Guaranty Trust Co. v. York
Citation: 326 U.S. 99 (U.S. Supreme Court, 1945)
Facts
York brought a diversity action against Guaranty Trust alleging breach of fiduciary duty in connection with noteholder certificates. The claim would have been time-barred under the applicable New York statute of limitations, but the district court applied equitable doctrine and allowed the case to proceed. The Second Circuit affirmed.
Issue
Whether a federal court sitting in equity in a diversity case must apply the state statute of limitations, or whether it may follow its own equitable principles on laches.
Holding
The Supreme Court reversed, holding that a federal court sitting in equity must apply the state statute of limitations when the outcome of the litigation would be substantially affected by whether or not the limitation is observed.
Rule
The outcome-determinative test: in a diversity action, if the choice between federal and state law would substantially affect the outcome of the litigation, the federal court must apply state law. The goal is to ensure that the outcome of litigation in federal court is substantially the same as it would be in state court.
Significance
York extended Erie to equitable proceedings and introduced the influential outcome-determinative test, which asks whether applying federal rather than state law would lead to different results. Later modified by Byrd v. Blue Ridge and further refined in Hanna v. Plumer.