In a suit in equity in a federal court to recover upon a
State-created right, jurisdiction being based solely upon diversity
of citizenship of the parties, a recovery cannot be had if a state
statute of limitations would have barred recovery had the suit been
brought in a court of the State.
Erie R. Co. v. Tompkins,
304 U. S. 64,
followed. P.
326 U. S.
108.
143 F.2d 503 reversed.
Certiorari, 323 U.S. 693, to review the reversal of a summary
judgment for the defendant (petitioner here) in a suit of which the
federal court had jurisdiction solely because of diversity of
citizenship of the parties.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
In
Russell v. Todd, 309 U. S. 280,
309 U. S. 294, we
had
"no occasion to consider the extent to which federal courts, in
the exercise of the authority conferred upon them by Congress to
administer equitable remedies, are bound to follow state statutes
and decisions affecting those remedies."
The
Page 326 U. S. 100
question thus carefully left open in
Russell v. Todd is
now before us. It arises under the following circumstances.
In May, 1930, Van Sweringen Corporation issued notes to the
amount of $30,000,000. Under an indenture of the same date,
petitioner, Guaranty Trust Co., was named trustee with power and
obligations to enforce the rights of the noteholders in the assets
of the Corporation and of the Van Sweringen brothers. In October,
1930, petitioner, with other banks, made large advances to
companies affiliated with the Corporation and wholly controlled by
the Van Sweringens. In October, 1931, when it was apparent that the
Corporation could not meet its obligations, Guaranty cooperated in
a plan for the purchase of the outstanding notes on the basis of
cash for 50% of the face value of the notes and twenty shares of
Van Sweringen Corporation's stock for each $1,000 note. This
exchange offer remained open until December 15, 1931.
Respondent York received $6,000 of the notes as a gift in 1934,
her donor not having accepted the offer of exchange. In April,
1940, three accepting noteholders began suit against petitioner,
charging fraud and misrepresentation. Respondent's application to
intervene in that suit was denied,
Hackner v. Guaranty Trust
Co., 117 F.2d 95, and summary judgment in favor of Guaranty
was affirmed.
Hackner v. Morgan, 130 F.2d 300. After her
dismissal from the
Hackner litigation, respondent, on
January 22, 1942, began the present proceedings.
The suit, instituted as a class action on behalf of nonaccepting
noteholders and brought in a federal court solely because of
diversity of citizenship, is based on an alleged breach of trust by
Guaranty in that it failed to protect the interests of the
noteholders in assenting to the exchange offer, and failed to
disclose its self-interest when sponsoring the offer. Petitioner
moved for summary judgment, which was granted, upon the authority
of the
Hackner case. On appeal, the Circuit Court of
Appeals, one Judge dissenting,
Page 326 U. S. 101
found that the
Hackner decision did not foreclose this
suit, and held that, in a suit brought on the equity side of a
federal district court, that court is not required to apply the
State statute of limitations that would govern like suits in the
courts of a State where the federal court is sitting, even though
the exclusive basis of federal jurisdiction is diversity of
citizenship. 143 F.2d 503. The importance of the question for the
disposition of litigation in the federal courts led us to bring the
case here. 323 U.S. 693.
In view of the basis of the decision below, it is not for us to
consider whether the New York statute would actually bar this suit
were it brought in a State court. Our only concern is with the
holding that the federal courts in a suit like this are not bound
by local law.
We put to one side the considerations relevant in disposing of
questions that arise when a federal court is adjudicating a claim
based on a federal law.
See, for instance, Board of Comm'rs v.
United States, 308 U. S. 343;
Deitrick v. Greaney, 309 U. S. 190;
D'Oench, Duhme & Co. v. FDIC, 315 U.
S. 447;
Clearfield Trust Co. v. United States,
318 U. S. 363;
O'Brien v. Western Union Telegraph Co., 113 F.2d 539. Our
problem only touches transactions for which rights and obligations
are created by one of the States, and for the assertion of which,
in case of diversity of the citizenship of the parties, Congress
has made a federal court another available forum.
Our starting point must be the policy of federal jurisdiction
which
Erie R. Co. v. Tompkins, 304 U. S.
64, embodies. In overruling
Swift v.
Tyson, 16 Pet. 1;
Erie R. Co. v. Tompkins
did not merely overrule a venerable case. It overruled a particular
way of looking at law which dominated the judicial process long
after its inadequacies had been laid bare.
See, e.g.,
Field, J., dissenting in
Baltimore & O. R. Co. v.
Baugh, 149 U. S. 368,
149 U. S. 391;
Holmes, J., dissenting in
Kuhn v. Fairmont Coal Co.,
215 U. S. 349,
Page 326 U. S. 102
215 U. S. 370,
and in
Black & White Taxi. Co. v. Brown & Yellow Taxi.
