A Primer on Choice of Law

Choice-of-law rules are used to determine the rights, duties, and liabilities of persons involved in a case with a connection to more than one jurisdiction. In the United States, most choice-of-law rules are state law; the federal government rarely legislates in this area. Courts in the United States apply the same choice-of-law rules to international and domestic cases.

An Overview

When a choice-of-law issue is presented, a court in the United States will first research the laws of the jurisdictions with some connection to the dispute. If there is no conflict between these laws, the inquiry ends. If a conflict exists, the court will then inquire whether the legislature of the forum has enacted a statute that addresses the choice-of-law question. If a statute exists, the court will apply the choice-of-law rule contained in the statute. If not, the court will look to the common law.

The common law of most states distinguishes between issues that are procedural and issues that are substantive. If an issue is classified as procedural, the court will apply the law of the forum. If an issue is classified as substantive, the court must perform a choice-of-law analysis. When the parties have agreed to a choice-of-law clause, the court will generally apply the law of the jurisdiction named in the clause. If there is no choice-of-law clause, or if the clause is deemed invalid or unenforceable, the court will apply the choice-of-law rules followed by the forum to identify the applicable law. Federal courts sitting in diversity apply the choice-of-law rules of the state in which they sit.

A majority of states in the United States follow the choice-of-law rules laid down in the Restatement (Second) of Conflict of Laws for tort and contract conflicts. A minority of states follow the traditional rules, interest analysis, or the better rule approach. After conducting a choice-of-law analysis in accordance with the rules of the forum, the court will apply the internal law of the jurisdiction selected pursuant to that analysis to resolve the issue unless this would be offensive to a deep-rooted forum public policy.

Choice-of-Law Statutes

Louisiana and Oregon have systematically codified all of their choice-of-law rules. In other states, choice-of-law statutes are scattered haphazardly throughout many different parts of the state’s code.

One of the most common types of choice-of-law statutes are borrowing statutes. A borrowing statute helps a court determine which state’s statute of limitations to apply. The State of Pennsylvania has, for example, enacted the following borrowing statute:

The period of limitation applicable to a claim accruing outside this Commonwealth shall be either that provided or prescribed by the law of the place where the claim accrued or by the law of this Commonwealth, whichever first bars the claim.

Other jurisdictions have passed laws directing the courts to apply the law of the forum to certain issues. South Carolina has, for example, enacted a statute that requires its courts to apply South Carolina law to certain insurance contracts:

All contracts of insurance on property, lives, or interests in this State are considered to be made in the State and all contracts of insurance the applications for which are taken within the State are considered to have been made within this State and are subject to the laws of this State.

These choice-of-law statutes (and others like them) provide legislative guidance to the courts as to which law should be applied when a case has a connection to more than one jurisdiction.

Substance and Procedure

In cases where there is no choice-of-law statute, the court will next consider whether the issue in question is procedural or substantive as a matter of common law. If an issue is classified as procedural, the court will apply the law of the forum. If an issue is classified as substantive, the court must perform a choice-of-law analysis to determine the governing law.

In many cases, the task of classification will be straightforward. There is broad agreement that matters relating to the form of action, service of process, mode of trial, witnesses, and evidence are procedural. There is also broad agreement that matters relating to the law of contracts, torts, property, family law, and estates are substantive.

In other cases, the task of classification is more difficult. U.S. courts have reached different conclusions, for example, as to whether such statutes of fraud, burdens of proof, and statutes of limitations should be classified as substantive or procedural. This is a very old problem to which there is no easy answer. As a matter of doctrine, some courts have stated that an issue is substantive when it relates to the “right” and procedural when it relates to the “remedy.” The problem with this test, of course, is that the terms “right” and “remedy” are just as slippery as “substantive” and “procedural.”

Choice-of-Law Rules

When there is no choice-of-law statute, and when an issue is classified as substantive, the courts will look to the common-law choice-of-law rules of the forum to determine which jurisdiction’s law to apply. Historically, most states in the United States utilized a traditional set of rules that focused on the place where a particular event had occurred to determine the governing law. In the 1950s and 1960s, states began to abandon these rules in favor of interest analysis and the better law approach. Today, a majority of states follow the test laid down in the Restatement (Second) of Conflict of Laws. A chart listing the choice-of-law approach followed by each state in tort and contracts cases is available for download here.

