Bar Exam (Next Generation) Quiz: State Law In Federal Court

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State Law In Federal CourtQuestion 1 of 11

Linden, a citizen of State R, sued Vista Supply Co., a citizen of State S, in federal district court for State R for breach of a supply contract. After Vista served requests for admission, Linden served answers on the 20th day after service. State R's rules of civil procedure require a responding party to answer requests for admission within 14 days of service.

Federal Rule of Civil Procedure 36(a)(3) provides: "A matter is deemed admitted unless, within 30 days after being served, the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter."

In Harbro v. Delta Freight, the court held: "A valid Federal Rule of Civil Procedure that directly governs a matter applies in diversity cases regardless of contrary state law; such a Rule is valid under the Rules Enabling Act if it is reasonably capable of being classified as procedural, even if applying it may affect the outcome of a state-law claim."

Were Linden's responses to Vista's requests for admission timely?

No, because state rules of procedure govern matters not covered by federal statutes in diversity cases, and State R's 14-day rule therefore applies.

No, because a federal court must apply the state rule when the state rule could affect the outcome of a state-law claim, and State R's 14-day rule is outcome-determinative here.

Yes, but only because Linden is a citizen of State R; state procedural rules cannot bind nonresident parties in diversity actions.

Yes, because Federal Rule of Civil Procedure 36 supplies a 30-day response period and is a valid procedural rule that displaces State R's contrary 14-day rule.

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Bar Exam (Next Generation) Quiz

Bar Exam (Next Generation) Quiz: State Law In Federal Court

Practice State Law In Federal Court in Bar Exam (Next Generation) with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on State Law In Federal Court, giving you a quick way to practice the rules, question types, and explanations that matter most for Bar Exam (Next Generation).

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

Were Linden's responses to Vista's requests for admission timely?

No, because state rules of procedure govern matters not covered by federal statutes in diversity cases, and State R's 14-day rule therefore applies.
No, because a federal court must apply the state rule when the state rule could affect the outcome of a state-law claim, and State R's 14-day rule is outcome-determinative here.
Yes, but only because Linden is a citizen of State R; state procedural rules cannot bind nonresident parties in diversity actions.
Yes, because Federal Rule of Civil Procedure 36 supplies a 30-day response period and is a valid procedural rule that displaces State R's contrary 14-day rule. (correct answer)

Explanation: Whenever you see a timing or pleading question in federal diversity jurisdiction, you should immediately separate substance from procedure. Federal courts apply state substantive law, but valid federal procedural rules govern once they directly address the issue. Here, Federal Rule of Civil Procedure 36(a)(3) directly answers the question: a party has 30 days to respond to requests for admission. Linden answered on day 20, so the responses were timely. FRCP 36 is valid under the Rules Enabling Act because it is rationally capable of being classified as procedural, and under Hanna, a valid federal rule displaces contrary state law even if it might affect the outcome of the state-law claim. The first wrong answer says state rules govern because federal statutes do not cover the matter—but FRCP 36 is a congressionally authorized procedural rule, and it does cover this matter. The second wrong answer treats the state rule's outcome-determinative effect as sufficient to force its application; that is the pre-Hanna outcome-determination trap, rejected because a valid federal rule controls regardless. The third wrong answer claims timeliness depends on Linden's State R citizenship—completely incorrect, as federal procedural rules bind all parties in federal court regardless of residence. Your study tip: when a Federal Rule of Civil Procedure squarely addresses the issue, apply the federal rule, and check only whether the Rule was validly promulgated under the Rules Enabling Act.

Question 2

Berelli, a citizen of State O, sued Hartwell, a citizen of State P, in federal district court for State O, alleging injuries from contaminated food sold by Hartwell. The parties agree that State O substantive law governs. State O statute provides: "In any negligence action, the defendant bears the burden of persuasion on the issue of the plaintiff's comparative negligence."

