Ae, Inc. v. Goodyear Tire & Rubber Co., 07SA125.

• Decision Date: 01 October 2007
• Docket Number: No. 07SA125.,07SA125.
• Citation: 168 P.3d 507
• Parties: AE, INC., a Colorado corporation and Rosemarie Glas, Plaintiffs v. The GOODYEAR TIRE & RUBBER COMPANY, an Ohio corporation, Defendant.
• Court: Colorado Supreme Court

168 P.3d 507

AE, INC., a Colorado corporation and Rosemarie Glas, Plaintiffs v. The GOODYEAR TIRE & RUBBER COMPANY, an Ohio corporation, Defendant.

No. 07SA125.

Supreme Court of Colorado, En Banc.

October 1, 2007.

Holland & Hart LLP, Stephen G. Masciocchi, David L. Black, Denver, Colorado, Holland

& Hart LLP, William W. Maywhort, J. Lee Gray, Greenwood Village, Colorado, Attorneys for Plaintiffs.

Wells, Anderson & Race, L.L.C., Mary A. Wells, L. Michael Brooks, Jr., Denver, Colorado, Ballard Spahr Andrews & Ingersoll, LLP, Roger P. Thomasch, Denver, Colorado, Garfield & Hecht, P.C., David L. Lenyo, Chad J. Schmit, Aspen, Colorado, Attorneys for Defendant.

Justice HOBBS delivered the Opinion of the Court.

Pursuant to C.A.R. 21.1, the United States District Court for the District of Colorado certified to us the following question of Colorado law:

Whether the Colorado Supreme Court, if confronted with the facts [of this case], would adopt and apply the rule stated in Restatement (Second) Conflicts of Laws § 171 (1971) to determine whether Utah or Colorado law governs the question [of] whether a prevailing plaintiff in AE's position is entitled to an award of prejudgment interest.

AE, Inc. v. Goodyear Tire & Rubber Co., No. 05-1317, 2007 WL 1202289, at *4 (D.Colo. April 23, 2007).

We answer yes to the certified question and hold that Colorado's choice of law standard with regard to both the tort action and to an award of prejudgment interest is the most significant relationship to the occurrence and parties test expressed in Restatement (Second) of the Conflicts of Laws §§ 145, 171 (1971).

I.

The plaintiff in this case, AE, Inc. ("AE"), owns a house in Utah that suffered extensive damage after the failure of a hose installed as part of the heating system. The parties stipulated that the Goodyear Tire & Rubber Company ("Goodyear") is responsible for 50 percent of the damage to AE's home as a result of the failure of its Entran II hose. The jury in this case awarded AE repair costs of $3,489,000 and other losses of $848,611.

As a federal court exercising its diversity jurisdiction, the United States District Court for the District of Colorado must apply the choice of law rules of the forum state. Telectronics, Inc. v. United Nat'l Ins. Co., 796 F.Supp. 1382, 1389 (D.Colo.1992) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)) (citations omitted).

The parties agree that Utah has the most significant relationship to AE's tort claim against Goodyear. AE's house is located in Utah; the installation was performed there; and all repairs will occur there. AE argues that, even if Colorado's choice of law standard would apply Utah law to the tort claim in this case, a Colorado court would award prejudgment interest to AE on its damages award pursuant to section 5-12-102, C.R.S. (2007). Goodyear counters that Colorado would apply Utah law to both AE's tort and prejudgment interest claims. AE concedes that the application of Utah law would preclude an award of prejudgment interest on its non-repair-cost damages.

In certifying this question of law to us, the district court asks whether Colorado follows the same rule that is embodied in sections 145 and 171 of the Restatement (Second) of the Conflict of Laws: specifically, does the law of the state with the most significant relationship to the occurrence and the parties govern both the award of damages on the tort claim and an award of prejudgment interest on the damages?

II.

We answer yes to the certified question. We hold that Colorado's choice of law standard with regard to both the tort action and an award of prejudgment interest is the most significant relationship to the occurrence and parties test expressed in Restatement (Second) of the Conflicts of Laws §§ 145, 171 (1971).

A. Evolution of Colorado's Conflict of Laws Jurisprudence

Colorado's conflict of laws jurisprudence has evolved significantly over the last several decades, in keeping with changes to the majority rule applied by most states.