Traditional

Under the traditional approach to choice of law, courts apply the law of the jurisdiction where a particular event occurred. In a tort case, the court applies the law of the place of the wrong (lex loci delicti). In a contract case, the court applies the place where the contract was made (lex loci contractus). In a property case, the court applies the law of the place where the property is located (lex situs). And so on.

The original Restatement of Conflict of Laws, published in 1934, sought to restate this traditional approach to conflict of laws. This volume is essential reading for anyone seeking to understand how these traditional rules operate in practice. At the same time, one must never assume that modern U.S. courts that follow the traditional approach are slavish devotees of the original Restatement. Many of these courts have acted to modify and soften these rules over the past century.

Interest Analysis

Interest analysis requires a court to examine the substantive policies of the jurisdictions with a connection to the dispute. Once these policies have been identified, the court must determine whether any of these jurisdictions have an interest in applying their law to resolve the dispute. As a general rule, a jurisdiction will have an interest in applying its law when doing so will benefit its domiciliary.

Consider the following example. State A has adopted a law capping damages in tort suits at $1 million. If a plaintiff domiciled in State A were to bring a tort suit against a defendant domiciled elsewhere, State A would not have an interest in applying its law because its domiciliary (as the plaintiff) would not benefit from the damages cap. If a plaintiff domiciled elsewhere were to sue a State A domiciliary, by comparison, State A would have an interest in applying its law because its domiciliary (as the defendant) would benefit from the damages cap.

When both states have an interest in applying their law, there is a true conflict. Most courts using interest analysis resolve true conflicts by applying the law of the forum. When only one state has an interest in applying its law, there is a false conflict. All courts resolve false conflicts by applying the law of the interested state. When neither state has an interest in applying its late, there is an unprovided-for case. Most courts resolve unprovided-for cases by applying the law of the forum.

Better Rule

Courts that follow the “better rule” approach consider the following factors to determine which jurisdiction’s 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 interests; and (5) application of the better rule of law.

The most important of these factors – and the one from which the test derives its name – is the fifth. Courts are expected to evaluate the substantive merits of the laws of the jurisdictions with a connection to the dispute and then apply the one that seems “better” to them as a matter of policy. Critics of this approach have expressed skepticism as to whether judges are the right institutional actors to assess whether one law is better than another.

Restatement (Second)

The choice-of-law test the Restatement (Second) combines elements of the traditional approach, interest analysis, and the better law approach. The Restatement (Second) generally directs courts to apply the law of the jurisdiction with the “most significant relationship” to the dispute. To identify that jurisdiction, courts will first look at territorial connections such as where the injury occurred, where the conduct occurred, and the domicile of the parties. The court will then consider the policies of the forum, the policies of other interested states, and the protection of justified expectations, among other factors.

This approach has proven very popular among U.S. judges in part because it is enormously flexible. Some critics have complained that this flexibility makes it hard to predict, ex ante, which state’s law will apply. One of the stated goals of the Reporter for the Restatement (Third) of Conflict of Laws, which is currently being drafted under the auspices of the American Law Institute, is develop a set of simpler and more predictable choice-of-law rules.

Public Policy

A U.S. court may decline to decide an issue under the law of another jurisdiction if the use of that law would offend a deep-rooted forum public policy. A survey of the many different ways in which modern U.S. courts have deployed this public policy exception can be found here.

Choice of Law in Federal Court

When a choice-of-law issue arises in a federal court sitting in diversity, that court is obliged to apply the choice-of-law rules of the state in which it sits. Under these circumstances, the federal court should strive to reach the same outcome as a state court applying state choice-of-law rules. The U.S. Supreme Court has held that federal courts should apply state choice-of-law rules even in suits against foreign states under the Foreign Sovereign Immunities Act.

There are some limited areas where the federal courts have been granted the power to develop federal choice-of-law rules as a matter of federal common law. A few federal courts have, for example, announced and applied federal choice-of-law rules in cases involving international transportation contracts. When federal courts are called upon to develop these rules, they will often look to the Restatement (Second) of Conflict of Laws for guidance.