Hartwell argues that federal law requires Berelli to prove absence of comparative negligence. The court in Sessions v. Bromley held: "In diversity cases, a state rule allocating the burden of persuasion is substantive for Erie purposes if applying it would affect the outcome of the case and failing to apply it would encourage forum shopping; federal courts must apply such state rules even though burden allocation is often described as procedural."

At trial, who bears the burden of persuasion on the issue of comparative negligence?

Hartwell, because State O's burden-allocation rule is substantive under Sessions and places the burden of persuasion on the defendant. (correct answer)
Berelli, because federal courts apply federal common law to burden-of-persuasion issues unless a federal statute or rule supplies a contrary rule.
Berelli, because State O's burden-allocation rule is procedural, and a state procedural rule cannot displace the federal court's authority to allocate burdens.
Hartwell, but only if Hartwell first introduces substantial evidence that Berelli's own negligence contributed to the injury.

Explanation: When you see a diversity case involving a state rule about burdens, remember the Erie analysis: federal courts apply state substantive law, and a burden-of-persuasion rule is substantive if it affects the outcome and failing to apply it would encourage forum shopping. Under Sessions, State O's statute is exactly that kind of rule. It says the defendant bears the burden of persuasion on comparative negligence, so Hartwell must persuade the jury on that issue. Berelli's argument that federal courts apply federal common law to burden allocation is incorrect—in diversity, state substantive rules can displace any default federal practice. Similarly, the argument that State O's rule is procedural and cannot displace federal authority misunderstands Sessions: outcome-affecting burden allocation is substantive for Erie purposes even though burden rules are often called procedural. Finally, the idea that Hartwell bears the burden only after first introducing substantial evidence confuses burden of persuasion with burden of production. Hartwell may need to produce enough evidence to get the issue to the jury, but the ultimate burden of persuasion—who loses if the jury is uncertain—remains on Hartwell under state law. Strategy tip: distinguish burden of production from burden of persuasion. On Erie questions, state rules allocating the ultimate burden are outcome-determinative, so treat them as substantive and binding.

Question 3

Amara, a citizen of State P, was injured when a storage tank at a warehouse in State P leaked chemicals onto her property. The warehouse was leased and operated by Brisk Storage, Inc., a corporation incorporated in State D with its principal place of business in State D. Amara sued Brisk in the U.S. District Court for the District of State P, asserting only state-law claims for negligence, strict liability, and nuisance. Jurisdiction is based solely on diversity. State P law caps noneconomic damages at $750,000. Brisk has asked the court instead to adopt a uniform federal cap of $250,000 on noneconomic damages, arguing that the tank was part of a multistate distribution network and that a uniform national rule is needed to avoid inconsistent outcomes across federal districts.

Which legal issue is most directly raised by Brisk's request?

Whether the action should be transferred to a district court in State D to avoid forum shopping.
Whether the court has federal question jurisdiction because the tank was used in interstate commerce.
Whether State P's damages cap is a procedural rule displaced by the Federal Rules of Civil Procedure.
Whether a federal court may create federal common law to govern damages on a state-law claim in diversity. (correct answer)

Explanation: Whenever a diversity case involves state-law claims, your first instinct should be Erie: a federal court sitting in diversity applies state substantive law and federal procedural law. Brisk's request—ignore State P's $750,000 cap and impose a uniform federal $250,000 cap—does not ask about procedure or jurisdiction. It asks the court to invent a federal damages rule for a purely state tort. That directly raises whether a federal court may create federal common law to govern damages on a state-law claim in diversity. Erie Railroad v. Tompkins says no: federal courts have no general federal common law, and damages caps are substantive state policy. Federal common law exists only in narrow areas of uniquely federal interests, like foreign relations or interstate disputes; a multistate tank network is not enough. The transfer suggestion isnot right: a transfer to State Dwould not authorize a federal damages cap, and transfer law does not let a court swap state substantive law simply to avoid forum shopping. Federal question jurisdiction is also wrong: the claims are only for negligence, strict liability, and nuisance under state law; the tank's movement interstate commerce does not turn those state claims into federal questions, especially since jurisdiction is solely diversity. And the state cap is not procedural displaced by the Federal Rules: caps on noneconomic damages are substantive tort policy, not rules of procedure; the Federal Rules do not create or preempt damages limits. So the decisive lesson: when a party urges a federal forum to craft a uniform substantive rule in a diversity case, you should spot Erie and the ban on federal general common law.

