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Choice of Law in a Federal System and an Internal Market

Holger Spamann ^*

• I. Introduction
  • A. The European Debate
  • B. Answers From the US ?
  • C. Purpose and Content of this Paper
  • D. Disclaimer
• II. Prologue: Choice-of-Law Methodology
  • A. Interest Analysis
  • B. Non-Discrimination
  • C. Rules vs. Standards or AD-HOC Decisions
  • D. Territorial Criteria
• III. General Thoughts on Choice-of-Law in a Federal System
  • A. The Case for Establishing a Union, and Choice-of-Law
    • 1. Beneficial Cooperation
    • 2. Beneficial Cooperation and the Federal System
    • 3. Diversity in Choice-of-Law ?
      • a) Introduction
      • b) A Case For Diversity in Choice-of-Law ?
      • c) The Case Against Diversity in Choice-of-Law
  • B. The Case for Preserving the States, and Choice-of-Law
    • 1. Democracy and Local Self-Governance - The Enactment of Local Preferences
    • 2. Comparative Regulatory Advantage - Adaptation to Local Conditions
    • 3. Laboratories and Regulatory Competition
      • a) The Principle
      • b) Putting the Idea into Practice: The Examples of Protection of Minors, and of Product Liability
      • c) State Competition, and Nationality / Domicile
  • C. Substantive Bias in Particular
  • D. Summary
• IV. Constitutional Requirements for Choice-of-Law in the US and EU Federal Systems
  • A. US Constitutional Requirements
    • 1. Contemporary US Supreme Court Jurisprudence
    • 2. Alternative Interpretation of the US Constitution
      • a) General Overview
      • b) Privileges & Immunities Clause
      • c) Full Faith & Credit Clause
      • d) The Role of the Federal Courts
    • 3. Conclusion
  • B. EU Law
    • 1. Non-Discrimination, and Neutral Choice-of-Law Rules of the Member States
    • 2. EU Choice-of-Law Rules
• V. Federalism and the Single Market
  • A. Positive Integration
  • B. Negative Integration
    • 1. The Burden-Test - Dassonville / Cassis de Dijon & Pike
    • 2. Possible Limitations on the Scope of the Burden-Test
    • 3. The Policy of the Burden-Test
      • a) A Stringent Burden-Test is not Objective
      • b) Courts vs. Legislatures
      • c) Federal Courts vs. State Legislatures
      • d) Substantive Content of the Freedoms and the Dormant Commerce Clause ? - Concluding Remarks on Federalism and the Internal Market
    • 4. Annex: Private Law Rules as a Burden ? The Allegedly Special Enabling Function of Private Law
• VI. Choice of Law in an Internal Market
  • A. Introduction
    • 1. No Discrimination Against Interstate Commerce
    • 2. Tension between Federalistic Legislative Diversity and the Internal Market
    • 3. Content of this Section
    • 4. Relevance of the following Discussion
  • B. The Tension Between Federalistic Diversity and the Requirements of an Internal Market Revisited - Bibb v. Navajo Freight Lines
    • 1. The Argument: Conflicting State Regulations
    • 2. The Consequence: Invalidation of the Law
    • 3. Making Sense of Bibb
  • C. Auxiliary Dormant Commerce Clause Doctrines in Edgar v. MITE and CTS v. Dynamics
    • 1. Preliminary Remarks on the Holdings and the Consistency of the two Decisions
    • 2. No Direct State Regulation of Interstate Commerce
    • 3. State Laws Subjecting Activities to Inconsistent Regulations of Different States
  • D. The Burden-Test as Applied to Choice-of-Law
    • 1. Burdens on the Level of Substantive Rules
    • 2. Burdens on the Level of Choice-of-Law
      • a) Which are the Burdens on the Level of Choice-of-Law ?
        • (1) Diversity of Choice-of-Law Rules
        • (2) Diversity of Substantive Rules
          • (a) Splintering of the Legal Regime
          • (b) Familiarity with a Legal Order - Information Cost
      • b) Intermezzo: A Note on the Structure of the Burden-Test
      • c) Can We Do Anything About These Burdens on the Level of Choice-of-Law, or Are They Inevitable ?
        • (1) Uniform Choice-of-Law Rules
        • (2) What Can We Do about Diversity of Substantive Rules?
          • (a) Information Cost
          • (b) Splintering of the Legal Regime
      • d) Do Private Interests Change in Foreign Lands ?
      • e) Evaluating the Different Interests - A Task for A Court ?
        • (1) Summary of the Prior Results
        • (2) Adding the Level of Substantive Law
        • (3) Role of the Courts
    • 3. Localization of Redeeming Legitimate Interests ("Extraterritoriality")
      • a) The Concept
      • b) Practical Relevance, and (again) the Role of the Courts
• VII. Conclusion

This paper tries to develop a general framework for choice-of-law in a federal system and an internal market. The framework consists of two elements:

The first element is the criteria that should guide us in forging a choice-of-law rule, i.e., the answer to the question: How do we determine which choice-of-law rule is preferable? Recent European literature scrutinizes choice-of-law rules under the Dassonville / Cassis de Dijon test of Art. 28 EC, the parallel of the US Constitution's Dormant Commerce Clause, in the first ever intensive exploration of the influence of the concept of the internal market on choice-of-law. But this European literature overemphasizes a few "private interests", while largely ignoring the "state interests" involved, i.e., the horizontal power distribution of the federal system, an important element extensively addressed by the US literature. This paper joins these European and American ideas on a topic of common interest, to develop more sound criteria for forging choice-of-law rules in a system that is both federal and an internal market.

The second element is the authority to make choice-of-law rules, i.e., the answer to the question: Who gets to determine which choice-of-law rule is right? In a federal system, this authority should be exclusively the union's. It should ideally be vested in the federal legislature, otherwise possibly in the federal courts. This paper agrees with a growing body of US literature that finds this ideal state to be embodied in the US Constitution. In Europe, authors merely advocate a federal control of state choice-of-law rules (under the EC Freedoms), but this seems to be no more than a third-best cost-inefficient substitute for the (supposedly) missing European federal law-making power in choice-of-law matters.

^* E-mail: Holger@Spamann.net. Associate, Debevoise & Plimpton, New York. Harvard LL.M. '01, University of Hamburg LL.B. '99 (,,Erstes Staatsexamen"), University of Paris I (Panthéon-Sorbonne) LL.B. '96 ("Maîtrise en Droit Privé"). I thank Prof. Kropholler at the Max-Planck-Institute in Hamburg for letting me explore the field of European Law and Private International Law as part of my work as his research assistant, and Prof. Joseph Weiler, now at NYU Law School, for giving me the opportunity and freedom to develop my ideas on the subject in my LL.M. paper at Harvard Law School. This paper is an edited version of that paper which received the Addison Brown prize of the Harvard Law School in 2001.

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© Holger Spamann 2001