In ruling that under the Rules of Decision Act, federal courts were to proceed if multistate lawsuits occurred, the Supreme Court not only overturned one of its previous decisions but also declared it to have been unconstitutional.

The Supreme Court decided Erie by an 8-0 vote (Benjamin N. Cardozo did not participate), but the three separate concurrences by Justices Pierce Butler, James C. McReynolds, and Stanley F. Reed weakened the impact of this decision. The issue in this case is complicated and still partially unresolved. The Court has diversity jurisdiction if it is faced by lawsuits in which the parties are citizens of different states and often subject to different laws. Because it would be unfair to choose one state’s law over another arbitrarily, the Judiciary Act of 1789Judiciary Act of 1789 provided that “the laws of the several states…shall be regarded as rules of decision in trials at common law” in federal courts. This provision, known as the Rules of Decision Act in contemporary law, indicates that federal courts should follow state “substantive” law in cases where diversity jurisdiction occurs but does not establish clearly the appropriate sources of state law.Diversity jurisdiction;Erie Railroad Co. v. Tompkins[Erie Railroad Co. v. Tompkins]

Erie is one of a number of attempts to resolve the matter, which remains the subject of some confusion. An earlier attempt can be found in Justice Joseph Story’s opinion in Swift v. Tyson[case]Swift v. Tyson[Swift v. Tyson] (1842), in which he held that the federal courts should use the various statutes and real property laws but should rely on general doctrines or principles of commercial law for contracts and commercial transactions. This in effect created a federal common law, but this was problematic. After the middle of the nineteenth century, this common law expanded dramatically as did the power of the federal courts. When coupled with substantive due process and freedom of contract, the Swift decision was often used to nullify federal and state attempts to regulate corporations.

In this politically and economically charged atmosphere, Justice Louis D. Brandeis asserted in his opinion for the Court that there was no “federal general common law,” thereby declaring the Swift ruling unconstitutional. However, this did not end the matter, as even Brandeis found it necessary to recognize the necessity of some types of specialized federal common law. Several attempts to establish guidelines have failed to fully resolve this matter.

Common law, federal

Diversity jurisdiction

Federalism

Swift v. Tyson