This is a preview of how your content will look on export. To export the complete content in DOC format, click the blue export button in the upper right corner of this page.
Problem 5: Market Share Liability & the Statute of Frauds
  • 1 Helen Mirren v. Los Lobos Laboratories & others v. Pretenders Insurance Co.

    1
    Helen Mirren v. Los Lobos Laboratories & others v. Pretenders Insurance Co.
    2

    Los Lobos Laboratories is a California pharmaceutical company which helped to develop and test – and eventually to manufacture and sell – diethylstilbestrol (DES), a synthetic form of estrogen designed to prevent miscarriages. Thousands of persons across the country have been adversely affected by exposure to the drug, including those afflicted with adenocarcinoma, a rare form of vaginal cancer, in young women who had been exposed to DES in the womb. Los Lobos has its headquarters and principal place of business in California. Although Los Lobos conducts no business of any kind in New York, it knew that its product would be sold to physicians in New York by distributors licensed to sell pharmaceuticals there.

    3

    Los Lobos is one of a dozen companies sued in a class action lawsuit in federal court in New York by plaintiffs domiciled in 25 states. Helen Mirren is the named plaintiff in the lawsuit and along with some other number of plaintiffs lives in New York. Eleven companies have settled the case with plaintiffs’ attorneys. Los Lobos is the sole remaining defendant.

    4

    New York makes DES manufacturers severally liable according to each manufacturer’s share of the national market at the time of plaintiff’s exposure. California law provides a defense to any manufacturer that can prove its product did not injure a plaintiff – for example, by establishing that its product was not distributed where plaintiff’s mother purchased DES or was produced in a color or shape different from that which plaintiff’s mother recalls taking.

    5

    Los Lobos claims that New York cannot apply New York law to impose market share liability on it when it did not sell the product in New York. Plaintiffs contend, in response, that defendant knew its product would be sold on a national market, that it took advantage of national distribution of the drug and national advertising of it, and that plaintiffs will be denied the right to pursue market share liability claims if they cannot reach manufacturers in other states.

    6

    The choice-of-law issues in a class action like this are complicated. Moreover, the class action might be denied because the chosen law would differ depending on such factors as the plaintiffs' domiciles;  the places where plaintiffs bought the products, ingested the drugs, and discovered their injuries; the states in which defendants do business, make, market, and sell their products. To simplify the case for our discussion, the only issue to consider is the applicability of California or New York law to plaintiffs who were domiciled in New York either at the time of exposure or discovery of their illness.

    7

    A second question in the case involves insurance. Los Lobos has sued its insurer, Pretenders Insurance Co., a Wisconsin company, for a declaratory judgment that Pretenders will be bound to reimburse Los Lobos under its insurance policy if Los Lobos is found liable in the class action. Pretenders argues that, in the course of negotiating the insurance contract, Los Lobos repeatedly lied to Pretenders about its knowledge of the dangerousness of DES, that it knew that DES was dangerous and that it might be subjected to tort liability in the future based on its sales of DES, but that it orally represented to Pretenders that it had no such knowledge.

    8

    The insurance contract recites that “neither party is relying on oral representations of any kind made by the other party” and that the contract is to be “construed in accordance with California law.”

    9

    California law provides that oral statements are not admissible to vary the terms of a written insurance contract when the contract states that neither party is relying on oral representations made by the other party. If California law applies, Pretenders will have a duty to reimburse Los Lobos for its actual liability. Both Wisconsin and New York law, in contrast, allows oral statements to be admitted to show fraud despite such a contract clause. (Note: For the purposes of this problem, assume the case of Danann Realty Corp. v. Harris, contained  below in these materials, has been overruled, with the NY courts adopting the reasoning in the dissenting opinion). If New York or Wisconsin law applies, Pretenders Insurance Co. can introduce evidence to show that Los Lobos orally misrepresented to Pretenders its knowledge of the dangerousness of DES at the time the insurance contract was signed.

    10

    1. Is defendant Los Lobos subject to New York tort law imposing liability on it in proportion to its market share or is it immune from such liability under California law?

    11

    2. If Los Lobos is subject to market share liability under New York law, can it get reimbursement for that liability under California law or does Pretenders insurance company have the right under Wisconsin or New York law to present evidence that Los Lobos lied to it in negotiating the insurance contract and is therefore not entitled to be reimbursed?

    12

    π = Helen Mirren

    13

    ∆/3π = Los Lobos

    14

    3∆ = Pretenders

    15

     

  • 2 In re DES cases

    1
    789 F.Supp. 552 (1992)
    2
    In re DES CASES.
    Deborah ASHLEY and Andrew Ashley, Marjorie Berger, Kathy Broaddus and Kerry Wayne Broaddus, Ann Danoff and Christopher Wang, Maureen Kent and Steven Kass, Nancy Kirsch and Steven Kirsch, Carol Rosenthal and Barry Rosenthal, Eva Zweifler and Vincent Alvarado, Gail Buckman and Michael Sklaroff, Tracy Wellman and Gary R. Scandell, Robin Edwards and Frank J. Edwards, Carrie Bristol and Zeke Bristol, Karen Hinton and David Hinton, Kyle Kouzes and Steve Kouzes, Jennifer Lynch, Barbara Bilder and Daniel Waldman, Linda Montgomery and Newman Montgomery, Plaintiffs,
    v.
    The ABBOTT LABORATORIES, American Pharmaceutical Co., Beecham Laboratories, Boehringer Ingelheim Pharmaceuticals, Inc., Boyle & Co. Pharmaceuticals, Burroughs-Wellcome & Co., Inc., Carnrick Laboratories, Inc., previously known as G.W. Carnrick Co., Inc., Chase Chemical Co., Chromalloy American Corp., Cooper Holdings, Inc., previously known as Cooper Laboratories, Dart Industries, Inc., previously known as Rexall Drug Co., Inc., Emons Industries, Inc., Key Pharmaceuticals, Kremers-Urban Co., now known as Mequon Co., Lannett Co., Inc., Eli Lilly and Co., Lincoln Laboratories, Inc., Malinckrodt, the S.E. Massengill Co., McNeilab, Inc., Merck & Co., Inc., Merrell Dow Pharmaceuticals, Inc., Premo Pharmaceutical Laboratories, Inc., previously known as Lemmon Co. of N.J., Inc., Rite Aid Corp., Rorer Group, Inc., Rowell Laboratories, Inc., Schering Corp., Solvay Pharmaceuticals, Inc., formerly known as Reid-Provident Laboratories, Inc., Stanley Drug Products, Inc., a division of Sperti Drug Corp., E.R. Squibb & Sons, Inc., the Upjohn Company, West-Ward, Inc., now known as Industrial Way Liquidating Corp., White Laboratories Corp., Defendants.
    Angela SILVERI, Plaintiff,
    v.
    The ABBOTT LABORATORIES, American Pharmaceutical Co., Beecham Laboratories, Boehringer Ingelheim Pharmaceuticals, Inc., Boyle & Co. Pharmaceuticals, Burroughs-Wellcome & Co., Inc., Carnrick Laboratories, Inc., previously known as G.W. Carnrick Co., Inc., Chase Chemical Co., Chromalloy American Corp., Cooper Holdings, Inc., previously known as Cooper Laboratories, Dart Industries, Inc., previously known as Rexall Drug Co., Inc., the Dexter Corp., successor in interest of Invenex Laboratories, Emons Industries, Inc., Key Pharmaceuticals, Kremers-Urban Co., now known as Mequon Co., Lannett Co., Inc., Eli Lilly and Co., Lincoln Laboratories, Inc., Malinckrodt, the S.E. Massengill Co., McNeilab, Inc., Merck & Co., Inc., Merrell Dow Pharmaceuticals, Inc., Premo Pharmaceutical Laboratories, Inc., previously known as Lemmon Co. of N.J., Inc., Rite Aid Corp., Rorer Group, Inc., Rowell Laboratories, Inc., Schering Corp., Solvay Pharmaceuticals, Inc., formerly known as Reid-Provident Laboratories, Inc., Stanley Drug Products, Inc., a division of SPERTI Drug Corp., E.R. Squibb & Sons, Inc., the Upjohn Company, West-Ward, Inc., now known as Industrial Way Liquidating Corp., White Laboratories Corp., Defendants.
    3
    Nos. CV 91-3748, CV 91-4986.
    4

    United States District Court, E.D. New York.

    5
    April 13, 1992.
    6

    [553] [554] [555] Perry Weitz, Allan Zelikovic, Weitz & Luxenberg, P.C., New York City, for Ashley plaintiffs.

    7

    Leonard L. Finz, Stuart Finz, Gregory Green, Law Offices of Leonard L. Finz, P.C., New York City, for Angela Silveri.

    8

    [556] Robert D. Wilson, Jr., Patterson, Belknap, Webb & Tyler, New York City, for Abbott Laboratories and McNeilab, Inc.

    9

    Edward Patrick Reardon, Staten Island, N.Y., for American Pharmaceutical.

    10

    John Budlong, Stafford Frey Cooper & Stewart, Seattle, Wash., Richard J. O'Keefe, O'Keefe, Kline & McCaffrey, White Plains, N.Y., for Boehringer Ingelheim Pharmaceuticals.

    11

    Emmett J. Ganz, Law Offices of Emmett J. Ganz, Beverly Hills, Cal., Charles M. McCaghey, Ryan, Ryan, Johnson, Clear & DeLuca, Stamford, Conn., for Boyle & Co.

    12

    George I. Greene, Leslie McHugh, Lester Schwab Katz & Dwyer, New York City, for Burroughs-Wellcome & Co. and Merrell Dow Pharmaceuticals.

    13

    Margaret M. Johnson, Martin, Clearwater & Bell, New York City, for Carnrick Laboratories.

    14

    Carro, Spanbock, Kaster & Cuiffo, New York City, for Chase Chemical.

    15

    Vincent J. Aceste, Sally A. Zullo, David E. Worby, P.C., White Plains, N.Y., for Cooper Laboratories (sued herein as Cooper Holdings).

    16

    A. Edward Grashof, Sheila Annmarie Moeller, Winthrop, Stimson, Putnam & Roberts, New York City, for Dart Industries and Rexall Drug Co.

    17

    Richard Bakalor, Quirk & Bakalor, P.C., New York City, for Dexter Corp., successor in interest of Invenex Laboratories.

    18

    Eric D. Statman, Anderson, Kill, Olick & Oshinsky, New York City, for Emons Industries.

    19

    Henry R. Simon, White Plains, N.Y., for Key Pharmaceuticals and West-Ward, n/k/a Indust. Way Liquidating Corp.

    20

    Mark G. Lionetti, Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., for Kremers-Urban Co. n/k/a Mequon Co.

    21

    Solin, Breindel & Berger, Albany, N.Y., for Lannett Co.

    22

    Russel H. Beatie, Jr., Charna L. Gerstenhaber, Kenneth King, Brown & Wood, New York City, for Eli Lilly and Co.

    23

    John Sullivan, Michael Yoeli, Gordon & Silber, P.C., New York City, for Lincoln Laboratories.

    24

    Gwen Pollack, Laurence V. Senn, Jr., Mudge Rose Guthrie Alexander & Ferdon, New York City, for Malinckrodt.

    25

    Theodore V.H. Mayer, Hughes Hubbard & Reed, New York City, for Merck & Co.

    26

    Edward S. Weltman, Schneck Weltman Hashmall & Mischel, New York City, for Premo Pharmaceuticals Laboratories and Chromalloy American Corp.

    27

    David P. Schaffer, Kelly, Tobias & Turner, New York City, for Rhone-Poulenc Rorer Pharmaceuticals (sued herein as Rorer Group).

    28

    John M. Byrne, Elizabeth MacEwen, McMahon, Martine & Merritt, New York City, for Rite Aid Corp.

    29

    John C. Maloney, Jr., Sheryl Schwartz, Pitney, Hardin, Kipp & Szuch, Morristown, N.J., for SmithKline Beecham Corp. (sued herein as Beecham Laboratories and S.E. Massengill Co.).

    30

    Peter L. Herb, Gladstein & Isaac, New York City, for Solvay Pharmaceuticals, successor in interest of Reid-Provident Laboratories, and Rowell Laboratories.

    31

    Marc S. Klein, William B. Korman, Sills Cummis Zuckerman Radin Tischman Epstein & Gross, New York City, for E.R. Squibb & Sons.

    32

    Dorothy A. Phillips, Rivkin, Radler & Kremer, Uniondale, N.Y., for Stanley Drug Products.

    33

    David M. Covey, Sedgwick, Detert, Moran & Arnold, June A. O'Hea, Jay P. Mayesh, William A. Rome, Stroock & Stroock & Lavan, New York City, for The Upjohn Co.

    34
    MEMORANDUM AND ORDER
    35
    Personal Jurisdiction
    36
    WEINSTEIN, District Judge:
    37
     [557]                               TABLE OF CONTENTS  I.   INTRODUCTION ................................................................. 557 II.   FACTS ........................................................................ 558       A. Background ................................................................ 558       B. Present Actions ........................................................... 559       C. Motions ................................................................... 559III.   NEW YORK SUBSTANTIVE LAW AND RULES AFFECTING SUBSTANTIVE       RIGHTS ....................................................................... 560       A.  History of New York Products Liability Law and Mass Tort Law           Generally ................................................................ 560       B.  New York DES Law ......................................................... 563       C.  Constitutionality of New York DES Law .................................... 565 IV.   CHOICE OF LAW ................................................................ 566       A.  Erie Doctrine ............................................................ 566       B.  New York Choice-of-Law Rules in Mass DES Torts ........................... 566       C.  Constitutionality of New York Choice-of-Law Rules in Mass DES Torts ...... 568  V.   PERSONAL JURISDICTION ........................................................ 569       A.  New York Jurisdictional Statutes ......................................... 569           1.  C.P.L.R. § 301 ......................................................... 569           2.  C.P.L.R. § 302 ......................................................... 569       B. Constitutionality of New York Statutes .................................... 573          1.  Current Due Process Doctrine and Problems Raised by Its Application              to Mass Torts ......................................................... 573          2.  Case Law in Non-Mass Torts ............................................ 577              a.  Pennoyer and Its Problems ......................................... 577              b.  Pennoyer to International Shoe: The Emergency of Fairness                  Inquiry ........................................................... 580              c.  International Shoe: Sovereignty, Fairness and Nexus Requirements .. 582          3.  Sovereignty and Fairness in Mass Torts ................................ 584          4.  Due Process Standard for Mass DES Torts ............................... 587  VI.  APPLICATION OF LAW TO FACTS .................................................. 589       A. Boehringer ................................................................ 589          1. Failure to State a Claim ............................................... 589          2. Personal Jurisdiction .................................................. 591       B. Boyle ..................................................................... 592          1. C.P.L.R. § 302(a)(3)(ii) ............................................... 592          2. Due Process ............................................................ 593 VII.  CONCLUSION ................................................................... 594
    38
    I. INTRODUCTION
    39

    This diversity case presents a classic illustration of why traditional limits on personal jurisdiction must be modified for mass torts. The torts alleged here involve numerous claims of injury from exposure in utero to diethylstilbestrol (DES). DES was developed and tested in laboratories throughout the country and the world. Permission to use it was sought and obtained from the federal Food and Drug Administration by pharmaceutical companies scattered across the nation. Some companies conducted national advertising and a national corps of salespersons hawked the drug in doctors' offices in every part of the country. Discussions among medical specialists and word-of-mouth information traded among doctors and patients led to national acceptance of the drug as useful for the prevention of miscarriages. Even companies producing [558] exclusively for local markets relied on the nationally developed understanding and consensus about DES and used knowledge and chemicals from all parts of the United States and the world. Thousands of persons in hamlets and cities across the country are now claiming to have been adversely affected by exposure to the drug. In short, the technology, marketing, sociology, and possible ill effects of DES knew no state boundaries. The national nature of the resulting toxic tort litigation must be reflected in the law's treatment of jurisdictional issues.

    40

    Motions to dismiss for lack of jurisdiction raise the following questions: Do the complaints against the moving defendants state a claim under New York's substantive laws? Are those laws constitutional? Are New York's substantive laws applicable under New York's choice-of-law rules? Are those choice-of-law rules constitutional? Do New York's jurisdictional statutes provide for jurisdiction over a successor corporation licensed to do business in New York for causes of action relating to the activities of its predecessor corporation, which never sold DES in New York and was never present in New York? Does New York's long arm statute provide for jurisdiction over a manufacturing corporation which never sold DES in the New York market and was never present in New York? Are New York's jurisdictional statutes constitutional? In light of the specific characteristics and history of the moving defendants, and of all the parties and the suit, would requiring the defendants to litigate in New York be fair so that jurisdiction is not barred by the Constitution and should not be declined under a prudential theory akin to forum non conveniens? All must be answered "yes."

    41
    II. FACTS
    42
    A. Background
    43

    DES, a synthetic estrogen, was developed in the late 1930s. It was thought to be useful in treating symptoms of certain cancers and menopause, among other things. In 1941, twelve companies formed a committee to oversee submissions in support of a joint New Drug Application for DES to the Food and Drug Administration. On the basis of these submissions, the FDA approved DES for certain uses, not including the prevention of miscarriages.

    44

    Researchers were simultaneously discovering that miscarriages were often accompanied by low levels of natural estrogen. In theory, the administration of natural or synthetic estrogen would improve a woman's ability to carry the pregnancy to term. In 1947 and 1948 several of the twelve DES manufacturers sought and were granted permission by the FDA to market DES to prevent miscarriage and fetal death. By 1952 the FDA considered DES proven safe. Hundreds of additional manufacturers then entered the market. Millions of pregnant women ingested DES during the 1950s and 1960s.

    45

    In 1971, doctors in Boston concluded that DES was a teratogen responsible for the appearance of adenocarcinoma, a rare form of vaginal cancer, in eight young women who had been exposed to DES in the womb. The FDA soon thereafter disapproved the continued marketing of DES for pregnancy use. There is some evidence that doctors nonetheless continued to prescribe DES through the early 1970s.

    46

    Women exposed to DES in utero may develop adenosis, a pre-cancerous cell change which can be treated by cauterization or surgery. DES is said to cause a variety of other more serious disorders, including miscarriage, uterine deformities, ectopic pregnancy, and breast cancer. Male fetuses exposed to DES may be at risk of developing undescended testicles, sterility, and deformities. As persons exposed to DES in utero age, other medical problems may be linked to DES. There is also evidence that DES daughters pass on defects to their own female children. Whether permanent inheritable genetic damage will be spread more widely in future generations is uncertain.

    47

    DES was sold as a generic drug. It was produced in tablets of various dosages according to the same formula by all manufacturers and marketed nationally under a generic description. Pharmacists filled [559] prescriptions by using DES manufactured by different companies interchangeably. Each of the many manufacturers produced and sold DES for different periods between 1949 and 1971. Some of the companies that made and sold DES no longer exist.

    48

    Litigation concerning alleged DES-related injuries has occupied courts around the country since the mid-1970s. In New York state alone, more than 500 DES cases against scores of defendants are pending in state and federal courts. In January of this year, a joint special master/referee was appointed by this court and by New York Supreme Court Justice Ira Gammerman to coordinate settlement negotiations with respect to these cases. See In re DES Cases, 142 F.R.D. 58 (E.D.N.Y.1992).

    49
    B. Present Actions
    50

    In Ashley v. Abbott Laboratories, No. 91-3784, and Silveri v. Abbott Laboratories, No. 91-4986, plaintiffs claim injuries from their exposure (or their spouses' exposure) in utero to DES. Plaintiff Angela Silveri is a New York resident, as are approximately half of the Ashley plaintiffs. The remaining Ashley plaintiffs each reside in another state or a foreign country. All plaintiffs allege causes of action sounding in warranty, negligence and strict liability and seek compensatory and punitive damages. Defendants are companies that manufactured and distributed DES or are successors to such companies. Subject matter jurisdiction in each case is predicated on diversity of citizenship.

    51

    Defendant Boehringer Ingelheim Pharmaceuticals, Inc. ("Boehringer") has never produced or sold DES, but it is alleged to be responsible for Stayner Corporation, a company that did. Boehringer was incorporated in 1971. In 1979 Stayner was merged into Boehringer. Between 1949 and 1971 Stayner obtained its supply of DES from chemical companies located in California, Tennessee and Ohio, manufactured DES tablets at a plant in California and sold the tablets in California, Oregon, Washington and Montana; undoubtedly the California, Tennessee and Ohio plants obtained some of their supplies from other states. Available figures for the years 1949-56 indicated that Stayner's DES revenues averaged a little over $5,000 per year during that period. Affidavits from senior Stayner employees indicate that the company never was licensed to do business in New York, never maintained an office or agent in New York, never solicited business in New York and never shipped DES to New York. By contrast, Boehringer, a Delaware corporation with its principal place of business in Connecticut, has been authorized to do business in New York since its inception. Boehringer markets its products (which do not include DES) in all states and is licensed to do business in several other states besides New York.

    52

    Boyle & Co. ("Boyle") is a closely held California corporation. At oral argument, counsel for Boyle indicated that the company manufactured and sold DES between 1949 and 1960 in California and other states west of the Mississippi River. Sales of DES tablets peaked in 1950, when Boyle sold about 157,000 tablets in packages of 100 and 1,000. Total revenues from all company business reached their highest point in the late 1950s and are now minimal. Boyle claims never to have shipped DES to New York or sold it here. Employee affidavits attest that the company has never been licensed to do business in New York, never maintained an office or agents in New York and never advertised in New York.

    53
    C. Motions
    54

    Boehringer has moved to dismiss the complaints under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(2) for failure to state a claim and for lack of personal jurisdiction. Boyle joins in the motion to dismiss for lack of personal jurisdiction. With respect to Angela Silveri and the Ashley plaintiffs domiciled in New York, Boehringer's and Boyle's motions must be denied. As applied to the non-New York Ashley plaintiffs, defendants' motions will be addressed in a separate memorandum. Subsequent references to plaintiffs in this [560] memorandum will refer to the New York plaintiffs unless otherwise indicated.

