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16. Which law should the federal court apply in this case?
A jeweler properly brought a diversity action against an importer in federal court in State A. The jeweler's complaint alleged damages for injuries he suffered as a result of a car accident with the importer in State B. The jeweler does not have a viable claim under State B tort law, but he does have a viable claim under State A tort law.
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When determining whether to do an Erie analysis, the threshold question is whether there is a controlling Federal Rule or federal statute. If any federal law controls (is «on point»), there is no Erie problem. However, in the absence of a controlling federal statute or Rule, the question becomes whether the issue at hand is substantive or procedural.
In the Erie decision, the U.S. Supreme Court held that a federal court sitting in diversity must apply state substantive law of the state in which it sits on all substantive issues in a case. This includes the state's conflict of law rules. For all procedural issues, a federal court sitting in diversity must apply federal procedural rules (the FRCP).
Choice-of-law rules are considered substantive for Erie purposes, so a federal court sitting a diversity case must follow the choice-of-law rules of the state in which it sits to determine which of two competing states' laws should be applied to the action before it. See Klaxon v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941).
Exam tip: When a potential Erie analysis arises on the MBE, pay close attention to the facts. If the court is not sitting in diversity and is exercising federal question jurisdiction, federal law will apply and there is no need to examine applicable state law.
C is correct. Under Klaxon and Erie, state choice-of-law rules are considered substantive, which means a federal court sitting in diversity must apply the choice-of-law rules of the state in which it sits. No other state or federal choice-of-law rules apply. In this case, the court should therefore apply State A choice-of-law rules to determine whether State A tort law governs the lawsuit.
A is incorrect. This choice skips the step of the court determining which choice-of-law rules apply before deciding which tort law applies to the underlying claim. As stated above, a federal court sitting in diversity must follow the choice-of-law rules in the state in which it sits. Here, State A choice-of-law rules apply before the court may decide which tort law governs.
B is incorrect. A federal court sitting in diversity must use the choice-of-law rules of the state in which it sits, as Erie and Klaxon have held this is a substantive issue. As such, the court should not use federal choice-of-law rules, but rather, State A's choice-of-law rules, as explained above.
D is incorrect. Klaxon has established that a federal district court will apply the choice-of-law of its forum state. In this question, the federal district court is located in State A, so it will apply State A's choice-of-law rules, not State B's.