Guaranty Trust Co. v. York

Facts

In May, 1930, Van Sweringen Corporation issued notes to the amount of $30,000,000. Guaranty Trust Co. was named trustee under the indenture, with power and obligations to enforce the noteholders' rights in the assets of the Corporation and of the Van Sweringen brothers. In October, 1931, when it was apparent that the Corporation could not meet its obligations, Guaranty cooperated in a plan to buy the outstanding notes for cash equal to 50% of face value plus twenty shares of the Corporation's stock for each $1,000 note. That exchange offer stayed open until December 15, 1931. York received $6,000 of the notes as a gift in 1934. Her donor had not accepted the exchange offer. Earlier, in April, 1940, three accepting noteholders sued Guaranty for fraud and misrepresentation, and York's application to intervene was denied. On January 22, 1942, York began this suit as a class action for non-accepting noteholders. She sued in a federal court solely because of diversity of citizenship. She alleged that Guaranty breached its trust. In her view, it failed to protect the noteholders' interests in assenting to the exchange offer and failed to disclose its own self-interest when sponsoring the offer.

Issues

1. In a suit in equity in a federal court whose jurisdiction rests only on diversity of citizenship, must the court follow the state statute of limitations that would bar the claim in a state court?
2. Is a state statute of limitations a matter of substantive right that a federal court must respect, or a mere matter of remedy that it may disregard?

Holding

A federal court sitting in equity in a diversity case must follow the state statute of limitations. If a plea of the statute would bar recovery in a State court, the federal court ought not to afford recovery, because the bar significantly affects the result of the litigation.