SC Lawyer, September 2009, #1. Conflicted About Conflicts? A Simple Introduction to Conflicts of Laws.

• Author: By Yasamine J. Christopherson

South Carolina Lawyer

2009.

SC Lawyer, September 2009, #1.

Conflicted About Conflicts? A Simple Introduction to Conflicts of Laws

South Carolina Lawyer September 2009 Conflicted About Conflicts? A Simple Introduction to Conflicts of Laws By Yasamine J. Christopherson I. Introduction

Conflicts of laws has been called "'a confusing morass,' a 'veritable jungle' and a 'dismal swamp.'" Ruth Bader Ginsburg, Tribute to Robert A. Leflar, 50 Ark. L. Rev. 407, 408 (1997). A simple hypothetical illustrates the problem. Plaintiff passenger is on vacation in Alaska. While plaintiff's friend is driving, he collides with a moose on an Alaska roadway. The injured passenger is from South Carolina, the defendant driver is from South Carolina and the medical care is rendered in South Carolina. Alaska has a guest statute, but South Carolina does not. South Carolina is the forum. Should the court apply Alaska or South Carolina law? The answer-provided in the conclusion-hinges on the approach South Carolina uses for deciding conflicts of laws.

Issues arising from conflicts of laws are often outcome determinative as the hypothetical above and case law below suggest. Thus, it is imperative for lawyers to understand the application of the conflicts rules to the facts of a case. Once the rules have been applied, knowledge of the escape devices is also necessary because South Carolina courts have used escape devices, such as characterization, renvoi and public policy, to circumvent the state's conflicts rules. Because of the many permutations for conflicts rules and the escape devices, this is not an exhaustive treatment of conflicts rules; it is only meant to provide the basic principles from which to build.

II. South Carolina and the First Restatement

South Carolina currently follows the First Restatement of Conflicts of Laws' approach to conflicts of laws for both torts and contracts. The goals of the First Restatement were to reduce forum shopping and increase predictability and uniformity. Luther L. McDougal III, Et. al., American Conflicts Law §79, at 326 (5th ed. 2001). These goals were to be achieved by a set of concrete rules designed to promote the interests of territorialism and vested rights. Id.

A.Torts-place of injury

South Carolina generally follows the First Restatement's "place of injury" test, or lex loci delicti for tort cases. Dawkins v. State of South Carolina illustrates the state's strict adherence to the First Restatement. 306 S.C. 391, 392, 412 S.E.2d 407, 408 (1991). The plaintiff in Dawkins brought an action for negligent infliction of emotional distress against the S.C. Department of Corrections. Id. at 392, 412 S.E.2d at 407-08. Plaintiff suffered psychological problems after watching his family murdered by an escaped inmate. Id. The plaintiff was from Georgia, and his family was murdered in Georgia. Id. However, the inmate escaped from a South Carolina detention center. Id. at 392, 412 S.E.2d at 408. Georgia's law would bar recovery because it required bodily contact for the plaintiff to recover, and the plaintiff was only an observer. Id. The plaintiff argued on appeal that South Carolina law, which would permit recovery, should apply because application of Georgia state law would violate public policy. Id.

The court in Dawkins refused to apply forum law, stating: "It is well established in South Carolina that in tort cases 'the law of the place where the injury was occasioned or inflicted, governs in respect of the right of action, and the law of the forum in respect to matters pertaining to the remedy only.'" Id. at 392-93, 412 S.E.2d at 408 (citing Rauton v. Pullman Co., 183 S.C. 495, 501, 191 S.E. 416, 419 (1937)). Thus, the court followed the place of injury rule, which pointed to Georgia law, and declined to apply the public policy exception to allow recovery. Id. at 393, 412 S.E.2d at 408.

B.Contracts-place of contracting

Absent a contractual choice-of-law clause, South Carolina follows the First Restatement's place of contracting rule, or lex loci contractus, for conflicts of laws regarding contract actions. SeeLivingston v. Atl. Coast Line R.R. Co., 176 S.C. 385, 391, 180 S.E. 343, 345 (1935) (matters concerning interpretation and enforcement of a contract are governed by the place of contracting; matters regarding performance of the contract are governed by the law at the place of performance); Witt v. Am. Trucking Ass'ns, Inc., 860 F.Supp. 295 (D.S.C. 1994); 4 S.C. Jur. Action § 7 (last updated September 2008).

