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Choice of Law/Choice of Forum

  • I. Overview.

    1. Importance

      1. In transnational litigation, the resolution of choice of law issues may be dispositive of the entire case.  The law of the possibly relevant jurisdictions may vary substantially with respect to statute of limitations, presumptions, the burdens of overcoming those presumptions, and even the existence of certain causes of action.

  • II. Choosing which set of choice of law rules will apply.

    1. Within the 53 jurisdictions of the United States—50 states, the District of Columbia, Puerto Rico, and Federal maritime law—there are eight different methods of resolving choice of law issues, though several of them are closely related.  A forum’s choice of law rules are as important as the competing laws from which the court will choose.

  • III. Depeçage.

    1. Choice of law is resolved on an issue by issue basis.  A given set of facts may give rise to a single suit applying the law of several different nations.

    2. Consider, for example, in a forum applying the First Restatement, a lawsuit arising from a plane crash. The action against the pilots for negligent operation of the plane will be resolved under the law of the country where the plane crashed. The action against the airline for negligent maintenance will be resolved under the law of the country where the airline performs maintenance. The breach of contract claims may be resolved individually under the laws of every country in which passengers bought tickets. Whether the country of purchase permits choice of law provisions will then determine whether to apply the law of the country of purchase or the law selected by the choice of law provision. For each of these actions, the law that governs claims for compensatory damages may be different from the law that governs claims for punitive damages. This is the worst-case-scenario, but indicates the potential complexity of transnational litigation.

  • IV. Type of Jurisdiction.

    1. The type of jurisdiction governing the dispute can affect what choice of law rules will apply:

    2. Federal Diversity Cases. U.S. District Courts, when their jurisdiction derives from diversity of the parties, will use the choice of law rules of the state, district, or territory in which they sit. Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3 (1975).

    3. Federal Maritime Torts. Federal maritime law has its own choice of law rules.

    4. Other Federal Question Cases. Non-maritime federal question cases are generally governed by the provisions of the Second Restatement of Conflict of Laws. E.g., Oveissi v. Islamic Republic of Iran, 573 F.3d 835, 842 (D.C. Cir. 2009).

    5. General Jurisdiction of State Courts. State courts hearing a transnational dispute will apply their own choice of law rules.

  • V. Type of Dispute.

    1. Within the eight choice of law systems, different rules sometimes govern contracts and torts. Additionally, many states use different systems for different causes of action.

    2. For example, the First Restatement dictates that most tort disputes will be resolved according to the law of the place of harm. In contract disputes, the First Restatement generally applies the law of the place in which the contract was formed. The Second Restatement uses a completely different system. Florida applies the First Restatement to contract disputes and the Second Restatement to tort disputes.

    3. The significance of the choice should not be underestimated.  In Bakalar v. Vavra, et al., 08-5119-cv (2d Cir. 9/2/10), the Second Circuit Court of Appeals analyzed one of the growing number of so-called "Nazi-looted art" cases -- that is, cases seeking the return of paintings, drawings, and other objects d'art on the ground that the property was stolen or that its possession for forcibly changed by the Nazi regime.  The case invovled an untitled drawing by the Egon Schiele.  The Second Circuit reviewed after trial a pre-trial determination by the District Court that Swiss law applied, a ruling that had significant ramifications to the trial of the action.  The Second Circuit determined that the District Court erred in finding that Swiss law applied, holding that the District Court erred in holding that New York's choice of law rules would apply the law of the state "where the property is located at the time of the alleged transfer".  The District Court erred, said the Circuit Court, because "the New York Court of Appeals explicitly rejected the 'traditional situs rule' in favor of interest analysis".  This use of a different paradigm changed the result in the application of choice of law; the Circuit Court held that New York, not Swiss law, should apply, and because of that the District Court imposed the burden of proof on the wrong party.  The Circuit Court vacated and remanded the case.

  • VI. Taxonomy of Choice of Law Systems.

    1. First Restatement. The First Restatement is more rules-based than the modern approaches. In a court applying the First Restatement, litigants can generally predict what substantive law the court will choose. The tort rules of the First Restatement are used in ten states and the contract rules are used in twelve states. (These states have either adopted the Restatement explicitly or employ a methodology that is substantively identical.)

