{"id":31039,"date":"2016-04-04T20:33:42","date_gmt":"2016-04-05T01:33:42","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/constitution\/article3\/annotation18.html"},"modified":"2024-08-15T19:37:54","modified_gmt":"2024-08-16T00:37:54","slug":"annotation18","status":"publish","type":"constitution","link":"https:\/\/constitution.findlaw.com\/article3\/annotation18.html","title":{"rendered":"Diversity Jurisdiction Under Article III"},"content":{"rendered":"\n<div class=\"wp-container-core-columns-is-layout-9d6595d7  fl-block-columns fl-sectionWithSidebar fl-container fl-flex fl-flex-wrap fl-gap30\">\n    \n    <div class=\"fl-page-articles   fl-block-column fl-section-main fl-section-main-full-width\">\n        <h1 class=\"fl-no-margin-top\">Diversity Jurisdiction Under Article III<\/h1>\n<section class=\"fl-gutenberg-byline\">\n    <div class=\"fl-gutenberg-byline-content\">\n                    By <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/samuel-strom-j-d\/\" rel=\"noopener\">Samuel Strom, J.D.<\/a> | Legally reviewed by <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/laura-temme-esq\/\" rel=\"noopener\">Laura Temme, Esq.<\/a>\n                | Last reviewed\n        <time>\n                            August 15, 2024\n                    <\/time>\n    <\/div>\n\n    \n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-legally-reviewed\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Legally Reviewed\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>This article has been written and reviewed for legal accuracy, clarity, and style by <a href=\"https:\/\/www.findlaw.com\/company\/our-team.html\" rel=\"noopener\">FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with <a href=\"https:\/\/www.findlaw.com\/company\/company-history\/editorial-policy.html\" rel=\"noopener\">our editorial standards<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n\n    <details class=\"fl-gutenberg-byline-toggle fl-gutenberg-byline-fast-checked\">\n        <summary>\n            <i class=\"fl-gutenberg-byline-icon\" aria-hidden=\"true\"><\/i>\n            Fact-Checked\n        <\/summary>\n\n        <div class=\"fl-gutenberg-byline-toggle-content\">\n            <p><em>The last updated date refers to the last time this article was reviewed by FindLaw or one of our <a href=\"https:\/\/www.findlaw.com\/company\/our-team\/contributing-authors.html\" rel=\"noopener\">contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please <a href=\"https:\/\/lawyers.findlaw.com\/?fli=bylinelink\" rel=\"noopener\">contact an attorney in your area<\/a>.<\/em><\/p>\n\n        <\/div>\n    <\/details>\n<\/section>\n    <div class=\"fl-callout-text article-blockquote\">\n        <p>Diversity jurisdiction allows a plaintiff to file (or a defendant to remove) their case in federal court. It requires complete diversity between parties to the lawsuit, and the amount in controversy must exceed $75,000.<\/p>\n\n    <\/div>\n\n<p>Article III of the U.S. Constitution grants federal courts jurisdiction over &quot;cases and controversies.&quot;&nbsp;More specifically, the Supreme Court has interpreted <a href=\"https:\/\/constitution.findlaw.com\/article3.html\">Article III, Section 2, Clause 1<\/a> to mean <a href=\"https:\/\/constitution.findlaw.com\/article1.html\">Congress<\/a> may grant <a href=\"https:\/\/dictionary.findlaw.com\/definition\/jurisdiction.html\" rel=\"noopener\">jurisdiction<\/a> to federal courts in certain circumstances.<\/p>\r\n<p>One of these circumstances allows courts to hear cases between citizens of different states. This type of jurisdiction \u2014 diversity jurisdiction \u2014 is one of two ways federal courts may hear disputes.<\/p>\r\n<p>Generally, courts may exercise diversity jurisdiction when the following factors are met:<\/p>\r\n<ul>\r\n<li>The <a href=\"https:\/\/dictionary.findlaw.com\/definition\/plaintiff.html\" rel=\"noopener\">plaintiffs<\/a> and <a href=\"https:\/\/dictionary.findlaw.com\/definition\/defendant.html\" rel=\"noopener\">defendants<\/a> are all citizens of different states (i.e., the parties have \u201ccomplete diversity\u201d), and<\/li>\r\n<li>The amount in dispute exceeds $75,000.