Federal common law

Federal common law is a term of United States law used to describe common law that is developed by the federal courts, instead of by the courts of the various states. The United States is the only country to combine the creation of common law doctrines with a complete federalism, wherein the national supreme court has virtually no power to review state court decisions to determine whether the state courts have followed state laws. The High Court of Australia is sometimes said to have federal common law, but because all state and territorial courts are directly appealable to the High Court, this is indistinguishable from a general common law. In contrast, the United States Supreme Court has effectively barred the creation of federal common law in areas traditionally under the authority of state courts. Nevertheless, there are several areas where federal common law continues to govern.

Until 1938, federal courts in America followed the doctrine set forth in the 1842 case of Swift v. Tyson. In that case, the United States Supreme Court held that federal courts hearing cases brought under their diversity jurisdiction (allowing them to hear cases between parties from different U.S. states) had to apply the statutory law of the states, but not the common law developed by state courts. Instead, the Supreme Court permitted the federal courts to make their own common law based on general principles of law.

The reasoning behind the decision in Swift v. Tyson was that the federal courts would craft a superior common law, and the states would choose to adopt it. This hope was not fulfilled, however, as the principles of various states' common law continued to dramatically diverge. Some litigants began to abuse the availability of the federal courts for the specific purpose of having cases decided under the federal common law principles.

In 1938, the Supreme Court decided Erie Railroad v. Tompkins.Erie overruled Swift v. Tyson, holding instead that federal courts exercising diversity jurisdiction had to use all of the same substantive laws as the courts of the states in which they were located. As the Erie Court put it, there is no "federal general common law", with the operative word being "general."

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