2013년 6월 29일 토요일

« PIPSELF’s 2012-2013 Executive Editorial BoardSAG-AFTRA Merger Consolidates Performers’ Unions » A Promise is Not Always a Promise: “Representations,” “Warranties” and “Covenants” Through the Lens of a Recording Agreement. Apr 12th, 2012 by lciaramella BY: DOUGLAS DONESON Every day people sign contracts. For example, a contract must be signed at a Rent-a-car Company in order to rent a car, at a doctor’s office in order to see the doctor, and at a leasing office in order to rent an apartment. Frequently the recipients of services of the above mentioned contracts do not understand all of the terms of the contract that they are signing. Generally, all they know is that they will receive their desired service if they sign the contract. The contract terms “representations, warranties, and covenants” are common and often overlooked in contracts, but they provide the fundamental structure of a contract and thus require understanding from both parties to a contract. One reason the terms “representations, warranties, and covenants” are overlooked is because at first glance these three terms appear redundant; by and large, all three terms imply a promise. The second possible reason little regard is given to these three important words is because the word “covenant” feels ancient and comes off as antiquated and irrelevant. Contrary to these misconceptions, the three terms “representations, warranties, and covenants” have individual significance. Further, today, the word “covenant” has just as much significance as it did in Jacob’s dream when God appeared and made four promises.[1] The key difference among these three words is temporal—past and present for representations; past, present but mainly future for warranties; and mainly future for covenants.[2] The remedies for a false representation, breach of warranty or violation of a covenant also have differed.[3] For these basic reasons it is important to know the significance and individual meaning of these three terms in order to properly implement them. Representations Traditionally, a representation precedes and induces a contract.[4] A representation is information in an express or implied statement that one party to the contract makes to the other before or at the time the contract is entered into regarding a past or existing fact.[5] An example might be that prior to signing with a record label, an artist in a recording agreement represents that he is currently not signed to any other label. Typically, a remedy for false representation is not a claim for damages under the contract. Instead, the proper approach for misrepresentation that induces a contract would be a claim for fraud in order to rescind the contract or for damages.[6] In contracts, representations can function as a “condition” or as a “warranty.” If the representation functions as a condition, it would entitle the party that relied on the condition to repudiate the contract if it was discovered that the condition was false. For example, while signing a recording agreement with a record label, a person represents that he is a famous independent artist. But after signing, the label discovered that this person is a law student and not a famous independent artist. In this situation, the record label would be entitled to repudiate the contract. In contrast, if the representation in a contract functioned as a “warranty,” which was discovered to be false, it might only rise to a claim of damages. For example, while signing a recording agreement with a record label, “Hip Hop Artist” warrants that he will provide the record label with a hip hop album. But “Hip Hop Artist” records a nu metal album instead. Here, the record label might not be entitled to repudiate the whole contract. Warranties Warranties are promises that appear on the face of a contract.[7] They may include representations, agreements or promises that a proposition of fact is true at the time of the contract and will be true in the future.[8] Although some warranties, such as a warranty of merchantability, are implied, the language creating an express warranty need not contain special phrases or formal words such as guarantee or warranty.[9] Warranties provide for obligations that are absolute and are imposed as a matter of law irrespective of whether the seller knew or should have known of the falsity of his representations.[10] This is significant because it serves as an assurance that a product is as promised.[11] A warranty is equivalent in effect to a promise that the warranting party will indemnify the other if the assurances are not satisfied. For example, if an artist signed to a label warrants to provide one album of original songs, but instead delivers an album of cover songs without first clearing the licenses for those songs, then the artist would be in breach of warranty and the label would be indemnified from any copyright claim involving the covered songs, since the artist warranted to deliver to the record label, an album consisting of original songs. A warranty is distinguishable from a representation in several different ways: (1) a warranty is an essential part of a contract, while a representation is usually only a collateral inducement, (2) an express warranty is usually written on the fact of a contract, while a representation may be written or oral, (3) a warranty is conclusively presumed to be material, while the burden is on the party claiming breach to show that a representation is material, and (4) a warranty must be strictly complied with, while substantial truth is the only requirement for a representation.[12] A key distinction, not listed above, is that justifiable reliance is an element for a misrepresentation claim.[13] In a warranty claim, the state of mind to whom the warranty is given is not pertinent.[14] Thus a party may enforce a warranty even if the beneficiary knows the warranty will be breached.[15] Due to the insignificance of a beneficiary’s state of mind in a warranty claim, a seller will sometimes add a generic as-is clause to a contract to disclaim any warranties that might otherwise accompany the respective contract.[16] Although representations and warranties are substantively distinguishable, both bridge the information gap between parties to a contract.[17] Representations and warranties are most useful when one party is relying on information about the other party that is much more difficult for the former party to determine than it is for the latter party.[18] Covenants Historically, a covenant was in a sealed document that was self authenticating, and witnesses were not required to establish the terms in the document.[19] Today, covenants are generally formal agreements or promises in a written contract, and are usually agreements relating to property.[20] Covenants are usually secondary to the main reason for the contract.[21] Sometimes they arise as an undertaking to do or not to do something in the future. For example, an artist is signed to a label and the recording agreement between the two parties provides for a 360 deal. This might be considered a covenant between the record label and the artist. Conclusion Please be aware that a promise is not always a promise. As seen here, “representations,” “warranties” and “covenants” each have their own unique implications. [1] The Bible, Genesis 28:12-15 (Covenant with Jacob) [2] Marc Primack, Representations, Warranties and Covenants: Back to the Basics in Contracts, The National Law Review, http://www.natlawreview.com/article/representations-warranties-and-covenants-back-to-basics-contracts (last visited Apr. 4, 2012) [3] Id. [4] Id. [5] Id. [6] Id. [7] Id. [8] Id. [9] Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286 (6th Cir. 1982). [10] Mary Pickford Co. v. Bayly Bros., 12 Cal. 2d 501, 86 P.2d 102 (1939). [11] Primack, supra note 2. [12] Black’s Law Dictionary, 772 col. 1. (3rd ed. 2006) [13] Primack, supra note 2. [14] Id. [15] Id. [16] CAL. COM CODE. ANN. § 2316 [17] Common Contract Terms: Representations, Warranties and Covenants, VC Ready Law Group, LLC, http://www.vcreadylaw.com/blog/2009/10/29/common-contract-terms-representations-warranties-and-covenants/ (last visited Apr. 4, 2012) [18] Id. [19] Primack, supra note 2. [20] Id. [21] Id. Posted in Contracts, Music, Recording Trackback URI | Comments RSS Leave a Reply Name (required) Mail (hidden) (required) Website Recent Posts The Expansion of the First Sale Doctrine SCOTUS Decides on the Patentability of Genes Copyright Termination Rights: Giving Artists Their Second Bite at the Apple Intellectual Property Woes for Pharmaceutical Companies in India Redskins: Until Further Notice Beware of the Ides of March … Madness Photographer’s Potential Copyright Infringement Claim Leads to Summer Camp for Kids The Death of a Musician: A Sea Change in Sports Hazing? 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« PIPSELF’s 2012-2013 Executive Editorial Board

SAG-AFTRA Merger Consolidates Performers’ Unions »

A Promise is Not Always a Promise: “Representations,” “Warranties” and “Covenants” Through the Lens of a Recording Agreement.

