Work through a fresh Erie diversity trap with examiner-style analysis on borrowing statutes, outcome-determinative rules, and the Hanna line.
Marisol, an Indiana citizen, files a diversity suit in the Southern District of Indiana against Pace Logistics, an Illinois LLC, for a warehouse fire in Illinois that destroyed $200,000 of her inventory. Indiana has a borrowing statute that requires Indiana courts to apply the shorter of Indiana's or the foreign jurisdiction's statute of limitations. Illinois's SoL for property damage is two years; Indiana's is four. Marisol files three years after the fire. Indiana also has a statute that requires plaintiffs in commercial fire-loss cases to post a $5,000 bond before discovery may begin. Pace moves to dismiss as time-barred and, in the alternative, to require the bond. The federal court must decide which Indiana rules to apply.
The federal court must apply both the Indiana borrowing statute (dismissing the case as time-barred under Illinois's two-year SoL) and the Indiana pre-discovery bond requirement. Under Erie, a federal court sitting in diversity applies state substantive law and federal procedural law. Statutes of limitations are substantive under Guaranty Trust v. York because they are outcome-determinative; borrowing statutes are part of the state's SoL machinery and travel with it. Where a state rule conflicts with a Federal Rule of Civil Procedure on point, Hanna v. Plumer applies the Federal Rule so long as it is valid under the Rules Enabling Act. For state rules with no Federal Rule on point, courts apply the modified outcome-determinative test under Byrd and Hanna, asking whether ignoring the state rule would encourage forum shopping or cause inequitable administration of the laws.
Canonical URL: https://www.barprepplay.com/mbe/civil-procedure/erie-substantive-vs-procedural/
Sitting in diversity, must the federal court apply (a) Indiana's borrowing statute (which would import Illinois's shorter SoL and bar the case) and (b) Indiana's pre-discovery bond requirement?
Under Erie, a federal court sitting in diversity applies state substantive law and federal procedural law. Statutes of limitations are substantive under Guaranty Trust v. York because they are outcome-determinative; borrowing statutes are part of the state's SoL machinery and travel with it. Where a state rule conflicts with a Federal Rule of Civil Procedure on point, Hanna v. Plumer applies the Federal Rule so long as it is valid under the Rules Enabling Act. For state rules with no Federal Rule on point, courts apply the modified outcome-determinative test under Byrd and Hanna, asking whether ignoring the state rule would encourage forum shopping or cause inequitable administration of the laws.
The Indiana borrowing statute is part of Indiana's SoL framework. Statutes of limitations are substantive under Guaranty Trust because their application changes the case outcome, and a borrowing statute is just the choice-of-SoL component of the same machinery. The federal court must therefore apply Indiana's borrowing statute, which imports Illinois's two-year SoL. Marisol's suit is filed three years after the fire, so the case is time-barred. The Indiana pre-discovery bond rule is a closer call. There is no Federal Rule of Civil Procedure that requires plaintiffs to post a bond before discovery, so Hanna does not displace it. The bond is plainly outcome-determinative — if Marisol cannot post $5,000, discovery never begins and her case dies — and refusing to apply it would invite forum shopping into federal court to escape state-law cost barriers. Under the twin aims of Erie, the federal court must apply the bond requirement.
The federal court must apply both the Indiana borrowing statute (dismissing the case as time-barred under Illinois's two-year SoL) and the Indiana pre-discovery bond requirement.
That ignores Erie. The Rules of Decision Act requires the federal court to follow state substantive law, and SoLs are substantive under Guaranty Trust.
FRCP 1 is a general aspirational provision about the just and speedy administration of all rules. It does not occupy the specific field of pre-discovery bonds, so Hanna does not apply.
Guaranty Trust v. York held the opposite — SoLs are substantive for Erie purposes because they are outcome-determinative.
A diversity court applies the choice-of-law rules of the forum state under Klaxon. The borrowing statute is part of Indiana's SoL machinery and rides along with the SoL itself.