Sophia, a resident of State A, files a breach of contract lawsuit against her neighbor, a resident of State B, in federal court under diversity jurisdiction. There is no federal statute governing the contract issue. Which law should the federal court apply to decide the substantive issues of the case?
The contract law of the state where the federal court is located.
Under the Erie Doctrine, when a federal court is exercising diversity jurisdiction and there is no federal statute on point, it applies the substantive law of the state in which it sits. This ensures that the outcome is consistent with what it would be in the state's courts.
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