Opinion ID: 4536271
Heading Depth: 4
Heading Rank: 1

Heading: Procedural Versus Substantive

Text: A federal district court sitting in diversity jurisdiction, 28 U.S.C. § 1332, applies substantive state or foreign law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). “The nub of the policy that underlies [Erie] is that for the same transaction the accident of a suit by a non-resident litigant in a federal court instead of in a State court a block away, should not lead to a substantially different result.” Guar. Tr. Co. of N.Y. v. York, 326 U.S. 99, 109 (1945); see Van Dusen v. Barrack, 376 U.S. 612, 639 (1964) (a “change of courtrooms” should not lead to a change in the law applied to 16 COOPER V. TOKYO ELEC. POWER CO. the parties). Accordingly, a federal district court will apply its own rules of procedure, but state or foreign substantive law. See, e.g., Abogados v. AT&T, Inc., 223 F.3d 932, 935 (9th Cir. 2000). Unfortunately, “[c]lassification of a law as ‘substantive’ or ‘procedural’ for Erie purposes is sometimes a challenging endeavor.” Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996). “In determining whether a state law is substantive or procedural, we ask whether the law is outcome determinative,” that is, whether not applying the law would significantly affect the result of the litigation. Cuprite Mine Partners LLC v. Anderson, 809 F.3d 548, 555 (9th Cir. 2015). We have explained that “[a] substantive rule is one that creates rights or obligations” while a procedural rule “defines a form and mode of enforcing the substantive right or obligation.” County of Orange v. U.S. District Court (In re County of Orange), 784 F.3d 520, 527 (9th Cir. 2015) (internal quotation marks omitted). Our inquiry is “guided by ‘the twin aims of the Erie rule: discouragement of forumshopping and avoidance of inequitable administration of the laws.’” Cuprite Mine, 809 F.3d at 555 (quoting Gasperini, 518 U.S. at 428). It is important to the fair administration of law that “‘the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court.’” Gasperini, 518 U.S. at 427 (quoting Guar. Tr., 326 U.S. at 109). The same logic applies when a foreign, rather than state, forum is at issue. The plaintiffs argue that the district court should not have conducted a choice-of-law analysis at all because the channeling provision in the Compensation Act is procedural and not substantive. According to the plaintiffs, the provision COOPER V. TOKYO ELEC. POWER CO. 17 effectively “strips a court of jurisdiction” over claims against anyone other than an operator of a nuclear plant. But the plaintiffs do not explain how that is the case. While it is a well-established principle that jurisdictional rules are not substantive, see McGee v. Int’l Life Ins. Co., 355 U.S. 220, 224 (1957), the plaintiffs make no meaningful argument about how the channeling provision is jurisdictional. The channeling provision makes no reference to jurisdiction or, indeed, to any court.4 It simply provides that only the operator of a nuclear reactor will be liable for any damages caused by the operation of the facility. That is not a jurisdictional provision. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160–61 (2010). The channeling provision is much more akin to state statutes that limit liability for certain injuries. If “[j]urisdiction is the power to declare law,” Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514 (1869), the channeling provision is the law itself, not an assignment of the power to declare it. Importantly, California courts have routinely treated such liability-limiting provisions as substantive law and applied them under California’s choice-of-law rules. See, e.g., Offshore Rental Co. v. Cont’l Oil Co., 583 P.2d 721, 729 (Cal. 1978) (applying Louisiana law foreclosing employer’s cause of action for negligent injury to key employee); Castro v. Budget Rent-A-Car Sys., Inc., 65 Cal. Rptr. 3d 430, 444 (Ct. App. 2007) (applying Alabama law precluding liability against vehicle owner for negligence of a permissive user). 4 Under Japanese procedures put in place after the disaster, claims may be filed, but do not have to be filed, in a Japanese court. They may also be filed with TEPCO directly or with the Nuclear Damage Claim Dispute Resolution Center, created after the FNPP incident. 18 COOPER V. TOKYO ELEC. POWER CO. Moreover, application of the channeling provision ends the case as to GE’s liability, making the provision, as the plaintiffs concede, outcome-determinative. This weighs heavily in favor of finding that the provision is substantive rather than procedural. See Gasperini, 518 U.S. at 427–28. A liability-limiting statute with such outcome-determinative implications is substantive and subject to a choice-of-law analysis. 