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Lecture 1

BUSL 2550 Lecture Notes - Lecture 1: Institute For Operations Research And The Management Sciences, Hyperlink, Real Estate BrokerPremium

4 pages90 viewsSummer 2015

Department
Business Law
Course Code
BUSL 2550
Professor
Keifer
Lecture
1

Page:
of 4
Erie Doctrine and Choice of Law Choice of Law
Terms:
Choice of law:
"Choice of law" is a set of rules used to select which jurisdiction’s laws to apply in a lawsuit. Choice of law
questions most frequently arise in lawsuits in the federal courts that are based on diversity jurisdiction,
where the plaintiff and defendant are from different states. In these lawsuits, the courts are often confronted
with the question of which jurisdiction’s laws should apply. The choice of law rules establish a method by
which the courts can select the appropriate law.
Conflict of laws:
Sometimes used interchangeably with “choice of law”, a conflict of laws arises when a lawsuit introduces
conflicting laws of two or more jurisdictions.
Forum shopping:
Forum shopping is a legal term of art used to describe a scenario in which a party sues in a particular
jurisdiction for the purpose of attaining the most favorable result. The courts frown upon forum shopping
because it infers that the person is “taking advantage” of the legal system.
Like the Erie doctrine, the choice of law rules (sometimes referred to as "conflicts of laws") focus on the
selection of one jurisdiction’s laws over those of another jurisdiction in a particular lawsuit. As with the
Erie doctrine, the court must determine which jurisdictions’ laws to apply in a particular case.
First, it is important to note that a choice of law scenario can arise in state court while the application of the
Erie doctrine is limited to disputes in the federal courts.
In a conflicts scenario, the laws of two or more states are evoked, and there must be a significant difference
in the outcome of the case based on which law is applied. Several factors are considered before selecting
one jurisdiction’s law over another jurisdiction’s law that will be outlined and explored below.
Also in a scenario where a conflicts issue comes up in federal court, the court's jurisdiction need not be
based on diversity. As a matter of fact, the plaintiff and defendant may be from the same state. (The
conflicts issue can arise because the legal controversy may have occurred in another state.) All of these
scenarios will be explored in greater depth later in the subchapter. But before examining these distinctions
in more detail, it is important to understand the context in which these choice of law rules are triggered and
the reasons why the courts regulate them.
EXAMPLE: George, a resident of California, is a store clerk in San Diego, California. Matt, an Arizona
resident, falls asleep at the wheel and drives his car into George’s store, damaging 90% of the store's
inventory and landing George in the hospital for 2 weeks with severe injuries. George sues Matt in
California state court for negligence and destruction of property. California law allows George to recover
up to $60,000 for both of his claims. Arizona law, however, prevents George from recovering more than
$45,000. George argues that California law should apply, while Matt argues that Arizona law should apply.
What should the court rule?
The example described above is a typical example of a choice of law scenario. Two parties argue that a
state court should apply the law of their jurisdiction. There is no federal diversity jurisdiction because the
amount in controversy is less than $75,000. Nevertheless, there is a choice of law problem. George, the
plaintiff, clearly would want to recover the largest monetary relief available under the California law. On
the other hand, Matt, the defendant, would want to limit his liability and implement the Arizona law. The
outcome of the lawsuit will be determined, in large part, by which law the court applies. On which law
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should the state court base its decision?
One response that would seem to make the most sense would be for the state court to apply the law of its
own jurisdiction; i.e., the California court would apply its own law with which it is most familiar. However,
this is not always the rule. One reason that this is not always the correct choice is that it is it would cause
parties to “forum shop”. Forum shopping refers to a situation where a party commences a lawsuit in a
particular jurisdiction where the party will reap the greatest reward. Forum shopping is discouraged in the
judicial system and has a negative connotation. Therefore, if the state court always applied the law of its
jurisdiction, plaintiffs would flock to a particular jurisdiction if it is known to allow the greatest monetary
rewards for a particular legal controversy or because it has the fewest restrictions. The courts strongly
disfavor forum shopping for this reason. The judicial system seeks to avoid “clogging’ up certain courts
with lawsuits while leaving others “empty” because their laws are less advantageous to plaintiffs.
Another reason that the rule that a state court should apply the law of the state where the court sits has not
been adopted is that the law may have little to do with the legal controversy. For example:
Pamela, a resident of North Dakota, sues Roger, also a resident of North Dakota, for a car accident that
occurred in Fargo, North Dakota on September 1, 2003. Pamela purchased the car in Bismarck, South
Dakota. Pamela sues in South Dakota state court for monetary damages. What law should the state court
apply? North Dakota law or South Dakota law?
In this example, it would make little sense to apply the South Dakota law because it has little contact with
either of the parties or the legal controversy. To resolve these issues, the courts have adopted choice of law
rules to facilitate application of the proper state law in these controversies.
One significant problem with the choice of law rules: each jurisdiction maintains its own rules in this field.
Therefore, it is essential to check the case law and local rules of your particular jurisdiction. Another
problem that stems from the lack of uniformity in applying the choice of law rules among different
jurisdictions is that it is impossible to cover all of the possible permutations and variations of the rules.
