A more thorough explanation:

The Erie doctrine is a legal principle that requires federal courts to apply state substantive law when exercising diversity jurisdiction, but federal procedural law of the Federal Rules of Civil Procedure. This principle was established by the U.S. Supreme Court in the landmark case, Erie Railroad Co. v. Tompkins (1938).

Before the Erie doctrine, federal courts followed the Swift v. Tyson (1842) case, which allowed federal courts to ignore state substantive law established by common law through that state’s judiciary when exercising diversity jurisdiction and could apply what they saw as the true general common law. This meant that federal courts were free to ignore state substantive law established by common law through that state’s judiciary when exercising diversity jurisdiction and could apply what they saw as the true general common law.

The U.S. Supreme Court in Erie Railroad Co. v. Tompkins held that federal courts must apply state common law when exercising diversity jurisdiction. Specifically, in Erie, Tompkins lost his arm while walking on a footpath alongside a railroad track when a train car’s door came loose and injured him. Under Pennsylvania state common law, Tompkins was a trespasser on the railroad’s property and could not recover, but under the general common law he was not a trespasser and could recover. The Court refused to apply the general common law, stating “there is no federal general common law,” and instead applied the law of the state where the injury occurred to deny Tompkins’ recovery.

After the Erie doctrine, federal courts must apply the substantive law of the state where they are located, but the delineation of substantive law and procedural law is not always clear. Courts have focused on whether the law has the potential to determine the outcome of the litigation. For example, in Guaranty Trust Co. v. York, the U.S. Supreme Court was concerned with whether ignoring a state statute of limitations would significantly alter the outcome of litigation and held that statutes of limitations are substantive law. Subsequent courts have narrowed this analysis, focusing on whether applying federal procedural law to an issue would determine the outcome in light of its potential impact on forum shopping and inequitable administration of the laws.

For example, if a plaintiff sues a defendant in federal court based on diversity jurisdiction, the court must apply the substantive law of the state where the court is located. If the state law requires a certain element to be proven for the plaintiff to win the case, the federal court must apply that law. However, the federal court can apply federal procedural law, such as the Federal Rules of Civil Procedure, to govern how the case is litigated.