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PART I. METHODOLOGY
A. Focus on the Traditional States
1. States that Follow the Traditional Theory in Torts
but not Contracts
2. States that Follow the Traditional Theory in Contracts
but not Torts
3. States that Follow the Traditional Theory in Both Torts
and Contracts
B. Methodology in Other States
1. Conduct Regulation versus Loss Distribution
2. Substance versus Procedure
PART II. CONFLICTS BY SUBJECT-MATTER
A. Extraterritorial Reach of American Statutes
1. Anti-Terrorism
2. Act of State and Head of State Doctrines
3. Antitrust
4. Whistle-Blower Act
B. Insurance for Environmental Pollution
1. Introduction
2. Single-Site Cases: Gilbert Spruance
3. Multi-Site Cases: The Pfizer Trilogy
C. Products Liability
1. Products Liability and Statutes of Repose
2. Borrowing Statutes of Repose
3. Other Product Liability Conflicts
D. Other Torts
E. Statutes of Limitation
F. Contracts
1. Contracts with Choice-of-Law Clauses
2. Contracts without Choice-of-Law Clauses
This is the Twelfth Annual Survey of American Choice-of-Law Cases,
prepared at the request of the Conflicts Section of the Association of
American Law Schools as a service to fellow Conflicts teachers.
Colleagues are kindly reminded that, because of the early mailing
deadline of this Newsletter (Dec. 5), this version of the Survey is rough
and incomplete. It is written under considerable time restraints because
the writing can only begin late in the year (mid-November) and must be
completed before December 5.
For this reason, this version does not include cases reported
after December 1, 1998. These cases, and others, will be incorporated in
the final version of the Survey which, as in the past, will be submitted
for publication in the American Journal of Comparative Law, on January
10, 1998. Because the Journal has difficulty publishing the final version
in time, interested colleagues should not hesitate to request the final
version from this author, after the above date. I can be reached at tel.
(504) 388-5088, fax (504) 388-5935, or e-mail Symeon@LSU.edu.
Each year, this Survey begins with a discussion of cases that
abandoned the traditional theory in either tort or contract conflicts during
the survey year. Unlike any of the of the previous eleven years, however,
no state has officially abandoned the traditional theory in 1998. This
does not mean that 1998 has been an uninteresting year. In fact, several
cases decided by courts of last resort involving issues of insurance coverage,
extraterritoriality, statutes of limitation, substance versus procedure,
and other issues reaffirm what we conflicts teachers have always known--that
conflicts law will never be a dull subject. Nor does this mean that the
momentum against the traditional theory has subsided. Rather it means that
those states that appear inclined to reconsider their adherence to the
traditional theory have not had a good opportunity to do so during 1998.
In any event, it has been thought appropriate to devote the first
part of this Survey to a brief discussion of the states that adhere to
that theory so as to provide interested readers with more recent information
with which to assess the current status of this theory in the United States.
A. FOCUS ON THE TRADITIONAL STATES
As previous Surveys have indicated, the traditional theory is followed in eleven states with regard to tort conflicts and in ten states with regard to contract conflicts. These states are listed below.
[Table 1 goes here.]
As this table indicates, the tort and contract columns are not identical. Florida, Rhode Island, and Tennessee have abandoned the traditional theory in tort conflicts but not in contract conflicts, while Montana, North Carolina, West Virginia, and Wyoming have done the reverse. The discussion begins with these states based on the assumption that their commitment to the traditional theory cannot be as strong as that of states that continue to follow that theory in both areas. In fact, as explained below, Montana's commitment to the lex loci delicti rule and Rhode Island's commitment to the lex loci contractus are so questionable that, realistically speaking, these states should not be placed in the traditional camp. On the other hand, Alabama's commitment to both of these rules is so clear and recent as to make unlikely any repositioning in the foreseeable future. The remaining states fall between these two extremes, with varying degrees of commitment to the traditional theory.
1. States that Follow the Traditional Theory in Torts but not Contracts
Of the four states that technically fall within this group, commitment
to the lex loci delicti rule appears clear in Wyoming, less clear in North
Carolina, increasingly weakening in West Virginia, and entirely questionable
in Montana. These states are discussed below in this order.
Wyoming. Although the Supreme Court of Wyoming has apparently
abandoned the lex loci contractus rule, the Court does not appear eager
to reexamine its adherence to the lex loci delicti rule. In its latest
decision on the subject, the court characterized the lex loci as a "thoroughly
established . . . general rule" and made no attempt to reexamine its soundness.
North Carolina. The Supreme Court of North Carolina once threatened
to "abjure the lex loci commissi rule" if "the governmental interests and
public policy of our state would [so] require." But since it found another
way to avoid the application of the lex loci, the Court did not follow
up on that threat. Since then, the Court encountered only two tort conflicts.
It applied the lex loci in the first one, but not in the last one preferring
instead to resolve the conflict on the basis of "public policy considerations"
derived from the forum's workers' compensation statute. Nevertheless, in
1998, North Carolina's intermediate court concluded that the Supreme Court's
adherence to the lex loci rule was "steadfast" and "strong," and "decline[d]
any request to carve out a more `modern approach' to the rule's application."
Pursuant to that rule, the court dismissed under Alabama's parental immunity
rule an action that would have been allowed under the law of North Carolina,
the parties' common domicile. What is more surprising was the absence of
dissenting opinions. As of the time of this writing, there has been no
application for a writ in this case.
West Virginia. West Virginia's commitment to the lex loci delicti
rule appears neither steadfast nor strong. In its latest decision on the
subject, the highest court of that state, which in recent years had been
increasingly relying on the Second Restatement for insurance conflicts,
came close to extending the Restatement to tort conflicts. In the end,
the court applied the lex fori rather than the lex loci under both a traditional
and a modern rationale. Nevertheless, for reasons explained in last year's
Survey, this case should not be considered as an abandonment of the lex
loci delicti rule.
Montana. Finally, Montana is listed here as a lex loci delicti
state only out of an abundance of caution. The truth is that, as far as
can be ascertained, Montana's highest court has never encountered a tort
conflict, and thus did not have the opportunity to endorse or reject the
lex loci delicti rule. Faced with this lack of precedent, a federal court
recently concluded that "Montana has no choice-of-law rule for tort claims,"
and then proceeded to fill the void by applying the Second Restatement.
This was a good guess because in a contract conflict decided two years
later, the Supreme Court of Montana re-interpreted two of its earlier decisions
as having adopted the Second Restatement for contract conflicts and proceeded
to apply it to the case at hand. Although a closer reading of those decisions
leaves serious doubts on whether they had actually followed the Restatement,
this re-interpretation indicates a court that is eager to distance itself
from the traditional theory. Thus, it can be safely assumed that, as soon
as the opportunity arises, the Montana Supreme Court will not only refuse
to adopt the lex loci delicti rule but will probably adopt the Second Restatement
for tort conflicts.
2. States that Follow the Traditional Theory in Contracts but not Torts
Of the three states that fall in this group, adherence to the
lex loci contractus rule is clearest in Florida, unclear in Tennessee,
and entirely questionable in Rhode Island.
Florida. Florida is the only one of the three states that had
the opportunity to reconsider its adherence to the lex loci contractus
rule after it had abandoned the lex loci delicti rule in 1980. This opportunity
came in a 1988 automobile insurance conflict in which Florida's highest
court decided to retain the lex loci contractus rule. Since then, the United
States Court of Appeals for the Eleventh Circuit opined that, in contracts
insuring immovable property, the Florida Supreme Court would not apply
the lex loci contractus but would instead apply the Restatement Second,
but the latter court has yet to confirm this plausible prediction. In 1998,
the latter court encountered another automobile insurance conflict which,
however, was not a good case for reconsidering the lex loci rule. Thus,
Florida remains for now a lex loci contractus state.
Tennessee. In contrast, Tennessee's highest court did not have
this opportunity after its 1992 abandonment of the lex loci delicti rule.
In 1975, the court had expressly rejected an appeal to adopt "the dominant-contacts
rule" for contract conflicts because of the rule's failure to produce uniformity,
but that rejection came before the court adopted the Second Restatement's
significant relationship approach for tort conflicts. Although the court
has not encountered a contract conflict since 1992, it would not be unreasonable
to assume that when it does, the court will likely abandon the lex loci
contractus rule, perhaps in favor of the Second Restatement.
Rhode Island. Doubts about whether Rhode Island adheres to the
lex loci contractus rule are much stronger. Indeed, the last time the highest
court of that state applied the lex loci contractus rule was in 1937! In
1968, the court abandoned the lex loci delicti rule for tort conflicts.
Four years later, when it encountered a contract conflict, the court found
that the contract had been made in Rhode Island and held that Rhode Island
had "the most significant interest in th[e] matter" and that its law was
applicable "under whatever theory we follow." The court also noted that,
based on the record before it, the court "need not and do[es] not" decide
whether to adopt the modern approach it had earlier adopted for tort conflicts.
This statement has been interpreted by some courts as an abandonment, and
by others as a reaffirmation of the lex loci contractus rule. Because the
Supreme Court of Rhode Island has yet to encounter a clear contract conflict,
the Court has not had the opportunity to clarify this question. However,
a recent decision in a case involving security interests --which could
also be characterized as a contract case-- leaves the impression that the
days of the lex loci contractus are numbered if not over.
3. States that Follow the Traditional Theory in Both Torts and Contracts
Of the seven states that belong to this group, commitment to the
traditional theory is clearest and strongest in Alabama (with Virginia
being a close second) and weakest in Maryland, with the remaining four
states falling somewhere in-between. These states are discussed below in
the order of their respective commitment to the traditional theory.
Alabama. As late as the 1990s, the Supreme Court of Alabama has
reaffirmed its commitment to both the lex loci delicti and the lex loci
contractus and does not appear willing to reconsider either rule. In 1998,
the court denied certiorari in a case in which the intermediate court had
applied the lex loci delicti in circumstances that cried out for at least
an exception to, if not outright abandonment of, the rule. The court also
reversed a lower court decision which had certified a consumer fraud class
action based on the assumption that the law of a state other than the injury-state
would likely be applicable to all class claims. This assumption, said the
Alabama Supreme Court, "[was] in stark contrast to Alabama's general choice-of-law
principles which `determine the substantive rights of an injured party
according to the law of the state where the injury occurred.'"
Virginia. The commitment of Virginia's highest court to the lex
loci delicti and the lex loci contractus rules appears to be almost as
firm as Alabama's. In 1979, the court considered but rejected a plaintiff's
appeal to abandon the lex loci delicti rule in favor of the Second Restatement
because the latter is "susceptible to inconstancy" and tends to create
"uncertainty and confusion." Applying the interspousal immunity rule of
the lex loci delicti, the Court refused to allow an action between Virginia
spouses which was allowed under Virginia law. Since then, the court decided
only two tort conflicts but in neither one did the parties urge the court
to abandon the traditional rule and the court saw no reason to reconsider
it.
Georgia. Georgia's adherence to the traditional theory is subject
to the usual escapes but also to a peculiar rule which forbids Georgia
courts from applying the common law (as opposed to the statutory law) of
another state. This essentially means that the lex loci delicti and lex
loci contractus rules are inapplicable whenever the locus of the tort or
contract is in another state which has not enacted a statute on the matter.
