United States District Court, D. Arizona
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 ...