A software company based in Arizona files a breach of contract claim in federal court against a hardware manufacturer based in California. The case is heard under diversity jurisdiction. The contract includes a clause providing for six years to file any claims arising under it. However, under the state law where the contract was formed, the statute of limitations for breach of contract claims is four years. Should the federal court apply the six-year contractual period or the four-year state statute of limitations?
The federal court should apply the state four-year statute of limitations because statutes of limitations are considered substantive law.
The federal court should apply federal law to determine whether the six-year contractual period is enforceable.
The federal court should apply the six-year contractual provision because contracts supersede state law in diversity cases.
The federal court should apply the six-year contractual provision because federal common law governs cases in federal courts.
In cases heard under diversity jurisdiction, federal courts are required to apply state substantive law through the Erie doctrine. Statutes of limitations are generally considered substantive rather than procedural because they are intertwined with state policies. Therefore, the court must apply the four-year statute of limitations from state law. Contractual agreements can sometimes modify this if enforceable, but the enforceability of the provision is determined based on state law principles. The wrong answers rely on misunderstandings, such as believing the federal court can apply federal common law instead, which is not correct in such cases.
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