In the 1944 U.S. Supreme Court case Guaranty Trust Co. v. York, the court established a principle known as "Erie Doctrine," which holds that federal courts sitting in diversity jurisdiction should apply state substantive law to resolve disputes before them. The plaintiff, Stella Cohn (later represented by Guaranty Trust Company) had filed a lawsuit against George Selden and his wife for fraudulent conveyance of assets in New York but missed the statute of limitations under New York law; however, she would have been within time limits under federal common law rules applicable at that time. The question was whether or not federal courts could use their own procedural rules when hearing cases based on state laws - essentially choosing between applying state or federal statutes of limitation. The Supreme Court ruled in favor of York stating that there is no substantial difference between rights enforced under one rule versus another if outcome is substantially affected – hence it violates principles of equal protection and due process to allow different outcomes depending on forum chosen (state vs federal). This decision effectively overruled Swift v Tyson (1842), which allowed general Federal Common Law to be applied even in diversity cases.

In the dissenting opinion for Guaranty Trust Co. v. York, Justice Robert H. Jackson argued that the majority's decision to apply state statute of limitations law in a federal diversity case was inconsistent with previous court rulings and undermined the purpose of diversity jurisdiction. He contended that by applying state law, rather than federal common law, the Court was allowing states to dictate how federal courts operate which could lead to inconsistency and unpredictability in legal outcomes based on where cases are heard rather than their merits. Furthermore, he believed this approach would discourage litigants from using federal courts due to uncertainty about what laws will be applied and potentially disadvantage those who cannot afford to litigate in multiple jurisdictions.