TABLE OF CONTENTS INTRODUCTION I. THE DISTINCTION BETWEEN GENERAL AND LOCAL LAW A. Local Law and General Law B. Judicial Adherence to the Distinction 1. Local Law in Federal Court a. State Statutes b. Unwritten Local Law 2. General Commercial Law in Federal Court C. Swift v. Tyson in Historical Context II. THE BREAKDOWN OF GENERAL AND LOCAL LAW A. State Efforts to Localize General Law B. Federal Judicial Efforts to Generalize Local Law C. Erie and the Supremacy Clause III. GENERAL LAW IN FEDERAL COURT AFTER ERIE A. Matters Within State Authority B. Matters Beyond State Authority 1. Territorial Integrity and Absolute Equality of States 2. Foreign Relations Powers of the Political Branches a. The Act of State Doctrine b. Head of State Immunity CONCLUSION
Conventional wisdom maintains that the Supreme Court banished general law from federal court in 1938. In Erie Railroad Co. v. Tompkins, the Court famously declared that "[t]here is no federal general common law." (1) In so doing, the Court overruled its 1842 decision in Swift v. Tyson. (2) Modern accounts start from the premise that Swift and Erie represent irreconcilable conceptions of federal judicial power, but this premise is mistaken. According to these accounts, Swift viewed the common law as a "brooding omnipresence," rather than a sovereign act, and authorized federal courts to disregard state common law in favor of general common law of their own choosing. (3) Erie, by contrast, constrained such judicial lawmaking by interpreting the Constitution to banish general law from federal courts in the face of contrary state law.(4) Because the Erie Court concluded that "the unconstitutionality of the course pursued" was "clear," it felt compelled to overrule Swift and abandon a doctrine that had been "widely applied throughout nearly a century." (5) The effect of this decision, it is said, was to prohibit federal courts from applying general law unless it qualifies as state law or, more controversially, as "federal common law." (6)
Although we agree that Erie rests on constitutional grounds, it does not follow that Swift was unconstitutional when it was decided or that the Constitution prohibits federal courts from applying general law under any circumstances. To the contrary, Swift and Erie represent compatible conceptions of federal judicial power when each decision is understood in its full historical context. In our view, Erie is best read as recognizing that federal courts must apply state law unless required to disregard such law by the Supremacy Clause. At the time Swift was decided, state common law largely incorporated general commercial law. General commercial law, or the law merchant, referred to shared commercial customs and practices among nations. General law was distinct from local law, which referred to law that applied only within the territorial jurisdiction of a particular sovereign. At the time Swift was decided, a federal court's application of general commercial law did not implicate the Supremacy Clause because federal and state courts alike did not understand general commercial law to be the law of a particular state. Accordingly, when federal courts applied general commercial law, they did not displace state law, but rather acted in accord with a state's choice to apply general commercial law.
The relevant distinction at the time was not between general law and state law, but between two kinds of state law: general law and local law. General law was "an identifiable body of rules and customs developed and refined by a variety of nations over hundreds and, in some cases, thousands of years." (7) Such law addressed matters of concern to more than one sovereign, and no single sovereign had the ability to fix its meaning. Thus, nations and states used independent judgment to ascertain the content of general law, and voluntarily applied such law in order "to foster peaceful coexistence and to facilitate mutually beneficial transactions among their citizens." (8) Local law, by contrast, governed "rights and titles to things having a permanent locality, such as the rights and titles to real estate, and other matters immovable and intraterritorial in their nature and character." (9) In England, the common law included both general and local law, and the states adopted the common law following independence. Swift acknowledged that federal courts exercising diversity jurisdiction were bound to follow state decisions on matters of local law. Because the issue in Swift was one of general commercial law, however, neither state nor federal courts understood the applicable law to be local to any particular sovereign. This meant that federal courts--like state courts--were expected to use independent judgment to ascertain the applicable rule of decision.
Although Swift was defensible when decided, the "Swift doctrine" that federal courts subsequently developed was problematic for two reasons. First, states increasingly exercised their prerogative to replace general commercial law with local law through both judicial decisions and state statutes. (10) This development rendered the federal courts' continued application of general commercial law in diversity cases constitutionally problematic. Second, federal courts steadily expanded their application of general law to matters historically governed by local law, such as torts and even real estate transactions. (11) In practice, these two developments meant that federal courts often disregarded state law with no warrant in the Supremacy Clause for doing so. As a result, the law applied to similarly situated litigants increasingly varied depending on whether the case was tried in state or federal court. (12) Erie eliminated this disparity by holding, as a matter of constitutional law, that federal courts must apply state law--whether written or unwritten--unless such law is preempted by the Constitution, acts of Congress, or treaties. (13)
Understood in historical context and in light of the constitutional structure, Swift and Erie establish that there is no categorical constitutional prohibition against the application of general law in federal court. Rather, the application of such law is problematic only when it disregards state law with no basis in the Supremacy Clause for doing so. (14) At the Founding, general law was synonymous with jus gentium, or the law of nations. (15) Courts and other writers recognized various branches of the law of nations, including the law merchant (or general commercial law), the law maritime, and the law governing relations between sovereign states. (16) In drafting Article III, the Founders fully expected federal courts to apply these branches of the law of nations in appropriate cases. (17) Article III extended the federal judicial power not only to cases arising under the Constitution, laws, and treaties of the United States, but also to cases in which general law was likely to apply, such as diversity cases between merchants, admiralty and maritime cases, and cases affecting ambassadors. Consistent with these expectations, federal courts applied the law merchant, the law maritime, and the law of state-state relations in appropriate cases within their jurisdiction.
