Guaranty Trust Company v. York/Opinion of the Court

by Felix Frankfurter

United States Supreme Court

326 U.S. 99

Guaranty Trust Company  v.  York

 Argued: Jan. 3, 4, 1945. --- Decided: June 18, 1945

In Russell v. Todd, 309 U.S. 280, 294, 60 S.Ct. 527, 534, 84 L.Ed. 754, we had 'no occasion to consider the extent to which federal courts, in the exercise of the authority conferred upon them by Congress to administer equitable remedies, are bound to follow state statutes and decisions affecting those remedies.' The question thus carefully left open in Russell v. Todd is now before us. It arises under the following circumstances.

In May, 1930, Van Sweringen Corporation issued notes to the amount of $30,000,000. Under an indenture of the same date, petitioner, Guaranty Trust Co., was named trustee with power and obligations to enforce the rights of the noteholders in the assets of the Corporation and of the Van Sweringen brothers. In October, 1930, petitioner, with other banks, made large advances to companies affiliated with the Corporation and wholly controlled by the Van Sweringens. In October, 1931, when it was apparent that the Corporation could not meet its obligations, Guaranty co-operated in a plan for the purchase of the outstanding notes on the basis of cash for 50% of the face value of the notes and twenty sha es of Van Sweringen Corporation's stock for each $1,000 note. This exchange offer remained open until December 15, 1931.

Respondent York received $6,000 of the notes as a gift in 1934, her donor not having accepted the offer of exchange. In April, 1940, three accepting noteholders began suit against petitioner, charging fraud and misrepresentation. Respondent's application to intervene in that suit was denied, Hackner v. Guaranty Trust Co., 2 Cir., 117 F.2d 95, and summary judgment in favor of Guaranty was affirmed. Hackner v. Morgan, 2 Cir., 130 F.2d 300. After her dismissal from the Hackner litigation, respondent, on January 22, 1942, began the present proceedings.

The suit, instituted as a class action on behalf of non-accepting noteholders and brought in a federal court solely because of diversity of citizenship, is based on an alleged breach of trust by Guaranty in that it failed to protect the interests of the noteholders in assenting to the exchange offer and failed to disclose its self-interest when sponsoring the offer. Petitioner moved for summary judgment, which was granted, upon the authority of the Hackner case. On appeal, the Circuit Court of Appeals, one Judge dissenting, found that the Hackner decision did not foreclose this suit, and held that in a suit brought on the equity side of a federal district court that court is not required to apply the State statute of limitations that would govern like suits in the courts of a State where the federal court is sitting even though the exclusive basis of federal jurisdiction is diversity of citizenship. 2 Cir., 143 F.2d 503. The importance of the question for the disposition of litigation in the federal courts led us to bring the case here. 323 U.S. 693, 65 S.Ct. 60.

In view of the basis of the decision below, it is not for us to consider whether the New York statute would actually bar this suit were it brought in a State court. Our only concern is with the holding that the federal courts in a suit like this are not bound by local law.

We put to one side the considerations relevant in disposing of questions that arise when a federal court is adjudicating a claim based on a federal law. See, for instance, Board of Com'rs v. United States, 308 U.S. 343, 60 S.Ct. 285, 84 L.Ed. 313; Deitrick v. Greaney, 309 U.S. 190, 60 S.Ct. 480, 84 L.Ed. 694; D'Oench, Duhme & Co. v. F.D.I.C., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956; Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838; O'Brien v. Western Union Telegraph Co., 1 Cir., 113 F.2d 539. Our problem only touches transactions for which rights and obligations are created by one of the States, and for the assertion of which, in case of diversity of the citizenship of the parties, Congress has made a federal court another available forum.

