Agenda for 4th Class

1. Agenda for 4th Class • Choice of Law in Torts continued • Phillips • Locational decisions in Kearney and AOL • Choice of Law in Contracts • Traditional approach • Milliken • Interest analysis • Hypotheticals based on Milliken • Lilienthal • Comparative Impairment • Farmers

2. Assignment for Next Class • Choice-of-law clauses • Restatement 2nd §§ 186-87; Nedlloyd Lines (CB 633-44) • Cook Sign (CB651-55) • Application Group (Handout pp. 1-9 ) • The Law Market (Handout pp. 10-18) • Questions on next slides • Optional • Hoffheimer, Chapter 21 (Restatement & UCC) pp. 263-67, Qs 3, 4, 5,6,7,8,9, 11 • Spillenger, pp. 125-35

3. Questions to Think About • Nedlloyd Lines • Can you think of any reason not to enforce choice-of-law clauses agreed to by large, sophisticated businesses? • Do you agree with the majority that the choice-of-law clause governed the action for breach of fiduciary duty? • Suppose the court had found that the choice-of-law clause did not govern the action for breach of fiduciary duty. How do you think lawyers would have drafted choice of law clauses differently in subsequent contracts? • Suppose the contract in Lilienthal v. Kaufman had included the following clause: “This contract shall be governed by California law.” If Oregon courts followed the Restatement 2nd approach to choice of law clauses, would that have changed the outcome of the case? • Suppose the contract in Lilenthal v. Kaufman had included the choice of law clause mentioned above and the following clause: “All disputes arising out of this contract shall be litigated in California state court.” Would that have changed the outcome of the case?

4. Questions to Think About • Cook Sign • The Minnesota Court of Appeals applied the Better Law approach to choice of law. • How is that approach different from the Restatement 2nd approach to choice of law clauses? • What do you think of this approach to choice of law? • Compare this case to Applications Group • Which approach to the enforceability of choice of law clauses did you find more persuasive? • Do you think the fact that one court enforced the choice of law clause while the other did not reflects the different choice of law approaches chosen by California and Minnesota? Or some other factor?

5. Questions to Think About • Applications Group • According to the opinion, Hunter admitted that it used covenants not to compete to deter and prevent solicitation, recruitment and hiring of its employees and “to avoid a bidding war that would increase the salary of its consultants.” If you were representing Hunter, can you think of reasons to use covenants not to compete that might been more effective? • If California courts invalidate covenants not to compete between employers and employees in other states, who bears the cost of such invalidation? Who benefits? • After this case, if Hunter wants to avoid liability for unfair competition under California Unfair Practices Act §17200, what would it need to do (or not do)?

6. Questions to Think About • O’Hara & Ribstein, The Law Market • Are you persuaded by O’Hara and Ribstein’s reasons to generally respect choice-of-law clauses. Why or why not? • O’Hara and Ribstein suggest that choice-of-law clauses in consumer contracts should be enforced even in consumer contracts, unless such clauses are expressly forbidden by statute. Do you agree with that proposal? Why or why not?

7. Convenants Not To Compete • When A works for B, employment contract sometimes forbids A from taking job at competing firm after employment terminates • Can be beneficial • if prevents A from divulging trade secrets to B’s competition and thus encourages B to share trade secrets • If encourages B to invest in A’s training, because assured that other company won’t benefit from B’s investment • Can be problematic • Prevents workers from working for firm which values their work the most • Allowed in most states, if “reasonable” time and place limitations • Ok if covenant forbids worker to work for competitor for 1 or 2 years, but not if forbids worker to work for competitor for 10 years or life • Always forbidden in California • In fact, use of covenants not to compete is considered “unfair competition in California and subjects the employer to liability, even though such covenants are unenforceable • Some empirical work suggests that California has more vibrant technology industries than Massachusetts because California does not enforce covenants not to compete, but Massachusetts does • Massachusetts law encouraged large firms, such as Wang • California encouraged small, innovative firms

8. Phillips I • In Phillips, the Montana Supreme Court observes that “applying the law of the place of manufacture would be unfair because it would tend to leave victims under compensated as states wishing to attract and hold manufacturing companies would raise the threshold of liability and reduce compensation…. [A state with a high concentration of manufacturing] could enjoy all the benefits associated with liability laws which favored manufacturers in order to attract and retain manufacturing firms and encourage business within its borders while placing the costs of its legislative decision, in the form of less tort compensation, on the shoulders of nonresidents injured by its manufacturers’ products.” (p. 249). • Suppose Montana has a relatively low concentration of manufacturing. Would its citizens benefit from laws which raised the threshold of liability and reduced compensation? Or would its citizens benefit by laws which lowered the threshold of liability and increased compensation? If it lowered the threshold of liability and increased compensation, who would bear the increase in costs? What does this suggest about the fairness of applying Montana law?

