Second generation law and economics of conflict of laws: Baxter's comparative impairment and beyond.

• Author: Allen, William H.
• Position: William F. Baxter - Baxter Symposium

In his 1963 article in the Stanford Law Review, "Choice of Law and the Federal System," Professor William F. Baxter criticized the choice-of-law approach of the First Restatement of the Conflict of Laws. According to the Restatement, courts should apply the law of the state where the last act or event deemed necessary to create a cause of action occurred. In contrast, Baxter advocated a comparative-impairment approach, whereby judges were obligated to apply the law of the state whose public policy would suffer the greatest impairment if its law was not applied. The authors contend that although Baxter's approach caries intuitive appeal for one interested in economic theory, available empirical evidence and public choice insights together indicate that Baxter's approach cannot work efficiently in practice. Because judges in practice have neither the data nor the intuitive understanding of the complexities of any legal problem to make the comparative-impairment determination in the scrupulous way that Baxter suggested, William H. Allen and Professor Erin A. O'Hara recommend a modified Restatement approach. They believe an approach that keeps the basic concepts of the Restatement but modifies rules that have not worked well in practice will generate greater predictability and less bias in decisionmaking.

A choice-of-law rule is an empty and bloodless thing.(1)

Asked to name the great conflict of laws scholars of our century, one might think of Beale, Goodrich, Lorenzen, Yntema, Ehrenzweig, Walter Wheeler Cook, Willis Reese, David Cavers, Robert Leflar, Brainerd Currie and several from among a dozen or so who have been active in the last thirty or forty years. Narrowing this list to the few truly influential choice-of-law scholars would surely leave Joseph Henry Beale and his antagonist, Brainerd Currie. Leflar and perhaps one or two of the others would almost surely also remain, and very likely an outsider, William F. Baxter, would join them on that select list. Unlike the others named, Bill Baxter was not what Professor Lea Brilmayer, referring to conflicts scholars, would have called a "card-carrying member of this wild-eyed community of intellectual zealots."(2) Baxter's academic career was not devoted wholly or even in major part to conflicts; he wrote no treatise or series of articles elaborating his views on choice of law.

Baxter published but one article on the subject. It was his first signed scholarly work,(3) written when he was an associate professor at Stanford Law School--his academic home throughout his career--and published in the Stanford Law Review in 1963.(4) Thirty-five years later, the Baxter article is refreshingly different from much modern legal scholarship. It is written in English, sparely but clearly and with style, and is accessible to anyone capable of following reasoned argument. More importantly, that single article has been cited scores of times,(5) is described in probably every American conflict of laws textbook,(6) and has been incorporated into the choice-of-law approach of at least one state, California.(7) If anything, modern choice-of-law scholarship continues to gravitate toward Baxter's ideas,(8) something that cannot be said of Beale or, perhaps, even of Currie.

The article was the product of an extraordinarily incisive, fertile legal mind brought to bear on a subject that Baxter was made to think about by the demands of a teaching assignment. At least in those distant days, young members of the Stanford Law School faculty taught whatever needed to be taught. Thus, in the early years of his academic career, Bill Baxter taught conflicts along with administrative law, admiralty, agency, federal jurisdiction, persons (as Stanford called the domestic relations course), practice, and the business of the Supreme Court. The article grew out of his teaching, as indicated by its first sentence: "After attempting for several years to teach the rules devised for the resolution of choice-of-law problems, I have concluded that those rules do not yield satisfactory results."(9)

The rules in 1963 were everywhere, or almost everywhere, the rules that Joseph Beale, as reporter for the Restatement of Conflict of Laws (First Restatement) and author of a contemporaneous three-volume treatise,(10) had undertaken to state and to underpin intellectually.(11) The rules related to where events occurred or things were. If an automobile accident happened or a contract was concluded or a piece of real property was located in a particular state, only the law of that state was pertinent to any ensuing tort or contract or quiet-title action.

