Choice of law and predictability of decisions in products liability cases.

• Author: Ena, Michael

The tale of American choice of law principles has become the story of a thousand and one inconsistent tort cases. (1)

--Alan Reed

INTRODUCTION

The unique political landscape of the United States, where each state is a sovereign over its territory and can enact its laws within broad limits of the federal Constitution, leads to the lack of "uniformity in rules of law from state to state." (2) In cases that implicate the legal systems of two or more states, courts have to decide which law will govern the case, but the choice of law rules, as well as their application by different courts, are all but uniform. (3)

Choice of law questions often arise in products liability cases because the product in question was produced in one state, purchased in another state, and caused an injury in yet another state. (4) This presents a significant challenge to courts, especially in mass tort actions arising from a long-term exposure to harmful substances in many different states. (5)

Before a court can proceed on adjudicating the merits, it needs to decide which law to apply, and in many cases the court's choice of law decision may mean the difference between dismissing the case on a certain motion and allowing the plaintiff to proceed with discovery and trial. (6) It is not surprising that in such cases parties vigorously litigate choice of law questions, and the appeals process often reaches the state high courts or even the Supreme Court of the United States. (7)

Lack of uniformity in the choice of law methodologies that American courts use, combined with differences in the rules of law among states, lead to highly inconsistent and often unpredictable decisions. (8) Even within a single state, courts often lack a coherent approach to choice of law issues because the state's choice of law methodology provides inadequate guidance to the courts. (9) While the certainty, predictability, and uniformity of results are generally less important in tort cases, in the products liability context, predictability of judicial decisions is an important factor in evaluating business risks associated with the marketing of a particular product. (10) A profusion of laws applicable to mass-produced and mass-marketed undifferentiated products generates substantial costs of compliance and may lead to uncertainty and economic inefficiency. (11) The uncertainty may force manufacturers to forgo development, production, and marketing of otherwise valuable products that might expose them to unpredictable risk. (12) This risk, in turn, may negatively affect the variety of products available to consumers. (13) The utility of products, however, has to be balanced with the need to make products reasonably safe, which prevents manufacturers from externalizing their costs at the expense of consumers. (14)

This Comment proposes that it is unrealistic to expect a comprehensive solution to the consistency and predictability of court decisions in the products liability area. Value judgments and policy considerations that underlie court decisions, combined with the wide discretion that modern choice of law methodologies provide, make the uniformity of decisions practically impossible. (15)

Part I analyzes the relevant historical background and development of the two prevailing choice of law methodologies for tort cases--the traditional rule of lex loci delicti of the First Restatement of Conflict of Laws (16) and the "most significant relationship" rule of the Second Restatement of Conflict of Laws. (17) It shows how the evolution of American society led to changes in choice of law methodologies that sacrificed the need for consistent and predictable choice of law decisions in favor of flexibility and fairness.

Part II closely examines the two leading choice of law methodologies and shows how courts in New Jersey and Indiana apply them in tort cases. While New Jersey adopted the Second Restatement approach, Indiana courts still adhere to the lex loci delicti rule. (18) The discussion compares and contrasts the analytic frameworks used in the two states and their application to products liability cases. The comparison is illustrated by a detailed discussion of two recent New Jersey and Indiana cases where out-of-state plaintiffs sued in-state manufacturers of pharmaceutical products and where the courts reached opposite results on almost identical fact patterns. (19) The discussion reveals problems that arise from the choice of law methodologies applied by the two states, including inconsistency and unpredictability of court decisions concerning nationally marketed products.

Part III uses historical analysis from Part II to argue for changes in the choice of law approaches, especially in products liability cases. Part III also contains a critical discussion of lex loci delicti, the Second Restatement, and several proposals aimed at improving the current state of affairs in the choice of law area.

The Comment concludes that an approach that combines enhancements to the Second Restatement with federal preemption for certain types of products may be a more realistic answer to the question of consistency and predictability of court decisions in products liability cases.