South Carolina courts generally enforce choice-of-law provisions requiring application of a different state's laws as long as there is a reasonable relationship between the parties and the chosen law. Firestone Financ. Corp. v. Owens, 309 S.C. 73, 75-76, 419 S.E.2d 830, 832 (Ct. App. 1992); T & S Brass and Bronze Works, Inc. v. Pic-Air, Inc., 790 F.2d 1098, 1102 (4th Cir. 1986). However, because escape devices (discussed below) apply to choice-of-law provisions, drafters often expressly exclude the chosen state's conflicts rules in order to avoid application of renvoi.

Livingston v. Atlantic Coast Line Railroad Co. provides an example of how courts apply lex loci contractus. 176 S.C. at 387, 180 S.E. at 343. In Livingston, the defendant corporation maintained a relief department headquartered in North Carolina. Id. The plaintiff was employed by the corporation in Florence, South Carolina. Id. The plaintiff applied to be a member of the relief department by completing an application and physical examination in South Carolina and then sent the form to North Carolina for approval. Id. Upon receipt in North Carolina, the form was approved. Id. Plaintiff later sued defendant to enforce his relief contract after becoming disabled. Id. at 388, 180 S.E. at 344.

The central issue presented to the court was whether the contract was governed by North Carolina or South Carolina law. Id. If North Carolina law applied, the suit was barred because the plaintiff failed to exhaust his administrative remedies. Id. at 398-99, 180 S.E. at 348. South Carolina did not have a similar provision requiring exhaustion of administrative remedies. Id. at 398, 180 S.E. at 348. The court first noted that the plaintiff agreed to be bound by the contract in South Carolina. Id. at 387, 180 S.E. at 343. However, the contract was accepted by the defendant in North Carolina. Id. at 389, 180 S.E. at 345. Further, the defendant deducted premiums from the plaintiff's checks in North Carolina and any claim would be paid from the North Carolina office. Id. Thus, because the contract was a North Carolina contract-to be performed in North Carolina-North Carolina law applied to bar the suit. Id. at 398, 180 S.E. at 348.

C.Escape devices

Despite the First Restatement's seemingly clear rules, courts will often avoid their application by using one of several "escape devices," such as public policy, characterization and renvoi. Though facially benign, these escape devices frequently allow a court to apply the forum state's law to a case when the First Restatement's rules call for application of a foreign jurisdiction's law, thus undermining the First Restatement's principal goals of predictability and reduction of forum shopping. Alan Reed, The Anglo-American Revolution in Tort Choice of Law Principles: Paradigm Shift or Pandora's Box?, 18 Ariz. J. Int'l & Comp. L. 867, 880 (2001).

i.Public policy

Courts often refuse to apply the "vested" law of another state because it offends the forum's public policy. Reed, supra,at 880. The public policy exception has been said to provide a "substitute for analysis" because it is often difficult to ascertain exactly what constitutes a state's public policy. Monrad G. Paulsen & Michael I. Sovern, "Public Policy" in the Conflict of Laws, 56 Colum. L. Rev. 969, 1016 (1956). Nevertheless, in Boone v. Boone, 345 S.C. 8, 16, 546 S.E.2d 191, 194 (2001), the S.C. Supreme Court applied the public policy exception to allow recovery between a husband and wife for personal injury damages. The plaintiff in Boone was injured in a car accident in Georgia while riding with her husband. Id. at 10, 546 S.E.2d at 192. Both plaintiff and defendant were residents of South Carolina, and suit was brought in South Carolina state court. Id. Under the First Restatement's place of injury test, Georgia law should have applied because Georgia was the place of injury. Id. However, Georgia law prohibited suits between spouses under the doctrine of interspousal immunity. Id. at 13, 546 S.E.2d at 193 (citing Ga. Code Ann. § 19-3-8 (1999)). South Carolina had abolished the doctrine in an effort to give married persons the same rights as unmarried persons-that is, the right to sue and be sued. Id. at 12, 546 S.E.2d at 193.

