State courts, state territory, state power: reflections on the extraterritoriality principle in choice of law and legislation.

• Author: Florey, Katherine

INTRODUCTION I. EXTRATERRITORIALITY FRAMEWORKS A. Theories of Extraterritoriality B. The Supreme Court and Extraterritoriality 1. Constitutional Limits on State Choice of Forum Law 2. Restrictions on State Powers to Legislate II. INFLUENCE AND OVERLAP A. The Punitive Damages Cases B. The Internet and Extraterritoriality Concerns C. Nationwide Injunctions Pursuant to State Law and Other Problematic Judicial Remedies D. The Question of Contractual Choice of Law III. RECONCILING EXTRATERRITORIALITY DOCTRINES A. Choice of Law and Extraterritorial Legislation: The Case for Unification B. Choice of Law and Extraterritorial Legislation: The (Possible) Case for (Some) Divergence C. A Final Note: The Case for Revising Both Tests CONCLUSION INTRODUCTION

Do state courts--say, the courts of California--have the power to prescribe the standards of conduct that should apply to events in another state--say, Massachusetts? Is this power lesser or greater than the power of the California legislature to enact extraterritorial laws? And if these two powers are different in scope, to what extent and why?

To illustrate this rather abstract problem, an example may be helpful. Suppose gun manufacturers have the ability to design guns using a trigger design that, while much more expensive, causes fewer accidental deaths. (1) Suppose that California would like to promote usage of the safer design as widely as possible, even among gun manufacturers who operate out of state. There might be several reasons, of course, why California wishes its laws to have broad geographical scope. California might have an interest that most people would regard as legitimate. It might be the case, for example, that most guns brought into or stored in California are manufactured in other states. Or perhaps California simply wants to make its power felt as widely as possible. But whatever the reason, California would like to change the conduct of gun manufacturers outside California as well as within it. Does California have the power to do this?

Conventional choice-of-law theory gives us two answers, depending on the route that California takes. Suppose California attempts to affect the manufacturers' nationwide behavior through the imposition of damages or the issuance of injunctions in California courts. If it does so, few constitutional alarms are likely to be sounded. Indeed, according to Allstate Insurance Co. v. Hague, (2) state courts may apply whatever law they please so long as the state possesses a "significant aggregation of contacts, creating state interests, with the parties and the occurrence or transaction." (3) This standard strongly resembles the "minimum contacts" test for personal jurisdiction, and--especially outside the class action context (4)--it is normally a fair assumption that, so long as a state court has personal jurisdiction over the defendant, it probably has the power to apply forum law to her actions as well. (5) This assumption is also relatively uncontroversial; after decades of academic efforts to expunge territorial formalism from choice-of-law theory, (6) we are not accustomed to thinking of state courts' routine choice-of-law decisions as raising serious extraterritoriality problems.

But what if the California legislature attempts to shape the manufacturers' conduct prospectively, through some form of regulation that functions as a direct command--say, levying a fine on manufacturers unless they certify that they comply with California's safety standards in their operations nationwide? Under an orthodox choice-of-law understanding, this form of regulation might initially appear also to present little difficulty. In theory, both the application of forum law by state courts and the enactment of legislation by state legislatures are simply two aspects of states' legislative jurisdiction--that is, the power to dictate the substantive legal rules that apply to a given situation. (7) That power would appear to be equally at play whether a legislature purports to make its law applicable to out-of-state events or whether a court actually applies that law to individual actors--and, indeed, in the international context, the two powers are treated as equivalent. (8) Commentators have sometimes spoken as if the same principle applies in interstate relations as well (9)--and, at least at first glance, there seems no obvious reason why it should not. After all, the basic nature of the power to set substantive standards applicable to out-of-state conduct would seem to be the same whether that power is exercised by a legislature or a court.

