Substance and Procedure in Conflict of Laws
October 27, 2026
The field of conflict of laws is famously inscrutable. One of the most enigmatic doctrines in this area is the distinction between “substantive” issues and “procedural” issues. In this post, I first explain how U.S. courts distinguish between these issues for the purpose of resolving horizontal conflicts of law between sovereigns. I then explain how U.S. courts invoke this distinction for the purpose of resolving vertical conflicts of law between state law and federal law. Finally, I draw upon this account to explain a recent decision by a federal court in New York involving the recognition and enforcement of a German money judgment.
Substance and Procedure in Horizonal Conflicts
The distinction between substance and procedure is important in horizontal conflicts of law because it informs whether a court must perform a choice-of-law analysis. If an issue is classified as substantive, the court will apply the conflicts rules of the forum to identify the applicable law. If an issue is classified as procedural, the court will simply apply the law of the forum.
In many cases, classification will be straightforward. There is broad agreement that matters relating to the form of action, service of process, mode of trial, examination of witnesses, and admission of evidence are procedural. There is also broad agreement that the laws of contracts, torts, property, and trusts and estates are substantive. In other cases, classification is more difficult. U.S. courts have reached different conclusions, for example, as to whether statutes of limitations should be classified as substantive or procedural.
The task of drawing a principled line between substantive and procedural issues for conflicts purposes is a very old problem. As a matter of doctrine, many courts have stated that an issue is substantive when it relates to the “right” and procedural when it relates to the “remedy.” Although courts do not always agree as to when the issue relates to the right and when it relates to the remedy, the right/remedy framework is commonly used to distinguish substantive issues from procedural ones.
Substance and Procedure in Vertical Conflicts
The distinction between substance and procedure is also important in vertical conflicts between state and federal law. In most cases, such conflicts will be resolved in favor of federal law because the Supremacy Clause states that (1) the U.S. Constitution, (2) federal statutes, and (3) treaties will control in the event of a conflict with state law. In addition, many conflicts between state and federal law will be resolved by applying the Federal Rules of Civil Procedure when the case is brought in federal court. In cases where these rules are silent, however, a federal court sitting in diversity must perform a special choice-of-law analysis to determine whether state or federal law should be applied.
The U.S. Supreme Court has explained how this special choice-of-law analysis should proceed in a series of cases beginning with Erie Railroad Co. v. Tompkins (1938). The test is fiendishly complex, as this flow chart prepared by Michael Green attests. In essence, the Erie line of cases directs federal courts sitting in diversity to apply federal law to issues deemed “procedural” and state law to issues that are deemed “substantive.” The mind-bending problem—one that has driven many Conflict of Laws students to tear out their hair—is that the criteria used to distinguish substantive issues from procedural issues in these vertical cases are completely different from the criteria used in horizontal cases.
In the Erie context, the Supreme Court has said that a state rule should be treated as substantive if not following the rule in federal court would “significantly affect” the outcome of the litigation. The Court has cautioned, however, that this test “must not be applied mechanically.” Instead, it must be guided by the two policy considerations underlying the decision in Erie—discouraging forum shopping and avoiding the inequitable administration of the laws. Under the first directive, a state rule is substantive if failing to follow it would be so likely to change the outcome of the case that it would lead plaintiffs to file in federal court instead of state court (or vice versa). Under the second directive, a state rule is substantive if applying it would be so likely to change the outcome of the case that it results in undue disparities between state and federal court.
A substance/procedure test focused on discouraging forum shopping as between state and federal court obviously operates differently from a substance/procedure test that distinguishes between the right and the remedy. To see how these different tests play out in practice, let us now turn to Malherbe v. Oscar Gruss & Son, Inc, a case decided by the U.S. District Court for the Southern District of New York (Judge Margaret M. Garnett) on October 19, 2026.
Malherbe v. Oscar Gruss & Son, Inc.
The plaintiffs in Malherbe sought recognition and enforcement of a German default judgment. In a prior decision (discussed here), the court had concluded that the judgment in question was entitled to recognition. In a follow-up decision, the court had to calculate pre-judgment and post-judgment interest and address the issue of currency conversion.
Pre-Judgment Interest
Federal courts sitting in New York have held that the issue of pre-judgment interest is substantive for (vertical) Erie purposes. Accordingly, a federal court sitting in diversity must apply the state law of New York—not federal law—to calculate this number.
The New York state courts have held that pre-judgment interest is also substantive for (horizonal) conflict of laws purposes. This means that the court must ordinarily perform a choice-of-law analysis to determine which jurisdiction’s laws will be applied to calculate pre-judgment interest. The default judgment in Malherbe, however, specifically referenced a pre-judgment interest rate based on German law. In light of this fact, the court saw no need to perform a choice-of-law analysis. It held that the issue was governed by German law and that the German rate should be applied to calculate pre-judgment interest for the time period before the date when German judgment was recognized by the U.S. court.
Post-Judgment Interest
The issue of post-judgment interest on federal judgments is governed by a federal statute, 28 U.S.C. § 1961, which states that interest “shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” The Malherbe court held that this rate of interest would be used to determine the amount of money owed for the days and months after the date when the German judgment was recognized by the U.S. court.
Currency Conversion
Finally, the court had to determine which date to use to determine the exchange rate when converting a foreign currency judgment into United States dollars. There is no federal statute that addresses this question. Although the federal courts have developed federal common law currency rules in federal question cases, this issue is deemed substantive for Erie purposes in diversity cases. Since Malherbe was a diversity case, the the issue was governed by New York state law.
Under New York state law, the date on which to convert a foreign currency judgment into U.S. dollars is deemed procedural for conflict of laws purposes. This means that it is always governed by the law of the forum. The relevant state statute in New York provides that the “judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment or decree.” The U.S. judgment recognizing the German judgment was entered on August 5, 2026. Accordingly, the court used the euro-dollar exchange rate in effect on that date to calculate the amount of money owed.
Conclusion
Viewed from the perspective of a non-American lawyer, the doctrinal framework outlined above may seem needlessly convoluted. “Are you telling me,” a foreign lawyer might ask, “that the words ‘substantive’ and ‘procedural’ have one meaning when the court is resolving horizontal conflicts and another meaning when the court is resolving vertical conflicts? And that an issue may be deemed substantive in one context but not the other?” When informed that the answer to both questions is yes, that same lawyer may despair that he will ever truly understand the U.S. legal system. The only comfort I can offer—and I concede that it is hollow—is that many U.S. litigants and U.S. judges also find this confusing. It is very much to Judge Garnett’s credit that she successfully navigated her way through a complex doctrinal landscape to render a decision that strikes me as correct on both the law and the choice of law.