    55

    On the theory that a court ought to first determine whether a party is properly present before considering substantive issues, the normal practice is to consider 12(b)(2) motions prior to 12(b)(6) motions. Arrowsmith v. United Press Int'l, 320 F.2d 219, 221 (2d Cir.1963) (en banc). Where, as here, a party seeking to dismiss for failure to state a claim is found to be properly present, the normal order may be inverted. The jurisdictional problems in these cases cannot be appreciated except against the backdrop of substantive New York DES law. That law is in turn affected by procedural rules — burdens of proof, statutes of limitations and limits on remedies — that are quasi-substantive in their effects on the outcome of litigation.

    56

    Accordingly, there is set out first in Part III A a brief history of New York personal injury law and the changes made within the last decade to meet the problems of mass torts, which are illustrated by reference to asbestos and DES law. In III B, the present law controlling DES, as developed by the New York Court of Appeals in Hymowitz v. Eli Lilly and Co., 73 N.Y.2d 487, 541 N.Y.S.2d 941, 539 N.E.2d 1069, cert. denied, 493 U.S. 944, 110 S.Ct. 350, 107 L.Ed.2d 338 (1989), and subsequent cases, is discussed. The constitutionality of the somewhat unique New York approach to DES cases is dealt with briefly in III C.

    57

    Part IV addresses choice-of-law issues. In IV A, cases requiring a federal court sitting in diversity to look to the choice-of-law rules of the forum state are cited. IV B describes the various choice-of-law principles applied in New York case law and demonstrates that, at least with respect to New York DES plaintiffs, the New York courts would apply New York law. The constitutionality of that choice is considered in IV C.

    58

    Part V confronts the most difficult of the problems raised by the defendants' motions — personal jurisdiction. In V A, New York Civil Practice Law and Rules (C.P.L.R.) sections 301 and 302 are interpreted in the special context of a mass tort resulting from the national distribution by several hundred defendants of a toxic substance with relatively long periods of latency affecting an indeterminate number of plaintiffs, where some of the defendants were selling or "present" in New York and some were not. The constitutionality of the C.P.L.R. provisions as applied to such a mass tort is discussed in V B. Part V B 1 describes the constitutional law of jurisdiction developed for non-mass tort cases and the difficulty of applying it in an unmodified form to mass torts. Part V B 2 & 3 describes the development of current nonmass tort doctrine, its limitations in cases such as the one before the court, and its capacity to be modified to the needs of the present litigation and mass torts generally. Part V B 4 sets out the constitutional standard applicable to DES cases — and perhaps other mass torts.

    59

    In Part VI A the facts pertaining to the motions of Boehringer are measured against the standards set out in the preceding parts. In VI B, the Boyle facts are analyzed.

    60
    III. NEW YORK SUBSTANTIVE LAW AND RULES AFFECTING SUBSTANTIVE RIGHTS
    61
    A. History of New York Products Liability Law and Mass Tort Law Generally
    62

    Despite undergoing several transformations, New York's tort law still oscillates within the poles established by Judge Cardozo in MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916), and Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99 (1928). MacPherson opened the frontier of modern negligence law by abolishing the requirement of privity between tortfeasor and plaintiff. Palsgraf then established the boundaries of the conceptual terrain by limiting defendants' liability to foreseeable classes of plaintiffs suffering foreseeable classes of harms. The principles of these cases were meant to serve as the basis for a system of liability that could give due consideration to the interests of injured plaintiffs, defendants, [561] the judicial system and the general public while remaining flexible enough to accommodate social change. Subsequent modifications in New York product liability law have relied on the same principles to effect the same goals in light of the massive socioeconomic and technological changes of this century.

    63

    The first major doctrinal development following Palsgraf did not occur until the 1970s, when New York's courts overhauled prevailing warranty theories of liability and replaced them with strict liability for defectively manufactured and designed products, as well as for products with inadequate warnings. See Codling v. Paglia, 32 N.Y.2d 330, 345 N.Y.S.2d 461, 298 N.E.2d 622 (1973) (recasting third party causes of action previously sounding in implied warranty as sounding in strict liability); see also Torrogrossa v. Towmotor Co., 44 N.Y.2d 709, 405 N.Y.S.2d 448, 376 N.E.2d 920 (1978) (improper warning); Micallef v. Miehle Co., 39 N.Y.2d 376, 384 N.Y.S.2d 115, 348 N.E.2d 571 (1976) (design defects); Victorson v. Bock Laundry Mach. Co., 37 N.Y.2d 395, 373 N.Y.S.2d 39, 335 N.E.2d 275 (1975) (manufacturing defects). Quasisubstantive laws such as statutes of limitations were adapted concurrently with the transition to strict liability. See, e.g., Victorson, 37 N.Y.2d at 399-400, 373 N.Y.S.2d 39, 335 N.E.2d 275 (applying three-year statute of limitations to strict liability actions; overruling Mendel v. Pittsburgh Plate Glass Co., 25 N.Y.2d 340, 305 N.Y.S.2d 490, 253 N.E.2d 207 (1969)). Changes in common law were also accompanied by legislative action. See C.P.L.R. § 214-c(2) (1986) (time for commencing latent personal injury and property damage actions "computed from the date of discovery of the injury ... or from the date when ... such injury should have been discovered"); id. § 1411 (1975) (adopting pure comparative negligence); N.Y. General Obligation Law § 15-108(b) (1974) (limiting contribution suits against settling tortfeasors by non-settling, jointly liable tortfeasors); In re E. & S. Dists. Asbestos Litig., 772 F.Supp. 1380, 1391-93 (E. & S.D.N.Y.1991) (applying statutory changes).

    64

    While carving out a doctrine analytically distinct from negligence in a conscious attempt to adapt tort law to the development of an economy of mass marketed, mass produced consumer goods, see Voss v. Black & Decker Mfg. Co., 59 N.Y.2d 102, 107, 463 N.Y.S.2d 398, 450 N.E.2d 204 (1983); Codling, 32 N.Y.2d at 341, 345 N.Y.S.2d 461, 298 N.E.2d 622, modern cases and statutes operate within the parameters marked by Judge Cardozo even as they advance the cause of injured plaintiffs and seek to protect defendants against the unfair imposition of liability. See, e.g., Voss, 59 N.Y.2d at 107-10, 463 N.Y.S.2d 398, 450 N.E.2d 204 (manufacturer responsible only for injuries proximately caused by "unreasonably" dangerous product when used in intended ways). The "new" product liability law was of a piece with the "old" negligence and warranty law in another respect; all grew up in the shadow of the industrial revolution. The cases in which the law was being crafted typically involved individuals suing manufacturers and distributors for injuries sustained in industrial, automobile or household accidents. The courts were mainly concerned with addressing such cases in light of the increased distance between manufacturer and consumer that resulted from mass production and marketing.

    65

    The phenomenon of mass torts prompted the next wave of doctrinal innovation, which began in the late 1970s and continues today. Some of these mass torts — for example, air crash and other disasters — are really better termed "large torts": they involve an expansion of scale that can be accommodated with little conceptual change. The most difficult litigation issues in these cases pertain to joinder of parties to ensure efficient litigation and particularly whether to employ a federal or state class action device. See generally In re Joint E. & S. Dist. Asbestos Litig., 129 B.R. 710, 802-11 (E. & S.D.N.Y.1991) (discussing advantage of class action device in multiple suits). True mass torts, by contrast, raise qualitatively different and more intractable problems. These cases typically involve the torts of a post-industrial age, [562] the so-called mass toxic torts, although not all toxic torts have required doctrinal innovation and some non-toxic torts have. See Hall v. E.I. Du Pont De Nemours & Co., 345 F.Supp. 353 (E.D.N.Y.1972) (adopting industry-wide liability for manufacturers of blasting caps injuring plaintiffs at different places and times); Snyder v. Hooker Chems. & Plastics Corp., 104 Misc.2d 735, 429 N.Y.S.2d 153 (Sup.Ct.1980) (denying class action certification for Love Canal litigation in light of limited number of plaintiffs and localized nature of alleged injuries).

    66

    Genuine mass torts possess some or all of the following features: (1) geographically widespread exposure to potentially harmful agents that (2) affects a large or indeterminate number of plaintiffs, (3) possibly over long time periods, even generations, (4) in different ways such that (5) there is difficulty in establishing a general theory of causation and (6) an inability to link a particular defendant's actions to a particular plaintiff's injuries, as well as (7) difficulty in determining the number of potentially responsible defendants and (8) in determining their relative culpability, if any, which often results in (9) multiple litigations that burden the courts and cause huge transactional costs, including heavy legal fees, and (10) which threatens the financial ability of many companies or of whole industries to respond to traditional damage awards.

    67

    Experience indicates that these features of mass torts conspire to hinder efficient judicial disposition. While in some instances legislative solutions have been proposed and adopted, see, e.g., 30 U.S.C. §§ 901-45 (1988) (Black Lung Benefits Act); 42 U.S.C. §§ 300aa-10 to 306aa-23 (1988) (National Vaccine Injury Compensation Program); 42 U.S.C. § 2210 (1988) (Price-Anderson Act), our political system has left primary responsibility with courts and state legislatures to establish practicable and just rules for compensating mass tort victims.

    68

    The litigation complexities raised by mass torts are legion. The place and manner of exposure to the alleged harm-producing agents are often impossible to determine for purposes of establishing a "locus" state. Very complex questions as to jurisdiction, choice of law, liability, causation and damage apportionment typically result. Often, as here, parallel cases are brought simultaneously in the federal and state courts of many states. There is jockeying among plaintiffs' attorneys for control and fees. Where the compensatory and punitive damages sought are greater than potential defendants' combined assets, a race to the civil and bankruptcy court-houses results. Even where there is no shortage of funds, litigation in multiple fora ultimately produces unfair and inefficient results: similarly situated plaintiffs obtain disparate remedies, state and federal courts across the country are clogged and costs become exceptionally high.

    69

    To begin to address these issues, the federal and state courts have bent traditional substantive rules of tort law through doctrinal innovations such as enterprise, concerted action, and market share liability. See, e.g., Hall v. E.I. Du Pont De Nemours & Co., 345 F.Supp. 353 (E.D.N.Y.1972) (industry-wide liability); Bichler v. Eli Lilly and Co., 55 N.Y.2d 571, 580-84, 450 N.Y.S.2d 776, 436 N.E.2d 182 (1982) (upholding use of concerted action theory in DES case where defendant did not object); Sindell v. Abbott Lab., 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924 (market share liability), cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980). Likewise, it has forced them to confront and sometimes rely on new forms of expert testimony and epidemiological evidence. See, e.g., DeLuca v. Merrell Dow Pharmaceuticals, Inc., 911 F.2d 941 (3d Cir.1990) (discussing use of statistical evidence in Bendectin litigation). On occasion courts have had to establish and supervise nontraditional remedies, such as trusts for future claimants. See, e.g., In re "Agent Orange" Prod. Liab. Litig., 781 F.Supp. 902, 909-11 (E.D.N.Y.1991) (describing establishment and operation of programs to distribute settlement funds).

    70

    Existing procedural law can provide some assistance to courts confronting mass torts. In the federal courts, litigation can be consolidated by means of transfer of [563] venue under 28 U.S.C. sections 1404 and 1406 and by the doctrine of forum non conveniens. Under 28 U.S.C. § 1407, the judicial panel on multidistrict litigation can coordinate such consolidations. Necessary further innovations, however, including the establishment of alternative jurisdictional rules, generally have been slow in developing. While the need to fully and finally resolve interpleader actions has prompted statutory provisions for nationwide jurisdiction in those cases, see 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1701, at 487 (2d ed. 1986), similar provisions for mass torts, which raise similar considerations, have not been adopted. See generally Rowe, Jurisdictional and Transfer Proposals for Complex Litigation, 10 Rev. Litig. 325 (1991). For example, the proposed Court Reform and Access to Justice Act of 1988 and the Multiparty, Multiforum Jurisdiction Act of 1989 (the Kastenmeier Bill) would have provided for nationwide service of process in certain large-scale diversity actions. See generally Rowe & Sibley, Beyond Diversity: Federal Multiparty, Multiforum Jurisdiction, 135 U.Pa.L.Rev. 7 (1986); Erichson, Note, Nationwide Personal Jurisdiction in All Federal Question Cases: A New Rule 4, 64 N.Y.U.L.Rev. 1117, 1161-62 (1989) (citing proposals for jurisdiction in mass cases).

    71

    The states, because they do not form a unitary system, have more difficulty coordinating the efficient resolution of mass torts. Joint federal-state cooperation that might alleviate some problems is still in its infancy. See, e.g., In re DES Cases, 142 F.R.D. 58 (E.D.N.Y.1992) (joint appointment of special master/referee); American Law Institute, Complex Litigation Project, Tentative Draft No. 2, Chs. 3 & 5 (April 6, 1990) (proposed statute for federal-state and state-federal consolidations). There are to date only proposals for coordinating efforts among the states. See American Law Institute, Complex Litigation Project, Tentative Draft No. 3, Ch. 4 (March 31, 1992) (suggesting procedures for consolidating complex litigation among state courts). Thus, the states generally are required to improvise in order to cope with the realities of modern mass torts.

    72

    The New York courts' initial response to mass torts understandably was marked by caution. See, e.g., Steinhardt v. Johns-Manville Corp., 54 N.Y.2d 1008, 446 N.Y.S.2d 244, 430 N.E.2d 1297 (1981) (declining to interpret New York tort statute of limitations as running from time of "discovery" rather than time of "exposure" for latent injuries), cert. denied, 456 U.S. 967, 102 S.Ct. 2226, 72 L.Ed.2d 840 (1982); Rosenfeld v. A.H. Robins Co., 63 A.D.2d 11, 407 N.Y.S.2d 196 (declining to adopt New York class action device in Dalkon Shield litigation), appeal dismissed, 46 N.Y.2d 731, 413 N.Y.S.2d 374, 385 N.E.2d 1301 (1978). In the best tradition of the states as laboratories for experimentation in social and economic policy, however, see New State Ice Co. v. Liebmann, 285 U.S. 262, 311, 52 S.Ct. 371, 76 L.Ed. 747 (1932) (Brandeis, J., dissenting), the state legislature, prompted in part by judicial frustration, has instituted important modifications in quasi-substantive law over the last decade, most notably in the area of statutes of limitations. See C.P.L.R. § 214-b (statute of limitations for actions by veterans for exposure to Agent Orange to run from date of discovery of injury rather than date of exposure); Id. § 214-c(2) and Historical and Revision Notes (establishing "discovery" rule for toxic torts and allowing one-year revival for previously barred claims). This legislation has in turn prompted the courts to take the bolder steps in dealing with DES mass tort litigation described below. Further innovations have been achieved through cooperation between the New York federal and state courts in handling asbestos cases. See In re E. & S. Dists. Asbestos Litig., 772 F.Supp. 1380, 1385-86 (E. & S.D.N.Y.1991).

    73
    B. New York DES Law
    74

    In 1982, the New York Court of Appeals first confronted the issue of how to apportion liability in DES cases where plaintiffs cannot identify which manufacturer's product caused their injuries. In Bichler v. Eli Lilly and Co., 55 N.Y.2d 571, 580-84, 450 [564] N.Y.S.2d 776, 436 N.E.2d 182 (1982), the court upheld on appeal a jury finding that DES defendants were jointly liable for plaintiff's injuries on a concerted action theory. That decision was predicated on a procedural point: the defendants had not objected to the inclusion of concerted action jury instructions.

    75

    In Hymowitz v. Eli Lilly and Co., 73 N.Y.2d 487, 541 N.Y.S.2d 941, 539 N.E.2d 1069, cert. denied, 493 U.S. 944, 110 S.Ct. 350, 107 L.Ed.2d 338 (1989), the Court of Appeals frontally addressed the problem of apportioning liability. Rather than rely on Bichler, id. 55 N.Y.2d at 580, 450 N.Y.S.2d 776, 436 N.E.2d 182, Hymowitz followed the course charted in Sindell v. Abbott Laboratories, 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924, cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980), and Brown v. Superior Court, 44 Cal.3d 1049, 245 Cal.Rptr. 412, 751 P.2d 470 (1988). Those cases adopted a scheme under which DES manufacturers are severally liable according to each manufacturer's share of the national market at the time of plaintiff's exposure.

    76

    California law provides exculpation, however, to any manufacturer that can prove its product did not injure a plaintiff — for example, by establishing that its product was not distributed where plaintiff's mother purchased DES or was produced in a color or shape different from that which plaintiff's mother recalls taking. See Sindell, 163 Cal.Rptr. at 145, 607 P.2d at 937. The Hymowitz court, while adopting several liability based on national market share, departed from the California approach by not allowing "exculpation of a defendant who, although a member of the market producing DES for pregnancy use, appears not to have caused a particular plaintiff's injury." Hymowitz, 73 N.Y.2d at 512, 541 N.Y.S.2d 941, 539 N.E.2d 1069. The court noted: "It is merely a windfall for a producer to escape liability solely because it manufactured a more identifiable pill, or sold only to certain drugstores." Id. Under the Hymowitz rule, only those defendants that can prove that they never participated in the marketing of DES for use by pregnant women are exculpated. Id. This rule apparently is a default rule: one-hundred percent liability will still be assessed against a single manufacturer where it can be shown that its product was the only one taken by the plaintiff's mother. See Rubel v. Eli Lilly and Co., 1991 WL 29895, at *5 (S.D.N.Y.1991).

    77

    The Court of Appeals acknowledged that the Hymowitz rule marked a modification of conventional tort law principles even beyond the innovations of the California cases. It conceded that, unlike the California rule, the New York rule "will likely result in a disproportion between the liability of individual manufacturers and the actual injuries each manufacturer caused in [New York] State," id. 73 N.Y.2d at 511-12, 541 N.Y.S.2d 941, 539 N.E.2d 1069, and will not "provide a reasonable link between liability and the risk created by a defendant to a particular plaintiff." Id. at 512, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (citation omitted). In short, without imposing collective responsibility on each manufacturer for the acts of others, see id. at 508, 512-13, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (rejecting concerted action theory and joint and several liability), the Court of Appeals effectively converted the geographically dispersed companies that manufactured DES into a unitary, national industry for purposes of allocating the cost of DES-related injuries. By recognizing that the particular corner of the market within which a given defendant happened to operate is, for purposes of apportioning liability for injuries caused by a nationally marketed generic good, entirely fortuitous and arbitrary, the Court of Appeals struck upon "an equitable way to provide plaintiffs with the relief they deserve, while also rationally distributing the responsibility for plaintiffs' injuries among defendants." Id. at 512, 541 N.Y.S.2d 941, 539 N.E.2d 1069.

    78

    Besser v. E.R. Squibb & Sons, 146 A.D.2d 107, 539 N.Y.S.2d 734 (App.Div. 1st Dep't 1989), aff'd, 75 N.Y.2d 847, 552 N.Y.S.2d 923, 552 N.E.2d 171 (1990), indicates a probable limitation on the Hymowitz rule: it may, as a practical matter, be available almost exclusively to persons [565] with a substantial connection to New York. Besser held that the New York statute reviving time-barred DES suits was not intended to modify the New York borrowing statute that requires application of shorter foreign statutes of limitations to causes of action arising outside of New York in favor of non-New York residents. Id. 539 N.Y.S.2d at 736-39. The ruling was justified in part as a means of preventing persons exposed to DES in other states from bringing their litigation to New York. See id. at 739.

    79

    In recognizing the need to modify substantive and quasi-substantive law in light of the problems of DES mass torts, the New York courts have begun another period of adjustment. Chief Judge Wachtler, writing for a unanimous Court of Appeals, recently noted the parallel between the development of DES law and the adoption of strict liability. Both, the opinion said,

    80
    were responses to gaps in traditional tort doctrines that left unprotected an entire class of plaintiffs whose real and substantial injuries were the product of the ever-increasing complexity of modern society.
    81

    In re DES Market Share Litig., 79 N.Y.2d 299, 582 N.Y.S.2d 377, 591 N.E.2d 226, (1992). The same message was conveyed by the court in Enright v. Eli Lilly and Co., 77 N.Y.2d 377, 568 N.Y.S.2d 550, 570 N.E.2d 198 cert. denied, ___ U.S. ___, 112 S.Ct. 197, 116 L.Ed.2d 157 (1991), which barred DES manufacturers' liability to third generation DES plaintiffs. Under Enright, plaintiffs cannot recover for injuries to granddaughters of women who took DES during pregnancy even if it is proven that the granddaughters were adversely affected. The rationale for the decision was essentially that of Palsgraf: under established notions of proximate cause, defendants cannot be held culpable for unforeseeable classes of harms to unforeseeable classes of plaintiffs. See Holmes v. Securities Investor Protection Corp., ___ U.S. ___, ___, 112 S.Ct. 1311, 1318, 117 L.Ed.2d 532 (1992) (Proximate cause "label[s] generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. At bottom, the notion of proximate cause reflects `ideas of what justice demands, or of what is administratively possible and convenient.'") (quoting W. Keeton, et al., Prosser and Keeton on the Law of Torts § 41, at 264 (5th ed. 1984)). Compare Palsgraf v. Long Island R.R., 248 N.Y. 339, 343, 162 N.E. 99 (1928) ("life will have to be made over, and human nature transformed, before prevision so extravagant can be accepted as the norm of conduct") with Enright, 77 N.Y.2d at 387, 568 N.Y.S.2d 550, 570 N.E.2d 198 ("[T]he cause of action plaintiffs ask us to recognize ... could not be confined without the drawing of artificial and arbitrary boundaries.... It is our duty to confine liability within manageable limits.") (citations omitted).

