Agenda for 4th Class
• Choice of Law in Torts continued
– Phillips
– Locational decisions in Kearney and AOL
• Choice of Law in Contracts
– Traditional approach
• Milliken
– Interest analysis
• Hypotheticals based on Milliken
• Lilienthal
– Comparative Impairment
• Farmers
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Assignment for Next Class
• Choice-of-law clauses
– Restatement 2nd §§ 186-87; Nedlloyd Lines (CB 633-44)
– Cook Sign (CB651-55)
– Application Group (Handout pp. 1-9 )
– The Law Market (Handout pp. 10-18)
• Questions on next slides
• Optional
– Hoffheimer, Chapter 21 (Restatement & UCC) pp. 263-67, Qs 3, 4,
5,6,7,8,9, 11
– Spillenger, pp. 125-35
2
Questions to Think About
• Nedlloyd Lines
– Can you think of any reason not to enforce choice-of-law clauses agreed
to by large, sophisticated businesses?
– Do you agree with the majority that the choice-of-law clause governed
the action for breach of fiduciary duty?
– Suppose the court had found that the choice-of-law clause did not
govern the action for breach of fiduciary duty. How do you think lawyers
would have drafted choice of law clauses differently in subsequent
contracts?
• Suppose the contract in Lilienthal v. Kaufman had included the following
clause: “This contract shall be governed by California law.” If Oregon courts
followed the Restatement 2nd approach to choice of law clauses, would that
have changed the outcome of the case?
• Suppose the contract in Lilenthal v. Kaufman had included the choice of law
clause mentioned above and the following clause: “All disputes arising out of
this contract shall be litigated in California state court.” Would that have
changed the outcome of the case?
3
Questions to Think About
• Cook Sign
– The Minnesota Court of Appeals applied the Better
Law approach to choice of law.
• How is that approach different from the Restatement 2nd
approach to choice of law clauses?
• What do you think of this approach to choice of law?
– Compare this case to Applications Group
• Which approach to the enforceability of choice of law
clauses did you find more persuasive?
• Do you think the fact that one court enforced the choice of
law clause while the other did not reflects the different
choice of law approaches chosen by California and
Minnesota? Or some other factor?
4
Questions to Think About
• Applications Group
– According to the opinion, Hunter admitted that it used covenants not to
compete to deter and prevent solicitation, recruitment and hiring of its
employees and “to avoid a bidding war that would increase the salary of
its consultants.” If you were representing Hunter, can you think of
reasons to use covenants not to compete that might been more
effective?
– If California courts invalidate covenants not to compete between
employers and employees in other states, who bears the cost of such
invalidation? Who benefits?
– After this case, if Hunter wants to avoid liability for unfair competition
under California Unfair Practices Act §17200, what would it need to do
(or not do)?
5
Questions to Think About
• O’Hara & Ribstein, The Law Market
– Are you persuaded by O’Hara and Ribstein’s reasons to generally
respect choice-of-law clauses. Why or why not?
– O’Hara and Ribstein suggest that choice-of-law clauses in consumer
contracts should be enforced even in consumer contracts, unless such
clauses are expressly forbidden by statute. Do you agree with that
proposal? Why or why not?
6
Convenants Not To Compete
• When A works for B, employment contract sometimes forbids A from taking
job at competing firm after employment terminates
• Can be beneficial
– if prevents A from divulging trade secrets to B’s competition and thus
encourages B to share trade secrets
– If encourages B to invest in A’s training, because assured that other
company won’t benefit from B’s investment
• Can be problematic
– Prevents workers from working for firm which values their work the most
• Allowed in most states, if “reasonable” time and place limitations
– Ok if covenant forbids worker to work for competitor for 1 or 2 years, but
not if forbids worker to work for competitor for 10 years or life
• Always forbidden in California
– In fact, use of covenants not to compete is considered “unfair competition
in California and subjects the employer to liability, even though such
covenants are unenforceable
• Some empirical work suggests that California has more vibrant technology
industries than Massachusetts because California does not enforce
covenants not to compete, but Massachusetts does
– Massachusetts law encouraged large firms, such as Wang
7
– California encouraged small, innovative firms
Phillips I
• In Phillips, the Montana Supreme Court observes that “applying the law of
the place of manufacture would be unfair because it would tend to leave
victims under compensated as states wishing to attract and hold
manufacturing companies would raise the threshold of liability and reduce
compensation…. [A state with a high concentration of manufacturing] could
enjoy all the benefits associated with liability laws which favored
manufacturers in order to attract and retain manufacturing firms and
encourage business within its borders while placing the costs of its
legislative decision, in the form of less tort compensation, on the shoulders
of nonresidents injured by its manufacturers’ products.” (p. 249).
– Suppose Montana has a relatively low concentration of manufacturing.
Would its citizens benefit from laws which raised the threshold of liability
and reduced compensation? Or would its citizens benefit by laws which
lowered the threshold of liability and increased compensation? If it
lowered the threshold of liability and increased compensation, who would
bear the increase in costs? What does this suggest about the fairness of
applying Montana law?
8
Phillips II
• In Phillips, the Montana Supreme Court asserted that “we do not believe
that the purpose of any potentially applicable Michigan product liability law
would be to regulate the design and manufacture of products within its
borders. The purpose of product liability law is to regulate interstate sales or
sales to residents and to set the level of compensation when residents are
injured.” (p. 249)
– If the plaintiffs in Phillips had filed the case in Michigan state court, do
you think Michigan state judges would have agreed that its laws are
inapplicable? What purpose might a Michigan judge ascribe to product
liability law to show that Michigan law should apply?