Initially, courts paid little attention to whether they should classify general commercial law as state law because at the time little turned on that classification. (18) In England, the common law incorporated much of general law as a set of default rules until changed by Parliament. In the United States, the states received the common law--and hence much of general law--as their own background law subject to future alterations. Early acts of Congress generally required federal courts to apply state forms of proceeding and state rules of decision in actions at law unless preempted by enacted federal law. Although these directives required federal courts to respect a state's choice whether to apply general commercial law or local law to particular disputes, federal courts did not understand these statutes to require deference to state court understandings of general law. Because no sovereign had unilateral authority to prescribe the content of general law, the courts of each sovereign exercised independent judgment to determine its content and expected the courts of other sovereigns to do likewise. Thus, it was largely immaterial whether federal courts classified general commercial law as part of state common law or as some other source of law. Either way, federal courts were free to exercise independent judgment regarding the content of general law.
By the late nineteenth century, however, state abandonment of general commercial law and federal court expansion of the scope of general law created a growing dichotomy between the law applied in state and federal courts. (19) Increasingly, state courts applied local state law and federal courts applied so-called "general law" to the same kinds of disputes. As a result, judges frequently applied different rules of decision to similar cases based solely on whether the case was brought in state or federal court. Erie responded to the states' permissible localization of general law and the federal courts' improper generalization of local law by holding that--in the absence of supreme law of the land to the contrary--the Constitution requires federal courts to follow state law, including state common law as defined by state courts.
To reach this conclusion, the Court implicitly invoked the negative implication of the Supremacy Clause. (20) Each source of federal law recognized by the Supremacy Clausemthe Constitution, laws, and treaties of the United States--can only be adopted pursuant to procedures that require the participation and assent of at least two actors subject to "the political safeguards of federalism": the House of Representatives, the Senate, and the President. (21) More importantly, each source of supreme federal law can only be adopted with the participation and assent of the Senate--the federal institution designed to represent the states--or, in the case of the Constitution, with the assent of the states themselves. (22) These procedural safeguards of federalism leave states free to govern their own affairs unless and until the specified combination of political actors agree to override state law. (23) By design, the states "are represented in the Congress but not in the federal courts." (24) Thus, when federal courts disregarded state law in favor of general law of their own choosing, they circumvented the political and procedural safeguards provided by the Constitution (25) and "invaded rights ... reserved by the Constitution to the several States." (26)
Erie's holding that federal courts must follow state law unless preempted by the supreme law of the land does not mean that the Constitution categorically prohibits federal courts from applying general law. (27) The Erie Court's statement that "[t]here is no federal general common law" (28) has generated confusion because it conflated two distinct categories of law: general law and local common law. This statement is overbroad if taken to mean that federal courts may never apply general law in cases within their jurisdiction. To be sure, the Constitution requires federal courts to apply state law to matters within state authority in the absence of supreme federal law to the contrary. At the same time, however, the Constitution places certain matters beyond state authority and sometimes requires courts to apply general law as a means of upholding aspects of the constitutional structure. Under Erie, the relevant constitutional distinction is not whether general law or local law traditionally governed a particular matter. Rather, the relevant distinction under Erie is whether a particular matter falls within the (exclusive or concurrent) authority of the states, or falls beyond state authority. Erie determined that state law governs matters in the former category unless and until such law is preempted by the supreme law of the land. By contrast, however, general law may govern matters in the latter category when the application of such law is necessary to uphold an aspect of the constitutional scheme.
This Article proceeds as follows. Part I examines the distinction between local and general law that existed at the time of the Founding and continued at least through Swift. Careful examination of judicial decisions reveals that both federal and state courts applied local law in cases in which local law applied, and general law in cases in which general law applied. This examination tends to refute modern suggestions that the Swift Court misconstrued section 34 of the Judiciary Act of 1789 or usurped state authority under the Constitution.
Part II describes two subsequent developments that undermined the Swift doctrine. First, states gradually abandoned general commercial law in favor of local doctrines and statutes. Second, federal courts gradually expanded their conception of "general law" to encompass matters traditionally governed by local law, such as torts and titles to real property. The federal courts' expansion and continued application of the Swift doctrine despite these two developments contradicted the Supremacy Clause by disregarding state law with no basis in supreme federal law for doing so.
Part III explains why Erie does not prohibit the application of general law by federal courts in all circumstances. The constitutional principles applied in Erie require federal courts to distinguish between matters that fall within the exclusive or concurrent power of the states on the one hand, and those that fall beyond state authority on the other. As to the first category, Erie requires federal courts to follow state law in the absence of a controlling provision of the Constitution, laws, or treaties of the United States. But Erie does not prohibit federal judicial application of general law in cases beyond state regulatory authority. Indeed, sometimes federal courts must apply principles derived from general law in order to uphold basic features of the constitutional structure that preempt state law, such as the Constitution's allocation of specific foreign relations powers to the federal political branches. (29)
I. THE DISTINCTION BETWEEN GENERAL AND LOCAL LAW
To understand why the Supreme Court's original decision in Swift was consistent with the constitutional principles applied in Erie, one must begin by recognizing the traditional distinction between local and general law. (30) Local law was a body of written and unwritten law that concerned matters specific to a particular state or a nation, such as real property rights. (31) General law was a body of general rules and customs that concerned matters of common interest to more than one jurisdiction. (32) States and nations applied general law in order to advance their mutual interest in peace and prosperity. At the time Swift was decided, states had widely adopted general commercial law as part of their common law to govern commercial transactions between citizens of different states as well as certain kinds of transactions between their own citizens. The content of such law was not understood to be the command of any particular sovereign, but the product of reason and the common practices of the civilized world. Given the nature of general law, courts applying such law considered themselves free to exercise independent judgment to ascertain its content. Although state and federal courts sometimes disagreed about the precise content of such law, they understood themselves to be jointly administering a common body of law. Accordingly, neither state nor federal courts regarded the others' failure to follow their decisions on questions of general law as improper or an invasion of sovereign authority.
