Law Applied by Federal Courts

Question 1

Explain how a court determines what law is applied to a case when it sits in diversity.

Answer 1

Federal courts sitting in diversity must apply federal law to procedural issues and state law to substantive issues. If a federal court is to apply state law to substantive issues, the federal court must apply the choice of law rules of the state in which the court sits. If the court does not know to apply federal law, the court examines whether this a federal law that directly addresses the issue. If there is a valid federal law, and the law is arguably procedural and does not modify a substantive right then the court should apply the federal law. If there is no federal law that addresses the issue, then the court should do an Erie analysis.

Question 2

What is an Erie analysis?

Answer 2

The court should determine if the state law is outcome determinative and if there is no countervailing federal policy interest. If it’s not, then the court should apply federal law. If there is, then the court should apply state law.