Even when these rules are applicable, however, Georgia courts
tend to find a way to avoid them. For example, in a manner typical of courts
that purport to like the traditional theory but not its results, the Supreme
Court of Georgia has recently avoided the lex loci delicti rule by stretching
the meaning of the traditional ordre public exception. The court held that
a Virginia rule which did not impose strict liability on manufacturers
was so "radically dissimilar" to the Georgia strict-liability rule as to
justify its rejection on public policy grounds. Observers who find it incongruous
for a court to be conservative on conflicts law and liberal on substantive
law may be tempted to conclude that a more pragmatic explanation for the
Court's refusal to apply Virginia law was the fact that that law was unfavorable
to a Georgia plaintiff who acquired the product in Georgia.
Cases decided in 1998 by Georgia's lower courts and by federal
courts in diversity cases suggest that the pressure to abandon the lex
loci delicti rule is building up. For example, in Tuggle v. Helms, the
district court had refused to apply Alabama's guest statute to a case arising
out of an Alabama accident and involving only Georgia domiciliaries. The
Court of Appeals reversed on other grounds without addressing the choice-of-law
issue, but three of the court's seven members wrote separate opinions urging
the application of Georgia law under a modern policy analysis. The Supreme
Court of Georgia denied certiorari. A few months later, in a decision authored
by one of the above three judges, the Court of Appeals relied exclusively
on the Second Restatement in deciding a malicious prosecution and abuse
of process case.
In contract conflicts, Georgia's adherence to the lex loci contractus
rule is subject to several exceptions. In addition to the exception described
above regarding non-statutory foreign law, Georgia courts do not apply
the lex loci contractus rule when: (a) the contract is to be performed
in a state other than the one in which it was made; and (b) when the contract
contains a valid choice-of-law clause.
Of the 1998 cases, the most interesting is Boardman Petroleum,
Inc. v. Federated Mut. Ins. Co., in which the United States Court of Appeals
for the Eleventh Circuit applied a "balancing of interests" analysis to
a dispute about insurance coverage for environmental pollution. The insured
risk was located in South Carolina and was insured by a policy delivered
in Georgia to a Georgia insured. The insured and the insurer sued each
other in federal court in Georgia and South Carolina, respectively. The
South Carolina action was transferred to Georgia under 28 U.S.C. §
1404(a) and was consolidated with the Georgia action. Under South Carolina's
statutory conflicts rule which was applicable to the South Carolina action
under Ferens, a contract insuring property situated in that state is deemed
to have been made in that state and is governed by its law. Under Georgia
conflicts law which was applicable to the Georgia action under Klaxon,
a contract made in Georgia is deemed to have been intended by the parties
to be governed by Georgia law. Faced with this conflict between the conflicts
rules of the two states, the court decided to bypass both rules and to
apply instead a "`balancing of interests' analysis, weighing the interest
of each state in having its law apply and choosing the law of the state
with the greater interests." That state was held to be Georgia, whose law
provided coverage.
Kansas. The Supreme Court of Kansas applied the lex loci delicti
rule as late as 1985. However, in recent years, in dealing with insurance
conflicts, the court has been increasingly employing policy-analysis disguised
in traditional ordre public jargon. Thus, in 1989, the Court found it unnecessary
to abandon the lex loci contractus rule and "reserve[d] consideration of
the Restatement's `most significant relationship' test for a later day,"
because the traditional public policy exception --which the court employed
offensively rather than defensively-- enabled the court to avoid applying
the lex loci so as to protect "[t]he interests of Kansas." In 1997, the
Court mentioned in dicta that "Kansas applies the rule of lex loci contractus."
The Court did not encounter either a tort or a contract conflict in 1998.
New Mexico. New Mexico's highest court has recently acknowledged
its past adherence to the lex loci delicti rule but did not in fact apply
it. "This rule is not utilized," said the court, "if such application would
violate New Mexico public policy." While this statement does not in itself
entail a departure from the traditional theory, the court's use of the
forum's public policy is essentially incompatible with that theory under
which ordre public is supposed to function only defensively (i.e., as a
means of preventing the application of an objectionable foreign law that
is found applicable under the forum's choice-of-law rule). In this case,
the court did not even examine the content of the foreign locus delicti
--which it defined as the place of the injury-- and applied the law of
the forum state, which was also the place of conduct, under a reasoning
that approximates a modern policy analysis. It should therefore come as
no surprise that lower courts have interpreted the above quoted phrase
as meaning that "policy considerations may override the place-of-the-wrong
rule."
In contract conflicts, the New Mexico Supreme Court did at one
point ponder on whether to abandon the lex loci contractus rule but has
recently applied it without discussion. Lower courts continue to follow
the rule but with increasing discomfort.
South Carolina. South Carolina's highest court has applied the
lex loci delicti and the lex loci contractus rule in the 1990s but without
much enthusiasm. Thus, in Dawkins v. State, the court refused to apply
the ordre public exception to the lex loci delicti rule in an action brought
against the State of South Carolina by a Georgia citizen who was injured
in that state by a convict who had escaped from a nearby South Carolina
prison. Georgia law was favorable to the defendant, the State of South
Carolina and, although the court did not base its decision on this ground,
the application of Georgia law under the lex loci rule favored the forum's
interests. In Sangamo Weston, Inc. v. National Surety Corp., the court
acknowledged that, "historically," the lex loci contractus rule had been
followed in South Carolina and noted that, with the record presently before
it, the court was "unable to address the question of whether South Carolina
would adopt the more modern view of the [Second] Restatement." Since then
South Carolina's intermediate court relied extensively on the Second Restatement
(in hopes that the supreme court of that state would endorse it) and applied
it alternatively with the traditional approach.
Maryland. In theory, Maryland follows the traditional approach
in both tort and contract conflicts but in reality that approach is honored
more through exceptions rather than through faithful application. For example,
although Maryland's highest court has applied the lex loci delicti for
generic tort conflicts as late as 1995, the court has, since the early
1980s, applied straight policy analysis to tort actions arising in the
context of workers' compensation. In each of these cases the court applied
Maryland law and allowed a Maryland employee to recover tort damages against
his Maryland employer, even though the worker's compensation statute of
the state of the employment accident precluded such recovery. In the 1998
case of Powell v. Erb, the court employed the same analysis and, once again,
applied Maryland's pro-recovery law to an action arising out of an employment
accident in Pennsylvania. The difference from the previous cases was that
in Powell the accident had resulted in the employee's death. This difference
would normally be insignificant except that Maryland has a statute that
subjects wrongful death actions to the lex loci delicti. The Powell court
held that since this statute "does not, by its terms, directly or explicitly,
address wrongful death in the workers' compensation context," the statute
was inapplicable to the case at hand, thus freeing the court to follow
a straight policy analysis.
Motor Club of America Ins. Co. v. Hanifi did not involve any
worker's compensation issues and thus the trial court felt compelled to
adhere to Maryland's lex loci delicti rule. Under that rule, Maryland law
was applicable to a Maryland traffic accident that was caused by a car
owned by a New York domiciliary and driven by his brother-in-law. Thus,
the plaintiff could not take advantage of a New York statute which imposes
on a car owner liability for injury caused by the car while being driven
with the owner's permission. The United States Court of Appeals for the
Fourth Circuit reversed, holding that the New York statute was applicable.
The court acknowledged the decisions of Maryland's highest court in which
the court adhered to the lex loci rule but, said the federal court, these
decisions failed to consider the Full Faith and Credit Clause of the United
States Constitution. After discussing Maryland precedents which had stated
that Maryland's public policy was not offended by the application of a
foreign law that differed from Maryland law, the court convinced itself
that Maryland would not mind applying New York law in this case. The court
failed to notice that in each of these precedents the foreign law was applicable
under Maryland's choice-of-law rule. In contrast, in this case, Maryland's
choice-of-law rule, the lex loci, pointed to the law of the forum. Apparently,
the court must have thought that this rule was somehow negated by the Full
Faith and Credit Clause. Thus, the court confidently concluded:
In light of the Full Faith and Credit Clause, the decisions
of the Maryland courts with respect to the enforcement of the laws of other
States in the Maryland courts, and the similarity of the public policy
of Maryland to that of New York with respect to the compensation of innocent
victims in automobile accidents, we are of the opinion that if called upon
the Maryland Court of Appeals would afford full faith and credit to . .
. the New York [statute] and would not hold that enforcement of [the statute]
offended the public policy of Maryland.
While the federal court's prediction about what Maryland's highest
court might do may prove accurate, this prediction cannot materialize unless
the latter court abandons the lex loci rule for generic tort conflicts.
Until that happens, Hanifi serves as one of many examples where courts
take shortcuts with the traditional theory in order to reach functionally
sound results. Indeed, there is little doubt that the application of the
New York statute in Hanifi was appropriate under any choice of law methodology,
except the traditional one. For example, one could easily conclude as the
Hanifi court essentially did, that this was a false conflict in which the
locus-forum state was uninterested because none of its domiciliaries were
involved in the accident and/or because its law was only slightly different
from that of New York.
In contract conflicts, the commitment of Maryland's highest court
to the lex loci delicti is equally half-hearted, if not disingenuous. Thus,
the court has spoken of state "interests" and "significant relations" in
avoiding the results of the lex loci rule, while professing adherence to
it. In its most recent decision on the subject, American Motorists Ins.
Co. v. ARTRA Group, Inc., the court managed to avoid the lex loci rule
by concluding, albeit erroneously, that according to the conflicts law
of Illinois, the locus contractus state, "Maryland has the most significant
relationship, or, at least, a substantial relationship with respect to
the contract issue presented," and thus its law should apply under the
renvoi doctrine. The court described its decision as "holding that Maryland's
adherence to lex loci contractus must yield to a test such as Restatement
(Second) Conflict of Laws §188 when the place of contracting would
apply Maryland law pursuant to that test," but insisted that this "is not
a total jettisoning of lex loci contractus." The court recognized that
"[w]ith modern technology and modern business practices, the place of contracting
becomes less certain and more arbitrary," and that "`[t]he lex loci contractus
rule . . . frequently elevates fortuitous and insignificant circumstances
to crucial importance in establishing controlling law.'" The court also
said that its recent decisions invoking the ordre public exception and
those adopting §187 of the Restatement Second which "in effect, allow[s]
the parties in their contract to select the jurisdiction with the most
significant relationship," signified "some movement away from rigidly following
the rule of lex loci contractus." The court seemed to be satisfied that
these two developments, coupled with the "limited renvoi exception" adopted
in ARTRA, would suffice to preserve the lex loci contractus rule for the
immediate future, but concluded as follows:
Lex loci contractus is still the law in the majority of jurisdictions,
although there is a significant modern erosion of the rule. If that erosion
continues, however, this Court may, in the proper case, have to reevaluate
what the best choice-of-law rules ought to be to achieve simplicity, predictability,
and uniformity.
One would hope that when the Court realizes the inaccuracy of
the first sentence in the above excerpt, the Court will follow up on the
promise contained in the second sentence.