2. Propriety of Choice-of-Law Analysis at the Motionto-Dismiss Stage The plaintiffs next contend that the district court erred by conducting a choice-of-law analysis at this stage of the litigation. They argue that they needed additional time and discovery to fully develop the arguments and factual issues related to the choice-of-law analysis. The district court rejected this argument, finding that it was appropriate to analyze choice-of-law at this stage because the issue was fully briefed and discovery would not affect the analysis. The plaintiffs argue that a choice-of-law determination “requires a level of factual development and detailed legal briefing that was not and is not present in” this case at this time. But the plaintiffs cite no principle to support the argument that a court cannot decide choice-of-law issues in a motion to dismiss. And although some district courts reserve ruling on the issue until later in the litigation, the district court here had all the argument and facts necessary to make its decision. As to the contention that additional legal briefing was necessary, choice of law was one of the primary issues presented to the district court in the motion to dismiss. It was COOPER V. TOKYO ELEC. POWER CO. 19 fully briefed by both parties, and the district court was able to engage in a complete analysis. This is unlike some of the cases the plaintiffs cited, in which the parties had provided little or no briefing when asking the district court to decide the choice-of-law question. See, e.g., Dean v. ColgatePalmolive Co., 2015 WL 3999313, at  (C.D. Cal. June 17, 2015) (no analysis at all); Czuchaj v. Conair Corp., 2014 WL 1664235, at  (S.D. Cal. Apr. 18, 2014) (one page); Brazil v. Dole Food Co., 2013 WL 5312418, at  (N.D. Cal. Sept. 23, 2013) (no analysis at all). We are also not persuaded that the district court needed a more expansive factual record to decide the choice-of-law issue. The plaintiffs first argue that the terms of the contract between GE and TEPCO, particularly its choice-of-law or venue provisions, could influence the analysis. But those provisions have no bearing on tort claims filed by third parties, like the plaintiffs. Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992) (“Claims arising in tort are not ordinarily controlled by a contractual choice of law provision.”); see also Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1165 (9th Cir. 1996) (finding third parties cannot be bound by a choice-oflaw provision in a contract in which they had no interest). The plaintiffs also contend that discovery could shed light on information about the operational responsibilities of GE and TEPCO, as well as TEPCO’s knowledge about the incoming U.S. naval ships. But the plaintiffs offer no explanation about why this information would be important to the analysis of whether California or Japan has a greater interest in the application of its substantive laws to the claims against GE. That information could be important to determining GE’s ultimate liability, but it has no bearing on the choice-of-law analysis. 20 COOPER V. TOKYO ELEC. POWER CO. The district court did not err in proceeding with the full choice-of-law analysis. 3. Choice of Law The final question is whether the district court erred when it decided that the laws of Japan, not California, govern plaintiffs’ claims against GE. California courts decide choice-of-law questions by means of the “governmental interest” test, which proceeds in three steps. Offshore Rental, 583 P.2d at 723. First, the court must determine whether the substantive laws of California and the foreign jurisdiction differ on the issue before it. McGhee v. Arabian Am. Oil Co., 871 F.2d 1412, 1422 (9th Cir. 1989). Second, if the laws do differ, then the court must determine what interest, if any, the competing jurisdictions have in the application of their respective laws. Id. “If only one jurisdiction has a legitimate interest in the application of its rule of decision, there is a ‘false conflict’ and the law of the interested jurisdiction is applied.” Id. But if more than one jurisdiction has a legitimate interest, “the court must move to the third stage of the analysis, which focuses on the ‘comparative impairment’ of the interested jurisdictions.” Id. This third step requires the court to “identify and apply ‘the law of the state whose interest would be the more impaired if its law were not applied.’” Id. (quoting Offshore Rental, 583 P.2d at 726).