<\/li>\r\n<\/ul>\r\n<p>Although diversity jurisdiction may seem relatively straightforward, it can get tricky.<\/p>\r\n<p>For example, if someone has homes in different states, in which state are they a citizen? What about a company whose principal place of business is in Virginia but does business in every state? And what happens if there are multiple plaintiffs and defendants in a lawsuit?<\/p>\r\n<p>This article begins by providing a brief description of&nbsp;state and federal courts. It then summarizes diversity jurisdiction and its nuances. It also provides historical background about diversity jurisdiction and the landmark Supreme Court case regarding it.<\/p>\r\n<h2><b>Federal vs. State Courts<\/b><\/h2>\r\n<p>Before exploring diversity jurisdiction, it may help to understand the <a href=\"https:\/\/www.findlaw.com\/litigation\/filing-a-lawsuit\/federal-or-state-court-subject-matter-jurisdiction.html\" rel=\"noopener\">federal and state court systems<\/a> in the United States. These separate court systems have different functions, structures, and jurisdictions.<\/p>\r\n<p>Jurisdiction refers to a court\u2019s authority to hear&nbsp;a dispute, apply the law, and render a decision. If a court does not have jurisdiction over a dispute or the litigants, it cannot render a decision. As noted above, Article III allows Congress to grant jurisdiction to federal courts.<\/p>\r\n<p>A court must generally have two types of jurisdiction before it can review and decide a&nbsp;case:<\/p>\r\n<ul>\r\n<li><b>Subject matter jurisdiction<\/b> refers to jurisdiction over the&nbsp;events giving rise to the lawsuit (e.g., a car accident or contract dispute)<\/li>\r\n<li><b>Personal jurisdiction<\/b> refers to jurisdiction over the parties to the lawsuit (e.g., does the court have jurisdiction over the plaintiffs and defendants?)<\/li>\r\n<\/ul>\r\n<p>The following sections provide brief descriptions of federal and state courts. For more in-depth information, see FindLaw&#8217;s article <a href=\"https:\/\/www.findlaw.com\/litigation\/filing-a-lawsuit\/federal-or-state-court-subject-matter-jurisdiction.html\" rel=\"noopener\">Federal or State Court: Subject Matter Jurisdiction<\/a>.<\/p>\r\n<h3><b>Federal Courts<\/b><\/h3>\r\n<p>The <a href=\"https:\/\/www.findlaw.com\/litigation\/legal-system\/us-federal-court-system.html\" rel=\"noopener\">U.S. federal court system<\/a> consists of the following courts:<\/p>\r\n<ul>\r\n<li>U.S. District Courts<\/li>\r\n<li>Circuit Courts of Appeals<\/li>\r\n<li>The U.S. Supreme Court<\/li>\r\n<\/ul>\r\n<p>Federal courts have limited jurisdiction. Article III allows Congress to limit the jurisdiction of federal courts to specific types of cases.<\/p>\r\n<p>Federal courts have federal question jurisdiction and diversity jurisdiction. Federal question jurisdiction refers to cases that arise under federal law.&nbsp;Diversity jurisdiction allows parties from different states to&nbsp;file claims in federal court if the amount in dispute exceeds $75,000.<\/p>\r\n<p>Federal courts also have exclusive jurisdiction over several types of cases, including:<\/p>\r\n<ul>\r\n<li><a href=\"https:\/\/www.findlaw.com\/bankruptcy.html\" rel=\"noopener\">Bankruptcy cases<\/a><\/li>\r\n<li><a href=\"https:\/\/www.findlaw.com\/smallbusiness\/intellectual-property\/patent-law-how-do-i-secure-a-patent.html\" rel=\"noopener\">Patent law disputes<\/a><\/li>\r\n<li>Cases against the United States government<\/li>\r\n<\/ul>\r\n<h3><b>State Courts<\/b><\/h3>\r\n<p>Each state has its own court system. The court systems differ between states. Typically, a state court system consists of the following:<\/p>\r\n<ul>\r\n<li>A trial court<\/li>\r\n<li>An intermediate appellate court<\/li>\r\n<li>The state\u2019s highest court (often called a state supreme court)<\/li>\r\n<\/ul>\r\n<p>Most litigants will file their civil cases in the state court system. State trial courts are typically courts of general jurisdiction. This means the court has jurisdiction to hear any dispute unless another court has jurisdiction over it.