Co., 276 U. S. 518,
276 U. S. 532;
Erie R. Co. v. Tompkins, supra, at
304 U. S. 73,
note 6. Law was conceived as a "brooding omnipresence" of Reason,
of which decisions were merely evidence, and not themselves the
controlling formulations. Accordingly, federal courts deemed
themselves free to ascertain what Reason, and therefore Law,
required wholly independent of authoritatively declared State law,
even in cases where a legal right as the basis for relief was
created by State authority, and could not be created by federal
authority, and the case got into a federal court merely because it
was "between Citizens of different States" under Art. III, § 2, of
the Constitution of the United States.
This impulse to freedom from the rules that controlled State
courts regarding State-created rights was so strongly rooted in the
prevailing views concerning the nature of law that the federal
courts almost imperceptibly were led to mutilating construction
even of the explicit command given to them by Congress to apply
State law in cases purporting to enforce the law of a State.
See § 34 of the Judiciary Act of 1789, 1 Stat. 73, 92. The
matter was fairly summarized by the statement that,
"During the period when
Swift v. Tyson (1842-1938)
ruled the decisions of the federal courts, its theory of their
freedom in matters of general law from the authority of state
courts pervaded opinions of this Court involving even state
statutes or local law."
Vanderbark v. Owens-Illinois Glass Co., 311 U.
S. 538,
311 U. S.
540.
In relation to the problem now here, the real significance of
Swift v. Tyson lies in the fact that it did not enunciate
novel doctrine. Nor was it restricted to its particular situation.
It summed up prior attitudes and expressions in cases that had come
before this Court and lower federal courts for at least thirty
years at law, as well as in equity. [
Footnote 1]
Page 326 U. S. 103
The short of it is that the doctrine was congenial to the
jurisprudential climate of the time. Once established, judicial
momentum kept it going. Since it was conceived that there was "a
transcendental body of law outside of any particular State, but
obligatory within it unless and until changed by statute,"
276 U. S. 276 U.S.
518,
276 U. S.
532-533, State court decisions were not "the law," but
merely someone's opinion -- to be sure, an opinion to be respected
-- concerning the content of this all-pervading law. Not
unnaturally, the federal courts assumed power to find for
themselves the content of such a body of law. The notion was
stimulated by the attractive vision of a uniform body of federal
law. To such sentiments for uniformity of decision and freedom from
diversity in State law the federal courts gave currency,
particularly in cases where equitable remedies were sought, because
equitable doctrines are so often cast in terms of universal
applicability when close analysis of the source of legal
enforceability is not demanded.
In exercising their jurisdiction on the ground of diversity of
citizenship, the federal courts, in the long course of their
history, have not differentiated in their regard for State law
between actions at law and suits in equity. Although § 34 of the
Judiciary Act of 1789, 1 Stat. 73, 92, 28 U.S.C. § 725, directed
that the "laws of the several States . . . shall be regarded as
rules of decision in trials of common law . . . ," this was deemed,
consistently for over a hundred years, to be merely declaratory of
what would, in
Page 326 U. S. 104
any event have governed the federal courts, and therefore was
equally applicable to equity suits. [
Footnote 2]
See Hawkins v. Barney's
Lessee, 5 Pet. 457,
30 U. S. 464;
Mason v. United States, 260 U. S. 545,
260 U. S. 559;
Erie R. Co. v. Tompkins, supra, 304 U. S. 72.
Indeed, it may fairly be said that the federal courts gave greater
respect to State-created "substantive rights,"
Pusey &
Jones Co. v. Hanessen, 261 U. S. 491,
261 U. S. 498,
in equity than they gave them on the law side, because rights at
law were usually declared by State courts, and, as such,
increasingly flouted by extension of the doctrine of
Swift v.
Tyson, while rights in equity were frequently defined by
legislative enactment, and, as such, known and respected by the
federal courts.
See, e.g., 38 U. S.
Smith, 13 Pet. 195;
Scott v. Neely, 140 U.
S. 106;
Louisville & Nashville R. Co. v. Western
Union Tel. Co., 234 U. S. 369,
234 U. S.
374-376;
Pusey & Jones Co. v. Hanessen,
supra, at
261 U. S.
498.
Partly because the States, in the early days, varied greatly in
the manner in which equitable relief was afforded and in the extent
to which it was available,
see, e.g., Fisher, The
Administration of Equity Through Common Law Forms (1885) 1 L.Q.Rev.
455; Woodruff, Chancery in Massachusetts (1889) 5 L.Q.Rev. 370;
Laussat, Essay on Equity in Pennsylvania (1826), Congress provided
that "the forms and modes of proceeding in suits . . . of
equity"
Page 326 U. S. 105
would conform to the settled uses of courts of equity. Section
2, 1 Stat. 275, 276, 28 U.S.C. § 723. But this enactment gave the
federal courts no power that they would not have had, in any event,
when courts were given "
cognizance,' by the first Judiciary
Act, of equity." From the beginning, there has been a good deal of
talk in the cases that federal equity is a separate legal system.
