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Choice of Law when Venue is Transferred

While a consumer was using a product at home in State A, the product malfunctioned. The consumer sued the manufacturer of the product for $100,000 in damages in a federal district court in State A on a products liability claim. The manufacturer wants to transfer venue to a federal district court in State B, the state in which it is incorporated and has its principal place of business. The manufacturer believes that State B’s products liability laws afford greater protections to defendants.

State A’s choice-of-law rules require the application of State A’s products liability laws. State B’s choice-of-law rules require the application of State B’s products liability laws.

Is the manufacturer likely to succeed in having State B’s products liability laws apply upon transfer?

A)  No, because State A's products liability laws will apply upon transfer. 70%

B)  No, because State B is an improper venue. 9%

C)  Yes, because State A is an improper venue. 8%

D)  Yes, because State B's choice-of-law rules require the application of State B's products liability laws.13%

Note: The percentage next to the answer indicates what percent of UWorld users selected that answer option.

Explanation

A federal court with proper venue can transfer a case to another federal judicial district where venue is proper for the convenience of the parties and witnesses and in the interest of justice. Proper venue exists where:

  • any defendant resides, so long as all defendants reside in the same state
  • a substantial portion of the events occurred or the property at issue is located or
  • any defendant is subject to the court's personal jurisdiction A court's authority over the parties before it—eg, a claim arises from the defendant's minimum contacts with the forum state and jurisdiction complies with fair play and substantial justice. —but only if neither of the above provisions applies.

Here, venue is proper in State A because the product malfunction and injury (substantial events) occurred there (Choice C) Venue is also proper in State B since the manufacturer is incorporated and has its principal place of businessThe place where a corporation's officers direct, control, and coordinate its activities (eg, corporate headquarters). (residence) there (Choice B). As a result, the case may be transferred from the federal district court in State A to the federal district court in State B—so long as it is convenient for the parties and witnesses and in the interest of justice.

Upon transfer, the receiving court must apply the appropriate choice-of-law rules to determine which state's substantive laws govern the action. The original court's choice-of-law rules apply when (1) proper venue existed in the original court and (2) subject-matter jurisdictionA court's authority to hear a particular type of case (eg, a state court has authority to decide a case involving state law). arises under diversity jurisdiction. Diversity jurisdiction exists when the opposing parties are citizens of different states and the amount in controversyThe amount demanded in the plaintiff's complaint, excluding interest and costs. exceeds $75,000.

Here, the consumer's products liabilityLiability imposed on a manufacturer, retailer, or other distributor of a defective product that caused harm to persons or property. action arises under diversity jurisdiction because she is a citizen of State A while the manufacturer is a citizen of State B, and the amount in controversy is $100,000. And since venue was proper in the State A federal district court, State A's choice-of-law rules apply. Under these rules, State A's products liability laws govern the action, so the manufacturer is unlikely to succeed in having State B's products liability laws apply upon transfer (Choice D).

Educational objective:

When venue is transferred between federal districts, the original court’s choice-of-law rules apply when (1) proper venue existed in the original court and (2) subject-matter jurisdiction arises under diversity jurisdiction.

References:

  • 494 U.S. 516, 531 (1990) (holding that the original court’s choice-of-law rules apply upon transfer when venue was proper in the original court and the action arises under diversity jurisdiction).
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