However, in an attempt to demonstrate the principles that are associated with applying these choice of law
rules, the remainder of this section will highlight some of the basic choice of law rules that apply in many
states.
One general principal of which attorneys must be mindful is that for any party to invoke the laws of a state,
it must come under the jurisdiction of that state. Therefore, a party to the lawsuit must be a resident (or
more formally, domiciled) in the particular state in question or have some minimum contacts with the state
in order to attempt to invoke the rules of that jurisdiction.
Note also that the conflicts rules respect rules of foreign countries just as they do rules of the various states.
See Slater v. Mexican Nat'l R. Co., 194 U.S. 120 (1904).
Some jurisdictions analyze different areas of the law, such as torts, real property, and contracts, with
specific choice of law rules. In the area of tort law, the traditional rule is that the case will be governed by
the specific laws of the particular jurisdiction where the injury to the plaintiff occurred. See Kaufman v.
American Youth Hostels, Inc., 6 A.D.2d 223 (N.Y. A.D. 2d Dept. 1958). For instance, let us revisit an
earlier example,
George, a resident of California, is a store clerk in San Diego, California. Matt, an Arizona resident, falls
asleep at the wheel and drives his car into George’s store, damaging 90% of the store inventory and landing
George in the hospital for 2 weeks with severe injuries. George sues Matt in California state court for
negligence and destruction of property. California law allows George to recover up to $60,000 for both of
his claims. Arizona law, however, prevents George from recovering more than $45,000. George argues that
California law should apply, while Matt argues that Arizona law should apply. What should the court rule?
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In this example, George’s injury took place in San Diego, California. Therefore, under the rules for choice
of law for tort actions, the California state court should select California law, since the injury took place
within the state. This is a straightforward application of the choice of law rules.
However, there are exceptions to this rule. In a case where the tort actually occurred in one state, but where
that state does not really have as strong an interest in the case as does another state, a court can apply the
law of a state in which the tort did not take place. See Babcock v. Jackson, 12 N.Y.2d 473 (1963). Take the
following example,
John, a resident of Kansas, was flying his private plane from Kansas City, Kansas to Chicago, Illinois. The
plane was manufactured by Flying Solo, Inc., which is based in Topeka, Kansas. Tragically, the plane
crashed just outside of Iowa City, Iowa due to mechanical defects in the plane’s engine, and John died as a
result of his injuries. John’s family sues Flying Solo, Inc. in Kansas state court for its failure to detect the
manufacturing defect in the engine (a tort claim). Flying Solo, Inc., argues that Iowa state law (which
would limit liability and monetary damages for John’s estate) should apply. What law should the Kansas
state court apply?
The best answer would be for the state court to apply Kansas state law. While the site of the injury is Iowa
(where John’s plane crashed), it appears that Kansas has a greater interest in the lawsuit. Both of the parties
are based in Kansas, while Iowa was the unintended site of the accident. Therefore, the state court would
probably find that Kansas has greater contact with the lawsuit than Iowa. Thus, Kansas law should apply.
In such a case, the court will consider various factors in determining which law to apply. Included among
these factors is to what extent the various states involved have an interest in seeing their law apply to the
particular case. Thus, in a case, such as in the above example where accidents between citizens of one state
happen in a second state, the law of the state of citizenship of the parties will often control. See Jean v.
Francois, 168 Misc. 2d 48 (N.Y. Sup. Ct.- Rockland County 1996).
For contract disputes, the state courts can consider two separate situations in determining which state’s
rules apply in a choice of law context. First, some contracts contain “express choice of law" clauses. An
express choice of law clause is a clause, which is negotiated and written into a contract that acknowledges
that any disputes related to the contract will be litigated under an identified jurisdiction’s contract laws. For
example,
Sabrina, a lawyer and resident in New York, agrees to provide legal advice to Sign-A-Way, Inc., a
Delaware-based corporation that constructs neon signs for commercial businesses. The employment
contract contains a clause that reads, “if, for any reason, a legal dispute arises as to the validity of this
contract or any term contained therein, the contract shall be interpreted under the laws of the state of New
York”. Sabrina, who is contracted to perform more lucrative work for a Fortune 500 company, determines
that she cannot do work for both of her clients, and tries to cancel the contract with Sign-A-Way, Inc. Sign-
A-Way Inc., sues Sabrina in Delaware state court. The two states have laws that provide different
outcomes. Which law should the state court apply?
The best answer is the Delaware state court should apply New York law because the express choice of law
clause requires the implementation of New York law.
In the absence of such a clause in a contract, a state court must consider several factors in determining
which jurisdiction’s laws should apply to a contract dispute. These factors include the residence of all
parties involved, the place where the contract was negotiated, the place where the contract was executed,
and the place where the contract was to be performed. For example,
Jill, a resident of Texas, makes handmade jewelry from her home in Dallas. She receives a phone call from
Joe, owner of Chic Shop, a large department store in Atlanta, Georgia, who saw samples of her jewelry and
wishes to sell it in his store. Jill, interested in seeing her business gain more customers and publicity, thinks
it would be great for Chic Shop to carry a supply of her jewelry. Joe invites Jill to come to Atlanta to meet
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