And so it is, properly understood. The suits in equity of which the
federal courts have had "cognizance" ever since 1789 constituted
the body of law which had been transplanted to this country from
the English Court of Chancery. But this system of equity "derived
its doctrines, as well as its powers, from its mode of giving
relief." Langdell, Summary of Equity Pleading (1877) xxvii. In
giving federal courts "cognizance" of equity suits in cases of
diversity jurisdiction, Congress never gave, nor did the federal
courts ever claim, the power to deny substantive rights created by
State law, or to create substantive rights denied by State
law.
This does not mean that whatever equitable remedy is available
in a State court must be available in a diversity suit in a federal
court, or, conversely, that a federal court may not afford an
equitable remedy not available in a State court. Equitable relief
in a federal court is, of course, subject to restrictions: the suit
must be within the traditional scope of equity as historically
evolved in the English Court of Chancery,
Payne v.
Hook, 7 Wall. 425,
74 U. S. 430;
Atlas Ins. Co. v. Southern, Inc., 306 U.
S. 563,
306 U. S. 568;
Sprague v. Ticonic Bank, 307 U. S. 161,
307 U. S.
164-165; a plain, adequate and complete remedy at law
must be wanting, § 16, 1 Stat. 73, 82, 28 U.S.C. § 384; explicit
Congressional curtailment of equity powers must be respected,
see, e.g., Norris-LaGuardia Act, 47 Stat. 70, 29 U.S.C. §
101
et seq.; the constitutional right to trial by jury
cannot be evaded,
Whitehead v. Shattuck, 138 U.
S. 146. That a State may authorize its courts to give
equitable relief unhampered
Page 326 U. S. 106
by any or all such restrictions cannot remove these fetters from
the federal courts.
See Clark v. Smith, supra, at
38 U. S. 203;
In re Broderick's
Will, 21 Wall. 503,
88 U. S.
519-520;
Louisville & Nashville R. Co. v.
Western Union Co., supra, at
234 U. S. 376;
Henrietta Mills v. Rutherford Co., 281 U.
S. 121,
281 U. S.
127-128;
Atlas Ins. Co. v. Southern Inc.,
supra, at
306 U. S.
568-570. State law cannot define the remedies which a
federal court must give simply because a federal court, in
diversity jurisdiction, is available as an alternative tribunal to
the State's courts. [
Footnote
3] Contrariwise, a federal court may afford an equitable remedy
for a substantive right recognized by a State even though a State
court cannot give it. Whatever contradiction or confusion may be
produced by a medley of judicial phrases severed from their
environment, the body of adjudications concerning equitable relief
in diversity cases leaves no doubt that the federal courts enforced
State-created substantive rights if the mode of proceeding and
remedy were consonant with the traditional body of equitable
remedies, practice, and procedure, and, in so doing,
Page 326 U. S. 107
they were enforcing rights created by the States, and not
arising under any inherent or statutory federal law. [
Footnote 4]
Inevitably, therefore, the principle of
Erie R. Co. v.
Tompkins, an action at law, was promptly applied to a suit in
equity.
Ruhlin v. N.Y. Life Ins. Co., 304 U.
S. 202.
And so this case reduces itself to the narrow question whether,
when no recovery could be had in a State court because the action
is barred by the statute of limitations, a federal court in equity
can take cognizance of the suit because there is diversity of
citizenship between the parties. Is the outlawry, according to
State law, of a claim created by the States a matter of
"substantive rights" to be respected by a federal court of equity
when that court's jurisdiction is dependent on the fact that there
is a State-created
Page 326 U. S. 108
right, or is such statute of "a mere remedial character,"
Henrietta Mills v. Rutherford Co., supra, at
281 U. S. 128,
which a federal court may disregard?
Matters of "substance" and matters of "procedure" are much
talked about in the books as though they defined a great divide
cutting across the whole domain of law. But, of course, "substance"
and "procedure" are the same key words to very different problems.
Neither "substance" nor "procedure" represents the same invariants.
Each implies different variables depending upon the particular
problem for which it is used.
See Home Ins. Co. v. Dick,
281 U. S. 397,
281 U. S. 409.
And the different problems are only distantly related at best, for
the terms are in common use in connection with situations turning
on such different considerations as those that are relevant to
questions pertaining to
ex post facto legislation, the
impairment of the obligations of contract, the enforcement of
federal rights in the State courts, and the multitudinous phases of
the conflict of laws.
See, e.g., American Railway Express Co.
v. Levee, 263 U. S. 19,
263 U. S. 21;
Davis v. Wechsler, 263 U. S. 22,
263 U. S. 24-25;
Worthen Co. v. Kavanaugh, 295 U. S.
56,
295 U. S. 60;
Garrett v. Moore-McCormack Co., 317 U.
S. 239,
317 U. S.
248-249,
and see Tunks, Categorization and
Federalism: "Substance" and "Procedure" After
Erie Railroad v.
Tompkins (1939) 34 Ill.L.Rev. 271, 274-276; Cook, Logical and
Legal Bases of Conflict of Laws (1942) 163-165.