Our starting point must be the policy of federal jurisdiction which Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, embodies. In overruling Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865; Erie R. Co. v. Tompkins did not merely overrule a venerable case. It overruled a particular way of looking at law which dominated the judicial process long after its inadequacies had been laid bare. See, e.g., Field, J., dissenting in Baltimore & O. Railroad v. Baugh, 149 U.S. 368, 391, 13 S.Ct. 914, 923, 37 L.Ed. 772; Holmes, J., dissenting in Kuhn v. Fairmont Coal Co., 215 U.S. 349, 370, 30 S.Ct. 140, 147, 54 L.Ed. 228, and in Black & White Taxi. Co. v. B. & Y. Taxi. Co., 276 U.S. 518, 532, 48 S.Ct. 404, 408, 72 L.Ed. 681, 57 A.L.R. 426; Erie R. Co. v. Tompkins, supra, 304 U.S. at page 73, note 6, 58 S.Ct. at page 820, 82 L.Ed. 1188, 114 A.L.R. 1487. Law was conceived as a 'brooding omnipresence' of Reason, of which decisions were merely evidence and not themselves the controlling formulations. Accordingly, federal courts deemed themselves free to ascertain what Reason, and therefore Law, required wholly independent of authoritatively declared State law, even in c ses where a legal right as the basis for relief was created by State authority and could not be created by federal authority and the case got into a federal court merely because it was 'between Citizens of different States' under Art. III, § of the Constitution of the United States.

This impulse to freedom from the rules that controlled State courts regarding State-created rights was so strongly rooted in the prevailing views concerning the nature of law, that the federal courts almost imperceptibly were led to mutilating construction even of the explicit command given to them by Congress to apply State law in cases purporting to enforce the law of a State. See § 34 of the Judiciary Act of 1789, 1 Stat. 73, 92, 28 U.S.C.A. § 725. The matter was fairly summarized by the statement that 'During the period when Swift v. Tyson (1842-1938) ruled the decisions of the federal courts, its theory of their freedom in matters of general law from the authority of state courts pervaded opinions of this Court involving even state statutes or local law.' Vanderbark v. Owens-Illinois Glass Co., 311 U.S. 538, 540, 61 S.Ct. 347, 349, 85 L.Ed. 327.

In relation to the problem now here, the real significance of Swift v. Tyson lies in the fact that it did not enunciate novel doctrine. Nor was it restricted to its particular situation. It summed up prior attitudes and expressions in cases that had come before this Court and lower federal courts for at least thirty years, at law as well as in equity. ^[1] The short of it is that the doctrine was congenial to the jurisprudential climate of the time. Once established, judicial momentum kept it going. Since it was conceived that there was 'a transcendental body of law outside of any particular State but obligatory within it unless and until changed by statute', 276 U.S. 518, 532, 533, 48 S.Ct. 404, 408, 409, 72 L.Ed. 681, 57 A.L.R. 426, State court decisions were not 'the law' but merely someone's opinion-to be sure an opinion to be respected-concerning the content of this all-pervading law. Not unnaturally, the federal courts assumed power to find for themselves the content of such a body of law. The notion was stimulated by the attractive vision of a uniform body of federal law. To such sentiments for uniformity of decision and freedom from diversity in State law the federal courts gave currency, particularly in cases where equitable remedies were sought, because equitable doctrines are so often cast in terms of universal applicability when close analysis of the source of legal enforceability is not demanded.

