Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-01571/USCOURTS-ca8-06-01571-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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1

The Honorable Joan N. Ericksen, United States District Judge for the District

of Minnesota.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-1571

___________

Schwan’s Sales Enterprises, Inc., *

*

Plaintiff-Appellee, *

* Appeal from the United States

v. * District Court for the

* District of Minnesota.

SIG Pack, Inc., Doboy Division, *

*

Defendant-Appellant. *

___________

Submitted: October 16, 2006

 Filed: February 9, 2007 

___________

Before MELLOY, BEAM, and BENTON, Circuit Judges.

___________

MELLOY, Circuit Judge.

SIG Pack, Inc., Doboy Division (“Doboy”) appeals from an order of the district

court1

 awarding prejudgment interest to Schwan’s Sales Enterprises, Inc.

(“Schwan’s”) on a breach-of-contract counterclaim. Doboy argues that the district

court erred in applying Minnesota law regarding prejudgment interest and should have

applied Wisconsin law pursuant to a choice-of-law provision in the contract at issue

in the lawsuit. We affirm.

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I. BACKGROUND

This case arises out of a contract between Doboy and Schwan’s by which

Doboy was to design, manufacture, and install portions of a new frozen-pizza

production line at a Schwan’s facility. That contract included a choice-of-law

provision, which stated that “[t]he validity, interpretation, and performance of this

contract shall be governed by and construed in accordance with the laws of the State

of Wisconsin.”

The parties had a number of disputes regarding the performance of the new

production line, culminating in Doboy’s decision to sue Schwan’s in the United States

District Court for the District of Minnesota. Schwan’s counterclaimed for breach of

contract. The jury found in favor of Schwan’s on its counterclaim and awarded

$524,746 in damages.

After the district court entered judgment against Doboy, Schwan’s moved to

amend the judgment to award prejudgment interest under Minnesota law. Minn. Stat.

§ 549.09. Doboy contested this motion, arguing that the court should apply Wisconsin

law governing prejudgment interest pursuant to the choice-of-law provision in the

parties’ contract. Under Wisconsin law, Schwan’s would have had to prove that the

amount of damages was “capable of determination by application of some fixed

standard” at the time of the breach. Anderson v. State Labor & Indus. Review

Comm’n, 330 N.W.2d 594, 601 (Wis. 1983). The Minnesota statute governing

prejudgment interest imposed no similar requirement. Minn. Stat. § 549.09.

The district court rejected Doboy’s arguments and awarded $97,617 under the

Minnesota statute governing prejudgment interest. On appeal, Doboy argues only that

the district court erred in failing to apply Wisconsin law regarding prejudgment

interest.

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II. DISCUSSION

In diversity cases, we apply substantive state law. Erie R.R. Co. v. Tompkins,

304 U.S. 64, 78 (1938). Prejudgment interest is a substantive matter of state law for

the purposes of Erie. Emmenegger v. Bull Moose Tube Co., 324 F.3d 616, 624 (8th

Cir. 2003). This does not, however, answer the question of which state’s prejudgment

interest law should apply. To determine that issue, we look to the conflict-of-law

principles of the state where the district court sits. Klaxon Co. v. Stentor Elec. Mfg.

Co., 313 U.S. 487, 496 (1941); Interstate Cleaning Corp. v. Commercial Underwriters

Ins. Co., 325 F.3d 1024, 1027 (8th Cir. 2003). The question of which state’s law to

apply is a legal one, and we review the district court’s determination de novo.

Interstate Cleaning Corp., 325 F.3d at 1027.

Because this case arises out of the breach of a contract that contained a choiceof-law provision, we must consider the effect of that provision upon the above

analysis. Minnesota courts are “committed to the rule that parties may agree that the

law of another state shall govern their agreement and will interpret and apply the law

of another state where such an agreement is made.” Milliken & Co. v. Eagle

Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980) (internal quotation omitted).

This rule is not absolute, however. Even in the face of a general, contractual choiceof-law provision, Minnesota courts apply Minnesota law regarding matters of

procedure and remedies. U.S. Leasing v. BIBA Info. Processing Servs., Inc., 436

N.W.2d 823, 825-26 (Minn. Ct. App. 1989) (holding that Minnesota procedure and

remedies apply to a breach-of-lease case because, while the lease included a choiceof-law provision designating Massachusetts law to govern their dispute, that provision

did not expressly state a choice-of-law with regard to procedure and remedies).

Indeed, Minnesota courts generally apply their state’s own procedure and remedies

in all cases involving conflicts of laws, whether the parties’ have a choice-of-law

agreement or not. See Davis v. Furlong, 328 N.W.2d 150, 153 (Minn. 1983) (“We

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Later cases have called this statement in Davis into question, at least with

regard to statute-of-limitations conflicts. See Danielson v. Nat’l Supply Co., 670

N.W.2d 1, 5 (Minn. Ct. App. 2003) (noting that “[t]here is some ambiguity” as to

whether Minnesota courts always apply Minnesota statutes of limitations, even though

they generally view them as procedural). The Minnesota Supreme Court has not

spoken on the issue since Davis, however. To the extent that Danielson and other

Minnesota Court of Appeals cases conflict with Davis, we note that we are bound to

apply state law “as declared by its Legislature in a statute or by its highest court in a

decision.” Erie, 304 U.S. at 78.

