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What Law to Apply in Federal Court
Flowchart Test Assist
The Rules of Decision Act, 28 U.S.C. Section 1652, was originally adopted as a provision of the Judiciary Act of 1789, and has remained largely unchanged to this day. The Rules of Decision Act states that "the laws of the several states, except where the constitution , treaties or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decisions in trials at common law in the courts of the United States in cases where they apply."

This Act was interpreted by the Court to only require federal courts to apply state constitutional and statutory law -- not state common law. Justice Story explained the Court's reasoning in Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842): "The laws of a state are more usually understood to mean the rules and enactments promulgated by the legislative authority thereof, or long-established local customs having the force of laws....In the ordinary use of language it will hardly be contended that the decisions of courts constitute laws." Swift recognized, however, that state law could control in the following instances:
  1. When state decisions dealt with common law matters of purely "local" concern (e.g., real property); or
  2. When state decisions interpreted state statutes.

For the next nearly 100 years, the federal courts decided cases based on a belief that there is a higher "natural law" and applying this standard will lead to uniformity and fairness. During this period, the federal courts created an enormous body of federal common law in the areas of tort law, contracts, and commercial law. This all ended, however, in 1938 when Swift was overruled in Erie Railroad v. Tompkins, 304 U.S. 64 (1938). In Erie, the Court held that when deciding diversity cases, federal courts are to apply state law, which includes state common law. This decision not only wiped out almost a century of federal common law, but completely revamped the nature of the practice of law. Justice Frankfurter emphasized the significance of this decision, stating that the overruling of Swift v. Tyson "overruled a particular way of looking at law which dominated the judicial process long after its inadequacies had been laid bare." Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

Erie had a significant effect on the federal/state judicial dynamic. Essentially, Erie requires that unless there is an applicable federal law (including a provision in the Constitution, statute, or treaty) state law applies.

Keep in mind that the first question you always want to ask is: Is there even a conflict between federal and state law?

State Claim

Federal Claim

Rules of Decision Act: 28 U.S.C. Section 1652
The Rules of Decision Act was originally adopted as a provision of the Judiciary Act of 1789, and has remained largely unchanged to this day. The Rules of Decision Act states that "the laws of the several states, except where the constitution , treaties or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decisions in trials at common law in the courts of the United States in cases where they apply."

Apply state substantive law

In Erie Railroad v. Tompkins, 304 U.S. 64 (1938), the Court held that when deciding diversity cases, federal courts are to apply state law, which includes state common law. Erie had a significant effect on the federal/state judicial dynamic. Essentially, Erie requires that unless there is an applicable federal law (including a provision in the Constitution, statute, or treaty) state law applies.

Erie not only wiped out almost a century of federal common law, but completely revamped the nature of the practice of law. Justice Frankfurter emphasized the significance of this decision, stating that when the Court overruled Swift v. Tyson, it "overruled a particular way of looking at law which dominated the judicial process long after its inadequacies had been laid bare." Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

Apply federal substantive law

State law is unclear

Federal law conflicts--(preemption)
Keep in mind that the first question you want to ask is: Is there a conflict between federal and state law? Always see if you can reconcile state with federal law before deciding that the latter preempts. See Gasperini, 116 S.Ct. 211 (1996) (wherein the Court stressed the importance of reconciliation especially when the case deals with important state interests, such as in a diversity case).

If federal law does conflict with state law, the rule is: A valid federal regulation preempts state law if:
  1. The federal law is Constitutional; and
  2. The federal law is not ultra vires; the law must be within the scope of enabling authority given to the entity (e.g.; an agency, Congress). A law is ultra vires if it abridges, modifies or enlarges and substantive right.
A valid federal law preempts any state law, no matter what the claim is or how it got into federal court (e.g.: it could have come in through a defense -- it doesn't have to satisfy the "well pleaded complaint rule"). Don't worry about displacing state law in a situation where state and federal law conflict. It's Constitutionally required under the Supremacy Clause of Article VI.

Federal law is unconstitutional
If a federal and state law conflict and the federal law is unconstitutional, apply the state law.

There is no positive federal law on the issue
If there is no positive federal law available to you, ask yourself if there is a preexisting rule of federal common law that is relevant to your issue. If so, is it Constitutional and within the delegated power? If not, maybe this would be an appropriate place for the federal court to make some common law.

make federal common law
Since there is no federal Constitutional provision, no federal statute, no federal regulation, and no preexisting federal common law, check to see if your issue encompasses any of the situations listed below in which it is appropriate to make federal common law.

Federal common law may also be created in a situation where not only is applicable federal positive law lacking, but so is state positive law. 28 U.S.C. Section 1652 (the modern version of the Rules of Decision Act" provides a built-in disclaimer, requiring that state laws shall prevail "in cases where they apply". These last five words imply that there are situations where federal and state law are absent. Such a case would be an appropriate place for the federal court to make federal common law.

If, however, you determine that neither the above situation or the three instances below do not apply, and that therefore this is not an appropriate place to make federal common law, then apply state law, even if the case before you is a purely federal question case.

Must be applicable and constitutional in order to have preemptive effect

"uniquely federal interests"
The Court found "uniquely federal interests" in the following cases:

Rules Enabling Act, 28 U.S.C. Section 2072
Section 2072, entitled, "Rules of procedure and evidence; power to prescribe" provides in pertinent part:
  1. The Supreme Court shall have the power to prescribe general rules of practice and procedure and rules of evidence for cases in the U.S. district courts (including proceedings before magistrates thereof) and courts of appeals.
  2. Such rules shall not abridge, enlarge or modify and substantive right. All laws in conflict with such rules shall be [invalid].
  3. Such rules may define when a ruling of a district court is final for the purposes of appeal under section 1291 of this title.

