Chapter 4: Constitutional Limitations on Choice of Law Flashcards
Where do the constitutional limitations come from?
Due Process and Full Faith and Credit Clauses
Due Process: Home Insurance v. Dick
- TX domiciliary Dick had policy with MX insurance company covering a tugboat that was lost. Policy required claims to be made within 1 year
- The insurance contract was made in, and to be performed in, Mexico. All relevant contacts and events were in MX. At least in R1 terms, only Mexican law would properly apply to a contract claim
- Home Insurance, a NY company, provided reinsurance to the MX insurer. But neither it nor the MX company conducted any relevant business in TX.
- TX law gives Dick 2 years to file his claim. He said this law overrides the contract that was made under Mexican law.
- Holding: a state (TX) may not apply its contract law in a way that abrogates the rights of a party beyond its borders when that party did nothing within the state and where its relevant activities had no relationship to that state
- Longer-term significance: the Due Process Clause is violated where a state attempts to apply its law in a case where it has no contacts, and thus no state interests
FF&CC: Pacific Employers v. Industrial Accident Commission
- MA domiciliary employee of MA company is injured on the job in CA and makes claim under CA worker’s compensation law
- MA company’s insurer says MA worker’s comp law must apply, because it is a MA employment contract
- CA courts disagree and favor application of their own state’s worker’s comp law (true conflict)
- Holding: The FF&CC does not require one state to apply the law of another where they both have valid interests.
FF&CC: Watson v. Employers Liability Assurance Corp
- Plaintiffs brought a direct action against defendant liability insurance company after plaintiff wife was injured by a hair product. Plaintiffs were allowed to bring the action based on Louisiana statutes that allowed injured persons to bring a direct action prior to final determination. Another statute allowed injured persons to bring the direct action even though, as here, the insurance contract was made in another state and contained a clause forbidding direct actions. A final statute made foreign insurance companies consent to direct suits to do business in Louisiana. The court reversed. Louisiana was allowed to use its own law in plaintiffs’ suit, and the statutes were constitutional. Louisiana had a legitimate interest in safeguarding the rights of persons injured in Louisiana. The direct-action provisions therefore did not violate due process. The Full Faith and Credit Clause did not compel Louisiana to abandon use of its own law because Louisiana’s legitimate interest in protecting people injured their justified use of its law.
- The court reversed the appellate court’s decision. The Full Faith and Credit Clause did not compel Louisiana to use a different state’s law on suits involving insurance contracts made in other states because legitimate state interests allowed Louisiana to apply its own law.
FF&CC: Clay v. Sun Insurance Office, Ltd
Facts: The plaintiff, while a citizen and resident of Illinois, purchased a personal property insurance policy containing a 12-month-suit clause from the defendant, which was licensed to do business in both Illinois and Florida. A few months after purchasing the policy, the plaintiff became a citizen and resident of Florida, where the loss occurred 2 years later and where a statute nullified contract clauses which required suit to be filed in less than 5 years. After federal diversity jurisdiction was invoked in a suit to recover damages under the policy, the case first reached the Supreme Court of the United States in an earlier appeal, where it was held that the issue whether the policy’s 12-month clause applied, in which event the claim was barred, or whether the Florida statute applied, in which event the suit was timely, should be considered by the Florida Supreme Court, through its certificate procedure, before reaching the question whether application of the Florida statute was consistent with due process. On remand, the Court of Appeals for the Fifth Circuit certified questions to the Florida Supreme Court, which answered the questions in the plaintiff’s favor. Subsequently, the Court of Appeals for the Fifth Circuit held that application of the Florida statute violated due process and that judgment should be entered for the defendant. Certiorari was granted.
Rule: There is no difficulty whatever under either the Full Faith and Credit Clause or the Due Process Clause when dealing with an ambulatory contract on which suit might be brought in any one of several states. A state having jurisdiction over a claim deriving from an out-of-state employment contract need not substitute the conflicting statute of the other state or its own statute–where the employee was injured in the course of his employment while temporarily in the latter state.