1. CHOICE OF LAW IN TORT CASES: HISTORICAL DEVELOPMENT AND MODERN APPROACHES

   1. Lex loci delicti: Law of the Place of Injury and the First Restatement

      Traditionally, in tort cases, American courts applied the law of the place where the tort was committed, or lex loci delicti. (20) The doctrine, to a significant extent, originated from the works of a Harvard Law School Professor and United States Supreme Court Justice Joseph Story, whose treatise Commentaries on the Conflict of Laws, published in 1834, (21) provided a comprehensive view of the subject and was very influential in guiding courts on the issue of conflict of laws. (22) That every nation had exclusive sovereignty over its territory served as one of Story's main premises. (23) In Story's view, a sovereign did not have to recognize laws of other sovereigns, although it could voluntarily choose to do so, guided by the spirit of comity and considerations of utility and mutual convenience. (24)

      Court decisions of that time reflected Story's territorial view of conflict of laws. For example, in 1843, during Story's tenure as a Supreme Court Justice, the Court held that British statutes should apply in a case where two American ships collided in the British port of Liverpool. (25)

      Radical improvements in transportation, especially the construction of new railroads that accompanied the industrial revolution in the late Nineteenth and early Twentieth Centuries, resulted in courts more often having to decide which law governed the existence of liability and the measure of recovery in a particular tort action. (26) Supreme Court decisions of that period confirmed the Court's adherence to the theory that the right to recover in tort owes its creation and extent solely to the law of the jurisdiction where the injury occurred. (27) For example, in 1904 the Court considered a wrongful death action brought by Texas survivors of an employee of a Colorado corporation that operated a railroad from Texas to Mexico City. (28) In the opinion delivered by Justice Holmes, the Court held that Mexican law should govern since the employee was killed while coupling two freight cars in Mexico. (29)

      State courts of that time scrupulously adhered to the territorial rule restricting the effects of their state laws to their state boundaries. (30) As the Alabama Supreme Court explained in the famous case Alabama Great Southern Railroad Co. v. Carroll, courts could not impose liability on the defendant unless the law of the place of injury provided a cause of action to the plaintiff. (31)

      By the end of the Nineteenth Century, the approach to choice of law issues became more rigid and formal than the one that Story originally envisioned. (32) In some cases, courts applied foreign laws that clearly contradicted their own state's public policy. As illustrated in Carroll, the court denied recovery on the basis of territorial restrictions to an Alabama worker of an Alabama railroad company for injuries sustained while servicing a train in Mississippi that resulted from a negligent train inspection in Alabama. (33) The worker sought recovery under the Alabama Employers' Liability Act that abolished the harsh fellow servant rule and allowed a worker to recover from the employer for injuries caused by the negligence of a fellow worker. (34) But the court denied recovery under the Act holding that it had no effect beyond Alabama borders. (35)

      One of the major proponents of the territorial approach was Harvard Law School Professor Joseph Beale, the Reporter for the First Restatement of Conflict of Laws published by the American Law Institute in 1934. (36) Like Joseph Story's works in the Nineteenth Century, Professor Beale's treatise on conflict of laws influenced courts' decisions in the first half of the Twentieth Century. (37) According to Beale, the purpose of choice of law was to find the jurisdiction whose substantive law would govern adjudication of the case. (38)

      This approach was firmly rooted in the case law of that time. (39) For example, in Young v. Masci, the United States Supreme Court affirmed the application of New York law by a New Jersey court in the case brought by a New York resident injured in New York by a New Jersey motorist, holding that liability in tort was determined by the law of the place of injury. (40)

      The First Restatement incorporated Beale's doctrinal views and stated that in tort cases, "It]he place of wrong is in the state where the last event necessary to make an actor liable for an alleged tort takes place." (41) Although the First Restatement faced harsh criticism as soon as it was published, as a practical matter, lex loci delicti led to predictable results, prevented forum shopping, and was relatively easy to apply in most of...