The Erie doctrine mandates that federal courts must apply state substantive laws in cases where they have jurisdiction based on diversity of citizenship. This ensures uniform application of laws and reduces forum shopping, as federal courts can no longer apply a federal general common law that differs from state laws. The choice of law in federal courts is thus directly influenced by the relevant state’s legal precedents and statutes.
For example: If a contract dispute arises and is brought to a federal court under diversity jurisdiction, and the applicable state law requires written contracts for certain agreements, the federal court must apply this state requirement despite any differing federal rules.