Lawyers conducting a choice of law analysis address a basic but extremely important question: "What law applies to my case?" In a world in which it is not uncommon for matters in litigation to have their tentacles in multiple jurisdictions, understanding the laws of the various forums is just the beginning. Mastering the elements required for an effective choice of law analysis (also referred to as a conflict of law analysis) is a true test for litigators.
Unlike most other areas of pretrial litigation, a choice of law analysis can be more dependent on art than science. Every case contains a unique set of circumstances that make it difficult to find binding precedent regarding choice of law. California's conflict of law rules require that attorneys and courts examine these circumstances through a complicated analytical framework known as the governmental interest and comparative impairment tests. The creativity of attorneys in constructing arguments about why one jurisdiction's law should apply over another is crucial and can carry the day, as courts want attorneys to provide reasons that courts can state for the record when they rule on which jurisdiction's law should apply.
When a case arrives at a lawyer's office, one of the first questions that should be explored is the applicable statute of limitations. In California, as in most states, statutes of limitations are considered to be procedural (as opposed to substantive) law, and the general rule is that the forum state's procedural law applies. Accordingly, for a case filed in California state court, the applicable California statute of limitations will apply, and choice of law analysis is unnecessary.1
But attorneys must be cognizant of California's "borrowing statute,"2 which was designed as a vehicle for courts to apply the statute of limitations of the jurisdiction in which the cause of action arose.3 Specifically, the borrowing statute provides:
When a cause of action has arisen in another state, or in a foreign country, and by the laws thereof an action thereon cannot there be maintained against a person by reason of the lapse of time, an action thereon shall not be maintained against him in this state, except in favor of one who has been a citizen of this state, and who has held the cause of action from the time it accrued.4
In other words, the statute "borrows" the statute of limitations of another jurisdiction that is pertinent to the case, and if the borrowed statute of limitations would prevent a suit in that jurisdiction, the suit cannot be brought in California-even if California's statute of limitations would allow the suit.
The borrowing statute generally applies only in cases brought by non-California plaintiffs.5 Also, the borrowing statute specifically addresses cases barred by a "lapse of time" but does not use the words "statute of limitations." It is unclear whether the borrowing statute borrows all statutes concerning the lapse of time, such as statutes of repose, in addition to statutes of limitation.6
Unlike statutes of limitation, statutes of repose are generally considered to be substantive in nature, most likely because the lapse of time at issue in a statute of repose has nothing to do with a potential plaintiff's failure to timely file a suit after a cause of action arose. Statutes of repose are concerned with what happened before, not after, the emergence of the cause of action. Accordingly, the determination of whether a foreign jurisdiction's statute of repose is applicable to a case should be determined through a choice of law analysis just like that of any other substantive law.
However, a survey of California law reveals one published case, Geist v. Sequoia Ventures, Inc., in which the borrowing statute was used to borrow a statute of repose.7 This case was most likely decided incorrectly. First, every other published California case that mentions the borrowing statute does so in the context of a statute of limitations. Second, the issue of whether a borrowing statute can borrow substantive law was not specifically addressed in Geist.8 Finally, case law and commentators generally take the position that the intent of the borrowing statute was to borrow procedural statutes of limitations, not substantive law, because a determination of which substantive law should be applied in a case is governed by a choice of law analysis. Indeed, the commentators in the Restatement (Second) of Conflict of Laws contend that borrowing statutes should be repealed in their entirety and that choice of law analysis should be used to determine the applicable statute of limitations.9 But for now, the Geist opinion remains on the books, and plaintiffs and defense counsel must be aware that a California court potentially could borrow another state's statute of repose and bar an action.
California's borrowing statute also must be considered when parties are in federal court on diversity grounds. A federal court that has jurisdiction as a result of diversity will apply 1) the statute of limitations of the forum in which the court sits,10 and 2) the choice of law rules of the state in which the court sits.11 Federal courts in California hearing diversity cases based on causes of action that arose outside of California may apply California's borrowing statute and, following Geist, apply another jurisdiction's statute of repose.
In California, a choice of law analysis will determine the substantive law applicable to a case (with the exception of substantive "lapse of time" law that may be covered by California's borrowing statute). This is true whether parties are in state court or in federal court as a result of diversity-and the federal court will apply California's choice of law rules.12
A California state court will apply California law unless a party invokes the law of a foreign jurisdiction.13 Thus, attorneys convinced that the law of another jurisdiction should apply in their case in a California court must bring the choice of law issue to the court's attention. Under the choice of law approach in California, California law will be applied unless the foreign law conflicts with California law and both California and the foreign jurisdiction have significant interests in having their respective law applied.14 If there are significant interests and those interests conflict, the court must assess the comparative impairment of each state's policies. The law ultimately applied will be that of the state whose policies would suffer most were a different state's law applied.15
It cannot be stressed enough that a separate choice of law inquiry must be made with respect to each issue in a case.16 The term of art for this process is "depecage."17 Attorneys should be careful to compare all the applicable laws of competing jurisdictions to determine if one of the jurisdictions has law that may be advantageous to any part of the client's case. Moreover, if a court applies the law of a jurisdiction to one aspect of the case, that does not mean that the court will apply that jurisdiction's law to all aspects of the case. For example, a court may conclude that the law of the plaintiff's domicile applies to damages but that the law of the defendant's domicile applies to liability.
