Choice of Law for San Diego Businesses (Part I)

If you are running a business in San Diego, it may be reasonable to assume that California law will be applied to all of your contracts and to any case or litigation that is filed based on tort. As an example, say your business manufactures electrical switches. It turns out that a mistake was made and one of the switches is defective. It was sold to a company in Texas — you sell your switches all over the country. Because of the mistake, the switch exploded causing a fire and injury to several people. Now you are being sued because of the defective switch on the basis of product liability. Which law should be applied to the case — Texas law or California law? Sometimes there are important differences between the laws of two states and, when that is true, then choice of jurisdiction matters.

Choice of law doctrines and cases have two main applications – in tort law and in contract law. In the former category, the parties have not specified which law they want to apply. Rather, the facts of the case present possible conflicting choices of which law should apply. In the latter application, the parties, via CONTRACT, have specified that a certain state’s laws will apply if there is a dispute. In general, it is important to use choice of law contractual provisions and a good San Diego corporate lawyer can help.

This article deals with choice of law when NO contractual provision is at issue. Part II of this series will deal with choice of law clauses in contracts.

San Diego Corporate Law: What is Choice of Law When No Contract is at Issue?

In the absence of a contract provision, California choice of law doctrine is triggered when the facts of a case suggest that the laws of more than one state might be applicable. A good example comes from the recent case of Chen v. LA Truck Centers, LLC, 7 Cal. App. 5th 757 (Cal. App. 2nd Dist. 2017). In that case, the plaintiffs were citizens of China and they were involved in a bus rollover accident that occurred in Arizona. The tour bus was manufactured in Indiana by an Indiana corporation. The bus was originally delivered and sold to a California sales company called Buswest. Buswest picked up the bus in question in Indiana and had it driven to California. The bus was eventually sold to a California tour bus company. The tour bus company had the bus registered in California, Arizona, and Nevada and obtained apportioned license plates, which enabled the bus to be used interstate. At the time of the accident, in 2010, the bus had a California apportioned license plate.

As one can see, in that case, there are four possible States/countries that might have laws relevant to the bus accident:

• Indiana — the place where the bus was manufactured
• Arizona — the location of the rollover accident and the place of the injuries
• China — the home of some of the victims
• California — the home state of the tour bus company and the company that sold the bus

In the Chen case, the trial court held that Indiana law applied. On appeal, however, the Court of Appeals reversed and held that California law should have been applied. Here is the reasoning.

San Diego Corporate Law: How is Choice of Law Determined?

In general, if a case is filed in California, California courts will apply California law. If the parties request the court to apply a different set of laws, one or more parties must ask the court to do so. From there, the court asks three questions:

• Is the foreign law “materially different” from California law — if not, then California law will be used
• What interest does each state — the foreign state and California — have in having its own law applied to the case? If one state has no interest in having its laws apply, then its laws will NOT be used
• Finally, if both states have an interest in having their laws applied, which state has a higher interest?

The question of a “state’s interest” is the question of whom the laws were intended to protect.

San Diego Corporate Law: Application to the Chen Case

As noted, in the Chen case, the trial court held that Indiana law should be used. The main theory of liability by the plaintiffs was that the bus was defective; the weight of the bus was not properly distributed, which caused it to rollover. That theory of liability is known as “product liability.” Because product liability was the gist of the case, the trial court held that Indiana had a higher interest in protecting its manufacturers. California’s interest was less; the victims were not California residents, the accident did not occur in California, and the main “target” of the lawsuit was the Indiana manufacturer.

As noted, however, the Court of Appeals rejected the trial court’s ruling and held that California law applied. First, during the litigation, the Indiana bus manufacturer settled and was, thereafter, no longer part of the case. Thus, for the Court of Appeals, Indiana no longer had an interest in having its laws applied. That by itself indicated that California law should apply. Second, aside from that, the Court of Appeals held that California had a substantial interest in having its product liability laws applied. Essentially, defective buses should not be on the roads.

Contact San Diego Corporate Law Today

As noted, provisions in contracts can be used by San Diego businesses to choose which state laws should apply. Courts will generally — but not always — enforce choice of law contractual provisions. In general, it is a wise business practice to use such provisions. We will discuss that in Part II. For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.

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