In exercising their jurisdiction on the ground of diversity of citizenship, the federal courts, in the long course of their history, have not differentiated in their regard for State law between actions at law and suits in equity. Although § 34 of the Judiciary Act of 1789, 1 Stat. 73, 92, 28 U.S.C. § 725, 28 U.S.C.A. § 725 directed that the 'laws of the several States * * * shall be regarded as rules of decision in trials of common law * * *', this was deemed, consistently for over a hundred years, to be merely declaratory of what would in any event have governed the federal courts and therefore was equally applicable to equity suits. ^[2] See Hawkins v. Barney's Lessee, 5 Pet. 457, 464, 8 L.Ed. 190; Mason v. United States, 260 U.S. 545, 559, 43 S.Ct. 200, 204, 67 L.Ed. 396; Erie R. Co. v. Tompkins, supra, 304 U.S. at page 72, 58 S.Ct. at page 819, 82 L.Ed. 1188, 114 A.L.R. 1487. Indeed, it may fairly be said that the federal courts gave greater respect to State-created 'substantive rights', Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 498, 43 S.Ct. 454, 456, 67 L.Ed. 763, in equity than they gave them on the law side, because rights at law were usually declared by State courts and as such increasingly flouted by extension of the doctrine of Swift v. Tyson, while rights in equity were frequently defined by legislative enactment and as such known and respected by the federal courts. See, e.g., Clark v. Smith, 13 Pet. 195, 10 L.Ed. 123; Scott v. Neely, 140 U.S. 106, 11 S.Ct. 712, 35 L.Ed. 358; Louisville & Nash. R.R. v. West Un. Tel. Co., 234 U.S. 369, 374-376, 34 S.Ct. 810-812, 58 L.Ed. 1356; Pusey & Jones Co. v. Hanssen, supra, 261 U.S. at page 498, 43 S.Ct. page 456, 67 L.Ed. 763.

Partly because the States in the early days varied greatly in the manner in which equitable relief was afforded and in the extent to which it was available, see, e.g., Fisher, The Administration of Equity Through Common Law Forms (1885) 1 L.Q.Rev. 455; Woodruff, Chancery in Massachusetts (1889) 5 L.Q.Rev. 370; Laussat, Essay on Equity in Pennsylvania (1826), Congress provided that 'the forms and modes of proceeding in suits * * * of equity' would conform to the settled uses of courts of equity. Section 2, 1 Stat. 275, 276, 28 U.S.C. § 723, 28 U.S.C.A. § 723. But this enactment gave the federal courts no power that they would not have had in any event when courts were given 'cognizance', by the first Judiciary Act, of equity'. From the beginning there has been a good deal of talk in the cases that federal equity is a separate legal system. And so it is, properly understood. The suits in equity of which the federal courts have had 'cognizance' ever since 1789 constituted the body of law which had been transplanted to this country from the English Court of Chancery. But this system of equity 'derived its doctrines, as well as its powers, from its mode of giving relief'. Langdell, Summary of Equity Pleading (1877) xxvii. In giving federal courts 'cognizance' of equity suits in cases of diversity jurisdiction, Congress never gave, nor did the federal courts ever claim, the power to dney substantive rights created by State law or to create substantive rights denied by State law.

This does not mean that whatever equitable remedy is available in a State court must be available in a diversity suit in a federal court, or conversely, that a federal court may not afford an equitable remedy not available in a State court. Equitable relief in a federal court is of course subject to restrictions: the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery, Payne v. Hook, 7 Wall. 425, 430, 19 L.Ed. 260; Atlas Life Ins. Co. v. W. I. Southern, Inc., 306 U.S. 563, 568, 59 S.Ct. 657, 659, 83 L.Ed. 987; Sprague v. Ticonic Bank, 307 U.S. 161, 164, 165, 59 S.Ct. 777-779, 3 L.Ed. 1184; a plain, adequate and complete remedy at law must be wanting, § 16, 1 Stat. 73, 82, 28 U.S.C.A. § 384, 28 U.S.C.A. § 384; explicit Congressional curtailment of equity powers must be respected, see, e.g., Norris-LaGuardia Act, 47 Stat. 70, 29 U.S.C. § 101 et seq., 29 U.S.C.A. § 101 et seq.; the constitutional right to trial by jury cannot be evaded, Whitehead v. Shattuck, 138 U.S. 146, 11 S.Ct. 276, 34 L.Ed. 873. That a State may authorize its courts to give equitable relief unhampered by any or all such restrictions cannot remove these fetters from the federal courts. See Clark v. Smith, 13 Pet. 195, 203, 10 L.Ed. 123; In re Broderick's Will, 21 Wall. 503, 519, 520, 22 L.Ed. 599; Louisville & Nash. R.R. Co. v. West. Union Tel. Co., supra, 234 U.S. at page 376, 34 S.Ct. at page 812, 58 L.Ed. 1356; Henrietta Mills v. Rutherford Co., 281 U.S. 121, 127, 128, 50 S.Ct. 270, 272, 74 L.Ed. 737; Atlas Life Ins. Co. v. W.I. Southern Inc., supra, 306 U.S. at pages 568, 570, 59 S.Ct. at pages 659, 660, 83 L.Ed. 987. State law cannot define the remedies which a federal court must give simply because a federal court in diversity jurisdiction is available as an alternative tribunal to the State's courts. ^[3] Contrariwise, a federal court may afford an equitable remedy for a substantive right recognized by a State even though a State court cannot give it. Whatever contradiction or confusion may be produced by a medley of judicial phrases severed from their environment, the body of adjudications concerning equitable relief in diversity cases leaves no doubt that the federal courts enforced State-created substantive rights if the mode of proceeding and remedy were consonant with the traditional body of equitable remedies, practice and procedure, and in so doing they were enforcing rights created by the States and not arising under any inherent or statutory federal law. ^[4]

