Vertical Choice of Law: Federal v. State

The Rules of Decision Act

28 U.S. Code § 1652

The laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.

True law is right reason in agreement with nature; it is of universal application, unchanging and everlasting; … It is a sin to try to alter this law, nor is it allowable to attempt to repeal any part of it, and it is impossible to abolish it entirely. We cannot be freed from its obligations by senate or people, and we need not look outside ourselves for an expounder or interpreter of it. And there will not be different laws at Rome and at Athens, or different laws now and in the future, but one eternal and unchangeable law will be valid for all nations and all times …

Cicero, De Re Publica [Of The Republic], Book III Section 22 (trans. Clinton W. Keyes, 1928)

Implications of natural law theory for understanding common law:

Swift v. Tyson (U.S. 1842)

Facts & Procedural History
Issue
Analysis
Holding

Black & White Taxicab v. Brown & Yellow Taxicab (U.S. 1928)

Facts & Procedural History
Holding
Significance

Black & White Taxi illustrates the problem with the Swift approach:

Under each scenario (i.e. the actual Black & White Taxi case and the two hypothetical versions), the outcome will be different in state v. federal court. This makes law both unpredictable & inequitable:

The common law is not a brooding omnipresence in the sky but the articulate voice of some sovereign or quasi-sovereign that can be identified;

Southern Pac. Co. v. Jensen, 244 US 205, 222 (1917) (Holmes, J. dissenting)

It is very hard to resist the impression that there is one august corpus, to understand which clearly is the only task of any Court concerned. If there were such a transcendental body of law outside of any particular State but obligatory within it unless and until changed by statute, the Courts of the United States might be right in using their independent judgment as to what it was. But there is no such body of law. The fallacy and illusion that I think exist consist in supposing that there is this outside thing to be found. Law is a word used with different meanings, but law in the sense in which courts speak of it today does not exist without some definite authority behind it. The common law so far as it is enforced in a State, whether called common law or not, is not the common law generally but the law of that State existing by the authority of that State without regard to what it may have been in England or anywhere else. It may be adopted by statute in place of another system previously in force. But a general adoption of it does not prevent the State Courts from refusing to follow the English decisions upon a matter where the local conditions are different. It may be changed by statute, as is done every day. It may be departed from deliberately by judicial decisions, as with regard to water rights, in States where the common law generally prevails.… Whether and how far and in what sense a rule shall be adopted whether called common law or Kentucky law is for the State alone to decide.

Black & White Taxicab v. Brown & Yellow Taxicab, 276 U.S. at 533-34 (Holmes, J., dissenting)

Erie RR Co. v. Tompkins (U.S. 1938)

Facts
Issue
Holding

Guaranty Trust Co. of New York v. York (U.S. 1945)

Issue
Holding & Rationale

Ragan/Woods/Cohen trilogy (U.S. 1949)

Ragan v. Merchants Transfer & Warehouse Co.

Woods v. Interstate Realty

Cohen v. Beneficial Indust. Loan Corp.

Rationale

Byrd v. Blue Ridge Rural Elec. Coop., Inc. (U.S. 1958)

Facts
Issue
Holding
Reconciling Byrd with Guaranty Trust

The Rules Enabling Act

28 U.S.C. § 2072

(a) The Supreme Court shall have the power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts (including proceedings before magistrate judges thereof) and courts of appeals.

(b) Such rules shall not abridge, enlarge or modify any substantive right. All laws in conflict with such rules shall be of no further force or effect after such rules have taken effect.

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Hanna v. Plumer (U.S. 1965)

Facts
Holding
Analysis
Rationale
Harlan (concurring)

Erie-Hannah Hybrid Analysis

Erie-Hannah Analysis \

Gasperini v. Center for Humanities, Inc (U.S. 1996)

Issue
Analysis & Holding
Dissent (Scalia, Thomas)

Shady Grove Orthopedic Assocs. v. Allstate Ins. Co. (U.S. 2010)

Issue
Holding
Analysis
Dissent

Horizontal Choice of Law: State v. State

Choice of Law Rules

Various approaches to resolving choice of law questions:

When deciding a choice of law issue, a court always follows its own state’s own choice of law approach.

Contractual Choice of Law

A contractual choice of law clause specifies which state’s (or country’s) law will govern disputes between the parties. In effect, this is a shorthand way of including terms that the parties might otherwise have spelled out in the contract. See Restatement (2nd) of Conflicts of Law, § 187(1)

Restatement (2d) of Conflicts of Law

NC courts generally follow the Restatement approach, which combines aspects of the “contacts”, “relationship”, and “balance of interests” tests.

Torts

Restatement § 145

The General Principle

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.

(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

Contracts

Restatement § 187

Law Of The State Chosen By The Parties

(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

(3) In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

Restatement § 188

Law Governing In Absence Of Effective Choice By The Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

(2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.

Application

Dessault Falcon Jet Corp. v. Oberflex, Inc. (M.D.N.C. 1995)

Facts
Issue
Holding
Analysis

Harco Nat’l Ins. Co. v. Grant Thornton LLP (NC App. 2010)

Facts
Issue
Analysis