True Conflict and Governmental Interest
In conducting a California choice of law analysis, the first question for counsel to consider-a seemingly obvious one-is whether the law of the foreign jurisdiction actually is in conflict with California law.18 Very little case law explores how different the laws must be from one another to result in what courts term a true conflict.19 A results-oriented analysis seems to be the basis for determining whether laws are in conflict; that is, a court will find that laws conflict if their applications could lead to differing results. In most cases in which a party seeks the application of a law of a particular jurisdiction, the existence of the conflict is seemingly obvious, because attorneys would not seek the application of a law that would not help their case. For example, if one jurisdiction has a damages cap and another does not, the laws of the two jurisdictions probably are in conflict, and a defendant would likely urge the court to apply the law of the jurisdiction supporting caps.
In examining whether laws conflict, foreign law may be pleaded and proved, but it need not be. The California Evidence Code provides that trial courts may take judicial notice of the decisional, statutory, and constitutional law of any state or foreign nation.20 The code also provides for compulsory judicial notice on the request of a party, provided that the requesting party gives each adverse party sufficient time to oppose the request and furnishes the court with sufficient information to enable it to understand the foreign law.21 As a practical matter, attorneys seeking the application of foreign law should brief that law thoroughly when requesting its application and should request judicial notice of that law. Attorneys opposing the application of foreign law should make sure that they are given sufficient time to brief their opposition to the application of the foreign law by using a conflict of law analysis and to contradict the other side's characterization of the foreign law, if necessary. To accomplish these tasks, attorneys generally seek expert assistance in the foreign law at issue.
If there is a true conflict, the second question that must be answered is whether both jurisdictions have any significant interests in having their respective law applied. The case law refers to this inquiry as the governmental interest test.22 Some California courts have merged the first and second questions; in analyzing whether there is a true conflict, the courts look to whether both jurisdictions have a legitimate governmental interest in the application of their law.23 Accordingly, if the interests of the foreign jurisdiction will not be significantly furthered by the court's application of that jurisdiction's law, the court may conclude that there is a false conflict and apply California law.24
Either approach leads to the same result. The basic question is whether the jurisdictions have a significant governmental interest in having their law applied. If a foreign jurisdiction does not have an interest in having its law apply, then the law of the forum will apply.25
Lawyers should have a solid understanding of their cases and how the competing laws would affect each aspect of a case. Although articulating governmental interests is usually possible on both sides of an issue, it is not an easy process-but it is generally worthwhile. Indeed, a court could rule for a party's choice of law on the grounds that the other side did not present a reason why their desired jurisdiction had an interest in its law being the applicable law. Attorneys need to do all they can to make the court's job in this area an effortless one by fully setting forth the analysis for the court to use in reaching its decision.
The case of Hurtado v. Superior Court is an excellent example of applying the true conflict and governmental interest analyses in concert.26 Hurtado involved a wrongful death action brought in California by the Mexican heirs of a Mexican national who died in California as the result of the negligence of a California driver. Defendant Hurtado argued that Mexico's strict damages limitation should apply to the case because the decedent and the plaintiffs were Mexican residents. The court disagreed and ruled that California damages law applied to the case. The court reasoned that Mexico's interest in limiting damages is to protect its residents from excessive financial burdens. Since the defendants were not Mexican residents, Mexico had no interest in denying full recovery to its plaintiff residents injured by non-Mexican defendants.27 California has a decided interest in furthering its deterrent policy of full compensation by applying its own laws to California defendants.28 Accordingly, there was a false conflict, and the court applied California law.
When a true conflict is found to exist, the third question, in the form of the comparative impairment test, comes into play. This test requires the court to determine which jurisdiction's policies would suffer most if the other jurisdiction's laws were applied. The test is not supposed to involve a determination of which law embodies the better social policy with regard to a particular issue; instead, it addresses the relative commitment of the respective states to the laws involved.29
An instructive example of a case involving a true conflict and the comparative impairment test is Bernhard v. Harrah's Club,30 a case involving California's dram shop rule that was eventually superseded by statute. Defendant Harrah's was a Nevada corporation that advertised its Nevada casino in California. Mr. and Mrs. M were California citizens who drove to the casino and were served copious amounts of alcohol, beyond the point of their obvious intoxication. On their drive home from Nevada, Mr. and Mrs. M were involved in a car accident that seriously injured Bernhard, another California resident. Bernhard sued Harrah's Club in California under the dram shop rule. Harrah's Club demurred, relying on Nevada case law rejecting the dram shop rule. The California Supreme Court held that both states clearly had a governmental interest in having their own law apply: California had an interest in seeing its resident compensated, and Nevada had an interest in protecting its resident tavern keeper from liability.31
Because there was a true conflict, the court proceeded to apply the comparative impairment test to the case. The court found that California's interest in protecting its residents would be significantly impaired if state policy regarding the excessive selling of alcoholic beverages were not extended to out-of-state taverns that sell alcoholic beverages to California residents who can be reasonably expected to return to California after consuming those beverages.32 The court also found that Nevada's interest in protecting tavern owners from civil liability would not be significantly impaired, because Nevada already had a policy of establishing criminal liability for tavern owners who continued to serve alcohol to intoxicated guests, and the extension of the California policy to out-of-state taverns only applied to those taverns that actively sought the business of California residents.33 Accordingly, the court ruled that California's dram shop rule applied.
