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Lecture 1

BUSL 2550 Lecture 1: Erie Doctrine and Choice of Law – Choice of Law

4 Pages

Business Law
Course Code
BUSL 2550

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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 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 reco
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