B. METHODOLOGY IN OTHER STATES
1. Conduct Regulation versus Loss Distribution
Of the 1998 cases decided by the highest courts of states that
have abandoned the traditional theory, the most interesting from the perspective
of general methodology, is probably Myers v. Langlois, decided by the Supreme
Court of Vermont. This is the third case decided by this court in the space
of two years, after a long hiatus of more than three decades during which
that court did not encounter a tort conflict.
Two of these cases, Amiot v. Ames and Miller v. White, were decided
in 1997 and were discussed in last year's Survey. In Amiot, the Court confirmed
the long-standing prediction that it would abandon the lex loci delicti
rule in favor of the Restatement Second. In Miller, the Court actually
applied the Restatement, but also adopted the distinction between issues
of conduct-regulation and issues of loss-distribution which has long been
part of New York's and Louisiana's conflicts law. Miller was a typical
common-domicile case of the Babcock pattern in which the plaintiff and
the defendant are domiciled in a pro-recovery state, Vermont, and are involved
in an accident in a non-recovery state, Quebec. Vermont law allowed a tort
action but Quebec law confined the plaintiff to an administrative remedy
and a much lower recovery. The Miller Court characterized the resulting
conflict as one that "raises competing policies that allocate postevent
losses" and concluded that in such a conflict, "the domicile of the parties
is the most significant contact bearing on the determination of the relevant
law." The court applied Vermont law and allowed the plaintiff to proceed
with a tort action.
Myers is a mirror image of Miller, that is, it presents the reverse-Babcock
pattern in which the parties are domiciled in a non-recovery state, Quebec,
and are involved in an accident in a pro-recovery state, Vermont. Defendant
and the plaintiff's decedents had driven to Vermont for a bingo game intending
to return to their Quebec domicile on the same day. Their car collided
in Vermont with a car driven by a Vermont domiciliary who later settled
with the plaintiff. Thus the dispute before the court was confined between
Quebec domiciliaries. As in Miller, the plaintiff would be entitled to
a tort action under Vermont law, but not under Quebec law which confined
the plaintiff to an administrative remedy and a much lower recovery. The
Court discussed the contacts and policies of the two states and held that
Quebec law applied, concluding as follows:
Since the choice-of-law issue presented relates to allocation
of post-event losses, not regulation of conduct, the goals of Vermont's
system would not be realized by permitting the actions to go forward here.
Quebec has demonstrated strong policy concerns by enacting a comprehensive
automobile insurance act that provides no-fault compensation and allocates
loss between Quebec residents. We therefore conclude that Quebec's significant
interest in maintaining its no-fault insurance scheme outweigh the parties'
contacts with Vermont.
Thus, the combination of Miller and Myers means that Vermont
has taken the same position as other states, such as New York, Louisiana,
and Maine, namely: (a) it has adopted the distinction between issues of
conduct regulation and issues of loss distribution; and (b) effectively,
though not explicitly, it has adopted a rule which, for issues of the latter
category, applies the law of the common domicile "for better or worse,"
that is, whether that law favors (Miller) or does not favor (Myers) recovery.
Another Vermont case decided in 1998 serves to exemplify the
distinction between conduct-regulation and loss-distribution issues, especially
when contrasted with a 1997 case that bears the same name. In the 1997
case Matson v. Anctil, the issue was whether the parents of a child who
was injured in a Vermont traffic accident were guilty of contributory negligence.
At the time of the accident, which occurred when the parent's car rear-ended
a Quebec truck, plaintiff's mother was holding plaintiff in her lap in
the front passenger seat. Implicitly characterizing the issue of the parent's
negligence as one of conduct regulation, the court held that Vermont law
should apply. Said the court: "because both the conduct and the injury
occurred in Vermont," that state "ha[d] a strong and obvious interest in
`regulating the conduct of persons within its territory and in providing
redress for injuries that occurred there.'"
In the 1998 case Matson v. Anctil, which is a follow-up from
the 1997 case, the issue was whether one defendant, the Quebec truck driver,
was an independent contractor or was instead an agent of another defendant,
a Quebec corporation. The court noted its holding in the 1997 case applying
Vermont law, but pointed out that modern choice-of-law analysis "may reach
different outcomes for different issues." The court concluded that, with
regard to the issue presented in the 1998 case, Quebec, as the common domicile
of the truck driver and the corporation, had a more significant relationship
and its law should therefore govern.
In New York, where the above distinction originated, most of
the 1988 cases involved issues of loss distribution, and thus were resolved
under the Neumeier rules. Among the issues so characterized were the availability
of an action for loss of parental consortium, spousal consortium, and contribution
among joint tortfeasors.
Vehicle-Owner's Liability. Another issue that continues to occupy
New York courts is the extraterritorial application of a New York statute
that imposes liability on a car owner for injury caused by the car while
driven by another person. In 1998, this statute was involved in two New
York cases and three non-New York cases. Both New York cases characterized
the statute as a loss-distributing rule and held it applicable to traffic
accidents that occurred in states that did not impose the same liability.
Janssen v. Ryder Truck Rental, Inc. applied the statute to a case arising
out of a New Jersey accident involving non-New Jersey parties. Tkaczevski
v. Ryder Truck Rental, Inc. applied the statute to a case arising out of
a Pennsylvania accident and involving a New York plaintiff and a Florida
car-owner. Noting that Florida had a rule similar to the New York statute,
the court analogized the case to the common-domicile cases falling within
Neumeier rule #1 and applied the New York statute.
Of the three non-New York cases involving the above New York
statute, two cases, Motor Club of America Ins. Co. v. Hanifi, and Coats
v. Hertz Corporation, applied the statute to actions brought against New
York car-owners and arising out of a Maryland and an Illinois accident,
respectively, while the third case, Fu v. Fu, held the statute inapplicable
to a New York accident involving New Jersey parties. The last two cases
specifically characterized the New York statute as a loss-distributing
rather than a conduct-regulating rule.
Florida's car-owner liability rule, which is similar to New York's,
has been treated inconsistently by two 1998 Florida cases. One case applied
that rule to a Florida accident involving a Florida victim and a Georgia
car-owner, because of "Florida's policy of protecting members of our public
from ownership and operation of motor vehicles." Another Florida case held
the Florida rule inapplicable to a Georgia accident involving a Georgia
victim and a Florida car-owner. Finally, a Louisiana court characterized
the Florida rule as loss-distributing and held it inapplicable to an action
brought against a Florida car-owner by a Louisiana plaintiff injured in
a Louisiana accident.
2. Substance versus Procedure
Every year, dozens of conflicts cases address the substance versus
procedure dichotomy but only rarely do they add much to the existing jurisprudence.
Once in awhile, however, one encounters cases which at least involve some
novel issues.
One such cases is Commonwealth v. Sanchez, a criminal-law case.
It involved the question of which law determines the legality of a "canine
sniff" that took place in California and was later used as the basis for
obtaining a search warrant in Pennsylvania, resulting in the arrest and
conviction of a Pennsylvania domiciliary. Under California law, a canine
sniff is not considered a search and thus it need not be supported by probable
cause. Under Pennsylvania law, a canine sniff is considered a search and
thus must be supported by probable cause ("reasonable grounds"). The trial
court concluded that the above question was one of "evidence [which] is
procedural in nature and that, therefore, the law of the forum state should
apply." Applying Pennsylvania law, the court held the canine sniff to be
illegal and suppressed all of the evidence obtained subsequent to it. The
intermediate court reversed, concluding that the question was one of substantive
law and should be decided under California law.
The Supreme Court affirmed. The Court agreed that, if the issue
were procedural then the law of the forum would govern, without a choice-of-law
analysis. However, after quoting the Black's Law Dictionary's definitions
of substance and procedure, the court concluded that the question was a
substantive one and thus should be subjected to a choice-of-law analysis.
Applying Pennsylvania's hybrid interest-analysis, the Court concluded that
California law should apply because that state "possessed the greater interest
in the validity of the canine sniff in question" because the sniff took
place there and involved residents of that state. Said the Court:
While this Commonwealth has an interest in protecting its citizens
from police misconduct and searches that are not supported by probable
cause, the courts of this Commonwealth have no power to control the activities
of a sister state or to punish conduct occurring within that sister state.
No Pennsylvania state interest would be advanced by analyzing the propriety
of the canine sniff under Pennsylvania law because the canine sniff did
not occur in Pennsylvania and no Pennsylvania state officer was involved
in the canine sniff. . . . Pennsylvania has no interest in a canine sniff
search conducted within California's borders, even if the results are later
used in the Pennsylvania Courts.
In a strong dissent, Justice Nigro challenged the majority's
substantive characterization of the question, questioned the importation
into criminal law of the choice-of-law analysis "applicable to substantive
questions of civil law," and disputed the majority's reading of the forum's
interests under that analysis. He concluded as follows:
[Pennsylvania] has a strong interest in ensuring that the authority
of Pennsylvania law, especially that law which stands to safeguard individual
rights, is not weakened or undermined in any way. . . . By importing California
law into this jurisdiction, the Majority empowers the Commonwealth to circumvent
Pennsylvania's Constitutional and procedural safeguards and introduce otherwise
inadmissible evidence through the back door. Unlike the Majority, I believe
that Pennsylvania has an undeniable and unrivaled interest in preventing
this from occurring.
Another interesting case is Arno v. Club Med Boutique, Inc.,
which involved the issue of attorney's fees. In an earlier case, the court
had held that the plaintiff's tort action for sexual harassment was governed
by French law because the harassment occurred in Guadeloupe. After prevailing
on the merits, the plaintiff argued in the 1998 case that French law should
also apply to the question of whether her attorney's fees should be borne
by the defendant. Unlike California law under which each party must bear
its own fee expenses, French law allows the court to shift the burden of
attorney's fees, in whole or in part, to the losing party.
The Court held that California law applied, either because this
was a procedural question or, if it was not, because California had the
greatest interest since, in addition to being the forum, California was
also the place where the relation between the plaintiff and her attorney
was based. In contrast, said the court, France was uninterested because
the French rule about fee-shifting "was not enacted as a component of France's
tort compensation system, but as a general device to compensate prevailing
parties in civil actions" and to "mitigate[...] the inequities of the French
system of attorney fee arrangements."
The court distinguished the French rule from an English fee-shifting
rule that was held applicable under similar circumstances in another case
because, unlike the French rule, the English rule "has been characterized
as integrally related to England's law of tort compensation . . . . [and
as being] necessitated by the unavailability of punitive damages and the
comparatively low level of compensatory damages awarded in England."
Arno may be usefully contrasted to another case involving attorney's
fees, Servicios Comerciales Andinos. S.A. v. General Electric del Caribe,
Inc, decided under Puerto Rico's conflict law. In this case, the parties
had stipulated that Peruvian law applied to a contract dispute between
a Peruvian plaintiff and a Puerto Rican defendant. The trial court applied
Peruvian law and held for the plaintiff, but also ordered defendant to
pay plaintiff's attorney's fees as a sanction for defendant's obstinate
conduct before and during the litigation. This sanction was permitted by
Rule 44.1 of Puerto Rico's Rules Civil Procedure. The defendant argued
in its appeal that Rule 44.1 was inapplicable because it was a substantive
rule and thus was inapplicable to this case which was governed by Peruvian
law. The defendant conceded that Peru had a general "loser pays" rule but
argued that that rule was procedural and thus was inapplicable to a trial
in Puerto Rico.