A. Local Law and General Law
"Municipal" law was understood to be the law of a particular nation or district within a nation. In his Commentaries on the Laws of England, William Blackstone defined "municipal" law as "the rule by which particular districts, communities, or nations are governed." (33) In "common speech," the expression "municipal law ... applied to any one state or nation, which is governed by the same laws and customs." (34) (Because the United States has a federal system, the federal government and each state has its own "municipal" law.)
English writers described two forms of municipal law: unwritten and written. (35) Unwritten customs, Blackstone explained, are "the universal rule of the whole kingdom, and form the common law, in its ... usual signification." (36) The judges of the several courts of Westminster had the duty to determine the content of the common law. (37) They professed to determine this law from prior judicial records (38) or, when no prior decision resolved a question, from established custom and reason. (39) In addition to the common law, England had a written municipal law. The "legis scriptae, the written laws of the kingdom," according to Blackstone, were "statutes, acts, or edicts, made by the king's majesty by and with the advice and consent of the lords spiritual and temporal and commons in parliament assembled." (40) Both written and unwritten municipal law provided rules of decision in English courts.
In addition, municipal law in England drew a distinction between local law and general law, a distinction important to understanding Swift. (41) Matters subject to local law were typically those that occurred within the territorial jurisdiction of the state and affected only that state, such as trusts and estates, property, local contracts, civil injuries, and crime. Local law could be written or unwritten. General law was an unwritten body of law based on custom and the laws of nature and reason. Matters governed by general law originally were those of interest to more than one state, such as commercial transactions between citizens of different states, maritime matters, and the relations between sovereign states. (42)
England voluntarily incorporated principles of general law into its municipal law because general law fostered peaceful relations and international commerce. (43) Such incorporation occurred through both common law and statutory adoption. Blackstone equated "general law" with the "law of nations," describing this law to encompass the law of state-state relations, the law merchant, and the law maritime. (44) In particular, he explained that
in mercantile questions, such as bills of exchange and the like; in all marine causes, relating to freight, average, demurrage, insurances, bottomry, and others of a similar nature; the law-merchant, which is a branch of the law of nations, is regularly and constantly adhered to. So too in all disputes relating to prizes, to shipwrecks, to hostages, and ransom bills, there is no other rule of decision but this great universal law, collected from history and usage, and such writers of all nations and languages as are generally approved and allowed of. (45)
As Philip Hamburger has emphasized, however, general law provided rules of decision in English courts only to the extent that the municipal laws of England, including the common law, adopted it. (46)
Following the Declaration of Independence, the states applied their own written and unwritten municipal law within their respective territories. By receiving the common law, the newly independent states made such law part of their own municipal law. The common law they received necessarily included both aspects of local law developed in England and those parts of the general law adopted by the English common law. States did not regard the content of general law as the command of any particular sovereign, but elected to apply it--as England had--in order to foster peaceful relations and commercial transactions with other nations and states. Of course, each state reserved the right to adapt the common law to its local conditions, but each state's reception of the common law immediately gave it a developed body of municipal law by which to govern itself. (47)
With the adoption of the Constitution, the Founders granted Congress limited and enumerated powers to enact specific kinds of municipal law for the United States as a whole. (48) In addition to limiting the kinds of laws Congress could enact, the Constitution prescribed precise procedures for the enactment of federal laws. According to these procedures, a bill becomes a law of the United States only if it is passed by both houses of Congress and signed by the President, or if two-thirds of both houses override the President's veto. (49) Because the Constitution presupposed the continued existence of states, (50) the Founders recognized that the federal government and the states would possess some degree of overlapping authority to regulate certain matters. Thus, in the United States--unlike in England--two sources of municipal law could operate at the same time in the same territory.
Given this concurrent authority to adopt municipal law, the Founders recognized the need for a mechanism to resolve the conflicts such authority would produce. After rejecting proposals to authorize military force or a congressional negative on state laws, the Founders ultimately adopted the Supremacy Clause to perform this function. The Clause recognizes three sources of federal law as "the supreme Law of the Land," and expressly directs state judges to apply such law notwithstanding contrary state law:
This 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; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. (51)
The Clause performs the essential function of elevating one form of municipal law (supreme federal law) above another form of municipal law (state law) in both state and federal courts. Article III reinforces the Supremacy Clause by authorizing Congress to confer both appellate jurisdiction on the Supreme Court to review state court determinations of federal law and original jurisdiction on lower federal courts to hear cases "arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority." (52) In the absence of such supreme federal law, however, the negative implication of the Supremacy Clause requires federal (and state) courts to apply state law.
The adoption of the Constitution also resulted in two sets of courts--one state and one federal--capable of applying both general and local law in appropriate cases. The Founders drafted several provisions of Article III to grant federal courts power to hear cases likely to implicate the general law of nations. (53) For example, Article III authorizes federal courts to hear controversies "between Citizens of different States" and controversies between "Citizens of a State and foreign Citizens or Subjects." (54) At the time, such cases frequently involved merchants from different states and nations. Because mercantile transactions were governed by the general law merchant, the Founders did not expect that a change of forum in such cases would result in a change in the applicable law. Rather, they merely assumed that adjudication by independent federal courts would reassure out-of-state merchants that their cases would be handled fairly.