The California Supreme Court further expounded on the comparative impairment test in Offshore Rental Company v. Continental Oil Company.34 In that case, a California corporation brought a negligence action in California against a Louisiana corporation for damages resulting from an injury sustained by the California corporation's vice president while he was on business at the Louisiana premises of the Louisiana corporation. Louisiana law did not allow a corporate plaintiff to state a cause of action for the injury of its employees. An old California master-servant statute, however, appeared to grant a cause of action against a third party for loss caused by an injury to a key employee.
After determining that both states had an interest in applying their laws and that, accordingly, a true conflict existed, the court turned to the comparative impairment analysis. The court stated the comparative interest test succinctly: "In sum, the comparative impairment approach to the resolution of true conflicts attempts to determine the relative commitment of the respective states to the laws involved."35 The court articulated other, more specific factors to consider, such as 1) the history and current status of the laws at issue, and 2) the function and purpose of the laws.
Regarding the first factor, the court noted that if one of the competing laws was "archaic and isolated" in comparison to the laws of the rest of the states, it may need to yield to a more "prevalent and progressive" law.36 Similarly, the law may be considered archaic and isolated when compared to the other laws of the state in which it was enacted. Indeed, the decisional law of the state may indicate that the law is out of favor, even though it is still in force. The court noted that the majority of common law states that had addressed the issue in the case do not sanction actions by corporations for harm to business employees, noting the radical changes in the master-servant relationship since medieval times. Also, the court noted that despite the existence of the California master-servant statute, no California court had squarely held that the cause of action stemming from the statute still exists, and in recent years no California court had even considered the issue.
As for the second factor, the court noted that the purpose of Louisiana's law was to promote freedom of enterprise within Louisiana's borders, and not applying the more modern Louisiana law for an accident that occurred in Louisiana would undercut that purpose. The court also observed that a law may be less comparatively pertinent if the purpose and policy of the law is no longer of "grave concern" to the state, or if the policy underlying the law may easily be served by more modern means other than enforcement of the law itself.
In the end, the court essentially determined that Louisiana had a stronger commitment to its more modern law than California had demonstrated to its more archaic law. Accordingly, the court held that Louisiana law should apply.
Choice of Law in Contracts Cases
California's choice of law rules apply whether an action lies in contract or in tort. But an important exception applies in cases involving contracts with choice of law provisions. In Nedlloyd Lines B.V. v. Superior Court,37 the California Supreme Court officially adopted the principles set forth in the Restatement (Second) of Conflict of Laws, which strongly favors enforcement of choice of law provisions. Specifically, when a contract contains a choice of law provision, California courts will apply the substantive law of the state designated by the contract unless the state has no substantial relationship to the parties or the transaction at issue, or the application of the chosen state's law would be contrary to a fundamental policy of a state 1) that has a materially greater interest than the chosen state in the determination of the particular issue and 2) whose law would be applicable in the absence of the choice of law provision.38
The Nedlloyd Lines court further distilled these principles: A court must determine "either (1) whether the chosen state has a substantial relationship to the parties or their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law."39 If neither of these two tests is met, that is the end of the inquiry. But if either test is met, the court must determine whether the chosen state's law is contrary to a fundamental policy of California (or the state whose law would have applied absent the provision).40 If no fundamental policy is threatened, the choice of law provision will be enforced. If, on the other hand, enforcing the provision would be inconsistent with a fundamental policy of, say, California, the court must determine whether California's interest in its fundamental policy is "materially greater" than the chosen state's interest in having its law applied.41
If a California court ultimately decides that a foreign jurisdiction's law will apply, the California court will determine and apply that law. The general rule is that the forum court will follow the foreign court's statutory construction.42 Also, courts and parties must respect the decision of a foreign intermediary appellate court if it is the highest court in that jurisdiction to have ruled on the issue.43 If the courts of a foreign jurisdiction have not construed a statute, the California court will need to determine how the highest court in the foreign jurisdiction would have interpreted the law if that court had ruled on the law under the same facts.44 It is improper for a California court to determine the law of another state based on hearing expert testimony.45
Choice of law issues are complex and very important to the outcome of a case. The key is to recognize potential choice of law issues early in the litigation process and to develop a strategy for determining the best time in the process to raise the issues and marshalling convincing arguments to win judicial support for the most favorable law to apply.