General Law in Federal Court

Beginning of article

II. THE BREAKDOWN OF GENERAL AND LOCAL LAW

In the decades following Swift, the evolving Swift doctrine became increasingly inconsistent with the constitutional structure and acts of Congress. As discussed below, states increasingly exercised their regulatory power to localize matters they were previously content to have governed by general commercial law. At the same time, federal courts improperly expanded their conception of general law beyond commercial law to include matters traditionally subject to local law. These two developments ultimately led the Supreme Court to declare the Swift doctrine unconstitutional in Erie Railroad Co. v. Tompkins.

A. State Efforts to Localize General Law

After Swift, states increasingly localized matters previously subject to general law, abandoning "reliance on the general law merchant in favor of localized commercial doctrines." (161) Both state legislatures and state courts participated in this shift.(162) State legislatures enacted commercial statutes to replace general commercial law, and state courts increasingly regarded commercial law as local law rather than general law.

First, state legislatures steadily subjected commercial transactions to state legislation, eventually including uniform commercial laws. By the late nineteenth century, commercial transactions in the United States were subjected to various and often contradictory state statutory requirements. (163) At this time, "statutes grew and increased like weeds in all the forty-eight states and territories." (164) Indeed, "every state ... had one or more statutes attempting to regulate in whole, or in part, the law of commercial paper." (165) Because "[b]ills and notes were the oil for running the American business machine .... [c]ourts were clogged with questions of negotiability and transfer." (166) Disuniformity in state law necessitated the development of uniform commercial statutes,(167) including the Uniform Negotiable Instruments Act. (168) Such laws were designed to perform the function historically performed by the law merchant--that is, to encourage trade by subjecting commercial transactions to uniform rules across state lines. (169) By adopting the Negotiable Instruments Act, which codified many law merchant rules, states incorporated much of general commercial law into their local enacted laws.

State legislation, however, did not entirely displace general commercial law. The Negotiable Instruments Act itself expressly stated that "[i]n any case not provided for in this act the rules of ... the law merchant shall govern." (170) Nonetheless, over time, general law grew less uniform as state and federal courts increasingly defined it differently. (171) Moreover, state courts increasingly came to describe their distinctive interpretations of the law merchant as local state law, not general commercial law. In particular, state courts began to dispute whether, in applying the law merchant, they were bound to follow the law of the forum or the law of the place of the contract. State courts thus began to describe general commercial law not as a transnational law over which they exercised independent judgment but rather as the local law of a particular sovereign. Eventually, state courts no longer characterized even the question involved in Swift v. Tyson--whether a negotiable instrument invalid in the hands of the original holder was enforceable by a bona fide holder in due course--as a question of general law, but rather characterized it as one of local law. (172) Under this view, local law governed the content of commercial law. By the turn of the twentieth century,

   the rule adopted in a large majority of the state courts, and
   announced by text-writers, is that when it becomes necessary to
   determine the common law of another state, the decisions of the
   courts of final resort of that state will be followed, regardless
   of precedents to the contrary in the state where the trial is held,
   and that this rule applies to the law merchant, as well as to other
   branches of the common law. (173)

Thus, state courts came to treat the law merchant as local law, not general law.

If federal courts had merely persisted in treating unwritten commercial law as general law in the face of these developments, the Erie problem--federal judicial interference with state regulatory authority--would have been confined to a relatively small enclave. By the early twentieth century, states had codified much of the general commercial law and, with a few exceptions,(174) federal courts followed state statutes on commercial questions. In 1934, the Supreme Court settled that federal courts must follow state court interpretations of state statutes, including uniform state legislation codifying general law. (175) Thus, state statutory localization of general commercial law increasingly prevented federal courts from exercising independent judgment over commercial disputes even before Erie was decided. (176) Federal courts, however, did not confine their application of the Swift doctrine to commercial law. Rather, they broadly expanded their conception of general law throughout the late eighteenth and early nineteenth centuries to include such traditionally local matters as torts, punitive damages, and real property rights. By generalizing traditional areas of local state regulation--and thereby subjecting them to rules independently determined by federal courts--the Swift doctrine significantly expanded federal judicial interference with state governance authority in diversity cases.

