Erie’s Unintended Consequence: Federal Courts Creating State Law
30 Pages Posted: 18 Oct 2018 Last revised: 9 Nov 2018
Date Written: September 21, 2018
This article charts effects of Erie v. Tompkins that are antithetical to the Erie Court’s objectives. Erie sought to limit the ability of federal courts to make substantive law and to discourage forum shopping by litigants. Following Erie, federal courts must often ascertain state law by predicting how a state’s highest court would rule on a given issue. Nonetheless, where state law is unclear, antiquated, in flux, or nonexistent, federal judges may be unwittingly compelled to decide what state law should be. Thus, despite Erie’s aims, the Erie decision empowered federal courts to make state law—and they enjoy wide latitude to do so.
The questions now are: What are the consequences? Are they desirable? And, if not, what should be done to cabin potentially-harmful effects? This article addresses each of these questions. On one hand, Erie encourages intellectual dialogue among state and federal judges, fostering cross-fertilization of legal principles, better-reasoned legal analysis, and more diverse opportunities for resolving disputes. For example, an “incorrect” decision by a federal court may prompt a state court to sharpen its position on a state law issue. On the other hand, Erie leaves room for federal judges to shape state law to further their own ideological agendas at the expense of federalism principles. Further, Erie and state choice of law rules have created new opportunities for litigant forum shopping, both vertically (state-federal) and horizontal (state-state). Thus, when trends suggest that legal rules are in flux and litigants want to avoid a potentially outdated decision of a state’s high court, a litigant may choose to file in federal court if the litigant believes that the federal court will interpret the law in accordance with the new trends rather than the unfavorable state high court decision. In sum, both benefits and risks exist to having federal courts weigh-in on state law questions. This article concludes by suggesting that, in addition to encouraging certifying questions to state courts and observing appropriate abstention principles, federal courts should exercise restraint when interpreting state law to respect the state courts’ ultimate authority to decide questions of state law.
Keywords: Erie v. Tompkins, federal courts, forum shopping, state law, federal judges
JEL Classification: K40, K41
Suggested Citation: Suggested Citation