What did Erie actually decide, and why?
Erie overruled Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842), which had read the Rules of Decision Act (now 28 U.S.C. § 1652) to require federal courts to follow state statutes and local usages but not state judicial decisions on "general" commercial and common law questions. Justice Brandeis gave three reasons: Swift had failed to produce uniformity, it generated forum shopping and discrimination against in-state citizens (illustrated by Black & White Taxicab Co. v. Brown & Yellow Taxicab Co., 276 U.S. 518 (1928), where a corporation reincorporated in another state to get into federal court), and it rested on "an unconstitutional assumption of powers" by federal courts.
That last point matters for exams. Erie is not merely a statutory reading of § 1652; Brandeis grounded it in the limits of federal power under Articles I and III. Congress has no general power to make substantive common law for the states, and federal courts have no more. So "there is no federal general common law," though there remains federal common law in enclaves where federal interests demand it (admiralty, interstate disputes, obligations of the United States).
Erie applies whenever a federal court decides a state-law claim, not just in diversity cases. State-law claims heard under supplemental jurisdiction, 28 U.S.C. § 1367, or in bankruptcy are governed by the same principle.
How do you structure the analysis on an exam?
Ask first whether a federal directive is on point and in conflict with state law. Hanna v. Plumer, 380 U.S. 460 (1965), split the doctrine into two tracks, and everything after Hanna follows this order. Getting the order right is worth more points than any single case.
- Track 1 — a federal directive covers the issue: If the Constitution or a federal statute answers the question, it controls under the Supremacy Clause so long as it is constitutional (or, for statutes, within Congress's power and sufficiently broad to cover the point). See Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22 (1988) (28 U.S.C. § 1404(a) governs forum-selection-clause transfer despite contrary Alabama law).
- Track 1b — a Federal Rule of Civil or Appellate Procedure covers the issue: The Rule applies if it is valid under the Rules Enabling Act, 28 U.S.C. § 2072. Sibbach v. Wilson & Co., 312 U.S. 1 (1941), asks whether the Rule "really regulates procedure." No Federal Rule has ever been held invalid.
- Track 2 — no federal directive is on point ("unguided Erie"): Apply the outcome-determination test of Guaranty Trust Co. v. York, 326 U.S. 99 (1945), refined by Hanna's twin aims and by the federal-interest balancing of Byrd v. Blue Ridge Rural Elec. Coop., 356 U.S. 525 (1958).
When does a Federal Rule 'conflict' with state law?
The conflict question does most of the work, and courts frequently avoid conflict by reading the Federal Rule narrowly. Compare Hanna, where Rule 4's service provisions directly collided with a Massachusetts in-hand service requirement and the Rule won, with Walker v. Armco Steel Corp., 446 U.S. 740 (1980), where the Court held Rule 3 ("A civil action is commenced by filing a complaint") does not purport to toll state statutes of limitations, so Oklahoma's service-based tolling rule applied. Walker reaffirmed Ragan v. Merchants Transfer & Warehouse Co., 337 U.S. 530 (1949).
Where the Rule genuinely covers the ground, it governs. Burlington Northern R.R. v. Woods, 480 U.S. 1 (1987), applied Federal Rule of Appellate Procedure 38 over Alabama's mandatory 10% affirmance penalty. Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 559 U.S. 393 (2010), held Rule 23 governed class certification notwithstanding N.Y. C.P.L.R. § 901(b), which barred class actions for statutory penalties.
Shady Grove fractured. Justice Scalia's plurality would ask only whether the Rule regulates procedure, treating the Rules Enabling Act's "shall not abridge, enlarge or modify any substantive right" proviso as satisfied by a facially procedural rule. Justice Stevens, concurring in part and in the judgment, supplied the fifth vote on a narrower theory: a Federal Rule must yield when the state procedural rule is so intertwined with a state right or remedy that it defines the scope of that right. Many lower courts treat Stevens's opinion as controlling under Marks v. United States. Say so explicitly on an exam and then analyze under both approaches.
How does the unguided Erie track work?
York asked whether applying the federal practice would "significantly affect the result of a litigation," and held that a state statute of limitations must be applied in an equity action because it was outcome determinative. Taken literally, that test swallows everything; almost any procedural difference can change an outcome at the margin.
Hanna narrowed it. Outcome determination must be measured "at the time the choice of law is made," ex ante, in light of Erie's twin aims: discouraging forum shopping and avoiding the inequitable administration of the laws. Ask whether the difference between the state and federal practice is one that would have driven a rational plaintiff's forum choice at filing, and whether ignoring state law would give the federal litigant a windfall unavailable in state court.
Byrd adds a counterweight. Even a somewhat outcome-affecting state rule may yield if applying it would disrupt an "essential characteristic" of the federal judicial system — in Byrd, the federal allocation of fact-finding to juries. Gasperini v. Center for Humanities, Inc., 518 U.S. 415 (1996), shows the modern accommodation instinct: the Court had federal district judges apply New York's "deviates materially" standard for excessiveness on a new trial motion, while preserving abuse-of-discretion appellate review to respect the Seventh Amendment's Reexamination Clause.
Which state's law applies, and how do you find it?
Conflict-of-laws rules are substantive for Erie purposes, so a federal court applies the choice-of-law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). After a § 1404(a) transfer, the transferee court applies the law the transferor court would have applied, Van Dusen v. Barrack, 376 U.S. 612 (1964), and that holds even when the plaintiff sought the transfer, Ferens v. John Deere Co., 494 U.S. 516 (1990). A § 1406 transfer from an improper venue does not carry the transferor's law.
The content of state law is set by the state's highest court; a federal court is bound by its decisions. Comm'r v. Estate of Bosch, 387 U.S. 456 (1967) (in the analogous context of state-court property determinations, treating the highest court's rulings as controlling and lower court decisions as evidence, not binding). When the highest court has not spoken, you make an "Erie guess": predict how it would rule, giving intermediate appellate decisions substantial weight unless there is persuasive reason to think the high court would disagree. Most states have a certification procedure allowing a federal court of appeals — and in some states a district court — to certify a determinative, unsettled question to the state supreme court. Whether certification is available and who may certify varies by state; check the state's rule or statute.
Note also Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2001): the claim-preclusive effect of a federal diversity judgment is governed by federal common law, but that federal rule ordinarily adopts the preclusion law of the state where the federal court sits.
Which issues are 'substantive' in practice?
Labels are useless; the doctrine is issue-by-issue. Still, some allocations are settled enough to state as rules.
State law ordinarily governs: statutes of limitations and their tolling and commencement rules, elements of claims and defenses, the burden of proof and presumptions on state-law elements, damages caps and standards for excessiveness, choice of law, statutes of frauds, and rules conditioning a state-created right (such as certain security-for-expenses requirements, Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (1949)).
Federal law ordinarily governs: pleading standards under Rules 8, 9, and 12, joinder, discovery, summary judgment standards under Rule 56, service of process under Rule 4, jury trial allocation and jury-demand practice, and the mechanics of trial and appeal. Rule 11 sanctions apply in place of state sanctioning rules.
How is Erie usually tested?
The classic fact pattern gives you a diversity case, a state rule that looks procedural but is embedded in a state statute, and a Federal Rule that arguably covers the same ground. The high-value moves are: identify the precise issue, state the two tracks in order, take a position on whether a Federal Rule is genuinely on point (and argue the Walker-style narrowing reading as an alternative), run the Rules Enabling Act analysis under both Scalia and Stevens, and only then reach the twin aims and Byrd.
Do not skip the conflict step to get to balancing. And do not run outcome determination in the abstract — anchor it to a plaintiff choosing between state and federal court on the day of filing.