B. Federal Judicial Efforts to Generalize Local Law

While states localized general law after Swift, federal courts increasingly generalized traditional areas of local law. In Erie, the Supreme Court decried the "broad province" that federal courts had "accorded to the so-called 'general law' over which federal courts exercised an independent judgment." (177) The Erie Court noted that federal courts had come to apply general law to purely intrastate contracts, questions of tort liability (even concerning real property rights), rights to recover certain kinds of damages, and the construction of instruments conveying property rights(178)---all of which were local matters subject to state governance at the time of Swift. One of the earliest and most significant steps in this expansion was the Court's 1862 decision in Chicago v. Robbins to disregard state tort law in favor of so-called "general law." (179) The case involved liability for negligence, and the Court declared that "where private rights are to be determined by the application of common law rules alone, this Court, although entertaining for State tribunals the highest respect, does not feel bound by their decisions." (180) Three decades later, in Baltimore & Ohio Railroad Co. v. Baugh, the Court determined that the question whether a railroad was responsible for the negligence of one employee against another was

  not a question of local law, to be settled by an examination merely
  of the decisions of the Supreme Court of Ohio, ... but rather one
  of general law, to be determined by a reference to all the
  authorities, and a consideration of the principles underlying the
  relations of master and servant. (181)

In dissent, Justice Field famously invoked the Constitution to reject this expansion of general law. According to Field, "there stands, as a perpetual protest against [the federal courts' expansion of general law] the Constitution of the United States, which recognizes and preserves the autonomy and independence of the States" to regulate local matters in the absence of a valid conflicting federal law. (182)

Federal courts nonetheless continued to expand the concept of general law leading up to Erie. Scholars noted this expansion while it was occurring, (183) at the time Erie was decided, (184) and in the decades that followed. (185) By 1938, federal courts claimed the right to exercise independent judgment over dozens of historically local law questions including negligence, punitive damages, and property rights. (186) State courts had never understood general law to govern such matters in the way that general law governed commercial disputes. Moreover, certain federal courts even went so far as to announce narrow, but important, exceptions to the traditional rule that they must follow settled state court interpretations of state statutes. (187)

Even as federal courts generalized local law in diversity cases, state courts continued to apply local state law. (188) When state courts ruled in accordance with Supreme Court determinations of general law, they professed to do so not out of obligation but because they either agreed with such determinations or accepted them as a matter of comity. (189) On many occasions, however, state courts chose to adhere to their own conceptions of local and general law. The resulting divergence between the law applied in state and federal courts gave rise to the "political and social" defects famously described by the Court in Erie. (190) These defects consisted of a lack of uniformity in state and federal courts on questions of "general law," (191) uncertainty regarding the line between general and local law, (192) and "discrimination resulting] from the wide range of persons held entitled to avail themselves of the federal rule by resort to the diversity of citizenship jurisdiction." (193) According to the Court, these defects demonstrated the "injustice and confusion incident to the [Swift] doctrine." (194)

Scholars have suggested various reasons for federal courts' expansion of general law after Swift. Some have argued that federal judicial expansion of general law was one aspect of a broader centralization of federal power after the Civil War, including by federal courts. (195) In the late eighteenth and early nineteenth century, the Court expanded its interpretation of the Commerce Clause and Due Process Clause of the Fourteenth Amendment, increasingly holding state economic regulations unconstitutional. (196) In 1867 and 1875, Congress expanded the removability of diversity cases from state courts, thereby enlarging the diversity jurisdiction of federal courts and providing more opportunities for federal courts to apply their own expansive conceptions of general law rather than local state law. (197)

In addition to the general expansion of national regulation after the Civil War, a shift in jurisprudential thought may have contributed to federal courts' increased willingness to exercise independent judgment over matters traditionally subject to local control. Professors Randall Bridwell and Ralph Whitten have argued that "the rise of a body of literature in the late nineteenth and early twentieth centuries that legitimated a process of judge-made law" may have contributed to the federal judicial expansion of the realm of law in which they expressly exercised independent judgment. (198)

Finally, scholars have argued that the death of Joseph Story in 1845 may have contributed to the expansion--and distortion--of the Swift doctrine. According to Professors Bridwell and Whitten, "his passing was bound to remove from the Court a great source of constitutional and common law understanding." (199) Whatever the reasons, the federal courts' expansion of general law while state courts localized general law meant that "an explosive clash of sovereignties was inevitable." (200)