Apr 12th, 2012 by lciaramella

BY: DOUGLAS DONESON

Every day people sign contracts. For example, a contract must be signed at a Rent-a-car Company in order to rent a car, at a doctor’s office in order to see the doctor, and at a leasing office in order to rent an apartment. Frequently the recipients of services of the above mentioned contracts do not understand all of the terms of the contract that they are signing. Generally, all they know is that they will receive their desired service if they sign the contract.

The contract terms “representations, warranties, and covenants” are common and often overlooked in contracts, but they provide the fundamental structure of a contract and thus require understanding from both parties to a contract. One
reason the terms “representations, warranties, and covenants” are overlooked is because at first glance these three terms appear redundant; by and large, all three terms imply a promise. The second possible reason little regard is given to these three important words is because the word “covenant” feels ancient and comes off as antiquated and irrelevant. Contrary to these misconceptions, the three terms “representations, warranties, and covenants” have individual significance. Further, today, the word “covenant” has just as much significance as it did in Jacob’s dream when God appeared and made four promises.[1]

The key difference among these three words is temporal—past and present for representations; past, present but mainly future for warranties; and mainly future for covenants.[2] The remedies for a false representation, breach of warranty or violation of a covenant also have differed.[3] For these basic reasons it is important to know the significance and individual meaning of these three terms in order to properly implement them.

Representations

Traditionally, a representation precedes and induces a contract.[4] A representation is information in an express or implied statement that one party to the contract makes to the other before or at the time the contract is entered into regarding a past or existing fact.[5] An example might be that prior to signing with a record label, an artist in a recording agreement represents that he is currently not signed to any other label.

Typically, a remedy for false representation is not a claim for damages under the contract. Instead, the proper approach for misrepresentation that induces a contract would be a claim for fraud in order to rescind the contract or for damages.[6] In contracts, representations can function as a “condition” or as a “warranty.” If the representation functions as a condition, it would entitle the party that relied on the condition to repudiate the contract if it was discovered that the condition was false. For example, while signing a recording agreement with a record label, a person represents that he is a famous independent artist. But after signing, the label discovered that this person is a law student and not a famous independent artist. In this situation, the record label would be entitled to repudiate the contract. In contrast, if the representation in a contract functioned as a “warranty,” which was discovered to be false, it might only rise to a claim of damages. For example, while signing a recording agreement with a record label, “Hip Hop Artist” warrants that he will provide the record label with a hip hop album. But “Hip Hop Artist” records a nu metal album instead. Here, the record label might not be entitled to repudiate the whole contract.

Warranties

Warranties are promises that appear on the face of a contract.[7] They may include representations, agreements or promises that a proposition of fact is true at the time of the contract and will be true in the future.[8] Although some warranties, such as a warranty of merchantability, are implied, the language creating an express warranty need not contain special phrases or formal words such as guarantee or warranty.[9]

Warranties provide for obligations that are absolute and are imposed as a matter of law irrespective of whether the seller knew or should have known of the falsity of his representations.[10] This is significant because it serves as an assurance that a product is as promised.[11] A warranty is equivalent in effect to a promise that the warranting party will indemnify the other if the assurances are not satisfied. For example, if an artist signed to a label warrants to provide one album of original songs, but instead delivers an album of cover songs without first clearing the licenses for those songs, then the artist would be in breach of warranty and the label would be indemnified from any copyright claim involving the covered songs, since the artist warranted to deliver to the record label, an album consisting of original songs.

A warranty is distinguishable from a representation in several different ways:

(1) a warranty is an essential part of a contract, while a representation is usually only a collateral inducement, (2) an express warranty is usually written on the fact of a contract, while a representation may be written or oral, (3) a warranty is conclusively presumed to be material, while the burden is on the party claiming breach to show that a representation is material, and (4) a warranty must be strictly complied with, while substantial truth is the only requirement for a
representation.[12]

A key distinction, not listed above, is that justifiable reliance is an element for a misrepresentation claim.[13] In a warranty claim, the state of mind to whom the warranty is given is not pertinent.[14] Thus a party may enforce a warranty even if the beneficiary knows the warranty will be breached.[15] Due to the insignificance of a beneficiary’s state of mind in a warranty claim, a seller will sometimes add a generic as-is clause to a contract to disclaim any warranties that might otherwise accompany the respective contract.[16]

Although representations and warranties are substantively distinguishable, both bridge the information gap between parties to a contract.[17] Representations and warranties are most useful when one party is relying on information about the other party that is much more difficult for the former party to determine than it is for the latter party.[18]

Covenants

Historically, a covenant was in a sealed document that was self authenticating, and witnesses were not required to establish the terms in the document.[19] Today, covenants are generally formal agreements or promises in a written contract, and are usually agreements relating to property.[20] Covenants are usually secondary to the main reason for the contract.[21] Sometimes they arise as an undertaking to do or not to do something in the future. For example, an artist is signed to a label and the recording agreement between the two parties provides for a 360 deal. This might be considered a covenant between the record label and the artist.

Conclusion

Please be aware that a promise is not always a promise. As seen here, “representations,” “warranties” and “covenants” each have their own unique implications.

[1] The Bible, Genesis 28:12-15 (Covenant with Jacob)

[2] Marc Primack, Representations, Warranties and Covenants: Back to the Basics in Contracts, The National Law Review, http://www.natlawreview.com/article/representations-warranties-and-covenants-back-to-basics-contracts
(last visited Apr. 4, 2012)

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Overstreet v. Norden Laboratories, Inc., 669 F.2d 1286 (6th Cir. 1982).

[10] Mary Pickford Co. v. Bayly Bros., 12 Cal. 2d 501, 86 P.2d 102 (1939).

[11] Primack, supra note 2.

[12] Black’s Law Dictionary, 772 col. 1. (3^rd ed. 2006)

[13] Primack, supra note 2.

[14] Id.

[15] Id.