    82
    C. Constitutionality of New York DES Law
    83

    New York DES common and statutory laws, although innovative, function within traditional tort principles. Legislation concerning traditional tort law that does not affect fundamental rights is subject to minimal constitutional limitation. See, e.g., Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 88 & n. 32, 98 S.Ct. 2620, 2638 & n. 32, 57 L.Ed.2d 595 (1978). Quasi-substantive legislation related to tort law is also normally subject to a rational basis test. See Hymowitz, 73 N.Y.2d at 513-16, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (legislation reviving time-barred tort actions constitutional because rational). Common law tort rules articulated by a state's highest court are entitled to the same deference. See In re Asbestos Litig., 829 F.2d 1233, 1239-40 (3d Cir.1987), cert. denied, 485 U.S. 1029, 108 S.Ct. 1586, 99 L.Ed.2d 901 (1988).

    84

    The Supreme Court has declined to entertain constitutional challenges to California and New York DES law. Hymowitz v. Eli Lilly and Co., 73 N.Y.2d 487, 541 N.Y.S.2d 941, 539 N.E.2d 1069, cert. denied, 493 U.S. 944, 110 S.Ct. 350, 107 L.Ed.2d 338 (1989); Sindell v. Abbott Lab., 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924, cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980). The Court also [566] chose not to review the Third Circuit decision upholding the more radical departure from conventional tort principles in Beshada v. Johns-Manville Prods. Corp., 90 N.J. 191, 447 A.2d 539 (1982). See In re Asbestos Litig., 829 F.2d at 1240-44. Beshada holds asbestos manufacturers strictly liable for product defects and declares irrelevant claims by defendants that the defects were unknown and unknowable at the time of manufacture. The Third Circuit rejected Due Process and Equal Protection Clause challenges to Beshada in light of the states' near plenary authority over tort law, id. at 1243, and "the extraordinary size" and "unprecedented phenomenon" of asbestos mass torts. Id. Identical considerations confirm the constitutionality of New York's DES laws.

    85

    Because Hymowitz's elimination of a common law defense available in other jurisdictions does not affect a fundamental right, id. at 1239, and because it provides a rational and workable means of protecting New York residents from DES-caused injuries, its rule does not offend the Constitution.

    86
    IV. CHOICE OF LAW
    87
    A. Erie Doctrine
    88

    Hymowitz, as indicated above, departs from the law of California and of other states which have developed special rules for DES cases. This suggests potential conflicts of law. The question in this diversity action is whether New York State substantive DES law applies.

    89

    Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), requires a New York federal court sitting in diversity to apply New York choice-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Analysis of New York cases indicates that New York substantive law applies to these actions. Application of New York law to suits by New York plaintiffs for torts occurring in New York does not violate the Constitution.

    90
    B. New York Choice-of-Law Rules in Mass DES Torts
    91

    The New York Court of Appeals has had frequent occasion to consider choice-of-law rules for tort cases. See generally, Korn, The Choice-of-Law Revolution: A Critique, 83 Colum.L.Rev. 772 (1983); In re Joint E. & S. Dist. Asbestos Litig., 129 B.R. 710, 886-89 (E. & S.D.N.Y.1991). While mass cases can raise complicated choice-of-law issues, see, e.g., Weintraub, Methods for Resolving Conflict-of-Laws Problems in Mass Tort Litigation, 1989 U.Ill.L.Rev. 129, the cornerstone for analysis in New York tort cases remains Chief Judge Fuld's path-breaking opinion in Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963). In Babcock, the plaintiff passenger was injured when the defendant driver crashed his car on a Canadian road. Both plaintiff and defendant were residents of New York. Ontario law barred a negligence action by a guest passenger against a driver, whereas New York law allowed such an action.

    92

    Rejecting the automatic application of the traditional rule of lex locus delicti, Chief Judge Fuld wrote that "controlling effect" ought to be given to

    93
    the law of the jurisdiction which, because of its relationship or contact with the occurrence or parties has the greatest concern with the specific issue raised in the litigation.
    94

    Id. at 481, 240 N.Y.S.2d 743, 191 N.E.2d 279. In applying this standard to the facts of the case, the opinion then distinguished between laws regulating primary conduct (for example, laws defining what constitutes negligence) and laws distributing losses (for example, rules apportioning liability among defendants already determined to be liable). Id. at 483, 240 N.Y.S.2d 743, 191 N.E.2d 279; see also Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 198, 491 N.Y.S.2d 90, 480 N.E.2d 679 (1985) (noting Babcock's distinction between "standards of conduct" and "rules allocating losses"). Babcock maintained that, in the event of a conflict between laws of the former type, the state [567] in which the alleged wrongful conduct occurred normally will have "a predominant, if not exclusive, concern" in having its law apply. Babcock, 12 N.Y.2d at 483, 240 N.Y.S.2d 743, 191 N.E.2d 279. The interest of the locus state is by contrast diminished where the conflict is between loss-distribution rules. Id. Characterizing the Ontario bar on passenger negligence actions as a loss allocation rule, and noting the common domicile of plaintiff and defendant, the court applied New York law.

    95

    Although Babcock itself involved a case in which plaintiff and defendant were both New York domiciliaries, its principles were subsequently extended to cases in which there is no common domicile. Neumeier v. Kuehner, 31 N.Y.2d 121, 335 N.Y.S.2d 64, 286 N.E.2d 454 (1972), again involved the issue of whether to apply Ontario or New York law with respect to the liability of automobile drivers to their passengers. Plaintiff was a Canadian citizen domiciled in Ontario which was also the locus of the tort. The defendant was a resident of New York. The court found it appropriate to apply provisions of Ontario law limiting liability of drivers to their guests by requiring proof of gross negligence.

    96

    The Court of Appeals enunciated three principles for dealing with conflicts of laws concerning limitations on drivers' liability to their guests, and, by implication, other loss-distribution rules. See Schultz, 65 N.Y.2d at 201, 491 N.Y.S.2d 90, 480 N.E.2d 679 (generalizing Neumeier's third principle). Relevant to the instant litigation is the second Neumeier principle, which holds in relevant part that, for conflicts between loss-distribution rules in cases where the locus of injury is the plaintiff's domicile and the locus state's law favors the plaintiff, the law of that state should apply absent "special circumstances." Neumeier, 31 N.Y.2d at 128, 335 N.Y.S.2d 64, 286 N.E.2d 454. Practically speaking, the upshot of Babcock, Neumeier and subsequent cases is that New York, as the forum state, applies its own law unless there is a strong reason not to do so. See Korn, The Choice-of-Law Revolution, supra.

    97

    The cases now being considered involve New York plaintiffs suing non-New York domiciliaries. The final element of the equation — the locus of the torts alleged in plaintiffs' complaints — is also for the most part New York. Although in determining personal jurisdiction the court would usually deem a defendant's alleged tortious acts to have occurred at the place of manufacture, see Feathers v. McLucas, 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68 (1965), the locus of the tort for choice-of-law purposes is "the place where the last event necessary to make the actor liable occurred." Schultz, 65 N.Y.2d at 195, 491 N.Y.S.2d 90, 480 N.E.2d 679 (citations omitted); see also Feathers, 15 N.Y.2d at 463, 261 N.Y.S.2d 8, 209 N.E.2d 68 (distinguishing determination of tort locus in jurisdictional and choice-of-law analyses). The relevant "last event" in these cases was the ingestion of DES by plaintiffs' mothers or the birth of the injured child. Absent any proof to the contrary, the court must assume that the bulk of these critical events occurred in New York.

    98

    Given these facts, Babcock and subsequent cases mandate application of New York law in the event of any conflict. Accord Rubel v. Eli Lilly and Co., 681 F.Supp. 151, 153 (S.D.N.Y.1987). A conflict between another state's DES law allowing defendants to exculpate themselves and the New York rule denying this defense arguably may be viewed as a conflict of rules governing primary conduct. If this is true, then Babcock would require the application of New York law. See Babcock, 12 N.Y.2d at 483, 240 N.Y.S.2d 743, 191 N.E.2d 279; see also Schultz, 65 N.Y.2d at 198, 491 N.Y.S.2d 90, 480 N.E.2d 679. Even if the laws in conflict are treated as loss-distribution rules, New York law would apply. Under Neumeier's second principle, where plaintiff and defendant are not common domiciliaries, the tort occurs in plaintiff's domicile and the domicile's law favors the plaintiff, the presumption in favor of applying the law of the state where the tort "occurred" — here New York, where the drug was taken and worked its [568] effect—can be overcome only by a showing of "special circumstances."

    99

    If anything, the special circumstances of this case further favor application of New York law. Hymowitz represents a strong policy statement by the highest New York court addressing a national problem. It envisions hundreds of suits by New York plaintiffs against manufacturers located across the country. The Court of Appeals could not have designed a novel set of substantive rules for dealing with such mass litigation only to have them fall into desuetude because choice-of-law principles favor application of the law of defendants' domiciles. A finding that the law of each defendant's state law applies would not merely cripple the New York courts in their attempt to process DES litigation efficiently; it would undermine the very policy that Hymowitz and subsequent cases have developed. Given that the New York Court of Appeals was among the first to depart from prior rigid conflicts rules, see Korn, The Choice-of-Law Revolution, supra, at 776, and given that it did so to ensure the enforcement of New York policy protecting state residents and litigants in the state's courts, it is exceedingly unlikely that the Court of Appeals would apply its choice-of-law rules to undercut the law of Hymowitz and other DES cases.

    100

    Such a result also comports with the practicalities of mass tort cases. To the fullest possible extent, such cases should be consolidated for pretrial discovery and motions, settlement discussions and trial; administered by one or a few judges; and tried under one set of substantive and procedural rules applicable to all consolidated cases. It has been suggested that the last of these desiderata can be secured, at least in the federal courts, by the enactment of a federal choice-of-law statute for complex litigations. See American Law Institute, Complex Litigation Project, Council Draft No. 3, Ch. 6 (Nov. 22, 1991). For the time being, Hymowitz, New York conflicts laws and federal procedural law allow for the efficient disposition of these cases under New York substantive law.

    101
    C. Constitutionality of New York Choice-of-Law Rules in Mass DES Torts
    102

    The Supreme Court has held that the Due Process and Full Faith and Credit Clauses place a "modest" limit on the operation of state choice-of-law rules. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 818, 105 S.Ct. 2965, 2977, 86 L.Ed.2d 628 (1985). Thus,

    103
    [i]n order to ensure that the choice of law is neither arbitrary nor fundamentally unfair, the Court has invalidated the choice of law of a State which has had no significant contact or significant aggregation of contacts, creating state interests, with the parties and the occurrence or transaction.
    104

    Allstate Ins. Co. v. Hague, 449 U.S. 302, 308, 101 S.Ct. 633, 638, 66 L.Ed.2d 521 (1981) (citation omitted).

    105

    Shutts represents the Court's most recent word on this subject. The defendant, a corporate domiciliary of Delaware and Oklahoma, was sued in Kansas state court by a class of plaintiffs owning rights to royalty payments on leases under which defendant produced and sold natural gas. The leased land was located in eleven states. The three named plaintiffs resided in Kansas or Oklahoma and owned leases in Texas and Oklahoma. As originally defined, the class included 33,000 persons. Of the 28,100 who received notice and did not opt out, fewer than 1,000 resided in Kansas.

    106

    The trial and appellate courts of Kansas applied Kansas law and found the defendant liable. Noting potential conflicts between Kansas, Texas and Oklahoma law, the Supreme Court reversed. It held that application of Kansas law was not supported by a "significant contact or significant aggregation of contacts" between Kansas and the claims of each class member, as required under Allstate. Crucial to this ruling was the fact that 97% of the plaintiff class and 99% of the leases had no connection with Kansas other than the lawsuit. See id. 472 U.S. at 815, 105 S.Ct. at 2976. Since, as a practical matter, inertia keeps most class members from exercising their right to opt out, the vast bulk of the [569] plaintiffs would have been bound by the law of a state with which they had no contact.

    107

    The instant cases are worlds away from Shutts. All of the plaintiffs exposed to DES with whom the court is now concerned have been residents in New York since before this litigation began. Their injuries occurred in New York. New York thus has "a significant aggregation of contacts with the parties and the occurrence, creating state interests, such that application of its law [i]s neither arbitrary nor fundamentally unfair." Allstate, 449 U.S. at 320, 101 S.Ct. at 644. On these facts, it is arguable that no forum has any greater interest in this litigation than New York. The application of New York law in these cases cannot be unconstitutionally arbitrary or fundamentally unfair.

    108
    V. PERSONAL JURISDICTION
    109

    Personal jurisdiction must be determined in the first instance according to the jurisdictional law of the forum — New York. Arrowsmith v. United Press Int'l, 320 F.2d 219 (2d Cir.1963) (en banc). The application of New York law must then be measured against due process limits. See, e.g., International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

    110

    New York and federal law place the burden of proving facts supporting jurisdiction on the plaintiff. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985); Connell v. Hayden, 83 A.D.2d 30, 443 N.Y.S.2d 383, 388 (1981). Under federal standards, the pleadings must be construed most favorably to the plaintiff. Hoffritz, 763 F.2d at 57.

    111
    A. New York Jurisdictional Statutes
    112

    Possible state law bases for jurisdiction over the moving defendants are found in sections 301 and 302(a)(3) of the New York C.P.L.R.

    113
    1. C.P.L.R. § 301
    114

    Section 301 incorporates common law bases for jurisdiction existing at the time of the section's enactment in 1962. It provides simply that "[a] court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore." One established basis for jurisdiction is consent. Under New York case law from before and after 1962, "[w]hen a foreign corporation is licensed to do business in New York, it consents to be sued on causes of action arising within and without the State." LeVine v. Isoserve, Inc., 70 Misc.2d 747, 334 N.Y.S.2d 796, 799 (Sup.Ct. 1972) (citing, inter alia, Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432, 111 N.E. 1075 (1916)). A defendant's engagement in "a continuous and systematic course of `doing business'" in New York is another basis for general jurisdiction incorporated into section 301. Simonson v. International Bank, 14 N.Y.2d 281, 285, 251 N.Y.S.2d 433, 200 N.E.2d 427 (1964).

    115
    2. C.P.L.R. § 302
    116

    By contrast, section 302 is a long arm provision. Section 302(a)(3) allows, under certain conditions, jurisdiction over non-residents for tortious acts occurring outside New York. The section was not intended to reach the limits of long arm jurisdiction allowed under the federal Constitution. Banco Ambrosiano v. Artoc Bank & Trust, Ltd., 62 N.Y.2d 65, 71, 476 N.Y.S.2d 64, 464 N.E.2d 432 (1984).

    117

    Section 302(a)(3)(ii) is the provision which applies to the activity of companies alleged not to have conducted any business in New York. It provides for jurisdiction over defendants whose out-of-state tortious acts cause injury to a person within the state, so long as the tortfeasor should have expected its act to have consequences in the state and it derives substantial revenue from interstate or international commerce. It reads:

    118
    (a) As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary ... who in person or through an agent ... (3) commits a tortious act without the state causing injury to person or property within the state ... if he ... (ii) expects [570] or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce....
    119

    There is a developed body of case law interpreting the scope and meaning of the "injury within the state," "reasonable expectation of consequences," and "substantial revenue" conditions on the exercise of jurisdiction under section 302(a)(3)(ii).

    120

    Establishing that an out-of-state defendant's revenue from interstate commerce is "substantial" requires examination of either the percentage of a defendant's revenues that is derived from interstate commerce or the absolute amount of revenue generated by interstate commercial activities. Ronar, Inc. v. Wallace, 649 F.Supp. 310, 316 (S.D.N.Y.1986). The actual numbers that have sustained or failed to sustain a claim of substantial revenue vary considerably, making it difficult to define the point at which revenue becomes "substantial." See id. at 317. This element is not at issue in the present case since, during the period when the movants were selling DES, both received substantial revenues from commerce in several states.

    121

    With respect to the existence of an instate injury, the general rule is that "`the situs of the injury is the location of the original event which caused the injury, not the location where the resultant damages are subsequently felt by the plaintiff.'" Carte v. Parkoff, 152 A.D.2d 615, 543 N.Y.S.2d 718, 719 (1989) (citations omitted). Most of the complexities in this element concern the locus of a commercial injury such as loss of business. See, e.g., Cooperstein v. Pan-Oceanic Marine, Inc., 124 A.D.2d 632, 507 N.Y.S.2d 893, 895 (1986) (plaintiff alleging economic injury based on transactions with Virginia and Florida cannot claim injury occurred in New York), appeal denied, 69 N.Y.2d 611, 517 N.Y.S.2d 1025, 511 N.E.2d 84 (1987). As applied to non-commercial tort cases, the situs rule is meant to prevent parties from carrying injuries that occurred out of state back to New York in order to bring suit. See, e.g., Twine v. Levy, 746 F.Supp. 1202, 1206 (E.D.N.Y.1990) (where malpractice suit is based on treatment in defendant's out-of-state office, injury occurred out of state); Carte, 543 N.Y.S.2d at 719 (same); Hermann v. Sharon Hosp., Inc., 135 A.D.2d 682, 522 N.Y.S.2d 581, 583 (1987) (same); Black v. Oberle Rentals, Inc., 55 Misc.2d 398, 285 N.Y.S.2d 226, 228-29 (Sup. Ct.1967) (in suit based on car accident in Massachusetts, injuries occurred in Massachusetts).

    122

    Where, as here, an allegedly harmful drug is ingested in New York, or acts upon a resident of the state while the resident is in the state or upon her progeny when they are in the state, the situs of the injury is New York: there is no sense in which plaintiffs have merely carried their injuries into the state for the purpose of bringing suit. Moreover, to construe plaintiffs' injuries as having occurred at the place of manufacture rather than the place of exposure would defeat the purpose of section 302(a)(3)(ii) by making its reach coextensive with that of section 302(a)(2), which covers only torts committed within the state. See Friedr. Zoellner (New York) Corp. v. Tex Metals Co., 278 F.Supp. 52, 56 (S.D.N.Y.1967) (section 302(a)(3)(ii) "was designed ... to cover cases where products purchased or manufactured in another jurisdiction caused injury in New York") (emphasis omitted) (citations omitted), aff'd, 396 F.2d 300 (2d Cir.1968).

    123

    The "reasonable expectation" element of section 302(a)(3)(ii) requires that a defendant foresee that its tortious act will have some consequences in New York, although not necessarily the exact consequences that occurred. Allen v. Auto Specialties Mfg. Co., 45 A.D.2d 331, 357 N.Y.S.2d 547, 550 (3d Dep't 1974); Tracy v. Paragon Contact Lens Lab., Inc., 44 A.D.2d 455, 355 N.Y.S.2d 650, 652-53 (3d Dep't 1974).

    124

    As to this element, the lower New York courts have been particularly concerned to avoid any potential conflict with federal constitutional due process limits on state court jurisdiction as set out in cases like World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). They have thus asserted that the mere likelihood that a defendant's [571] product will find its way into New York does not satisfy this element, and that purposeful availment of the benefits of the laws of New York such that the defendant may reasonably anticipate being haled into New York court is required. See Martinez v. American Standard, 91 A.D.2d 652, 457 N.Y.S.2d 97, 98-99 (1982), aff'd, 60 N.Y.2d 873, 470 N.Y.S.2d 367, 458 N.E.2d 826 (1983); see also Schaadt v. T.W. Kutter, Inc., 169 A.D.2d 969, 564 N.Y.S.2d 865, 866 (3d Dep't 1991) ("foreseeability must be coupled with evidence of a purposeful New York affiliation, for example, a discernible effort to directly or indirectly serve the New York market"); Murdock v. Arenson Int'l USA, Inc., 157 A.D.2d 110, 554 N.Y.S.2d 887, 889 (1st Dep't 1990) (same); Cooperstein v. Pan-Oceanic Marine, Inc., 124 A.D.2d 632, 507 N.Y.S.2d 893, 895 (1986) (same), appeal denied, 69 N.Y.2d 611, 517 N.Y.S.2d 1025, 511 N.E.2d 84 (1987); Prentice v. Demag Material Handling Ltd., 80 A.D.2d 741, 437 N.Y.S.2d 173, 175 (4th Dep't 1981) (same); Tracy v. Paragon Contact Lens Lab., Inc., 44 A.D.2d 455, 355 N.Y.S.2d 650, 653 (3d Dep't 1974) (same).

    125

    Requiring that a defendant reasonably expect to be haled into New York court is not a workable basis for determining jurisdiction since the test itself is circular. The reasonableness of that expectation, unlike the expectation that out-of-state acts will have forum consequences, depends entirely on the content of New York's jurisdictional laws. See Redish, Due Process, Federalism, and Personal Jurisdiction: A Theoretical Evaluation, 75 Nw.U.L.Rev. 1112, 1134 (1981) (because reasonable expectation of being haled into a forum is determined by the forum's jurisdictional law, it cannot provide the standard for determining reasonableness of jurisdiction); Stephens, Sovereignty and Personal Jurisdiction Doctrine: Up the Stream of Commerce without a Paddle, 19 Fla.St.L.Rev. 105, 139-40 (1991) (same). As written, rather than as interpreted in the non-mass tort context, the statute provides a framework within which the jurisdictional problems of traditional and mass torts and other new forms of litigation may be efficiently resolved.

    126

    Cases holding that jurisdiction cannot be asserted where a product's contact with New York was only through the stream of national commerce and unintended by the manufacturer are not relevant to the present case. Each involved traditional tort suits by individual plaintiffs against individual providers of goods and services. See, e.g., Schaadt, 564 N.Y.S.2d at 865 (action by individual against manufacturer and distributor of meat packing machine); Murdock, 554 N.Y.S.2d at 888 (action by individual against retailer of defective chair); Martinez, 457 N.Y.S.2d at 98 (action on behalf of individual decedent against manufacturer and installer of air conditioner); Prentice, 437 N.Y.S.2d at 174 (action by individual and spouse against manufacturer of chain hoist); Tracy, 355 N.Y.S.2d at 651 (action on behalf of individual against manufacturer of contact lenses). Hymowitz is not a traditional tort case. It is the New York courts' response to what would otherwise be the intractable nature of the DES mass tort. Local businesses, or foreign businesses whose products normally have no contact with the United States, may arguably rely on the fact that they never expected to have any dealings that affect New Yorkers. But the same is not true of manufacturers of generic goods participating in a national industry and market.