B. Judicial Adherence to the Distinction
At least until Swift, state and federal courts understood--and tried to adhere to--the traditional distinction between local and general law. This meant that, in matters governed by local law, federal courts applied state statutes and local state customs having the force of law. In matters governed by general law, state and federal courts alike exercised independent judgment to ascertain and apply general law. (55) Neither state nor federal courts considered themselves bound by the others' interpretations of general law because both sets of courts "considered themselves to be deciding questions under a general law merchant that was neither distinctively state nor federal." (56)
This Section examines judicial application of general law and local law from the time of the Founding through the Supreme Court's 1842 decision in Swift v. Tyson. The Erie Court characterized Swift as holding
that federal courts exercising jurisdiction on the ground of diversity of citizenship need not, in matters of general jurisprudence, apply the unwritten law of the State as declared by its highest court; that they are free to exercise an independent judgment as to what the common law of the State is--or should be. (57)
This characterization of Swift has long been a standard account in federal courts cases and scholarship, but it is exaggerated and inaccurate because it conflates the distinct concepts of general law and common law. It also equates the content of general law with the decision of a state court ascertaining its content. As explained, the common law included both general and local law. (58) While federal courts deferred to state court decisions on questions of local law at the time of Swift, they did not defer to state court decisions ascertaining the content of general law. Thus, this account mischaracterizes Swift as holding that federal courts may exercise independent judgment about all forms of common law. Swift involved a relatively routine application of general commercial law, but expressly denied that federal courts had power to exercise independent judgment regarding the content of local state law, whether written or unwritten. The Court did not consider itself "free to exercise an independent judgment as to what the common law of the State ... should be." (59) Rather, the Court applied its best understanding of general law because the state itself had no local law governing the issue and looked instead to general commercial law to provide a rule of decision.
To place Swift in context, this Part examines how federal courts adhered to the distinction between general and local law in commercial cases in the decades preceding Swift--and indeed in Swift itself. It is important to consider early federal court decisions in light of this distinction and the acts of Congress that governed such cases. The Process Act of 1792 instructed federal courts to employ state forms and modes of proceeding in actions at law, subject to appropriate revisions by federal courts. (60) Accordingly, federal courts often applied local state law to determine what forms of proceeding they should follow. In addition, section 34 of the Judiciary Act of 1789 directed federal courts to apply local state law as a rule of decision in trials at common law where it applied. (61) Under this provision, federal courts routinely applied state law as rules of decision in local disputes. Finally, in the absence of an applicable federal law or a local state rule of decision, federal courts were expected to apply general commercial law. This Part describes early federal judicial decisions applying local state law and general commercial law as rules of decision. Read in light of the Process Act and section 34 of the Judiciary Act, early federal court opinions not only adhered to the distinction between general and local law, but also respected state authority to settle matters governed by local law.
First, before Swift, federal courts generally adhered to the distinction between general and local law. The modern misperception that federal courts treated all unwritten law as "ambient law" may stem in part from the Supreme Court's presumptive application of common law in many cases without expressly identifying it as the law of a particular state. This practice must be considered, however, in light of the context in which the Court resolved these cases. All states (except Louisiana) had adopted the common law (and by extension general law), and initially there were relatively few known variations in the common law from state to state62--a circumstance exacerbated by the dearth of reported state court decisions in the late eighteenth and early nineteenth centuries. Accordingly, in the absence of state court precedent to the contrary, the Court generally presumed that state law followed the common law of England in cases involving local matters and that general law applied in cases involving matters traditionally subject to such law. When reported state decisions clearly departed from English common law or supplanted general law, however, the Court applied the controlling state law.
Second, the Supreme Court generally followed state judicial decisions with respect to questions of local law, but not with respect to questions of general law. In almost all cases, the Supreme Court accepted state court interpretations of state statutes and state court explanations of local law. The Supreme Court did not, however, accept state court determinations of general law in the rare cases--such as Swift--in which general law remained unsettled. (63) States did not have the power to "settle" questions of general law. In such cases, the Court naturally exercised independent judgment to ascertain the content of such law.
In short, taken in its full legal and historical context, Swift was consistent with state law, relevant acts of Congress, and the constitutional structure.
1. Local Law in Federal Court
Prior to its decision in Swift, the Supreme Court often applied state law rules of decision in cases within its jurisdiction to commercial matters governed by local law. As explained, the Process Act directed federal courts, as a default rule, to apply state forms of proceeding, and section 34 required them to apply state rules of decision in actions at law. (64) Although it was not always clear where state forms of proceeding ended and state law rules of decision began, federal courts typically did not have to draw a sharp line between them because Congress directed them to apply both. If a state rule was part of a common law form of action, then the Process Act required federal courts to apply it in actions at law unless they exercised their residual authority to alter or add to state forms of proceeding. (65) If a state law constituted a local rule of decision, then section 34 required federal courts to apply it as well. (66) In short, when settled state law--statutory or common law--was determinative of a question in a commercial case at law, federal statutes generally required federal courts exercising jurisdiction over the case to apply such law.
