Why do American courts use foreign law in contracts and judgment enforcement cases?

January 24, 2014

[This is one of a set of posts serializing my law review article on this subject; please see the article for footnotes, and for more details.] As I noted at the end of an earlier post, the benefits of bans on the use of foreign law are likely to be small — but the costs could be grave. Foreign law is routinely used in American courts, but in everyday cases applying existing American legal rules. Those American legal rules (such as “choice of law” rules) often expressly call for the consideration of foreign law; consider, for instance contract law and the law of judgments.

Contract law: Consider Campbell v. American International Group, Inc., a 1999 Oklahoma case. Christopher Campbell (a Louisiana resident) was injured in an accident while riding in a car driven by Michael Muller (an Oklahoma resident). Both men were American soldiers, and the accident happened in Germany, where they were stationed. Muller’s auto insurance was issued in Germany by a French corporation.

After the men returned to the United States, Campbell sued Muller and Muller’s insurance company in Oklahoma court. Insurance cases are primarily contract cases, so the court had to decide which law to use in interpreting the contract. And the court concluded, reading the insurance policy, that the policy incorporated German law — unsurprising for a policy sold in Germany.

I don’t think there should be anything controversial about such use of foreign law. We Americans are part of the big world and we go all over it, whether as soldiers, businesspeople, or tourists. When we travel we might enter into a contract. Then, after we come back, and a dispute arises, we may want the benefit of suing in American courts, which are more convenient for us. [Footnote: Of course, this assumes that those courts have jurisdiction over the defendants, as they often do.]

American courts give us this benefit of suing locally, but that doesn’t mean those courts should apply local state law to a contract the parties never anticipated would be governed by that state law — a contract that was entered into and largely performed in a foreign country. Among other things, it would be bad for American business if Germans knew that a contract signed in Germany, which they would normally expect to be governed by German law, would be interpreted using American law regardless of any choice-of-law contract provision. Any such always-use-American-law rule would lead many foreigners to avoid doing business with Americans or to charge more for doing business with Americans.

So as a result, it makes perfect sense for a court in a case such as Campbell to use German law. And, again, that is simply the application of American choice of law rules, which in this instance call for reference to German law.

The law of judgments: Say that an English corporation tries to enforce an English judgment in Oklahoma against an Oklahoma corporation.

American businesspeople wouldn’t want foreign judgments to be unenforceable against their businesses. If that were to happen, nobody would deal with American businesses in the first place. Why would Englishmen do business with Oklahomans if they know they can’t effectively sue and collect judgments if the deal goes sour? Because businesses would suffer if foreign money judgments could not be collected, Oklahoma law (like the law of American states more generally) provides that foreign money judgments can be enforced in Oklahoma courts. But Oklahoma law also requires, understandably, that the judgment be final and enforceable “[u]nder the law of the foreign country where rendered.”

So, to determine whether our hypothetical English judgment can be enforced in Oklahoma courts, a court would need to look to the law of England, the foreign country where it was rendered — the court would need to determine whether the judgment is final and enforceable under English law. This, then, is yet one more example where American law rightly requires American courts to consider foreign law.

Eugene Volokh teaches free speech law, religious freedom law, church-state relations law, a First Amendment Amicus Brief Clinic, and tort law, at UCLA School of Law, where he has also often taught copyright law, criminal law, and a seminar on firearms regulation policy.
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