[16] CAL. COM CODE. ANN. § 2316

[17] Common Contract Terms: Representations, Warranties and Covenants, VC Ready Law Group, LLC,http://www.vcreadylaw.com/blog/2009/10/29/common-contract-terms-representations-warranties-and-covenants/ (last visited Apr. 4, 2012)

[18] Id.

[19] Primack, supra note 2.

[20] Id.

[21] Id.

Posted in Contracts, Music, Recording

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he Difference Between a Representation, Warranty, Covenant and Condition Vocabulary: The Difference Between a Representation, Warranty, Covenant and Condition Representation. A "representation" is made to induce you into a contractual relationship. Failure of a representations to be true is generally a breach of a contact; if material, it may result in the ability to rescind the contract. Usually, a representation would be thought of as being made at a certain point in time, but it is possible for it to be ongoing. Usually one side is responsible for a representation to another (but there could be reciprocal representations). Example: Representations regarding originality Warranty. A "warranty" is an ongoing promise that a state of facts will be true. Failure of a warranty to be true is generally a breach of a contact. In many cases, the remedy for a breach of warranty (for sale of goods, etc.) would be an attempt to cure; and if cure is not possible, a refund. Usually a warranty is for a set period of time; if the facts become untrue in that period of time there is a breach. Usually one side is responsible for a warranty to another (but there could be reciprocal warranties). Example: Warranty of performance Covenant. A "covenant" is an promise to do an act (or, refrain from doing an act (a "negative covenant")). Failure of a covenant to be performed does not necessarily result in rescission, but could result in damages. Usually one side is responsible for a covenant to another (but there could be reciprocal covenants). Example: Promise to deliver a manuscript Condition. A "condition" is a statement about a set of facts, which if true or false has consequences. Failure of a condition to be true is not necessarily a breach, but can result in a consequence such as termination. A condition could be based on one or both sides' actions, or it could be based on an independent fact of which neither is capable of influencing. Example: Termination at the end of five years. Agreement. An "agreement" as contrasted to a covenant, is an agreement about a set of facts; it is a mutual understanding and therefore is not subject to breach as such. It could be thought of as a mutual covenant not to challenge a shared assumption. Neither side is per-se responsible if the "agreement" is contrary to actual fact, but they do agree to abide by it. Example: choice of law Sections of a license agreement can be divided according to the above classification: Section Kind of Term Grant Covenant with conditions (license = covenant not to sue to enforce IP right, conditional on specified use) Delivery and Support Covenants Payment Covenants Representations and Warranties Representation or Warranty Indemnification (for infringement?) Covenant based on Conditions Termination Conditions General Agreement, but could be anything Log inPageDiscussionReadView sourceView history Navigation Main Page Current Assignment Current Class Notes Detailed Schedule Collected Cases Collected Agreements Current events Recent changes Help Toolbox What links here Related changes Special pages Printable version Permanent link This page was last modified on 7 February 2012, at 15:53. This page has been accessed 1,939 times. Privacy policyAbo

he Difference Between a Representation, Warranty, Covenant and Condition

Vocabulary: The Difference Between a Representation, Warranty, Covenant and Condition

Representation. A "representation" is made to induce you into a contractual relationship. Failure of a representations to be true is generally a breach of a contact; if material, it may result in the ability to rescind the contract. Usually, a representation would be thought of as being made at a certain point in time, but it is possible for it to be ongoing. Usually one side is responsible for a representation to another (but there could be reciprocal representations).

Example: Representations regarding originality

Warranty. A "warranty" is an ongoing promise that a state of facts will be true. Failure of a warranty to be true is generally a breach of a contact. In many cases, the remedy for a breach of warranty (for sale of goods, etc.) would be an attempt to cure; and if cure is not possible, a refund. Usually a warranty is for a set period of time; if the facts become untrue in that period of time there is a breach. Usually one side is responsible for a warranty to another (but there could be reciprocal warranties).

Example: Warranty of performance

Covenant. A "covenant" is an promise to do an act (or, refrain from doing an act (a "negative covenant")). Failure of a covenant to be performed does not necessarily result in rescission, but could result in damages. Usually one side is responsible for a covenant to another (but there could be reciprocal covenants).

Example: Promise to deliver a manuscript

Condition. A "condition" is a statement about a set of facts, which if true or false has consequences. Failure of a condition to be true is not necessarily a breach, but can result in a consequence such as termination. A condition could be based on one or both sides' actions, or it could be based on an independent fact of which neither is capable of influencing.

Example: Termination at the end of five years.

Agreement. An "agreement" as contrasted to a covenant, is an agreement about a set of facts; it is a mutual understanding and therefore is not subject to breach as such. It could be thought of as a mutual covenant not to challenge a shared assumption. Neither side is per-se responsible if the "agreement" is contrary to actual fact, but they do agree to abide by it.

Example: choice of law

Sections of a license agreement can be divided according to the above classification:

Section	Kind of Term
Grant	Covenant with conditions (license = covenant not to sue to enforce IP right, conditional on specified use)
Delivery and Support	Covenants
Payment	Covenants
Representations and Warranties	Representation or Warranty
Indemnification (for infringement?)	Covenant based on Conditions
Termination	Conditions
General	Agreement, but could be anything

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The Difference Between a Representation, Warranty, Covenant and Condition Vocabulary: The Difference Between a Representation, Warranty, Covenant and Condition Representation. A "representation" is made to induce you into a contractual relationship. Failure of a representations to be true is generally a breach of a contact; if material, it may result in the ability to rescind the contract. Usually, a representation would be thought of as being made at a certain point in time, but it is possible for it to be ongoing. Usually one side is responsible for a representation to another (but there could be reciprocal representations). Example: Representations regarding originality Warranty. A "warranty" is an ongoing promise that a state of facts will be true. Failure of a warranty to be true is generally a breach of a contact. In many cases, the remedy for a breach of warranty (for sale of goods, etc.) would be an attempt to cure; and if cure is not possible, a refund. Usually a warranty is for a set period of time; if the facts become untrue in that period of time there is a breach. Usually one side is responsible for a warranty to another (but there could be reciprocal warranties). Example: Warranty of performance Covenant. A "covenant" is an promise to do an act (or, refrain from doing an act (a "negative covenant")). Failure of a covenant to be performed does not necessarily result in rescission, but could result in damages. Usually one side is responsible for a covenant to another (but there could be reciprocal covenants). Example: Promise to deliver a manuscript Condition. A "condition" is a statement about a set of facts, which if true or false has consequences. Failure of a condition to be true is not necessarily a breach, but can result in a consequence such as termination. A condition could be based on one or both sides' actions, or it could be based on an independent fact of which neither is capable of influencing. Example: Termination at the end of five years. Agreement. An "agreement" as contrasted to a covenant, is an agreement about a set of facts; it is a mutual understanding and therefore is not subject to breach as such. It could be thought of as a mutual covenant not to challenge a shared assumption. Neither side is per-se responsible if the "agreement" is contrary to actual fact, but they do agree to abide by it. Example: choice of law Sections of a license agreement can be divided according to the above classification: Section Kind of Term Grant Covenant with conditions (license = covenant not to sue to enforce IP right, conditional on specified use) Delivery and Support Covenants Payment Covenants Representations and Warranties Representation or Warranty Indemnification (for infringement?) Covenant based on Conditions Termination Conditions General Agreement, but could be anything

The Difference Between a Representation, Warranty, Covenant and Condition

Vocabulary: The Difference Between a Representation, Warranty, Covenant and Condition

Example: Representations regarding originality

Example: Warranty of performance

Example: Promise to deliver a manuscript

Example: Termination at the end of five years.