a. State Statutes
The Supreme Court routinely applied state statutes in commercial cases from the Founding until Swift. For example, in 1818 in Lenox v. Prout, the Court applied a Maryland statute providing "that an endorser may tender to a plaintiff the amount of a judgment which he has recovered against the maker of a note, and obtain an assignment of it." (67) There was no suggestion that the Court was free to disregard such statutes in favor of unwritten law of its own choosing. (68) To the contrary, the Court regularly applied state statutes in commercial cases, (69) including statutes of frauds (70) and statutes concerning usury. (71)
In addition, prior to Swift, the Court followed settled state court interpretations of state statutes. At the time of the Founding, it may not have been a foregone conclusion that federal courts would follow such interpretations. (72) In time, however, the Marshall Court rooted this practice in a "universally recognized" principle that the courts of one sovereign should accept the interpretations that another sovereign's courts gave to its own enactments. (73) In 1825 in Elmendorf v. Taylor, in applying the Kentucky courts' settled interpretation of a Kentucky statute, Chief Justice Marshall explained for the Court:
This Court has uniformly professed its disposition, in cases depending on the laws of a particular State, to adopt the construction which the Courts of the State have given to those laws. This course is founded on the principle, supposed to be universally recognised, that the judicial department of every government, where such department exists, is the appropriate organ for construing the legislative acts of that government. Thus, no Court in the universe, which professed to be governed by principle, would, we presume, undertake to say, that the Courts of Great Britain, or of France, or of any other nation, had misunderstood their own statutes, and therefore erect itself into a tribunal which should correct such misunderstanding. We receive the construction given by the Courts of the nation as the true sense of the law, and feel ourselves no more at liberty to depart from that construction, than to depart from the words of the statute. (74)
In other cases, the Court described its respect for state court interpretations of state statutes as rooted in long-standing practice, especially in cases involving land titles, (75) but also in cases involving state statutes of frauds, statutes of limitations, and commercial regulations. (76) In 1829 in Beach v. Viles, the Court followed a state court construction of a 1795 Massachusetts statute that allowed "a foreign attachment against garnishees, who possess goods, effects or credits of the principal debtor." (77) Writing for the Court, Justice Story explained that "[t]he present being a suit upon a local statute, ... the decisions which have been made upon the construction of that statute by the state courts, are entitled to great respect; and ought in conformity to the uniform practice of this Court to govern our own decisions." (78)
b. Unwritten Local Law
In addition, the Supreme Court generally followed settled unwritten state law in cases to which local law applied. At the time of the Founding, this practice may not have been a foregone conclusion in cases in which a federal court believed that a state court decision mistook actual local customs. (79) Nonetheless, from early on, federal courts treated state court understandings of local law as conclusive, (80) This practice both comported with "abstract notions of state sovereignty" and "had some very practical benefits for the citizenry." (81) The Court's 1830 decision in Bank of the United States v. Tyler provides an example, (82) In Tyler, the Court addressed whether the assignee of a promissory note was obliged to pursue redress against the drawer of the note before proceeding against an endorser, (83) The Court began by observing that "[a]s this note was drawn, assigned, and payable in Kentucky, the obligations and rights of the parties must depend on the laws of that state." (84) Although Kentucky statutes did not address the question before the Supreme Court, "the courts of that state ha[d] clearly defined"--as a matter of "local law"--that "[t]he assignee cannot maintain an action" against the assignor until the assignee "has made use of all due and legal diligence to recover the money from the drawer." (85) The Court believed that this local principle--"exact [ing] such an unusual degree of vigilance from the assignee"--was "peculiar to the jurisprudence of Kentucky." (86) Indeed, the Court noted that "no decisions in any state.., have extended the rule of diligence so far." (87) Nonetheless, the Court concluded that
[t]hese rules are the law of the case; and although in our opinion they carry the doctrine of diligence to an extent unknown to the principles of the common law, or the law of other states, where bonds, notes, and bills are assignable, we must adopt them as the guide to our judgment, (88)
The Court concluded that "it is not an open question, whether these principles shall be respected by this court," and did not "feel authorised to depart from them in a case to which their application cannot be questioned." (89)
2. General Commercial Law in Federal Court
From the Founding through the Swift decision, state and federal courts alike understood the law merchant--or general commercial law--to govern commercial disputes in the absence of a state statute or fixed customary practice establishing a local rule of decision to the contrary. Scholars have long pondered the origins and development of the medieval law merchant as a general body of customary laws. (90) By the time of the Founding, however, judges and other public officials in England and the United States understood the law merchant as a body of customary rules incorporated by the common law.
State courts routinely applied the general law merchant in commercial cases as part of their common law, unless local law superseded it. State courts understood the law merchant to be a transnational, rather than local, body of customary law. As the Supreme Court of New York explained in Woodworth v. Bank of America, "[t]he Law Merchant relative to bills of exchange and endorsed notes, and commercial paper generally, is not the law of this state only, but of all the states of the Union, and of all the commercial nations of Europe." (91) This meant that state courts looked to precedents from multiple jurisdictions and exercised independent judgment to determine the precise content of general commercial law. In most cases, state courts applied general commercial law rules that they considered to be well established across jurisdictions. In cases of doubt, however, state courts exercised independent judgment on questions of general law.