Question 4

Reina, a citizen of State A, bought a ladder in State A and was seriously injured when it collapsed at her home in State A. Peak Tools, Inc., is incorporated in State C and has its principal place of business in State C. Reina sued Peak in the U.S. District Court for the District of State A, asserting only a state-law product-liability claim. Jurisdiction is based solely on diversity. The suit was filed two years and five months after the injury. State A has a two-year statute of limitations for product-liability actions. Peak moved to dismiss; Reina responded that the Federal Rules of Civil Procedure and the district court's local rules do not contain a two-year filing deadline and that, alternatively, a federal equitable-tolling rule should excuse the late filing because Peak concealed the ladder's defect.

Which legal issue is most central to resolving Peak's motion?

Whether State A's two-year limitations period is a substantive rule that the federal court must apply to Reina's state-law claim. (correct answer)
Whether a federal equitable-tolling rule should extend the limitations period because Peak concealed the defect.
Whether State A's limitations period is an affirmative defense that Peak waived by filing a motion to dismiss rather than an answer.
Whether the district court must transfer the case to State C because Peak is incorporated and has its principal place of business there.

Explanation: When you see a diversity case raising a state-law claim, always ask: which law supplies the rule of decision? A federal court sitting in diversity applies federal procedural rules but state substantive law. A statute of limitations is substantive for Erie purposes because it determines whether a claim exists at all. So State A's two-year product-liability deadline must be applied in the federal district court in State A. That is the central issue, and it defeats Reina's argument that the Federal Rules and local rules contain no two-year deadline—the Federal Rules simply do not set limitations periods. The alternative federal equitable-tolling argument is not the central issue and, in fact, misstates the law: in a diversity case on a state-law claim, the forum state's tolling rules generally apply, not a separate federal equitable-tolling doctrine. The affirmative-defense argument is also wrong: a defendant can raise a statute-of-limitations defense in a motion to dismiss when the complaint shows the claim is untimely, so Peak did not waive it. Finally, transfer to State C is not implicated; the plaintiff properly sued in State A, where she resides and was injured, and Peak's citizenship does not require transfer. Study tip: on bar exams, if a diversity case involves a state claim and a time limit, think Erie immediately—state limitations and state tolling rules usually control, not federal deadlines.

Question 5

A federal district court is hearing a diversity case involving a state-law claim. The forum state's highest court has never decided the controlling issue. The state's intermediate appellate courts are split, and the state legislature recently amended the relevant statute, but no state court has construed the amendment. The parties have completed briefing on the merits, and the district judge is deciding how to proceed.

Which of the following is the most significant legal issue raised by this situation?

Whether the Federal Rules of Civil Procedure provide the substantive rule for the state-law claim.
Whether the district court must dismiss the action because state law is not clearly established.
Whether the district court may certify the unresolved state-law question to the forum state's highest court. (correct answer)
Whether the district court is required to abstain and remand the case to state court.

