Commercial Litigation and Arbitration

Conflicts of Laws — Choosing the ‘Right’ Law

Choice of law can lead to some thorny, but important, issues. In Federal cases with state law claims based on diversity or supplemental jurisdiction, the Federal court will look to the conflicts of laws rules of the forum state. See, e.g., Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 495-97 (1941) (diversity); Bancoklahoma Mtg. Corp. v. Capital Title Co., Inc., 194 F.3d 1089, 1103 (10th Cir. 1999) (supplemental jurisdiction). The outcome of the choice of law analysis is highly fact-specific, and each state has its own set of nuanced rules. A few issues to keep in mind when analyzing choice of law issues include:

• Depecage. Under the principle of depecage, recognized by many states, the laws of different states can apply to the same conduct where two or more substantive counts are alleged. So, for example, in a case involving claims of fraud, tortious interference and breach of fiduciary duty, the law of at least three states could be implicated. Which state substantive law applies to each count will be a function of the choice of law rules of the forum state and the facts of the case. In tort cases, the analysis can include consideration of the parties’ domiciles, state of incorporation in breach of fiduciary duty cases, the state(s) where the conduct occurred, the state(s) where the injury occurred, whether the particular standards and rules at issue are conduct regulating or loss allocating, and other indicia of the connection between the pertinent states and the parties or the claim.

• Borrowing Statutes. When statutes of limitations are in play, many states have ‛borrowing“ statutes that must be looked to and considered in analyzing the applicable law governing limitations periods and tolling rules. The New York borrowing statute, for example, applies different limitations periods depending upon the parties’ residence and where the cause of action accrued. See CPLR § 202 (‛An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.“).

• Transfer of Venue. When a case changes venue from one Federal court to another under 28 U.S.C. § 1404(a), the choice of law rules of the transferor forum come with it. See Van Duesn v. Barrack, 376 U.S. 612 (1964). This means that in choosing between two or more otherwise proper Federal venues, consideration can be given at the outset to the relative advantages and disadvantages of the conflicts principles of the states in which the various courts sit.

Cases are legion on conflicts of law issues. The important point to remember is that choice of law becomes important only where it is potentially outcome determinative and often at an early stage of the litigation. An effective conflicts of law strategy at the outset of a case can often have an impact on its outcome.

Doug Pepe

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