Inevitably, therefore, the principle of Erie R. Co. v. Tompkins, an action at law, was promptly applied to a suit in equity. Ruhlin v. New York Life Ins. Co., 304 U.S. 202, 58 S.Ct. 860, 82 L.Ed. 1290.

And so this case reduces itself to the narrow question whether, when no recovery could be had in a State court because the action is barred by the statute of limitations, a federal court in equity can take cognizance of the suit because there is diversity of citizenship between the parties. Is the outlawry, according to State law, of a claim created by the States a matter of 'substantive rights' to be respected by a federal court of equity when that court's jurisdiction is dependent on the fact that there is a Statecreated right, or is such statute of 'a mere remedial character', Henrietta Mills v. Rutherford Co., supra, 281 U.S. at page 128, 50 S.Ct. at page 272, 74 L.Ed. 737, which a federal court may disregard?

Matters of 'substance' and matters of 'procedure' are much talked about in the books as though they defined a great divide cutting across the whole domain of law. But, of course, 'substance' and 'procedure' are the same key-words to very different problems. Neither 'substance' nor 'procedure' represents the same invariants. Each implies different variables depending upon the particular problem for which it is used. See Home Ins. Co. v. Dick, 281 U.S. 397, 409, 50 S.Ct. 338, 341, 74 L.Ed. 926, 74 A.L.R. 701. And the different problems are only distantly related at best, for the terms are in common use in connection with situations turning on such different considerations as those that are relevant to questions pertaining to ex post facto legislation, the impairment of the obligations of contract, the enforcement of federal rights in the State courts and the multitudinous phases of the conflict of laws. See, e.g. American Ry. Exp. Co. v. Levee, 263 U.S. 19, 21, 44 S.Ct. 11, 12, 68 L.Ed. 140; Davis v. Wechsler, 263 U.S. 22, 24, 25, 44 S.Ct. 13, 14, 68 L.Ed. 143; Worthen Co. v. Kavanaugh, 295 U.S. 56, 60, 55 S.Ct. 555, 556, 79 L.Ed. 1298, 97 A.L.R. 905; Garrett v. Moore-McCormack Co., 317 U.S. 239, 248, 249, 63 S.Ct. 246, 252, 87 L.Ed. 239; and see Tunks, Categorization and Federalism: 'Substance' and 'Procedure' After Erie Railroad v. Tompkins (1939) 34 Ill.L.Rev. 271, 274-276; Cook, Logical and Legal Bases of Conflict of Laws (1942) 163-165.