The parties agree that the laws of California and Japan differ. Under Japanese law, the Compensation Act would apply and channel liability for nuclear damage exclusively to the licensed operator of the nuclear installation—here, TEPCO. If Japanese law applies, it requires dismissal of all COOPER V. TOKYO ELEC. POWER CO. 21 claims against GE. Under California law, on the other hand, a manufacturer such as GE is strictly liable if its product is defectively manufactured, defectively designed, or distributed without adequate instructions or warnings. See Hufft v. Horowitz, 5 Cal. Rptr. 2d 377, 379 (Ct. App. 1992). If California law applies and the plaintiffs prove that GE defectively manufactured or designed the reactor, GE would be strictly liable. See id.
We must next determine what interest, if any, Japan and California have in the application of their respective laws to this case. Offshore Rental, 583 P.2d at 724–25. Only if each jurisdiction involved has a legitimate but conflicting interest in applying its own law will there be a “true conflict,” requiring us to move on to step three of the analysis. Id. at 725–26. The plaintiffs agree that there is a true conflict, but contend that Japan’s interests are not “strong.” GE argues that there is no true conflict because, while Japan has substantial, legitimate interests in applying its laws, California’s interests are “minimal at best.” It asserts that the plaintiffs’ claims directly implicate conduct that occurred in Japan and is subject to a Japanese liability-limiting statute, giving Japan strong legitimate interests in having its law applied. In contrast, GE contends that California’s only interest is in ensuring compensation for California-resident victims, which would be equally served under Japanese law. At this point in the analysis, our only consideration is whether each jurisdiction has legitimate interests in seeing its own law applied in this case and whether those interests conflict. Weighing the strength of California’s interests 22 COOPER V. TOKYO ELEC. POWER CO. against Japan’s occurs at the third step, which we need only reach if there is a true conflict. (1) Japan’s Interests. The parties generally agree that Japan has legitimate interests in having its law applied to this case. These interests are: (1) adjudicating claims arising from a natural disaster that occurred in Japan, (2) adjudicating claims arising from injuries that occurred in Japan, and (3) providing consistent allocation of liability for nuclear disasters under the Compensation Act. The final interest is of particular importance. As the California Supreme Court has stated: When a state adopts a rule of law limiting liability for commercial activity conducted within the state in order to provide what the state perceives is fair treatment to, and an appropriate incentive for, business enterprises, we believe that the state ordinarily has an interest in having that policy of limited liability applied to out-of-state companies that conduct business in the state, as well as to businesses incorporated or headquartered within the state. McCann v. Foster Wheeler LLC, 225 P.3d 516, 530 (Cal. 2010). Here, Japan’s Compensation Act limits liability for participants in its nuclear industry, in part as an incentive for businesses to participate. This is a “real and legitimate interest” in having Japanese law apply to the case. Id. at 531–32. (2) California’s Interest. California law holds manufacturers strictly liable for products defectively COOPER V. TOKYO ELEC. POWER CO. 23 manufactured or designed. Hufft, 5 Cal. Rptr. 2d at 379. California courts have described the state’s interest underlying this law: [It] is to [e]nsure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves. The other purposes, or public policies, behind the creation of the doctrine of strict products liability in tort as a theory of recovery are:
negligence may be present but difficult to prove; (2) to provide an economic incentive for improved product safety; (3) to induce allocation of resources towards safer products; and (4) to spread the risk of loss among all who use the product. Barrett v. Superior Court, 272 Cal. Rptr. 304, 309 (Ct. App. 1990) (internal quotation marks and citations omitted). These interests are certainly legitimate. GE, however, contends that these interests are insignificant in this case, arguing that the plaintiffs “cannot manufacture a true conflict by invoking irrelevant policies and interests.” It argues that policies underlying California’s strict-products-liability law “are immaterial here because there are no ‘products’ at issue.” But that is not the case. While it is true that the district court previously commented that “[t]he FNPP was evidently not a product ‘placed on the market,’” Cooper II, 166 F. Supp. 3d at 1129, the claims against GE do not arise out of the FNPP as a single entity. 24 COOPER V. TOKYO ELEC. POWER CO. GE manufactured particular parts of the Fukushima Daiichi facility—the reactors. The fact that reactors were not marketed broadly to consumers does not detract from the fact that they were designed and built for the FNPP. That is sufficient, in a proper case, to be subject to California’s products liability rules. See Rawlings v. D.M. Oliver, Inc., 159 Cal. Rptr. 119, 122 (Ct. App. 1979) (holding that the fact that a product was not mass produced has no effect on the manufacturer’s responsibilities in manufacturing and selling products). Although there are no California defendants in this case, there are plaintiffs who are California residents. And California has a legitimate interest in ensuring that its injured residents are compensated for injuries resulting from the design and manufacture of faulty products, as well as providing an easy way to prove liability. So, the interests served by California’s strict-products-liability laws are also relevant. We conclude, as did the district court, that there is a socalled “true conflict” here. California has an interest in holding manufacturers of defective products liable in tort to ensure compensation for its residents. Japan, on the other hand, has an interest in consistent application of its liabilitylimiting statute to businesses participating in its nuclear industry. We therefore move to the final step of the analysis.