Here, we are dealing with a right to recover derived not from
the United States, but from one of the States. When, because the
plaintiff happens to be a nonresident, such a right is enforceable
in a federal as well as in a State court, the forms and mode of
enforcing the right may, at times, naturally enough, vary, because
the two judicial systems are not identic. But since a federal court
adjudicating a state-created right solely because of the diversity
of citizenship of the parties is, for that purpose, in effect, only
another court of the State, it cannot afford recovery
Page 326 U. S. 109
if the right to recover is made unavailable by the State, nor
can it substantially affect the enforcement of the right as given
by the State.
And so, the question is not whether a statute of limitations is
deemed a matter of "procedure" in some sense. The question is
whether such a statute concerns merely the manner and the means by
which a right to recover, as recognized by the State, is enforced,
or whether such statutory limitation is a matter of substance in
the aspect that alone is relevant to our problem -- namely, does it
significantly affect the result of a litigation for a federal court
to disregard a law of a State that would be controlling in an
action upon the same claim by the same parties in a State
court?
It is therefore immaterial whether statutes of limitation are
characterized either as "substantive" or "procedural" in State
court opinions in any use of those terms unrelated to the specific
issue before us.
Erie R. Co. v. Tompkins was not an
endeavor to formulate scientific legal terminology. It expressed a
policy that touches vitally the proper distribution of judicial
power between State and federal courts. In essence, the intent of
that decision was to insure that, in all cases where a federal
court is exercising jurisdiction solely because of the diversity of
citizenship of the parties, the outcome of the litigation in the
federal court should be substantially the same, so far as legal
rules determine the outcome of a litigation, as it would be if
tried in a State court. The nub of the policy that underlies
Erie R. Co. v. Tompkins is that, for the same transaction,
the accident of a suit by a nonresident litigant in a federal
court, instead of in a State court a block away, should not lead to
a substantially different result. And so, putting to one side
abstractions regarding" substance" and "procedure," we have held
that, in diversity cases, the federal courts must follow the law of
the State as to burden of proof,
Cities Service Oil Co. v.
Dunlap, 308 U. S. 208, as
to conflict of laws,
Klaxon Co. v. Stentor
Co.,
Page 326 U. S. 110
313 U. S. 487, as
to contributory negligence,
Palmer v. Hoffman,
318 U. S. 109,
318 U. S. 117.
And see Sampson v. Channell, 110 F.2d 754.
Erie R. Co.
v. Tompkins has been applied with an eye alert to essentials
in avoiding disregard of State law in diversity cases in the
federal courts. A policy so important to our federalism must be
kept free from entanglements with analytical or terminological
niceties.
Plainly enough, a statute that would completely bar recovery in
a suit if brought in a State court bears on a State-created right
vitally, and not merely formally or negligibly. As to consequences
that so intimately affect recovery or nonrecovery, a federal court
in a diversity case should follow State law.
See Morgan,
Choice of Law Governing Proof (1944) 58 Harv.L.Rev. 153, 155-158.
The fact that, under New York law, a statute of limitations might
be lengthened or shortened, that a security may be foreclosed
though the debt be barred, that a barred debt may be used as a
set-off, are all matters of local law properly to be respected by
federal courts sitting in New York when their incidence comes into
play there. [
Footnote 5] Such
particular rules of local law, however, do not in the slightest
change the crucial consideration that, if a plea of the statute of
limitations would bar recovery in a State court, a federal court
ought not to afford recovery.
Prior to
Erie R. Co. v. Tompkins, it was not necessary,
as we have indicated, to make the critical analysis required by the
doctrine of that case of the nature of jurisdiction of the federal
courts in diversity cases. But, even before
Erie R. Co. v.
Tompkins, federal courts relied on statutes of limitations of
the States in which they sat. In suits at
Page 326 U. S. 111
law, State limitations statutes were held to be "rules of
decision" within § 34 of the Judiciary Act of 1789, and, as such,
applied in "trials at common law."
McCluny v.
Silliman, 3 Pet. 270,
28 U. S. 277;
Bank of Alabama v.
Dalton, 9 How. 522;
Leffingwell v.
Warren, 2 Black 599;
Bauserman v. Blunt,
147 U. S. 647.
While there was talk of freedom of equity from such State statutes
of limitations, the cases generally refused recovery where suit was
barred in a like situation in the State courts, even if only by way
of analogy.
See, e.g., Godden v. Kimmell, 99 U. S.
201;
Alsop v. Riker, 155 U.
S. 448;
Benedict v. City of New York,
250 U. S. 321,
250 U. S.
327-328. However, in
Kirby v. Lake Shore & M.S.
R. Co., 120 U. S. 130, the
Court disregarded a State statute of limitations where the Court
deemed it inequitable to apply it.
