Opinion ID: 1505643
Heading Depth: 2
Heading Rank: 3

Heading: The Law Applicable to Construction of the Release

Text: One week before trial, Cessna moved the court to take judicial notice of certain statutes and case law of New Mexico. See TEX.R.CIV.P. 184a. The court granted Cessna's motion and ruled that New Mexico law, to the extent that it differed from Texas law, applied to all substantive issues in the case. The court of appeals, however, held that Texas law governed the construction of the release because the release was a contract executed in Texas and, in accordance with the rule of lex loci contractus, the law of the place of the making of the contract applied to its construction. Cessna and Duncan both argue that the court of appeals erred in applying the rule of lex loci contractus. They contend that the correct approach is the most significant relationship methodology of the Restatement (Second) of Conflict of Laws, which we adopted in Gutierrez v. Collins, 583 S.W.2d 312 (Tex.1979), for tort choice of law issues. [4] In Gutierrez, this court strongly criticized the traditional tort choice of law rule of lex loci delecti (i.e., apply the law of the place where the wrong occurred). We decided that the rule's ease of application and uniformity of result did not justify its arbitrary and often inequitable results. Additionally, we noted that the traditional rule did not meet the demands of our highly mobile modern society. Primarily for these reasons, we abandoned lex loci delecti and replaced it with the most significant relationship approach set forth in §§ 6 [5] and 145 of the Restatement (Second) of Conflict of Laws. The significant relationship methodology was selected because it offers a rational yet flexible approach to conflicts problems, ... represents a collection of the best thinking on this subject ... [and] include[s] `most of the substance' of all the modern theories. Id. at 318. Most of the numerous inadequacies inherent in lex loci delecti also exist in the other traditional lex loci rules, including lex loci contractus. Each of these traditional rules sacrifices just and reasoned results for the ease and predictability of mechanistic decision making. However, [e]ase of administration alone is a wholly inadequate reason for retention of an unjust rule. Id. at 317. By contrast, use of the most significant relationship approach in accordance with the general principles stated in § 6 produces reasoned choice of law decisions grounded in those specific governmental policies relevant to the particular substantive issue. Consequently, the lex loci rules will no longer be used in this state to resolve conflicts problems. Instead, in all choice of law cases, except those contract cases in which the parties have agreed to a valid choice of law clause, the law of the state with the most significant relationship to the particular substantive issue will be applied to resolve that issue. In applying § 6 to this case, we must first identify the state contacts that should be considered. Once these contacts are established, the question of which state's law will apply is one of law. Gutierrez, 583 S.W.2d at 319. Moreover, the number of contacts with a particular state is not determinative. Some contacts are more important than others because they implicate state policies underlying the particular substantive issue. Consequently, selection of the applicable law depends on the qualitative nature of the particular contacts. Id. at 319. The following undisputed state contacts are present in this case: Cessna is a Kansas corporation; the plane's defective seats were designed and manufactured in Kansas; the plane was put into the stream of commerce in Texas; decedent James Parker lived in Texas and worked in New Mexico; decedent Benjamin Smithson lived and worked in New Mexico; Air Plains West is a New Mexico corporation; and the release was executed in Texas as a settlement of a lawsuit filed in a federal district court in Texas. The beginning point for evaluating these contacts is the identification of the policies or governmental interests, if any, of each state in the application of its rule. Since under New Mexico law, the Duncan release would discharge Cessna, New Mexico has no governmental interest in the resolution of this issue. Its rule, set forth in Johnson, reflects policies of effectuating the intent of the parties to the release and of protecting New Mexico defendants. Here, however, no New Mexico defendant or injured party is involved. Cessna is a Kansas corporation seeking the benefit of a release executed in Texas by an injured Texas resident as part of a settlement of a suit filed in Texas. We can conceive of no legitimate reason why the New Mexico legislature should be concerned with the application of its statute to a Texas settlement to cut off a Texas resident's claim against a Kansas corporation. [6] Texas, on the other hand, has direct and important interests in the effect given to the Duncan release. Our purposes in abolishing the unity of release rule and requiring specific identification of nonsettling tortfeasors were to encourage both partial and full settlements; to avoid unfairly depriving injured Texas residents of their full satisfactions; to avoid providing an incentive to tortfeasors to delay or to stay out of early settlement negotiations; and to ensure that Texas claimants do not inadvertently lose their valuable rights against unnamed and perhaps unknown tortfeasors by settling with only one of the wrongdoers. See Knutson v. Morton Foods, Inc., 603 S.W.2d 805, 807-08 (Tex.1980); McMillen v. Klingensmith, 467 S.W.2d at 195-96. To effectuate these policies, we must narrowly construe general, categorical release clauses. A nonsettling tortfeasor should not fortuitously escape compensating his Texas victim simply because of settlement arrangements that did not encompass him or his conduct and to which he contributed nothing. If Cessna obtains the benefit of the Duncan release, then the policies underlying McMillen will obviously be frustrated. Texas has an additional interest. Duncan could reasonably have expected that the laws of Texas would govern the effect on third parties of a settlement agreement negotiated and executed in Texas. She certainly had no reason to believe that New Mexico law would apply to cut off her cause of action against Cessna or some other unknown tortfeasor. Texas has an interest in protecting Duncan's reasonable contractual expectations. An analysis of the relevant state contacts reveals that New Mexico has no underlying interest in the application of its law, while Texas has important interests in allowing Duncan's action against Cessna. In this situation, known as a false conflict, it is an established tenet of modern conflicts law that the law of the interested state should apply. See, e.g., J. Martin, Perspectives on Conflict of Laws: Choice of Law 85 (1980); E. Scoles & P. Hay, Conflict of Laws § 2.6, at 17 (1982); R. Weintraub, Commentary on the Conflict of Laws § 3.1, at 48, § 2.6, at 267-68 (2d ed. 1980). Accordingly, we hold that Texas law applies to the determination of the effect of the Duncan release on Cessna. We further hold that Cessna's liability to Duncan is not discharged.