      1. Torts. Most torts are governed by the law of the place where the last event necessary to make an actor liable for an alleged tort takes place—not the place where the harm is sustained. Restatement (First) of Conflict of Laws § 337. Frauds are an exception to this rule. Frauds are governed by the law of the place where the harm is sustained, not the law of the place where the fraudulent misrepresentation is made.

      2. Contracts. Questions regarding the formation of the contract, i.e. validity, are resolved according to the law of the "place of contracting." Id. § 311.

      3. Property. Disputes over property are governed by the law of the jurisdiction in which the property sits.

      4. Public Policy Exceptions. The choice of law rules of the First Restatement are subject to override when the choice of law rules dictate an outcome that violates the public policy of the forum state. Kilberg v. Northeast Airlines, Inc., 172 N.E.2d 256 (N.Y. 1961). The other methodologies tend to resolve public policy conflicts through the method itself, rather than as an exception.

    2. Second Restatement. The Second Restatement enumerates different types of contacts that are relevant to different causes of action. These contacts create the list of states whose law may apply to the dispute. The law to be applied is chosen based on which state has the most "significant relations" to the dispute based on the seven factors listed in section 6 of the restatement. The Second Restatement is the dominant approach, applied in twenty-three states for both contracts and torts.

      1. Section 6 factors.

        1. The needs of the interstate and international system;

        2. the relevant polices of the forum;

        3. the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;

        4. the protection of justified expectations;

        5. the basic policies underlying the particular field of law;

        6. the certainty, predictability, and uniformity of result, and;

        7. ease in the determination and application of the law to be applied.

          Restatement (Second) of Conflict of Laws § 6.

      2. Tort contacts. In a tort action, these contacts generally determine which states much be considered under the Section 6 factors—some torts, such as fraud and personal injury, have their own sets of contacts and presumptive governing state:

        1. The place where the injury occurred;

        2. the place where the conduct causing the injury occurred;

        3. the domicile, residence, nationality, place of incorporation, and place of business of the parties;

        4. the place where the relationship, if any, between the parties is centered.

          Restatement (Second) of Conflict of Laws § 145.

      3. Contract contacts. In a contract dispute, these contacts determine which states must be considered:

        1. The place where the injury occurred;

        2. the place where the conduct causing the injury occurred;

        3. the domicile, residence, nationality, place of incorporation, and place of business of the parties;

        4. the place where the relationship, if any, between the parties is centered.

          Restatement (Second) of Conflict of Laws § 188.

          Although the Second Restatement provides a single guide to choice of law problems across all the jurisdictions that employ it, practitioners should be wary of applying case law from one Second Restatement jurisdiction to another. For example, Ohio is less apt to apply forum selection clauses to consumers than to commercial entities, which is a distinction not recognized in federal common law. Wong v. PartyGaming Ltd., 589 F.3d 821, 826-27 (6th Cir. 2009).

    3. Significant Contacts. In a state applying the Significant Contacts methodology, the court considers which country is at the "center of gravity" of the dispute. This approach is used by three states for tort disputes and five states for contract disputes. Significant contacts is similar to the Second Restatement, but without the emphasis on the policy interests of the relevant states.

    4. Government Interest Analysis. Under the government interest methodology, the law of the forum is presumed to apply. The analysis uses a three step procedure:

      1. Real Conflict. The relevant provision of the foreign law must be "materially different" from the forum law, so as to create a "real conflict."

      2. True Conflict. Second, a proponent on non-U.S. law must demonstrate that the forum state and the foreign state both have legitimate government interests in the application of their law to the conflict. If only one state has a legitimate interest, that state's law will be applied. If neither state has an interest, the law of the forum applies.

      3. Comparative Impairment. Where both states have a legitimate interest in the application of their law and the law of the two (or more) states is materially different, the court engages in an analysis of which state would experience the greater comparative impairment were its law not applied.

        CRS Recovery Inc., v. Laxton, 600 F.3d 1138, 1142 (9th Cir. 2010).

