The Question Erie Left Open

Klaxon and State Choice of Law

The Question Erie Left Open

When a federal court hears a state-law claim because the parties are citizens of different states, it applies state substantive law, not a federal general common law. That is the command of Erie Railroad Co. v. Tompkins, which ended the older practice of federal judges forming their own view of the general common law.¹ The Court's reasoning was constitutional: Congress has no power to declare substantive rules of common law for a state, and no clause of the Constitution gives that power to the federal courts.² Erie serves here as background. What matters is the question it left unanswered: when a dispute touches more than one state, which state's law is “the law of the State”?

Erie settled the vertical choice, the choice between state law and federal law. A second choice arises whenever two or more states have a connection to the case and their laws differ.³ That choice is horizontal, because the court must pick between sovereigns of equal stature, two states.⁴ The stakes can be total, since a genuine conflict between two states' laws often means the life or death of the claim.⁵ The two questions come in sequence. Erie tells a diversity court that state law supplies the rule of decision; it does not tell the court which state's law that is. Each state has answered the horizontal question for itself, mostly through judicial decision rather than statute, and the answers now vary from state to state.⁶

Erie's own facts contain both layers. Tompkins was hurt in an accident in Pennsylvania, and his federal suit was pending in New York.⁷ The railroad argued that Pennsylvania law governed, and that under Pennsylvania decisions a person using a pathway along the right of way was a trespasser to whom the railroad owed no duty beyond avoiding wanton or willful harm. Tompkins denied that Pennsylvania courts had established any such rule and argued that, with no state statute on the subject, the railroad's duty was a matter of general law for the federal courts to determine.⁸ The Supreme Court reversed and remanded for application of Pennsylvania law. On remand the Court of Appeals held the railroad not liable, and Tompkins lost his $30,000 award.⁹ The Court never explained, however, why the relevant state was Pennsylvania rather than New York, where the federal court sat. Whether a federal court should fashion its own choice-of-law rules or follow those of the state where it sits was left unresolved.¹⁰

That silence supports two readings, and each points to a different rule for later cases.

1. The Court may have applied a federal choice-of-law doctrine and concluded on its own that an accident in Pennsylvania called for Pennsylvania law.
2. The Court may have assumed that a New York state court, applying New York's conflicts rules, would also have chosen Pennsylvania law, so that a federal court should follow the forum state's rules.

The Rules of Decision Act did not force either choice. It makes the laws of the several states rules of decision “in cases where they apply,” but it does not say which state's law applies in a given case.¹¹

On Erie's facts the gap did no harm. When the case was decided, virtually every state, New York included, applied the law of the place of the accident to tort claims. A New York state court would therefore have selected Pennsylvania law too, and both readings led to the same state.¹²

The readings part company when the forum's conflicts rule and a federal rule would select different states.

The divergence is no idle possibility. States have abandoned the shared place-of-the-accident rule: some courts still follow it, but others weigh the interests of the states involved or enforce a strong preference for forum law.¹³ The choice of whose conflicts rule to use then decides the case. If a federal court in New York picked among states by its own rule while a New York state court used New York's, a plaintiff choosing a courthouse would also be choosing the governing law. Erie found exactly that defect in Swift v. Tyson, where a plaintiff of diverse citizenship could select state or federal law by selecting the forum.¹⁴ The same defect now sat one layer deeper in the analysis.

The lower courts needed an answer. Some, among them the First Circuit in Sampson v. Channell, had already read Erie to require the forum state's choice-of-law rules. The Supreme Court settled the matter in 1941 in Klaxon Co. v. Stentor Electric Manufacturing Co., ruling that a federal court in a diversity case must apply the choice-of-law rules of the state in which it sits. The Court stressed vertical uniformity of result and the primacy of state courts in fashioning those rules.¹⁵ The next section takes that decision apart.