<\/p>\r\n<h2><b>Federal Diversity Jurisdiction Explained<\/b><\/h2>\r\n<p>Federal diversity jurisdiction allows litigants to file civil actions in a federal district court. To do so, they must meet the following requirements:<\/p>\r\n<ul>\r\n<li>Complete diversity of citizenship between the parties to the case<\/li>\r\n<li>The amount in dispute (i.e., the claimed relief) exceeds $75,000<\/li>\r\n<\/ul>\r\n<p>These requirements are described in more depth below.<\/p>\r\n<h3><b>Complete Diversity of Citizenship<\/b><\/h3>\r\n<p>Complete diversity means that a party on one side of a lawsuit cannot share state citizenship with a party on the other side (<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/7\/267.html\" rel=\"noopener\"><i>Strawbridge v. Curtiss<\/i><\/a>&nbsp;(1806)). If all parties on each side of the lawsuit are citizens of different states, the plaintiffs may file their case in federal court (assuming their claim exceeds $75,000). Complete diversity also applies to lawsuits involving citizens of foreign states.<\/p>\r\n<p>Courts analyze where a party <a href=\"https:\/\/dictionary.findlaw.com\/definition\/domicile.html\" rel=\"noopener\">domiciles<\/a> to determine whether it is a citizen of the state. A natural person may only domicile in one state.<\/p>\r\n<p>Keep in mind that domicile and residence are not the same thing. A person\u2019s domicile is where they have their \u201c<a href=\"https:\/\/casetext.com\/case\/stine-v-moore\" rel=\"noopener\">true, fixed, and permanent home<\/a>.\u201d<\/p>\r\n<p>Another way to think of domicile is where a person \u201cintends to return\u201d when they are absent from it. Even if someone says they domicile in a state, courts analyze a person\u2019s actions and intentions when they determine domicile for diversity purposes. A <a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/232\/619.html\" rel=\"noopener\">1914 Supreme Court case<\/a> notes that someone can change their domicile \u201cin an instant\u201d because intent is part of the domicile calculus.<\/p>\r\n<h3><b>Litigation Between Natural Persons<\/b><\/h3>\r\n<p>Complete diversity is relatively straightforward in litigation between two people. If the plaintiff and the defendant are citizens of different states, they satisfy the diversity requirement.<\/p>\r\n<p>In litigation involving more than two parties, complete diversity may be harder to satisfy. To satisfy complete diversity, no party on one side of the case may share citizenship with any party on the other side of the case.<\/p>\r\n<p>For example, suppose 10 plaintiffs sue 10 defendants in a single case. All 10 plaintiffs are Nevada citizens, and all 10 defendants are Arizona citizens. In that case, complete diversity is satisfied. However, if even one defendant was a Nevada citizen, the plaintiffs could not file a case in federal court based on diversity jurisdiction.<\/p>\r\n<h3><b>Litigation Between Legal Entities<\/b><\/h3>\r\n<p>The rules for determining citizenship for a <a href=\"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/the-small-business-partnership-general-and-limited-partnerships.html\" rel=\"noopener\">partnership<\/a>, business, or <a href=\"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/what-is-a-corporation-.html\" rel=\"noopener\">corporation<\/a> are more complicated. Corporations are considered citizens in their state of incorporation and where their principal place of business is located. The Supreme Court has referred to a principal place of business as a company\u2019s \u201cnerve center.\u201d (<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/08-1107.html\" rel=\"noopener\"><i>Hertz Corp. v. Friend<\/i><\/a>&nbsp;(2010)).<\/p>\r\n<p>Unincorporated entities, like partnerships and unions, do not follow the same rules as corporations. Instead, the court considers each member\u2019s citizenship when determining whether diversity exists (<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/177\/449.html\" rel=\"noopener\"><i>Great Southern Fireproof Hotel Co. v. Jones<\/i><\/a> (1900)).<\/p>\r\n<h3><b>Class Action Lawsuits<\/b><\/h3>\r\n<p>A&nbsp;<a href=\"https:\/\/www.findlaw.com\/litigation\/legal-system\/class-action-cases.html\" rel=\"noopener\">class action lawsuit<\/a>&nbsp;involves a named plaintiff who sues a defendant on their own behalf and on behalf of a group of people who alleged the defendant caused them similar injuries. Class sizes vary but sometimes consist of thousands of members.