An army pilot from State A was injured when his helicopter crashed due to a defect in the tail rotor. The helicopter was manufactured by a contractor, a private company incorporated and with its principal place of business in State B. The contractor produced equipment for use by the military pursuant to contracts with the United States government. The army pilot brought a strict products liability action in federal district court in State B against the contractor, alleging $200,000 in damages. The contractor seeks to assert a defense recognized and developed by federal courts for private defense contractors involved in contracts with the United States government. Although not set forth by federal statute or other federal rule, the defense has been used to allow private defense contractors to avoid tort liability under state law. State B does not recognize this defense. What law should the federal district court apply to this issue

The district court will first determine if there is a conflict between state and federal law with regard to the matter at hand before deciding whether to apply state or federal law.
If there is a contradiction between the appropriate state and federal laws, the district court must determine whether a valid federal statute or Federal Rule addresses the contested matter.
If there is no applicable federal act or regulation, the court must decide whether federal common law or state law should be applied.
When a "uniquely federal interest" is at risk and a considerable conflict arises between that interest and the operation of state law, the Supreme Court has also acknowledged the application of federal common law.

If there are significant, overriding federal interests at stake that require the application of federal law, a federal court may still apply federal common law.

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