Issue
By the time the Supreme Court's decision in Erie was handed down, it had long been settled that when a federal court hears a state cause of action brought in federal district court in diversity, the statutory law of the state would be applied. However, in the case of Swift v. Tyson, 41 U.S. 1 (1842), the Supreme Court had held that the federal courts need not also apply the court-made common law of the states. This had led to forum shopping, a litigation tactic whereby plaintiffs would seek to sue in federal court instead of state court in order to have a different substantive law applied. In light of this inequity, the Supreme Court had to determine whether federal courts should apply state common law.
Read more about this topic: Erie Railroad Co. V. Tompkins
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