<\/p>\r\n<p>The<a href=\"https:\/\/supreme.findlaw.com\/legal-commentary\/the-class-action-fairness-act-of-2005.html\" rel=\"noopener\"> Class Action Fairness Act of 2005<\/a> (CAFA) provides that courts may&nbsp;exercise diversity jurisdiction to hear class action lawsuits so long as \u201cminimal diversity\u201d exists. The court&nbsp;<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/255\/356.html\" rel=\"noopener\">only considers the named plaintiff\u2019s citizenship<\/a>&nbsp;for diversity purposes. Therefore, class members may share citizenship with the defendant.<\/p>\r\n<h3><b>Amount in Controversy<\/b><\/h3>\r\n<p>Per&nbsp;<a href=\"https:\/\/codes.findlaw.com\/us\/title-28-judiciary-and-judicial-procedure\/28-usc-sect-1332\/\" rel=\"noopener\">28 U.S.C. \u00a7 1332<\/a>, federal courts may only exercise diversity jurisdiction over disputes in which the relief claimed&nbsp;<i>exceeds<\/i>&nbsp;$75,000 in value. Therefore, if the plaintiff claims exactly $75,000.00, the court cannot exercise jurisdiction over the dispute.<\/p>\r\n<p>CAFA&nbsp;also sets a $5 million amount in controversy requirement for class action lawsuits. Class members cannot&nbsp;<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/394\/332.html\" rel=\"noopener\">aggregate the value of their claims<\/a>&nbsp;to satisfy the requirement.<\/p>\r\n<p>The amount in controversy requirement does not include interest and costs.<\/p>\r\n<h2><b>Examples<\/b><\/h2>\r\n<p>To better understand federal diversity jurisdiction, consider the following examples:<\/p>\r\n<h3><b>Scenario #1<\/b><\/h3>\r\n<p>Adam and Zach were involved in a car accident in Minnesota. Adam is a Minnesotan, and Zach is an Iowan.<\/p>\r\n<p>Adam files a civil lawsuit against Zach in a federal district court in Minnesota. Adam claims $100,000 worth of property damage and medical bills stemming from the accident.<\/p>\r\n<p>The court can hear the case because it meets all the diversity jurisdiction requirements:<\/p>\r\n<ul>\r\n<li>Adam, the plaintiff, is a Minnesota citizen, and Zach, the defendant, is an Iowa citizen. Therefore, the parties are completely diverse.<\/li>\r\n<li>Adam\u2019s claim exceeds the $75,000 statutory requirement.<\/li>\r\n<\/ul>\r\n<p>Therefore, the court may exercise diversity jurisdiction over Adam\u2019s case.<\/p>\r\n<h3><b>Scenario #2<\/b><\/h3>\r\n<p>Paul, a Texas resident, was on vacation in Florida. He was riding his bicycle on the sidewalk. Kate, a Florida citizen, was walking her dog on the same sidewalk. Kate\u2019s dog attacked Paul, causing him to fall off his bike and break his arm.<\/p>\r\n<p>Paul filed a civil lawsuit against Kate in a Florida federal court. He claimed $25,000 for medical bills related to his broken arm.<\/p>\r\n<p>The court could not hear Paul\u2019s case. Although complete diversity exists between him and Kate, his claimed relief does not exceed the $75,000 statutory requirement.<\/p>\r\n<h3><b>Scenario #3<\/b><\/h3>\r\n<p>Mason ordered 10,000 candles from Karlie\u2019s Candles, a candle manufacturer based in Wyoming. Karlie\u2019s Candles is incorporated and has its principal place of business in Wyoming. Mason lives in Wyoming.<\/p>\r\n<p>When Mason received the order, all the candles were missing their wicks. He filed a lawsuit against Karlie\u2019s Candles in a federal court in Wyoming. He requested $100,000, which was the purchase price of the candles.<\/p>\r\n<p>Although Mason\u2019s claim satisfies the $75,000 amount in controversy requirement, both Mason and Karlie\u2019s Candles are Wyoming citizens for purposes of diversity jurisdiction. Therefore, the court cannot exercise federal diversity jurisdiction over the case because there is no diversity of citizenship.<\/p>\r\n<h2><b>Historical Background of Diversity Jurisdiction<\/b><\/h2>\r\n<p>The <a href=\"https:\/\/constitution.congress.gov\/browse\/essay\/artIII-S2-C1-16-2\/ALDE_00013240\/\" rel=\"noopener\">Library of Congress<\/a> notes that the records from the Constitutional Convention are silent as to why the Framers specifically gave the federal judiciary the power to resolve conflicts between citizens of different states. Since the <a href=\"https:\/\/supreme.findlaw.com\/supreme_court\/landmark\/marbury2.html\" rel=\"noopener\">Judiciary Act of 1789\u2019s<\/a> enactment, Congress has granted diversity jurisdiction to federal courts.