We know, however, that this cannot be the whole story--first, and primarily, because an important, if sometimes poorly understood, (10) extraterritoriality principle constrains the reach of the laws state legislatures may enact. (11) That principle may be rooted in the dormant Commerce Clause--indeed, the Supreme Court has several times indicated that it is--but it may be better understood as a prohibition rooted in general structural principles of horizontal federalism. (12) As a result, we know that "[f]or the most part, states may not legislate extraterritorially, whatever exactly that means." (13) The exact scope of this limit, however, remains notoriously unclear, and its applicability to state courts is even foggier. Is the extraterritoriality principle a narrow one, applying only to the actions of state legislatures and/or to the types of activities (such as state protectionism of local industries) that are the core concern of more orthodox dormant Commerce Clause doctrine? Or, conversely, is the extraterritoriality principle a larger one that constrains the actions of state courts or modifies Hague's broad authorization for the application of forum law? Because the Court's pronouncements in these areas have been so murky and contradictory, no clear answer exists to these questions.

A second problem for the traditional account of the relationship between legislative jurisdiction and choice of law is that the scope of state courts' power to apply forum law to geographically remote events--an issue that the Supreme Court seemed to have resolved in Hague, (14) Phillips Petroleum Co. v. Shutts, (15) and Sun Oil Co. v. Wortman (16)--has itself been called into question. In BMW of North America, Inc. v. Gore, (17) the Court first suggested that constitutional limits, based on "principles of state sovereignty and comity" (18) as well as the Due Process Clause, (19) might exist on state courts' ability to "impose economic sanctions on violators of its laws with the intent of changing the tortfeasors' lawful conduct in other States." (20) More recently, in State Farm Mutual Automobile Insurance Co. v. Campbell, (21) the Court not only expanded upon this principle but also gave it a particular choice-of-law spin, suggesting that the courts of one state, in seeking to impose damages for defendants' out-of-state conduct, have an obligation to "apply the laws of [those defendants'] relevant jurisdiction." (22) While Gore and Campbell are nominally limited to awards of punitive damages, they offer no wholly convincing reason why the conceptual framework they articulate should not apply to compensatory damages as well, (23) and both courts and litigants have in some cases sought to extend their holdings to choice-of-law practice more generally. (24) Thus, Gore and Campbell suggest that a more general extraterritoriality prohibition lurks somewhere in the Constitution, having nothing to do with the dormant Commerce Clause or Hague's "aggregation of contacts" test, and potentially applying to the activities of courts as well as legislatures.

Given these contradictory signals, the current situation is as follows. State legislatures appear to be subject to some prohibition against enacting laws with an extraterritorial reach--although the exact scope and textual basis of this stricture is not perfectly clear. At the same time, state courts enjoy great apparent latitude to apply the law of their choosing to geographically far-flung disputes (25)--but the Supreme Court has at times suggested that problems of extraterritoriality may also attend the exercise of state court power. This doctrinal muddle has proven complicated for litigants and courts, and fails to provide any clear guidance to states or their citizens about how far state power may legitimately extend.

This Article suggests ways in which current doctrine might be reconsidered and its two main strands harmonized. In particular, it considers the question of whether the power exercised by state legislatures over out-of-state conduct differs meaningfully from that exercised by state courts. Is there a principled justification for treating the exertion of power over out-of-state events differently depending on whether it is done by a court or a legislature? Or do state courts and state legislatures embody state power in similar ways such that the extraterritorial implications of their actions should be assessed according to the same or similar standards? (26)

In attempting to answer these questions, this Article proceeds in three parts. In the first Part, it surveys current notions of extraterritoriality as they have evolved in choice-of-law principles and in legislation. It begins by looking at various models of how we might regard extraterritorial legislative jurisdiction. It then moves on to consider the two frameworks articulated by the Supreme Court for analyzing the issue of state power over out-of-state conduct: one grounded in the Due Process Clause (27) and imposing limits on choice-of-law decisions; the other ostensibly rooted in the dormant Commerce Clause and aimed at extraterritorial legislation.

The second Part of this Article considers the ways in which lines of division between choice-of-law limits and legislative extraterritoriality concerns have started to break down. It considers four examples of this apparent...