Law Were Not Applied Once a true conflict is identified, we must consider the “comparative impairment” step of the analysis, which “seeks to determine which state’s interest would be more impaired COOPER V. TOKYO ELEC. POWER CO. 25 if its policy were subordinated to the policy of the other state.” Offshore Rental, 583 P.2d at 726. The conflict “should be resolved by applying the law of the state whose interest would be the more impaired if its law were not applied.” Id. The purpose of this step is not for us to judge which law is “better” or “worthier” social policy; instead, we are “to decide—in light of the legal question at issue and the relevant state interests at stake—which jurisdiction should be allocated the predominating lawmaking power under the circumstances of the present case.” McCann, 225 P.3d at 534. California’s courts have frequently applied foreign laws that serve to protect businesses by limiting liability, even when applying that law precludes recovery by injured California residents. For example, in Offshore Rental, a California corporation brought a claim against a Louisiana company for the loss of services of a “key” employee who was injured on the defendant company’s premises in Louisiana. 583 P.2d at 729. The California Supreme Court noted that Louisiana’s interest in applying its own law to the case was “to protect negligent resident tort-feasors acting within Louisiana’s borders from the financial hardships caused by the assessment of excessive legal liability or exaggerated claims resulting from the loss of services of a key employee.” Id. at 725. California had made a different choice in legal policies: California had “an interest in protecting California employers from economic harm because of negligent injury to a key employee inflicted by a third party.” Id. Weighing these competing interests, the court held that “[a]t the heart” of Louisiana’s liability-limiting law was “the vital interest in promoting freedom of investment and enterprise within Louisiana’s borders, among investors incorporated both in Louisiana and elsewhere.” Id. at 728. 26 COOPER V. TOKYO ELEC. POWER CO. Imposing liability in this situation, when Louisiana had decided not to, would therefore “strike at the essence of a compelling Louisiana law.” Id. Particularly because the accident occurred in Louisiana, California’s interest in compensation for injured California companies could not overcome Louisiana’s greater interest in protecting businesses operating there. Id. at 728–29. Applying Louisiana law and finding no cause of action, the court affirmed dismissal of the suit. Similarly, in McCann, the California Supreme Court applied Oklahoma law that limited a defendant’s liability even though it precluded recovery for a California plaintiff. 225 P.3d at 537. McCann was exposed to asbestos while working in an oil refinery in Oklahoma in the 1950s. Many years later he developed mesothelioma, and brought suit in his home state, California, against the manufacturer of a boiler installed in the refinery. The manufacturer was a resident of neither Oklahoma nor California, but of New York. Relying on Offshore Rental, the court applied Oklahoma’s 10-year statute of repose to the plaintiff’s claim instead of California’s statute of limitations.5 Id. The court noted that Oklahoma had an interest in promoting commercial activity within the state by limiting businesses’ liability, while California had a general interest in ensuring compensation for its injured residents, and had a special interest in providing relief from “asbestos-related harm.” Id. at 532. Nevertheless, the court concluded that applying 5 Under Oklahoma’s statute of repose, the time for filing suit ran from the time the construction project was completed, whether McCann knew of his injury or not. Under California’s statute of limitations, McCann had one year from the time he learned of his mesothelioma. McCann, 225 P.2d at 521 & n.2, 523, 529. COOPER V. TOKYO ELEC. POWER CO. 27 California’s statute of limitations would “significantly undermine Oklahoma’s interest in establishing a reliable rule of law governing a business’s potential liability for conduct undertaken in Oklahoma.” Id. at 535. In contrast, failure to apply California law would have had a less significant impact on California’s interest. Id. While it precluded the plaintiff’s recovery, California courts