<\/p>\r\n<p>In 1809, <a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/9\/61.html\" rel=\"noopener\">Chief Justice John Marshall opined<\/a> on the judicial power of the United States and diversity jurisdiction. He wrote that state courts must \u201cadminister justice as impartially\u201d as federal courts.<\/p>\r\n<p>However, he noted that the <a href=\"https:\/\/constitution.findlaw.com\/\">Constitution<\/a> addresses the \u201cpossible fears and apprehensions\u201d of foreign nationals and citizens from different states regarding fair trials. His opinion is the \u201ctraditional explanation\u201d for why Congress gave federal courts diversity jurisdiction.<\/p>\r\n<p>As the Library of Congress notes, the \u201cessential difficulty\u201d with diversity&nbsp;jurisdiction is that it \u201crequires federal judges to decide issues of local import on the basis of their reading of how state judges would decide them.\u201d It may also take extra time and labor for federal judges to do so compared to state court judges.<\/p>\r\n<h2><b>Choice of Law in Diversity Cases &#8211; The <\/b><i>Erie<\/i><b> Doctrine<\/b><\/h2>\r\n<p>Plaintiffs typically do not base their diversity cases upon federal laws. Instead, they usually involve disputes regarding state laws. The question then becomes which state\u2019s laws apply to the lawsuit.<\/p>\r\n<p>Two acts of Congress affect which law applies to a diversity case. Congress passed the&nbsp;<a href=\"https:\/\/codes.findlaw.com\/us\/title-28-judiciary-and-judicial-procedure\/28-usc-sect-1652.html\" rel=\"noopener\">Rules of Decision Act<\/a>&nbsp;in 1789. It states that federal courts sitting in diversity must apply state laws unless federal law or the Constitution preempts state law.<\/p>\r\n<p>Section 34 of the Federal Judiciary Act of 1789 also bears on the choice of law. The Supreme Court interpreted it to mean that federal judges could apply state laws to cases brought to federal court under diversity jurisdiction. For a while, federal judges also applied state court decisions to dispose of cases.<\/p>\r\n<p>However, one of the Supreme Court\u2019s early cases changed that procedure. In&nbsp;<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/41\/1.html\" rel=\"noopener\"><i>Swift v. Tyson<\/i><\/a><i> <\/i>(1842), the Court held that state court decisions did not bind federal judges in diversity cases.<\/p>\r\n<p>Instead, the Court held that judges could generally rely on \u201cfederal common law\u201d and give less weight to state or local laws. In other words, judges had discretion as to whether to apply state or federal common law to a dispute and how much weight to give to state common law interpretations.<\/p>\r\n<p>Federal courts relied on the&nbsp;<i>Swift<\/i>&nbsp;rule for almost 100 years. In 1938, however, the Supreme Court issued its decision in&nbsp;<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/304\/64.html\" rel=\"noopener\"><i>Erie Railroad Co. v. Tompkins<\/i><\/a>. That case involved a question of choice of law when no federal or state laws addressed the issue. The Court overruled itself and created the modern rule for applying state law in federal diversity cases.<\/p>\r\n<h3><b>Erie Railroad Co. v. Tompkins (1938)<\/b><\/h3>\r\n<p>The&nbsp;<i>Erie<\/i>&nbsp;Doctrine comes from the&nbsp;<i>Erie<\/i>&nbsp;case and applies to diversity cases. At its most basic level, it sets forth the following:<\/p>\r\n<ul>\r\n<li>In diversity cases, federal courts must generally apply state laws to substantive issues of law.<\/li>\r\n<li>Federal courts must apply federal laws to procedural issues presented in diversity cases.<\/li>\r\n<\/ul>\r\n<p><i>Erie<\/i>&nbsp;involved a dispute between the Erie Railroad Company (a New York corporation) and Harry Tompkins (a Pennsylvania citizen). Tompkins was walking near railroad tracks in New York when one of the Erie Railroad Company\u2019s trains struck him.