        Government interest analysis is only used in three states—and only for torts—but it is incorporated in significant measure by the Second Restatement through the first, second, third, and fifth Section 6 factors.

    5. Lex Fori. Lex Fori is similar to the government interest analysis approach in that the law of the forum is the presumed law of choice. That presumption is rebuttable on a showing that the forum state lacks significant contacts to the dispute, a foreign state has an interest in having its law applied, and the forum state's interest do not mandate the application of foreign law. In some cases, an overwhelming foreign interest in the application of its law may overcome a mild forum interest. Lex Fori to only used to resolve choice of law issues in tort disputes in Kentucky and Michigan.

    6. Better Law. Five states employ an approach that calls on judges to consider five "choice-influencing considerations" in deciding what law to apply:

      1. Predictability of results;

      2. maintenance of interstate and international order;

      3. simplification of the judicial task;

      4. advancement of the forum's governmental interest; and

      5. application of the better rule of law.

        Drinkwater v. American Fam. Mut. Ins. Co., 714 N.W.2d 568, 576 (Wis. 2006).

    7. Other Combined Modern Approaches. Ten states use an approach which combines elements of these methodologies. New York, in particular, uses a system whereby torts are classified as conduct regulating or loss allocating. Where the tort is conduct regulating, the laws of the place where the tort occurred control—like the First Restatement. Loss allocating torts are subject to a three-part test.

    8. Maritime Tort Disputes. Choice of law in maritime tort disputes are governed by their own eight factor test:

      1. The place of the wrongful act;

      2. the law of the flag of the ship;

      3. the allegiance or domicile of the injured party;

      4. the allegiance of the ship owner;

      5. the place of contract;

      6. the inaccessibility of an alternative forum;

      7. the law of the domestic forum; and

      8. the shipowner's base of operations.

        Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306, 308-09 (1970).

  • VII. Transferring to a New Forum Should Not Affect Choice of Law.

    1. When a case is transferred to a new forum, that court applies the law of the transferor court, not its own.  This is true both of the substantive law of the transferor and the choice of law rules of the transferor.  In applying methodologies that refer to the home forum, the home forum is the transferor forum.  Van Dusen v. Barrack, 376 U.S. 612 (1964).

  • VIII. What Issues Does Choice of Law Govern?

    1. It is typically said that choice of law questions are limited to the substantive law of the case.  And while it is typically correct that the procedures employed in litigating and trying the case are those of the local forum, nuances exist concerning which rules of decision are substantive.  There are also special hybrid rules (statute of limitations is discussed below; special rules for litigating issues relating to arbitrations are discussed in Topic 9, infra. 

    2. The choice of law methodologies discussed in the cases recognize this substantive/procedural distinction, but it is not dispositive in all states.  States employing the Second Restatement may also consider whether the issue is one that is likely to affect the outcome and whether, for contract cases, whether this issue is one that the parties would have given thought when entering the transaction.  States also vary on whether certain rights are procedural or substantive. For example, New York considers statutes of limitations to be procedural, Portfolio Recovery Assoc. v. King, 2010 N.Y. Int. 68 (N.Y. Ct. App. 2010), whereas states that follow the Uniform Conflict of Laws Limitation Act take the statutes of limitations from the state whose substantive law will be applied, 12 U.L.L.A. 61.

    3. Statutes of Limitations in Particular.  Many states have resolved statutes of limitations questions through “borrowing statutes” that apply the shorter of the forum state’s and the foreign state’s limitations period.  E.g., New York C.P.L.R. 202.  For a discussion of recent application of borrowing statutes, which can have dispositive effect on the timeliness of cases, see our OneWorld blog posts of 9/1/10.

