Opinion ID: 2569835
Heading Depth: 1
Heading Rank: 9

Heading: Continued Viability of the Restatement (First) of Conflict of Laws for Multi-State Class Action Lawsuits

Text: {48} After determining that an actual conflict existed in this case, the Court of Appeals correctly relied on the Restatement (First) of Conflict of Laws and the place of contracting rule contained within the Restatement (First) to determine what law ought apply to the class members from states other than New Mexico. See Ferrell, 2007-NMCA-017, ¶¶ 30; Restatement (First) of Conflict of Laws § 311, at 395 (1934). However, we note that the Court of Appeals' adoption of the actual conflict doctrine represents a divergence from the analysis traditionally undertaken under the Restatement (First) because, as discussed below, the Restatement (First) does not contemplate a comparison of the laws of the states involved. {49} Despite being contrary to a traditional choice-of-law analysis, the Court's decision to adopt the actual conflict doctrine is consistent with the procedures required by our class action rule. As discussed above, a district court must undertake an analysis of the laws of the relevant states to ensure that the predominance and superiority requirements of the class action rule are met. If a court finds that the laws of the relevant states are similar enough to meet the predominance requirement, but then has to apply the laws of the state where the insured entered into the contract, the district court's analysis regarding predominance would have been in vain. Thus, a strict adherence to the traditional principles espoused by the Restatement (First) may render multi-state class actions a virtual nullity. Because we reverse the Court of Appeals' determination that an actual conflict exists in this case, we could stop at this point. However, because the doctrine we currently follow may no longer be appropriate for multi-state class action litigation, we resolve this potential problem in this Opinion for the benefit of our class action jurisprudence. {50} New Mexico has traditionally followed the Restatement (First). See United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 469, 775 P.2d 233, 235 (1989). The Restatement (First) consists of rules for each substantive area of the law, which are based on a particular predetermined contact. Thus, under the Restatement (First), a court does not choose between competing laws, but simply chooses between competing jurisdictions. See Scoles et al., supra, § 2.7, at 21. If a party argues that the laws of the state where the right vested conflict with a fundamental public policy of New Mexico, a New Mexico court may refuse to apply that state's law. See United Wholesale Liquor Co., 108 N.M. at 470, 775 P.2d at 236. {51} As the Court of Appeals correctly noted, if an actual conflict exists, a court presiding over a multi-state class action lawsuit in a Restatement (First) jurisdiction must make an initial determination of which state or states' law applies to the controversy, based upon the traditional principles of the Restatement (First). See Ferrell, 2007-NMCA-017, ¶¶ 30-31. Following this traditional approach literally, when faced with a multi-state class action, a court could not consider the laws of the other states connected to the dispute; instead the court would be required to apply the rule from the Restatement (First) that pertains to the claim alleged. See Leflar et al., supra, § 86, at 256 (noting that a court in a state that has adopted the Restatement (First) ha[s] only to determine ... the nature of the issue before it ..., look up the choice-of-law rule conceptually appropriate to that type of case, then apply the rule to the facts). {52} Thus, with respect to the instant appeal, the district court would have simply applied the Restatement (First) § 311, at 395, the [law of] `the place of contracting.' Assuming that the place of making the contract was the state where the insured entered into the contract, the district court would have been required to apply the separate law of each of the thirteen states involved in the class action, without considering the competing laws and policies of the other states connected to the suit. This leads to problems and could conflict with the policy behind class actions, i.e., the district court would have no choice but to apply the thirteen states' laws, which may make the class action unmanageable. {53} Because of the mechanical nature of its application, the Restatement (First) has been widely criticized as being inflexible, rigid, and leading to unjust results. See Scoles et al., supra, § 2.7, at 21-22. Another criticism levied against the Restatement (First) is that it does not recognize choice-of-law provisions. Scoles et al., supra, § 18.14, at 989. Currently only eleven states, including New Mexico, continue to follow the choice-of-law rules set forth in the Restatement (First) with respect to contract claims. Scoles et al., supra, § 2.21, at 87. {54} Twenty-four states have rejected the Restatement (First) in favor of the Restatement (Second) of Conflict of Laws (1971) with respect to contract conflicts. Scoles et al., supra, § 2.23, at 99. The Restatement (Second) eschews a rigid, mechanical selection of a particular jurisdiction and, instead, focuses on the content of the laws of the states connected to the dispute. As such, a court does not choose between two competing jurisdictions, but between competing bodies of law, and competing public policies. See Leflar et al., supra, § 100, at 282-84. Additionally, the Restatement (Second) proceeds issue by issue, rather than by an entire claim, so one issue may be resolved under the law of one jurisdiction, while another issue may be resolved under the law of a different jurisdiction. Further, the Restatement (Second), unlike the Restatement (First), acknowledges the realities of modern contracts and respects party autonomy by allowing the parties to choose the law that will govern the dispute. Restatement (Second) § 187, at 561; see also Symeon C. Symeonides, Oregon's Choice-of-Law Codification for Contract Conflicts: An Exegesis, 44 Willamette L.Rev. 205, 222 (2007) ([T]he drafters of the First Restatement rejected party autonomy.... Recognizing this reality, the Restatement (Second) formally sanctioned and codified the principle of party autonomy.). If the contract has a valid choice-of-law provision, that law presumptively applies. Restatement (Second) § 187, at 561. {55} In the absence of an enforceable choice-of-law provision, and if the rules regarding specific types of contracts or specific issues in contract do not supply the law to be applied, the Restatement (Second) relies on the most significant relationship test which is used to determine which state has the most significant relationship to the transaction and to the parties. Id. § 188(1), at 575. A court considers a variety of contacts when making a determination about which state's law applies to the dispute. See id. (listing the following relevant contacts (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). Significantly, a court must consider both the number of contacts in a given jurisdiction, and even more importantly, the quality of those contacts. See id. (These contacts are to be evaluated according to their relative importance with respect to the particular issue.). The qualitative nature of a particular contact is determined by reference to the Choice-of-Law Principles set forth in Section 6, which include: (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied. Id. § 6, at 10. {56} After comparing the Restatement (First) and the Restatement (Second), it is apparent that the rigidity of the Restatement (First) is particularly ill-suited for the complexities present in multi-state class actions. It does not allow a court to consider the competing policies of the states implicated by the suit. [3] We conclude that the Restatement (Second) is a more appropriate approach for multi-state contract class actions. See, e.g., Chrysler Corp. v. Skyline Indus. Servs., Inc., 448 Mich. 113, 528 N.W.2d 698, 703 n. 28 (1995) (declining to explicitly abandon the traditional approach but acknowledging that such an approach may prove to be unworkable under certain factual situations, such as those presented [in the appeal at bar], which demand a more extensive review of the relative interests of the parties and the interested states). {57} Thus, if a district court determines that the laws of the states implicated in a multi-state contract class action actually conflict, the court should then apply the principles of the Restatement (Second) to determine which law applies to the disputed issue. Once the court determines which law applies, the court must then determine whether the application of that chosen law is constitutional. See Phillips, 472 U.S. at 821-22, 105 S.Ct. 2965 (holding that, in the presence of an actual conflict, the choice to apply a single state's law is constitutional so long as the chosen state has a `significant contact or significant aggregation of contacts' to the claims asserted by each member of the plaintiffs class, contacts `creating state interests,' in order to ensure that the choice of [forum] law is not arbitrary or unfair.' (quoting Allstate Ins. Co., 449 U.S. at 312-13, 101 S.Ct. 633)). Only then may a district court determine whether the class meets the requirements of our class action rule.