<\/p>\r\n<p>Tompkins filed a lawsuit against the Erie Railroad Company in a New York federal court. He invoked diversity jurisdiction to file the case in federal court.<\/p>\r\n<p>Erie Railroad argued at trial that the court should use Pennsylvania state law to decide the case. Under Pennsylvania state law, Tompkins would have likely been trespassing on the train tracks. If they had prevailed on their argument, Erie would likely not have been liable for negligence.<\/p>\r\n<p>The U.S. District Court for the Southern District of New York&nbsp;denied Erie\u2019s request. Based on precedent to that point, the federal judge held that federal common law applied to the case. Federal common law labeled Tompkins as a licensee, and, therefore, he was allowed on the premises.<\/p>\r\n<p>The jury found Erie liable for Tompkins\u2019 damages and awarded him $30,000.&nbsp;The U.S. Court of Appeals for the Second Circuit&nbsp;affirmed the verdict. Then, Erie Railroad appealed to the Supreme Court.<\/p>\r\n<p>In a 6-2 decision, the Supreme Court overruled&nbsp;<i>Swift<\/i>&nbsp;and ruled in favor of Erie. <a href=\"https:\/\/supreme.findlaw.com\/supreme_court\/justices\/pastjustices\/brandeis.html\" rel=\"noopener\">Justice Louis Brandeis<\/a> first wrote about how the Court incorrectly interpreted Section 34 of the Judiciary Act of 1789. He noted that the correction interpretation was that federal courts must use state statutory and common law in diversity cases unless a federal statute explicitly conflicted with the law.<\/p>\r\n<p>Justice Brandeis then noted the defects of the<i>&nbsp;Swift<\/i>&nbsp;doctrine. These included the following:<\/p>\r\n<ul>\r\n<li>State courts\u2019 persistence in ruling on common law issues led to uniformity issues between federal courts.<\/li>\r\n<li>It allowed noncitizens to discriminate against citizens of another state because noncitizens could decide to file the case in federal court rather than in state court.<\/li>\r\n<\/ul>\r\n<p>The Court also wrote that there is no \u201cfederal common law.\u201d Instead, states created laws via statute, common law, or through their highest courts\u2019 rulings. The Constitution does not give the judiciary a constitutional right to declare laws applicable in a state. In short, the <i>Swift<\/i> doctrine was unconstitutional.<\/p>\r\n<p>The Court reversed the Second Circuit\u2019s ruling and remanded the case to a lower court. The Court instructed the lower court to consider the case in light of its ruling that Pennsylvania law was appropriate to apply in the case.<\/p>\r\n<p>In summary, the <i>Erie<\/i> Doctrine states&nbsp;that federal courts sitting in diversity must apply state substantive law&nbsp;to the substantive issues in a case. They must also apply federal law to procedural issues. It also clarifies that state court decisions bind federal courts in diversity cases. The only exception is when a federal law conflicts with state law (due to the <a href=\"https:\/\/constitution.findlaw.com\/article6\/annotation02.html\">Supremacy Clause<\/a>).<\/p>\r\n<h3><b>The Erie Doctrine\u2019s Effect and Evolution<\/b><\/h3>\r\n<p><i>Erie<\/i>&nbsp;was a landmark Supreme Court case regarding civil procedure and federalism.&nbsp;<a href=\"https:\/\/constitution.congress.gov\/browse\/essay\/artIII-S2-C1-16-6\/ALDE_00013246\/\" rel=\"noopener\">Legal scholars<\/a>&nbsp;have noted that no case in the twentieth century impacted the \u201cdistribution of judicial power between the federal government and the states as has [<i>Erie<\/i>].\u201d It was also the only time in American history that the Court acknowledged that it had violated the Constitution.<\/p>\r\n<p>The <i>Erie<\/i> Doctrine has evolved since 1938. For example, if the state\u2019s highest court has not decided an issue, federal courts \u201c<a href=\"https:\/\/constitution.congress.gov\/browse\/essay\/artIII-S2-C1-16-6\/ALDE_00013246\/\" rel=\"noopener\">are to give careful consideration to lower state court decisions.<\/a>\u201d However, the federal court \u201cgenerally must construe the state law themselves\u201d in such situations.