[7] It provides that U.S. federal courts shall apply state law when hearing cases under diversity jurisdiction.

[8] But applying the Court's holding in Swift proved difficult, and American lawyers, judges, and legal scholars became increasingly opposed to it during the late 19th and early 20th centuries.

[9] In the early hours of July 27, 1934, Harry Tompkins was walking home along a pathway next to a set of railroad tracks in Hughestown, Pennsylvania.

[13] At trial, Erie Railroad's lawyers argued that Pennsylvania law should govern Tompkins's negligence claim.

[15] The case went to trial, where the jury found Erie Railroad liable for Tompkins's injuries and awarded him $30,000 in damages ($658,705 in 2023).

[12][16] On April 25, 1938, the Supreme Court issued a 6–2[b] decision in favor of Erie Railroad, overruling Swift v. Tyson and holding that, when sitting in diversity, U.S. federal courts must apply state law not "general federal common law".

[c] The Court began by framing the case around the question of "whether the oft-challenged doctrine of Swift v. Tyson shall now be disapproved.

[19] The Court said that because the Swift doctrine dictated that a lawsuit between two in-state parties would be decided under state law while an identical lawsuit between an in-state party and an out-of-state party would be decided under federal common law, the Swift doctrine was allowing plaintiffs to manipulate which law would be applied to their lawsuits by strategically filing them in specific state or federal courts—a practice now known as "forum shopping".

[20] The Court decried this practice, saying that it allowed plaintiffs to introduce "grave discrimination" against parties from other states.

[19][22][d] If only a question of statutory construction were involved, we should not be prepared to abandon a doctrine so widely applied throughout nearly a century.

But the unconstitutionality of the course pursued has now been made clear, and compels us to do so.Having determined that the Swift doctrine was unconstitutional, the opinion's third section declared that there is no general U.S. federal common law, and that U.S. federal courts hearing cases under diversity-of-citizenship jurisdiction must apply state laws as construed by state supreme courts.

And whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern.

Reed disagreed with the Court's conclusion that the Swift doctrine was unconstitutional, however, saying instead it had been merely an erroneous interpretation of the Rules of Decision Act.

In the latter situation, an Erie guess would be the only option available for the federal court attempting to apply state law.