The U.S. Supreme Court considered the case of Erie Railroad Co. v. Tompkins, which was centered on an incident where a pedestrian named Harry Tompkins was struck by a train operated by the Erie Railroad in Pennsylvania. The incident resulted in significant injuries for Tompkins, leading him to sue the railroad for damages. Although the case was filed in a federal court, the primary question was whether federal law or state law should apply to the matter. Tompkins argued that state law should govern, while Erie Railroad insisted that federal common law should prevail.

Prior to this ruling, federal courts often applied their interpretations of federal common law, which created inconsistencies in how law was applied across different jurisdictions. The issue reached the Supreme Court, where the justices ultimately agreed with Tompkins' position. The ruling essentially overturned a century of federal common law practice, stating that federal courts sitting in diversity were required to apply state law instead.

The significance of this decision cannot be overstated; it changed the relationship between state and federal courts regarding tort claims. The ruling underscored the importance of state sovereignty in legal matters and aimed to ensure consistency in the application of law across jurisdictions. This led to more predictable outcomes in cases that crossed state lines, reducing the complications that arose due to varying interpretations of federal common law. Additionally, it highlighted the necessity for federal courts to respect the legal precedents established by state courts, ultimately reinforcing federalism in the American legal system.