<\/p>\r\n<p>In diversity cases where two state laws conflict, the Supreme Court has ruled that the federal court must apply its own state law. For example, suppose a diversity case involves conflicting state laws from Oregon and Idaho. The plaintiff filed their case in an Oregon federal court, but the Idaho state laws apply to the case. In that situation, the federal court would apply Oregon\u2019s conceptions of the applicable Idaho state law. (<a href=\"https:\/\/caselaw.findlaw.com\/court\/us-supreme-court\/313\/487.html\" rel=\"noopener\"><i>Klaxon Co. v. Stentor Manufacturing Co.<\/i><\/a>&nbsp;(1941)).<\/p>\r\n<div class=\"was-this-helpful\">\n    <div\n            class=\"was-this-helpful__question-container\"\n            aria-labelledby=\"was-this-helpful__question\"\n            role=\"group\"\n    >\n        <span\n                id=\"was-this-helpful__question\"\n                class=\"was-this-helpful__question fl-text-lg-bold\"\n        >Was this helpful?<\/span>\n        <button\n                class=\"was-this-helpful__button fl-text-sm\"\n                aria-label=\"Yes\"\n                value=\"yes\"\n        >\n            <span class=\"was-this-helpful__button-text fl-text-bold\">Yes<\/span>\n            <i class=\"was-this-helpful__button-icon\">\n                <svg width=\"22\" height=\"22\" viewBox=\"0 0 22 22\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n                    <g id=\"thumbs-up\" clip-path=\"url(#clip0_604_3418)\">\n                        <path id=\"Vector\"\n                              d=\"M6 21H3C2.46957 21 1.96086 20.7893 1.58579 20.4142C1.21071 20.0391 1 19.5304 1 19V12C1 11.4696 1.21071 10.9609 1.58579 10.5858C1.96086 10.2107 2.46957 10 3 10H6M13 8V4C13 3.20435 12.6839 2.44129 12.1213 1.87868C11.5587 1.31607 10.7956 1 10 1L6 10V21H17.28C17.7623 21.0055 18.2304 20.8364 18.5979 20.524C18.9654 20.2116 19.2077 19.7769 19.28 19.3L20.66 10.3C20.7035 10.0134 20.6842 9.72068 20.6033 9.44225C20.5225 9.16382 20.3821 8.90629 20.1919 8.68751C20.0016 8.46873 19.7661 8.29393 19.5016 8.17522C19.2371 8.0565 18.9499 7.99672 18.66 8H13Z\"\n                              stroke=\"#666666\" stroke-width=\"2\" stroke-linecap=\"round\"\n                              stroke-linejoin=\"round\"><\/path>\n                    <\/g>\n                    <defs>\n                        <clipPath id=\"clip0_604_3418\">\n                            <rect width=\"22\" height=\"22\" fill=\"white\"><\/rect>\n                        <\/clipPath>\n                    <\/defs>\n                <\/svg>\n            <\/i>\n        <\/button>\n        <button\n                class=\"was-this-helpful__button fl-text-sm\"\n                aria-label=\"No\"\n                value=\"no\"\n        >\n            <span class=\"was-this-helpful__button-text fl-text-bold\">No<\/span>\n            <i class=\"was-this-helpful__button-icon\">\n                <svg width=\"22\" height=\"22\" viewBox=\"0 0 22 22\" fill=\"none\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\">\n                    <g id=\"thumbs-down\" clip-path=\"url(#clip0_604_3423)\">\n                        <path id=\"Vector\"\n                              d=\"M16 0.999995H18.67C19.236 0.989986 19.7859 1.18813 20.2154 1.55681C20.645 1.9255 20.9242 2.43905 21 3V10C20.9242 10.5609 20.645 11.0745 20.2154 11.4432C19.7859 11.8119 19.236 12.01 18.67 12H16M9.00003 14V18C9.00003 18.7956 9.3161 19.5587 9.87871 20.1213C10.4413 20.6839 11.2044 21 12 21L16 12V0.999995H4.72003C4.2377 0.994543 3.76965 1.16359 3.40212 1.47599C3.0346 1.78839 2.79235 2.22309 2.72003 2.7L1.34003 11.7C1.29652 11.9866 1.31586 12.2793 1.39669 12.5577C1.47753 12.8362 1.61793 13.0937 1.80817 13.3125C1.99842 13.5313 2.23395 13.7061 2.49846 13.8248C2.76297 13.9435 3.05012 14.0033 3.34003 14H9.00003Z\"\n                              stroke=\"#666666\" stroke-width=\"2\" stroke-linecap=\"round\" stroke-linejoin=\"round\"\/>\n                    <\/g>\n                    <defs>\n                        <clipPath id=\"clip0_604_3423\">\n                            <rect width=\"22\" height=\"22\" fill=\"white\"\/>\n                        <\/clipPath>\n                    <\/defs>\n                <\/svg>\n            <\/i>\n        <\/button>\n    <\/div>\n    <span class=\"was-this-helpful__taken-action fl-text-sm-bold\"><\/span>\n    <div class=\"was-this-helpful__feedback-container\">\n        <div class=\"was-this-helpful__choose-option-message\" role=\"status\">\n            <p class=\"was-this-helpful__choose-option-message-text\"><\/p>\n        <\/div>\n        <form class=\"was-this-helpful__feedback-form\">\n            <div class=\"was-this-helpful__feedback was-this-helpful__feedback--positive\">\n                <fieldset>\n                    <legend class=\"was-this-helpful__feedback-form-title\" tabindex=\"0\">Why was this helpful?