Here we are dealing with a right to recover derived not from the United States but from one of the States. When, because the plaintiff happens to be a nonresident, such a right is enforceable in a federal as well as in a State court, the forms and mode of enforcing the right may at times, naturally enough, vary because the two judicial systems are not identic. But since a federal court adjudicating a state-created right solely because of the diversity of citizenship of the parties is for that purpose, in effect, only another court of the State, it cannot afford recovery if the right to recover is made unavailable by the State nor can it substantially affect the enforcement of the right as given by the State.

And so the question is not whether a statute of limitations is deemed a matter of 'procedure' in § me sense. The question is whether such a statute concerns merely the manner and the means by which a right to recover, as recognized by the State, is enforced, or whether such statutory limitation is a matter of substance in the aspect that alone is relevant to our problem, namely, does it significantly affect the result of a litigation for a federal court o disregard a law of a State that would be controlling in an action upon the same claim by the same parties in a State court?

It is therefore immaterial whether statutes of limitation are characterized either as 'substantive' or 'procedural' in State court opinions in any use of those terms unrelated to the specific issue before us. Erie R. Co. v. Tompkins was not an endeavor to formulate scientific legal terminology. It expressed a policy that touches vitally the proper distribution of judicial power between State and federal courts. In essence, the intent of that decision was to insure that, in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court. The nub of the policy that underlies Erie R. Co. v. Tompkins is that for the same transaction the accident of a suit by a non-resident litigant in a federal court instead of in a State court a block away, should not lead to a substantially different result. And so, putting to one side abstractions regarding' substance' and 'procedure', we have held that in diversity cases the federal courts must follow the law of the State as to burden of proof, Cities Service Oil Co. v. Dunlap, 308 U.S. 208, 60 S.Ct. 201, 84 L.Ed. 196, as to conflict of laws, Klaxon Co. v. Stentor Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477, as to contributory negligence, Palmer v. Hoffman, 318 U.S. 109, 117, 63 S.Ct. 477, 482, 87 L.Ed. 645, 144 A.L.R. 719. And see Sampson v. Channell, 1 Cir., 110 F.2d 754, 128 A.L.R. 394. Erie R. Co. v. Tompkins has been applied with an eye alert to essentials in avoiding disregard of State law in diversity cases in the federal courts. A policy so important to our federalism must be kept free from entanglements with analytical or terminological niceties.

Plainly enough, a statute that would completely bar recovery in a suit if brought in a State court bears on a Statecreated right vitally and not merely formally or negligibly. As to consequences that so intimately affect recovery or non-recovery a federal court in a diversity case should follow State law. See Morgan, Choice of Law Governing Proof (1944) 58 Harv.L.Rev. 153, 155-158. The fact that under New York law a statute of limitations might be lengthened or shortened, that a security may be foreclosed though the debt be barred, that a barred debt may be used as a set-off, are all matters of local law properly to be respected by federal courts sitting in New York when their incidence comes into play there. ^[5] Such particular rules of local law, however, do not in the slightest change the crucial consideration that if a plea of the statute of limitations would bar recovery in a State court, a federal court ought not to afford recovery.

Prior to Erie R. Co. v. Tompkins it was not necessary, as we have indicated, to make the critical analysis required by the doctrine of that case of the nature of jurisdiction of the fede al courts in diversity cases. But even before Erie R. Co. v. Tompkins, federal courts relied on statutes of limitations of the States in which they sat. In suits at law State limitations statutes were held to be 'rules of decision' within § 34 of the Judiciary Act of 1789 and as such applied in 'trials at common law'. McCluny v. Silliman, 3 Pet. 270, 277, 7 L.Ed. 676; President and Directors of Bank of Alabama v. Dalton, 9 How. 522, 13 L.Ed. 242; Leffingwell v. Warren, 2 Black 599, 17 L.Ed. 261; Bauserman v. Blunt, 147 U.S. 647, 13 S.Ct. 466, 37 L.Ed. 316. While there was talk of freedom of equity from such State statutes of limitations, the cases generally refused recovery where suit was barred in a like situation in the State courts, even if only by way of analogy. See, e.g., Godden v. Kimmell, 99 U.S. 201, 25 L.Ed. 431; Alsop v. Riker, 155 U.S. 448, 15 S.Ct. 162, 39 L.Ed. 218; Benedict v. City of New York, 250 U.S. 321, 327, 328, 39 S.Ct. 476, 478, 63 L.Ed. 1005. However in Kirby v. Lake Shore & M.S.C.o., 120 U.S. 130, 7 S.Ct. 430, 30 L.Ed. 569, the Court disregarded a State statute of limitations where the Court deemed it inequitable to apply it.

