The role of choice of law in national class actions.

• Author: Silberman, Linda J.

INTRODUCTION I. THE DESCRIPTIVE STORY A. Choice of Law in Class Actions: Some Basic Background B. The Impact of Shutts and Klaxon C. The Approach of the Federal Courts (Pre-CAFA) D. State Choice of Law Rules in Class Actions II. THE RELATIONSHIP OF CLASS ACTIONS AND CHOICE OF LAW: THE NORMATIVE QUESTIONS A. Should There Be a Specialized Choice of Law Rule for Class Actions? B. The Impact of the Class Action Fairness Act on Klaxon C. The Appropriate "Federal" Choice Rule CONCLUSION INTRODUCTION

A number of the papers in this Symposium on the impact of the Class Action Fairness Act of 2005 (CAFA) have focused on the allocation of state and federal authority with respect to jurisdiction over nationwide class actions. This Article takes a different perspective by analyzing the role of choice of law in selecting a forum to hear a class action and the effect of choice of law on interstate forum shopping in nationwide class litigation. CAFA does not address the choice of law question, and thus interstate forum shopping is likely to continue as plaintiffs seek a forum with an approach to choice of law that will facilitate certification of a nationwide class. Because a federal court is obliged to apply state choice of law rules under Klaxon Co. v. Stentor Electric Manufacturing Co., (1) a single state's parochial or pro-aggregation choice of law rule may be in tension with the "neutrality" in certification decisions that CAFA is seeking.

The first Part of this Article is an account of how courts tended to deal with choice of law issues in class actions prior to CAFA. The second Part addresses two normative questions: (1) whether aggregate litigation justifies a choice of law rule other than what would be called for if the case were proceeding as an individual litigation; and (2) whether CAFA calls for a departure from Klaxon and the development of an independent federal choice of law rule. This Article suggests that a federal choice of law rule, rather than strict adherence to Klaxon, will better achieve the objectives of CAFA, so long as the content of that federal choice rule is no different than the choice of law rule that would apply in an individual litigation.

1. THE DESCRIPTIVE STORY

1. Choice of Law in Class Actions: Some Basic Background

   Choice of law issues have often taken a back seat to other important issues in civil litigation. But a sea change occurred with the growth of nationwide class action litigation where choice of law issues were central to the basic issue of certification of the class. (2) Choice of law analysis gained new prominence because attempts to structure nationwide classes involving state law claims--such as damage actions for consumer fraud or misrepresentation, overcharges in contract and insurance cases, personal injury and breach of warranty claims for defective products, punitive damage classes, and claims for medical monitoring--often turn on whether the law of a single state or multiple states is to be applied.

   It should be obvious why choice of law has emerged as such a critical issue in the modern class action setting. The pre-1966 class action was limited in its use and confined to those with a tight community of interest. (3) The rights in such cases were 'joint, common, or secondary," and accordingly were unlikely to raise issues of the application of different laws to the members of the class. Even as to spurious classes, where absent class members could intervene after the judgment, it was unlikely that parties whose claims were based on a different applicable law could take advantage of the class judgment. (4)

   With the emergence of the Federal Rule 23(b)(3) class and its state counterparts, a class action became appropriate when "questions of law or fact common to members of the class predominate [d]" over individual issues and the class action was the "superior" method of adjudication. (5) These requirements still serve to command a level of cohesiveness to ensure that aggregate litigation is the superior method of proceeding. To minimize the individual issues and the manageability concerns of class litigation that would likely flow from the application of multiple laws, class action plaintiffs often seek to establish either (1) that the law on a particular question is uniform throughout the various states of the United States; or (2) that under applicable choice of law principles a single law can govern the controversy. Defendants, for their parts, are anxious to show the differences among the various states' laws on numerous issues, such as negligence or comparative negligence, requirements for breach of warranty and fraud, and elements of consumer fraud statutes. Indeed, it is common on class action certification motions for defendants to offer elaborate surveys identifying differences among state laws with respect to various elements of the claims in question. When that strategy is successful--as it often is--defendants must still resist the attempt by lawyers for the class to show that a single law--such as that of the forum or that of the defendant's principal place of business--should apply. Similar issues have arisen in the context of Rule 23(b) (2) (6) class actions for declaratory and injunctive relief for the class as a whole where plaintiffs hope to avoid the express requirements, such as manageability, imposed on Rule 23(b) (3) actions.