The United States Court of Appeals for the First Circuit rejected
defendant's arguments and affirmed the decision of the district court.
The appellate court concluded that, for Erie purposes, Rule 44.1 was a
substantive rule and thus was binding on a federal court sitting in diversity.
The court also concluded that, under Puerto Rico's choice-of-law jurisprudence
which is influenced by the Restatement Second, Rule 44.1 was procedural
because its purpose was "to penalize `a losing party that because of his
stubbornness, obstinacy, rashness, and insistent frivolous attitude has
forced the other party to needlessly assume the pains, costs, efforts,
and inconveniences of a litigation.'" Thus, the court concluded, Rule 44.1
could apply to a case the merits of which are governed by foreign law.
Regarding the Peruvian "loser pays" rule, which is a blanket
rule allowing the award of attorney's fees to the prevailing party in all
cases, the court said that it "ha[d] a much better claim to being `substantive'
than a rule awarding attorney's fees only as a sanction for frivolous litigation,"
because it could be seen as "adding an award of attorney's fees to the
recovery provided by the underlying cause of action." Hence, said the court,
"[i]f both Rule 44.1 and the . . . Peruvian rule were `substantive'. .
. we would be forced to choose between them, and it is not obvious that
we would choose Rule 44.1 over the Peruvian rule." However, the court did
not pursue this issue because the precise content of the Peruvian rule
had not been verified.
Part II. Conflicts by Subject-Matter
A. EXTRATERRITORIAL REACH OF AMERICAN STATUTES
Cases involving the extraterritorial reach of American statutes are always "newsworthy" because they tend to involve important political or economic questions of some magnitude and current interest. From a methodological perspective, these cases are also interesting in that they present some of the clearest applications of the unilateral conflicts approach in which the term "governmental interest" as employed by Currie is not merely a figure of speech. This year's cases offer good examples of these propositions.
1. Anti-Terrorism. Flatow v. Islamic Republic of Iran, is the
first case to discuss in a comprehensive manner the application of the
1996 amendments to the Foreign Sovereign Immunity Act (FSIA) known as the
"Anti-terrorism amendments." These amendments grant jurisdiction over foreign
states designated by the U.S. State Department as "terrorist states," create
federal causes of action for personal injury or death of United States
nationals resulting from terrorist attacks sponsored or aided by such states,
and impose punitive damages for such actions. Flatow arose out of the death
of an American student who was killed in a suicide bomb attack in the Gaza
Strip. Responsibility for this attack was claimed by the group known as
Islamic Jihad which, the court held, was sponsored by Iran, which is one
of the states on the State Department's list of "terrorist states." The
court's conclusions in this lengthy opinion can be summarized as follows:
(1) That the amendments applied retroactively to cases which,
like Flatow, arose out of events that predated the amendments because:
(a) to the extent that they granted adjudicatory jurisdiction, the amendments
were expressly made retroactive by Congress; and (b) to the extent they
imposed punitive damages, the amendments were apparently intended to be
applied retroactively because they were "remedial [and] merely add[ed]
to the means of enforcing existing obligations."
(2) That the amendments applied extraterritorially because they
were expressly intended "to affect the conduct of terrorist states outside
the United States, in order to promote the safety of United States citizens
traveling overseas." This clear congressional intend negated the usual
presumption against extraterritoriality;
(3) That the court had subject-matter jurisdiction as provided
in the amendments;
(4) That the court had in personam jurisdiction over Iran because:
(a) "a foreign state is not a `person' for the purposes of constitutional
due process analysis;" (b) "a foreign state which causes the personal injury
or death of a United States national through an act of state-sponsored
terrorism has `minimum contacts' with the United States;" and (c) "fair
play and substantial justice require that United States courts exercise
jurisdiction over foreign state sponsors of terrorism whose sponsorship
results in the death or personal injury of United States nationals;"
(5) That the Act-of-State doctrine defense was unavailable because
"[p]olitical assassinations ordered by foreign states outside their territory
. . . [and] bus bombings and other acts of international terrorism are
not valid acts of state of the type which bar consideration of this case."
(6) That, as a matter of law, the doctrine of forum non conveniens
was inapplicable because, "even in the rare instance where there would
be an adequate alternate forum for such a case, the interests of the United
States in ensuring that its citizens have an opportunity to seek redress
in the United States is paramount, and will inevitably exceed the interests
of any other fora."
Although all of the above conclusions are accompanied by extensive
thoughtful discussion, the court's choice-of-law analysis is brief. Of
course, a decision that an American statute applies extraterritorially
is in itself a choice-of-law decision of sorts (although not always recognized
as such), but only to the extent that the statute contains rules of substantive
law as was the case on the issue of punitive damages. With regard to other
issues (such as compensatory damages or whether Islamic Jihad could be
considered as defendant's agent), the FSIA does not contain rules of substantive
law and thus a choice-of-law analysis was necessary. The court's analysis
began with the erroneous assumption that the Restatement Second, which
is followed in the D.C. Circuit for federal question cases, "provides that
the law of the place of the tort is to apply." Having started with the
wrong rule, the court backed out of it as follows: "[I]n addition to the
administrative difficulties associated with interpreting this unfamiliar
foreign law [of the Gaza Strip], the United States has a much stronger
interest than the Palestinian Authority in Gaza in adjudicating this action
arising from a United States citizen's wrongful death. When another jurisdiction
has a stronger interest and closer connections to the case, it is appropriate
to apply that jurisdiction's law." Applying this law, the court awarded
$42 million in compensatory damages and $225 million in punitive damages.
2. Act of State and Head of State Doctrines. In Roxas v. Marcos,
the jury awarded more than $22 billion (which is the highest verdict ever
awarded by a jury) against the estate of former Philippines dictator Ferdinand
Marcos, but the Supreme Court of Hawaii reversed part of that award and
remanded for further proceedings. This extremely long (over 70 pages) and
complicated case has some similarities with the recent British proceeding
involving former Chilean dictator Augusto Pinochet, but also has many elements
of an Indiana Jones movie. Rogilio Roxas was a Philippine soldier who in
the 1970s unearthed from a Philippine tunnel a three-foot golden Buddha
statue and several boxes of gold bullion reputedly plundered from various
Southeast Asian countries during WW II by Japanese General Yamashita. Roxas
was later arrested and tortured by Philippine soldiers acting on Marco's
commands and the "Yamashita Treasure" was taken from him. In 1988, Roxas
sued Marcos in Hawaii for conversion of the treasure, false imprisonment,
and battery (torture). Marcos subsequently died in Hawaii, and his wife
Imelda was substituted as defendant representing his estate. Roxas also
died under mysterious conditions, reportedly from poisoning, the day before
the trial.
One of Marcos' defenses was that the plaintiff's action was barred
by Philippine's statute of limitation. The Court held that, under the Hawaii
borrowing statute, the Philippine statute of limitation was applicable
but that statute had been tolled throughout the duration of the Marcos
regime because of the plaintiff's inability to sue the dictator. The Court
cited the Marcos-tailored Philippine Constitution which had immunized him
from lawsuits, both during and after his tenure as president. Imelda argued
unsuccessfully that the immunity encompassed only Marcos' public acts and
did not extend to acts of conversion and false imprisonment which, if committed
by Marcos, would have been private acts.
But later Imelda invoked the defense of the Act of State doctrine
which, of course, covers only public acts. The Court held the doctrine
inapplicable because Marcos' acts were private rather than governmental.
The Court affirmed the lower court's conclusion that "Ferdinand [Marcos]
had converted the treasure strictly for his benefit, rather than for that
of the state," and that "[Roxas'] detention and torture were carried out
at Ferdinand's personal command and effectuated in order for Ferdinand
to appropriate the treasure." The Court also held that the fact that Marcos
was no longer in power and had been succeeded by a government unfriendly
to his regime, militated against the application the Act of State doctrine
because it reduced the possibility of interfering with the foreign relations
of the United States.
Marcos' defense based on the Head of State doctrine had a similar
fate. Said the Court: "other than a nineteenth century New York decision
cited by Imelda, we have found no other authority that applies head of
state immunity to former heads of state. Modern authority is to the contrary.
Imelda also argued that Hawaii lacked personal jurisdiction because
Marcos' presence in Hawaii "was due to his involuntary exile from the Philippines
which was caused by a `unilateral act of the United States government --and
act tantamount to kidnapping.'" The Court held that Imelda had waived the
issue of jurisdiction but that, in any event, Hawaii had jurisdiction because
Marcos had availed himself of a "three-year and seven-month sojourn in
Hawai'i." Said the Court: "Imelda . . . does not allege that Ferdinand
was somehow imprisoned in Hawai'i . . . [or that,] had he wished, Ferdinand
could not have moved somewhere else. Nothing requires that a person establish
Hawai'i as a domicile . . . in order to purposefully avail himself of this
forum."
The Court then proceeded to apply Philippines law to all the
substantive issues of the case, such as Roxas's rights to the treasure
and the legality of his imprisonment. However, the Court applied Hawaii
law to those issues for which the parties did not provide any Philippine
authority. One of those issues was the measure of damages for Roxas' conversion
claims. Eventually the Court remanded for a new trial the question of the
value of the gold bullion but affirmed the lower court decision on Roxas'
other claims and added prejudgment interest.
3. Antitrust. Filetech S.A. v. France Telecom S.A. involved the
question of the extraterritorial application of the Sherman Act to conduct
which occurred in France and which, according to the plaintiff, had the
effect of restraining trade in the United States. The defendant is a French
government-controlled telephone company. Relying only on the parties' pleadings,
the district court found that a "true conflict" existed between the Sherman
Act and French law and dismissed the action on grounds of international
comity, after opining that it would be more appropriate for the case to
be decided in France under French law.
The appellate court reversed and remanded the case to the district
court with instructions to reexamine its conclusions on the basis of a
fully developed record, and to determine, inter alia, whether the defendant's
French actions were intended to and had produced in the United States effects
that were "direct, substantial, and reasonably foreseeable." If so, then
the district court should keep in mind that a mere allegation or possibility
of a "true conflict" cannot defeat the application of the Sherman Act.
Relying on Hartford Fire, the appellate court reiterated that the district
court can find a true conflict only upon actual proof that "compliance
with the regulatory laws of both France and the United States would be
impossible."
4. Whistle-Blower Act. New Jersey's Conscientious Employee Protection
Act, known as the "Whistle-Blower Act," protects employees from retaliatory
discharge for refusing to violate applicable law. In Mehlman v. Mobil Oil
Corporation, the court applied the Act to an action by a New Jersey employee
of Mobil Oil who was fired in that state for publicly commenting in Japan
that the gasoline sold by one of Mobil's Japanese subsidiaries contained
excessive quantities of benzene. The percentage of benzene was significantly
higher than that permitted for gasoline sold in the United States but was
not expressly prohibited by Japanese law. The court noted that the pertinent
conduct was the New Jersey employer's retaliatory discharge which occurred
in New Jersey, that such conduct fell entirely within the intended scope
of the Act, and that the application of the Act to such conduct would not
be extraterritorial.