To make an exception to
Erie R. Co. v. Tompkins on the
equity side of a federal court is to reject the considerations of
policy which, after long travail, led to that decision. Judge
Augustus N. Hand thus summarized below the fatal objection to such
inroad upon
Erie R. Co. v. Tompkins:
"In my opinion, it would be a mischievous practice to disregard
state statutes of limitation whenever federal courts think that the
result of adopting them may be inequitable. Such procedure would
promote the choice of United States, rather than of state, courts
in order to gain the advantage of different laws. The main
foundation for the criticism of
Swift v. Tyson was that a
litigant in cases where federal jurisdiction is based only on
diverse citizenship may obtain a more favorable decision by suing
in the United States courts."
143 F.2d 503, 529, 531.
Diversity jurisdiction is founded on assurance to nonresident
litigants of courts free from susceptibility to potential local
bias. The Framers of the Constitution, according to Marshall,
entertained "apprehensions" lest distant suitors be subjected to
local bias in State courts, or, at least, viewed with "indulgence
the possible fears and apprehensions" of such suitors.
Bank of the United
States
Page 326 U. S. 112
v. Deveaux, 5 Cranch 61,
9 U. S. 87. And so
Congress afforded out-of-State litigants another tribunal, not
another body of law. The operation of a double system of
conflicting laws in the same State is plainly hostile to the reign
of law. Certainly, the fortuitous circumstance of residence out of
a State of one of the parties to a litigation ought not to give
rise to a discrimination against others equally concerned, but
locally resident. The source of substantive rights enforced by a
federal court under diversity jurisdiction, it cannot be said too
often, is the law of the States. Whenever that law is
authoritatively declared by a State, whether its voice be the
legislature or its highest court, such law ought to govern in
litigation founded on that law, whether the forum of application is
a State or a federal court, and whether the remedies be sought at
law or may be had in equity.
Dicta may be cited characterizing equity as an independent body
of law. To the extent that we have indicated, it is. But, insofar
as these general observations go beyond that, they merely reflect
notions that have been replaced by a sharper analysis of what
federal courts do when they enforce rights that have no federal
origin. And so, before the true source of law that is applied by
the federal courts under diversity jurisdiction was fully explored,
some things were said that would not now be said. But nothing that
was decided, unless it be the
Kirby case, needs to be
rejected.
The judgment is reversed, and the case is remanded for
proceedings not inconsistent with this opinion.
So ordered.
MR. JUSTICE ROBERTS and MR. JUSTICE DOUGLAS took no part in the
consideration or decision of this case.
[
Footnote 1]
In
Russell v.
Southard, 12 How. 139,
53 U. S. 147,
Mr. Justice Curtis, refusing to be bound by Kentucky law barring
the reception of oral evidence to show that an absolute bill of
sale was in reality a mortgage, declared that, "upon the principles
of general equity jurisprudence, this court must be governed by its
own views of those principles." To support this statement, he
cited, among others,
Robinson v.
Campbell, 3 Wheat. 212;
Boyle v.
Zacharie and Turner, 6 Pet. 648, and
Swift v.
Tyson, supra. This commingling of law and equity cases
indicates that the same views governed both, and that
Swift v.
Tyson was merely another expression of the ideas put forth in
the equity cases.
[
Footnote 2]
In
Bank of Hamilton v. Dudley's
Lessee, 2 Pet. 492,
27 U. S. 525,
Chief Justice Marshall, in discussing the applicability of Ohio
occupant law as "rules of decision" under § 34, said, "The laws of
the states, and the occupant law, like others, would be so
regarded, independent of that special enactment. . . ." It is
interesting to note that this judicial pronouncement corresponds to
the views John Marshall expressed in the Virginia Convention called
to ratify the Constitution. Responding to George Mason's question
as to what law would apply in the federal courts in diversity
cases, Marshall declared:
"By the laws of which state will it be determined? said he. By
the laws of the state where the contract was made. According to
those laws, and those only, can it be decided. Is this a novelty?
No; it is a principle in the jurisprudence of this
commonwealth."
3 Elliott's Debates 556.
[
Footnote 3]
In
Pusey & Jones Co. v. Hanessen, supra, the Court
had to decide whether a Delaware statute had created a new right
appropriate for enforcement in accordance with traditional equity
practice, or whether the statute had merely given the Delaware
Chancery Court a new kind of remedy. The statute authorized the
Chancellor to appoint a receiver for an insolvent corporation upon
the application of an unsecured simple contract creditor. Suit was
brought in a federal equity court under diversity jurisdiction.
Although traditional equity notions do not give a simple contract
creditor an interest in the funds of an insolvent debtor, the State
may, as this Court recognized, create such an interest. When the
State has done that, whatever remedies are consonant with the
practice of equity courts in effectuating creditor's rights come
into play.