Example: choice of law

Sections of a license agreement can be divided according to the above classification:

Section	Kind of Term
Grant	Covenant with conditions (license = covenant not to sue to enforce IP right, conditional on specified use)
Delivery and Support	Covenants
Payment	Covenants
Representations and Warranties	Representation or Warranty
Indemnification (for infringement?)	Covenant based on Conditions
Termination	Conditions
General	Agreement, but could be anything

2013년 6월 28일 금요일

Supreme Court of California Search Home > Opinions > Boeken v. Philip Morris CITATION 48 CAL. 4TH 788, 230 P.3D 342, 108 CAL. RPTR. 3D 806 Boeken v. Philip Morris SUMMARYOPINIONDOCKETBRIEFSANNOTATIONMEDIA Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issue: Did the doctrine of res judicata bar plaintiff's claim for noneconomic damages in a wrongful death action after her husband died, because she had dismissed with prejudice a claim for loss of consortium while he was alive?

Home > Opinions > Boeken v. Philip Morris

CITATION 48 CAL. 4TH 788, 230 P.3D 342, 108 CAL. RPTR. 3D 806

Boeken v. Philip Morris

Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issue: Did the doctrine of res judicata bar plaintiff's claim for noneconomic damages in a wrongful death action after her husband died, because she had dismissed with prejudice a claim for loss of consortium while he was alive?

