[326 U.S.] at 110
In May 1930 the Van Sweringen Corporation issued $30,000,000 in notes under an indenture naming Guaranty Trust Co. of New York as trustee with power to enforce noteholders' rights.1 In October 1930 Guaranty and other banks advanced large sums to companies affiliated with the Corporation and controlled by the Van Sweringens.2 When the Corporation could not meet its obligations, Guaranty participated in an exchange plan under which noteholders could surrender their notes for cash equal to 50 percent of face value plus twenty shares of Van Sweringen stock per $1,000 note; the offer remained open until December 15, 1931.3
In 1934 respondent York received $6,000 of the notes as a gift from a donor who had not accepted the exchange offer.4 In April 1940 three accepting noteholders filed the Hackner suit in federal court charging Guaranty with fraud and misrepresentation in connection with the exchange.5 York's motion to intervene was denied, and summary judgment for Guaranty was affirmed on appeal.6
On January 22, 1942, after her exclusion from the Hackner litigation, York filed the present class action in the United States District Court for the Southern District of New York on behalf of non-accepting noteholders.7 The complaint, resting exclusively on diversity of citizenship, alleged that Guaranty had breached its trust by failing to protect noteholders' interests when it assented to the exchange offer and by failing to disclose its own self-interest.8
The district court granted Guaranty's motion for summary judgment on the authority of the Hackner decision.9 The Circuit Court of Appeals reversed, holding that a federal court sitting in equity is not required to apply the New York statute of limitations that would govern an identical suit in the New York state courts.10 The Supreme Court granted certiorari.
Whether a federal court, exercising diversity jurisdiction in an equity suit, must apply a state statute of limitations that would bar recovery if the same action were brought in the courts of the state where the federal court sits?11
A federal court sitting in diversity must apply the same substantive law as would be applied if the case were brought in the state court of the state where the federal court is sitting.12 A statute of limitations that bars recovery is a matter of substance because it significantly affects the result of the litigation.13
Yes. The suit is a diversity action asserting a state-created right arising from the indenture and New York trust law.14 The New York statute of limitations would completely bar recovery in a state court.15 Because the statute concerns the very right to recover rather than merely the manner of enforcement, a federal court must apply it. This ensures that the outcome of the litigation is substantially the same as it would be in a state court a block away.16
A federal court, exercising diversity jurisdiction in an equity suit, must apply a state statute of limitations that would bar recovery if the same action were brought in the courts of the state where the federal court sits.17
Related opinions on this issue
Joined by Justice Murphy
Justice Rutledge dissented on the ground that statutes of limitations have long been regarded as remedial rather than substantive in equity suits.18 That tradition descended unbrokenly from the English Court of Chancery and was incorporated into the federal equity jurisdiction conferred by Congress.19 He maintained that the Erie doctrine should not be extended into this borderland area where procedural and substantive aspects mix without clear congressional direction.20
Any change in the long-settled practice should be left to Congress rather than effected by judicial decision.21