take a “restrained view” of California’s interest in recovery for its residents for injuries that occur in another jurisdiction. Id. at 535–36 (discussing Offshore Rental, 583 P.2d at 728, and Castro, 65 Cal. Rptr. 3d at 443–44). Given Oklahoma’s strong interest in limiting liability for commercial activity within its borders, the California Supreme Court applied Oklahoma law and dismissed the McCann’s claim. Id. at 537. In light of this precedent, the district court correctly decided that Japanese law should apply to this case. Japan’s interests here are similar to those at issue in Offshore Rental, McCann, and other cases in which California courts (and federal courts applying California’s choice-of-law rules) have found that California’s interest in compensation for injured residents failed to overcome a foreign jurisdiction’s interest in limiting defendants’ substantive liability for injuries occurring within its borders.6 Japan’s interest here is in 6 See Arno v. Club Med Inc., 22 F.3d 1464, 1469 (9th Cir. 1994) (applying French law to plaintiff’s vicarious-liability claim because Guadeloupe’s interest in “encouraging local industry . . . and reliably defining the duties and scope of liability of an employer doing business within its borders” would be more impaired than California’s interest in “providing compensation to its residents” if its law was not applied); Castro, 65 Cal. Rptr. 3d at 443–44 (applying Alabama law because its interest in allocating liability would be more impaired by application of California’s more permissive statute than would California’s interest in compensation for injured residents if Alabama law was applied); Tucci v. 28 COOPER V. TOKYO ELEC. POWER CO. limiting liability for defendants engaged in the nuclear-power industry in Japan. Japan made a conscious decision to encourage nuclear power in Japan. It balanced “providing protection for injured parties” with “contributing to the sound development of nuclear reactor operations.” Compensation Act, ch. I, art. 1. Under the Compensation Act, “the Nuclear Operator is liable to compensate for damages in connection with the Operation . . . of [the] Nuclear Reactor” and “no other persons shall be liable to compensate for damages other than the Nuclear Operator.” Id. at ch. II, arts. 3–4. In comparing Japan’s and California’s interests, we cannot judge which policy embodies “the better or worthier rule,” but instead must determine which jurisdiction’s interest would be most “significantly impair[ed]” if its law were not applied. McCann, 225 P.3d at 534. We have little difficulty concluding that failure to apply Japanese law in these circumstances would significantly impair Japan’s interests. Japan’s Compensation Act is directed specifically at accidents at a nuclear facility; California’s products liability rules are general in nature and presumably cover everything from toasters to airplanes. The release of radiation occurred at the FNPP on Japanese soil and the United States sent the U.S.S. Ronald Reagan to Japan in aid of the disaster.7 Club Mediterranee, S.A., 107 Cal. Rptr. 2d 401, 408–12 (Ct. App. 2001) (applying Dominican law in light of the Dominican Republic’s superior interest in “assuring that businesses . . . face limited and predictable financial liability for work-related injuries”). 7 Before the district court and in their opening brief, the plaintiffs argued that the injury here did not occur in Japan because it happened in international waters. In reply and at oral argument, the plaintiffs amended that argument and now claim that the injury occurred on “U.S. soil” COOPER V. TOKYO ELEC. POWER CO. 29 Even if application of the Compensation Act would bar any relief for these plaintiffs, we would still be required to apply Japanese law. See McCann, 225 P.3d at 537–38; Offshore Rental, 583 P.2d at 729. But application of Japanese law does not entirely foreclose recovery for the plaintiffs here. Japanese law allows for compensation for the plaintiffs’ injuries—just not from GE. This makes application of Japanese law less intrusive on California’s interests than in cases like McCann and Offshore Rental. For these reasons, Japanese law applies to the claims against GE. Because there is no dispute on appeal that application of Japanese law requires dismissal of all claims against GE, we affirm the dismissal of these claims with prejudice.8