State courts consulted treatises, English cases, other state court cases, and federal court cases in discerning rules of the general commercial law, but they did not consider any of these sources to be authoritative. Rather, they consulted these sources as evidence of customary multijurisdictional commercial law. In 1806, Virginia Supreme Court of Appeals Judge Spencer Roane nicely captured this sentiment. He explained that as "the greatest Judges who ever sat in England have often consulted eminent jurists and merchants on the continent, in relation to" the law merchant, so "we avail ourselves of the testimony of eminent writers on those subjects, though clothed with no authority whatsoever." (92) In addition, he described English judicial decisions "as affording evidence of the opinions of eminent Judges as to the doctrines in question, who have at least as great opportunities to form correct opinions as we have." (93) Although English cases were evidence of general law, the Virginia courts did not consider themselves bound by them. (94) Likewise, although state courts consulted decisions of other state courts on general commercial law, state courts did not consider themselves bound by such decisions. (95)
Like state courts, federal courts applied general commercial law in the absence of local rules of decision, and exercised independent judgment to determine its content. English courts applied general commercial law because the common law incorporated such law as part of the municipal law of England. Federal courts did not have any need to address explicitly whether they were applying general law as state municipal law (incorporated as part of state common law) or as some other form of law. There are certain indications, however, that early federal courts assumed that general commercial law applied in federal court by virtue of state incorporation of such law. One indication is that federal courts understood states to possess authority to displace general commercial law with local law. For example, prior to Swift, Justice Story considered himself bound to apply a local state law deviation from the general commercial law. (96) If a state court's decision to replace general commercial law with local law was binding on federal courts, federal courts may also have considered themselves bound to apply general law because the state had adopted general law as the governing rule of decision. In Swift itself, the Supreme Court applied general commercial law only after noting that New York courts applied general rather than local law to decide the issue before the Court. (97) Moreover, neither federal nor state courts considered federal decisions on matters of general law to be binding in state court even after Swift, when federal courts expanded general law and disregarded local law with increasing frequency. Indeed, it was this growing disparity between the law applied in federal and state courts that gave rise to the "injustice and confusion" described in Erie. (98)
Regardless of whether federal courts applied general commercial law as state law or as another form of law, the important point for present purposes is that, well before Swift, federal courts routinely applied general commercial law as a rule of decision unless state law displaced or opted out of it. (99) Indeed, Justice Story--the author of Swift--unremarkably applied general commercial law on behalf of the Court in the years preceding Swift. In 1825 in Bank of the United States v. Bank of Georgia, the Bank of the United States presented notes to the Bank of Georgia that had been issued by the latter but were "fraudulently altered" while in circulation. (100) The Bank of Georgia accepted the notes before discovering the forgery several days later. (101) The question before the Court was whether the Bank of Georgia should bear the loss when both parties were equally innocent of the forgery. (102) Justice Story first considered "general considerations" of "public convenience and policy," concluding that "the receipt by a bank of forged notes, purporting to be its own, must be deemed an adoption of them," because a bank, unlike the party presenting them, was "bound to know" its own instruments. 103 "Passing from these general considerations," Justice Story "inquire[d] how, in analogous cases, the law has dealt with this matter." (104) Justice Story identified English and American state cases reasoning that a bank has a duty to know its own notes. (105) "Against the pressure of these authorities," Justice Story concluded, "there is not a single opposing case; and we must, therefore, conclude, that both in England and America, the question has been supposed to be at rest." (106) Thus, "the defendants were bound to know their own notes, and having received them without objection, they cannot now recal their assent." (107) The Court routinely applied general law in cases involving bills of exchange, promissory notes, and other mercantile instruments. (108)
Like state courts, federal courts applying general law did not consider themselves bound by judicial decisions from other jurisdictions expounding the content of such law. Even if general law was incorporated as a form of state municipal law, there was nothing anomalous about federal courts exercising independent judgment to ascertain its content. Unlike local law, general law was understood to reflect reason and practices common to many nations. Accordingly, whether applied by federal or state courts, general law--by its very nature--did not require deference to the judicial decisions of any particular sovereign. Rather, the courts of every nation or state had the right and the responsibility to use their independent judgment to ascertain the content of such law. (109)
Well before Swift, the Supreme Court did not consider itself bound by state court decisions applying general commercial law. For example, in 1833 in Nichols v. Fearson, the Court resolved a question of "general mercantile interest" not according to the decisions of any particular state but "upon what appear[ed] to us to be the weight of authority." (110) Fearson endorsed a promissory note for $101 over to Nichols in exchange for $97 cash. (111) The issue was whether this transaction was usurious and the promissory note thus unenforceable. (112) After reviewing state court decisions from New York, Massachusetts, and Connecticut, the Court stated that "[u]pon a subject of such general mercantile interest, we must dispose of the question according to our own best judgment of the law." (113) The Court "recollect[ed] no other case in which [it had] been called upon to consider the effect of usury upon the contracts of parties to negotiable paper," and thus was "uncommitted upon the question ... and free to decide it, as well upon reason and principle, as upon what appears to us to be the weight of authority." (114) Although the Court had "not ... leisure fully to explore the decisions of the states on the question, ... as far as we have gone, the great weight of authority is certainly in favour of the validity of the contract under review." (115) The Court concluded, then, "upon both reason and authority," that the promissory note was enforceable. (116)
Notably, Justice Story endorsed this view as Circuit Justice in two 1838 decisions, foreshadowing his opinion in Swift four years later. First, in Williams v. Suffolk Insurance Co., Justice Story explained that a rule of decision
being founded, not upon local law, but upon the general principles of commercial law, would be obligatory upon this court, even if the decisions of the state court of Massachusetts were to the contrary; for upon commercial questions of a general nature, the courts of the United States possess the same general authority, which belongs to the state tribunals, and are not bound by the local decisions. They are at liberty to consult their own opinions, guided, indeed, by the greatest deference for the acknowledged learning and ability of the state tribunals, but still exercising their own judgment, as to the reasons, on which those decisions are founded. (117)
Similarly, in Robinson v. Commonwealth Insurance Co., Justice Story, after addressing a question of general commercial law, observed:
I am aware, that a rule somewhat different has been laid down by the supreme court of Massachusetts, for whose judgments I entertain the most unfeigned respect. But questions of a commercial and general nature, like this, are not deemed by the courts of the United States to be matters of local law, in which the courts of the United States are positively bound by the decisions of the state courts. They are deemed questions of general commercial jurisprudence, in which every court is at liberty to follow its own opinion, according to its own judgment of the weight of authority and principle. (118)
As these opinions suggest, however, when local state enactments or local state customs clearly established a rule at variance from the general commercial law, federal courts considered themselves bound by the local departure. Such instances were rare, but not unprecedented, in the years before Swift because state laws largely conformed to general commercial law. The general commercial law, a branch of the law of nations, was subject to local deviations. Thus, English courts recognized and applied local customs and usages that supplemented or supplanted the general law merchant. (119) American courts likewise recognized that fixed local usages governed as rules of decision even if they departed from the general law merchant, and that the law merchant itself was not perfectly consistent from nation to nation. (120) Local laws regulating forms of proceeding commonly provided rules of decision in cases in which the law merchant otherwise might apply. (121) Like other courts, federal courts presumed that local statutory and common law rules governed even when they conflicted with or supplanted the general commercial law. (122)
Justice Story himself recognized that federal courts were bound to follow state court decisions when they opted out of general law and established local law in its place. For instance, in 1826 in Halsey v. Fairbanks, Justice Story, sitting as circuit justice, addressed whether a debtor's assignment of property to a trustee was fraudulent as to his creditors. (123) Justice Story began his opinion by explaining:
In one sense, the present discussion may be said to depend upon local law; in another, to depend upon general principles and presumptions belonging to the common law, in its widest application. So far as there may be any peculiarity in the jurisprudence and laws of Massachusetts, which limits the effect, or destroys the validity of general assignments, the question is local. So far as it involves principles and presumptions of constructive fraud upon creditors, the question must turn upon the same considerations substantially, as would govern it in New York, Pennsylvania, or England. (124)
After considering the general law, Justice Story identified a Massachusetts case, Widgery v. Haskell, (125) that had "been pressed upon the attention of the court, as containing a doctrine not entirely consonant with the English doctrine, and establishing, in some sort, a rule of local law." (126) It is worth quoting Justice Story's analysis of Widgery at length:
It is not ... my intention to go into a commentary upon the case of Widgery v. Haskell, or to question, that it was rightly decided upon its own circumstances. I must indeed confess, that some of the reasoning, used by the learned chief justice on that occasion, did not then convince my mind, and upon frequent revisions since, I remain still unconvinced of its accuracy. ... So far, however, as it may be presumed to stand upon local law, my duty is to follow it, and it will be performed without hesitation. I understand, then, the case of Widgery v. Haskell to have decided, that in Massachusetts an assignment to a trustee, executed by a debtor bona fide for the benefit of creditors, is not valid, unless the creditors are parties to, or assent to the deed. (127)
In sum, contrary to modern assertions that federal courts exercised independent judgment over all forms of state common law, federal courts drew an important distinction between general law and local law. Traditionally, federal courts exercised independent judgment only on questions of general law, and deferred to settled state court decisions on questions of local law.
Not surprisingly, just as federal courts did not consider themselves bound by state court pronouncements on general law, state courts did not consider themselves bound by Supreme Court pronouncements on such law. For example, in 1830 in Thompson v. Cumming, the Supreme Court of Appeals of Virginia explained that the "custom of merchants" as stated by the Supreme Court of the United States "does not bind us." (128) Rather, the Virginia court was "free to follow, and ought to follow, the rule of the law merchant, as long settled in England, and in most of the states of the Union." (129) State courts continued to exercise independent judgment on general commercial law matters even after Swift was decided, as Part II.B explains. Shortly after Swift, for instance, counsel urged New York's highest court to conform its decision "to the opinion of Mr. Justice Story in the recent case of Swift v. Tyson." (130) Although recognizing that on "question[s] of commercial law, ... it is desirable that there should be, as far as practicable, uniformity of decision," the New York court nonetheless declined to follow the rule applied in Swift and characterized the Supreme Court as a "tribunal, whose decisions are not of paramount authority" on such questions. (131)
C. Swift v. Tyson in Historical Context
This background provides essential context for understanding the Supreme Court's decision in Swift v. Tyson. (132) Scholars and judges have long criticized Swift on two grounds. First, commentators claim that Swift misinterpreted section 34 of the Judiciary Act by holding that the provision only applied to state statutes and not to unwritten state law. (133) Second, commentators suggest that the Swift Court usurped state regulatory authority by disregarding state court precedent and applying its own conception of general commercial law. (134) Neither critique holds up when Swift is understood in historical context. At the time it was decided, Swift was an unexceptional opinion, using independent judgment to ascertain and apply general commercial law just as federal and state courts had done in numerous cases before it. Swift was different only insofar as the Supreme Court disagreed with the apparent understanding of general commercial law by the courts of New York--the state with local authority over the transaction. Although such disagreements were rare, they were always possible when a federal court exercised independent judgment to ascertain applicable principles of general law. This was the nature of general law.
In Swift, Tyson bought land from speculators, Norton and Keith, using a bill of exchange.(135) The speculators in turn gave Swift the negotiable instrument to satisfy a debt they owed Swift.(136) When Swift sought payment on the instrument from Tyson, Tyson refused to pay on the ground that the speculators had fraudulently induced him to buy land that the speculators did not own.(137) If the Court found that Swift gave valuable consideration and was a bona fide holder of the instrument, then Tyson had no defense against him. Whether Swift was entitled to payment turned on whether release of a preexisting debt was valid consideration for the note. As Justice Story explained for the Court, "the only real question in the cause is, whether, under the circumstances of the present case, such a preexisting debt constitutes a valuable consideration in the sense of the general rule applicable to negotiable instruments." (138)
Before resolving this question, the Court had to ascertain the source of the applicable law. Tyson argued that the Court should treat the transaction "as a New York contract, and therefore to be governed by the laws of New York, as expounded by its Courts, as well upon general principles," in accordance with section 34 of the Judiciary Act.(139) Tyson "further contended, that by the law of New York, as thus expounded by its Courts, a pre-existing debt does not constitute, in the sense of the general rule, a valuable consideration applicable to negotiable instruments." (140) Justice Story assumed that New York courts held this view of the general law, but he concluded that the Supreme Court was not bound to follow the New York courts' understanding "if it differs from the principles established in the general commercial law." (141) The Swift Court made three important points in the course of deciding the case.