Civil Procedure Outline - Erie Doctrine Abridged Erie In diversity cases in federal court, the court must apply federal procedural law but state substantive law, including state-created common law…mostly. (Erie and RDA) Analysis tracks… State law vs. federal statute (authority from Supremacy Clause)/FRCP (authority from REA 2072)… Is the statute/FRCP is sufficiently broad to control the issue before the court? Does it "occupy the field"? Is it "sufficiently broad to control the issue before the court"? (Walker, Stewart) If so, does the statute/FRCP represent a valid exercise of Congress' authority under the Constitution? (Hanna) For FRCPs, is it "arguably procedural" and will using not "abridge, enlarge, or modify a substantive right"? (REA, used in Sibbach) If passes all of these questions, statute/FRCP controls. State law vs. federal procedural common law (laches, "shocks the conscience")(authority from RDA 1652)… Is the judge-made federal rule broad enough to cover the circumstances? (rules are often interpreted narrowly to avoid conflict, Gasperini, Walker) No. Follow state rule. Yes. Is the federal rule at least arguably procedural (and fall in line with federal statutes and rules)? No. Follow state rule. Yes. Would following the federal rule be outcome-determinative AND encourage forum-shopping? (refined outcome-determinative test, "twin aims of Erie", from Hanna) Yes. Would federal policy trump the application of state law under Byrd balancing ("countervailing factors", Byrd)? Yes. Apply judge-made federal rule. No. Apply state rule. No. Apply judge-made federal rule. Full Erie Pre-Erie The Rules of Decision Act If a federal statute, constitutional provision, or treaty applies, it will provide the governing law. Otherwise, federal courts should apply relevant state law. Swift v. Tyson The RDA refers only to state statutes, not to the common law decisions of state courts. In cases where no federal statute or state statute applies, courts do not have to rely on state common law decisions; they can look to the common law of any state or even treatises for authority. Problems Federal courts in diversity cases could reach their own decisions about the proper rule in common law cases, even if those conclusions contradicted the governing case law of the state in which they sat. An out-of-state party to a state action has a distinct advantage. If out-of-state law favored the out-of-state party, they could sue in that state court. The in-state defendant can't remove in diversity cases (1441(b)), so they are stuck in that state court. If federal courts applied a more favorable rule, the out-of-state party could sue in federal court. There is no right to remove from federal to state court. Thus, the out-of-state party has a choice of different rules since it has a choice of two different court systems. Erie Holding SCOTUS held that Swift's interpretation of the RDA led to an unconstitutional assumption of power by the federal courts since they were making state law through these diversity cases. The RDA must be interpreted to require federal courts to apply not only the state statutes, but also the common law of the state in a diversity case. In federal question cases, if a state claim is brought in through supplemental jurisdiction, the federal court must still apply state law to that claim even though federal law will apply to the federal claim. Early issues How should a federal court apply state law if there are conflicting state court decisions about the issue at hand? SCOTUS ruled that district courts should use the "supreme court predictive" approach; federal judges should try to predict what the high state court would say. A federal judge should very rarely make the prediction that a state supreme court case would be overruled. How should a federal court proceed if there is no precedent at all on the issue? In the same vein, the court should try to predict what state appellate courts would say. As an aside, if the issue were to come up after the diversity ruling, the state court is not bound to follow the federal judge's decision; the state court may take it into account in his decision, but he is not bound to follow it. Which state's law should a federal court use in diversity cases? Every state has choice-of-law rules to deal with this problem. From Klaxon, federal diversity courts should use the choice-of-law rules of the state in which it sits. Thus, a NY federal court should apply whatever state substantive law the New York state court would apply to the case. This reasoning was based on the fact that Erie mandated that the case should come out the same way in federal court as it would in the state court of the state where the federal court sat. This could create forum-shopping since a party could choose the federal court in a state with a choice-of-law provision that would benefit them. The Klaxon court recognized this risk but shrugged it off as inevitable. Post Erie Changes Guaranty Trust Co. v. York Outcome-determinative test The choice of state or federal court in a diversity case should not affect the outcome of the case. Thus, if federal practice differs from state practice, the court should determine whether the case would come out differently if it applied its own rule. If it would, a federal diversity court should use the state rule instead. Problems with York York mandated deference to state law even in areas where there was constitutional authority to make a separate federal rule. Article III, Section 2 of the Constitution, together with the Necessary and Proper Clause, provide constitutional authority for federal courts to apply their own rules on matters of procedure, like the method of service of process. York, however, required deference to state law even in matters of litigation procedure under the outcome-determinative test. Where the federal court could, constitutionally, apply its own rule, and is making a discretionary policy decision whether to apply state law to ensure uniform outcomes, the court may balance that uniformity policy against other policies. Byrd v. Blue Ridge Other policies might outweigh the uniformity policy posited by Erie and York. In cases leading up to Byrd, diversity courts had applied state rules even in matters having to do with procedure in conducting the litigation under the outcome-determinative test, but they have constitutional authority to follow a separate federal practice. The York policy of uniform outcomes must be considered along with other policies, which might sometimes outweigh the uniformity policy. For example, the division of functions between judge and jury in federal cases, under the influence of the 7th Amendment, was an important consideration supporting the use of federal procedure in federal court in diversity cases. Since the state law was not "bound up with rights and obligations of the parties" (in which case the federal could would have to defer to it), the Court could consider "affirmative countervailing considerations." Byrd did not overrule York, it merely said that balancing was necessary in matters relating to procedure. Only if important federal policies would be compromised by following state rules might the federal court choose to follow a federal procedural rule in the face of a contrary state rule. Hanna v. Plumer Court recognized two different tracks. Conflicts between state law and federal judicial practices (not a federal statute or a Federal Rule) York dealt with judicial practice of applying laches; Byrd dealt with the judicial practice of having the jury decide all factual issues. There was no Federal Rule involved. Of course, in pure substantive matters or those bound up in substantive rights, state law must apply. For grey areas, Hanna prescribed a more focused version of the York outcome-determinative test to decide between state law and federal judicial practices which are not a part of the FRCP. The court should consider whether applying the federal approach rather than the state rule would lead to (1) forum shopping and (2) "inequitable administration of the laws" (significantly different litigation opportunities for diversity litigants than for those who must proceed in state court). The Court said that the question of equitable administration should be viewed prospectively. In other words, would the litigant before filing suit have greater litigation opportunities in federal court if that court followed its own practice instead of state law? In the instant case, the Court said that if the service rule in question were a judicial practice and not a part of the FRCP, state law would not have to be used since the federal approach would only require the P to serve process in a slightly different manner, a difference too slight to affect her choice of forum or provide unfair advantages to diverse Ps over non-diverse Ps. This analysis was dicta, however, because the issue in Hanna dealt directly with a FRCP Rule. Conflicts between state law and the Federal Rules of Civil Procedure The Federal Rules were adopted by SCOTUS, under authority delegated to it by Congress in the Rules Enabling Act (28 USC 2072). The REA requires that the Rules created by the Court be "arguably procedural" and not "abridge, enlarge, or modify any substantive right." For conflicts involving a Federal Rule, the question is whether the Court had the power to adopt the Rule. It must be broadly procedural (under Sibbach) and must not alter substantive rights. If it meets this two-part test, the Rule is valid and will apply, even if it leads to a different outcome from what the P would obtain in state court. So, if the conflict involves a federal judicial practice, the "modified outcome determinative test" of Hanna I applies, If it involves a conflict between state law and a FRCP Rule, the question under Hanna II is whether the Court had the power to write the rule (i.e. procedural and not alter substantive rights). Clarifications on Hanna (requirement of "direct conflicts" with FRCP Rules) Walker v. Armco Steel Corp. State practice provided that the P must file suit within the limitations period and serve process in the action on the D within 60 days to avoid being barred. Under FRCP Rule 3, an action is "commenced by filing a complaint with the court." If Rule 3 provides that filing the complaint satisfies the limitations period, an action might be barred under state law but timely under the Federal Rule. The Court avoided this problem by holding that FRCP Rule 3 did not directly address the issue of meeting the limitations period and does not affect state statutes of limitations. Thus, since there was no "direct collision" between the state rule and FRCP Rule 3, Hanna I analysis through the "modified outcome-determinative test" applies. It seems likely that if there is a logical limiting construction that avoids a direct conflict, the court will lean towards that construction (and Hanna I analysis). Gasperini v. Center for Humanities SCOTUS held that the standard used for judges to review damages created a conflict between state procedural law ("materially deviates" from reasonable compensation) and federal common procedural law ("shocks the conscience"), does not fall under Rule 59; thus, track 3 analysis is necessary. Track three analysis -- Is the judge-made rule broad enough to cover the circumstances? No. Follow state rule. Yes. Is it at least arguably procedural (and fall in line with federal statutes and rules)? No. Follow state rule. Yes. Would following the rule be outcome-determinative AND encourage forum-shopping? Yes. Would federal policy trump the application of state law under Byrd balancing? Yes. Apply judge-made rule. No. Apply state rule. No. Apply judge made rule. Court found that following the federal common procedural would be outcome-determinative and encourage forum shopping (Hanna). Since federal policy would not trump the application of state law (Byrd), the state standard was used.

Civil Procedure Outline - Erie Doctrine

Abridged Erie

In diversity cases in federal court, the court must apply federal procedural law but state substantive law, including state-created common law…mostly. (Erie and RDA) Analysis tracks…

State law vs. federal statute (authority from Supremacy Clause)/FRCP (authority from REA 2072)…

Is the statute/FRCP is sufficiently broad to control the issue before the court? Does it "occupy the field"? Is it "sufficiently broad to control the issue before the court"? (Walker, Stewart)
If so, does the statute/FRCP represent a valid exercise of Congress' authority under the Constitution? (Hanna)
For FRCPs, is it "arguably procedural" and will using not "abridge, enlarge, or modify a substantive right"? (REA, used in Sibbach)

If passes all of these questions, statute/FRCP controls.

State law vs. federal procedural common law (laches, "shocks the conscience")(authority from RDA 1652)…

Is the judge-made federal rule broad enough to cover the circumstances? (rules are often interpreted narrowly to avoid conflict, Gasperini, Walker)

No. Follow state rule.
Yes. Is the federal rule at least arguably procedural (and fall in line with federal statutes and rules)?

No. Follow state rule.
Yes. Would following the federal rule be outcome-determinative AND encourage forum-shopping? (refined outcome-determinative test, "twin aims of Erie", from Hanna)

Yes. Would federal policy trump the application of state law under Byrd balancing ("countervailing factors", Byrd)?

Yes. Apply judge-made federal rule.
No. Apply state rule.

No. Apply judge-made federal rule.

Full Erie

Pre-Erie

The Rules of Decision Act

If a federal statute, constitutional provision, or treaty applies, it will provide the governing law.
Otherwise, federal courts should apply relevant state law.