To make an exception to Erie R. Co. v. Tompkins on the equity side of a federal court is to reject the considerations of policy which, after long travail, led to that decision. Judge Augustus N. Hand thus summarized below the fatal objection to such inroad upon Erie R. Co. v. Tompkins: 'In my opinion it would be a mischievous practice to disregard state statutes of limitation whenever federal courts think that the result of adopting them may be inequitable. Such procedure would promote the choice of United States rather than of state courts in order to gain the advantage of different laws. The main foundation for the criticism of Swift v. Tyson was that a litigant in cases where federal jurisdiction is based only on diverse citizenship may obtain a more favorable decision by suing in the United States courts.' 2 Cir., 143 F.2d 503, 529, 531.

Diversity jurisdiction is founded on assurance to non-resident litigants of courts free from susceptibility to potential local bias. The Framers of the Constitution, according to Marshall, entertained 'apprehensions' lest distant suitors be subjected to local bias in State courts, or, at least, viewed with 'indulgence the possible fears and apprehensions' of such suitors. Bank of the United States v. Deveaux, 5 Cranch 61, 87, 3 L.Ed. 38. And so Congress afforded out-of-State litigants another tribunal, not another body of law. The operation of a double system of conflicting laws in the same State is plainly hostile to the reign of law. Certainly, the fortuitous circumstance of residence out of a State of one of the parties to a litigation ought not to give rise to a discrimination against others equally concerned but locally resident. The source of substantive rights enforced by a federal court under diversity jurisdiction, it cannot be said too often, is the law of the States. Whenever that law is authoritatively declared by a State, whether its voice be the legislature or its highest court, such law ought to govern in litigation founded on that law, whether the forum of application is a State or a federal court and whether the remedies be sought at law or may be had in equity.

Dicta may be cited characterizing equity as an independent body of law. To the extent that we have indicated, it is. But insofar as these general observations go beyond that, they merely reflect notions that have been replaced by a sharper analysis of what federal courts do when they enforce rights that have no federal origin. And so, before the true source of law that is applied by the federal courts under diversity jurisdiction was fully explored, some things were said that would not now be said. But nothing that was decided, unless it be the Kirby case, needs to be rejected.

The judgment is reversed and the case is remanded for proceedings not inconsistent with this opinion.

So ordered.

Reversed.

Mr. Justice ROBERTS and Mr. Justice DOUGLAS took no part in the consideration or decision of this case.

Notes

1  In Russell v. Southard, 12 How. 139, 147, 13 L.Ed. 927, Mr. Justice Curtis, refusing to be bound by Kentucky law barring the reception of oral evidence to show that an absolute bill of sale was in reality a mortgage, declared that 'upon the principles of general equity jurisprudence, this court must be governed by its own views of those principles.' To support this statement, he cited, among others, Robinson v. Campbell, 3 Wheat. 212, 4 L.Ed. 372; Boyle v. Zacharie and Turner, 6 Pet. 648, 8 L.Ed. 532, and Swift v. Tyson, supra. This commingling of law and equity cases indicates that the same views governed both and that Swift v. Tyson was merely another expression of the ideas put forth in the equity cases.