FRCP has preemptive effect
Early in the 20th century, the federal courts conformed to state procedural law (per the Conformity Act of 1872) and federal substantive law (under Swift v. Tyson), 41 U.S. (16 Pet.) 1 (1842). This system was completely reversed, however, in 1938. On December 20, 1937, the Court adopted the Federal Rules of Civil Procedure, which became effective September 1, 1938. Also in 1938, the Court overruled Swift v. Tyson in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), when Justice Brandeis wrote that federal courts were required to conform to state law decisions.

Since Congress has had numerous opportunities to disapprove of the Federal Rules of Civil Procedure and has refrained from doing so, it is accepted that Congress has declared the Rules within the scope of the delegated power. As long as a rule is "arguably" procedural, then it is within the scope of the Rules Enabling Act. To this day, none of the FRCP have been held primarily "substantive," but have all been found "arguably procedural" and therefore consistent with the Rules Enabling Act. This doesn't mean that an FRCP can't have a substantive application, it just can't be "primarily" substantive.

to effectuate constitutional interests
In Clearfield Trust Co. v. U.S., 318 U.S. 363 (1943), the Court held that the federal government's authority to write the federal check at issue (to pay for work under Emerg. Rel. Act of 1935) originated in "the Constitution and the statutes of the United States and was in no way dependent on the laws of Pennsylvania or of any other state. ... In the absence of an applicable act of Congress it is for the federal courts to fashion the government rule of law according to their own standards."

"incidental" substantive effects are ok
To this day, none of the FRCP have been held primarily "substantive," but have all been found "arguably procedural" and therefore consistent with the Rules Enabling Act. This doesn't mean that an FRCP can't have a substantive application. "incidental" substantive effects are ok. The rule just can't be "primarily" substantive.

Separation of powers concern: has Congress delegated or forbidden the federal courts to make law here? The Erie Court held that it was unconstitutional when the federal court displaced state common law with federal common law because "Congress has no power to declare substantive rules of common law applicable in a state whether they be local in their nature or general,' be they commercial law or a part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts." The Swift Court therefore caused a significant separation of powers problem when it acted on non-existent power.

to effectuate Congressional intent
In U.S. v. Little Lake Misere Land Co, Inc., 412 U.S. 580 (1973), the Court held that this was an area in which "federal common law" must fill in the gaps left by Congress in the Migratory Bird Act. The Court was concerned that if it let states fill in the gaps, the especially critical interests of "certainty and finality" may not be satisfied. The Court justified applying federal instead of state law, stating that the Migratory Bird Act and other federal land acquisition programs are "national in scope" and to allow states to void certain conditions of these Acts "would deal a serious blow to the Congressional scheme" of these acts.

Federalism concern: is this within Congress' enumerated powers?
Justice Brandeis stated in Erie that, "Congress has no power to declare substantive rules of common law applicable in a State whether they be local in their nature or general,' be they commercial law or a part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts." 304 U.S. at 78.

Since Congress lacked the enumerated power back in 1937, they had nothing to delegate. It follows from there that the federal courts similarly lacked power. So, when Justice Brandeis said it was "unconstitutional" for federal judges to make common law in this situation, he is referring to separation of powers and federalism (not equal protection as he hints to). The point is that even if Congress had explicitly authorized such power to the federal courts, it may not delegate a power it did not have. Now, however, Congress could regulate here and the case would not raise such issues.

Judicial administration concern
In applying the test of Erie v. Tompkins, the federal courts must always keep in mind these twin aims of the Erie decision:
  1. To prevent forum shopping between state and federal courts, and
  2. To prevent the inequitable administration of justice.

These concerns grew from the policy considerations behind Justice Brandeis Erie opinion which rejected Swift because of:

Touche-Ross Test
In Touche Ross & Co. v. Redington, 442 U.S. 560 (1979), the Court rejected the Cort Four-Pronged Test in favor of congressional intent as the sole inquiry. By focusing solely on Congressional intent, the Court expressed an unwillingness to find a private cause of action unless there was an affirmative indication from Congress that a private right was intended to be there.

The Touche-Ross Test essentially combines the first three of the four Cort prongs into one sole inquiry. In Cort v. Ash, 422 U.S. 66 (1975), the Court developed a four-pronged test to determine whether a private cause of action is implicit in a statute:
  1. Does the statute create a special right in favor of the plaintiff? (e.g., does the statute create a "private" right in this particular plaintiff as opposed to a public right?
  2. Is there any legislative intent, implicit or explicit, to create such a remedy or to deny one? This is basically a separation of powers issue: If a court makes it clear that it does not intend a private remedy to exist on the assumption it has a raw judicial power to do, that steps on Congress' toes. For the Court to legislate when the Congress has already spoken against it is a clear separation of powers issue;
  3. Is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the P? Put another way, would the creation of an implied remedy be consistent with the underlying scheme? For example, although the FCC licensed Channel X to broadcast per the "public interest," and you, as a member of the public, want to sue to enforce this license agreement, you may not. To allow private individuals to enforce the Federal Communications Act would undermine the legislative purpose. If such a suit was allowed, many viewers would sue. Congress delegated the enforcement power to the FCC, so the FCC must go after the station, not the individual viewers.
  4. Is the cause of action one traditionally relegated to state law, in an area basically of state concern, so that it would be inappropriate to infer a cause of action based solely on federal law? It is one thing for Congress to take from the states, but it is another for the Court to do that -- which is what it does when it creates a federal cause of action. When the federal courts create a federal causes of action, it raises some structural federalism issues.

Even though Touche-Ross significantly changed the Cort test, both are still valid law; Cort was not overruled by Touche. So while it is still important to cite to the Cort v. Ash Test, the stress is on congressional intent

Click to the Implied Rights of Action flowchart for more information.

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