No General Federal Common Law

Federal Common Law After Erie

No General Federal Common Law

Erie Railroad Co. v. Tompkins ended a practice that had lasted almost a century: federal courts hearing diversity cases declared the common law for themselves on questions of “general” law.¹ The practice rested on Swift v. Tyson, which construed the statute that tells federal courts where to find their rules of decision.² That statute, Section 34 of the Judiciary Act and now the Rules of Decision Act, provides: “The laws of the several States, except where the Constitution, treaties, or statutes of the United States otherwise require or provide, shall be regarded as rules of decision in trials at common law, in the courts of the United States, in cases where they apply.”³

Swift read “laws of the several States” narrowly. The laws that bound a federal court were state constitutions, state statutes, and state judicial opinions interpreting them, together with state decisions on real estate and other purely “local” questions.⁴ The remaining matters were “general,” and when no valid state statute addressed one, the federal court decided it according to what the court conceived to be widely held jurisprudential doctrines.⁵ A general question therefore sent a federal judge to jurisprudence at large rather than to the state's own decisions.

The court of appeals in Erie applied exactly that approach. A jury had returned a verdict of $30,000, and the court of appeals affirmed the judgment without deciding whether Pennsylvania law was as contended, because the question was “not of local, but of general, law.”⁶ On such questions, the court said, “the federal courts are free, in the absence of a local statute, to exercise their independent judgment as to what the law is,” and a railroad's responsibility for injuries caused by its servants was one of them.⁷ The content of Pennsylvania law never had to be settled.

Swift belonged to an age of natural-law theory, when the United States had three sources of law: state law, federal law, and natural (general) law.⁸ The third source caused the trouble. Law that developed under Swift was not federal law within the meaning of the Supremacy Clause, so state courts had no supremacy obligation to follow it, and they kept declaring the common law their own way.⁹ Justice Brandeis observed that the Swift Court's hope for uniformity had not come to pass: “Persistence of state courts in their own opinions on questions of common law prevented uniformity . . . .”¹⁰

Disagreement between two systems of common law invites forum shopping, and Swift produced the disagreement. Suppose a state's highest court and the federal courts, drawing on general law, take opposite views of a commercial rule. Counsel for an out-of-state plaintiff would choose state or federal court according to which treated the common law more favorably to the client, and the in-state defendant, who had no say in the forum, was stuck with whichever court the plaintiff picked.¹¹ The advantage also ran to an out-of-state defendant: if the in-state plaintiff chose state court, the defendant could remove to federal court whenever the common law was better there.¹² The benefit to non-citizens of the state was clear.¹³ In the Black & White Taxicab case, forum shopping worked to the detriment of an in-state defendant, and the Court concluded that the system made equal protection of the laws impossible.¹⁴

Erie answered the court of appeals in terms that left no room for general law:

Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state. And whether the law of the state shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern. There is no federal general common law.¹⁵

For the plaintiff in Erie, that meant a federal court could no longer treat the railroad's responsibility as a question of general law and decide it independently. The court had to apply the law of the state, whether the state declared it through its legislature or through its highest court.¹⁶

The Court's most important step was to adopt legal positivism fully. By declaring that “federal general common law” does not exist, it reduced the sources of law in the federal courts from three to two: before Erie, there were state law, federal law, and general law; afterward, general law at the federal level was gone.¹⁷ Where the federal government has no competence, state law governs by its own force, and the demise of federal general common law created a vacuum into which state common law initially flowed.¹⁸

Erie also redistributed authority within the federal system. One account describes the decision as invalidating an exercise of judicial authority that exceeded constitutional limits and defied Congress's instructions in the Rules of Decision Act, and as restoring state governments and state courts as the primary source of governing law.¹⁹ Under that allocation, state courts and legislatures take over the explication and oversight of the common law, and the federal government may intervene through Congress's commerce or other powers.²⁰ By depriving federal courts of the policymaking authority they had enjoyed under Swift, Erie distributes that authority widely to state courts and confines federal involvement to what the relatively democratic legislative process can accomplish.²¹ It also rooted out a spurious body of federal judge-made law that had led to forum shopping and to uncertainty about governing legal norms.²² In a diversity case, a federal court adjudicates matters of state law that would have gone to state courts but for the citizenship of the parties, and in that capacity its only role is to interpret state law.²³

Erie did not say that federal courts never make law. It said only that there is no “general” federal common law; in a significant number of instances, the governing rule in a federal court should logically come from federal sources, and no federal statute is in point.²⁴ When federal common law takes over in such an instance, it will usually preempt state law, unless federal legislation later rejects it.²⁵

A 1938 decision, Hinderlider v. La Plata River & Cherry Creek Ditch Co., shows how that works. The Court said that whether the water of an interstate stream must be apportioned between two states is a question of “federal common law” upon which neither the statutes nor the decisions of either state can be conclusive.²⁶ Diversity played no part in the case, which had been litigated in the state courts, so the ruling amounted to saying that those courts should have applied federal common law.²⁷ Hinderlider foreshadowed later decisions establishing not only that federal common law exists but that some issues in cases within the diversity jurisdiction are governed by it.²⁸

Compare the plaintiff's injury claim in Erie with a dispute between two states over a river. The injury claim concerns a subject that Erie leaves to state courts and legislatures, so a federal court hearing it under diversity jurisdiction does nothing more than interpret state law.²⁹ The river dispute has no such state source. Neither the Constitution nor any statute answers controversies between states about interstate streams or says where the governing law is to be found, and the law of one state is obviously unsuitable when two states are in dispute, so the Court of necessity developed its own body of law.³⁰ What separates the two cases is whether the area is one in which the federal government has a distinctively important interest; that is the key inquiry when asking whether a grant of federal jurisdiction implies authority to make substantive law.³¹ Jurisdiction alone does not answer it, because the Constitution's conferral of jurisdiction over a kind of case does not by itself empower federal courts to make substantive law for that kind of case.³²

Two phrases that sound alike therefore name opposite things. Federal general common law is the body of judge-made rules that a federal court declares on subjects belonging to the states because diversity put the case before it, and it no longer exists.³³ Federal common law is the body of judge-made rules that a federal court supplies where the governing rule should logically come from federal sources and no federal statute is in point; it survives, and it usually displaces state law.³⁴

The sections that follow define federal common law more precisely and then work through Clearfield Trust Co. v. United States. They proceed under a caution the Court voiced in Rodriguez v. FDIC (2020): judicial lawmaking in the form of federal common law “plays a necessarily modest role under a Constitution that vests the federal government's ‘legislative Powers’ in Congress and reserves most other regulatory authority to the States.”³⁵ Consistent with that modesty, the Court has taken the course, absent a demonstrated need for a federal rule of decision, of adopting the ready-made body of state law as the federal rule until Congress strikes a different accommodation.³⁶