2  In Bank of Hamilton v. Dudley's Lessee, 2 Pet. 492, 525, 7 L.Ed. 496, Chief Justice Marshall, in discussing the applicability of Ohio occupant law as 'rules of decision' under § 34, said, 'The laws of the states, and the occupant law, like others, would be so regarded, independent of that special enactment. * * *' It is interesting to note that this judicial pronouncement corresponds to the views John Marshall expressed in the Virginia Convention called to ratify the Constitution. Responding to George Mason's question as to what law would apply in the federal courts in diversity cases, Marshall declared: 'By the laws of which state will it be determined? said he. By the laws of the state where the contract was made. According to those laws, and those only, can it be decided. Is this a novelty? No; it is a principle in the jurisprudence of this commonwealth.' 3 Elliott's Debates, 556.

3  In Pusey & Jones Co. v. Hanssen, supra, the Court had to decide whether a Delaware statute had created a new right appropriate for enforcement in accordance with traditional equity practice or whether the statute had merely given the Delaware Chancery Court a new kind of remedy. The statute authorized the Chancellor to appoint a receiver for an insolvent corporation upon the application of an unsecured simple contract creditor. Suit was brought in a federal equity court under diversity jurisdiction. Although traditional equity notions do not give a simple contract creditor an interest in the funds of an insolvent debtor, the State may, as this Court recognized, create such an interest. When the State has done that, whatever remedies are consonant with the practice of equity courts in effectuating creditor's rights come into play. Pusey & Jones Co. v. Hanssen, supra, did not question that in the case of diversity jurisdiction the States create the obligation for which relief is sought. But the Court construed the Delaware statute merely to extend the power to an equity court to appoint a receiver on the application of an ordinary contract creditor. By conferring new discretionary authority upon its equity court, Delaware could not modify the traditional equity rule in the federal courts that only someone with a defined interest in the estate of an insolvent person, e.g., a judgment creditor, can protect that interest through receivership. But the Court recognized that if the Delaware statute had been one not regulating the powers of the Chancery Court of Delaware but creating a new interest in a contract creditor, the federal court would have had power to grant a receivership at the behest of such a simple contract creditor, as much so as in the case of a secured creditor. See Mackenzie Oil Co. v. Omar Oil & Gas Co., 14 Del.Ch. 36, 45, 120 A. 852, for Delaware's view as to the nature of the Delaware statute.

4  'It is true that, where a state statute creates a new equitable right of a substantive character, which can be enforced by proceedings in conformity with the pleadings a d practice appropriate to a court of equity, such enforcement may be had in a federal court, provided a ground exists for invoking the federal jurisdiction. * * * But the enforcement in the federal courts of new equitable rights created by states is subject to the qualification that such enforcement must not impair any right conferred, or conflict with any inhibition imposed, by the constitution or laws of the United States. * * * Whatever uncertainty may have arisen because of expressions which did not fully accord with the rule as thus stated, the distinction, with respect to the effect of state legislation, has come to be clearly established between substantive and remedial rights.' Henrietta Mills v. Rutherford Co., supra 281 U.S. at pages 127, 128, 50 S.Ct. at page 272, 74 L.Ed. 737.

5  See, e.g., Hulbert v. Clark, 128 N.Y. 295, 28 N.E. 638, 14 L.R.A. 59; House v. Carr, 185 N.Y. 453, 78 N.E. 171, 6 L.R.A.,N.S., 510, 113 Am.St.Rep. 936, 7 Ann.Cas. 185; Lightfoot v. Davis, 198 N.Y. 261, 91 N.E. 582, 29 L.R.A.,N.S., 119, 139 Am.St.Rep. 819, 19 Ann.Cas. 747; Davidson v. Witthaus, 106 App.Div. 182, 94 N.Y.S. 428; Matter of Ewald's Estate, 174 Misc. 939, 22 N.Y.S.2d 299. The statute may be waived, Peoples Trust Co. v. O'Neil, 273 N.Y. 312, 316, 7 N.E.2d 244, and must be pleaded, Dunkum v. Macek Building Corp., 227 App.Div. 230, 237 N.Y.S. 180.