By Andrea Olson.
It is an open secret that equity has an Erie problem. In 1945, the Supreme Court insisted that federal courts sitting in diversity must apply certain general equitable principles when faced with suits seeking equitable relief, even for state law claims and even in the face of contradictory state law. At first glance, this proposition appears to run headfirst against Erie ’s notorious instruction that “[t]here is no federal general common law.” Although distinct from the forbidden general commercial law that Erie declared unconstitutional as federal common law, in many ways these equitable principles—like the rule that equitable remedies are unavailable when legal remedies are adequate—seem to exist only “by common practice and consent among a number of sovereigns.”
This Equity-Erie problem exists and persists in large part because of the way that federal law treats equity—as distinct from law and limited by certain historical principles. That conception of equity’s exceptionalism is not an aberration or the result of judicatory error. To the contrary, the idea that equity may operate only in certain circumstances has been the common consensus of the federal courts since the founding. This theory of equity, which is associated with the English Court of Chancery but traces its origins as far back as Aristotle, infiltrated the American legal psyche at the founding and, despite challenges to its legitimacy, has survived in a complex federalist system even after the supposed merger of law and equity. Full Article