Choice of law is the analysis a court uses to decide which state’s law governs the claims in a class action when the company, the conduct and the class members are spread across many states. The answer often decides whether a single nationwide class can go forward at all.
Quick Answer
When a lawsuit touches more than one state, the court has to pick whose law applies. In a nationwide class action that choice is often the whole ballgame: if one state’s law can govern every class member’s claim, the case can proceed as one class; if each person’s claim is governed by the law of their own state, and those laws differ in ways that matter, the court may refuse to certify a nationwide class, split it into state subclasses, or narrow it to a single state.
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What Choice of Law Means
Choice of law — part of the broader field lawyers call conflict of laws — is the set of rules a court follows when a dispute is connected to more than one jurisdiction and those jurisdictions’ laws point to different results. A company may be headquartered in one state, sell a product made in a second, and have customers in all fifty. Each of those states has its own consumer protection statute, warranty rules, privacy laws and limits on damages.Choice of law is a separate question from where a case is filed. A court in New York can apply California law, and often does. The court hearing the case first decides whether it has the power to hear it (jurisdiction), and then decides which state’s substantive law will be used to judge the claims.
How Courts Choose the Governing Law
There is no single national rule. Each state has its own choice-of-law method, and under the Supreme Court’s decision in Klaxon Co. v. Stentor Electric Manufacturing Co. (1941), a federal court hearing state-law claims generally applies the choice-of-law rules of the state where it sits. The main approaches are:• Place of the wrong. The traditional rule applies the law of the place where the injury happened. A few states still follow it for tort claims.
• Most significant relationship. The approach of the Restatement (Second) of Conflict of Laws, used in a majority of states, weighs contacts such as where the injury and the conduct occurred, where the parties live and do business, and where their relationship is centered.
• Governmental interest analysis. Used in California and a few other states, it asks whether the states’ laws actually differ, whether each state has a real interest in applying its own law, and — if both do — which state’s interest would be more impaired if its law were not applied.
The Constitution sets an outer limit. In Phillips Petroleum Co. v. Shutts (1985), the Supreme Court held that a Kansas court could not apply Kansas law to every class member’s claim when most of the claims had little connection to Kansas. A state’s law can be applied only where the state has significant contacts with the claims involved.
Why It Matters in Class Actions
To certify a damages class under Rule 23(b)(3), a court must find that questions common to the class predominate over individual ones and that a class action is a manageable way to resolve the dispute (see class certification). Choice of law feeds directly into that test:• One governing law helps certification. If a court concludes that a single state’s law — often the law of the defendant’s home state, where the challenged decisions were allegedly made — governs every class member’s claim, the legal questions stay common across the class.
• Many governing laws can defeat it. If each class member’s claim is governed by the law of the state where they live or made their purchase, and those laws differ on elements like reliance, intent, damages or the limitations period, the court may find that individual questions predominate. In In re Bridgestone/Firestone, Inc. (2002), the Seventh Circuit reversed certification of nationwide classes for this reason, and in Mazza v. American Honda Motor Co. (2012) the Ninth Circuit vacated a nationwide class that had been certified under California consumer protection law, holding that each class member’s claim was governed by the law of the state where the car was bought.
• A worked example. In Stromberg v. Qualcomm (2021), the Ninth Circuit vacated a nationwide class of up to 250 million smartphone buyers that had been certified under California antitrust law, holding that states which bar indirect-purchaser suits had their own interests at stake and that the differences in state law “swamp predominance.” Our Qualcomm class action post-mortem traces what happened next.
• Subclasses are the usual middle ground. Plaintiffs often answer a choice-of-law objection by proposing state-by-state subclasses, or groups of states whose laws are similar enough to be tried together.
That is why many consumer class actions are filed as single-state classes, or as a nationwide class paired with backup state subclasses. It also shapes where cases are filed and how cases are grouped when they are consolidated in multidistrict litigation, where the transferee court applies the choice-of-law rules each case would have faced in its original court.
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Choice-of-Law Clauses in Contracts
Many terms of service, subscription agreements, credit card agreements and warranties include a clause that says which state’s law governs any dispute. Courts generally enforce those clauses, and a clause picking one state’s law for every customer can make a nationwide class easier to certify, because it can supply a single governing law.A clause is not automatic, though. Under the widely followed Restatement rule, a court can decline to enforce it if the chosen state has no substantial relationship to the parties or the deal, or if applying the chosen law would violate a fundamental policy of another state with a materially greater interest — for example, where a consumer would lose protections their home state treats as non-waivable. The same contracts frequently carry an arbitration agreement and a class action waiver, which raise separate questions about whether a class case can proceed at all.
Choice of Law and Settlements
Choice of law weighs much less heavily when a case settles. In Amchem Products, Inc. v. Windsor (1997), the Supreme Court said a court certifying a class only for settlement need not ask whether a trial would be manageable, since there will be no trial. Building on that, the Third Circuit in Sullivan v. DB Investments, Inc. (2011) upheld a nationwide settlement class even though state laws differed, and other appeals courts have reached similar results.For class members, this is why a settlement may cover people nationwide even when the lawsuit behind it was litigated state by state, and why some settlements pay different amounts to residents of particular states. Those differences usually reflect the extra statutory remedies some states’ laws allegedly provided, which gave those class members’ claims more value in the negotiation.
Frequently Asked Questions
What does choice of law mean in a class action?
Choice of law is the court’s decision about which state’s law governs the class members’ claims. In a nationwide case, the answer may be one state’s law for everyone or the law of each class member’s home state.
Why can choice of law stop a nationwide class action?
If each class member’s claim is governed by the law of a different state, and those laws differ in ways that matter, common questions may no longer predominate. Courts can then refuse to certify a nationwide class or split it into state subclasses.
Does a choice-of-law clause in terms of service control?
Often, but not always. Courts generally enforce a contractual choice-of-law clause unless the chosen state has no real connection to the parties or applying its law would violate a fundamental policy of a state with a greater interest in the dispute.
Does choice of law matter in a settlement?
Less than at trial. Because a settlement class will not be tried, courts do not have to worry about managing many states’ laws in front of a jury, and several federal appeals courts have approved nationwide settlement classes despite differences in state law.