First, the Court stressed that the question to be decided was one of general law rather than local law, and that local law could be written or unwritten. According to the Court, local state law extended only "to the positive statutes of the state, and the construction thereof adopted by the local tribunals, and to rights and titles to things having a permanent locality, such as the rights and titles to real estate, and other matters immovable and intraterritorial in their nature and character." (142) "[Q]uestions of a more general nature," by contrast, are "not at all dependent upon local statutes or local usages of a fixed and permanent operation," but include "questions of general commercial law, where the state tribunals are called upon to perform the like functions as ourselves, that is, to ascertain upon general reasoning and legal analogies, ... what is the just rule furnished by the principles of commercial law to govern the case." (143) Indeed, the Court went out of its way to emphasize that New York state courts themselves understood the question before the Court as one of general law rather than local law. As the Court put it, "[i]t is observable that the Courts of New York do not found their decisions upon this point upon any local statute, or positive, fixed, or ancient local usage: but they deduce the doctrine from the general principles of commercial law." (144)
Second, the Court rejected the contention that section 34 of the Judiciary Act requires federal courts to follow state court decisions on questions of general law. Section 34 provided "[t]hat 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 decision in trials at common law in the courts of the United States, in cases where they apply." (145) The Court denied that the statute's reference to "the laws of the several states" included the decisions of state courts. Echoing Blackstone, the Court first remarked that such decisions "are, at most, only evidence of what the laws are; and are not of themselves laws." (146) According to the Court, "[t]he 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." (147) Although federal courts had long deferred to state court decisions interpreting state enactments or applying local state customary law, federal courts had never deferred to state court understandings of general commercial law. Because state courts did not understand themselves to be fixing the content of general law unilaterally, their decisions were mere evidence of the content of such law.
The Court's discussion of this point clearly contradicts conventional accounts that Swift (mis)interpreted section 34 to apply to state statutes, but not to unwritten state law. In fact, the crucial distinction drawn by the Court was not between written and unwritten law at all, but between general and local law, whether written or unwritten. Thus, the Court explained that
the true interpretation of the thirty-fourth section limited its application to state laws strictly local, that is to say, to the positive statutes of the state, and the construction thereof adopted by the local tribunals, and to rights and titles to things having a permanent locality, such as the rights and titles to real estate, and other matters immovable and intraterritorial in their nature and character.(148)
In other words, the Court read section 34 to apply not only to local statutes but also to "local customs having the force of laws" or "local usages of a fixed and permanent nature," (149) the meaning and content of which state court decisions conclusively fixed as far as federal courts were concerned.
Conversely, the Court denied that section 34
did apply, or was designed to apply, to questions of a more general nature; not at all dependent upon local statutes or local usages of a fixed and permanent operation, as, for example, to the construction of ordinary contracts or other written instruments, and especially to questions of general commercial law. (150)
Given the nature of general law, this conclusion was hardly novel or surprising. At the time, judges did not regard any one sovereign as having the authority to fix the content of general law for other sovereigns. Although "the decisions of the local tribunals upon such subjects are entitled to, and will receive, the most deliberate attention and respect of this Court[,] they cannot furnish positive rules, or conclusive authority, by which our own judgments are to be bound up and governed." (151) Rather, "[t]he law respecting negotiable instruments may be truly declared ... to be in a great measure, not the law of a single country only, but of the commercial world." (152)
Third, because the question in Swift was one of general law to which section 34 did not apply, the Court concluded that federal courts--no less than state courts--were free to use their independent judgment to ascertain the content of the applicable law. With respect to "questions of general commercial law," Justice Story explained that
the state tribunals are called upon to perform the like functions as ourselves, that is, to ascertain upon general reasoning and legal analogies, what is the true exposition of the contract or instrument, or what is the just rule furnished by the principles of commercial law to govern the case.(153)
In performing this function, the Court examined both reason and authority.(154) "[W]hy upon principle," the Court asked, "should not a pre-existing debt be deemed such a valuable consideration?" (155) As a matter of reason,
[i]t is for the benefit and convenience of the commercial world to give as wide an extent as practicable to the credit and circulation of negotiable paper, that it may pass not only as security for new purchases and advances, made upon the transfer thereof, but also in payment of and as security for pre-existing debts.(156)
The more restrictive doctrine allegedly embraced by New York courts "would strike a fatal blow at all discounts of negotiable securities for pre-existing debts." (157) As a matter of judicial authority, the Court explained, the overwhelming weight of decisions was that a preexisting debt constituted a valuable consideration. Because this was a question of general law, the Court canvassed a wide range of sources, including its prior opinions, English decisions, treatises, and the decisions of American state courts.(158) On the basis of this review, the Court had "no hesitation" in concluding "that a pre-existing debt does constitute a valuable consideration in the sense of the general rule already stated, as applicable to negotiable instruments." (159)
In context, Swift v. Tyson was not a path-breaking case. Rather, it followed a long line of cases applying general law in federal court. Tellingly, in the years that immediately followed, courts did not cite Swift for the proposition that federal courts sitting in diversity could apply general law because that proposition was unremarkable. Rather, they cited it as authority merely for the specific principle of general law that it endorsed.(168) Courts certainly did not cite Swift in those years for the extravagant claim that federal courts could exercise independent judgment over all forms of state common law, be it general law or local law. Swift merely signaled that federal courts would apply general law when state courts would apply general law, and that federal courts would exercise independent judgment as to the content of such law, just as state courts would. Because New York courts applied general law rather than any local New York statute or custom to decide the question in Swift, neither the Constitution nor early acts of Congress imposed any impediment to the application of general law in federal court.…