The defendant argued that the application of the New Jersey Act
would effectively "`mandate limiting benzene levels' in Japanese gasoline
in a way that burdens a multinational corporation in the conduct of foreign
commerce," and that such application "unavoidably interferes with our nation's
foreign policy." The court summarily rejected these arguments. A dissenting
Justice complained that the majority's ruling "poses practical constraints
on multinational companies headquartered in New Jersey," and encourages
"New Jersey courts . . . [to] export[] their views on how to do business
abroad."
B. INSURANCE FOR ENVIRONMENTAL POLLUTION
1. Introduction
Choice of law with respect to interpreting insurance contracts
develops a life of its own when considered in the context of hazardous
waste sites. Because of the public's heightened sensitivity to environmental
pollution in the last quarter century and because of the significant costs
associated with these coverage disputes, a `virtual avalanche of coverage
litigation between carriers and their policyholders has ensued to determine
who may be ultimately responsible for the payment of these costs.' At the
very core of these disputes, which have spawned hundreds of reported cases
nationwide, is the interpretation to be accorded certain contractual language
contained in comprehensive general liability (CGL) policies.
So said the New Jersey Supreme Court, undoubtedly the most experienced
American court on this subject. On June 11, 1998, the Court issued three
unanimous opinions on three "multisite, multistate, environmental insurance
coverage cases" which are bound to exert a strong influence on courts in
the rest of the country. These cases are Pfizer, Inc. v. Employers Ins.
of Wausau, Unisys Corp. v. Insurance Co. of North America, and HM Holdings,
Inc. v. Aetna Casualty & Surety Co. Like many of the cases discussed
in the Surveys of previous years, these cases are "multisite" in that they
involve multiple insured risks (the insured's operations), but are also
"multistate," not only in the sense that the sites may be situated in multiple
states, but also in the sense that the insurance contract and/or the parties
to it may be connected with several states.
(a) Substantive Law. Pollution-Exclusion Clauses. As the above
excerpt indicates, most of these conflicts revolve around the interpretation
of so-called pollution-exclusion clauses which preclude insurance coverage
for environmental pollution caused by the insured's operations unless the
pollution is "sudden and accidental." Some states, including New Jersey,
interpret the word "sudden" to mean simply "unexpected" and thus interpret
these clauses as not precluding coverage for cases of gradual pollution.
Other states, including New York, interpret the word "sudden" to mean "abrupt"
and thus interpret these clauses as precluding coverage for gradual pollution.
Late-Notice Defenses. Another issue involved in many of these
cases is the issue of late-notice defenses. Most liability-insurance policies
contain clauses that require policyholders to promptly notify the insurer
of an occurrence that gives rise to coverage under the policy. Many states,
including New Jersey, have held that failure to give prompt notice is not
in itself a valid ground for denying coverage unless the insurer shows
that the delay has caused actual prejudice. Other states, including New
York, have held that failure to give prompt notice provides a valid defense
to coverage even without a showing of actual prejudice.
(b) Choice-of-Law Approaches. As discussed in the Surveys of
the last few years, American courts have developed two approaches for resolving
these conflicts. The first approach, known as the "uniform-contract-interpretation"
approach, aspires to apply the law of a single state even when the contract
covers multiple risks situated in different states. This approach usually
leads to the application of the law of a state which is either the place
of the making of the contract or has other significant connections with
the contract and the parties.
The second approach, known as the "site-specific" approach, is
based at least in part on section 193 of the Restatement Second. It abandons
the goal of applying a single law to the whole contract and focuses instead
on the interests of the state or states where the insured risks are located.
The applicable law is usually the law of that state or states (the site-states),
unless another state has a more significant relationship with regard to
the particular issue.
2. Single-Site Cases: Gilbert Spruance. In the 1993 case Gilbert
Spruance Co. v. Pennsylvania Manufacturers' Ass'n Ins. Co., the Supreme
Court of New Jersey rejected the uniform-contract approach and began to
develop the site-specific approach. However Spruance was a relatively simple
case that involved only two states: Pennsylvania, which was the domicile
of the insurer and the insured, as well as the place of the insurance contract
and the insured's waste-producing facility; and New Jersey, which was the
place where the waste had been "deposited." Thus Spruance was neither a
"multistate" nor a "multisite" case, but rather a bi-state, split-site
case. Blending New Jersey's interest-analysis with the Restatement Second,
the Court announced that the applicable law would be the law of the state
of the principal location of the insured risk, unless another state has
a "dominant significant relationship according to the principles set forth
in Restatement section 6." In light of the fact that in this case the site
of the risk was "split" between two states one of which, Pennsylvania,
also had all the other pertinent contacts, one might expect that Pennsylvania
would have the "dominant significant relationship." Yet, the Court reached
the opposite conclusion. Though purporting to follow Restatement §6,
the Court's analysis was more like straight interest analysis. Noting that
New Jersey's pro-coverage law expressed that state's "urgent concern for
the health and safety of [its] citizens," the Court held that a §6
analysis would lead inescapably to the conclusion that, in "a case in which
out-of-state generated waste foreseeably comes to rest in New Jersey, New
Jersey has the dominant significant relationship" and its law should govern.
The Court expressly confined its holding to the pattern involved
in Spruance, namely single split-site cases in which New Jersey is on the
receiving end of the waste-dumping cycle. The Court deliberately refrained
from expressing a view on how it might decide: (a) single split-site cases
of the converse pattern where "waste generated in New Jersey predictably
is disposed of in another state;" or (b) multi-site multi-state cases.
In the Pfizer Trilogy, the Court answered the latter question directly
and the former question indirectly.
3. Multi-Site Cases: The Pfizer Trilogy. All three cases of the
Pfizer trilogy involved the issue of interpretation of pollution-exclusion
clauses and the issue of late-notice defenses described above. None of
these cases involved split-sites and all involved multiple sites in multiple
states. The involved states were: New Jersey, whose pro-coverage law is
described above, New York, whose pro-insurer law is also described above,
and third states in which the sites were located, and whose law, the Court
assumed, would parallel the law of either New Jersey or New York.
Pfizer involved six waste-sites in five states other than New
Jersey or New York, an insurance contract negotiated and made in New York,
and an insured, Pfizer, which was headquartered in New York but also operated
in New Jersey, employing more than 2,000 people in that state.
Unisys involved 21 waste-sites in seven states including New
Jersey and New York, insurance policies issued in New York, and insurers
and insureds based in states other than New Jersey or New York.
HM Holdings involved nine waste-sites in seven states other than
New Jersey or New York, insurance policies delivered in New York, and an
insured who at the time of the contract was headquartered in New York but
who had moved its headquarters to New Jersey more than a decade before
litigation began.
For reasons explained below, on the issue of the interpretation
of the pollution-exclusion clause, the Court held that, in all three cases,
the law of the site-states should apply with regard to the sites located
in their respective territories. In two of these cases (Pfizer and Unisys),
the Court held that the same law should apply to the issue of late-notice
defenses, while in the third case (HM Holdings) the Court held that New
Jersey law might apply under certain contingencies described below.
(a) The Approach. In Pfizer, the Court took the important step
of extending to multisite-multistate cases the site-specific approach enunciated
in Spruance. The Court recognized that, when applied to multisite-multistate
cases, this approach inevitably entails the application of the law of different
states to different risks insured under a single policy, and that in turn
this increases the logistical burden on trial courts which will have to
analyze the same exclusion-clause under the laws of multiple states. The
Court thought that the first problem is obviated by treating each risk
as if it were insured by a different policy, and that the second problem
is not as grave as it sounds because the laws of the various states are
likely to fall into either one of two patterns --pro-coverage or anti-coverage.
The Court enunciated the test for rebutting the presumption in
favor of the law of the site by grouping into four factors the considerations
listed in Restatement §6: (1) "The competing interests of the states;"
(2) "The interests of commerce among the states;" (3) "The interests of
parties;" and (4) "The interests of judicial administration." The Court
then proceeded to apply the four factors to each of the three cases.
(b) Application. The Court's discussion of factors 2 and 4 was
brief and virtually identical in the three cases. Regarding factor 2, the
Court said that the interests of commerce among the states are hindered
when the opposing views of one state are imposed on a state that has "a
dominant and significant relationship." Regarding factor 4, the Court reiterated
that, although burdensome, the logistical difficulties of the site-specific
approach were not insurmountable.
Regarding factor 3, the "interests of parties," the Court concluded
that, even at the time of the contract, the parties' expectations pointed
towards the law of the site-state rather than the law of the place of the
contract. The Court noted that the absence of choice-of-law clauses in
the insurance policies made less credible the insurer's claim of having
relied on the law of the place of the contract, that "unpredictability
lies in the nature of insurance contracts" and that "`[p]redictability
appears to be a minor virtue in view of the willingness of insurers to
issue multi-site policies that will be subject to the unpredictable substantive
law of many states fixing the liabilities of their insureds.'"
Predictably, the Court devoted much more attention to factor
1, the "competing interests of the states," thus leaving little doubt that
interest analysis remains the Court's favored approach, and that its use
of the Restatement is no more than window-dressing designed to broaden
the appeal of that approach and to give it the appearance of impartiality.
The Court declared New Jersey's interests to be the following: "protection
of the regulatory process in New Jersey, protection of New Jersey policyholders,
protection of the victims of pollution, and protection of the New Jersey
environment."
In Pfizer (which did not involve any New Jersey sites or policy
holders) none of the above New Jersey interests were implicated, and the
Court so held. The Court discussed the fact that the policyholder, Pfizer,
had a significant economic presence in New Jersey but concluded that that
presence was outweighed by New York's much more massive contacts with Pfizer.
Despite those contacts, however, and the fact that the insurance policy
had been negotiated and delivered in New York, the Court concluded that
New York's relationship was not as significant as that of the site-states.
It is these states, the Court concluded, that had "the more dominant significant
relationship to the issues of interpretation of the pollution-exclusion
clause and the late-notice defense."
The fact that the Court did not tie its conclusion to the content
of the laws of the site-states might be seen as inconsistent with interest
analysis. However, given the Court's earlier conclusion that the law of
the site-states would be identical to either New Jersey's or New York's,
then, under either scenario, the application of the law of the site-states
would not run afoul of interest analysis. If the law of the site-state
is identical to New Jersey's (pro-coverage), then a true conflict would
be present before a disinterested forum between the law of the site-state
and the law of New York. In such a case the application of the law of the
site-state will produce a result that is in tune with New Jersey's pro-coverage
leanings. If the law of a site-state is identical to New York's (i.e. excluding
coverage), then a false conflict would be present before a disinterested
forum. In such a case, the application of the law of the site-state would
not offend New York's interests nor, as the Court said, New Jersey's public
policy.
In Unisys (which involved sites in seven states including New
Jersey and New York, insurance policies issued in New York, and no New
Jersey or New York parties), the Court held again that the law of the respective
site-states applied. Since New York was one of the site-states, New York
law would be applied, but only with regard to the site situated therein
and not because of New York's contacts with the insurance contract.