On appeal, the court first stated that it was the public policy of South Carolina to afford married women the same legal rights as unmarried women. Id. at 14, 546 S.E.2d at 194 (citing Bryant v. Smith, 187 S.C. 453, 462, 198 S.E. 20, 24 (1938)). Thus, the court found that Georgia's policy of interspousal immunity violated South Carolina public policy and thus used the public policy exception to apply South Carolina law and avoid the First Restatement's place of wrong rule. Id.

ii. Characterization

Characterization can be done on two levels to "select" the desired result. First, courts can use forum law to determine whether the parties have stated a contract or tort claim. See, e.g.,Levy v. Daniels U-Drive Auto Renting Co.,143 A. 163 (Conn. 1928) (characterizing the case as a contract claim rather than a tort case to apply the law of Connecticut). The resolution of this question is often outcome determinative under the First Restatement's rules. Second, because forum law generally governs procedural issues, courts can selectively characterize various aspects of the case as procedural to either avoid or apply another state's law. See, e.g., Grant v. McAuliffe, 264 P.2d 944 (Cal. 1953) (characterizing an issue as procedural rather than substantive to allow the application of forum law). One final consideration regarding characterization is dépeçage, which allows different laws to apply to different aspects of a case (e.g., a tort and contract claim) arising out of a single set of facts. Luther L. McDougal, Et. al., supra, § 91 at 352.

Nash v. Tindall Corp. 375 S.C. 36, 38-42, 650 S.E.2d 81, 82-84 (Ct. App. 2007), provides an example of a court characterizing statutes of repose as substantive-despite characterizing statutes of limitations as procedural. By characterizing the statute of repose as substantive, the court was able to apply North Carolina's shorter statute of repose and bar the plaintiffs' negligence claims. Id. The Nash case involved the foot bridge collapse at the Lowe's Motor Speedway in North Carolina. Id. at 38-39, 650 S.E.2d at 82. The injured plaintiffs sued Tindall Corporation, the designer of the prestressed concrete double tees used to support the bridge, under various theories of negligence. Id. The plaintiffs alleged that the concrete double tees were constructed in South Carolina. Id. at 38, 650 S.E.2d at82n. 2.

The issue on appeal was whether the trial court erred in applying North Carolina's shorter statute of repose to bar the negligence claims by holding that a statute of repose created a substantive right. Id. at 39, 650 S.E.2d at 83. Plaintiffs argued that South Carolina's statute of repose should apply because a statute of repose is procedural, and forum law applies to procedural issues. Id. at 39-40, 650 S.E.2d at 83. North Carolina's statute of repose for defective improvement of real property barred actions brought more than six years after substantial completion of the project. Id. at 42, 650 S.E.2d at 84. On the other hand, South Carolina's statute of repose for defective improvement of real property barred actions brought more than eight years after substantial completion of the project. Id.

In affirming the trial court's determination that a statute of repose created a substantive right, the court first noted that the substantive law governing a tort action is the place of injury, but the law of the forum governs procedural matters. Id. at 39-40, 650 S.E.2d at 83. Although the South Carolina courts generally characterize statutes of limitations as procedural, the court found that the statute of repose was substantive based on prior case law. Id. at 41-42, 650 S.E.2d at 83-84. The court found that a statute of repose is substantive, not procedural, because it "'creates a substantive right in those protected to be free from liability '" Id. at 40, 650 S.E.2d at 83(quoting Langley v. Pierce, 313 S.C. 401, 402, 438 S.E.2d 242, 242 (1993)). Thus, the court held that North Carolina's shorter statute of repose was correctly applied by the trial court to bar the action. Id. at 43, 650 S.E.2d at 84.

iii. Renvoi

The third main escape device employed by courts to skirt an "undesirable result" produced by the First Restatement is renvoi. Luther L. McDougal, Et. al., supra, § 79 at 330-31 (noting that renvoi is employed as an escape device by courts less frequently than the other listed escape devices). When applying renvoi, the forum state will look to the whole law of the state, including the foreign state's conflict law. Id. From there, the foreign state's conflicts rules may either point back to the forum court or to another state's laws (transmission). Id. By looking to the whole law of the foreign state, the court "can apply some law other than the place of the tort, the place of contracting to resolve the case in a manner the court thinks more fair or equitable. But by using the device the court again hides its real reason for decision." Id. at 331.

An example of a court applying renvoi is in Springer v. United States. 641 F. Supp. 913, 934-35 (D.S.C. 1986) (suit under the Federal Tort Claims Act). Under Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941), federal courts must apply the conflicts of laws rules of the state in which they are sitting for diversity jurisdiction cases. In Springer, the S.C. District Court used renvoi to apply South Carolina's Wrongful Death and Survival Acts. Id. The plaintiff alleged that air traffic controllers in Charlotte negligently failed to warn a pilot of severe wind sheers that caused a plane to crash shortly after take-off. Id. at 915. The deceased pilot took off from a South Carolina airfield in route to Myrtle Beach. Id. at 914. Both the pilot and his passenger were killed by the crash. Id. at 915. The pilot was the president of "Caro-Wings Flight Service, Inc., the fixed base operator of the Rock Hill Airport." Id. at 916. The South Carolina airport from where the plane took off was controlled by Charlotte air-traffic controllers. Id. The most recent weather report, which was not relayed to the pilot before take-off by Charlotte air-traffic controllers, was disseminated from the National Weather Service in Silver Spring, Maryland. Id. at 918.

