Civil Procedure — choice of law clauses

Listen to this article

United States Court of Appeals For the Seventh Circuit

Civil

Civil Procedure — choice of law clauses

Choice of law clauses are enforceable in Wisconsin.

“The choice-of-law clauses found in about 45% of the annuities reflect their status as regulated insurance products. Many states require insurance policies to be governed by the law of the state in which the insured lives (or the policy is issued) rather than the law of the state in which the insurer is incorporated. And if multiple states’ law applies, this litigation cannot be resolved ‘solely’ under Wisconsin’s corporate law even if it were within the scope of the internal-affairs doctrine (which, to repeat, is isn’t). The district court thought otherwise, proceeding in two steps. First, it applied Wisconsin’s common-law choice-of-law principles, see Heath v. Zellmer, 35 Wis. 2d 578 (1967), and found that, in the absence of a choice-of-law clause, Wisconsin law would apply. Second, it concluded that any contract specifying a different set of legal rules is ineffectual as contrary to the public policy reflected in Heath. Because the main function of contractual choice-of-law clauses is to specify a body of law other than the one that would be selected using common-law methods, the upshot of the district court’s decision is that all choice-of-law clauses are invalid in Wisconsin.”

“For this startling proposition the district court cited only Bush v. National School Studios, Inc., 139 Wis. 2d 635, 642 (1987). Bush dealt with a suit under the Wisconsin Fair Dealership Law, which forbids any contractual departure from its provisions. Wis. Stat. §135.025(3). Wisconsin’s insurance law lacks any equivalent language. Bush acknowledged that Wisconsin regularly enforces choice-of-law clauses. 139 Wis. 2d at 642, citing Jefferis v. Austin, 182 Wis. 203, 205 (1923); Brown v. Gates, 120 Wis. 349 (1904). The a state trial court determined that the choice-of-law clauses in these very contracts are valid—and although the appellate decision in Noonan held that this ruling was not an abuse of discretion, by LaPlant’s lights what the appellate court should have held is that the clauses are invalid and that a national class therefore could have been certified. We are not disposed to disagree with the holding of a Wisconsin trial court, and the strong implication of a Wisconsin appellate court, on the validity of these particular contractual clauses as a matter of Wisconsin law. Under Erie our task is to resolve a dispute about state law the way the state’s highest court would resolve it, and our best assessment is that the Supreme Court of Wisconsin would agree with the approach already taken by the state’s trial and appellate judges.”

Vacated and Remanded.

12-3264 Laplant v. the Northwestern Mut. Life Ins. Co.

Appeal from the United States District Court for the Eastern District of Wisconsin, Adelman, J., Easterbrook, J.