Swift v. Tyson

The RDA refers only to state statutes, not to the common law decisions of state courts.
In cases where no federal statute or state statute applies, courts do not have to rely on state common law decisions; they can look to the common law of any state or even treatises for authority.
Problems

Federal courts in diversity cases could reach their own decisions about the proper rule in common law cases, even if those conclusions contradicted the governing case law of the state in which they sat.
An out-of-state party to a state action has a distinct advantage.

If out-of-state law favored the out-of-state party, they could sue in that state court. The in-state defendant can't remove in diversity cases (1441(b)), so they are stuck in that state court.
If federal courts applied a more favorable rule, the out-of-state party could sue in federal court. There is no right to remove from federal to state court.

Thus, the out-of-state party has a choice of different rules since it has a choice of two different court systems.

Erie

Holding

SCOTUS held that Swift's interpretation of the RDA led to an unconstitutional assumption of power by the federal courts since they were making state law through these diversity cases.
The RDA must be interpreted to require federal courts to apply not only the state statutes, but also the common law of the state in a diversity case.
In federal question cases, if a state claim is brought in through supplemental jurisdiction, the federal court must still apply state law to that claim even though federal law will apply to the federal claim.

Early issues

How should a federal court apply state law if there are conflicting state court decisions about the issue at hand?

SCOTUS ruled that district courts should use the "supreme court predictive" approach; federal judges should try to predict what the high state court would say.
A federal judge should very rarely make the prediction that a state supreme court case would be overruled.

How should a federal court proceed if there is no precedent at all on the issue?

In the same vein, the court should try to predict what state appellate courts would say.
As an aside, if the issue were to come up after the diversity ruling, the state court is not bound to follow the federal judge's decision; the state court may take it into account in his decision, but he is not bound to follow it.

Which state's law should a federal court use in diversity cases?

Every state has choice-of-law rules to deal with this problem. From Klaxon, federal diversity courts should use the choice-of-law rules of the state in which it sits.
Thus, a NY federal court should apply whatever state substantive law the New York state court would apply to the case.

This reasoning was based on the fact that Erie mandated that the case should come out the same way in federal court as it would in the state court of the state where the federal court sat.
This could create forum-shopping since a party could choose the federal court in a state with a choice-of-law provision that would benefit them. The Klaxon court recognized this risk but shrugged it off as inevitable.

Post Erie Changes

Guaranty Trust Co. v. York

Outcome-determinative test

The choice of state or federal court in a diversity case should not affect the outcome of the case.
Thus, if federal practice differs from state practice, the court should determine whether the case would come out differently if it applied its own rule. If it would, a federal diversity court should use the state rule instead.

Problems with York

York mandated deference to state law even in areas where there was constitutional authority to make a separate federal rule.
Article III, Section 2 of the Constitution, together with the Necessary and Proper Clause, provide constitutional authority for federal courts to apply their own rules on matters of procedure, like the method of service of process. York, however, required deference to state law even in matters of litigation procedure under the outcome-determinative test.
Where the federal court could, constitutionally, apply its own rule, and is making a discretionary policy decision whether to apply state law to ensure uniform outcomes, the court may balance that uniformity policy against other policies.

Byrd v. Blue Ridge

Other policies might outweigh the uniformity policy posited by Erie and York.

In cases leading up to Byrd, diversity courts had applied state rules even in matters having to do with procedure in conducting the litigation under the outcome-determinative test, but they have constitutional authority to follow a separate federal practice.
The York policy of uniform outcomes must be considered along with other policies, which might sometimes outweigh the uniformity policy.
For example, the division of functions between judge and jury in federal cases, under the influence of the 7th Amendment, was an important consideration supporting the use of federal procedure in federal court in diversity cases.
Since the state law was not "bound up with rights and obligations of the parties" (in which case the federal could would have to defer to it), the Court could consider "affirmative countervailing considerations."

Byrd did not overrule York, it merely said that balancing was necessary in matters relating to procedure.

Only if important federal policies would be compromised by following state rules might the federal court choose to follow a federal procedural rule in the face of a contrary state rule.

Hanna v. Plumer

Court recognized two different tracks.

Conflicts between state law and federal judicial practices (not a federal statute or a Federal Rule)

York dealt with judicial practice of applying laches; Byrd dealt with the judicial practice of having the jury decide all factual issues. There was no Federal Rule involved.
Of course, in pure substantive matters or those bound up in substantive rights, state law must apply.
For grey areas, Hanna prescribed a more focused version of the York outcome-determinative test to decide between state law and federal judicial practices which are not a part of the FRCP.

The court should consider whether applying the federal approach rather than the state rule would lead to (1) forum shopping and (2) "inequitable administration of the laws" (significantly different litigation opportunities for diversity litigants than for those who must proceed in state court).
The Court said that the question of equitable administration should be viewed prospectively. In other words, would the litigant before filing suit have greater litigation opportunities in federal court if that court followed its own practice instead of state law?
In the instant case, the Court said that if the service rule in question were a judicial practice and not a part of the FRCP, state law would not have to be used since the federal approach would only require the P to serve process in a slightly different manner, a difference too slight to affect her choice of forum or provide unfair advantages to diverse Ps over non-diverse Ps.
This analysis was dicta, however, because the issue in Hanna dealt directly with a FRCP Rule.

Conflicts between state law and the Federal Rules of Civil Procedure

The Federal Rules were adopted by SCOTUS, under authority delegated to it by Congress in the Rules Enabling Act (28 USC 2072).
The REA requires that the Rules created by the Court be "arguably procedural" and not "abridge, enlarge, or modify any substantive right."
For conflicts involving a Federal Rule, the question is whether the Court had the power to adopt the Rule. It must be broadly procedural (under Sibbach) and must not alter substantive rights.
If it meets this two-part test, the Rule is valid and will apply, even if it leads to a different outcome from what the P would obtain in state court.

So, if the conflict involves a federal judicial practice, the "modified outcome determinative test" of Hanna I applies, If it involves a conflict between state law and a FRCP Rule, the question under Hanna II is whether the Court had the power to write the rule (i.e. procedural and not alter substantive rights).

Clarifications on Hanna (requirement of "direct conflicts" with FRCP Rules)

Walker v. Armco Steel Corp.

State practice provided that the P must file suit within the limitations period and serve process in the action on the D within 60 days to avoid being barred. Under FRCP Rule 3, an action is "commenced by filing a complaint with the court."
If Rule 3 provides that filing the complaint satisfies the limitations period, an action might be barred under state law but timely under the Federal Rule.
The Court avoided this problem by holding that FRCP Rule 3 did not directly address the issue of meeting the limitations period and does not affect state statutes of limitations.
Thus, since there was no "direct collision" between the state rule and FRCP Rule 3, Hanna I analysis through the "modified outcome-determinative test" applies.
It seems likely that if there is a logical limiting construction that avoids a direct conflict, the court will lean towards that construction (and Hanna I analysis).