9. Phillips II • In Phillips, the Montana Supreme Court asserted that “we do not believe that the purpose of any potentially applicable Michigan product liability law would be to regulate the design and manufacture of products within its borders. The purpose of product liability law is to regulate interstate sales or sales to residents and to set the level of compensation when residents are injured.” (p. 249) • If the plaintiffs in Phillips had filed the case in Michigan state court, do you think Michigan state judges would have agreed that its laws are inapplicable? What purpose might a Michigan judge ascribe to product liability law to show that Michigan law should apply? • Do you see any reasoning in Phillips that is similar to renvoi? Is that reasoning persuasive? • Do you see any reasoning in the cases in this assignment which are similar to purposeful availment? • Of the choice of law methods we have discussed so far – traditional approach, interest analysis, comparative impairment, and Restatement 2nd – which do you think is best and why? • Can you think of a different approach which would be better or a way of improving the approaches mentioned above?

10. Kearney & AOL v. NHCD revisited • Recall that in Kearney, the court held that California privacy law applied to calls made from California to a call center in Georgia. Suppose, however, that the court had held that Georgia law applied. After the decision, where do you think companies would have located their call centers? • Given that the decision actually found that California law applied, how does it affect companies’ decisions about where to locate their call centers? • Recall, that in AOL v NHCD, the court held that Virginia was the state with the most significant relationship to this dispute between a spammer (NHCD) and an internet service provider (AOL). The contact that was found to be most significant was the fact that AOL’s servers were located in Virginia, so this is the site of the injury. • After this case, where do you think internet service providers will locate their servers?

11. Milliken v. Pratt • How would Milliken be resolved under the First Restatement? • Be sure to consider both sections 324 (Handout p. 496) and 326 (CB p. 37) • Consider the following modern variant on Milliken • In Kansas, the age of majority for contract purposes is 18. • In Nebraska, the age of majority for contract purposes is 19. If a person under the age of 19 enters into a contract, the person may void the contract, in which case the contact is not enforceable. • Junior is 18.5 years old and is domiciled in Nebraska. He buys a stereo on credit by mail order from Loud Inc., a company in Kansas. The Kansas company delivers the stereo, but Junior does not pay for the stereo. The Kansas company sues Junior in Nebraska state court. • What is the applicable law under the reasoning in Milliken? • What is the applicable law under the First Restatement?

12. Interest Analysis • Consider the following 16 variants on Loud v Junior: • Loud is a Nebraska (N) or Kansas (K) company. It is both incorporated there and has its sole place of business in that state. • Junior is domiciled in Nebraska or Kansas. • The contract is made in Nebraska or Kansas. For the purpose of these variants, assume that Loud and Junior negotiate the contract in person in a coffee shop in either Nebraska or Kansas to be repaid in the same place. • Loud brings suit in Nebraska or Kansas • The sixteen possible cases are depicted on the chart on the next page. • How would these sixteen cases be resolved under the traditional approach? • How would these sixteen cases be resolved under interest analysis? • How would these sixteen cases be resolved under comparative impairment? • How would these sixteen cases be resolved under the Restatement 2nd? • Should the Rule of Validation (See CB 199) affect the result in these cases?

13. Questions for Next Class III

14. Restatement 2nd on Contracts • 188. Law Governing in the Parties in the Absence of Effective Choice by the Parties • (1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6. • (2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: (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. These contacts are to be evaluated according to their relative importance with respect to the particular issue. • (3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203. • § 198. Capacity to Contract • (1) The capacity of the parties to contract is determined by the law selected by application of the rules of §§ 187- 188. • (2) The capacity of a party to contract will usually be upheld if he has such capacity under the local law of the state of his domicil.

15. Lilienthal & Farmers • Lilienthal • What do you think the outcome of this case would have been under the traditional approach? • What do you think the outcome of this case would have been under comparative impairment? • What do you think the outcome of this case would have been under the Restatement 2nd? • Does your answer to these questions depend on whether suit was brought in California or Oregon? • Farmers • Why do you think that Farmers filed for declaratory relief? • Why does California have “a strong interest in seeing that its anti-stacking law is enforced”? • Why does the court refer to “Governmental Interest Analysis” and section 193 of the Second Restatement of Conflict of Laws, when California has chosen Comparative Impairment as its approach to Conflict of Laws? • Is this a False Conflict or True Conflict case? • What do you think the outcome of this case would have been under the traditional approach? Interest Analysis? Restatement 2nd? • Do your answers to the previous question depend on whether suit was brought in California or Arizona?