C. Erie and the Supremacy Clause

By the time Erie was decided, the original rationale for the Swift doctrine was largely outmoded. In 1842, Swift looked to general commercial law when states did the same. By 1938, however, states no longer purported to apply general law to commercial questions (like the one in Swift), and states never understood general law to govern tort questions (like the one in Erie). The conclusion was now inescapable that federal courts sitting in diversity had long been disregarding state law with no basis in supreme federal law for doing so. Erie held that this practice violated the Constitution but did not clearly spell out the precise grounds for this conclusion. (201) Indeed, commentators continue to debate the constitutional basis for the Court's holding, (202) and some even question whether the Constitution was relevant to the Court's rejection of the Swift doc trine. (203) Careful review of the Court's opinion and the Constitution, however, suggests that Erie is best understood as resting on the negative implication of the Supremacy Clause.

The Supremacy Clause provides that "[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land." (204) According to procedures specified elsewhere in the Constitution, each source of law recognized by the Supremacy Clause must be enacted by multiple actors subject to the political safeguards of federalism, including the Senate.205 Amendments to the "Constitution" must be proposed by two-thirds of the House of Representatives and the Senate, or by a Convention called by two-thirds of the states, and then ratified by three-quarters of the states. (206) "Laws of the United States" must pass both the House and the Senate, and then be presented to the President for his approval. (207) If the President disapproves, then a bill can only become a "Law" if it is approved by two-thirds of the House and Senate. (208) Finally, "Treaties" can be made only by the President with the concurrence of "two thirds of the Senators present." (209)

All of these procedures permit the federal government to override state law only with the approval of the Senate acting in concert with at least one additional actor. These procedures preserve the governance prerogatives of the states in two related ways. First, requiring the approval of multiple actors makes federal lawmaking more difficult by creating the effect of a supermajority requirement. (210) Second, requiring the approval of the Senate to displace state law was historically understood to make excessive displacement of state law less likely because the Senate was designed to protect the states from federal overreaching. (211) The Swift doctrine, as courts came to define it, contradicted these political and procedural safeguards of federalism by permitting federal courts--acting alone--to disregard state law without any basis for doing so in "the supreme Law of the Land."

The underlying issue in Erie was one of tort liability within the traditional authority of the states. While walking alongside the railroad tracks, Tompkins, a citizen of Pennsylvania, was struck by an object protruding from a passing train. (212) Tompkins sued the railroad, a New York corporation, in federal court on the basis of diversity of citizenship. (213) Tompkins' ability to recover turned on what duty of care the railroad owed to pedestrians walking along the right of way. The railroad argued that Tompkins was a trespasser under Pennsylvania law and "that the railroad is not liable for injuries to undiscovered trespassers resulting from its negligence, unless it be wanton or willful." (214) Tompkins countered that "the railroad's duty and liability is to be determined in federal courts as a matter of general law." (215) The court of appeals agreed with Tompkins, (216) but the Supreme Court reversed. (217)

Without referring to the Supremacy Clause by name, the Erie Court nonetheless made clear by paraphrasing the Clause that only those sources of law recognized as "supreme" provide a constitutional basis for disregarding state law. The Court began its constitutional analysis with the following sentence: "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." (218) This sentence essentially restates the negative implication of the Supremacy Clause. (219) Because the Clause recognizes only the Constitution, laws, and treaties of the United States as the supreme law of the land, state law continues to govern in the absence of such law. The Court also underscored the federal courts' lack of constitutional power to displace state law on their own initiative. According to the Court, "no clause in the Constitution purports to confer ... power upon the federal courts ... 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." (220)

Applying these constitutional principles, the Erie Court rejected the so-called Swift doctrine, and required federal courts to apply state tort law to disputes like the one before the Court. (221) The Court emphasized that the "general law" applied by federal courts under the Swift doctrine had become "little less than what the judge advancing the doctrine [thought] at the time should be the general law on a particular subject." (222) Absent a governing provision of enacted federal law, federal judicial application of general law rather than local state law contradicted the Supremacy Clause and circumvented the procedural safeguards of federalism that it incorporates. It is not surprising, therefore, that the Supreme Court felt "compel[led]" by the Constitution to abandon the Swift doctrine and hold that--absent a contrary provision of the "Federal Constitution" or "Act[ ] of Congress"--federal courts must apply controlling written and unwritten state law in cases …