Explanation: Whenever you see a federal court resolving an unsettled state-law issue in diversity, think about Erie and the judge's options. The central problem here is not whether state law exists—it is how the federal court can get an authoritative answer. Certification to the forum state's highest court is the most significant issue because state courts are split and the legislature has amended the statute, leaving the district judge without clear controlling precedent. Federal courts may certify unsettled state-law questions when state law permits, and that process directly addresses the uncertainty. The wrong choices each rest on a misconception. The Federal Rules of Civil Procedure do not supply the substantive rule for a state-law claim; under Erie they govern procedure only, so that choice mistakes process for substance. Dismissal is not required simply because state law is unclear; a federal court either predicts how the state court would rule or certifies the question. Abstention is also not mandatory here—unsettled state law alone does not warrant abstention, and remanding the case to state court is not a general remedy for uncertainty; remand is tied to jurisdictional defects. Certification is discretionary, not automatic, so the key is recognizing it as the appropriate mechanism to avoid guessing. Study tip: when state law is genuinely unsettled in a diversity case, ask whether certification is available before assuming dismissal or abstention.

Question 6

Rowan, a citizen of State L, sued Finch, a citizen of State M, in federal district court for State L. Rowan alleges that Finch, as trustee, misappropriated trust assets. Rowan seeks only $250,000 in money damages. State L has a statute providing: "Actions for breach of fiduciary duty are equitable in nature and shall be tried by the court without a jury."

Finch demands a jury trial. In Darnell v. Sequoia Holdings, the U.S. Court of Appeals held: "In diversity cases, the right to a jury trial is determined by federal law, not state law. Courts determine whether the claim is analogous to a suit at common law in 1791, focusing on the remedy sought. A claim seeking only money damages for breach of fiduciary duty ordinarily sounds in law, and a state statute labeling a claim equitable does not control."

How should the court rule on Finch's jury demand?

Deny the demand, because State L law supplies the substantive rule of decision for fiduciary obligations and labels the action equitable, so the Seventh Amendment does not require a jury.
Deny, because breach-of-fiduciary-duty claims were historically equitable and the Seventh Amendment does not confer a jury trial for such claims.
Grant the demand, but only if State L courts would grant a jury trial for this type of claim, because federal courts borrow state law to determine the mode of trial in diversity cases.
Grant the demand, because federal law governs the jury-trial right, the claim seeks only money damages, and under Darnell it is analogous to an action at law. (correct answer)

Explanation: When you see a jury-trial question in federal diversity jurisdiction, separate the two questions: state law usually supplies the substantive rule of decision, but federal law governs the procedural right to a jury trial. The Seventh Amendment—not state labels—controls whether a party gets a jury. Here, the federal court must follow Darnell: ask whether the claim is analogous to a suit at common law in 1791, focusing on the remedy. Finch's claim seeks only $250,000 in money damages, the classic remedy at law. Even though the claim is for breach of fiduciary duty and State L labels it "equitable," Darnell holds that a state statute cannot reclassify the claim for federal jury purposes. Therefore, the court should grant Finch's jury demand. The first wrong answer—denying because State L law labels the action equitable—confuses state substantive law with federal procedural law; the state cannot override the Seventh Amendment. The second wrong answer—denying because breach-of-fiduciary-duty claims were historically equitable—misses Darnell's instruction to focus on the remedy sought, not the old label of the cause of action. The third wrong answer—granting only if State L courts would grant a jury—incorrectly assumes federal courts borrow state law to determine the mode of trial; Erie does not apply to the federal jury right. Study tip: in diversity cases, remember "state law for substance, federal law for trial mechanics." If a question involves a jury demand, look first at the remedy—money damages usually means law, not equity, regardless of state labels.

Question 7

Perry, a citizen of State X, was injured when he fell on Lyle's property in State X. Perry sued Lyle, a citizen of State Y, in the federal district court for State X, asserting diversity jurisdiction. The sole claim is for negligence, and State X law supplies the rule of decision. At a deposition, Perry testified that, after the fall, he told his treating physician about a prior back injury. Lyle has subpoenaed the physician to testify about that statement.

State X statute provides: "In any civil action, a communication made by a patient to a physician in the course of diagnosis or treatment is privileged and may not be disclosed without the patient's consent. This privilege may be asserted by the patient in any court in this State and has no exception for personal injury actions."

