
The Court, in an opinion by Associate Justice Brandeis, examined the manipulations and opportunistic practices of litigants that had resulted from the rule of Swift v. Tyson and determined that "in attempting to promote uniformity of law throughout the United States, the doctrine had prevented uniformity in the administration of the law of the state." This had the effect of denying litigants equal protection of the law.
In Swift, Justice Joseph Story had sought to interpret the Rules of Decision Act. This Act, which began as Section 34 of the Judiciary Act of 1789, is now codified at 28 U.S.C. § 1652 and is as follows:

The laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.

In the Swift decision, Story had interpreted the words "laws of the several States" narrowly, treating them as referring to only the statutory law of states and not the judge-made law declared by states' appellate courts. Thus, where the state legislature had not passed a statute that controlled the case, a federal district court was free to make up its own common law. This was enormously significant because nearly all U.S. contract and tort law consisted of (and still largely consists of) state judge-made law whose foundations lay in English common law running back to time immemorial. With Swift, Story gave federal courts the freedom to depart from the existing body of state law if they so desired.
Story apparently hoped that when hearing state law claims in diversity jurisdiction, federal district courts would fashion a uniform "general law." As interstate commerce continued to increase, the common law of the states would converge with such general federal common law because states would recognize it was in their own best interest.
By 1938, as Justice Brandeis acknowledged, "the mischievous results of the doctrine had become apparent." The problem with Swift was that rather than reducing forum shopping, it had only increased it by increasing the opportunities for forum shopping available to litigants. State judge-made law continued to diverge instead of converge. Allowing federal courts to make up their own independent judge-made law only made the problem worse. Parties who felt disadvantaged by a state judge-made rule could create diversity jurisdiction in the federal courts by simply moving to another state or reincorporating there (if a party was a corporation). In the worst cases a party who had lost in the state supreme court would simply begin all over again in federal courts; since the federal district court had its own set of common law rules, it could hold it was not bound by the state supreme court ruling. This practice was mentioned in dissent by Justice Holmes in Brown and Yellow Taxicab.
The facts of Erie itself were an example of the kind of clever forum shopping practices which the Court wished to end. Pennsylvania clearly had personal jurisdiction over the railroad because of its operations there; also, the accident happened there, and Tompkins was a Pennsylvania resident. But Tompkins chose to sue in a New York federal court to take advantage of its favorable rule — knowing that he had a much lower probability of obtaining a judgment in his favor under Pennsylvania's rule.
Therefore, the Court felt it was time to overrule the doctrine of Swift as an unconstitutional extension of its own powers. Nothing in the Constitution of the United States permits the U.S. Congress to empower federal courts to create their own common law for cases that do not involve an issue of federal law. As Justice Brandeis wrote:

Congress has no power to declare substantive rules of common law applicable in a state whether they be local in their nature or "general," be they commercial law or a part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts.

Thus, although the Erie decision itself does not identify specific provisions of the Constitution violated by Swift, the language of the decision implies that Swift had stolen powers reserved to the states, in violation of the Tenth Amendment. Justice Brandeis also noted problems for equal protection of the laws, but the Equal Protection Clause of the Fourteenth Amendment applies only to states, and the Fifth Amendment's Due Process Clause was not read to include an equal protection component until the 1954 decision in Bolling v. Sharpe.
As a result of Erie, each federal district court was required to apply the law of whichever state it was sitting in, as though it was a state court of that state. Of course, this was a very difficult decision for the Court, since overruling Swift meant that a huge number of decisions by the Court and all lower federal courts were no longer valid law.
However, the Court did not declare the Rules of Decision Act itself unconstitutional. Instead, it reinterpreted the Act so federal district courts hearing cases in diversity jurisdiction had to apply the entire law, both statutory and judge-made, of the states in which they sit.

All of that is beyond my legal understanding, but I thought it was notable considering the Court is looking at overturning another nearly 100 years of precedent.  This seems like a more reasonable federal position, but I could be misinterpreting that.  What do you lawyers out there think?