    127

    Existing case law on section 302(a)(3)(ii) thus offers no direct guidance on the application of the "reasonable expectation" element to mass DES torts; precedent is here only a slight inhibitant against rational decisionmaking. See E. Hanks & S. Nemerson, The Legal Process: Cases and Materials Ch. 3, at 1-2 (temporary ed. 1992); cf. Goldberg, Note: Community and the Common Law Judge: Reconstructing Cardozo's Theoretical Writings, 65 N.Y.U.L.Rev. 1324, 1352 (1990) (describing Cardozo's concern that stare decisis not degenerate into "the tyranny of concepts"). The issue must instead be resolved in a manner consistent with the court's informed prediction of what the New York Court of Appeals would do when faced with the same issue. DeWeerth v. Baldinger, [572] 836 F.2d 103, 108 (2d Cir.1987), cert. denied, 486 U.S. 1056, 108 S.Ct. 2823, 100 L.Ed.2d 924 (1988); In re E. & S. Dists. Asbestos Litig., 772 F.Supp. 1380, 1390 (E. & S.D.N.Y.1991). That court has already gone to considerable lengths to adapt state substantive law to the particular circumstances of the DES cases. Moreover, Hymowitz itself drew a direct link between the jurisdictional and substantive components of DES litigation by imposing several, rather than joint and several, liability. See Hymowitz, 73 N.Y.2d at 512-13, 541 N.Y.S.2d 941, 539 N.E.2d 1069. New York law favors fully compensating plaintiffs for losses sustained. See In re E. & S. Dists. Asbestos Litig., 772 F.Supp. at 1401. For mass torts involving numerous defendants, this result is usually achieved by the imposition of joint and several liability. Id. at 1400-03 (to fully compensate plaintiffs, New York General Obligations Law holds non-settling defendants jointly and severally liable for damages attributable to unreachable defendants). Given the Hymowitz court's decision to forgo joint and several liability, a DES plaintiff's full recovery would be frustrated if all manufacturers for pregnancy use could not be brought into court. See Hymowitz, 73 N.Y.2d at 521, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (Mollen, J., dissenting).

    128

    Hymowitz and the New York Civil Practice Law and Rules as well as legislative policy must thus be read as favoring a jurisdictional reach consistent with the national market share rationale and the adoption of several liability. A consonant interpretation of C.P.L.R. § 302(a)(3)(ii) supports the conclusion that any manufacturer of DES, by its participation in the national marketing of a generic drug, should "reasonably expect" its act of selling in the national market "to have," as C.P.L.R. 302(a)(3)(ii) puts it, "consequences in the state."

    129

    Even before Hymowitz, all DES manufacturers knew that their acts were having forum consequences in New York. All were competing to carve out local spheres of influence within the national DES market. Since the product was a generic, perfectly fungible consumer item, each manufacturer and distributor secured its market niche knowing that, by occupying this territory, other suppliers would have cause to look elsewhere to sell the same product. Moreover, the existence of the local markets depended upon the creation of a national DES market. Defendants' engagement in the national DES industry alerted them to the fact that their conduct in marketing generic DES in one part of the country would have economic and trade flow consequences in every other part, including New York. There was here a true national market encouraged and protected by the Commerce Clause of the federal Constitution and national drug regulations, not a series of discrete inward-looking and unrelated markets. Sales in any part of the national market had a necessary impact on every other part. Hymowitz simply marked the Court of Appeals' recognition that these features of the DES economy were relevant to the apportionment of liability among defendants.

    130

    The fact that DES manufacturers did not anticipate Hymowitz or the jurisdictional consequences flowing from that decision is not significant. The parties in this suit are governed by the substantive common law and jurisdictional law in effect at the time of the suit. Linkletter v. Walker, 381 U.S. 618, 626 n. 10, 85 S.Ct. 1731, 1736 n. 10, 14 L.Ed.2d 601 (1965) ("`A federal court sitting in a diversity case must ... apply the most recent state court decision, even if it came after the operative events....'") (citing Note, Prospective Overruling and Retroactive Application in the Federal Courts, 71 Yale L.J. 907, 915 (1962)). To the extent any defendant actually tailors its primary conduct to avoid appearing in certain fora, legal innovations like Hymowitz may undermine such efforts. The same holds true, however, of defendants' attempts to conform their primary conduct to substantive common law. Our legal system is at least as solicitous of defendants' attempts to comply with substantive law as it is of their ability to plan their activities so as to avoid jurisdiction. Yet changes in substantive common law routinely defy parties' expectations. See, e.g., Great N. [573] Ry. v. Sunburst Oil & Refining Co., 287 U.S. 358, 364, 53 S.Ct. 145, 148, 77 L.Ed. 360 (1932) (state court has discretion to determine whether to apply innovative decisions only prospectively or to the parties before it). Jurisdictional legislation is likewise exempt from the general rule that statutes be applied only prospectively. McGee v. International Life Ins. Co., 355 U.S. 220, 224, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957) (jurisdictional legislation is remedial and does not affect substantive rights; it may thus be applied to cases whose operative facts occurred prior to its passage); Simonson v. International Bank, 14 N.Y.2d 281, 290, 251 N.Y.S.2d 433, 200 N.E.2d 427 (1964) (C.P.L.R. § 302 must be applied retroactively: question of retroactivity determined exclusively by reference to legislative design).

    131

    In finding a reasonable expectation of forum consequences for all manufacturers of DES for pregnancy use, the law need not attribute a co-conspirator, agency or concerted action relationship among the manufacturers. See In re North Dakota Personal Injury Asbestos Litig. No. 1, 737 F.Supp. 1087, 1095-98 (D.N.D.1990) (out-of-state defendant amenable to jurisdiction where it was allegedly a member of a trade association that knowingly suppressed information about asbestos hazards in furtherance of a conspiracy to commit deceit and other members of the association sold asbestos in the jurisdiction); Gudaitis v. Adomonis, 643 F.Supp. 383 (E.D.N.Y.1986) (court may assert jurisdiction over defendant by attributing co-conspirator's acts in the forum to defendant); Allen v. Auto Specialties Mfg. Co., 45 A.D.2d 331, 357 N.Y.S.2d 547, 550 (3d Dep't 1974) (defendant that by itself and through agents solicited business in New York should reasonably expect forum consequences). But cf. Sage v. Fairchild-Swearingen Corp., 70 N.Y.2d 579, 587, 523 N.Y.S.2d 418, 517 N.E.2d 1304 (1987) (manufacturer of defectively designed product is liable for injuries caused by duplicate where (1) duplicate adheres to design of original and (2) plaintiff's use of duplicate was foreseeable). The language of Hymowitz in fact bars this attribution. There the court noted that the

    132
    drug companies were engaged in extensive parallel conduct in developing and marketing DES. There is nothing in the record, however, beyond this similar conduct to show any agreement, tacit or otherwise, to market DES for pregnancy use without taking proper steps to ensure the drug's safety.
    133

    73 N.Y.2d at 506, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (citation omitted). It is too late for plaintiffs to controvert this finding. The Court of Appeals reaffirmed Hymowitz in two recent opinions. Rastelli v. Goodyear Tire & Rubber Co., 79 N.Y.2d 289, 582 N.Y.S.2d 373, 591 N.E.2d 222 (1992); In re DES Market Share Litig., 79 N.Y.2d 299, 582 N.Y.S.2d 377, 591 N.E.2d 226 (1992). Even if factually unfounded — as plaintiffs contend — the policy is now settled New York law and all New York law must be adjusted to that policy. See In re DES Cases, 789 F.Supp. 548 (E.D.N.Y. 1992).

    134
    B. Constitutionality of New York Statutes
    135

    C.P.L.R. §§ 301 and 302(a)(3)(ii) must be applied in a manner that does not violate the federal Constitution. The issue is whether the Constitution limits the ability of New York state to provide full compensation to residents injured by a product sold in the national DES market.

    136
    1. Current Due Process Doctrine and Problems Raised by Its Application to Mass Torts
    137

    There is considerable doubt about the current existence of a unitary, coherent jurisdictional due process standard. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-78, 105 S.Ct. 2174, 2181-85, 85 L.Ed.2d 528 (1985) (listing alternative formulations); see also, e.g., Borchers, The Death of the Constitutional Law of Personal Jurisdiction: From Pennoyer to Burnham and Back Again, 24 U.C. Davis L.Rev. 19, 73 (1990) (describing formulations in Burger King as "unwieldy"); Korn, The Implications of Burnham v. Superior Court for the DeConstitutionalization [574] of Judicial Jurisdiction, Address to the Faculty of Columbia Law School, Feb. 27, 1992 (on file) (discussing contradictions in current cases); McDougal, Judicial Jurisdiction: From a Contacts to an Interest Analysis, 35 Vand.L.Rev. 1, 8-13 (1982) (criticizing "minimum contacts" approach); Murphy, Personal Jurisdiction and the Stream of Commerce Theory: a Reappraisal and a Revised Approach, 77 Ky. L.J. 243, 270-72 (1988) (noting tensions in recent decisions); Stephens, Sovereignty and Personal Jurisdiction, supra, at 105-06, 122-23 (arguing that "stream of commerce" cases have created confusion).

    138

    One common feature of recent Supreme Court formulations is that a defendant must reasonably expect that its activity could result in litigation in the forum state. See, e.g., Burger King, 471 U.S. at 474, 105 S.Ct. at 2183 (defendant must "purposefully establish[] `minimum contacts' in the forum State" so that "`the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there'") (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980)). The Court has emphasized that this standard is ultimately designed to protect the liberty interests of defendants. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702-03 n. 10, 102 S.Ct. 2099, 2104-05 n. 10, 72 L.Ed.2d 492 (1982).

    139

    The Court has, however, acknowledged other interests besides (1) the interest of a defendant in being able to predict the location of future litigation, namely (2) the forum state's interest in providing a convenient forum to its residents, (3) the plaintiff's interest in obtaining relief, (4) the state courts' interest in efficient resolution of disputes, and (5) the shared interests of the several states. These other interests have been described as "surrogate[s]" of defendants' underlying liberty interests. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 776, 104 S.Ct. 1473, 1479, 79 L.Ed.2d 790 (1984). Introduction of the "surrogate" interests into due process analysis complicates matters. Thus,

    140
    [a] State generally has a "manifest interest" in providing its residents with a convenient forum for redressing injuries inflicted by out-of-state actors. Moreover, where individuals "purposefully derive benefit" from their interstate activities, it may well be unfair to allow them to escape having to account in other States for consequences that arise proximately from such activities; the Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed.
    141

    Burger King, 471 U.S. at 473-74, 105 S.Ct. at 2182-83 (citations omitted). Likewise,

    142
    the determination of the reasonableness of the exercise of jurisdiction in each case will depend on an evaluation of several factors. A court must consider the burden on the defendant, the interests of the forum State, and the plaintiff's interest in obtaining relief. It also must weigh in its determination "the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interests of the several States in furthering fundamental substantive social policies."
    143

    Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113, 107 S.Ct. 1026, 1033, 94 L.Ed.2d 92 (1987) (plurality opinion) (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980)).

    144

    The Supreme Court has never had occasion to balance this multiplicity of factors in a mass tort case involving parties from across the nation. The so-called "stream of commerce" cases — World-Wide Volkswagen and Asahi — appear to prevent the assertion of jurisdiction in traditional tort cases solely on the grounds that it was foreseeable to a defendant that its product might travel through the national or international economy and therefore might surface in any given jurisdiction. See Asahi 480 U.S. at 112, 107 S.Ct. at 1032 (plurality opinion). While some have suggested that Asahi is limited in applicability because it involved an indemnification action between two foreign corporations, the case has been given more general application. See, e.g., [575] Wiles v. Morita Iron Works Co., 125 Ill.2d 144, 125 Ill.Dec. 812, 816-17, 530 N.E.2d 1382, 1386-87 (1988) (under Asahi, jurisdiction lacking in tort suit against foreign manufacturer of "air cell former" machine); Kohn v. La Manufacture Francaise Des Pneumatiques Michelin, 476 N.W.2d 184, 187 (Minn.Ct.App.1991) (jurisdiction lacking in tort suit against foreign tire manufacturer); Graham v. Machinery Distribution, Inc., 410 Pa.Super. 267, 599 A.2d 984, 987-88 (Pa.Sup.Ct.1991) (jurisdiction lacking in tort suit against foreign manufacturer of forklift); Parry v. Ernst Home Center Corp., 779 P.2d 659, 668 (Utah 1989) (jurisdiction lacking in tort suit against foreign tool manufacturer); cf. Humble v. Toyota Motor Co., 727 F.2d 709 (8th Cir.1984) (jurisdiction lacking over foreign car seat manufacturer). Thus applied, Asahi's plurality rule is of dubious utility even in traditional litigation. See, e.g., Stephens, Sovereignty and Personal Jurisdiction, supra, at 106; Weintraub, Asahi Sends Personal Jurisdiction Down the Tubes, 56 Tex.Int'l L.J. 55, 56 (1988).

    145

    The Asahi-Volkswagen approach is particularly pernicious in the advantage it gives to foreign producers whose goods enter the American common market. These firms can organize themselves to avoid jurisdiction in any state or federal court. See Kohn, 476 N.W.2d at 188 ("We recognize ... that denying jurisdiction allows a corporation to structure itself to avoid suit in foreign jurisdictions."). What should be an issue of venue — where in the United States a foreign manufacturer can be sued — is turned into a jurisdictional barrier to suit anywhere in the country. But cf. Bulova Watch Co. v. K. Hattori & Co., 508 F.Supp. 1322 (E.D.N.Y.1981) (asserting jurisdiction over Japanese company because of loyalty between company managers and management of United States subsidiary). Because jurisdictional due process allows many foreign manufacturers to circumvent the American courts altogether, United States residents often will be unable to avail themselves of the strong protections of American tort law. Foreign manufacturers also gain a competitive advantage.

    146

    In any event, neither Volkswagen nor Asahi, which both involved conventional product liability claims by individual plaintiffs, are controlling in DES mass torts brought under Hymowitz for the same reasons that the traditional New York tort cases interpreting the "reasonable expectation" element of C.P.L.R. 302(a)(3)(ii) are unhelpful in applying that statute to mass tort cases such as this one. As was pointed out above, mass torts raise unique problems of substantive, quasi-substantive, and procedural law that have just begun to receive the attention they require in federal and state courts and legislatures. The wooden application of inapt precedent will not effectively resolve these cases. As both Burger King and Asahi indicate, a careful weighing of the interests of the parties, the forum states, and the interstate system is required.

    147

    In their jurisdictional cast, DES mass tort cases perhaps most resemble Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984). Keeton, a New York resident, sued Hustler magazine for libel in New Hampshire. Jurisdiction in New Hampshire was predicated in the first instance on the defendant's distributing a small percentage of the allegedly offending publications in that state. Noting that the plaintiff had alleged injuries occurring in every state in the country, the Court focused its minimum contacts analysis on the issue of whether it would be "`fair' to compel [Hustler] to defend a multistate lawsuit in New Hampshire seeking nationwide damages ... even though only a small portion of ... [the allegedly libelous] copies were distributed in New Hampshire." Id. at 775, 104 S.Ct. at 1478-79. In light of New Hampshire's interest in redressing the small percentage of national injuries that occurred in its state, id. at 776, 104 S.Ct. at 1479, and the several states' interest in the efficient adjudication of a national claim in a single forum, id. at 777, 104 S.Ct. at 1479, the Court found an assertion of jurisdiction constitutional despite the fact that the defendant had de minimis contacts and the plaintiff no connection [576] to the forum other than the lawsuit. Id. at 780, 104 S.Ct. at 1481.

    148

    Like considerations favor a finding that jurisdiction over the defendants in this case can be constitutionally asserted. Hymowitz, Besser, and the legislative modifications to New York's statutes of limitations for DES plaintiffs evince New York's intent to provide as full a recovery as is practicable to those of its residents injured by DES. New York and its residents therefore have a strong interest in the assertion of jurisdiction. Likewise, the several states share an interest in the efficient resolution of DES cases.

    149

    The fit with Keeton is not exact. In the present case, for example, some of the DES manufacturers cannot be said to have directly availed themselves of the forum state's market, whereas Hustler clearly did, albeit to a trivial extent. Still, by competing to establish a territorial niche within the national DES market, every manufacturer directly or indirectly benefited from the Commerce Clause of the federal Constitution and the laws of every state in the nation by participating in the national market for a generic good. In a sense, then, each DES manufacturer did "purposefully derive benefit from [its] interstate activities," such that none may be entitled to rely on the Due Process Clause "as a territorial shield to avoid interstate obligations that have been voluntarily assumed." Burger King, 471 U.S. at 473-74, 105 S.Ct. at 2183. Under the federal Commerce Clause and the substantive law of Hymowitz, the United States constitutes a common economic pond that knows no state boundaries. A substantial interjection of products at any point of the national market has ripple effects in all parts of the market.

    150

    The strain created in trying to accommodate jurisdictional issues raised by mass torts into the literal requirements of accepted formulations like "purposeful availment" suggests that modifications of jurisdictional law may be no less appropriate than modifications of substantive and quasi-substantive law already undertaken by state courts and legislatures. The standard jurisdictional formulations are, after all, the product of traditional cases which were not decided with mass litigation in mind. In this instance, at least, where substantive law has undergone significant development to accommodate socioeconomic change, it is necessary to interpret jurisdictional law so that it meets the demands of the subject matter of the litigation. See, e.g., Erichson, Note: Nationwide Personal Jurisdiction, supra, at 1158 & n. 265 (noting recent scholarship discussing advantages of linking substantive and procedural law). The need for adaptation in this case is clearly indicated by the fact that, without it, these New York plaintiffs would likely be barred from recovering from these defendants in any court. If, for example, plaintiffs sought out the defendants in the California courts, California choice-of-law rules would probably call for the application of California substantive law. See Bernhard v. Harrah's Club, 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719 (en banc) (adopting "comparative impairment of state interests" approach to choice-of-law issues), cert. denied, 429 U.S. 859, 97 S.Ct. 159, 50 L.Ed.2d 136 (1976). The defendants could then obtain a dismissal under Sindell by proving that they did not market DES in New York.

    151

    The Supreme Court itself has suggested the need for modified jurisdictional analysis in the special context of mass litigation. In the Shutts case, the Court confronted the issue of whether the Kansas state court had jurisdiction to bind each of the almost 30,000 plaintiff class members located around the country without requiring a showing of minimum contacts between each member and Kansas. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). Noting the necessity of the national class action device to provide relief where it might otherwise be unattainable, Chief Justice Rehnquist wrote that "minimum contacts" analysis was inapplicable and that, instead, a lower standard of "minimal procedural due process protection" was sufficient. Id. at 811-12, 105 S.Ct. at 2974. This standard requires only (1) best practicable notice and an opportunity to be heard, as defined by [577] Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950); (2) a right to opt out of the litigation and (3) a showing that the named plaintiff(s) adequately represent absent class members. Id. 472 U.S. at 812, 105 S.Ct. at 2974. By this formula, the Court essentially employed the time-honored jurisdiction-stretching technique of implied consent to cope with the special problem of jurisdiction in mass class actions: plaintiffs who received notice and did not opt-out were deemed to have implicitly consented to jurisdiction. See Miller & Crump, Jurisdiction and Choice of Law in Multistate Class Actions After Phillips Petroleum Co. v. Shutts, 96 Yale L.J. 1, 16-17 (noting Court's reliance on fiction of implied consent).

    152

    Similar modifications are necessary in the DES context. Although the Shutts opinion stressed that its treatment of the plaintiff class did not necessarily apply to defendants or defendant classes, see Shutts, 472 U.S. at 808-11 & 811-12 n. 3, 105 S.Ct. at 2972-74 & 2974-75 n. 3, the difficulties raised by mass litigation and the present case warrant a restatement of jurisdictional due process law that can function in this and other mass torts.

    153
    2. Case Law in Non-Mass Torts
    154

    The federal and state courts have been wrestling with the jurisdictional requirements of the Due Process Clause for 125 years. Although this area of law has necessarily responded to technological, social and economic change, its evolution has been halting and uncertain. Whereas the realization of the national economy all but compelled a genuine revolution in the substantive constitutional law of the Commerce and Due Process Clauses, a similarly complete transformation in the more rarefied realm of jurisdictional due process law has not been completed. The vocabulary of jurisdiction has changed — "presence" and "implied consent" have given way to "minimum contacts" and "purposeful availment." But these changes have not yet achieved complete clarity and coherence. Rather, the courts continue to function with an apparatus of concepts that recognizes, but does not quite systematize, the competing interests of defendants, plaintiffs, the courts, the individual states as sovereigns and the interstate system.

    155

    At the center of the problem is the idea that the Due Process Clause forbids a state legislature from empowering the state's courts to adjudicate cases against defendants having no territorial nexus with the state. The longevity of this idea has been remarkable. Since it first surfaced in Pennoyer v. Neff, it has been continuously attacked. A legion of commentators and judges have demonstrated that the midnineteenth century territorial nexus requirement needs modification for end-of-twentieth century litigation. The growing interconnectedness of the national economy and increased social mobility often have rendered the requirement unworkable in its original form.

    156

    As much as they might like to, however, the lower courts cannot simply abandon such well-entrenched doctrine in developing a due process standard for mass torts. Cf. Stephens, Sovereignty and Personal Jurisdiction, supra, at 133 (Supreme Court's continuing reliance on inquiry into "sovereignty" component of jurisdictional law cannot properly be ignored); Stein, Styles of Argument and Interstate Federalism in the Law of Personal Jurisdiction, 65 Tex.L.Rev. 689, 734-48, 761 (1987) (same). The current task in this area is instead to clarify the role that the nexus requirement plays in Due Process Clause jurisprudence for cases reflecting new substantive law.