Federal Rule of Evidence 501 provides: "In a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision."

Should the court permit Lyle to elicit the physician's testimony about Perry's statement?

Yes, because the statement is relevant to Perry's damages and the Federal Rules of Evidence generally admit relevant evidence unless a federal statute provides otherwise.
Yes, because Perry placed his physical condition at issue when he sued for personal injury, thereby waiving any physician-patient privilege.
No, because State X law supplies the rule of decision on Perry's negligence claim, and State X's physician-patient privilege applies even though it may exclude relevant evidence. (correct answer)
No, because Perry's statement about a prior back injury was not made to obtain treatment for the injury caused by Lyle, so it falls outside State X's privilege.

Explanation: Whenever you see a privilege question in a federal civil case, your first step is to determine which law governs. Under Federal Rule of Evidence 501, in a civil case, state law governs privilege when state law supplies the rule of decision for the claim. Here, Perry's negligence claim is governed by State X law, so State X's physician-patient privilege controls. State X's statute is unambiguous: it applies in any civil action, has no exception for personal injury, and may be asserted in any court. Perry's statement to his treating physician about his prior back injury was made in the course of diagnosis or treatment, so it falls squarely within the privilege. The fact that the statement is relevant to damages does not matter—privilege excludes relevant evidence. The first choice, arguing the statement is relevant and therefore admissible unless a federal statute says otherwise, misses the point. Relevance is necessary but not sufficient; privilege is a separate, absolute bar, and FRE 501 directs you to state law, not just federal statutes. The second choice invokes the "at-issue" waiver doctrine—that by suing for personal injury, Perry impliedly waived the privilege. That is a federal common law concept, but State X's statute explicitly states there is "no exception for personal injury actions," which forecloses any implied waiver. The fourth choice misreads the statute: it protects communications made in the course of diagnosis or treatment, not just those about the specific injury in the lawsuit. A statement about a prior back injury made to a treating physician is still part of that course. For the next-gen bar, when you see a privilege issue, immediately identify the governing law under FRE 501, then read the state statute literally. If it lacks an exception, don't invent one—and always remember that privilege overrides relevance.

Question 8

Arlo, a citizen of State X, sued Becca, a citizen of State Y, in State X state court for damage to goods, asserting only a state-law claim. Becca removed the case to federal court on diversity grounds and, within the time permitted by the Federal Rules of Civil Procedure, filed a third-party complaint against Chet, a citizen of State X, for contribution. Chet has moved to strike the third-party complaint, arguing that State X law requires a noticed hearing and a preliminary showing that the third-party defendant may be liable before a third-party complaint may be filed, and that this requirement must apply because the only basis for federal jurisdiction is diversity.

Which legal issue is most directly presented by Chet's motion?

Whether Chet's non-diverse citizenship destroys the federal court's subject-matter jurisdiction over the entire action.
Whether State X's hearing requirement is displaced by the Federal Rules governing third-party practice. (correct answer)
Whether Becca's removal was untimely because Chet was joined after removal.
Whether Becca was required to obtain the court's permission before filing the third-party complaint.

Explanation: Whenever you see a third-party complaint in a diversity case, separate two questions: Does the federal court have jurisdiction over the new party, and what rules govern the procedure for adding that party. Chet's motion conflates these by insisting that, because diversity is the only basis for federal jurisdiction, State X's notice-hearing requirement must apply. But once the case is properly removed on diversity, the Federal Rules govern procedure in federal court. Rule 14 allows a defendant to file a third-party complaint without leave if done within 14 days after serving its answer to the original complaint; no state-law noticed hearing or preliminary showing is required. The most directly presented issue is therefore whether State X's hearing requirement is displaced by Rule 14 — and it is, because the federal rule is a valid procedural rule under the Rules Enabling Act. As for the wrong answers: Chet's citizenship does not destroy the federal court's subject-matter jurisdiction. Original diversity is between Arlo and Becca, and third-party claims fall under ancillary jurisdiction, so his being from State X is no jurisdictional defect. Removal timeliness was measured at the time Becca filed her notice of removal; Chet's later joinder does not retroactively make an timely removal untimely. Nor is the issue whether Becca was required to obtain the court's permission: the facts tell you she filed within the time permitted by the Federal Rules, so under Rule 14(a) she needed no leave; the dispute is about an extra state-court hearing requirement. When a state rule collides with a Federal Rule in civil procedure, apply the federal rule if it is a valid procedural rule. Don't let diversity jurisdiction be an excuse to import state-court rituals. Also remember: impleader parties need not be diverse.