    4. Renvoi.  In resolving choice of law questions, courts distinguish between the substantive law of a foreign jurisdiction and that jurisdiction’s choice of law rules.  Generally, when the local forum determines that foreign substantive law should apply, the court does not consider the foreign jurisdiction’s choice of law rules, even when the foreign jurisdiction would not have applied its own substantive law if the case were tried in the foreign court.  However, in some cases, a court may apply the foreign jurisdiction’s choice of law rules, under a doctrine known as “renvoi.”  Renvoi may be applied in two circumstances under the Second Restatement:

      1. When the objective of the local forum’s choice of law rule is to reach the same result as would be reached were the case litigated in the foreign forum.  In this case, because the foreign forum would apply the law of a different jurisdiction, the goal of reaching the same result is only achieved by applying the foreign forum’s choice of law rules; or

      2. When the forum state has no substantial relationship to the issue and all the interested states would agree about the law to be applied.  For example, were the case litigated in jurisdiction X or Y, both agree that the law of X should apply.  The local forum, F, which has no substantial relationship to the issue, would apply the law of Y under its own choice of law rules.  In this case, the forum may instead choose to invoke renvoi and apply the law of X, as the two interested states would have done.  Restatement (Second) of Conflict of Laws  § 8.
    5. The question of when renvoi may be appropriate, and when courts engage, or should engage in renvoi, is an important one.  In a decision by the UK's Supreme Court, Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Affairs, Gov’t of Pakistan, [2010] All ER (D) 36 (Nov); [2010] UKSC 46 (3 Nov. 2010), the Court ruled that it was “likely that renvoi was excluded from the New York Convention” (the New York Convention being the principal means of securing recognition or enforcement of arbitral awards in the international context).  Yet the Court went on to conclude that reviewing a French arbitral award by the application of non-French law because a French tribunal would have done so was not, according to the UK Supreme Court, a case of renvoi but simply of applying the law that the French court would have applied as French law.  It is unclear if a US court would have sliced the bologna so thinly as to draw that distinction.  More likely, we wonder, is whether a US court would have considered the UK court's application of non-French law by a French court to be a case of renvoi.  For a discussion of this case see our OneWorld blog posting discussing the how courts outside the US are enforcing arbitral awards under the New York Convention.

  • IX. Proving Non-U.S. Law.

    1. Proof of non-U.S. law may present significant problems in many cases.  Proving Canadian law is a qualitatively different undertaking from proving, for example, Kyrgyz law.  In both federal and state courts, judges are generally empowered to both hear and seek out evidence that would not normally be admissible in resolving questions of foreign law.

    2. F.R.C.P. 44.1.  Federal judges are empowered to consider any source, regardless of admissibility under the Federal Rules of Evidence.  Although determination of foreign law will frequently turn on the credibility of competing expert witnesses, foreign law is considered a question of law.  As a consequence, appellate review of determinations of foreign law is de novo and questions of foreign law are susceptible to determination through summary judgment.  In reviewing decision of the district courts, the courts of appeal may consider additional evidence of foreign law not in the record.  Ferrostaal, Inc. v. M/V Sea Phoenix, 447 F.3d 212, 216 (3d Cir. 2006).

    3. There is a growing controversy concerning the extent to which judges should rely on affidavits or testimony of experts in the determination of non-U.S. law.  Our OneWorld blog entries of 8/2/10 and 9/3/10 discuss two decisions from the Southern District of New York, each of which suggest gently that witnesses should not be first resort for the court to rely on. 

    4. As predicted in our OneWorld blog entries, this issue is becoming important to more and more courts.  On this subject, "must reads" are the discussions by three highly esteemed judges of the United States Court of Appeals for the Seventh Circuit in Bodum USA, Inc. v. La Cefetiere, Inc., No. 09-1892 (7th Cir. 9/2/10).  The majority opinion, written by Chief Judge Easterbrook, goes through a choice of law analysis (here, of French law) and states that "Judges should use the best available sources" for determining non-U.S. law. He goes on to explain that, while perhaps an expert may be useful, or even essential, where non-U.S. law is not translated into English, in general "[t]rying to establish foreign law through experts' declarations not only is expensive (experts must be located and paid) but also adds an adversary's spin, which the court must then discount". 

      1. The concurrences, written by Judges Posner and Wood, then go into an extensive discussion of just this topic.  In earlier decisions Judge Posner has decried the overuse of experts for proving non-U.S. law. In Bodum he marshalls all the arguments in favor of relying on published texts and commentary of non-U.S. law. 