    157
    a. Pennoyer and Its Problems
    158

    The territorial nexus requirement is the child of Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565 (1877). In that case the Supreme Court invalidated a default judgment against Neff on the ground that Oregon could not assert personal jurisdiction over a person not present in the state absent that person's consent. The Court suggested that the Due Process Clause of the fourteenth amendment required such a result. Id. 95 U.S. at 733. But see Borchers, The Death of the Constitutional Law of Personal Jurisdiction, supra, at 38-43 (arguing [578] that Pennoyer required only that absent defendants be served according to the terms of existing state statutes).

    159

    Pennoyer's conclusion that presence and consent are the only bases for jurisdiction was supported by two arguments. Both of these arguments focused in the first instance not on the liberty and property interests of absent defendants, but rather on the limited power of sovereign states within a federal system. Although neither of these arguments is particularly compelling, the focus of both on the limited nature of state sovereignty identifies what was to become a perennial concern of the courts.

    160

    The first, more familiar, argument purports to base the result in Pennoyer on principles of international comity. In the words of Justice Field:

    161
    The several States are of equal dignity and authority, and the independence of one implies the exclusion of power from all others. And so ... the laws of one State have no operation outside of its territory, except so far as is allowed by comity; and ... no tribunal established by it can extend its process beyond that territory so as to subject either persons or property to its decisions.
    162

    Pennoyer, 95 U.S. at 722. The problem with this argument is that legislation pertaining to the ability of a state court to render judgments effective in that state is properly viewed — and apparently has been viewed since the time of the Magna Carta — as an entirely domestic exercise of power that does not raise comity concerns. See generally Whitten, The Constitutional Limitations on State-Court Jurisdiction: A Historical-Interpretative Reexamination of the Full Faith and Credit and Due Process Clauses (pt. 2), 14 Creighton L.Rev. 735 (1981) (arguing that Pennoyer's introduction of comity concerns into the meaning of "due process" marked a radical departure from traditional usage). Justice Field seems to have suggested as much in an earlier case. See Galpin v. Page, 85 U.S. (18 Wall.) 350, 368-69, 21 L.Ed. 959 (1873); Borchers, The Death of the Constitutional Law of Personal Jurisdiction, supra, at 32 (arguing that Galpin recognized the legitimacy of extraterritorial reach of state jurisdictional legislation). By authorizing jurisdiction over non-resident defendants, state legislatures are not usurping or disrespecting the power of other sovereigns; they are establishing internally effective jurisdictional rules. Whether other states are required to give such judgments full faith and credit had, until Pennoyer, been treated as a separate question.

    163

    The second argument in Pennoyer stems not from a purported concern for comity, but rather from a concern for its opposite: realpolitik. To use Justice Field's effective imagery, "[p]rocess from the tribunals of one State cannot run into another State, and summon parties there domiciled to leave its territory and respond to proceedings against them." 95 U.S. at 727. Since state legislatures could not realistically ensure the production of absent defendants, the Court seemed to suggest, the Due Process Clause would save them the trouble by preventing the assertion of jurisdiction over those defendants.

    164

    This justification of the result in Pennoyer is untenable for many reasons. Its rationale would prevent legislatures from providing for jurisdiction over residents who were temporarily absent from the state. More generally, the idea that due process limits a state legislature's authority to the scope of its de facto physical power would leave states unable to provide basic protections to their residents. The Constitution could not reasonably be read to require states to suffer in silence while absent defendants played havoc with their residents.

    165

    The interesting feature of Pennoyer's two arguments is that, at least on the surface, they bear little connection to due process. Justice Field's interest was the theoretical basis for states' power to authorize judgments. The traditional due process concerns — whether the defendant will suffer a deprivation of liberty or property without fair notice and a reasonable opportunity to defend — are at best only tangentially related to these sovereignty concerns. If a state court judgment [579] against a non-resident defendant who had a genuine opportunity to mount a defense is in some sense ultra vires, it is not at all obvious that its illegitimacy amounts to the absence of due process.

    166

    This was the point of Justice Hunt's Pennoyer dissent, which rejected the idea that the Due Process Clause provides any limitation on assertions of jurisdiction beyond the requirement of notice and opportunity to be heard.

    167
    It belongs to the legislative power of the State to determine what shall be the modes and means proper to be adopted to give notice to an absent defendant of the commencement of a suit; and if they are such as are reasonably likely to communicate to him information of the proceeding against him, and are in good faith designed to give him such information, and an opportunity to defend is provided for him in the event of his appearance in the suit, it is not competent to the judiciary to declare that such proceeding is void as not being by due process of law.
    168

    Pennoyer, 95 U.S. at 737 (Hunt, J., dissenting).

    169

    Despite purporting on several occasions to reject Pennoyer in favor of a due process analysis focusing exclusively on the liberty and property interests of absent defendants, the Supreme Court has never adopted Justice Hunt's view. This fact is of great significance. From 1877 forward, the courts were forced to expend considerable effort to sustain Pennoyer in the face of historical developments that had rendered its holding obsolete. By the time of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), the Supreme Court was apparently sufficiently frustrated to want to pull the plug on sovereignty-based theories of personal jurisdiction and replace them with a conceptually independent fairness analysis that examined only the burdens that assertions of jurisdiction place on particular defendants. In that period of constitutional history, moreover, the Court was bent on abandoning other substantive due process restraints on state legislative activity.

    170

    Still, the Supreme Court did not find its way to completely abandoning the sovereignty inquiry started in Pennoyer. Likewise, subsequent pronouncements of the death of the "sovereignty" component in the due process inquiry have proved greatly exaggerated. From Pennoyer to the present day, due process has always required the plaintiff to demonstrate the forum state's authority to support an assertion of extraterritorial jurisdiction. International Shoe eventually endorsed a separate inquiry, already evidenced in the prior case law of "presence" and "implied consent," which focuses on a defendant's interest in not being unduly burdened in presenting its case. This fairness inquiry, however, supplemented, rather than supplanted, Pennoyer's sovereignty inquiry.

    171

    The salient feature of the history of the two independent inquiries into sovereignty and fairness is that, when they made their formal debut together in International Shoe, they both imported Pennoyer's territorial nexus requirement. Under International Shoe, it is only when a non-resident defendant's contacts with a state reach a certain level that the state has authority to assert jurisdiction over that defendant. Likewise, with respect to the fairness inquiry, International Shoe and subsequent cases have considered it unfair to assert jurisdiction over a defendant unless that defendant has conducted certain activity in the forum state.

    172

    Recognizing that a territorial nexus requirement has crept into both the sovereignty and fairness components of the constitutional law of personal jurisdiction provides a conceptual basis from which to develop a set of standards that is both workable in the context of mass litigation yet respectful of the traditional incorporation of a nexus requirement. Two additional steps are required. First, it must be understood that a nexus requirement makes a good deal more sense as a component of the sovereignty inquiry than it does as a part of the fairness inquiry. This explains why, despite longstanding criticism to the contrary, some kind of nexus requirement has been retained in the constitutional law of personal jurisdiction.

    173

    [580] The second step requires recognizing that Pennoyer's requirement of a territorial nexus mistook an instance of a theory of sovereignty for the theory itself. In other words, while Pennoyer and International Shoe were both correct to include a nexus requirement as part of the sovereignty inquiry, they need not have required a territorial nexus as the basis for assertions of jurisdiction. As subsequent cases have implicitly established, the nexus requirement is satisfied so long as a state has a tangible interest in litigation arising out of a nonresident defendant's acts, whether or not those acts occurred within the state.

    174

    With the accommodation of nexus concerns entirely within the sovereignty branch, and the severance of territorial notions from the more general concerns behind the nexus requirement, a more reasonable and systematic accommodation of the interests of parties, the forum state, and the other states is possible. To establish its contours requires a brief recounting of the well-travelled history of personal jurisdiction.

    175
    b. Pennoyer to International Shoe: The Emergence of Fairness Inquiry
    176

    From its inception, Pennoyer was awkward in application. Corporations had engaged in substantial interstate commerce since before the Civil War. These corporations were deemed to exist (and therefore to be present) in their state of incorporation. Insofar as they chose not to consent to jurisdiction elsewhere, they were, by a literal reading of Pennoyer, invulnerable to state court actions outside of their home state. The reality of interstate activity thus necessitated the invention of expanded notions of "presence" and "consent." The courts' use of these doctrines eventually raised theoretical complexities that pointed toward the development of an alternative "fairness" doctrine that promised to replace, but ultimately only modified, Pennoyer.

    177

    From before the time of Pennoyer, the Supreme Court had held that a state legislature was entitled to extort "consent" to jurisdiction as a condition of a foreign corporation's doing business in the state. See Lafayette Ins. Co. v. French, 59 U.S. (18 How.) 404, 407, 15 L.Ed. 451 (1855). The usage of "consent" in this context was disingenuous. The assertion of jurisdiction in these instances was clearly based on the power of the states to exact obedience to their jurisdictional laws because of their status as sovereign nations with the right to control their borders and activity within their borders. See id. (proper for state to "compel" foreign corporation to designate agent for service of process).

    178

    The assumption that a state had the power to exclude corporations or other entities created in other states was and is incompatible with the commercial nation envisioned under the Commerce Clause, which was meant to permit businesses to roam at will through the common United States market without discriminatory inhibition. See Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 6 L.Ed. 23 (1824). Within ten years, the premise of Lafayette was in any event put to rest as a practical matter by the victorious armies of the federal government. The Court conceded as much when, at the time of Pennoyer, it held that the states were powerless to exclude foreign corporations from conducting interstate commerce. Pensacola Tel. Co. v. Western Union Tel. Co., 96 U.S. 1, 24 L.Ed. 708 (1877). The Court apparently did not immediately recognize that such a substantive law holding undermined Lafayette. See Kurland, The Supreme Court, the Due Process Clause and the In Personam Jurisdiction of State Courts, 25 U.Chi.L.Rev. 569, 581 (1958).

    179

    Two alternative doctrines for establishing jurisdiction — "corporate presence" and "doing business" — avoided the problem of Lafayette but raised theoretical problems of their own. By these doctrines, absent corporations were treated as present (or, as it was later called, doing business) if they conducted enough of the right sort of activity in the forum state and were therefore deemed amenable to what is now called "general" jurisdiction. See id. at 583-84.

    180

    The problem of presence theory, which recently resurfaced in Burnham v. Superior Court, 495 U.S. 604, 110 S.Ct. 2105, 109 [581] L.Ed.2d 631 (1990), is that it seems to grant each state too much, rather than too little, jurisdictional reach. Given the premises of Pennoyer, even fleeting presence was sufficient to support general jurisdiction for all causes of action. In theory, a corporation, which is comprised of the actions of the natural persons who act on its behalf, is "present" wherever any of its officials are even transitorily involved with corporate business. See Hutchinson v. Chase & Gilbert, Inc., 45 F.2d 139, 141 (2d Cir.1930) (L. Hand., J.) (corporation "must be equally present wherever any part of its work goes on, as much in the little as in the great"). Thus non-resident corporations should have been amenable to general jurisdiction for transient forum activities.

    181

    The courts steadfastly resisted the idea of transient corporate presence by requiring more than a minimal quantum of instate activity by corporate officers and agents. See Kurland, The Due Process Clause and In Personam Jurisdiction, supra, at 582-86 (describing application of presence and doing business doctrines). But to the extent they did so, it was on the basis of independent fairness concerns that did not derive from the premises of presence theory. As Judge Learned Hand famously noted, courts that engaged in these analyses were using territorial contacts as indices of the reasonableness of haling absent defendants into court despite the fact that there were many instances in which there was little or no correlation between the existence (or non-existence) of a territorial nexus and the fair (or unfair) treatment of defendants. Hutchinson, 45 F.2d at 142.

    182

    After Pennoyer, the courts also made use of "implied consent" doctrine to support "specific" jurisdiction. See Kurland, The Due Process Clause and In Personam Jurisdiction, supra, at 578-82. For example, Justice Field, concerned in Pennoyer about the unfairness of asserting jurisdiction over absent natural persons, was quite willing to find that absent corporations that conducted business in a forum had implicitly consented to jurisdiction for causes of action arising from that business. St. Clair v. Cox, 106 U.S. 350, 356, 1 S.Ct. 354, 27 L.Ed. 222 (1882).

    183

    The use of the term "consent" in this context was also disingenuous — and ambiguously so. Implied consent theory amounted to conceptual "fudging": it incorporated at least three distinct ideas, two concerning sovereignty, and one concerning fairness to defendants.

    184

    The first sovereignty argument in "implied consent" theory was a presence argument. On this view, implied consent doctrine allowed the state courts to exert jurisdiction over corporations whose activities rendered them "present" in the forum. This idea raised the problem of potentially too-expansive jurisdiction associated with corporate presence and doing business doctrine.

    185

    The roots of implied consent theory could also be found in a theory of sovereignty that substituted "interest" for "presence" analysis. The interest theory, which later resurfaced in International Shoe, starts from the premise that states may impose certain obligations on individuals to protect the well being of their citizens and their own policies. It follows that, where a non-resident defendant has voluntarily undertaken certain acts affecting residents or policies of the state, the state may impose an obligation on the non-resident to defend suits in that forum which arise from those acts.

    186

    Although there is an element of voluntariness in this theory — the defendant chooses to undertake certain acts — the basis for the obligation to defend in the forum state is not its voluntary assumption by the defendant. Presumably many defendants would choose to undertake acts with forum consequences without accepting such an obligation. Instead the notion is that states possess the authority to set the terms under which nonresidents may choose to act if those acts affect state interests.

    187

    The final element of implied consent theory was the same notion of fairness identified in the presence and doing business cases. As in those cases, implied consent doctrine used the existence of a forum nexus as a benchmark for fairness on the idea [582] that those non-resident defendants that availed themselves of particular fora would be the same defendants that were able to mount meaningful defenses in those fora.

    188

    In the period between Pennoyer and International Shoe, then, the tenable theories of general and specific jurisdiction were viable only because they smuggled in an expanded "interest" theory of sovereignty and an independent fairness limitation not rooted in the notions of power and consent which Pennoyer had read into the Due Process Clause. For this reason, the courts' efforts to sustain Pennoyer amounted to a form of limited chemotherapy designed to stem, but not cure, a jurisdictional cancer. By using presence, doing business, and implied consent, the courts mitigated the worst features of the disease for a time, but they never cured the underlying problem and the treatment engendered debilitating conceptual side effects.

    189
    c. International Shoe: Sovereignty, Fairness and Nexus Requirements
    190

    Along with other doctrines implicating federalism and interstate commerce concerns, the issue of state court civil jurisdiction came to a head in the 1930s and 1940s. Like its siblings in substantive Due Process and Commerce Clause jurisprudence — see, e.g., West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937); United States v. Darby, 312 U.S. 100, 61 S.Ct. 451, 85 L.Ed. 609 (1941) — International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) promised to clear away the nineteenth-century theoretical underbrush and set the constitutional law of personal jurisdiction on a course required by the national economy. It was, however, less successful than its substantive law counterparts in achieving this goal.

    191

    Parts of International Shoe did suggest a genuine transformation. Its use of the phrase "traditional notions of fair play and substantial justice," borrowed from Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940), suggested that the Court had abandoned sovereignty inquiry altogether, as well as the territorial nexus component of fairness inquiry, in favor of an independent analysis of the conditions under which it would be fair to oblige a defendant to litigate in a foreign forum. See Redish, Due Process, Federalism, and Personal Jurisdiction, supra, at 1117. Such an interpretation was supported by Milliken, in which the Court focused its due process analysis exclusively on the adequacy of notice and defendant's opportunity to be heard, apparently without concern for the absent defendant's presence or contacts. 311 U.S. at 463, 61 S.Ct. at 342. Likewise, later cases, particularly McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957) — which recognized the need to interpret the law of personal jurisdiction in light of the "fundamental transformation of our national economy" — downplayed both territorial and convenience concerns. Id. at 222-23, 78 S.Ct. at 200-01.

    192

    International Shoe did not, however, completely free itself of Pennoyer and post-Pennoyer complications. Its test brought to the fore, but did not resolve, the conflicting ideas buried in implied consent doctrine. Thus, in formulating the new due process standard, Chief Justice Stone, writing for the Court, continued the traditional emphasis on a defendant's activities within the forum state:

    193
    [the Due Process] clause does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations. Cf. Pennoyer v. Neff, supra; Minnesota Commercial Assn. v. Benn, 261 U.S. 140 [43 S.Ct. 293, 67 L.Ed. 573 (1923)].
    194
    But to the extent that a corporation exercises the privilege of conducting activities within a state, it enjoys the benefits and protections of the laws of that state. The exercise of that privilege may give rise to obligations, and, so far as those obligations arise out of or are connected with the activities within the state, a procedure which requires the corporation to respond to a suit brought [583] to enforce them can, in most instances, hardly be said to be undue.
    195

    International Shoe, 326 U.S. at 319, 66 S.Ct. at 160.

    196

    The language in these two paragraphs and the citation to Pennoyer indicate the Court's retention of a sovereignty inquiry. The language of the second paragraph then intermingles the two different ideas of sovereignty that were implicit in implied consent doctrine. On the one hand, it states an "interest" analysis: states have the authority to attach obligations to the voluntary acts of defendants having an effect on the interests of the state. On the other hand, the interest analysis appears in a peculiarly narrow form because it retains elements of presence doctrine. Thus, a state only obtains the right to impose obligations on a defendant to defend suits arising from its acts if the acts occurred within the state. The Court does not explain why the state's ability to impose these obligations stops at its borders when many out-of-state acts undoubtedly have consequences sufficient to give the state an interest, if one be needed, to support imposition of such obligations. The narrow breadth of the rule of International Shoe, like that of many "landmark" cases, is perhaps only explicable in terms of the factual situation confronting the Court. The defendant corporation was conducting substantial activities in Washington and thus Chief Justice Stone was not forced to reckon with a case involving out-of-state activities having forum consequences.

    197

    Justice Black, recognizing that "at the very least, [a state] has power to tax and sue those dealings with its citizens within its boundaries ...," id. at 323, 66 S.Ct. at 162 (opinion of Black, J.) (emphasis added), presciently admonished the International Shoe Court to "decline the invitation to formulate broad rules as to the meaning of due process ... `in advance of the necessity for its decision.'" Id. at 322, 66 S.Ct. at 161 (quoting Alabama State Fed'n of Labor v. McAdory, 325 U.S. 450, 461, 65 S.Ct. 1384, 1389, 89 L.Ed. 1725 (1945)). Taking up the banner of Justice Hunt's dissent in Pennoyer, Justice Black reiterated the idea that due process at most required that state jurisdictional laws provide defendants with notice and an opportunity to be heard. See id. 326 U.S. at 324-25, 66 S.Ct. at 162-63.

    198

    By maintaining that a kind of attenuated presence was necessary before a state could claim an interest sufficient to allow it to oblige non-resident defendants to appear in the state's courts, International Shoe failed to resolve the conceptual difficulties underlying the sovereignty components of implied consent theory. Similarly, it continued the practice of importing territorial nexus concerns into fairness analysis. This was the upshot of linking "minimum contacts" to "traditional notions of fair play and substantial justice." International Shoe, 326 U.S. at 316, 66 S.Ct. at 158. By focusing on "contacts," the Court gave a signal to the states that the territorial nexus requirement would be satisfied in an expanded range of cases. But the shift from the requirement of actual presence to the requirement of minimum contacts liberalized, without liberating, the fairness component of the constitutional law of personal jurisdiction.

    199

    The tension between the lineage and aspirations of International Shoe soon manifested itself in case law. Six months after McGee, for example, the Court in Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958), limited the reach of Florida's courts, which had exercised jurisdiction over a trust created in Delaware by a settlor who had moved to, and died in, Florida. Ignoring the practical administrative concerns of Florida, which probated the settlor's will, the Court found protection of the non-Florida trustee's and beneficiaries' due process interests imperative. Justice Black again dissented, essentially on the grounds stated in his International Shoe opinion. See id. at 256, 78 S.Ct. at 1241 (Black, J., dissenting). Unlike in McGee, the majority opinion in Hanson paid scrupulous attention to the language in International Shoe that linked the sovereignty and fairness inquiries to the level of a defendant's in-forum activity, noting that

    200
    [584] it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.
    201

    Id. at 253, 78 S.Ct. at 1240.

    202

    Hanson was then adopted in support of the still more restrictive approach in the "stream of commerce" cases. In World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), the defendants' knowledge that a consumer who purchased an automobile in New York might drive the car to Oklahoma was deemed insufficient to establish minimum contacts with the latter state. While conceding that "[t]he historical developments noted in McGee ... have only accelerated in the generation since that case was decided," id. at 293, 100 S.Ct. at 565, the Court nevertheless invoked Hanson's "purposeful availment" standard, adding to it the requirement that the defendant foresee being haled into the forum state's courts. Id. at 297, 100 S.Ct. at 567. Subsequently, in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987), a plurality of the Court stated that placement of a product in the stream of commerce is not sufficient to establish personal jurisdiction absent "[a]dditional conduct" indicating "an intent or purpose to serve the market in the forum State." Id. at 112, 107 S.Ct. at 1032. This test apparently was intended to add constraints even beyond those of Volkswagen, since Justice White, the author of Volkswagen, joined Justice Brennan's Asahi opinion concurring only in the result.

    203

    In the period since International Shoe, the Court has thus followed the letter of that opinion's fairness inquiry by consistently reiterating the territorial nexus element of that inquiry. During the same period, the Court has confronted, put to death and then resurrected sovereignty inquiry. As reincarnated, sovereignty inquiry. still contains a version of the nexus requirement ratified in International Shoe. In this context, however, International Shoe has not been applied literally: the inquiry has shifted from a territorial to an interest nexus analysis.

