Guaranty Trust Co. of NY v. NY, U.S. Supreme Court (1945)
Author: Bram

Cause of action: The following is a cause of action for breach of trust, and the appeal is in regards to an application of fedal or state law in the District Court.

Procedural History: Guaranty moved to summary judgment, which was granted in the trial court.  On appeal, Circuit Court of Appeals held a federal district court is not required to apply the State Statute of limitations like it would have to in a state court even though the exclusive basis of federal jurisdiction is diversity of citizenship.  The Court reversed and remanded.

Facts: Non-accepting noteholders are suing the trust company DF/petitioner for breach of trust 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.

Issue(s): Under federal rules of civil procedure, should no recovery be allowed in a State court b/c the action is barred by the statute of limitations, a federal court can have the suit removed to it b/c there is diversity of citizenship?

Court's Rationale/Reasoning: This Court adheres to the policy set forth in Erie: mere diversity of jurisdiction, when it arises out of a state claim, is merely a diversity jurisdiction case, and is subject to the laws of the state in which the action occurred, irregardless of the fact the parties are in federal court.

As to consequences that so intimately affect recovery or non-recovery a federal court in a diversity case should follow State law.  The fact the statute of limitations barred the recovery is not the issue, and the federal court should not meddle one way or the other in the recovery process.

Rule: In all cases where a federal court is exercising jurisdiction solely b/c 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.

Holding: Yes.  The statute of limitations applies to this case, as the action took place in NY; it wound up in a federal court simply b/c of diversity of citizenship, which should not be the linchpin for deciding which law to use in a federal court.