Gasperini v. Center for Humanities

SCOTUS held that the standard used for judges to review damages created a conflict between state procedural law ("materially deviates" from reasonable compensation) and federal common procedural law ("shocks the conscience"), does not fall under Rule 59; thus, track 3 analysis is necessary.

Track three analysis --

Is the judge-made rule broad enough to cover the circumstances?

No. Follow state rule.
Yes. Is it at least arguably procedural (and fall in line with federal statutes and rules)?

No. Follow state rule.
Yes. Would following the rule be outcome-determinative AND encourage forum-shopping?

Yes. Would federal policy trump the application of state law under Byrd balancing?

Yes. Apply judge-made rule.
No. Apply state rule.

No. Apply judge made rule.

Court found that following the federal common procedural would be outcome-determinative and encourage forum shopping (Hanna). Since federal policy would not trump the application of state law (Byrd), the state standard was used.

| Home | Contracts I Outline | Torts Outline | Civil Procedure I Outline The Erie Doctrine Law School Help Back: Personal Jurisdiction The Erie Doctrine – A federal court, when exercising diversity jurisdiction (or supplemental jurisdiction), must apply the substantive law of the state in which it is sitting. However, federal courts will apply federal procedural law in these diversity cases. A state law claim sitting in federal court. I. Swift v Tyson (1842) - held that federal courts were free to apply the law so as to reach a result they thought was justice regardless of state common law. Overturned by Erie. II. Erie Railroad v. Tompkins (1938) A. Plaintiff walking alongside RR tracks when his right arm was severed by an object protruding from defendant's train; this happened in PA. Plaintiff filed a lawsuit in NY Fed. Court, b/c more favorable for plaintiff. The issue was what level of duty is owed to a trespasser. If PA law applied then only "wanton negligence" created liability, & no recovery. If "federal common law" applied the plaintiff could recover if the railroad was guilty of "ordinary" negligence. B. Erie held that federal courts in diversity actions apply the substantive law of the state in which they sit. In diversity actions federal courts must treat the decisions of the state courts in the jurisdiction in which they sit as a source of law. I.e., a federal court in a diversity case must apply the same law that the state court would apply. There is no longer a "federal common law," a federal court must apply the common law of the state. The rule of Erie serves the purposes of discouraging forum shopping and avoiding the unfair administration of laws (i.e., avoiding the potential for state and federal courts sitting in the same state reaching different outcomes based on the same facts.) III. If there is a federal law (statute, Federal Rule of Civ Pro, etc.) on point, then federal law will apply, provided that it is valid. A. Ex. Federal Rule 4 permits substituted service of process. Suppose that state law (of the state in which the federal court sits) does not permit substituted service. The court will apply the Federal Rule, because it is on point and is valid. A Federal Rule of Civil Procedure is valid if it is “arguably procedural.” i. Hanna v. Plumer (1965) – Hanna, from Ohio, sued the estate of Osgood, from Massachusetts, over a car accident in South Carolina. Hanna served process by leaving documents with the wife of the executor, which complied with the FRCP, but not Massachusetts law. The issue was whether a civil action brought in federal court based on diversity jurisdiction, shall service of process be based on the FRCP or on state law. 1. Erie had established that substantive issues (when it’s the elements of a claim or defense at issue) would use the state law. 2. In Hanna, the law was procedural, not substantive (service of process). 3. Supremacy Clause - if federal law is on point, then it trumps state law, as long as it is valid. FRCP is very likely to be valid.. a. Rules Enabling Act establishes that FRCP good i. Rules Enabling Act prevents litigants from challenging the validity of constitutional Federal Rules via the Erie Doctrine, but the rules shall not infringe on substantive right 4. So, ok to use federal law on the service of process issue in Hanna. IV. If there is no Federal Directive on point, a federal judge can still choose to ignore state law, but it depends if the issue is substantive or procedural A. Substantive – then must follow state law (Erie Problem) B. Procedural – here is where it becomes a problem. Courts had never really defined this, but has given three ways to approach the problem i. Outcome-Determinative Test - holds that an issue is substantive if it substantially affects the outcome of the case 1. Guaranty Trust Co. v. York (1945) – In Guaranty Trust the issue was whether a federal court in a diversity case must apply the state statute of limitations (procedural), which would have barred the suit in state court. Court used the "outcome determinative test." A state law which is normally regarded as "procedural" should be applied by a federal court in a diversity case if it would, or could, vitally affect the outcome of the case. a. Guaranty Trust redefined the Erie doctrine. The intent of Erie was to insure that where a federal court is exercising jurisdiction solely because of diversity, the outcome of the litigation in federal court should be substantially the same as it would be if tried in State court. Goal is to avoid reaching a different result in federal court than would otherwise be had in state court. If applying federal law would mean a different outcome, state law controls therefore state statute of limitations applies. ii. Balance of Interests Test – the court weighs whether the state or federal judicial system has the greater interest in having its rule applied. 1. Byrd v. Blue Ridge Electric Cooperative, Inc. (1958) – Byrd brought a tort claim against Blue Ridge. Byrd working as independent contractor, but Blue Ridge says for purposes of the worker’s compensation act he was an employee, b/c he was doing same work as an employee. Issue is who determines if plaintiff falls under workman’s comp? In SC it would the judge. Under federal law, it was a matter for the jury. This is a procedural issue. a. Under the outcome-determinative test, the court would have to use state law. However, court found that the possibility of a different outcome was less important than the right to a jury trial (7th amendment). Therefore, court doesn’t want to use the outcome-determinative test, and establishes the balance of interests test instead. The federal interest outweighs any state interest, so plaintiff should get a jury trial. b. But problem with Byrd - never really been told how to apply it. iii. Forum Shopping Deterrence test – the federal judge should follow state law on the issue if failing to do so would cause litigants to flock to federal court. 1. Hanna v. Plumer (1965) – a. Under the outcome-determinative test the defendant would win i. Court here says that the outcome-determinative test from Guaranty is not absolute because there were more basic principles of Erie. 1. The Twin aims of Erie were to avoid Forum shopping and the unfair differences in administration of justice between state and federal courts. ii. Court says that while the outcome of the current case is determined by which law is applied, the rights in question are not substantial enough to create problems of unequal protection. 1. The Court says that the competing rules, though outcome-determinative, have little or no relevance to the choice of a forum. You wouldn’t decide to file in state versus federal court based solely on the choice between these two laws. 2. In the current case the federal and state laws are in direct conflict. The court has been instructed to follow the Federal Rule in these cases and there is no constitutional reason not to do so. iii. In short, outcome determinative judgments are important for deciding if a state or federal rule applies but in the current case denying the federal rule would remove any power whatsoever the federal courts have over their procedures. V. Interpreting State Law – when fed court bound to apply state substantive law A. If state court has not decided the issue, or if the decisions on point are old and not current with decisions of other jurisdictions, then fed court may consider the law of other jurisdictions in reaching its decision. The focus of the federal court is to determine what decision the highest court of the state would reach if confronted with the issue. Next: Why am I here? Incentives to Litigate; Remedies Back to Home Back to Civil Procedure I Outline

| | | |

The Erie Doctrine

Law School Help

Back: Personal Jurisdiction

The Erie Doctrine – A federal court, when exercising diversity jurisdiction (or supplemental jurisdiction), must apply the substantive law of the state in which it is sitting. However, federal courts will apply federal procedural law in these diversity cases. A state law claim sitting in federal court.