During the late nineteenth century through the middle of the twentieth century, the majority conflicts of law principle was that Lex loci delecti — the law of the place of the wrong — governed the tort action. See Eugene F. Scoles & Peter Hay, Conflict of Laws 570-71 (2d ed.1992); Restatement of the Conflict of Laws § 7 (1934). This rule was consistent with Colorado law at that time. See First Nat'l Bank in Fort Collins v. Rostek, 182 Colo. 437, 440-41, 514 P.2d 314, 316 (1973) (citing Atchison T. & S.F.R. Co. v. Betts, 10 Colo. 431, 15 P. 821 (1877)); Denver & R.G.R. Co. v. Warring, 37 Colo. 122, 86 P. 305 (1906)). Under this rule, courts often held that the law governing a cause of action in tort also governed damages because "the measure of damages is inseparably connected to the cause of action." Scoles & Hay, supra, at 576 (citing Victor v. Sperry, 163 Cal.App.2d 518, 329 P.2d 728, 732 (1958)).

Initially, commentators praised the Lex loci rule based on its certainty and ease of application. Id. at 577. This rule made sense at a time when interstate travel was infrequent and travelers were "presumed . . . [to] be aware of the different duties and obligations they were incurring when they made the interstate journey." Rostek, 182 Colo. at 442, 514 P.2d at 316.

Over time, however, the increasing mobility of the population began to undermine the legitimacy of the Lex loci rule. As this Court explained in Rostek:

[W]ith the industrial revolution and the passage of time, the interstate mobility of the citizenry increased in speed and availability to such an extent that persons no longer regarded an interstate journey as a rare occurrence entailing a significant change in surroundings. As these attitudes and conditions changed, it became clear that the mechanical application of Lex loci delecti to every multistate tort controversy often yielded harsh, unjust results, unrelated to the contemporary interests of the states involved or the realistic expectations of the parties.

Id., 514 P.2d at 317.

In order to avoid harsh outcomes sometimes imposed by this rule, courts began to characterize particular issues as procedural rather than substantive in order to apply the law of the forum. Id. at 442-43, 514 P.2d at 317; Scoles & Hay, supra, at 580-83. Thus, the advantages of predictability and ease of application began to fade. In response, commentators and courts began to explore other possible rules that would be workable in a conflict of laws situation.

In 1973, when we issued our opinion in Rostek, Colorado joined the majority of jurisdictions in following the most significant relationship to the occurrence and parties test, expressed in the Second Restatement, for multistate tort controversies. See Rostek, 182 Colo. at 448, 514 P.2d at 320. We determined that the conflicts analysis provided in the Second Restatement was the "more flexible and rational choice of law approach" and better suited the changing policies of Colorado.¹ Id. at 444, 514 P.2d at 318. In doing so, we broadly announced that "Colorado will adopt the general rule of applying the law of the state with the most `significant relationship' with the occurrence and the parties, as presented and defined in the Restatement, (Second) Conflict of Laws, Vol. 1, Sec. 145 (1969)." Id. at 448, 514 P.2d at 320. This case represented a fundamental shift in Colorado choice of law jurisprudence.

Following Rostek, we have never rejected the most significant relationship to the occurrence and parties test set forth in the Second Restatement in any of its applications. Although before today we have not considered whether to apply this test to prejudgment interest on a damages award, we have consistently applied the most significant relationship to the occurrence and the parties test in a variety of circumstances when we have had the occasion to do so. For example, in the context of covenants not to sue, we adopted the rule of section 170 of the Second Restatement. Like section 171, section 170 refers back to the law selected to govern a controversy in accordance with the most significant relationship test set forth in section 145. Dworak v. Olson Constr. Co., 191 Colo. 161, 163, 551 P.2d 198, 200 (1976); see also Wood Bros. Homes, Inc. v. Walker Adjustment Bureau, 198 Colo. 444, 601 P.2d 1369 (1979) (adopting the most significant relationship test for contract actions).

B. The Most Significant Relationship to the Occurrence and Parties Test

Three sections of the Second Restatement embody the rule Colorado follows: sections 6, 145, and 171.

Section 6 sets forth, in general terms, principles for courts to consider in determining choice of law, including: the needs of the interstate and international systems, the relevant policies of the forum and other interested states, protection of justified expectations, the basic policies underlying the particular field of law, predictability and uniformity of result, and ease of determination and application of the law to be applied.² See Restatement (Second) of Conflict of Laws § 6 (1971).

Section 145 of the Second Restatement provides that the most significant relationship to the occurrence and parties test shall be applied to a cause of action sounding in tort:

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.

(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the...