Regarding choice of law, the court determined that under the Federal Tort Claims Act, Congress requires federal courts to first look to the whole law of the state where the negligence occurred. Id. at 934 (citing Richards v. United States, 369 U.S. 1, 10-11 (1962)). Because the court found that the negligent acts originated in Maryland and North Carolina, the court established that the whole law of those states applied. Id. at 934 (citing Richards, 369 U.S. at 10-11). Both Maryland and North Carolina law dictated that South Carolina law should apply because it was the place of injury. Id. (citing Use of Gliedman v. Capital Airlines, Inc., 267 F. Supp. 298 (D. Md. 1967); Conard v. Miller Motor Express, Inc., 144 S.E.2d 269 (N.C. 1965)). South Carolina then accepted the renvoi, finding that "[t]he choice of law rule for South Carolina would also apply South Carolina law, since that is the place where the injury occurred." Id. Based on South Carolina law, the court held that both the National Weather Service and the Charlotte air-traffic controllers' actions were negligent and awarded more than $1.4 million in damages. Id. at 936-38.

iv. Statutory exceptions to the First Restatement

Finally, some choice-of-law questions will be controlled by statute, not the First Restatement's rules set forth above. For example, the S.C. Code provides that "[a]ll contracts of insurance on property, lives, or interests in this State are considered to be made in the State and all contracts of insurance the applications for which are taken within the State are considered to have been made within this State and are subject to the laws of this State." S.C. Code Ann. § 38-61-10.

In Sangamo Weston, Inc. v. Nat'l Sur. Corp., 307 S.C. 143, 147-48, 414 S.E.2d 127, 129-30 (1992), the S.C. Supreme Court addressed which conflict of laws rule would determine the validity and construction of the insurance contracts at issue in the case and whether South Carolina's insurance statute was applicable. The Sangamo case involved an alleged discharge of contaminated waste water containing PCBs into several South Carolina communities. Id. at 146, 414 S.E.2d at 129. None of the parties in the action were South Carolina citizens, and the insurance policies were not executed in South Carolina. Id. at 147-48, 414 S.E.2d at 129. The policies provided "coverage for 'all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property caused by the accident.'" Id. at 147, 414 S.E.2d at 129.

The District Court certified the choice-of-law issue to the S.C. Supreme Court. Id. The S.C. Supreme Court was asked to determine whether the traditional rule of lex loci contractus governed. Id., 414 S.E.2d at 129-30. In response, the court noted that where § 38-61-10 of the S.C. Code governed, it supplanted the First Restatement's rules. Id., 414 S.E.2d at 130. Sangamo argued that because the policies were issued outside of South Carolina and covered interests and property across the country, the statute was inapplicable. Id. at 149, 414 S.E.2d at 130. However, the court disagreed, first noting that the interests and property outside South Carolina were not at issue in the litigation. Id. at 148-49, 414 S.E.2d at 130. Further, because Sangamo sought coverage only for liability incurred while operating in South Carolina, the policies insured property and interests within South Carolina-a requirement for application of the statute. Id. Therefore, the court concluded that the statute controlled and required application of South Carolina law. Id. at 149, 414 S.E.2d at 131.

D. Conclusion

While conflicts of laws may appear at first to be a difficult subject to grapple with, it is a key litigation tool for any lawyer. To summarize the necessary facts from the introductory hypothetical, there was an automobile accident in Alaska where the passenger was injured when the driver negligently hit a moose while returning a work e-mail and driving. Both parties were in Alaska on vacation; however, the injured party sought extensive treatment in South Carolina. Further, there are now several medical creditors in South Carolina. In Alaska, there is a guest statute that prevents suits like the instant one; however, in South Carolina there is no guest statute. So the question becomes: "to recover, or not to recover?"

PUT IN SHADED BOX:

The ANSWER: Under the First Restatement, the case would likely be characterized as a tort case. The First Restatement's rule for torts is the place of wrong. Here, the place of wrong was Alaska. Thus, Alaska law would apply (unless the court used an escape device), and the passenger would be denied recovery.

Yasamine J. Christopherson is an associate in the Columbia office of Nelson Mullins Riley & Scarborough.