Pusey & Jones Co. v. Hanessen, supra, did
not question that, in the case of diversity jurisdiction, the
States create the obligation for which relief is sought. But the
Court construed the Delaware statute merely to extend the power to
an equity court to appoint a receiver on the application of an
ordinary contract creditor. By conferring new discretionary
authority upon its equity court, Delaware could not modify the
traditional equity rule in the federal courts that only someone
with a defined interest in the estate of an insolvent person --
e.g., a judgment creditor -- can protect that interest
through receivership. But the Court recognized that, if the
Delaware statute had been one not regulating the powers of the
Chancery Court of Delaware, but creating a new interest in a
contract creditor, the federal court would have had power to grant
a receivership at the behest of such a simple contract creditor, as
much so as in the case of a secured creditor.
See Mackenzie Oil
Co. v. Omar Oil & Gas Co., 14 Del.Ch. 36, 45, 120 A. 852,
for Delaware's view as to the nature of the Delaware statute.
[
Footnote 4]
"It is true that, where a state statute creates a new equitable
right of a substantive character, which can be enforced by
proceedings in conformity with the pleadings and practice
appropriate to a court of equity, such enforcement may be had in a
federal court, provided a ground exists for invoking the federal
jurisdiction. . . . But the enforcement in the federal courts of
new equitable rights created by states is subject to the
qualification that such enforcement must not impair any right
conferred, or conflict with any inhibition imposed, by the
constitution or laws of the United States. . . . Whatever
uncertainty may have arisen because of expressions which did not
fully accord with the rule as thus stated, the distinction, with
respect to the effect of state legislation, has come to be clearly
established between substantive and remedial rights."
Henrietta Mills v. Rutherford Co., supra, at
281 U. S.
127-128.
[
Footnote 5]
See, e.g., Hulbert v. Clark, 128 N.Y. 295, 28 N.E. 638;
House v. Carr, 185 N.Y. 453, 78 N.E. 171;
Lightfoot v.
Davis, 198 N.Y. 261, 91 N.E. 582;
Davidson v.
Witthaus, 106 App.Div. 182, 94 N.Y.S. 428;
Matter of
Ewald's Estate, 174 Misc. 939, 22 N.Y.S.2d 299. The statute
may be waived,
Peoples Trust Co. v. O'Neil, 273 N.Y. 312,
316, 7 N.E.2d 244, and must be pleaded,
Dunkum v. Macek
Building Corp., 227 App.Div. 230, 237 N.Y.S. 180.
MR. JUSTICE RUTLEDGE.
I dissent. If the policy of judicial conservatism were to be
followed in this case, which forbids deciding constitutional
Page 326 U. S. 113
and other important questions hypothetically or prematurely, I
would favor remanding the cause to the Court of Appeals for
determination of the narrow and comparatively minor question
whether, under the applicable local law, the cause of action has
been barred by lapse of time. That question has not been decided,
[
Footnote 2/1] may be determined in
respondent's favor, and, in that event, the important question
affecting federal judicial power now resolved, in a manner contrary
to all prior decision here, will have been determined without
substantial ultimate effect upon the litigation. [
Footnote 2/2]
But the Court conceives itself confronted with the necessity for
making that determination, and in doing so, overturns a rule of
decision which has prevailed in the federal courts from almost the
beginning. I am unable to assent to that decision, for reasons
stated by the Court of Appeals [
Footnote 2/3] and others to be mentioned only briefly.
One may give full adherence to the rule of
Erie R. Co. v.
Tompkins, 304 U. S. 64, and
its extension to cases in equity insofar as they affect clearly
substantive rights, without conceding or assuming that the long
tradition, both federal and state, which regards statutes of
limitations as falling within the category of remedial, rather than
substantive, law necessarily must be ruled in the same way, and
without conceding further that only a different jurisdprudential
climate or a kind of "brooding omnipresence in the sky"
Page 326 U. S. 114
has dictated the hitherto unvaried policy of the federal courts
in their general attitude toward the strict application of local
statutes of limitations in equity causes.
If any characteristic of equity jurisprudence has descended
unbrokenly from and within "the traditional scope of equity as
historically evolved in the English Court of Chancery," it is that
statutes of limitations, often in terms applying only to actions at
law, have never been deemed to be rigidly applicable as absolute
barriers to suits in equity as they are to actions at law.
[
Footnote 2/4] That tradition, it
would seem, should be regarded as having been incorporated in the
various Acts of Congress which have conferred equity jurisdiction
upon the federal courts. So incorporated, it has been reaffirmed
repeatedly by the decisions of this and other courts. [
Footnote 2/5] It is now excised from those
Acts. If there is to be excision, Congress, not this Court, should
make it.
Moreover, the decision of today does not, in so many words, rule
that Congress could not authorize the federal courts to administer
equitable relief in accordance with the substantive rights of the
parties, notwithstanding state courts had been forbidden by local
statutes of limitations to do so. Nevertheless, the implication to
that effect seems strong, in view of the reliance upon
Erie R.