• Do you see any reasoning in Phillips that is similar to renvoi? Is that
reasoning persuasive?
• Do you see any reasoning in the cases in this assignment which are similar
to purposeful availment?
• Of the choice of law methods we have discussed so far – traditional
approach, interest analysis, comparative impairment, and Restatement 2nd –
which do you think is best and why?
– Can you think of a different approach which would be better or a way of
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improving the approaches mentioned above?
Kearney & AOL v. NHCD revisited
• Recall that in Kearney, the court held that California privacy law applied to
calls made from California to a call center in Georgia. Suppose, however,
that the court had held that Georgia law applied. After the decision, where
do you think companies would have located their call centers?
– Given that the decision actually found that California law applied, how
does it affect companies’ decisions about where to locate their call
centers?
• Recall, that in AOL v NHCD, the court held that Virginia was the state with
the most significant relationship to this dispute between a spammer (NHCD)
and an internet service provider (AOL). The contact that was found to be
most significant was the fact that AOL’s servers were located in Virginia, so
this is the site of the injury.
– After this case, where do you think internet service providers will locate
their servers?
10
Milliken v. Pratt
• How would Milliken be resolved under the First Restatement?
– Be sure to consider both sections 324 (Handout p. 496) and 326 (CB p.
37)
• Consider the following modern variant on Milliken
– In Kansas, the age of majority for contract purposes is 18.
– In Nebraska, the age of majority for contract purposes is 19. If a person
under the age of 19 enters into a contract, the person may void the
contract, in which case the contact is not enforceable.
– Junior is 18.5 years old and is domiciled in Nebraska. He buys a stereo
on credit by mail order from Loud Inc., a company in Kansas. The
Kansas company delivers the stereo, but Junior does not pay for the
stereo. The Kansas company sues Junior in Nebraska state court.
– What is the applicable law under the reasoning in Milliken?
– What is the applicable law under the First Restatement?
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Interest Analysis
• Consider the following 16 variants on Loud v Junior:
– Loud is a Nebraska (N) or Kansas (K) company. It is both incorporated
there and has its sole place of business in that state.
– Junior is domiciled in Nebraska or Kansas.
– The contract is made in Nebraska or Kansas. For the purpose of these
variants, assume that Loud and Junior negotiate the contract in person in
a coffee shop in either Nebraska or Kansas to be repaid in the same
place.
– Loud brings suit in Nebraska or Kansas
– The sixteen possible cases are depicted on the chart on the next page.
– How would these sixteen cases be resolved under the traditional
approach?
– How would these sixteen cases be resolved under interest analysis?
– How would these sixteen cases be resolved under comparative
impairment?
– How would these sixteen cases be resolved under the Restatement 2nd?
– Should the Rule of Validation (See CB 199) affect the result in these
cases?
12
1
N
N
N
N
2
K
N
N
N
3
N
K
N
N
4
N
N
K
N
5
N
N
N
K
6
K
K
N
N
7
N
K
K
N
8
N
N
K
K
9
K
N
N
K
10
K
N
K
N
11
N
K
N
K
12
K
K
K
N
13
K
K
N
K
14
K
N
K
K
15
N
K
K
K
16
K
K
K
K
Questions for Next Class III
Case Loud
Junior
Place of
Forum
#
domicile domicile contracting
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Restatement 2nd on Contracts
• 188. Law Governing in the Parties in the Absence of Effective Choice by the
Parties
– (1) The rights and duties of the parties with respect to an issue in
contract are determined by the local law of the state which, with respect
to that issue, has the most significant relationship to the transaction and
the parties under the principles stated in § 6.
– (2) In the absence of an effective choice of law by the parties (see §
187), the contacts to be taken into account in applying the principles of §
6 to determine the law applicable to an issue include: (a) the place of
contracting, (b) the place of negotiation of the contract, (c) the place of
performance, (d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of
business of the parties. These contacts are to be evaluated according to
their relative importance with respect to the particular issue.
– (3) If the place of negotiating the contract and the place of performance
are in the same state, the local law of this state will usually be applied,
except as otherwise provided in §§ 189-199 and 203.
• § 198. Capacity to Contract
– (1) The capacity of the parties to contract is determined by the law
selected by application of the rules of §§ 187- 188.
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– (2) The capacity of a party to contract will usually be upheld if he has
such capacity under the local law of the state of his domicil.
Lilienthal & Farmers
• Lilienthal
– What do you think the outcome of this case would have been under the
traditional approach?
– What do you think the outcome of this case would have been under
comparative impairment?
– What do you think the outcome of this case would have been under the
Restatement 2nd?
– Does your answer to these questions depend on whether suit was
brought in California or Oregon?
• Farmers
– Why do you think that Farmers filed for declaratory relief?
– Why does California have “a strong interest in seeing that its antistacking law is enforced”?
– Why does the court refer to “Governmental Interest Analysis” and section
193 of the Second Restatement of Conflict of Laws, when California has
chosen Comparative Impairment as its approach to Conflict of Laws?
– Is this a False Conflict or True Conflict case?
– What do you think the outcome of this case would have been under the
traditional approach? Interest Analysis? Restatement 2nd?
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– Do your answers to the previous question depend on whether suit was
brought in California or Arizona?