CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.
MR. JUSTICE FRANKFURTER delivered the opinion of the Court.
In Russell v. Todd, 309 U.S. 280, 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
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, 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,
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. F. D. I. C., 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 & Ohio R. Co. v. Baugh, 149 U.S. 368, 391; Holmes, J., dissenting in Kuhn v. Fairmont Coal Co., 215 U.S. 349,
, and in Black & White Taxi. Co. v. Brown & Yellow Taxi. Co., 276 U.S. 518, 532; Erie R. Co. v. Tompkins, supra at 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." Vandenbark v. Owens-Illinois Co., 311 U.S. 538, 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.*fn1
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. 518, 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 at common law . . . ," this was deemed, consistently for over a hundred years, to be merely declaratory of what would in
any event have governed the federal courts and therefore was equally applicable to equity suits.*fn2 See Hawkins v. Barney's Lessee, 5 Pet. 457, 464; Mason v. United States, 260 U.S. 545, 559; Erie R. Co. v. Tompkins, supra at 72. Indeed, it may fairly be said that the federal courts gave greater respect to State-created "substantive rights," Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 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., Clark v. Smith, 13 Pet. 195; Scott v. Neely, 140 U.S. 106; Louisville & Nashville R. Co. v. Western Union Co., 234 U.S. 369, 374-76; Pusey & Jones Co. v. Hanssen, supra at 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 ...