Question 9

Meridian Corp., a citizen of State N, sued Stahl, a citizen of State M, in federal district court for State M for breach of contract. The dispute turns on whether Stahl's one-year noncompete agreement is enforceable under State M law. State M's Supreme Court has never decided the issue, and its intermediate appellate courts are split. State M has a certification procedure permitting a federal court to certify a determinative state-law question to the State M Supreme Court.

In Chen v. Oak Harbor Industries, the U.S. Court of Appeals held: "A federal court sitting in diversity should not create state law. If a state-law question is determinative and genuinely unsettled, the court should use available certification procedures; if certification is unavailable or declined, the court must predict how the state's highest court would resolve the question, treating intermediate appellate court decisions as persuasive but not controlling."

What should the federal district court do?

Certify the state-law question to the State M Supreme Court; if that court declines certification, apply the rule adopted by the majority of the intermediate appellate court decisions as binding.
Certify the state-law question to the State M Supreme Court; if that court declines certification, predict how that court would resolve the issue, giving respectful but not conclusive weight to intermediate appellate court decisions. (correct answer)
Refuse certification and decide the issue under federal common law, because diversity jurisdiction requires uniform federal rules governing noncompete agreements.
Certify the state-law question only if both parties agree; otherwise apply the most recent intermediate appellate decision because it best reflects current State M law.

Explanation: Whenever you see a diversity-jurisdiction question involving an unsettled question of state law, your anchor should be Erie: the federal court must apply state law, not create it. Here, State M's Supreme Court hasn't decided the noncompete issue, and its intermediate courts are split—so the law is genuinely unsettled and the certification procedure exists. The district court should use it first. If certification is declined, the court must then predict how the State M Supreme Court would resolve the issue. In making that prediction, intermediate appellate decisions are persuasive evidence, but they are not controlling. That matches the quoted circuit rationale and federal practice. Now the traps. The choice saying to apply the majority intermediate-court rule as binding is wrong: no intermediate decision binds the state's highest court, and a majority split still doesn't tell you what that court would do. The choice proposing federal common law for noncompetes is a classic Erie misconception—there is no federal general common law in diversity cases. Finally, the choice requiring both parties to agree before certification is wrong; certification is a discretionary procedural tool for the court, not contingent on party consent. And picking the most recent intermediate decision would improperly elevate one non-authoritative opinion over the court's duty to predict ultimate state law. Study tip: in diversity questions, repeat this checklist—(1) is the state question unsettled? (2) is certification available? (3) if not, predict the highest court's answer, treating lower courts as persuasive only.

Question 10

Petro, a Delaware corporation with its principal place of business in Texas, agreed in New York to sell equipment to Sol, a New York citizen. The equipment was delivered and installed at Sol's refinery in Louisiana. When Petro failed to cure an alleged defect, Sol sued Petro in the U.S. District Court for the Southern District of New York, asserting only a state-law breach-of-contract claim. Jurisdiction is based solely on diversity. The contract has no choice-of-law clause. The parties dispute whether New York, Delaware, Texas, or Louisiana law governs their dispute.

Which legal issue must the court resolve before it can select the applicable substantive contract law?