Finally, in HM Holdings (which did not involve New Jersey or
New York sites but did involve insurance policies delivered in New York
to an insured who at that time was headquartered in New York), the Court
held that the law of the site-states was applicable to the issue of the
pollution-exclusion clause. The Court noted that the fact that in the meantime
(after the insurance contract but more than a decade before the lawsuit)
the insured had moved its headquarters to New Jersey implicated New Jersey's
interests in protecting the insured. However, the Court concluded that
those interests should yield to the need to discourage forum shopping.
In contrast, forum shopping was not a concern with regard to
the issue of the late-notice defense --which is available under New York's
but not under New Jersey's law-- because, by the time of the events surrounding
the late notice, the insured had moved its headquarters from the former
to the latter state thus giving birth to a New Jersey interest in protecting
the New Jersey insured. This left New Jersey's interest in juxtaposition
with the interests of the site-states. The Court resolved this potential
conflict as follows: "We conclude that either New Jersey law or the law
of the waste sites should govern the late-notice issues. If the law of
the waste sites is similar to New York's, it should yield to New Jersey's
unless the insurance companies are domestic companies of the waste sites."
(c) Implications. The excerpt last quoted leaves no doubt that
New Jersey's endorsement of the site specific approach is subject to exceptions
designed to protect New Jersey's interests. According to Pfizer, these
interests are:
"[1.] protection of the regulatory process in New Jersey,
[2.] protection of New Jersey policyholders,
[3.] protection of the victims of pollution, and
[4.] protection of the New Jersey environment."
The Pfizer trilogy, in combination with Spruance and lower court
cases that Pfizer cited with approval, suggest that:
(a) when any one of the above New Jersey interests are implicated,
New Jersey will likely apply its pro-coverage law, notwithstanding the
contacts or interests of other states; and
(b) when none of the above New Jersey interests are implicated,
then New Jersey will apply the law of the site state, whether or not that
law favors coverage. Theoretically, this law may be displaced upon showing
that another state has a more significant relationship but, practically,
such displacement will be difficult.
The following discussion explores five patterns in which a New
Jersey court might conclude that New Jersey's interests are implicated.
(1) Cases in which insured waste-site is situated in New Jersey.
Unisys falls within this pattern with regard to the sites situated in New
Jersey. Spruance also fits within this pattern, although only "half" of
the site (disposal) was situated in New Jersey. In both cases, New Jersey
lacked other contacts (insured, insurer, insurance contract), yet both
cases applied New Jersey law. Here the application of New Jersey law is
consistent with the site-specific approach and promotes New Jersey's declared
interest in "protection of the New Jersey environment."
(2) Cases in which the waste is produced in New Jersey and is
deposited in another state. These cases do not implicate New Jersey's interest
in protecting its environment and do not fit comfortably into the site-specific
approach of Spruance. Thus, if New Jersey law is to be applied to these
cases, the rationale must be sought in other New Jersey interests. Although
in Spruance the Supreme Court was deliberately cryptic about cases of this
pattern and has yet to encounter any such case, lower courts have since
decided three such cases and applied New Jersey law to two of them --General
Ceramics Inc. v. Firemen's Fund Insurance Co. and J. Josephson, Inc. v.
Crum & Forster Ins. Co.. However, in both of these cases, New Jersey
had the additional contacts of a New Jersey insured and a New Jersey insurance
contract. Thus the application of New Jersey law could be based on two
of the other Pfizer interests: "protection of New Jersey policyholders"
and "protection of the regulatory process in New Jersey." In contrast,
in the third case, Permacel v. American Ins. Co., New Jersey did not have
these additional contacts and the court did not apply New Jersey law. Thus
the three cases are distinguishable and reconcilable. Nevertheless, the
Pfizer court cited Ceramics and Josephson with approval and did not mention
Permacel even once. Based on this, one could infer that, in cases in which
the waste-producing facility is situated in New Jersey, the Court might
be prepared to apply New Jersey law, even if New Jersey does not have the
other two connections. However, this inference might not be safe enough.
(3) Cases in which the insured is a New Jersey domiciliary at
the time of the critical event. HM Holdings confirms that New Jersey's
interest in protecting policyholders who, at the pertinent time, are domiciled
in New Jersey is strong enough to outweigh the interests of the state of
the contract state or of the insurer's domicile. This interest will yield
only to the interest of the site-state provided that this state has the
additional contact of being the domicile of the insurer. As stated in the
above quoted excerpt from HM Holdings, in such a case, the law of the site-state
will be applied whether or not it favors coverage. If it does, then the
conflict will be a false one. If it does not favor coverage, the resulting
conflict will be a true one but the domicile of the insurer in the site-state
will tip the scale in favor of the law of that state.
(4) Cases in which the insurance contract was made in New Jersey.
The New Jersey Supreme Court has not encountered a case in which New Jersey's
only contact was the making of the contract in that state. General Ceramics,
Inc. and J. Josephson, Inc. which the Supreme Court cited favorably involved
a New Jersey contract but also a New Jersey insured and a New Jersey facility.
Thus, it remains to be seen whether the Court will apply New Jersey law
to cases that lack both of the latter two contacts. However, based on Pfizer's
reference to New Jersey's interest in the "protection of the regulatory
process in New Jersey," one could draw a weak inference that the Court
may apply New Jersey law if the contract was submitted for approval to
New Jersey's regulatory authorities.
(5) Cases in which New Jersey is the domicile of the insurer.
Similarly, it is unclear what law the Court will apply to cases in which
New Jersey's only connection is the domicile of the insurer. The Court
has yet to encounter such cases, but two factors might lead one to infer
that the Court might apply New Jersey law at least when that law favors
coverage more than the law of the other state. The first factor is the
Court's statement that New Jersey has an interest in the "protection of
the victims of pollution." It may be of some significance that the Court
does not limit itself to protecting New Jersey victims and does not speak
of protecting New Jersey insurers, although it does speak of "protection
of New Jersey policyholders." The second factor is that, in a recent unrelated
products liability case, the Court applied New Jersey's pro-consumer law
at the expense of a New Jersey manufacturer and for the benefit of a foreign
consumer injured in the state of her domicile whose law did not protect
her. The Court spoke at length of New Jersey's interest in ensuring that
New Jersey manufacturers are held accountable according to New Jersey's
high standards. Based on these two factors one should not be surprised
if the Court were to take the same stance and apply New Jersey law to an
insurance case falling within this pattern.
Most of the 1998 cases involving product liability conflicts have applied the law of the state of the injury. As a general proposition, perhaps this should not be surprising. What is surprising, however, is the rather poor quality of reasoning supporting these decisions. Fortunately, none of these cases have been decided by a court of last resort.
1. Products Liability and Statutes of Repose. Five of these cases involved a conflict between a statute of repose of the state of the injury, which barred the action against the manufacturer, and a statute of limitation of the forum state, which did not bar the action. These cases are sketched in Table 2, infra, and are discussed in the same order in the accompanying text.
[ Table 2 goes here.]
Common Denominators. As the Table indicates, all but one (Davis)
of these cases applied the statute of repose of the state of the injury.
In all but one case (Romani), the place of the injury was also the victim's
domicile, but in one of them (Hall) the victim had moved his domicile to
the forum state after the injury and before filing suit.
All of the above cases were decided in states that have abandoned
not only the lex loci delicti rule but also the traditional procedural
characterization of statutes of limitation. Thus, all of the above cases
were decided under the general choice-of-law analysis followed in the respective
state with regard to substantive issues. In Denman and Romani, this analysis
was influenced by the Restatement Second and its presumptive rule that
the law of the place of injury applies unless another state has a more
significant relationship. Vestal and Davis applied California's comparative
impairment, and Hall purported to apply Michigan's lex fori approach.
If these cases were to be decided under Brainerd Currie's interest
analysis and his basic assumption that a state is interested in protecting
its domiciliaries only and not out-of-staters similarly situated, then
all but one (Romani) of them would be characterized as "unprovided for"
cases in so far as neither the injury state nor the forum state had a true
interest in applying their law. In all four cases, the state of the injury
had a pro-manufacturer law (statute of repose barring the action) the application
of which would work at the expense of a local victim and for the benefit
a foreign manufacturer. The forum state had a pro-victim law (a statute
of limitation allowing the action) the application of which would work
at the expense of a forum-based manufacturer and for the benefit a foreign
victim. None of the five cases accepted or even discussed Currie's assumptions
or adopted his reading of interests. The five cases that applied the statute
of repose of the state of the injury ignored the fact that the application
of that statute would prejudice a local victim and assumed that that state
was interested in protecting foreign manufacturers who sell products in
that state. The one case (Davis) that applied the forum's statute of limitation
spoke of that state's interest in protecting its courts and citizens even
though the application of that statute would protect neither its courts
nor its citizens. At least that case spoke of the forum's interest in deterring
a forum-based manufacturer from manufacturing sub-standard products in
that state. Be that as it may, different people can ascribe different motives
or provide different explanations for the above decisions (e.g., pro-defendant,
anti-forum shopping, etc.), but one thing that seems clear to this observer
is that neither altruism nor lack of parochialism would be an accurate
explanation.
The Cases. In Denman v. Snapper Division, the product in question,
a lawn mower, was purchased in Mississippi, the forum state, by the victim's
grandfather who was domiciled in that state. He then loaned it to his grandson
who used it in North Carolina, his domicile, and was injured by it in that
state. His action was barred under North Carolina's six-year statute of
repose for products liability. Mississippi does not have a statute of repose
and its statute of limitation would not bar the action. Noting that North
Carolina considers its statute of repose to be substantive, the court applied
to the resulting conflict the choice-of-law analysis used by Mississippi
courts for substantive issues. Under that analysis, said the court, "the
law of the place of injury is presumed to apply unless another state has
a more significant relationship." The court concluded that "the sale of
the mower in Mississippi by a Mississippi defendant provides an insufficient
basis for finding that Mississippi has a more significant relationship
than North Carolina," and that "the fact that the mower entered the stream
of commerce in Mississippi does not tip the balance in favor of applying
Mississippi law."
Considering the starting point of the court's analysis, this
conclusion is not surprising. Indeed, if one begins with a presumptive
lex loci rule and is thinking in terms of balancing factual contacts (rather
than state interests in light of pertinent contacts), then there is nothing
surprising in saying that in this case the presumption has not been rebutted
by the forum's non-negligible but less than overwhelming contacts. At least
the court did not purport to balance state interests. The court's only
reference to state interests was a statement that "Mississippi would have
very little interest in applying its law to litigation arising out of an
accident in North Carolina involving a resident of North Carolina and caused
by a product manufactured in Georgia." The negative inference from this
statement might be that North Carolina has an interest in applying its
statute of repose for the benefit of a Georgia manufacturer and at the
expense of a North Carolina victim. As explained above, such an assumption
is at least questionable and it may be to the court's credit that it did
not state it expressly. As for the court's statement that Mississippi had
"very little interest" in entertaining the action, that too may be questioned
in light of the fact that the substandard product was bought in Mississippi
by a domiciliary of that state. This was not one of those typical forum-shopping
cases like the infamous Ferens v. John Deer Company where Mississippi had
no relevant contacts. Be that as it may, the above statement may suggest
that Mississippi no longer wants to be perceived as haven for forum shopping.
