LAW 521-002 – Civil Procedure I
Federal courts must apply both state substantive and common law to substantive issues in diversity cases when the conflicting state law encourages “forum shopping.” The goal should be to replicate state practices regarding state substantive law when deciding a state law claim. Erie.
To apply state law, the conflict between state and federal laws must be “outcome determinative” (the “outcome determinative” test). Guaranty Trust.
In addition to the outcome determinative test, to apply state law the court must also find that the state rule is "bound up" with state created rights or obligations. If so, the court must balance the state interest against the federal interest in maintaining the integrity of its court system. However, when balancing, the state rule is applied absent a strong countervailing federal interest that would compromise the integrity of the federal court system. Byrd.
When state law would apply using the balancing approach in Byrd, the court must also examine whether it can accommodate or reconcile both the state and federal law. If not, apply the state law as is. Semtek.
If there is a direct and irreconcilable conflict between the state rules and the Federal Rules of Civil Procedure, apply the Federal Rules of Civil Procedure unless it
- goes beyond “prescribing general rules of practice and procedure,” or
- “abridges, enlarges, or modifies a substantive right.”
State “conflict of laws” rules are “substantive” and thus courts need to apply the conflict of laws rules of the state where the district court is sitting to determine which state law to apply. Klaxon.