Substance Versus Procedure

Substance Versus Procedure

A diversity case raises far more than the substantive question that decided Erie, the duty of care a railroad owes to a person walking along its right of way. The federal judge must also decide what discovery to allow, which privileges keep evidence out, who carries the burden of proof at trial, and whether the plaintiff sued too late.¹ The obvious way to sort these questions is to ask of each whether it is substantive, so that state law governs, or procedural, so that federal practice governs. That sorting became the heart of the struggle over Erie after the decision, because courts had to classify every state rule before them as one or the other.²

The Court's answer in Guaranty Trust Co. v. York was that the labels cannot carry that weight. “Substance” and “procedure,” Justice Frankfurter wrote, “are the same key-words to very different problems.”³ The two words turn up in questions about ex post facto legislation, the impairment of contract obligations, the enforcement of federal rights in state courts, and the many phases of conflict of laws, and those problems are only distantly related.⁴ Three of these settings matter here: whether a rule falls within a court's rulemaking power, which state's law governs a multistate dispute, and whether state or federal law governs in a diversity case. A factor that decides the classification for one purpose may be irrelevant for another, and a holding that an issue is substantive for one purpose is too easily treated as controlling when the classification serves a different purpose.⁵

The labels still work at the extremes. The elements of a state-law negligence claim and the availability of a state-law affirmative defense are substantive, while the number of depositions a party may take and the means of amending a pleading are procedural, and in those cases the label answers the question at once.⁶ Each extreme matches a statement made in Erie itself. Justice Brandeis asserted that Congress is powerless to declare “substantive rules of common law applicable in a state,” and Justice Reed observed in his concurrence that “no one doubts federal power over procedure.”⁷ A rule defining when a defendant owes compensation for negligence belongs with the first statement, and a rule limiting depositions belongs with the second. Reed also warned that “[t]he line between procedural and substantive law is hazy,”⁸ and the haze lies between the two extremes.

The statute of limitations sits in that haze because it is very probably both a matter of court process and a substantive limit on the underlying right.⁹ Courts had often treated matters relating to the timing of suit as procedural, governed by the law of the forum.¹⁰ York put that habit to the test. York owned notes issued by the Van Sweringen Corporation, and she brought a class action against Guaranty Trust Company, the notes' trustee. The suit rested on diversity but sought relief available on the equity side of the federal court, and Guaranty defended on New York's statute of limitations.¹¹ The plaintiffs argued that the federal equitable doctrine of laches, which asks whether the passage of time has prejudiced the defendant's ability to defend, should decide timeliness. The lower federal court agreed, citing the distinctiveness of federal equity procedure and the substance-procedure distinction.¹²

The Supreme Court held otherwise and refused to let the label decide. The question, it said, “is not whether a statute of limitations is deemed a matter of ‘procedure’ in some sense.” The question is whether the statute concerns merely the manner and means of enforcing a right the state recognizes, or whether it is substantive in the one respect that counts here: whether disregarding it would “significantly affect the result of a litigation.”¹³ Where a plea of limitations would bar recovery in a state court, a federal court “ought not to afford recovery.”¹⁴ The Court added that it is immaterial how state opinions characterize limitations statutes in uses unrelated to the issue before it.¹⁵ The next section takes up the test York announced.

The same rule can carry opposite labels depending on the problem being solved. Limitations statutes are substantive for vertical Erie purposes but generally procedural for horizontal, state-to-state choice of law.¹⁶ Each setting protects a different interest. A New York court that applied Pennsylvania tort law and also took on Pennsylvania procedure would have to run its courtroom under many procedural systems, one for each state whose law it might choose, and the horizontal distinction exists to prevent that.¹⁷ In the vertical setting the interest at stake is the allocation of lawmaking authority between state and federal systems, so York refused to treat the horizontal distinction as the starting point, and that refusal remains good law.¹⁸ A federal court that asks what the state's own courts call a limitations rule has therefore asked the wrong question.

Burden of proof shows the same difficulty inside a single label. In Cities Service Oil Co. v. Dunlap, Texas law placed the burden of proving the validity of title on the party challenging the title, while federal procedure placed it on the party who brought suit. The court of appeals called the issue “a matter of practice or procedure and not a matter of substantive law,” but the Supreme Court held that it “relates to a substantial right,” so the state rule applied.¹⁹ The reason is that the allocation of the burden can decide the case. When all the first-hand witnesses to the event are dead, proof is hard to reach for both sides, and the party carrying the burden will usually lose. The burden of pleading is another matter, since it requires only a verbalization on a piece of paper, and Erie does not necessarily govern it.²⁰

The deposition cap does not follow the case into federal court. The number of depositions is a paradigm procedural matter, so the federal court applies its own discovery practice.²¹ The one-year bar does follow the case, because a plea of the bar would defeat recovery in the state's courts, and a federal court hearing the same claim ought not to afford what the state court would refuse.²² The shared label and the shared heading told the court nothing about either rule.

Sending every disputed issue to state law would not solve the problem. It is unthinkable that a federal court in a diversity case must apply state law to each and every issue that arises, such as the form of the pleadings or the time for filing a notice of appeal.²³ The Federal Rules of Civil Procedure took effect in 1938, the year Erie came down, and their drafters expected the Rules to govern every dispute in the federal system, including cases that present state-law claims.²⁴ Had Erie required state procedure across the board, federal courts would have operated under a dual system, the Federal Rules in federal-question, admiralty, and other cases and the forum state's procedure in diversity cases.²⁵ The tidy compromise, state law for substance and federal rules for procedure, was assumed to be Erie's rule for seven years.²⁶ York ended that assumption by rejecting any conclusory labeling of limitations statutes as substantive or procedural.²⁷

The existence of a Federal Rule also changes the order of the inquiry. A Federal Rule within the limits of the Rules Enabling Act displaces a conflicting state rule, just as an applicable constitutional provision or a constitutional federal statute does, and the reason in each case is supremacy.²⁸ When such a Rule covers the disputed point, the court has no need to ask whether Erie requires the state rule. The harder choice arises only where no constitutional provision, federal statute, or Federal Rule governs the point, and the full-analysis section later in this chapter makes that gateway question the first step.

The labels, then, report a conclusion without producing it. The passage in which Erie announces its rule uses “substantive” once and never uses “procedural,” yet courts, scholars, and students have built a dichotomy on it and assumed that substantive means state law and procedural means federal law. That is often true, but not always.²⁹ A rule is called substantive for Erie purposes after analysis has concluded that state law should govern, and the label does not reveal that analysis. The Court has given different answers at different times about how to do the analysis.³⁰ The three decisions that follow, York, Byrd v. Blue Ridge Electric Cooperative, Inc., and Hanna, are best read as successive attempts to replace the labels with questions that can be put to any rule, whatever its name.