As Baxter acknowledged, he was not the first critic of these rules.(12) Criticism began almost as soon as the First Restatement was adopted and the treatise published. When Baxter's article appeared in December 1963, the most prolific of the critics, Brainerd Currie, had just published an extraordinary collection of law review articles that he had written in the preceding few years.(13) In them Currie did not merely criticize. He offered a coherent global alternative to the "conceptualistic" (a term of opprobrium for those schooled in legal realism) rules of the First Restatement.(14) His alternative not only appealed to his fellow scholars but also found favor with judges, the essential audience for one who would reform common law doctrine.

Currie offered "interest analysis" as the basis for choice of law, and Baxter began his article by following Currie's lead. He agreed with Currie that analysis should begin by discerning which state or states, if any, had genuine policy interests at stake in the resolution of a multistate dispute. One of Currie's central insights was that many cases thought to pose an issue that could superficially be characterized as a conflict of laws in fact involved no conflict. These were in fact false conflicts because only one of the jurisdictions arguably interested in the dispute had a genuine interest in the application of its law. Currie recognized that his central insight did not account for all the cases. Some cases posed a real conflict, where two or more states with arguable interests in a matter had genuine interests. For these cases, Currie proposed application of the law of the forum. Baxter parted company with Currie at this point. To Baxter, the application of forum law in a trueconflict case was just as arbitrary as any of the First Restatement rules, and it would invite forum shopping and produce other evils.(15)

In an effort to resolve the case of the true conflict more satisfactorily, Baxter asked an important, but until then overlooked, choice-of-law question: How can fifty states choose what law to apply in multistate cases so as to maximize their varying substantive policies? Though it might not have been so characterized at the time,(16) this is quintessentially a law and economics question. Stated more generally, the question is what social policy will maximize utility across the individuals or entities affected by the problem at which the policy is aimed.(17) Baxter concluded that true conflicts should be resolved by applying the law of the state whose policies would be most impaired by application of the other state's law. By engaging in this "comparative-impairment" analysis, courts could maximize the joint effectuation of states' policies.

Many early law and economics scholars attempted to answer this type of question without adequately considering the costs, political and otherwise, associated with public policy decisionmaking. But Baxter was keenly aware of the difficulty, if not futility, of asking fifty self-interested states' courts to coordinate their choice-of-law policies to their joint benefit. The last half of his forty-two-page article is devoted to an elegant argument that the federal courts should interpret the Full Faith and Credit Clause and use their diversity jurisdiction to foster comparative-impairment analysis as the basis for choice of law.(18) It is fair to say that this part of the article, though of continuing intellectual interest,(19) has had no influence. The Full Faith and Credit Clause has become no more demanding in choice-of-law cases. Klaxon Co. v. Stentor Electric Manufacturing Co.(20) has not been overruled (as Baxter urged). Thus, a federal district court in a diversity case that poses a choice-of-law issue still must decide the case just as the state court in the courthouse across the street would. With the advantage of hindsight, Baxter's proposal seems utterly unrealistic and, even in 1963, must have seemed more hopeful than practical.

It is our thesis that the knowledge that federal judges would not step into the breach and a more refined understanding of the public choice and other economics problems involved in fashioning a rational choice-of-law system for a federal republic of fifty sovereign states might have led a later Baxter toward, if not quite to, the very First Restatement choice-of-law rules that had frustrated him in his teaching. We support this thesis by using insights into choice of law that Baxter elucidated.

In Part I, we examine in some greater detail the rules of the First Restatement and the reasons that Baxter and others found them so unsatisfactory. In Part II, we elaborate our description of Currie's interest analysis and Baxter's refinement of it. In Part III, we discuss some of the flaws of interest analysis that have appeared in its application. In Part IV, we conclude that Baxter's refinement would not effectively cure these flaws, and finally in Part V, we offer some alternative ideas for a choice-of-law system that we hope would have had some appeal to Bill Baxter, that most incisive and objective of critics.

1. THE FIRST RESTATEMENT AND ITS CRITICS

   The First Restatement embodied the traditional approach to choice of law, which at one point was followed in all fifty states.(21) The First Restatement contained a set of rules...