      2. Judge Wood's opinion disagrees that Rule 44.1 "itself establishes no hierarchy four courses of foreign law, and I am unpersuaded by my colleagues' assertion that expert testimony is categorically inferior to published, English-language materials", stating simply (what this author has found over many years and in many cases), "Exercises in comparative law are notoriously difficult, because the U.S. reader is likely to miss nuances in the foreign law, to fail to appreciate the way in which one branch of the other country's law interacts with another, or to assume erroneously that the foreign law mirrors U.S. law when it does not".

    5. States.  Most of the states treat non-U.S. law as a matter which may be judicially noticed.  E.g., New York C.P.L.R. 4511, Calif. Evidence Code § 452(f), 455.

  • X. Questions of Timing.

    1. F.R.C.P. 44.1 requires that a party intending to rely on foreign law must give written notice, but does not say when.  New York’s C.P.L.R. 4511 similarly only requires notice before presentation of evidence.  The advisory committee notes to F.R.C.P. 44.1 state only that the timing must be reasonable.  Factors to be considered in deciding whether notice is reasonable include:
    2. The stage of the case;

    3. the reason proffered for failure to give notice earlier; and

    4. the importance to the case as a whole of the issue of foreign law being raised.

      HSH Nordbank v. M/V Ahmetbey, 2004 WL 911789 at *1 (E.D. Pa. Mar. 29, 2004).

    5. Notice has been found to be reasonable as late as remand from appeal, Thyssen Steel Co. v. M/V Kavo Yerakas, 911 F. Supp. 263, 267 (S.D. Tex. 1996), and unreasonable as early as motion to reconsider motion to dismiss, Frietsch v. Refco, Inc., 56 F.3d 825, 828 (7th Cir. 1995).  Notice of an intent to rely on non-U.S. law after the pre-trial conference subjects the proponent to the risk that the court will not accept their notice and apply forum law.  DP Aviation v. Smith Indus. Aero. and Defense Sys. Ltd., 268 F.3d 829, 848 (9th Cir. 2001).

  • XI. Choice of Forum/Forum Non Conveniens.

    1. Choice of forum is treated here and elsewhere in this e-book and in particular in numerous posts on our OneWorld Blog.

    2. In 2009, the United States signed the Hague Convention on Choice of Court Agreements.  This Convention is designed to cover international controversies arising out of contracts with forum selection clauses.  Signatories to this Convention, or "Contracting States", agree to assume jurisdiction if named in a choice-of-court agreement; more controversially, agree not to assume jurisdiction if not so named; and agree to recognize and enforce court judgments issued in accordance with a choice-of-court agreement by a court of Contracting State.

    3. The EU has also signed the Choice-of-Court Convention (April 2009).

    4. Interesting questions arise concerning (1) what role personal jurisdiction requirements will play in a recognition or enforcement action under this new Choice-of-Forum Convention, and (2) whether the grounds for recognition and/or enforcement will be affected by the seven specific and apparently exclusive grounds for declining to recognize or enforce a "foreign" judgment made under this Choice-of-Court Convention (see discussion in Topic 10).

    5. The doctrine of forum non conveniens, discussed in greater depth under Topic 1, allows a court to dismiss a case, without prejudice, if there is another more suitable court that could provide a remedy for the plaintiff.  Forum non conveniens dismissal was historically reserved for cases where the plaintiff is able to establish jurisdiction in a U.S. court, but few other relevant connections exist and litigation in the U.S. court would be substantially more burdensome than litigation closer to the nexus of the event or transaction.  However, recent cases suggest that the practical requirements for a forum non conveniens dismissal have loosened.  See, e.g., Loya v. Starwood Hotels & Resorts Worldwide, Inc., 583 F.3d 656, 666 (9th Cir. 2009) (affirming forum non conveniens dismissal of a case between a U.S. citizen plaintiff and a U.S. corporation defendant); Stroitelstvo Bulgaria Ltd. v. Bulgarian-American Enterprise Fund, 589 F.3d 417, 419-20 (7th Cir. 2009) (affirming forum non conveniens dismissal of a RICO action against a U.S. defendant).