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Empire Fire and Marine Insurance Co. v. Patton

United States District Court, D. Arizona

November 26, 2018

Empire Fire and Marine Insurance Company, Plaintiff,
v.
Sean Edward Patton, et al., Defendants.

          ORDER

          Honorable John J. Tuchi United States District Judge.

         At issue is a choice of law dispute. Plaintiffs Empire Fire and Marine Insurance Company (“Empire”) filed a choice of law brief (Doc. 26), to which Defendant Neetan Mandalia filed a response (Doc. 29). Defendant also filed a choice of law brief (Doc. 27), to which Plaintiff filed a response (Doc. 28). The Court held oral argument on the choice of law issue on April 24, 2018. (Doc. 41.)

         I. FACTUAL BACKGROUND

         On March 16, 2015, Defendant Sean Patton rented a car from Enterprise Rent-a-Car Company (“Enterprise”) at its Indio, California location. (Doc. 1-1, Rental Agreement). Under the terms of the Rental Agreement, use of the car was limited to California. (Rental Agreement at 1). Patton signed the Rental Agreement even though he intended to drive the car to Arizona to visit his girlfriend. (Doc 26-2, Patton Dep. at 93.) Patton claims he did not notice the provision that limited use of the car to California. (Doc. 26-2 at 93.) Patton also opted to purchase separate supplemental liability protection (“SLP”) with his rental. (Rental Agreement at 1.) That policy provided coverage by Plaintiff Empire, and some of its terms were included in paragraph 17 of Enterprise's standard rental agreement. (Rental Agreement at 6.)

         After renting the car in Indio, Patton drove to Phoenix where he met with his girlfriend. (Patton Dep. at 14.) The two went to a bar and afterwards were driving from Tempe to Phoenix when they got into an argument. (Patton Dep. at 56-57.) Having pulled the car over, Patton and his girlfriend were arguing loudly when Patton noticed a group of people in a nearby parking lot pointing and laughing at them. (Patton Dep. at 57.) Patton testified that he drove his car toward the group in order to confront them, but lost control of the rental car and hit Mandalia, who was walking in the parking lot. (Patton Dep. at 64-69.) Patton later pleaded guilty to aggravated assault. (Doc. 1-4.) Defendant Mandalia sued Patton for the assault in state court. (Doc. 1-5.)

         Before this Court, Plaintiff seeks declaratory relief in the form of a determination that the SLP does not insure Patton against Mandalia's claim. (Doc. 26 at 2.) On the merits, Plaintiff will argue that the SLP does not cover injuries arising out of “illegal or reckless use of the vehicle, ” “out of an accident which occurs when the insured is . . . under the influence of alcohol, ” or out of “use of the rental vehicle . . . outside the State of California.” (Doc. 26 at 2-3.) But before it may make those arguments, Plaintiff, along with Mandalia, seeks a ruling on which state's law applies to the case. While Plaintiff advocates for the application of California law, Mandalia argues that Arizona law is more appropriate. (Docs. 26, 27.) The Court granted Plaintiff's Motion for Continuance of Dispositive Motion Deadline, giving parties another thirty days from the issuance of this choice of law decision to file any dispositive motions on the merits. (Doc. 49.)

         II. LEGAL STANDARD

         When this Court has jurisdiction due to the diversity of the parties, it must apply Arizona's choice of law rules to decide which state's law should govern the dispute. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Arizona has adopted the conflict rules of the Restatement (Second) of Conflicts. Bryant v. Silverman, 703 P.2d 1190, 1191 (Ariz. 1985).

         Under § 187 of the Restatement, in a contractual dispute, courts will apply the law of the state which parties have designated in their contract. Restatement (Second) of Conflicts § 187 (Am. Law Inst. 1971) (“Restatement”). That section requires courts to apply the law selected by parties “where it is established to the satisfaction of the forum that the parties have chosen the state, ” even if the contract does not expressly state such a designation but alludes to it. Restatement § 187 cmt. a. But “it does not suffice to demonstrate that the parties, if they had thought about the matter, would have wished to have the law of a particular state applied.” Restatement § 187 cmt. a. If parties did make a designation in their contract, the Court will generally apply it except when their chosen state has “no substantial relationship to the parties of the transaction” or application of the chosen state's law would “be contrary to a fundamental policy of a state which has a materially greater interest . . . and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.” Restatement § 187(2)(a-b).

         If parties do not specify a choice of law in their contract, the Restatement points courts toward § 188. Restatement § 188(a)(2). That section seeks to apply the “local law of the state which . . . has the most significant relationship to the transaction.” Restatement § 188(a)(1). The “most significant relationship” determination is always made in accordance with broad factors outlined in § 6 of the Restatement. Those factors are:

(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of other interested states and the relative interests of those states in the determination ...

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