CHOICE OF LAW

In the system of American federalism, some transactions and phenomena are governed by supreme federal law and others by state law. In the latter situations, multistate transactions frequently raise the question which state's law is to be applied. "Choice of law" refers to the process of making this determination. Choice of law may usefully be viewed as an issue of distribution of legislative or lawmaking powers "horizontally" among the states in those areas not governed by overriding federal law.

A basic principle of choice of law theory under the Constitution is that determination of the allocation of law-making power among the states in such circumstances is, itself, an issue of state law. Each state has its own law on choice of law, which may differ from the choice of law doctrines of other states and which is applied in actions brought in that state both in state courts and in diversity jurisdiction cases in federal courts. Thus the outcome of litigation involving a multistate transaction may in theory be determined by the choice of the forum in which the suit is brought. The basic principle might have been the contrary—that is, that conflicts of state laws within the federal system should be resolved by a comprehensive supreme federal law of choice of law, binding on the states. Such a body of national conflict of laws doctrine might have been derived from the full faith and credit clause, the commerce clause, orthe due process clause of the fourteenth amendment. Alternatively, supreme federal choice of law doctrine might have been developed as federal common law pertaining to the mutual relationships among the states in the federal union. Or Congress, under various enumerated powers, might have enacted federal choice of law principles. None of these courses has been followed; the law of choice of law in the federal system has not developed, judicially or legislatively, as supreme federal law. The states remain the primary determiners of the legal aspects of their mutual relationships within the federal union.

A state's law of choice of law, like all state law, is subject to constitutional limitations. Two such provisions have occasionally been applied so as to limit state choice of law principles, but in general these are not significant limitations.

In an occasional early case the Supreme Court held that the application of the forum's own law to a multistate transaction violated due process, even though the forum state did have a legitimate interest in having its law prevail. Under more recent doctrine there would be no due process violation in such circumstances. The modern principle, enunciated in Allstate Insurance Co. v. Hague (1981), is that "for a State's substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair." The due process clause can also limit a state's choice of law doctrine where there would be unfair surprise to a litigant in the choice of law otherwise proposed to be made.

The Court also has occasionally held that the full faith and credit clause requires a state to apply the law of another state even though the forum state does have a legitimate interest in applying its own law. (Thus in a case of claims for benefits against a fraternal benefit association, the Court held that a national interest in having a single uniform law determine the mutual rights and obligations of members required all states to apply the law of the place where the association was incorporated.) In general, however, the full faith and credit clause does not require that a forum state apply the law of another state unless it would violate due process for the forum to apply its own law.

Other provisions of the Constitution are potentially applicable as limitations on state choice of law doctrine. The commerce clause might be the basis for channeling state choice of law principles regarding multistate commercial transactions. The equal protection clause and the privileges and immunities clause of Article IV might be held to limit distinctions made in state choice of law doctrine based upon the residence or domicile of parties to a transaction. These constitutional provisions have not been so developed.

Harold W. Horowitz
(1986)

Bibliography

Symposium 1981 Choice-of-Law. UC Davis Law Review 14: 837–917.

——1981 Choice of Law Theory after Allstate Insurance Co. v. Hague. Hofstra Law Review 10:1–211.