    204

    Interest nexus analysis appeared in some early cases. In establishing the modern standards for notice and opportunity to be heard, Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950), appeared to predicate personal jurisdiction over nonresident defendants only on New York state's interest in fully and finally determining the interests of all claimants to a trust. See id. at 313-14, 70 S.Ct. at 656-57. In McGee, the Court found California's assertion of jurisdiction was at least in part supported by the state's "manifest interest" in protecting those of its citizens seeking payment on insurance claims. 355 U.S. at 223, 78 S.Ct. at 201.

    205

    The existence of an independent sovereignty inquiry — and with it, the propriety of interest analysis — was formally acknowledged in World-Wide Volkswagen, see 444 U.S. at 291-92, 100 S.Ct. at 564-65. The acknowledgment was then retracted in Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, see 456 U.S. 694, 702-03 n. 10, 102 S.Ct. 2099, 2104-05 n. 10, 72 L.Ed.2d 492 (1982). The retraction, however, was not complete. Cases after the alleged "death" of sovereignty inquiry consistently maintain that the forum state's interest in a litigation is crucial to the jurisdictional determination. See Asahi, 480 U.S. at 113, 107 S.Ct. at 1032; Burger King, 471 U.S. at 473-74, 105 S.Ct. at 2182-83; Keeton, 465 U.S. at 776, 104 S.Ct. at 1479. The result, as noted above, has been some confusion as to the proper relation between the various concerns underlying the sovereignty and fairness inquiries.

    206
    3. Sovereignty and Fairness in Mass Torts
    207

    Two aspects of the constitutional case law of personal jurisdiction must be reemphasized.

    208

    The first is that the cases continue to rely on two distinct inquiries — sovereignty and fairness. Furthermore, both the sovereignty [585] and fairness inquiries have required some connection between the forum state and the defendant. The Supreme Court's fairness inquiries have retained the traditional requirement of a physical, territorial nexus: a non-resident defendant will be constitutionally subject to state assertions of jurisdiction only if it voluntarily commits acts within the state. By contrast, the Court's sovereignty inquiry now requires only an interest nexus: so long as the nonresident defendant's acts give rise to a forum interest, the state has authority to assert jurisdiction.

    209

    The second feature of note is that this jurisprudence of jurisdictional due process has been developed in cases almost all of which involved one or a few parties on each side. The Supreme Court's two-pronged inquiry has never been articulated in the context of a mass tort case arising out of the national (or international) marketing of a product. Only in Shutts has the Court dealt with this type of case, and there it was prepared to stretch prevailing jurisdictional standards by reliance on an implied consent theory.

    210

    This pair of considerations bears directly on the Due Process Clause standard appropriate to mass torts. The issue is whether the sovereignty and fairness inquiries legitimately can be adapted to such cases.

    211

    Analysis of this issue starts from the recognition that incorporation of forum nexus concerns into the sovereignty and fairness inquiries must be regarded, at least in the first instance, as an historical accident. As noted above, Pennoyer's initial adoption of territorial notions of sovereignty was dubious even when enunciated. See Whitten, The Constitutional Limitations on State-Court Jurisdiction, supra. Without considering the impact on the then largely unforeseen phenomenon of mass torts, the International Shoe Court reaffirmed the use of both of these notions. Whereas there is a plausible rationale for the continued reliance on the "forum state interest" component to the sovereignty inquiry, the territorial nexus requirement is, at least in mass tort cases, an unnecessary and debilitating element of the fairness inquiry.

    212

    The notion that a forum state ought to have an interest in litigation before asserting jurisdiction over the parties is based on the idea that a state may not impose obligations on nonresidents without a reason. Although "under our constitutional system, the inquiry is not why should a state be allowed to take an action, but why shouldn't a state be allowed to do so," Redish, Due Process, Federalism and Personal Jurisdiction, supra, at 1134 (emphasis in original), the Due Process Clause does require that state law concerning economic and social welfare regulation be at least minimally rational. See generally L. Tribe, American Constitutional Law § 8-7, at 582-83 (2d ed. 1988) (post Lochner-era cases require only that state legislation not be "a display of arbitrary power") (quoting Mathews v. De Castro, 429 U.S. 181, 185, 97 S.Ct. 431, 434, 50 L.Ed.2d 389 (1976)). In this instance, due process imposes the very narrow limitation that a state have at least some interest in a controversy before it may demand that a nonresident incur the burden of defending a suit in the state.

    213

    By contrast, territorial nexus doctrine is a particularly inadequate mechanism for protecting mass producers from undue litigation burdens. Examples of the poor fit between territorial nexus and fairness are staples of first-year Civil Procedure. The lack of a territorial nexus is often no indication of inconvenience: a Canadian company located in Willard, Ontario with no New York contacts will be much less physically inconvenienced by appearing in a court in Buffalo in the Western District of New York than a Buffalo resident would be when appearing in Brooklyn in the Eastern District of New York. The presence of a territorial nexus is an equally poor index of convenience, as the reinvigoration of "tag" or "transient" jurisdiction in Burnham has made clear. At least one wise observer of procedural law has suggested that the extreme disjunction between territorial nexus and convenience concerns evidenced in Burnham will result in the outright elimination of nexus concerns from the constitutional [586] law of personal jurisdiction. See Korn, The De-Constitutionalization of Judicial Jurisdiction, supra.

    214

    The political experience of the European Community also demonstrates that the territorial nexus requirement is by no means necessary to protect defendants' liberties within a federal system of government. Under European jurisdictional rules, for example, a citizen of Germany sustaining injuries in that country from a product manufactured by a British company in Britain may bring suit in Germany even in a traditional, single plaintiff, single defendant action. See Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Tit. II, Sec. 2, art. 5(3) (plaintiff may sue in "the courts for the place where the harmful event occurred"), reprinted in A. Lowenfeld, Conflict of Laws: Documentary Materials — Federal, State, and International 49 (1986). There is no indication that this aspect of the jurisdictional system is dysfunctional or works inequities on defendants. See generally Juenger, Judicial Jurisdiction in the United States and in European Communities: A Comparison, 82 Mich.L.Rev. 1195 (1984).

    215

    As critics of the territorial nexus standard have long noted, protection for defendants appearing in federal court is already provided in the law of venue and forum non conveniens. See, e.g., Burnham v. Superior Court, 495 U.S. 604, 639 n. 13, 110 S.Ct. 2105, 2125 n. 13, 109 L.Ed.2d 631 (1990) (Brennan, J., concurring in result). 28 U.S.C. §§ 1404(a) & 1406(a) allow district courts to transfer or dismiss civil actions when "in the interest of justice." Similarly, a court may, in applying forum non conveniens doctrine, "weigh relative advantages and obstacles to fair trial." Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947).

    216

    The oddity of the territorial nexus requirement will only become more evident in time. In the first place, the development of transportation and particularly communications technology — which, for example, allows courts to receive voluminous briefs in minutes by facsimile machine and to conduct hearings by telephone and soon by satellite video transmissions — continues to "shrink" the country.

    217

    Second, it seems likely that the phenomenon of mass litigations will continue to grow, and it is in these cases that the irrationality of the territorial nexus requirement is arguably most evident and the need for an improved approach most urgent. Mass tort suits typically are brought against groups of corporate defendants. In these cases the intuition linking territorial and convenience concerns — that a defendant in a civil case must travel to the forum to defend him-, her- or itself — is factually least plausible. As a rule, local counsel rather than defendants appear for motion and trial practice. Discovery need not and often will not take place in the forum. In federal court, moreover, discovery is subject to Federal Rule of Civil Procedure 26(b)(1)(iii), which now requires the district courts to take account of burdens on the parties in setting discovery parameters. As of the Rule's amendment in 1983, the courts must consider "the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation."

    218

    The actual litigation costs per case of defendants in mass cases is also likely to be lower than the costs to defendants appearing alone. To the extent permitted by professional ethical rules, defendants often can cooperate to defray costs by effecting a division of labor. Even where defendants do not explicitly cooperate, in many mass cases some defendants will rely on the work of the defendants with the greatest potential exposure in the case and therefore the greatest interest in litigating effectively. In almost all mass torts, much of the cost of litigation is eventually paid by national insurance companies.

    219

    While the need for territorial nexus-based protections of defendants is arguably least pressing in mass torts, the continued reliance on such protections creates significant obstacles to their resolution. This is particularly evident in a case such as the instant one, where New York substantive [587] law empowers plaintiffs to bring in all industry participants to achieve a full and economical resolution of their lawsuits, yet jurisdictional law may prevent the very result envisioned by the state's substantive, remedial and procedural laws.

    220
    4. Due Process Standard for Mass DES Torts
    221

    Given that New York law has evolved to promote the efficient resolution of mass DES torts, and given the problems of applying prevailing traditional jurisdictional concepts to such cases, a modification of established standards to determine the constitutionality of jurisdictional statutes that incorporates an interest nexus inquiry but not a territorial nexus inquiry is necessary in the DES context — and perhaps in other mass tort cases. The following pair of principles results from a conservative view of precedents. (Obviously, a more radical position eliminating the state interest requirement, thus allowing a neutral forum to accept jurisdiction, could be developed were the Supreme Court to revisit precedent.)

    222
    I. The court must first determine if the forum state has an appreciable interest in the litigation, i.e., whether the litigation raises issues whose resolution would be affected by, or have a probable impact on the vindication of, policies expressed in the substantive, procedural or remedial laws of the forum. If there is an appreciable state interest, the assertion of jurisdiction is prima facie constitutional.
    223
    II. Once a prima facie case is made, the assertion of jurisdiction will be considered constitutional unless, given the actual circumstances of the case, the defendant is unable to mount a defense in the forum state without suffering relatively substantial hardship.
    224
    Evidence to be considered in determining the defendant's relative hardship includes, inter alia, (1) the defendant's available assets; (2) whether the defendant has or is engaged in substantial interstate commerce; (3) whether the defendant is being represented by an indemnitor or is sharing the cost of the defense with an indemnitor or co-defendant; (4) the comparative hardship defendant will incur in defending the suit in another forum; and (5) the comparative hardship to the plaintiff if the case were dismissed or transferred for lack of jurisdiction.
    225

    It must be emphasized that this standard is designed only to establish the minimum due process requirements for assertions of jurisdiction absent a defendant's consent. Considerations such as parties' and witnesses' convenience, administrative practicalities, and interstate comity concerns may still counsel against exercising that jurisdiction. Convenience and administrative feasibility are, of course, standard criteria for deciding motions to transfer or dismiss for improper venue or forum non conveniens. Interstate comity concerns would be raised, for example, if a state court has jurisdiction over a product liability case when a large number of related cases are pending in another state; courts or litigants may wish in such circumstances to seek consolidation in the other state. Ideally, such consolidations would be coordinated under a compact among the states or by authority of federal legislation. See, e.g., American Law Institute, Complex Litigation Project, Tentative Draft No. 3, Ch. 4 (March 31, 1992) (proposing methods of case consolidation among state courts). At present, state courts can use doctrines such as forum non conveniens to protect interstate comity interests by dismissing cases outright or on condition that the defendant submit to jurisdiction in a more appropriate forum.

    226

    The mass tort standard does incorporate several factors acknowledged in Supreme Court case law and by academic commentators as relevant to the constitutional-jurisdictional inquiry. They include the size and type of litigation, the relative financial condition of the parties, other burdens on plaintiff and defendant, the forum's interest in the litigation, whether the litigation will involve only two parties or several parties or indemnitors, and whether the operation of the forum's choice-of-law rules or substantive laws impose a hardship on [588] the defendant, favor the interests of the plaintiff, or both. Cf. Gottlieb, In Search of the Link Between Due Process and Jurisdiction, 60 Wash.U.L.Q. 1291, 1327-34 (1983) (constitutionality should turn on type of litigation and resources of parties); Redish, Due Process, Federalism, and Personal Jurisdiction, supra, at 1138-42 (assertion of jurisdiction that causes defendant "meaningful inconvenience" is unconstitutional unless inconvenience is outweighed by potential burdens on the plaintiff or by the forum state's interest in the litigation); Weintraub, Due Process Limitations on the Personal Jurisdiction of State Courts: Time for a Change, 63 Or. L.Rev. 485, 522-26 (1984) (if defendant demonstrates that assertion of jurisdiction works an unfairness, plaintiff may establish the propriety of jurisdiction "because of something that defendant has done in the forum or caused to occur in the forum").

    227

    Principle I incorporates the "interest" nexus requirement of cases like Keeton, Burger King and Asahi. By necessitating an appreciable interest, it also incorporates a proximate cause inquiry, thus imposing some limitations on the causal chain between a particular litigation and the state's interest. In keeping with current law, the burden of proving the existence of an interest is the plaintiff's.

    228

    The first principle also links jurisdictional and choice-of-law inquiries. The Supreme Court has on several occasions admonished the lower courts to treat the jurisdictional and choice-of-law inquiries as distinct. See, e.g., Keeton, 465 U.S. at 778, 104 S.Ct. at 1480 ("`The issue is personal jurisdiction, not choice-of-law.'" ... [W]e do not think that ... choice-of-law concerns should complicate or distort the jurisdictional inquiry.") (quoting Hanson v. Denckla, 357 U.S. 235, 254, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958)). Nevertheless, it is hard to reconcile that directive with the ongoing vitality of the sovereignty inquiry within the constitutional law of personal jurisdiction, particularly in a mass tort case. After all, a forum state's interest in any matter will normally be determined by reference to the policies expressed in its substantive laws. See Redish, Due Process, Federalism, and Personal Jurisdiction, supra, at 1139. Whether the state's substantive laws will apply to the litigation must therefore at least be relevant in determining whether or not a state interest exists that is sufficient to support an assertion of jurisdiction. Keeton itself treated New Hampshire's decision to encourage libel suits as germane to the jurisdictional inquiry. See Keeton, 465 U.S. at 775-76, 104 S.Ct. at 1478-79.

    229

    Once the choice-of-law inquiry is recognized as relevant, a question arises as to how much force it exerts. At the least, a determination that the forum state's law applies is sufficient to establish a state interest supporting a prima facie case for jurisdiction. Cf. Silberman, Shaffer v. Heitner: The End of an Era, 53 N.Y.U.L.Rev. 33, 88 (1978) (that choice-of-law rules favor application of law of forum state is sufficient of itself to establish personal jurisdiction). But cf. Stephens, Sovereignty and Personal Jurisdiction, supra, at 136-37 (noting that Silberman test does not give adequate attention to fairness considerations). Whether a court can and should assert jurisdiction where mass tort choice-of-law principles favor application of another forum's law — for example, where resident plaintiffs bring suit for an out-state-tort — must be left to future cases. See Redish, Due Process, Federalism, and Personal Jurisdiction, supra, at 1140-41.

    230

    After a prima facie case for the constitutionality of jurisdiction is made based on the court's authority to hear the case, the court must next inquire under the second principle whether the assertion of jurisdiction will be unfair to the defendant. The factors indicated in the second principle measure, among other things, the defendant's present ability to mount a reasonable defense as compared with the hardship plaintiff may suffer in having to bring its case elsewhere. The analysis will in some respects parallel the flexible analysis applied in controlling discovery under Rule 26(b)(1)(iii), see Part V B 3, supra, and in considering forum non conveniens motions. See, e.g., Piper Aircraft Co. v. Reyno, [589] 454 U.S. 235, 249, 102 S.Ct. 252, 262, 70 L.Ed.2d 419 (1981) (hallmark of forum non conveniens is its flexible application to facts of each case); see also Hodson v. A.H. Robins Co., 528 F.Supp. 809 (E.D.Va. 1981), (in suit by English citizens against American manufacturer and distributor of allegedly defective contraceptive device for injuries occurring in England, forum non conveniens motion to dismiss denied in light of public and private interests favoring trial in American forum), aff'd, 715 F.2d 142 (4th Cir.1983); cf. In re Union Carbide Corp. Gas Plant Disaster at Bhopal, India in December, 1984, 809 F.2d 195 (2d Cir.) (suit by Indian plaintiffs against American corporation for mass industrial accident in India rightly dismissed on forum non conveniens grounds given plaintiffs' Indian citizenship, competence of Indian courts to handle case centered on Indian regulatory law, location of evidence and witnesses and fact that plant was run exclusively by Indian citizens), cert. denied, 484 U.S. 871, 108 S.Ct. 199, 98 L.Ed.2d 150 (1987); Union Carbide Corp. v. Union of India, ___ S.C.R. ___ (Sup.Ct.India Oct. 22, 1991) (upholding settlement of Bhopal claims except for that portion dismissing parallel criminal case). Since the issue is jurisdiction, however, the focus is on the particular hardships to defendant, and the showing of hardship required would be greater than that necessary to support transfer or dismissal under forum non conveniens doctrine.

    231

    Although the test under Principle II does not shift the burden of persuasion to defendants, the court will, as under current practice, assume fairness unless the defendant informs it of potential litigation burdens and the desirability of transfer or dismissal.

    232
    VI. APPLICATION OF LAW TO FACTS
    233
    A. Boehringer
    234
    1. Failure to State a Claim
    235

    Stayner was merged into Boehringer under the corporations law of Delaware. Boehringer concedes that it is therefore subject to the same tort liabilities as Stayner would have been had it continued to exist. Boehringer moves to dismiss for failure to state a claim on two grounds. First it claims that Hymowitz prohibits suits against a company which, like Stayner, never sold DES in New York. In the alternative, Boehringer contends that, if Hymowitz does create a cause of action against it, comity and conflicts of law principles, as well as the Due Process and Full Faith and Credit Clauses of the federal Constitution, require the application of California rather than New York law. Under California law Boehringer would be entitled to dismissal if it could prove that it never marketed DES in plaintiffs' domicile at the time of ingestion. See Sindell v. Abbott Labs., 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924, 937, cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980).

    236

    As to the first argument, Boehringer contends that defendants who did not market DES in New York ought to be treated in the same way as Hymowitz treats companies that never marketed DES for pregnancy use. It argues that this reading follows naturally from the concern evidenced in Hymowitz and Besser for the protection of New York residents. Since a company that did not sell DES in New York could not have injured New York residents, the argument proceeds, Hymowitz could not have meant to hold such manufacturers culpable.

    237

    This argument is erroneous for two reasons. In the first place, it does not follow that, because a company did not market DES in New York, its DES could not have injured New York residents. The Court of Appeals rejected DES liability schemes that do not look to national market share for this reason. Hymowitz, 73 N.Y.2d at 511, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (because "there are many [New York cases] in which the DES that allegedly caused injury was ingested in another state," application of less than national market share figures would place on these plaintiffs "an unfair, and perhaps impossible burden" of gathering marketing data for the region where they obtained DES). Since proof that a defendant did not market DES in New [590] York does not resolve the causation question, a cause of action under Hymowitz lies against all defendants that sold DES for pregnancy use anywhere in the national market. The Court of Appeals meant what it said: "there should be no exculpation of a defendant who, although a member of the market producing DES for pregnancy use, appears not to have caused a particular plaintiff's injury." Id. at 512, 541 N.Y.S.2d 941, 539 N.E.2d 1069.

    238

    Second, it is ironic for defendant to rests its argument for exculpation on the policy of protecting New York state residents. It is this very concern which justifies the inclusion of defendants who do not appear to have injured any state resident. The Hymowitz decision acknowledged that its rule would ignore the causal link between a particular defendant's acts and a particular plaintiff's harms. This departure from conventional tort law was justified as an equitable means of protecting New York residents without completely abandoning traditional notions of fairness in the apportionment of liability among defendants. The policy of protecting New York residents exposed to DES thus supports recognition of a cause of action against Boehringer.

    239

    The argument that the law of California should apply must also be rejected. Comity principles have no application to this case apart from their manifestation in New York's choice-of-law rules and, as indicated in Part IV B, those rules require the application of New York law.

    240

    The general principle of comity grants discretion to a court sitting in one state to recognize the law of another state where the application of the other state's law does not conflict with the public policy of the forum state. See De Rose v. New Jersey Transit Rail Operations, 165 A.D.2d 42, 565 N.Y.S.2d 305 (3d Dep't 1991). Boehringer requests application of California law as a matter of comity, yet it has already conceded a very significant New York public policy at stake in Hymowitz that conflicts with California law. Comity considerations therefore do not apply except insofar as they provide the conceptual basis for New York's choice-of-law rules. See 19 N.Y.Jur.2d Conflicts of Laws § 9, at 580 (1982).

    241

    For choice-of-law purposes, Boehringer is presently domiciled in Connecticut. See Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 194, 491 N.Y.S.2d 90, 480 N.E.2d 679 (1985) (corporation's domicile for choice of law is location of corporate headquarters). It appears, however, that the New York Court of Appeals would treat Boehringer as domiciled in California for purposes of this action because Boehringer (through its predecessor Stayner) was domiciled in California at the time the alleged causes of action arose. See id. (where corporation moved from New Jersey to Texas after time of tortious acts, domicile is New Jersey). For purposes of this memorandum, the present actions against Boehringer thus involve New York plaintiffs bringing actions against a California domiciliary for injuries occurring in New York. As indicated above, both Babcock and Neumeier require that New York substantive law control such a case.

    242

    Boehringer's reliance on Schultz to support a contrary view is misplaced. In Schultz, domiciliaries of New Jersey sued corporations domiciled in New Jersey and Ohio for torts occurring in New Jersey and New York. With respect to the action by the New Jersey plaintiffs against the New Jersey defendant, Schultz held that Babcock required application of New Jersey law. See id. 65 N.Y.2d at 199-201, 491 N.Y.S.2d 90, 480 N.E.2d 679. With respect to the claim against the Ohio defendant, the Court of Appeals held that Neumeier's third principle — which covers conflicts between loss-distribution rules where the parties lack a common domicile and the tort occurred in a third state — also required application of New Jersey law, which, in contrast to New York, retained the liability-limiting concept of charitable immunity. Schultz, 65 N.Y.2d at 201, 491 N.Y.S.2d 90, 480 N.E.2d 679. The court reasoned that such a decision was supported by New Jersey's strong interest in retaining its immunity policy and would not frustrate New York interests because New York was [591] merely one locus of the tort and had "no significant interest" in the dispute.