<\/legend>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--understandable\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"positive-feedback\"\n                                value=\"Easy to understand\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--understandable\"\n                        >Easy to understand<\/label>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--solved-problem\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"positive-feedback\"\n                                value=\"Solved my problem\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--solved-problem\"\n                        >Solved my problem<\/label>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--other\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"positive-feedback\"\n                                value=\"Other\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--other\"\n                        >Other<\/label>\n                    <\/div>\n                <\/fieldset>\n            <\/div>\n            <div class=\"was-this-helpful__feedback was-this-helpful__feedback--negative\">\n                <fieldset>\n                    <legend class=\"was-this-helpful__feedback-form-title\" tabindex=\"0\">Why was this not helpful?<\/legend>\n                    <div class=\"was-this-helpful__choose-option-message\" role=\"status\">\n                        <p class=\"was-this-helpful__choose-option-message-text\"><\/p>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--missing-info\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"negative-feedback\"\n                                value=\"Missing Information\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--missing-info\"\n                        >Missing the information I need<\/label>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--complicated\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"negative-feedback\"\n                                value=\"Too complicated\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--complicated\"\n                        >Too complicated \/ too many steps<\/label>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--dated\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"negative-feedback\"\n                                value=\"Out of date\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--dated\"\n                        >Out of date<\/label>\n                    <\/div>\n                    <div class=\"fl-radio-button-field fl-flex was-this-helpful__feedback-form-title\">\n                        <input\n                                id=\"was-this-helpful__radio-button--negative-other\"\n                                class=\"fl-radio-button-field-input\"\n                                type=\"radio\"\n                                name=\"negative-feedback\"\n                                value=\"Other\"\n                        >\n                        <label\n                                class=\"fl-radio-button-field-label fl-text-sm was-this-helpful__radio-label\"\n                                for=\"was-this-helpful__radio-button--negative-other\"\n                        >Other<\/label>\n                    <\/div>\n                <\/fieldset>\n            <\/div>\n            <div class=\"was-this-helpful__form-buttons-container\">\n                <button\n                    class=\"was-this-helpful__feedback-button was-this-helpful__feedback-button--positive at-feedback-submit fl-button secondary\"\n                    type=\"submit\"\n                >\n                    <span class=\"fl-button-content\">Submit<\/span>\n                    <i\n                        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