3

The contractual choice-of-law provision at issue in U.S. Leasing reads as

follows: “the validity, construction and interpretation of this sales agreement and the

rights and duties of the parties hereto shall be governed by the laws of the

Commonwealth of Massachusetts.” U.S. Leasing, 436 N.W.2d at 825 (quotation

omitted).

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hold that when conflicts of procedure arise, the lex fori is to be applied.”).2

 If the

parties wish for the application of another state’s law concerning such procedural and

remedial matters, they must expressly state it in their agreement. U.S. Leasing, 436

N.W.2d at 826. The parties did not do so here; the language of their choice-of-law

provision is virtually identical to the provision at issue in U.S. Leasing.

3

 

Although we consider prejudgment interest a matter of substantive law for the

purposes of Erie (and thus federal courts must apply some state’s law to the issue), this

does not answer the question of whether prejudgment interest is a matter of

substantive or procedural law for the purposes of determining which state’s law to

apply. As the Supreme Court has stated, there is not “an equivalence between what

is substantive under the Erie doctrine and what is substantive for the purposes of

conflict of laws.” Sun Oil Co. v. Wortman, 486 U.S. 717, 726 (1988). Thus,

Minnesota courts may consider prejudgment interest to be a procedural or remedial

issue to be governed by the law of the forum state, and they have done so. See

Zaretsky v. Molecular Biosystems, Inc., 464 N.W.2d 546, 548-51 (Minn. Ct. App.

1990) (holding, as a matter of first impression, that prejudgment interest is procedural

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We assume, without deciding, that Doboy’s statement of Wisconsin law is

accurate.

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for choice-of-law purposes because it “promotes the early settlement of cases between

litigants” and predicting that its characterization “may soon become the majority

rule”). Accordingly, we agree with the district court that the issue of prejudgment

interest—a matter of substantive law for Erie purposes—is a procedural matter for

conflict-of-laws purposes under Minnesota law. Therefore, we also agree that

Minnesota’s prejudgment interest statute applies in the absence of an choice-of-law

provision that expressly governs procedural matters.

Doboy disagrees, first arguing that Minnesota’s rules regarding conflicts-of-law

are irrelevant to this case because the parties chose Wisconsin law to govern the

interpretation of their contract, including the choice-of-law provision. In essence,

Doboy contends that the district court began its analysis at the wrong starting point.

According to Doboy, the district court should have first given the choice-of-law

provision the effect it would have under Wisconsin law; if it had done so, Doboy

asserts that the district court would have found that Wisconsin law governing

prejudgment interest applies. Doboy claims that Wisconsin courts, like Minnesota

courts, construe general choice-of-law agreements as governing the choice of

substantive law; unlike Minnesota courts, however, Doboy asserts that Wisconsin

courts view prejudgment interest as a matter of substantive state law.4

 Doboy’s

argument boils down to the following: the district court should have determined the

scope of the choice-of-law provision under Wisconsin law and, had it done so, it

would have found that Wisconsin law governing prejudgment interest applies to the

breach of contract here.

The logic of this argument suffers from some circularity. Doboy essentially

argues that the district court should have determined the effect of the choice-of-law

provision under the law of the parties’ chosen state; this would basically give effect

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The Restatement defines the “local law” of a state as “the body of standards,

principles and rules, exclusive of its rules of Conflict of Laws, which the courts of that

state apply in the decision of controversies brought before them.” Restatement

(Second) of Conflict of Laws § 4(1).

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to that provision before the court’s analytical determination of what effect it should

have. The Restatement (Second) of Conflict of Laws addresses this issue in a section

addressing contractual choice-of-law provisions: 

The reference, in the absence of a contrary indication of intention, is to

the “local law”5

 of the state of the applicable law and not to that state’s

“law,” which means the totality of its law including its choice-of-law

rules. Values of certainty of result and ease of application dictate that

the forum should apply the local law of the selected state and not concern

itself with the complications that might arise if the forum were to apply

that state’s choice-of-law rules. . . . It should be reiterated that in the

contracts area the forum, in the absence of a contrary indication of

intention, will not apply the choice-of-law rules of another state. 

Restatement (Second) of Conflict of Laws § 186 cmt. b (cross-references omitted); see

Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 333 (2d Cir.

2005) (noting that “courts consider the scope of a contractual choice-of-law clause to

be a threshold question” and “determine a choice-of-law clause’s scope under . . . the

law of the forum”). Here, the parties did not expressly provide that Wisconsin’s

choice-of-law rules would apply in interpreting the scope and effect of their contract.

Thus, the district court did not err in applying Minnesota law to ascertain the effect

of the choice-of-law provision in their contract.

Doboy also argues that the district court erred in failing to apply Minnesota’s

five-factor test for conflicts of substantive law on the matter of prejudgment interest.

See Jepson v. Gen. Cas. Co. of Wis., 513 N.W.2d 467, 470 (Minn. 1994) (reciting the

five factors). This argument assumes that the district court erred in finding that

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Minnesota courts consider prejudgment interest to be a matter of procedural law. It

did not, for the reasons noted above, and therefore this argument lacks merit.

III. CONCLUSION

The district court’s well-reasoned decision correctly analyzed this issue and

properly applied Minnesota law regarding prejudgment interest. Therefore, we affirm

the judgment of the district court.

______________________________

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