General law in federal court.

• Author: Bellia, Anthony J., Jr.
• Position: II. The Breakdown of General and Local Law through Conclusion, with footnotes, p. 693-724

2. 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.

   1. 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.

   2. 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...