What law do federal courts apply in diversity cases?

In diversity cases, federal courts are required to apply the substantive law of the state in which they are located. This principle is grounded in the Erie Doctrine, established by the U.S. Supreme Court in the case Erie Railroad Co. v. Tompkins. The Erie Doctrine aims to ensure that parties in a diversity case receive the same treatment they would in a state court, thereby promoting fairness and avoiding forum shopping.

This means that federal courts look to the laws, including statutes and precedents, as they would be applied by the courts of the respective state. By doing so, federal courts uphold the principle of federalism by respecting state law in situations that would normally be governed by state jurisdiction. This is especially important in diversity cases, which involve parties from different states and could raise issues of procedural differences and state law interpretations.

In contrast, the other options highlight misunderstandings of how federal courts function in these situations. For instance, applying the law of the state where the case originates does not accurately reflect the principle, as it disregards the importance of the forum state’s law. Relying solely on federal law would ignore state-specific issues that are critical to resolving the diversity case. And choosing the law based on the type of suit filed