Co. v. Tompkins. [
Footnote
2/6] In any event, the question looms more largely in the
issues than the Court's opinion appears to
Page 326 U. S. 115
make it. For, if legislative acquiescence in long established
judicial construction can make it part of a statute, it has done so
in this instance. More is at stake in the implications of the
decision, if not in the words of the opinion, than simply bringing
federal and local law into accord upon matters clearly and
exclusively within the constitutional power of the state to
determine. It is one thing to require that kind of an accord in
diversity cases when the question is merely whether the federal
court must follow the law of the state as to burden of proof,
Cities Service Oil Co. v. Dunlap, 308 U.
S. 208; contributory negligence,
Hoffman v.
Palmer, 318 U. S. 109,
318 U. S. 117;
or perhaps in application of the so-called parol evidence rule.
These ordinarily involve matters of substantive law, though
nominated in terms of procedure. But, in some instances, their
application may lie along the border between procedure or remedy
and substance, where the one may or may not be, in fact, but
another name for the other. It is exactly in this borderland, where
procedural or remedial rights may or may not have the effect of
determining the substantive ones completely, that caution is
required in extending the rule of the
Erie case by the
very rule itself.
The words "substantive" and "procedural" or "remedial" are not
talismanic. Merely calling a legal question by one or the other
does not resolve it otherwise than as a purely authoritarian
performance. But they have come to designate, in a broad way, large
and distinctive legal domains within the greater one of the law,
and to mark, though often indistinctly or with overlapping limits,
many divides between such regions.
One of these, historically, has been the divide between the
substantive law and the procedural, or remedial, law to be applied
by the federal courts in diversity cases -- a division sharpened,
but not wiped out, by
Erie R. Co. v. Tompkins and
subsequent decisions extending the scope
Page 326 U. S. 116
of its ruling. The large division between adjective law and
substantive law still remains, to divide the power of Congress from
that of the states and consequently to determine the power of the
federal courts to apply federal law or state law in diversity
matters.
This division, like others drawn by the broad allocation of
adjective or remedial and substantive, has areas of admixture of
these two aspects of the law. In these areas, whether a particular
situation or issue presents one aspect or the other depends upon
how one looks at the matter. As form cannot always be separated
from substance in a work of art, so adjective or remedial aspects
cannot be parted entirely from substantive ones in these borderland
regions.
Whenever this integration or admixture prevails in a substantial
measure, so that a clean break cannot be made, there is danger
either of nullifying the power of Congress to control not only how
the federal courts may act, but what they may do by way of
affording remedies, or of usurping that function, if the
Erie doctrine is to be expended judicially to include such
situations to the utmost extent.
It may be true that, if the matter were wholly fresh, the
barring of rights in equity by statutes of limitation would seem to
partake more of the substantive than of the remedial phase of law.
But the matter is not fresh, and it is not without room for debate.
A long tradition, in the states and here, as well as in the common
law which antedated both state and federal law, has emphasized the
remedial character of statutes of limitations, more especially in
application to equity causes, on many kinds of issues requiring
differentiation of such matters from more clearly and exclusively
substantive ones. We have recently reaffirmed the distinction in
relation to the power of a state to change its laws with
retroactive effect, giving renewed vigor, if not new life, to
Campbell v.
Holt, 115
Page 326 U. S. 117
U.S. 620.
Chase Securities Corp. v. Donaldson,
325 U. S. 304.
Similar, though, of course, not identical, arguments were advanced
in that case to bring about departure from the long established
rule, but without success. The tradition now in question is equally
long and unvaried. I cannot say the tradition is clearly wrong in
this case more than in that. Nor can I say, as was said in the
Erie case, that the matter is beyond the power of Congress
to control. If that be conceded, I think Congress should make the
change, if it is to be made. The
Erie decision was
rendered in 1938. Seven years have passed without action by
Congress to extend the rule to these matters. That is long enough
to justify the conclusion that Congress also regards them as not
governed by
Erie, and as wishing to make no change. This
should be reason enough for leaving the matter at rest until it
decides to act.
Finally, this case arises from what are, in fact, if not in law,
interstate transactions. [
Footnote
2/7] It involves the rights of security holders in relation to
securities which were distributed not in New York or Ohio alone,
but widely throughout the country. They are the kind of rights
which Congress acted to safeguard when it adopted the Securities
and Exchange legislation. [
Footnote
2/8] Specific provisions of that legislation are not involved
in this litigation. The broad policies underlying it may be
involved or affected,
Page 326 U. S. 118
namely, by the existence of adequate federal remedies, whether
judicial or legislative, for the protection of security holders
against the misconduct of issuers or against the breach of rights
by trustees. Even though the basic rights may be controlled by
state law, in such situations, the question is often a difficult
one whether the law of one state or another applies, and this is
true not only of rights clearly substantive, but also of those
variously characterized as procedural or remedial and substantive
which involve the application of statutes of limitations.