Before taking this for granted, however, one should remember that the statement
came from a federal appellate court.
Hall v. General Motors Corporation presented the same law-pattern
as Denman, but here the forum state, Michigan, was the defendant's principal
place of business and also the place where the product, a 1975 Chevrolet,
was designed. Moreover, the plaintiff, who was injured while using the
car in his then domicile of North Carolina, had moved his domicile to Michigan
before filing the action. The court felt that it had to choose one of the
two domiciles and, while acknowledging that the record did not reveal the
plaintiff's motives for changing his domicile, the court decided to discount
the change of domicile because of the potential for encouraging forum shopping.
Thus, the court treated plaintiff as a North Carolina domiciliary and proceeded
to analyze the conflict between that state's statute of repose which barred
the action and Michigan's statute of limitation which did not.
The court acknowledged that Michigan's lex fori approach "most
frequently favors using the forum's (Michigan's) law[.]" Nonetheless, said
the court, "Michigan courts . . . use another state's law where the other
state has a significant interest and Michigan has only a minimal interest
in the matter." Then the court proceeded to confirm once again this author's
charge that Michigan courts will rarely apply forum law when it disfavors
one of their own, especially one of Michigan's "big three" auto-makers.
First the court listed North Carolina's contacts: "[P]laintiff
lived in North Carolina, worked for a North Carolina employer, and was
injured in North Carolina by a vehicle owned, registered, licensed, and
insured in North Carolina, and plaintiff subsequently received medical
treatment . . . in North Carolina." The court did not explain which of
these contact were relevant in a product liability conflict, perhaps because
it assumed that, with such a long list of contacts, North Carolina was
bound to be interested. For, in the next sentence, the court proclaimed:
"North Carolina, therefore, obviously has a substantial interest in applying
its law to this dispute." On second thought, however, North Carolina's
interests did not depend on its contacts with the plaintiff, but rather
on its contacts with the defendant: "`North Carolina has an obvious and
substantial interest in shielding GM from `open ended products liability
claims.' . . . [I]t is in North Carolina's economic interest to encourage
GM to do business in its state,'" said the court. As for Michigan, "`[it]
has no interest in affording greater rights of tort recovery to a North
Carolina resident than those afforded by North Carolina. Michigan is merely
the forum state and situs of defendant's headquarters.'"
Of the many justifications that the court could have used in
justifying its application of the North Carolina statute, the least persuasive
one is to say that such application was dictated or even justified by that
state's interests. The point is well made by Judge Matuzak, who concurred
in the result only because he felt bound by a Michigan precedent but disputed
the majority's pronouncements regarding North Carolina's interests. He
said:
Although General Motors has a distribution network in North Carolina,
GM's commercial relationship with that state is insignificant when compared
to its enormous economic presence in Michigan and consequential effect
on this state. . . . GM's headquarters and a significant part of its operations
are located in Michigan, so applying this state's law should not defeat
defendant's expectations. . . . Nor do I believe that North Carolina has
any significant interest in having its statute of repose applied in this
case. The automobile at issue was manufactured in Ohio and designed in
Michigan. Instead of protecting a North Carolina manufacturer, the statute
is being used to protect an out-of-state manufacturer for injuries sustained
in North Carolina arising out of wrongs alleged to have been committed
in Michigan or Ohio. . . . [T]here is no good reason to extend the benefits
of the North Carolina statute of repose to defendant.
In Romani v. Cramer, Inc., the victim was domiciled in the forum
state, Massachusetts, at all pertinent times, but that state did not have
other pertinent contacts with the case. The victim was employed in Connecticut
and was injured in that state while using a chair supplied by his employer.
The court found that the victim's domicile in the forum state did not give
her a sufficient interest to apply its law which allowed the action. In
contrast, the court thought that Connecticut had a "superior interest"
in barring the action through its statute of repose because "Connecticut
enacted its statute to protect manufacturers from liability for products
whose useful lives have expired . . . [and to] encourage[] manufacturers
to freely sell products within its borders."
The same result was reached in Vestal v. Shiley Inc., which applied
North Carolina's statute of repose barring a product liability action by
a North Carolina domiciliary against a California manufacturer of heart
valves implanted in plaintiff during a North Carolina surgery. The court
concluded that the application of California's statute of limitation which
allowed the action "would impair North Carolina's effort to protect manufacturers
who sell goods within its borders." The court noted California's potential
interest in deterring California manufacturers from manufacturing defective
products within its borders but concluded that that interest is adequately
served by applying California law to the many actions filed by California
plaintiffs.
Vestal was criticized by Davis v. Shiley, a decision of the California
Court of Appeals involving the same defendant and the same type of product,
a heart valve which had been surgically implanted in an Oregon domiciliary
during an Oregon medical procedure. As in Vestal, the plaintiff's action
would have been barred by Oregon's statute of repose. The court found that
statute inapplicable because Oregon had no interest in applying it to protect
a foreign manufacturer at the expense of an Oregon domiciliary. On the
other hand, said the court, California was interested in applying its statute
of limitations because: "California is the forum, and Shiley, the only
defendant, is a California resident. Thus, application of California's
limitations period serves its underlying policy to protect California residents
and courts from stale claims."
Needless to say, the italicized language reveals the weakness
of the court's articulation of California's interest, a weakness that was
exposed to the fullest by Judge Sills who pointed out in a dissenting opinion
that "[a] state's interest is not necessarily in always applying its own
law." Judge Sills continued as follows:
The majority's logic makes no sense, for three reasons. In the
first place, it fails on its own premises. . . . Even if California's interest
is only limited to protecting its citizens against stale claims, its interest
is necessarily in applying Oregon's more restrictive statute.
Second, . . . [a] statute of limitations . . . functions as
a gross claims limitation mechanism, essentially winnowing out the total
number of claims which a state's courts must process. . . . The `interest'
of a state is therefore advanced when application of its statute of limitations
precludes claims against its citizens by out-of-state plaintiffs . . .
.
Third, there is no reason to exclude broader public policy factors
--such as the effect of the choice on the relative competitiveness of a
state's employers-- from consideration even in statute of limitations choice
of law cases.
Thus, said Judge Sills, the majority opinion "[i]nvidiously discriminat[ed]
against California business . . . [by] extend[ing] to an Oregon resident
a right that resident does not have in his home state [and] giv[ing] him
the benefit of the more liberal statute of limitations in this state[.]"
The majority's reaction to Judge Sills' critique was to "decline the temptation
to join him on his soapbox," leading him to retort: "I'm not too lonely
on this soapbox." The California Supreme Court denied review but designated
the Court of Appeals opinion as "not for publication."
2. Borrowing Statutes of Repose. Except for Romani, all of the
above cases involved the further question of whether the forum's "borrowing
statute" required the application of the statute of repose of the state
of the injury. Generally, borrowing statutes authorize the shorter statute
of limitation of the state in which the cause of action "arose" but it
is unclear on whether they also authorize the application of the statutes
of repose of that state.
Denman did not discuss this question. Hall discussed it and,
although it thought it unnecessary to decide it, concluded that the existence
of the borrowing statute supported the court's decision to apply the foreign
statute of repose. Vestal held that the borrowing statute applied and dictated
the application of North Carolina's statute of repose. The court rejected
the plaintiff's creative argument that the borrowing statute was inapplicable
because her cause of action never "arose" in North Carolina because that
state's repose statute prevented the cause of action from ever coming into
existence. Davis held the borrowing statute inapplicable because only half
of the action "arose" in the state of the injury, the other half having
arisen in the forum state where the pertinent conduct occurred. In contrast,
Stuart v. American Cyanamid Company, used the forum's borrowing statute
to borrow the statute of repose of the state of the injury because "the
purpose of the borrowing statute --preventing forum shopping by plaintiffs
seeking the holy grail of the longer period-- is best served by applying
the period of the foreign state, regardless of how it is denominated."
3. Other Product Liability Conflicts. Space limitations prevent discussion of the 1988 product liability cases that did not involve statutes of repose. Suffice it to describe briefly the results reached: two cases (Batruk v. Mitsubishi Motors Corporation and Petrokehagias v. Sky Climber, Inc.) applied the law of the injury state, which was neither party's domicile; one case (Hollister v. Dayton Hudson Corporation) applied the law of the victims domicile which was also the place where the product was acquired by her; and one case (Poust v. Huntleigh HealthCare) applied the law of the forum state which was also the defendant's domicile and place of manufacture. Finally, in a series of actions filed by United Parcel Service drivers against the manufacturer of a hand-held computer claimed to have caused them repetitive stress syndrome, the court applied the law of the state of each driver's domicile, which was also the place of the injury.
Several tort cases are discussed in other sections of this Survey. Of the remaining 1998 cases involving tort conflicts none have been decided by a court of last resort, but some noteworthy cases have been decided by lower courts. These cases and any interesting cases to be reported before the end of the year will be discussed in the American Journal version of this Survey.
E. STATUTES OF LIMITATION
As stated in last year's Survey, one of the most encouraging trends
emerging from recent cases is the increasing number of courts that abandoned
the traditional procedural characterization of statutes of limitation.
In addition to the products liability cases discussed above, 1998 produced
an excellent opinion by the Supreme Court of Arizona, DeLoach v. Alfred,
which affirmed the lower court's assumption that Arizona would abandon
the traditional approach in favor of §142 of the Restatement Second
as revised in 1988.
The revised section departs from the traditional approach of
almost automatically applying the forum's statute of limitation and subjects
limitation conflicts to the flexible analysis of Restatement §6. However,
section 142 also retains a presumptive lex fori rule that can be rebutted
by a showing of "exceptional circumstances" that make such a result "unreasonable."
Further, for cases in which the forum's statute does not bar the action,
subsection 2 provides that the presumption can be rebutted by showing that
the forum is uninterested and that another state whose law bars the action
has a more significant relationship. DeLoach v. Alfred fell within this
pattern and is a perfect example of the operation of subsection 2.
DeLoach was a tort action arising out of a Tennessee traffic
accident involving a California plaintiff, an Arizona defendant, and a
Tennessee defendant. The plaintiff was injured while riding as a passenger
in a car driven by the Arizona defendant when it collided with a car driven
by the Tennessee defendant. The Tennessee defendant was not subject to
the court's jurisdiction and did not consent to it. As will be explained
below, his non-involvement in the case was a significant factor in the
Court's decision. The action would be barred by Tennessee's one-year statute
of limitation but not by Arizona's two-year statute of limitation. The
lower court applied the Tennessee statute after finding Arizona to be uninterested
and Tennessee to have a more significant relationship because of the involvement
of a Tennessee defendant.
The Supreme Court of Arizona endorsed the use of Restatement
§142 but disagreed with its application by the lower court and held
that the Arizona statute applied. In particular, the Supreme Court found
that the lower court erred: (a) in giving insufficient weight to the presumptive
lex fori rule contained in §142; (b) in concluding that Arizona was
uninterested; and (c) in concluding that Tennessee had a more significant
relationship.