    243

    Schultz thus did not involve Neumeier's second principle, which is the principle applicable in the instant case. Because none of the Schultz parties were New York domiciliaries and the tort occurred for the most part in another state, New York essentially had no interest in the suit. Where, by contrast, the suit is brought by New York residents for injuries occurring in New York, the defendant should not be allowed "to interpose the law of his state as a defense." Neumeier, 31 N.Y.2d at 128, 335 N.Y.S.2d 64, 286 N.E.2d 454.

    244

    For reasons already discussed, Boehringer's contention that application of New York law to these plaintiffs' claims would violate the federal Constitution is equally without merit.

    245
    2. Personal Jurisdiction
    246

    Defendant Boehringer is amenable to personal jurisdiction under C.P.L.R. § 301 because it is licensed to do business here. Nevertheless, Boehringer claims that suits which seek to impose liability for the acts of Stayner Corporation can only proceed in New York if a New York court would have jurisdiction over Stayner. Because Stayner is alleged to have no contacts with New York, Boehringer claims, jurisdiction cannot be asserted in the present cases under New York law or the Due Process Clause.

    247

    As to the statutory argument, one New York court has already found that Boehringer is amenable to jurisdiction under section 301 for DES suits against it. See Akerman v. Abbott Labs., Index No. 7669-90, Sup.Ct. (1st Dep't) (Aug. 21, 1991) (Gammerman, J.). The court reasoned that Boehringer, being licensed to do business in New York, has consented to general jurisdiction. It concluded that Stayner's prior relations to New York were irrelevant for jurisdictional purposes.

    248

    Justice Gammerman's analysis is persuasive. Boehringer has not pointed to any authority stating that, where a successor corporation has consented to general jurisdiction, jurisdiction for suits based on actions of its predecessor ought to be determined by the predecessor's activities. There are numerous cases supporting the proposition that a court may have long-arm jurisdiction over a successor corporation with no forum contacts on the basis of the contacts of its predecessor. See generally Simmers v. American Cyanamid Corp., 394 Pa.Super. 464, 576 A.2d 376 (1990) (discussing such cases), cert. denied, ___ U.S. ___, 112 S.Ct. 62, 116 L.Ed.2d 38 (1991). Thus Boehringer would also be amenable to jurisdiction under C.P.L.R. § 302(a)(3)(ii) for the reasons that apply to Boyle. Since Boehringer has consented to general jurisdiction, however, which extends even to causes of action "not arising out of or related to the defendant's contacts with the forum," Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 9, 104 S.Ct. 1868, 1872 n. 9, 80 L.Ed.2d 404 (1984), jurisdiction under section 301 is appropriate. Boehringer is also amenable to general jurisdiction because it is "doing business" in New York on a systematic basis. Simonson v. International Bank, 14 N.Y.2d 281, 285, 251 N.Y.S.2d 433, 200 N.E.2d 427 (1964).

    249

    Finally, the assertion of jurisdiction under section 301 is constitutional under traditional standards and the standard for mass torts. Although the Supreme Court has not directly pronounced on the subject since 1945, the constitutionality of the traditional practice of asserting general jurisdiction solely on the basis of a corporation's being licensed to do business in the forum seems to have survived International Shoe. See Burnham v. Superior Court, 495 U.S. 604, 110 S.Ct. 2105, 109 L.Ed.2d 631 (1990) (plurality opinion) (International Shoe did not supplant long- and widely-accepted methods of asserting jurisdiction); Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 174-75, 60 S.Ct. 153, 157-58, 84 L.Ed. 167 (1939) (upholding New York Corporation law requiring foreign corporation to designate agent for service of process as condition of doing business); see also Sternberg v. O'Neil, 550 A.2d 1105, 1109-13 (Del.1988) (discussing constitutionality of general jurisdiction based on statute requiring foreign corporation to [592] designate agent for service of process). The constitutionality of "doing business" jurisdiction is well-established. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984).

    250

    With respect to the due process standard for mass torts, the plaintiffs have established, as required under Principle I, a prima facie case for the constitutionality of asserting jurisdiction under C.P.L.R. § 301. Plaintiffs' cases call for the application of New York law, in part because they are all New York domiciliaries. The Hymowitz and Besser cases, among others, indicate a clear state policy to provide full compensation to New York residents injured by ingestion of DES.

    251

    The considerations of Principle II also support a finding that jurisdiction over Boehringer may constitutionally be asserted. There is no evidence that Boehringer would suffer any hardship in mounting its defense. Under prevailing jurisdictional standards for non-mass tort cases, Boehringer in fact is required to anticipate litigation in this forum. It may therefore be required to defend these actions. If there are instances in which the application of a general jurisdiction provision like C.P.L.R. § 301 violates the due process standard for mass torts, this is surely not one of them.

    252
    B. Boyle
    253

    Boyle claims never to have had any contacts with New York. It therefore concludes that the court lacks jurisdiction under C.P.L.R. § 302(a)(3)(ii) because of failure to satisfy the "injury," "causation" and "reasonable expectation" elements of that statute. Boyle also maintains that a finding of jurisdiction would violate the Due Process Clause.

    254

    Identical claims were raised by Boyle in an indemnity action brought in New York State Supreme Court. That court denied Boyle's motion to dismiss with leave to renew following further discovery. Feit v. Emons Indus., Inc., Index No. 12026/81 (N.Y.Sup.Ct. Aug. 9, 1982). The motion apparently was not renewed.

    255
    1. C.P.L.R. § 302(a)(3)(ii)
    256

    It will be recalled that C.P.L.R. § 302(a)(3)(ii) provides for in personam jurisdiction over

    257
    any non-domiciliary ... who in person or through an agent ... commits a tortious act without the state causing injury to person or property within the state ... if he ... (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce....
    258

    Boyle's first statutory argument is that its alleged out-of-state tortious acts caused no "injury ... within the state." As indicated in Part V A 2, this claim is contradicted by the facts. The injury-causing event in these cases was the mothers' ingestion of DES. The locus of this event was New York. As the plaintiffs exposed to DES in utero have been "located" in New York from the time of their exposure, the concern behind the requirement — to prevent parties from carrying their injuries back to New York — is not present.

    259

    Boyle also contends that it cannot be shown to have committed tortious acts "causing" injuries as required by section 302(a)(3)(ii). This argument, while perhaps cogent under the common law applicable to individual torts, is untenable as to mass torts controlled by Hymowitz. As a matter of substantive New York law, DES plaintiffs are not required to prove that a particular defendant caused their injuries. It would be counterproductive to Hymowitz policy to pose such a requirement as a procedural bar to their recovery. Moreover, for reasons discussed above, these defendants cannot presume that they did not cause injuries in New York. Some plaintiffs may have obtained DES outside New York and ingested it in New York.

    260

    Finally, relying on the New York "stream of commerce" cases, Boyle claims that it could not reasonably have expected its alleged tortious acts to have forum consequences. As pointed out in Part V A 2, however, those cases are inapposite because they involve traditional, single plaintiff tort actions. Boyle was a participant in [593] the national DES market whose alleged harms have affected thousands of persons across the nation. Under Hymowitz, the fact that its actions would have consequences for the marketing of DES in every state was reasonably foreseeable.

    261
    2. Due Process
    262

    Boyle has presented evidence indicating that (1) it has no "contacts" with New York in the traditional sense; (2) although it was engaged in substantial interstate commerce during much of the period when DES was marketed, its revenues have dropped precipitously in recent years to the point where the company is essentially inoperative; and (3) Boyle's share of the national DES market in any given year was fairly small — somewhat less than 0.5%. For these reasons, it maintains that it cannot constitutionally be brought into New York court on DES product liability claims.

    263

    Under the standard for mass torts articulated in Part V B 4, inquiry into the defendants' territorial contacts with the forum takes the form of an inquiry into the forum state's interest in the litigation and the defendant's relative ability to mount a defense in the forum without undergoing substantial hardship.

    264

    As indicated in the application of the mass tort standard to Boehringer, plaintiffs have established New York's interest in the litigation and with it a prima facie case for the constitutionality of asserting jurisdiction over these defendants. There remains, then, only the considerations grouped under the second principle of the standard for mass torts.

    265

    Boyle's past interstate activity certainly satisfies the statutory requirement of deriving "substantial revenue" from interstate commerce. This is because the New York statute essentially treats the substantial revenue element as a branch of the "reasonable expectation" inquiry: evidence of interstate commercial activity supports the inference that the defendant expected its conduct to have effects in New York. See, e.g., Path Instruments Int'l Corp. v. Asahi Optical Co., 312 F.Supp. 805, 810 (S.D.N.Y.1970). A defendant's reasonable expectations, however, are not at issue in the modified due process fairness inquiry applicable to DES cases. Rather, the inquiry is whether the defendant can mount a reasonable defense in this forum without undergoing substantial hardship.

    266

    While an important consideration, Boyle's revenue figures do not of themselves demonstrate that it will face undue hardship in presenting its defense. There is no indication that the company is in danger of insolvency. It may, in fact, have substantial assets. The revenue figures indicate only that the company is conducting minimal new business.

    267

    In presenting its defense, Boyle continues to benefit from economies of scale, a feature of mass tort litigation noted earlier. For pre-trial motions including this one, Boyle has properly joined in the motions of other defendants rather than submitting duplicative papers. At trial a central issue for all of the defendants will be market share. Boyle will in all likelihood not present evidence on any other issue and will rely on counsel for co-defendants to handle other matters. The situation is in this respect akin to a case in which an indemnitor defends on behalf of a defendant. Moreover, as already noted, most corporate defendants' litigation costs are paid by national or international insurance companies. There is no indication here that insurance coverage has been exhausted.

    268

    The existence of a small market share has no obvious bearing on whether Boyle will be burdened in defending this suit. It does figure in the determination of the relative harm to plaintiffs that a dismissal or transfer will cause. Although under joint and several liability, Boyle's departure from the case would have no adverse effect on plaintiffs, the Hymowitz court's decision to impose several liability specifically links plaintiffs' recoveries to the ability to obtain jurisdiction over defendants. Accordingly, the New York Court of Appeals developed a substantive liability scheme that maximizes the number of potentially liable defendants. Hymowitz thus regards [594] the dismissal of even "small players" as a significant harm to DES plaintiffs. Boyle's share, moreover, was not as insubstantial as the figures may first suggest. Preliminary market share figures indicate that, for any year between 1949 and 1971, the vast majority of the DES market was supplied by a handful of the hundreds of DES manufacturers. Boyle's market share was on a par with that of scores of co-defendants. The Court of Appeals did not envision New York residents roaming about the country seeking redress from dozens of smaller defendants in their home states.

    269

    While it is evident that plaintiffs will suffer harm from Boyle's exclusion, there is no evidence before the court that Boyle will suffer any undue hardship from defending this suit in New York. In the absence of an indication that the defendant is without adequate resources, there is no basis for concluding that defendant will be excessively burdened by a New York trial and, a fortiori, no reason to believe that defendant's burden will exceed the burden on plaintiffs of a dismissal. The assertion of jurisdiction under C.P.L.R. § 302(a)(3)(ii) therefore does not offend due process.

    270
    VII. CONCLUSION
    271

    With respect to plaintiffs Angela Silveri, Deborah Ashley, Andrew Ashley, Marjorie Berger, Ann Danoff, Christopher Wang, Maureen Kent, Steven Kass, Nancy Kirsch, Steven Kirsch, Carol Rosenthal, Barry Rosenthal, Eva Zweifler, Vincent Alvarado, Gail Buckman, Michael Sklaroff, Robin Edwards and Frank J. Edwards, defendant Boehringer's motions to dismiss for failure to state a claim and for lack of personal jurisdiction are denied. With respect to these plaintiffs, Defendant Boyle's motion to dismiss for lack of personal jurisdiction is also denied.

    272

    So ordered.

  • 3 Danann Realty Corp. v. Harris

    1

    184 N.Y.S.2d 599
    5 N.Y.2d 317, 157 N.E.2d 597

    2
    DANANN REALTY CORP., Respondent,
    v.
    David A. HARRIS et al., Appellants.
    3

    Court of Appeals of New York.
    March 5, 1959.

    4

    [184 N.Y.S.2d 600] [157 N.E.2d 598] [5 N.Y.2d 318] George E. Netter, Morris A. Marks and Milton Waxenfeld, New York City, for appellants.

    5

    David Haar, New York City, for respondent.

    6

    [5 N.Y.2d 319] BURKE, Judge.

    7

    The plaintiff in its complaint alleges, insofar as its first cause of action is concerned, that it was induced to enter into a contract of sale of a lease of a building held by defendants because of oral representations, falsely made by the defendants, as to the operating expenses of the building and as to the profits to be derived from the investment. Plaintiff, affirming the contract, seeks damages for fraud.

    8

    [184 N.Y.S.2d 601] At Special Term, the Supreme Court sustained a motion to dismiss the complaint. On appeal, the Appellate Division unanimously reversed the order granting the dismissal of the complaint. Thereafter the Appellate Division granted leave to appeal, certifying the following question: “Does the first cause of action in the complaint state facts sufficient to constitute a cause of action?”

    9

    The basic problem presented is whether the plaintiff can possibly establish from the facts alleged in the complaint (together with the contract which was annexed to the complaint) reliance upon the misrepresentations (Cohen v. Cohen, 1 A.D.2d 586, 151 N.Y.S.2d 949, affirmed 3 N.Y.2d 813, 166 N.Y.S.2d 10).

    10

    We must, of course, accept as true plaintiff's statements that during the course of negotiations defendants misrepresented the operating expenses and profits. Such misrepresentations are undoubtedly material. However, the provisions of the written contract which directly contradict the allegations of oral representations are of equal importance in our task of reaching a decisive answer to the question posed in these cases.

    11

    [5 N.Y.2d 320] The contract, annexed to and made a part of the complaint, contains the following language pertaining to the particular facts of representations:

    12

    "The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases, expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as herein specifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the Purchaser further acknowledges that it has inspected the premises and agrees to take the premises 'as is' . . . It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. The Purchaser has inspected the buildings standing on said premises and is thoroughly acquainted with their condition." (Emphasis supplied.)

    13

    Were we dealing solely with a general and vague merger clause, our task would be simple. A reiteration of the fundamental principle that a general merger clause is ineffective to exclude parol evidence to show fraud in inducing the contract would then be dispositive of the issue (Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714). To put it another way, where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud either in [184 N.Y.S.2d 602] the inducement or in the execution despite an omnibus statement that the written instrument embodies the [157 N.E.2d 599] whole agreement, or that no representations have been made. Bridger v. Goldsmith, 143 N.Y. 424, 38 N.E. 458; Angerosa v. White Co., 248 App.Div. 425, 290 N.Y.S. 204, affirmed 275 N.Y. 524, 11 N.E.2d 325; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 566; 3 Williston, Contracts (Rev. ed.), § 811A.

    14

    Here, however, plaintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which it now claims it was defrauded. Such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance [5 N.Y.2d 321] upon these contrary oral representations (Cohen v. Cohen, supra). The Sabo case, supra, dealt with the usual merger clause. The present case, as the Cohen case, additionally, includes a disclaimer as to specific representations.

    15

    This specific disclaimer is one of the material distinctions between this case and Bridger v. Goldsmith, supra, and Crowell-Collier Pub. Co. v. Josefowitz, 5 N.Y.2d 998, 184 N.Y.S.2d 859. In the Bridger case, the court considered the effect of a general disclaimer as to representations in a contract of sale, concluding that the insertion of such a clause at the insistence of the seller cannot be used as a shield to protect him from his fraud. Another material distinction is that nowhere in the contract in the Bridger case is there a denial of reliance on representations, as there is here. Similarly, in Crowell-Collier Pub. Co. v. Josefowitz, supra, only a general merger clause was incorporated into the contract of sale. Moreover, the complaint there additionally alleged that further misrepresentations were made after the agreement had been signed, but while the contract was held in escrow and before it had been finally approved.

    16

    Consequently, this clause, which declares that the parties to the agreement do not rely on specific representations not embodied in the contract, excludes this case from the scope of the Jackson, Angerosa, Bridger and Crowell-Collier cases, supra. See Foundation Co. v. State of New York, 233 N.Y. 177, 135 N.E. 236.

    17

    The complaint here contains no allegations that the contract was not read by the purchaser. We can fairly conclude that plaintiff's officers read and understood the contract, and that they were aware of the provision by which they aver that plaintiff did not rely on such extra-contractual representations. It is not alleged that this provision was not understood, or that the provision itself was procured by fraud. It would be unrealistic to ascribe to plaintiff's officers such incompetence that they did not understand what they read and signed. Cf. Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 171, 200 N.E. 683, 685. [184 N.Y.S.2d 603] Although this court in the Ernst case discounted the merger clause as ineffective to preclude proof of fraud, it gave effect to the specific disclaimer of representation clause, holding that such a clause limited the authority of the agent, and hence, [5 N.Y.2d 322] plaintiff had notice of his lack of authority. But the larger implication of the Ernst case is that, where a person has read and understood the disclaimer of representation clause, he is bound by it. The court rejected, as a matter of law, the allegation of plaintiffs “that they relied upon an oral statement made to them in direct contradiction of this provision of the contract.” The presence of such a disclaimer clause “is inconsistent with the contention that plaintiff relied upon the misrepresentation, and was led thereby to make the contract.” Kreshover v. Berger, 135 App.Div. 27, 28, 119 N.Y.S. 737, 738.

    18

    It is not necessary to distinguish seriatim the cases in other jurisdictions as they are not, in the main, in point or in, a few instances, clash with the rule followed in the State of New York. The marshaling of phrases plucked from various opinions and references to generalizations, with which no one disagrees, cannot subvert the fundamental precept that the asserted [157 N.E.2d 600] reliance must be found to be justifiable under all the circumstances before a complaint can be found to state a cause of action in fraud. We must keep in mind that "opinions must be read in the setting of the particular cases and as the product of preoccupation with their special facts" (Freeman v. Hewit, 329 U.S. 249, 252, 67 S.Ct. 274, 276, 91 L.Ed. 265). When the citations are read in the light of this caveat, we find that they are generally concerned with factual situations wherein the facts represented were matters peculiarly within the defendant's knowledge, as in the cases of Sabo v. Delman, supra, and Jackson v. State of New York, supra.

    19

    The general rule was enunciated by this court over a half a century ago in Schumaker v. Mather, 133 N.Y. 590, 596, 30 N.E. 755, 757, that “if the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth, or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. (Baily v. Merrell, Bulstrode's Rep.Part III, p. 94; Slaughter's Adm'r v. Gerson, 13 Wall. (379) 383, 20 L.Ed. 627; Chrysler v. Canaday, 90 N.Y. 272.)”

    20

    Very recently this rule was approved as settled law by this court in the case of Sylvester v. Bernstein, 283 App.Div. 333, 127 N.Y.S.2d 746, affirmed 307 N.Y. 778, 121 N.E.2d 616.

    21

    [184 N.Y.S.2d 604] [5 N.Y.2d 323] In this case, of course, the plaintiff made a representation in the contract that it was not relying on specific representations not embodied in the contract, while, it now asserts, it was in fact relying on such oral representations. Plaintiff admits then that it is guilty of deliberately misrepresenting to the seller its true intention. To condone this fraud would place the purchaser in a favored position. Cf. Riggs v. Palmer, 115 N.Y. 506, 511, 512, 22 N.E. 188, 190, 5 L.R.A. 340. This is particularly so, where, as here, the purchaser confirms the contract, but seeks damages. If the plaintiff has made a bad bargain he cannot avoid it in this manner.

    22

    If the language here used is not sufficient to estop a party from claiming that he entered the contract because of fraudulent representations, then no language can accomplish that purpose. To hold otherwise would be to say that it is impossible for two businessmen dealing at arm's length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact.

    23

    Accordingly, the order of the Appellate Division should be reversed and that of Special Term reinstated, without costs. The question certified should be answered in the negative.

    24

    FULD, Judge. (dissenting). If a party has actually induced another to enter into a contract by means of fraud and so the complaint before us alleges I conceive that language may not be devised to shield him from the consequences of such fraud. The law does not temporize with trickery or duplicity, and this court, after having weighed the advantages of certainty in contractual relations against the harm and injustice which result from fraud, long ago unequivocally declared that “a party who has perpetrated a fraud upon his neighbor may (not) contract with him, in the very instrument by means of which it was perpetrated, for immunity against its consequences, close his mouth from complaining of it, and bind him never to seek redress. Public policy and morality are both ignored if such an agreement can be given effect in a court of justice. The maxim that fraud vitiates every transaction would no longer be the rule, but the exception.” Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, [157 N.E.2d 601] 459. It was a concern for similar considerations of policy which persuaded Massachusetts to repudiate the contrary rule which it had initially espoused. The [5 N.Y.2d 324] same public policy that in general sanctions the avoidance of a promise obtained by deceit, wrote that state's Supreme Judicial Court in Bates v. Southgate, (308 Mass. 170, 182), 31 N.E.2d 551, 558, 133 A.L.R. 1349, “strikes down all attempts to circumvent that policy by means of contractual devices. In the realm of fact it is [184 N.Y.S.2d 605] entirely possible for a party knowingly to agree that no representations have been made to him, while at the same time believing and relying upon representations which in fact have been made and in fact are false but for which he would not have made the agreement. To deny this possibility is to ignore the frequent instances in everyday experience where parties accept . . . and act upon agreements containing . . . exculpatory clauses in one form or another, but where they do so, nevertheless, in reliance upon the honesty of supposed friends, the plausible and disarming statements of salesmen, or the customary course of business. To refuse relief would result in opening the door to a multitude of frauds and in thwarting the general policy of the law.”