Whether the contract dispute has its most significant relationship with New York or with Louisiana.
Which state's choice-of-law rules the federal court must apply before selecting the substantive contract law. (correct answer)
Whether the Federal Rules of Civil Procedure supply the substantive rule for interpreting the contract.
Whether the court should abstain because the action turns primarily on state law.

Explanation: When you see a diversity case raising a state-law claim, remember the Erie/Klaxon framework: a federal court in a diversity suit does not create its own federal common law of contracts, and it also does not apply a federal choice-of-law rule. Instead, it must borrow the choice-of-law rules of the state in which it sits—here, the Southern District of New York, so New York's choice-of-law rules. That threshold question must be resolved first, because only after the court knows which state's conflicts methodology to use can it determine whether New York, Delaware, Texas, or Louisiana substantive law governs the contract. That is why the correct answer is that the court must decide which state's choice-of-law rules the federal court must apply. The most significant relationship test is not the initial question—it is one possible substantive choice-of-law doctrine. New York's conflict rules might use that test, but the court must first confirm those rules govern. The Federal Rules of Civil Procedure are procedural, not substantive, so they do not supply the contract interpretation rule. And abstention is misplaced: the court has diversity jurisdiction, and the fact that a case turns on state law does not require abstention; federal courts regularly decide state law in diversity. Your study tip: whenever a diversity case asks which state's law governs, immediately ask, "What state is the forum?"—because under Klaxon, forum-state choice-of-law rules are the gateway to the substantive law.

Question 11

Percival, a citizen of State A, was injured when the company van in which he was a passenger collided with a truck driven by Delgado, a citizen of State B, in State B. The van was owned by Percival's employer, a State A corporation, and was traveling from one State A worksite to another when the collision occurred. Percival sued Delgado in the federal district court for State A, asserting diversity jurisdiction.

Section 5 of the Federal Judicial Code provides: "In any civil action in which original jurisdiction is founded on diversity of citizenship, the district court shall apply the law of the State in which such court sits, including that State's choice-of-law rules."

State A's choice-of-law rule provides: "The substantive tort law of the State in which the injury occurred governs all issues of liability and damages in tort actions."

State B law caps noneconomic damages at $250,000; State A law imposes no cap on noneconomic damages.

Which law should the federal district court apply in deciding whether the noneconomic damages cap applies?

State A law, because a federal court sitting in diversity applies the substantive law of the forum state, and Section 5 makes the forum state's substantive law controlling.
State B law, because Section 5 requires applying State A's choice-of-law rules, and State A's rule selects the law of the place of injury, State B, including its damages cap. (correct answer)
State B law, because Section 5 creates a federal common-law choice-of-law rule for diversity cases, and the place of injury is State B.
State A law, because the plaintiff's employment relationship is centered in State A and applying State B's cap would encourage plaintiffs to file in State A.

Explanation: When you see a diversity case with a multi-state tort, separate two questions: which law governs, and whose rules tell you that? Erie and Klaxon require a federal court sitting in diversity to apply the substantive law the forum state would apply — including the forum's choice-of-law rules. Section 5 codifies that: the federal district court in State A applies State A law, including State A's choice-of-law rule. That rule selects the substantive tort law of the place of injury, State B. State B's noneconomic damages cap is substantive because it directly limits damages, so it travels with State B's tort law. Thus the court applies State B's cap. The first wrong answer traps on "forum law." Forum substantive law controls only if the forum's choice-of-law rule says so; here it points to State B. The "federal common-law choice-of-law" answer inverts Klaxon — federal courts do not invent choice-of-law doctrine in diversity cases. Finally, the "employment relationship centered in State A" answer invents a policy tie that is not in State A's rule; interest analysis might matter under some state rules, but State A's rule is clear: injury location. The anti-forum-shopping goal of Erie is satisfied by following State A's rule, not overriding it. Remember: diversity questions often test the bridge between forum law and another state's substantive law. Find the forum's choice-of-law rule, then apply whatever substantive law it selects.