I. Swift v Tyson (1842) - held that federal courts were free to apply the law so as to reach a result they thought was justice regardless of state common law. Overturned by Erie.

II. Erie Railroad v. Tompkins (1938)

A. Plaintiff walking alongside RR tracks when his right arm was severed by an object protruding from defendant's train; this happened in PA. Plaintiff filed a lawsuit in NY Fed. Court, b/c more favorable for plaintiff. The issue was what level of duty is owed to a trespasser. If PA law applied then only "wanton negligence" created liability, & no recovery. If "federal common law" applied the plaintiff could recover if the railroad was guilty of "ordinary" negligence.

B. Erie held that federal courts in diversity actions apply the substantive law of the state in which they sit. In diversity actions federal courts must treat the decisions of the state courts in the jurisdiction in which they sit as a source of law. I.e., a federal court in a diversity case must apply the same law that the state court would apply. There is no longer a "federal common law," a federal court must apply the common law of the state. The rule of Erie serves the purposes of discouraging forum shopping and avoiding the unfair administration of laws (i.e., avoiding the potential for state and federal courts sitting in the same state reaching different outcomes based on the same facts.)

III. If there is a federal law (statute, Federal Rule of Civ Pro, etc.) on point, then federal law will apply, provided that it is valid.

A. Ex. Federal Rule 4 permits substituted service of process. Suppose that state law (of the state in which the federal court sits) does not permit substituted service. The court will apply the Federal Rule, because it is on point and is valid. A Federal Rule of Civil Procedure is valid if it is “arguably procedural.”

i. Hanna v. Plumer (1965) – Hanna, from Ohio, sued the estate of Osgood, from Massachusetts, over a car accident in South Carolina. Hanna served process by leaving documents with the wife of the executor, which complied with the FRCP, but not Massachusetts law. The issue was whether a civil action brought in federal court based on diversity jurisdiction, shall service of process be based on the FRCP or on state law.

1. Erie had established that substantive issues (when it’s the elements of a claim or defense at issue) would use the state law.

2. In Hanna, the law was procedural, not substantive (service of process).

3. Supremacy Clause - if federal law is on point, then it trumps state law, as long as it is valid. FRCP is very likely to be valid..

a. Rules Enabling Act establishes that FRCP good

i. Rules Enabling Act prevents litigants from challenging the validity of constitutional Federal Rules via the Erie Doctrine, but the rules shall not infringe on substantive right

4. So, ok to use federal law on the service of process issue in Hanna.

IV. If there is no Federal Directive on point, a federal judge can still choose to ignore state law, but it depends if the issue is substantive or procedural

A. Substantive – then must follow state law (Erie Problem)

B. Procedural – here is where it becomes a problem. Courts had never really defined this, but has given three ways to approach the problem

i. Outcome-Determinative Test - holds that an issue is substantive if it substantially affects the outcome of the case

1. Guaranty Trust Co. v. York (1945) – In Guaranty Trust the issue was whether a federal court in a diversity case must apply the state statute of limitations (procedural), which would have barred the suit in state court. Court used the "outcome determinative test." A state law which is normally regarded as "procedural" should be applied by a federal court in a diversity case if it would, or could, vitally affect the outcome of the case.

a. Guaranty Trust redefined the Erie doctrine. The intent of Erie was to insure that where a federal court is exercising jurisdiction solely because of diversity, the outcome of the litigation in federal court should be substantially the same as it would be if tried in State court. Goal is to avoid reaching a different result in federal court than would otherwise be had in state court. If applying federal law would mean a different outcome, state law controls therefore state statute of limitations applies.

ii. Balance of Interests Test – the court weighs whether the state or federal judicial system has the greater interest in having its rule applied.

1. Byrd v. Blue Ridge Electric Cooperative, Inc. (1958) – Byrd brought a tort claim against Blue Ridge. Byrd working as independent contractor, but Blue Ridge says for purposes of the worker’s compensation act he was an employee, b/c he was doing same work as an employee. Issue is who determines if plaintiff falls under workman’s comp? In SC it would the judge. Under federal law, it was a matter for the jury. This is a procedural issue.

a. Under the outcome-determinative test, the court would have to use state law. However, court found that the possibility of a different outcome was less important than the right to a jury trial (7^th amendment). Therefore, court doesn’t want to use the outcome-determinative test, and establishes the balance of interests test instead. The federal interest outweighs any state interest, so plaintiff should get a jury trial.

b. But problem with Byrd - never really been told how to apply it.

iii. Forum Shopping Deterrence test – the federal judge should follow state law on the issue if failing to do so would cause litigants to flock to federal court.

1. Hanna v. Plumer (1965) –

a. Under the outcome-determinative test the defendant would win

i. Court here says that the outcome-determinative test from Guaranty is not absolute because there were more basic principles of Erie.

1. The Twin aims of Erie were to avoid Forum shopping and the unfair differences in administration of justice between state and federal courts.

ii. Court says that while the outcome of the current case is determined by which law is applied, the rights in question are not substantial enough to create problems of unequal protection.

1. The Court says that the competing rules, though outcome-determinative, have little or no relevance to the choice of a forum. You wouldn’t decide to file in state versus federal court based solely on the choice between these two laws.

2. In the current case the federal and state laws are in direct conflict. The court has been instructed to follow the Federal Rule in these cases and there is no constitutional reason not to do so.

iii. In short, outcome determinative judgments are important for deciding if a state or federal rule applies but in the current case denying the federal rule would remove any power whatsoever the federal courts have over their procedures.

V. Interpreting State Law – when fed court bound to apply state substantive law

A. If state court has not decided the issue, or if the decisions on point are old and not current with decisions of other jurisdictions, then fed court may consider the law of other jurisdictions in reaching its decision. The focus of the federal court is to determine what decision the highest court of the state would reach if confronted with the issue.

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