   Choice of law has also been a factor in aggregate litigation other than class actions. The desirability of having a single law to govern complex and/or mass litigation is a common thread as reformers seek to find ways to make this type of litigation more efficient. The search for a "single law" has generated different types of proposals: a federal products liability statute to be passed by Congress, (7) the development of federal common law in particular areas, (8) legislation for multiparty cases that included a federal choice of law rule, (9) and establishing choice of law criteria that could lead to the application of a single law in complex litigation. (10) None of these ideas reached fruition. When Congress in 2002 finally passed the Multiparty, Multiforum Trial Jurisdiction Act, providing for federal jurisdiction (on the basis of minimal diversity) over any civil action arising from a single accident in which at least seventy-five persons have died, (11) it did so without any provision on choice of law. Various bills leading up to this legislation contained proposals for federal choice of law provisions, but each time controversy sent the bill down to defeat. As enacted, 28 U.S.C. § 1369 provides for consolidation of individual suits and offers an alternative to the formal class action for the single-event mass accident. Choice of law is not addressed in the statute, but difficult questions about applicable law will also arise in these cases. (12) Perhaps because of the experience with § 1369, none of the bills that resulted in CAFA even attempted to craft choice of law provisions for that legislation, although there was a flurry of activity on the part of some to try to address choice of law just as the proposed legislation reached the floor of Congress. (13) But no specific proposal emerged, and there is no choice of law provision in the legislation.

2. The Impact of Shutts and Klaxon

   The failure of CAFA to address the choice of law questions leaves the role for choice of law in complex litigation and class actions post-CAFA where it has always been in these contexts: to be shaped and developed by judges and applied in common law fashion by the courts. Answers to two basic questions may help determine how those rules should be shaped. The first question is relevant not only to CAFA but to other class and nonclass aggregate litigation: does the fact of aggregation (in a class action or other consolidated action) call for a distinct choice of law rule that takes into account the needs presented by the multiple parties and events that characterize aggregate litigation? The second pertains specifically to federal cases brought under CAFA: are federal courts hearing nationwide class actions under CAFA bound by Klaxon to apply state choice of law rules, or can the federal courts depart from Klaxon and apply "federal" choice of law rules?

   The pressure for, and subsequent resistance to, a single choice of law rule due solely to the aggregate nature of the litigation was presented to the Supreme Court of the United States in Phillips Petroleum Co. v. Shutts. (14) In Shutts, the Kansas Supreme Court had found that in a nationwide class action where procedural due process guarantees of notice and adequate representation were met, "the law of the forum should be applied unless compelling reasons exist for applying a different law." (15) The U.S. Supreme Court reversed, holding that it was unconstitutional for the Kansas courts to proceed in this fashion when Kansas had no basis for applying its law to the overwhelming majority of class members who resided outside of Kansas and had leases outside of Kansas. (16) In addition, the Supreme Court went even further to caution that a court's adjudication of a nationwide class action did not provide an "added weight in the scale when considering the permissible constitutional limits on choice of substantive law." (17) One may nonetheless remain skeptical about the impact of the Supreme Court's ruling in Shutts, since on remand the Kansas court determined that the law of the various states was in fact the same as Kansas law, (18) and in a related case, the Supreme Court refused to second-guess the state court's analysis of the substance of the sister state's law. (19) Still, as a formal matter, the choice of law resolution in Shutts has important consequences for class certification. Notwithstanding its recognition of constitutional limits on choice of law in Shutts, the Supreme Court did not dictate to either the state courts or the lower federal courts what choice of...