Modern Synthesis of Due Process
To prevent arbitrary or unfair choice of law, a state may not apply its law when it has had no significant “contact” with events in the case
Modern Synthesis of Full Faith and Credit Clause
Where state laws conflict, if a state has some “interest” in the matter created by its contacts, a state is not required by the FF&CC to forego the choice of its own law in deference to the law of another state
- FF&CC does not require a forum court to choose another state’s law when it has sufficient contacts such that its own law could apply
- FF&CC also means that a state court may not close its forum and refuse to hear a case merely because it might require applying the law to a different state
Allstate Insurance Co. v. Hague
- Widow of WI accident victim, now living in MN, seeks to apply MN law to allow “stacking” of late husband’s insurance policies
- Majority of justices uphold application of MN law on a very skimpy set of facts
- Plurality: for a state’s law to apply, it must have “a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair”
- Plurality and dissenters agree on this basic point, but they disagree on its application to these facts
- Plurality says MN has three relevant contacts, but these seem weak
- Stevens (concurring in the judgment) focuses on the separate purposes of the Due Process and FF&CC. He criticizes MN’s choice of law but concludes it does not violate either constitutional provision
- FF&CC focuses on federalism concerns and state sovereignty. The outcome here does not offend WI’s sovereignty
- Due process focuses on fundamental fairness to the litigants. The outcome here was not unfair to Allstate, because it has no assurance stacking would never apply to the policy it sold Hague
- Dissent says FF&CC requires that MN’s choice of law further a “legitimate state interest” and does not see how the contacts relied on by the majority to do so
Poore v. Nationwide Mutual Insurance Co.
- Husband, an IN resident, died from injuries in auto accident in KY. Wife/estate administrator seeks to “stack” underinsured motorist benefits and argued KY law should apply. KY law allows stacking, IN does not.
- KY courts follow the R2 test of “which state has the most significant relationship to the transaction and the parties”. Under this test, Kentucky courts have recognized that in most cases the law of the residence of the name insured will determine the scope of the coverage. Here, that would be IN.
- Plaintiff notes that Mr. Poore was employed in Kentucky, he had a credit union account in Kentucky, they regularly shopped in Kentucky, they had purchased three vehicles in Kentucky, and they had several relatives who were Kentucky residents
- The KY forum court rejects the relevance of these things
- Just because a contact was minimally sufficient, combined with others, to help avoid a constitutional violation, does not give it special weight in a state choice of law decision. The “significant relationship” test is different than what the MN courts did, and more demanding than what the SCt did.
Watt v. Workers Comp Appeal Bd.
- Truck driver domiciled in PA, sustained work injury in NJ. Employer is based in AL
- PA workers compensation judge rules that his principal place of employment was AL, thus AL workers compensation law governs the claim
- Trucker argues his compensation or injury should be based on PA law because he is domiciled there, spent most of his time and miles there, kept his truck there, was occasionally dispatched from his home there, received all treatment there, and went to Alabama only four times for work
- An employer’s place of business is also a significant contact. Allstate requires a significant contact, not most contacts. As employer’s corporate headquarters and principal place of business are in Alabama, such contact is sufficiently significant that application of Alabama law is neither unfair nor unexpected
Phillips Petroleum Co. v. Shutts
- Constitutional limits on state choice of law only become relevant when there is a true conflict
- Court applies the Allstate rule – state must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair
- But where claims arise from many different states, the Kansas contacts alone do not suffice
- Applying KS law was sufficiently arbitrary and unfair when 99% of the leases and 97% of plaintiffs had no connection to KS
- KS also has a lack of interest in claims unrelated to the state
Sun Oil Co. v. Wortman
- SOLs have traditionally been regarded as procedural (meaning forum law applies). Petitioner argues that under the FF&CC, they should be considered substantive, thus subject to choose of law analysis
- The court disagrees
o States treating SOLs as procedural is long-established and validated by historical experience and practice. This insulates them from constitutional challenge.
o Brennan concurring: The issue isn’t historical validation. Any forum has interest in applying its own procedural law in its own courts. If it does so evenhandedly, doing so does not harm any interests of the other states – and thus does not violate the FF&CC - The application of a forum’s procedural SOL is not unconstitutional, even if another state’s substantive law must govern the rest of the claims
Obligation to Provide a Forum: Hughes v. Fetter
- In this state the courts will generally enforce the law of the place where the injury occurred, unless to do so is contrary to the law, morals, or policy of the state where the action is sought to be maintained. Under the R1, the WI court would ordinarily apply IL law
- However, if the policy of the forum has been expressed positively in a statute, that policy must prevail. When the legislature speaks upon a subject upon which it has the constitutional power to legislate, public policy is what the statute indicates. In cases of wrongful death, the legislature has tied our hands by prohibiting us to adjudicate cases where another state’s law applies
Forum non conveniens
In evaluating whether litigation should be transferred to a different forum on a party’s motion (usually the defendant), a court may consider…
- The location of potential witnesses
- The location of relevant evidence and records
- Possible undue hardship for the defendant
- Availability of adequate alternative forums for the plaintiff
- The expeditious use of judicial resources
- The choice of law applicable to the dispute
Constitutional Limits on Choice of Law: Key Takeaways
- For Due Process and FF&CC: the requirement is a “significant contact or significant aggregation of contacts, creating state interest, such that application of its law is neither arbitrary nor fundamentally unfair
- A potential constitutional issue only arises when there is a true conflict between states’ law
- A state may not apply its law to a party or transaction having no or de minimis contacts with the state
