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 referred to as creating federal common law in that country, but because all state and territorial courts are directly appealable to the High Court, this is indistinguishable from a general common law. By 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.

The "Swift" doctrine

Up until 1938, the federal courts followed the doctrine set forth in the 1842 case of "Swift v. Tyson". ["Swift v. Tyson", [http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=41&page=1 41 U.S. 1] (1842).] In that case, the United States Supreme Court had held that federal courts hearing cases brought under their diversity jurisdiction (allowing them to hear cases between parties from different 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 states continued to diverge in their own legal practices. 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.

The "Erie" doctrine

In 1938, the Supreme Court decided "Erie Railroad v. Tompkins". ["Erie v. Tompkins", [http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=304&page=64 304 U.S. 64] (1938).] "Erie" over-ruled "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 "general federal common law", the key word here being "general". "Erie" did not put an end to other types of federal common law.

There remain several areas of law where federal common law is allowed to continue. These areas fall into two basic categories: areas where Congress has given the courts power to develop substantive law, and areas where a federal rule of decision is necessary to protect uniquely federal interests. ["Texas Industries v. Radcliff", [http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?navby=volpage&court=us&vol=451&page=644 451 U.S. 630] (1981).]

The U.S. Congress has given courts power to formulate common law rules in areas such as admiralty law, antitrust, bankruptcy law, interstate commerce, and civil rights. Congress often lays down broad mandates with vague standards, which are then left to the courts to interpret, and these interpretations eventually give rise to complex understandings of the original intent of Congress, informed by the courts' understanding of what is just and reasonable.

Furthermore, in the 1943 case of "Clearfield Trust Co. v. United States", ["Clearfield Trust v. United States", [http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=CASE&court=US&vol=318&page=363 318 U.S. 363] (1943).] the Court set forth three criteria for determining whether the court should create a federal common law rule due to the existence of a significantly important federal interest:

#Is there a federal competence to create law in this area—i.e. would Congress be able to adopt a law in such an area?
#If there is federal competence, should state or federal law govern?
#If federal law governs, should courts borrow state law or create a new federal rule?

Federal common law yields to Congress

Federal common law is only valid insofar as Congress wants it to be valid. In other words, Congress is free to modify the federal common law. The Supreme Court has explained that, "when Congress addresses a question previously governed by a decision rested on federal common law the need for such an unusual exercise of law-making by federal courts disappears." ["Milwaukee v. Illinois", [http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=451&invol=304 451 U.S. 304] (1981).]

During the era when the Constitution was written, it was understood that common law was always alterable by legislatures. For example, Alexander Hamilton emphasized in The Federalist that the New York Constitution made the common law subject "to such alterations and provisions as the legislature shall from time to time make concerning the same." [ [http://www.constitution.org/fed/federa84.htm Federalist 84] .] Thus, even when a federal court has authority to make common law, that law is subject to alteration by Congress. This principle finds expression in the : "All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives."

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