Applicable statutes of limitations in state tribunals are not
always the ones which would apply if suit were instituted in the
courts of the state which creates the substantive rights for which
enforcement is sought. The state of the forum is free to apply its
own period of limitations, regardless of whether the state
originating the right has barred suit upon it. [
Footnote 2/9] Whether or not the action will be
held to be barred depends, therefore, not upon the law of the state
which creates the substantive right, but upon the law of the state
where suit may be brought. This, in turn, will depend upon where it
may be possible to secure service of process, and thus jurisdiction
of the person of the defendant. It may be, therefore, that, because
of the plaintiff's inability to find the defendant in the
jurisdiction which creates his substantive right, he will be
foreclosed of remedy by the sheer necessity of going to the haven
of refuge within which the defendant confines its "presence" for
jurisdictional purposes. The law of the latter may bar the suit
even though suit still would be allowed under the law of the state
creating the substantive right.
It is not clear whether today's decision puts it into the power
of corporate trustees, by confining their jurisdictional "presence"
to states which allow their courts to give equitable remedies only
within short periods of time, to
Page 326 U. S. 119
defeat the purpose and intent of the law of the state creating
the substantive right. If so, the "right" remains alive, with
full-fledged remedy, by the law of its origin, and, because
enforcement must be had in another state, which affords refuge
against it, the remedy, and, with it, the right, are nullified. I
doubt that the Constitution of the United States requires this, or
that the Judiciary Acts permit it. A good case can be made --
indeed, has been made -- that the diversity jurisdiction was
created to afford protection against exactly this sort of
nullifying state legislation. [
Footnote 2/10]
In my judgment, this furnishes added reason for leaving any
change, if one is to be made, to the judgment of Congress. The next
step may well be to say that, in applying the doctrine of laches, a
federal court must surrender its own judgment and attempt to find
out what a state court, sitting a block away, would do with that
notoriously amorphous doctrine.
MR. JUSTICE MURPHY joins in this opinion.
[
Footnote 2/1]
The Court of Appeals only assumed
arguendo that the
local statute of limitations had terminated the right to sue. 143
F.2d 503.
[
Footnote 2/2]
An inferior court, of course, is free to select one or more of
several available grounds upon which to rest its decision, and
generally, on review here, our function should be performed by
passing upon the grounds chosen. But there are circumstances in
which it is proper to vacate the judgment and remand the cause for
consideration of other issues presented.
Cf., e.g., the
recent instance of
Herb v. Pitcairn, 324 U.
S. 117;
325 U. S. 325 U.S.
77.
[
Footnote 2/3]
143 F.2d 503. The court's opinion reviews at length the unbroken
course of decision now overturned.
[
Footnote 2/4]
Michoud v.
Girod, 4 How. 503,
45 U. S. 561;
Meader v.
Norton, 11 Wall. 442;
Bailey v.
Glover, 21 Wall. 342,
88 U. S. 348;
Kirby v. Lake Shore & M.S. R. Co., 120 U.
S. 130.
[
Footnote 2/5]
See the authorities cited and discussed, 143 F.2d 503,
522-524.
See also Committee for Holders v. Kent, 143 F.2d
684, 687;
Overfield v. Pennroad, 146 F.2d 889, 901,
921-923.
[
Footnote 2/6]
In the
Erie case, the Court said:
"If only a question of statutory construction were involved, we
should not be prepared to abandon a doctrine so widely applied
throughout nearly a century. But the unconstitutionality of the
course pursued has now been made clear, and compels us to do
so."
304 U. S. 304 U.S.
64,
304 U. S.
77-78.
[
Footnote 2/7]
Reference is made to the opinion of the Court of Appeals for a
detailed statement of the nature and scope of the intricate and
elaborate financial transactions, involving the distribution of
$30,000,000 worth of securities, apparently in many states,
including Ohio and New York, and rights growing out of the
distribution. 143 F.2d at 505
et seq. See also Eastman
v. Morgan, 43 F. Supp. 637,
aff'd sub nom. Hackner v.
Morgan, 130 F.2d 300,
cert. denied, 317 U.S. 691.
[
Footnote 2/8]
Cf. S.Rep. No. 714, 77th Cong., 1st Sess., Additional
Report of Committee on Interstate Commerce pursuant to S.Res. 71,
74th Cong., pt.s. 1-4.
See also Stock Exchange Practices,
Hearings before Committee on Banking and Currency on S.Res. 84, 72d
Cong. and S.Res. 56 and 97, 73d Cong.
[
Footnote 2/9]
Beale, Conflict of Laws (1935 ed.) 1620, 1621; Goodrich,
Conflict of Laws (1938 ed.) 201, 202.
[
Footnote 2/10]
Frankfurter, Distribution of Judicial Power Between United
States and State Courts (1928) 13 Corn.L.Q. 499, 520.
See
Corwin, The Progress of Constitutional Theory (1925) 30
Am.Hist.Rev. 511, 514.
See also Friendly, The Historic
Basis of Diversity Jurisdiction (1928) 41 Harv.L.Rev. 483, 495-497.
That the motivating desire was or may have been to protect
creditors who were men of business does not make the policy less
applicable when the creditor is a customer of such men.