Regarding Tennessee's relationship, the Court said that the fact
that the Tennessee driver was not involved in this litigation deprived
that state of an interest in applying its statute of limitation. Thus,
Tennessee's relationship with the case could not have been more significant
than Arizona's. Regarding Tennessee's interest, the Court said the following:
Arizona's two-year statute reflects the substantial interest
underlying its policy requiring its citizens to answer for the harm they
cause. . . . Arizona courts have long recognized that, in addition to making
injured plaintiffs whole, holding tortfeasors accountable also advances
the important interest in deterring wrongful conduct. . . . Thus the policy
of deterrence extends to providing a forum for redress against Arizona
defendants for their negligent conduct outside the state.
Thus, the Court concluded, "Arizona's interest in the case is at least
as substantial and as significant as Tennessee's." Consequently neither
one of subsection 2's exceptions to the presumptive lex fori rule were
applicable, and the only question left was whether the application of the
lex fori would be "unreasonable" under the circumstances. Comparing this
case with the famous New Hampshire case of Keeton v. Hustler Magazine,
Inc., the Court concluded that, far from being unreasonable, the application
of the Arizona statute of limitations is both reasonable and "entirely
consistent with the choice-of-law factors enumerated in Restatement §6"
in that it "protects the justified expectations of the parties" and promotes
"the basic policies underlying tort law--to deter wrongful conduct and
compensate victims for their loss." Thus, the Court held that the Arizona
statute of limitations applied and remanded the case for further proceedings.
DeLoach is noteworthy not only because it is a faithful and intelligent
application of §142, but also because it provides a credible articulation
of the forum's interest in applying its longer statute of limitation in
cases in which the defendant is a forum domiciliary and the plaintiff is
a foreign domiciliary. In such cases, the fact that the action is timely
under the forum's statute negates any procedural interests (such as pruning
stale claims from the docket) that are usually and uncritically being invoked
in limitation conflicts. After all, the fact that the forum has a longer
limitation period means that the claim is not considered stale enough.
This means that the interests implicated in the cases of this pattern are
substantive and depend on the forum's relationship with the parties and
the case.
Regarding the plaintiff, the fact that he is not a forum domiciliary
may, under Currie's assumptions, suggest the lack of an affirmative interest
in providing a forum but does not mean the existence of an interest in
denying him a forum that is otherwise available for forum domiciliaries.
Thus, the plaintiff's foreignness cannot be the basis of the court's decision
in cases of this pattern.
Regarding the defendant, again, the fact that the forum's statute
permits the action means that the forum has subordinated the policy of
affording defendants with repose to the opposite policy of holding defendants
accountable as the DeLoach court concluded. The remaining question then
is whether this policy of holding domestic defendants accountable is negated
by the plaintiff's foreignness (as the Michigan court held in Hall v. General
Motors under the pretext of respecting another state's non-existent interest),
or whether that policy is unaffected by this factor as the DeLoach court
held. While reasonable people might disagree, this author's opinion is
that the DeLoach conclusion is far more noble and preferable.
1. Contracts with Choice-of-Law Clauses
(a) Cases Upholding the Choice-of-Law Clause. Among the myriad
cases that upheld choice-of-law clauses during 1998, the most notable ones
are Richards v. Lloyd's of London, and Lipcon v. Underwriters at Lloyd's.
Both cases involved actions by American domiciliaries who had invested
in the insurance syndicate known as Lloyd's of London. The investment contracts
contained choice-of-forum and choice-of-law clauses requiring all litigation
of claims resulting from the investment contracts to be adjudicated in
England under English law. The investors sued Lloyd's claiming violations
of United States Securities laws, breach of fiduciary duty, common law
fraud, and violation of state blue sky laws. Relying on these clauses,
all United States courts in which these suits were brought, including the
lower court in Richards, dismissed the suits. In a 1997 decision discussed
in last year's Survey, the United States Court of Appeals for the Ninth
Circuit reversed the lower court decision and held that these clauses were
void to the extent they operated to effect a waiver of the provisions of
the Securities Act of 1933. In 1998, the Court sitting en banc withdrew
the 1997 opinion and replaced it with a new opinion upholding these clauses.
The Eleventh Circuit also upheld the same clauses in Lipcon. Thus, so far
these clauses have been litigated and upheld in eight out of the eleven
federal Circuits.
(a) Cases Upholding the Choice-of-Law Clause. Of the few cases
that do no uphold these clauses, the most well-reasoned and interesting
is a California case, Application Group, Inc. v. Hunter Group, Inc., involving
a covenant not to compete contained in an employment contract. The contract
had been negotiated and entered into in Maryland between Hunter, a Maryland
employer, and Ms. Pikes, a Maryland domiciliary. The contract contained
a choice of Maryland law and an anti-competition covenant, valid under
Maryland law, which prohibited Pikes from working for a competing employer
for one year following termination of the employment. Ms. Pikes worked
for 16 months in Maryland when she was recruited by plaintiff AGI, a competing
California employer. It is unclear whether Ms. Pikes, a computer consultant,
was to physically move to California or was to continue working from her
home in Maryland for her new employer. When Hunter tried to prevent her
employment by AGI, AGI sued in California seeking a declaratory judgment
that the anti-competition covenant should be governed by California law
which holds such covenants unenforceable. The trial court granted judgment
for AGI and the Court of Appeals affirmed in a well-reasoned unanimous
opinion blending California's comparative impairment with section 187 of
the Restatement Second.
The Court of Appeals acknowledged that, in light of its multiple
contacts, the chosen state, Maryland, had a "substantial relationship"
to the parties and their transaction, and thus the choice-of-law clause
met the first hurdle posed by subdivision 2(a) of Restatement §187.
The court then proceeded to examine whether the clause passed the hurdled
posed by subdivision 2(b) of the same section, which provides that the
law of the chosen state is not to be applied if it is "contrary to a fundamental
policy of a state which has a materially greater interest than the chosen
state . . . and which, under the rule of section 188, would be the state
of applicable law in the absence of an effective choice of law by the parties."
Hunter argued that since Maryland had all the contacts considered
relevant by Restatement §188, Maryland law would have been applicable
even in the absence of a choice-of-law clause. The court disagreed, noting
that "`[w]ith the governmental interest approach, `relevant contacts' .
. . are examined in connection with the analysis of the interest of the
involved state in the issues, the character of the contract and the relevant
purposes of the contract law under consideration.'" Here Maryland had all
the contacts relevant to the employment contract (which was not at issue)
but not the contact that was relevant with regard to the particular issue:
the enforceability of the non-competition covenant in California. As to
this issue, said the court, "the subject matter of the contract" was Ms.
Pikes' "subsequent employment which was, in this case, employment by a
competitor who is `located' in California." Thus, to the extent that the
covenant purported to restrict competition in California, California had
the most pertinent contact which brought into play California's interest
in protecting California employers and "business opportunities in California."
Then the court examined whether California's policy against non-competition
clauses rose to the level of a "fundamental policy" and concluded that
it did, citing earlier California cases that had so held. This left only
the question of whether California had a "materially greater interest"
than Maryland. The court concluded that California had a strong interest
in protecting both the employee and the competing employer.
With regard to the employee, California had "a strong interest
in protecting the freedom of movement of persons whom California-based
employers (such as AGI) wish to employ to provide services in California,
regardless of the person's state of residence or precise degree of involvement
in California projects[.]
With regard to the competing employer, California had a "public
policy which ensures that California employers will be able to compete
effectively for the most talented, skilled employees in their industries,
wherever they may reside" and thus had an "interest in protecting its employers
and their employees from anti-competitive conduct by out-of-state employers
such as Hunter . . . who would interfere with or restrict these freedoms.
Regarding the geographical reach of this policy, the courts said:
In this day and age --with the advent of computer technology
and the concomitant ability of many types of employees in many industries
to work from their homes, or to "telecommute" to work from anywhere a telephone
link reaches--an employee need not reside in the same city, county, or
state in which the employer can be said to physically reside. California
employers in such sectors of the economy have a strong and legitimate interest
in having broad freedom to choose from a much larger, indeed a `national,'
applicant pool in order to maximize the quality of the product or services
they provide, as well as the reach of their `market.'
The court also defined the class of employees who come within
the protective scope of California pro-competition rule. To fall within
this scope said the court "a recruited employee need not have had any prior
contact with California, so long as the goal of the solicitation is `employment
in California,` or employment in `business to be performed in California.'"
But "employment in California," said the court, does not require that "the
recruited employee physically resides in California." It suffices if the
employee "performs services for California-based customers."
Ultimately, the court concluded that California had "a materially
greater interest than does Maryland in the application of its law to the
parties' dispute, and that California's interests would be more seriously
impaired if its policy were subordinated to the policy of Maryland."
This case can be usefully contrasted with Guardian Savings &
Loan Ass'n v. MD Associates, decided by another division of the same court,
three months later. The Guardian Savings panel spent four pages explaining
very convincingly why California's purchase-money anti-deficiency statute
embodied a "fundamental policy" which could not be waived by contrary agreement.
The court also recognized that "enforcement . . . of a choice-of-law provision
adopting out-of-state law [would] be the practical equivalent of enforcing
a contractual waiver" of the statute's protections.
However, the court also concluded that, in this particular case,
California did not have a "materially greater interest" in applying its
law than did the chosen state, Texas, whose law permitted deficiency judgments.
Although the object of the contract was California real estate, the contract
had been entered into in Texas between sophisticated parties who at the
time were Texas domiciliaries. While Texas' interests in enforcing the
contract were clear and strong, California's interest in applying its anti-deficiency
statute was less strong, said the court, because, inter alia, the statute
was designed primarily to protect buyers of "homes," not the large corporate
buyer of a $30 million San Francisco building who had contracted in another
state with an equally sophisticated seller/financier based in that state.
(c) Choice-of-Law Clauses and Arbitration. Choice-of-law clauses
are often combined with arbitration clauses. The use of the latter clauses
has increased dramatically in recent years, and this trend is manifested
in the reported cases. Most of the 1998 cases revolve around the question
of the scope of the choice-of-law clause, which is often a straight forward
question of contract interpretation, or the question of federal preemption.
It appears that most of these cases are of no particular interest for conflicts
generalists, but this assumption will be reexamined before the final version
of this Survey. In the meantime, interested readers may want to review
the cases cited in the footnote.
2. Contracts without Choice-of-Law Clauses. Several cases involving
contracts that do not contain a choice-of-law clause have been discussed
in the Methodology and Insurance parts of this Survey. Of the remaining
appellate cases, none appear to be noteworthy, except perhaps a case which,
ironically, is designated as "not for publication" by the court that decided
it. Perhaps this will change with the December cases. The federal district
court cases will be reviewed for discussion in the final version of the
Survey.
The same will be done with cases on other subjects.
For now, however, this version of the Survey must end here because
the AALS may refuse to mail a Newsletter that is too lengthy.
I look forward to seeing you at our annual meeting in New Orleans.
Best wishes for the New Year.
December 1, 1998 Symeon C. Symeonides