    25

    It is impossible, on either principle or reasoning, to distinguish the present case from the many others which this court has decided. See, e. g., Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, 459, supra; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169, 200 N.E. 683; Angerosa v. White Co., 248 App.Div. 425, 431, 290 N.Y.S. 204, 213, affirmed 275 N.Y. 524, 11 N.E.2d 325; Sabo v. Delman, 3 N.Y.2d 155, 162, 164 N.Y.S.2d 714, 718; Crowell-Collier Pub. Co. v. Josefowitz, 5 N.Y.2d 998, 184 N.Y.S.2d 859. As far back as 1894, we decided, in the Bridger case, 143 N.Y. 424, 38 N.E. 458, 459, supra, that the plaintiff was not prevented from bringing an action for fraud, based on oral misrepresentations, even though the written contract provided that it was “understood and agreed” that the defendant seller had not made, “for the purpose of inducing the sale . . . or the making of this agreement, any statements or representations . . . other than” the single one therein set forth (143 N.Y. at pages 426-427, 38 N.E. at page 459). And, just today, we are holding, in the Crowell-Collier Publishing case, that the plaintiffs were not barred from suing the defendants for fraud in inducing them to make the contract, despite its recital that [5 N.Y.2d 325] “This Agreement constitutes the entire understanding between the parties, (and) was not induced by any representations . . . not herein contained.”

    26

    In addition, in Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556, supra, the contract provided that the contract (plaintiff's predecessor in interest) agreed that he had satisfied himself by his own investigation regarding all the conditions of the work to be done and that his conclusion to enter into the contract was based solely upon such investigation [184 N.Y.S.2d 606] and not upon any information or data imparted by the State.

    27

    It was held that even this explicit disavowal of reliance did not bar the plaintiff from recovery. In answering the argument that the provision prevented proof either of misrepresentation by the defendant or reliance on the part of the plaintiff, the Appellate Division, in an opinion approved by this court, wrote:

    28

    “A party to a contract cannot, by misrepresentation of a material fact, induce the other party to the contract to enter into it to his damage, and then protect himself from the legal effect of such misrepresentation by inserting in the [157 N.E.2d 602] contract a clause to the effect that he is not to be held liable for the misrepresentation which induced the other party to enter into the contract. The effect of misrepresentation and fraud cannot be thus easily avoided” (210 App.Div. at pages 119-120, 205 N.Y.S. at page 661).

    29

    Although the clause in the contract before us may be differently worded from those in the agreements involved in the other cases decided by this court, it undoubtedly reflects the same thought and meaning, and the reasoning and the principles which the court deemed controlling in those cases are likewise controlling in this one. Their application, it seems plain to me, compels the conclusion that the complaint herein should be sustained and the plaintiff accorded a trial of its allegations.

    30

    It is said, however, that the provision in this contract differs from those heretofore considered in that it embodies a specific and deliberate exclusion of a particular subject. The quick answer is that the clause now before us is not of such a sort. On the contrary, instead of being limited, it is all-embracing, encompassing every representation that a seller could possibly make about the property being sold and, instead of representing [5 N.Y.2d 326] a special term of a bargain, is essentially "boiler plate." See Contract of Sale, Standard N.Y.B.T.U. Form 8041; Bicks, Contracts for the Sale of Realty (1956 ed.), pp. 79-80, 94-95. The more elaborate verbiage in the present contract cannot disguise the fact that the language which is said to immunize the defendants from their own fraud is no more specific than the general merger clause in Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, supra, and far less specific than the provision dealt with in the Jackson case, 210 App.Div. 115, 205 N.Y.S. 58, affirmed 241 N.Y. 563, 150 N.E. 556, supra, or in Crowell-Collier.

    31

    In any event, though, I cannot believe that the outcome of a case such as this, in which the defendant is charged with fraud, should turn on the particular language employed in the contract. As Judge Augustus Hand, writing for the Federal Court of Appeals, observed, “the ingenuity of draftsmen is sure to keep pace with the demands of wrongdoers, and if a deliberate fraud may be shielded by a clause in a contract that the [184 N.Y.S.2d 607] writing contains every representation made by way of inducement, or that utterances shown to be untrue were not an inducement to the agreement,” a fraudulent seller would have a simple method of obtaining immunity for his misconduct. Arnold v. National Aniline & Chem. Co., 2 Cir., 20 F.2d 364, 369.

    32

    The guiding rule that fraud vitiates every agreement which it touches has been well expressed not only by the courts of this state, but by courts throughout the country and by the House of Lords in England. And, in recognizing that the plaintiff may assert a cause of action in fraud, the courts have not differentiated between the type or form of exculpatory provision inserted in the contract. It matters not, the cases demonstrate, whether the clause simply recites that no representations have been made or more fully stipulates that the seller has not made any representations concerning certain enumerated subjects and that the purchaser has made his own investigation and has not relied upon any representation by the seller, not embodied in the writing. See, e. g., Sabo v. Delman, 3 N.Y.2d 155, 161-162, 164 N.Y.S.2d 714, 717-718, supra; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 169, 200 N.E. 683, 684, supra; Bridger v. Goldsmith, 143 N.Y. 424, 428, 38 N.E. 458, 459, supra; Angerosa v. White Co., 248 App.Div. 425, 431, 290 N.Y.S. 204, affirmed 275 N.Y. 524, 11 N.E.2d 325, supra; Jackson v. State of New York, 210 App.Div. 115, 205 N.Y.S. 658, affirmed 241 N.Y. 563, 150 N.E. 556, supra; Pearson [5 N.Y.2d 327] & Son v. Dublin Corp., (1907) A.C. 351, 353-354, 362; Arnold v. National Aniline & Chem. Co., [157 N.E.2d 603] 2 Cir., 20 F.2d 364, 369, supra; Lutfy v. R. D. Roper & Sons Motor Co., 57 Ariz. 495, 506, 115 P.2d 161; Omar Oil & Gas Co. v. MacKenzie Oil Co., 33 Del. 259, 289-290, 138 A. 392; Jordan v. Nelson, Iowa, 178 N.W. 544; Bryant v. Troutman, Ky., 287 S.W.2d 918, 921; Bates v. Southgate, 308 Mass. 170, 182, 31 N.E.2d 551, 133 A.L.R. 1349, supra; Ganley Bros., Inc., v. Butler Bros. Bldg. Co., 170 Minn. 373, 376-377, 212 N.W. 602, 56 A.L.R. 1; Brown v. Ohman, Miss., 42 So.2d 209, 212-213; Martin v. Harris, 121 Neb. 372, 236 N.W. 914; Blacknall v. Rowland, 108 N.C. 554, 557-558, 13 S.E. 191; Pennsylvania Turnpike Comm. v. Smith, 350 Pa. 355, 361-362, 39 A.2d 139; Dallas Farm Mach. Co. v. Reaves, Tex., 307 S.W.2d 233, 239; Dieterich v. Rice, 115 Wash. 365, 197 P. 1; see, also, 3 Williston, Contracts (Rev.ed., 1936), §§ 811, 811A; Corbin, Contracts (1951), Vol. 3, § 578; Vol. 6, § 1516; Restatement of Contracts, § 573.

    33

    In England, in the Pearson case, (1907) A.C. 351, supra, the contract to perform certain construction work provided that the contractor “should satisfy himself” as to various specified items connected with the job and that the defendant corporation [184 N.Y.S.2d 608] “did not hold itself responsible for the accuracy of (such) information” (p. 351).

    34

    After performing the contract, the plaintiffs brought a deceit action, claiming damages for false representations as to the very items concerning which they had agreed they would satisfy themselves. The House of Lords reversed the judgment directed for the defendants and held that the action could be maintained; the Lord Chancellor, after noting that “The contract contained clauses . . . to the effect that the contractors must not rely on any representation…but must ascertain and judge of the facts for themselves”' (p. 353), went on to say (pp. 353-354):“Now it seems clear that no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them.” Lord Ashbourne, concurring with the Lord Chancellor, pointed out that the clause relied upon “might in some cases be part of a fraud, and might advance and disguise a fraud” (p. 360) and Lord Hereford, also concurring, declared (p. 362) that, if the “protecting clause” be inserted fraudulently,

    35

    [5 N.Y.2d 328] “When the fraud succeeds, surely those who designed the fraudulent protection cannot take advantage of it. Such a clause would be good protection against any mistake or miscalculation, but fraud vitiates every contract and every clause in it.”

    36

    In the Dieterich case, 115 Wash. 365, 197 P. 1, supra, the contract contained the provision that

    37

    “This land is sold to (the plaintiff buyer) . . . with the understanding that he has personally and carefully inspected said premises, and is purchasing the same by said inspection, and not from any other sayings or inducements by (the seller) . . . and there has been no other inducements other than recited herein.”

    38

    Despite this explicit disclaimer of reliance and inducement, the Washington Supreme Court decided that the recital did not bar the plaintiff from showing “the fraudulent nature of the contract” (115 Wash. at page 373, 197 P. at page 3), and, in the course of its opinion, observed (115 Wash. at page 368, 197 P. at page 2) that the contention of the defendants to the contrary was “effectually answered by the Court of Appeals of New York, in the case of Bridger v. Goldsmith, 143 N.Y. 424, 38 N.E. 458.”

    39

    In Martin v. Harris, 121 Neb. 372, 236 N.W. 914, 915, supra, the agreement recited:

    40

    [184 N.Y.S.2d 609] “There have been no representations of the reasonable value of any of the [157 N.E.2d 604] properties herein described made by or to either party to this contract. Each party is relying upon his own judgment of such values after a personal inspection of the properties.”

    41

    The plaintiff, alleging that the defendant fraudulently misrepresented the value of the property, sought damages. Again, despite the explicit statement that such a representation had not been made and the specific disavowal of reliance thereon, the court upheld the plaintiff's right to bring the action (121 Neb. at page 376, 236 N.W. 914).

    42

    In the Ganley case, 170 Minn. 373, 212 N.W. 602, supra, too, the disclaimer was quite specific, reading in this way:

    43

    “The (plaintiff) contractor has examined the said contracts . . . and the specifications and plans forming a part thereof, and is familiar with the location [5 N.Y.2d 329] of said work and the conditions under which the same must be performed . . . and is not relying upon any statement made by the company in respect thereto.”

    44

    In deciding that a defendant could not protect himself against liability for fraud by such a provision or, indeed, by any language, the court wrote in no uncertain terms (170 Minn. at page 377, 212 N.W. at page 603):

    45

    “The law should not, and does not, permit a covenant of immunity to be drawn that will protect a person against him own fraud. Such is not enforceable because of public policy. Industrial & General Trust, Ltd. v. Tod, 180 N.Y. 215, 73 N.E. 7. Language is not strong enough to write such a contract. Fraud destroys all consent. It is the purpose of the law to shield only those whose armor embraces good faith. Theoretically, if there is no fraud, the rule we announce is harmless. If there is fraud, the rule we announce is wholesome. Whether the rule is effective depends upon the facts. Public interest supports our conclusion.”

    46

    And, said the court, while the argument that a party should have the right “to let his work to a certain person because the other will therein agree that he relies and acts only upon his own knowledge and not upon the representations of his adversary”, might on first thought seem plausible, it does not stand analysis. “It may be desirable in dealing with unscrupulous persons to have this clause as a shield against wrongful charges of fraud. But if there is no fraud that fact will be established on the trial. The merits of defendant's claim reach only the expense and annoyance of litigation. But every party should have his day in court. [184 N.Y.S.2d 610] . . . We are unable to formulate a rule of law sustaining defendant's contention which would not at the same time give opportunities for the commission of fraud for which the wronged party would have no redress” (170 Minn. at page 376, 212 N.W. at page 603).

    47

    And in the Lutfy case, 57 Ariz. 495, 115 P.2d 161, 166, supra, the contract of sale contained as specific a disavowal of reliance upon a particular representation as could be written:

    48

    “It is understood and agreed that there is no representation or warranty that the 'year model' of said [5 N.Y.2d 330] property, as hereinbefore stated, correctly states the year in which said property was manufactured, but is merely used by the parties hereto for convenience in describing it. . . . Purchaser agrees that he has made an independent investigation of the property and has relied solely upon his own investigation with reference thereto in entering into this contract, and has placed no reliance and acted upon no representations or warranties upon the part of the Seller.”

    49

    The plaintiff, suing for damages, alleged that the defendant had falsely represented the year model of the automobile which he purchased, and the high court of Arizona [157 N.E.2d 605] held that he could prove that such a representation had been made and that he had relied upon it, notwithstanding the contract's most explicit recital to the contrary (57 Ariz. at page 506, 115 P.2d at page 166):

    50

    “If binding upon (plaintiff) appellant, it would protect appellee, from the consequences of any fraudulent misrepresentations it might have made to appellant to induce him to sign the contract and, as we see it, any provision in a contract making it possible for a party thereto to free himself from the consequences of his own fraud in procuring its execution is invalid and necessarily constitutes no defense.”

    51

    The cases cited all upholding the sufficiency of a complaint based on fraud no matter how the exculpatory language in the contract is phrased show how firmly established the rule is, and the passages quoted show how compelling are the reasons for the rule. Nor is their force or value weakened or impaired by the decisions upon which the court now appears to rely. Except for Cohen v. Cohen, 3 N.Y.2d 813, 166 N.Y.S.2d 10, no one of them has anything to do with the adequacy of the complaint as a pleading; two are concerned with the proof adduced at the trial (Schumaker v. Mather, 133 N.Y. 590, 30 N.E. 755; Ernst Iron Works v. Duralith Corp., 270 N.Y. 165, 200 N.E. 683, supra, while the third deals with the subject of res judicata (Sylvester v. Bernstein, 283 App.Div. 333, 127 N.Y.S.2d 746, affirmed 307 N.Y. 778, 121 n.E.2d 616).

    52

    [184 N.Y.S.2d 611] In the Ernst Iron Works, case, the appeal was, as I have noted, taken after trial and was concerned with the proof and not, as is the present appeal, with the sufficiency of the complaint. [5 N.Y.2d 331] The contract contained both a blanket merger clause and a recital that the defendant “makes no representation regarding previous sales” (270 N.Y. 165, 200 N.E. 683) in Buffalo, where the plaintiff did business. Notwithstanding that provision, the plaintiff claimed that he had relied upon a representation by the defendant's salesman that the product had not been sold in that city, and testimony to that effect was received at the trial. The court did reverse the judgment for the plaintiff, but not on any theory that the specific disclaimer clause barred suit or that the evidence was inadmissible because of it. It was the court's conclusion, based on the evidence adduced at the trial, first, that the false representation attributed to the defendant had not been made (270 N.Y. at pages 169-170, 200 N.E. 683, 684); second, that, in any event, the defendant's salesman did not have authority to make such a representation and the plaintiff knew this (270 N.Y. at pages 170-171, 200 N.E. 684-685); and, finally, that “it (was) clear (from the proof at the trial) that the plaintiff did not rely upon the statement” (270 N.Y. at pages 171-172, 200 N.E. at page 685). And most significantly, the court did not question the general principle but affirmed it, stating that “A rogue cannot protect himself from liability for his fraud by inserting a printed clause in his contract” (270 N.Y. at page 169, 200 N.E. at page 684.)

    53

    As to Cohen v. Cohen (3 N.Y.2d 813, 166 N.Y.S.2d 11) I dissented from the decision there made and still consider it to have been wrongly decided. Constrained to accept it, I do so, but I cannot subscribe to extending its application beyond its own peculiar fact setting. A husband and wife had separated; there were bitter mutual recriminations followed by three separate lawsuits. The parties were ultimately reconciled and their lawyers drew a settlement agreement, which they executed, reciting that the husband had not made any representations “as to the continuation of the marital status.” The wife sometime later brought another action, alleging that her husband had falsely represented that he 'would effect a reconciliation with (her), return to live with her . . . permanently, and permanently resume their [157 N.E.2d 606] marital relationship.” As is quite evident, the Cohen case is a most unusual one not only because it involved an agreement designed to settle pending marital litigation, but because of the extraordinary and promissory nature of the misrepresentation alleged. Indeed, the only resemblance claimed for the cases that is, for Cohen and the present one is that in both [5 N.Y.2d 332] there is a specific disclaimer by the plaintiff of the very representations charged against the defendant. However, as noted above (5 N.Y.2d at pages 325-326, 184 [184 N.Y.S.2d 612] N.Y.S.2d 606), since the provision in the contract before us encompasses every representation which a seller of real estate could possibly have made, including those alleged, even the asserted similarity does not in fact exist.

    54

    Contrary to the intimation in the court's opinion (5 N.Y.2d at page 323, 184 N.Y.S.2d 604), the nonreliance clause cannot possibly operate as an estoppel against the plaintiff. Essentially equitable in nature, the principle of estoppel is to be invoked to prevent fraud and injustice, not to further them. The statement that the representations in question were not made was, according to the complaint, false to the defendant's knowledge. Surely, the perpetrator of a fraud cannot close the lips of his victim and deny him the right to state the facts as they actually exist. Indeed, the contention that a person, such as the defendant herein, could urge an estoppel was considered and emphatically disposed of in Bridger v. Goldsmith with this statement:

    55

    “The question now is whether (the no-representation non-inducement clause) can be given the effect claimed for it by the learned counsel for the defendant, to preclude the plaintiff from alleging fraud in the sale, and pursuing in the courts the remedies which the law gives in such cases. It cannot operate by way of estoppel, for the obvious reason that the statements were false to the defendant's knowledge. He may, indeed, have relied upon its force and efficacy to protect him from the consequences of his own fraud, but he certainly could not have relied upon the truth of any statement in it. A mere device of the guilty party to a contract, intended to shield himself from the results of his own fraud practiced upon the other party, cannot well be elevated to the dignity and importance of an equitable estoppel.”

    56

    (143 N.Y. 424, 427-428, 38 N.E. 458, 459, emphasis supplied; see, also, Angerosa v. White Co., 248 App.Div. 425, 433-434, 290 N.Y.S. 204, 215-216, affirmed 275 N.Y. 524, 11 N.E.2d 325, supra).

    57

    The rule heretofore applied by this court presents no obstacle to honest business dealings, and dishonest transactions ought not to receive judicial protection. The clause in the contract before us may lend support to the defense and render the plaintiff's task of establishing its claim more difficult, but it should not be held to bar institution of an action for fraud. Whether [5 N.Y.2d 333] the defendants made the statements attributed to them and, if they did, whether the plaintiff relied upon them, whether, in other words, the defendants were guilty of fraud, are questions of fact not capable of determination on the pleadings alone. The plaintiff in entitled to its day in court.

    58

    CONWAY, C. J., and DESMOND, DYE, FROESSEL and VAN VOORHIS, JJ., concur with BURKE, J. FULD, J., dissents in a separate opinion.

    59

    Order reversed, etc.

  • 4 Golden Cone Concepts v. Villa Linda Mall

    1
    820 P.2d 1323 (1991)
    2
    113 N.M. 9
    3
    GOLDEN CONE CONCEPTS, INC., a New Mexico Corporation, d/b/a Pam's Ice Cream, Plaintiff-Appellee,
    v.
    VILLA LINDA MALL, LTD., a New Mexico limited partnership; Villa Linda Mall Company, a Texas limited partnership; and Herring Marathon Group, Inc., a Delaware corporation, Defendants-Appellants.
    4
    No. 19367.
    5

    Supreme Court of New Mexico.

    6
    November 21, 1991.
    7
    Rehearing Denied December 13, 1991.
    8

    [1324] Sutin, Thayer & Browne, Ronald E. Segel, Mary E. McDonald, Albuquerque, for defendants-appellants.

    9

    Roth, VanAmberg, Gross & Rogers, F. Joel Roth, Santa Fe, for plaintiff-appellee.

    10
    OPINION
    11
    FRANCHINI, Justice.
    12

    We have granted appellee's motion for rehearing. The opinion filed September 24, 1991, is hereby withdrawn, and this opinion is substituted therefore. Defendant below, Villa Linda Mall (Mall), in Santa Fe, New Mexico, celebrated its grand opening on July 31, 1985. In October of that year, plaintiff Golden Cone Concepts, Inc. (Golden Cone) signed a ten-year lease for space in the Mall's food court. Golden Cone operated an ice cream business for four months before filing suit against the Mall to rescind the lease and recover damages.[1] Following a bench trial[2], the district court rescinded and canceled the lease, awarded $105,723.00 in restitutionary special damages, $22,000.00 in attorney fees, and $1,190.77 in costs. In addition, the court awarded $50,000.00 in punitive damages based upon the court's conclusion that the Mall committed fraud, negligent misrepresentation, and constructive fraud upon Golden Cone in executing the lease. The Mall's counterclaim for rent was dismissed by the district court. We affirm in part and reverse in part.

    13

    Prior to executing the lease, the parties held many meetings, discussions, and negotiations concerning the food court facilities and lease terms. The district court entered numerous findings of fact regarding representations made to the Golden Cone principals by the Mall's leasing agent and marketing director, concerning the planning and development of the mall, past development successes, the trade area and "regional mall" idea, the food court concept, location of the ice cream business within the mall in relation to the movie theater, other prospective food court tenants including national fast food chains, and projected gross annual sales for the ice cream business [1325] based on the agent's knowledge of sales of other food vendors. The leasing agent assured Golden Cone that it would be the only ice cream business in the food court and that it could remain open past 9:00 p.m. to serve late movie goers.

    14

    The district court also found that Golden Cone's reliance on the representations led to its willingness to pay high rent, make leasehold improvements, and purchase equipment. Golden Cone's gross sales and the number of customers visiting the Mall were below the projections made by the Mall's agents. After closing its business Golden Cone owed rent and other charges to the Mall in the amount of $10,939.32. The Mall relet the premises as of December 1, 1987.

    15

    The following issues are raised on appeal:

    16
    (1) Whether the district court erred in allowing Golden Cone to proceed on its claims of fraud, negligent misrepresentation, and constructive fraud in light of an integration and exculpatory clause in Article 33 of the lease;
    17
    (2) Whether the district court erred in ruling that the representations concerning projected revenues were actionable as a matter of law;
    18
    (3) Whether nondisclosure of complaints of low mall traffic is a sufficient basis upon which to rescind the lease;
    19
    (4) Whether substantial evidence exists to support the findings of fact regarding representations regarding the identity of other food court tenants, traffic flow at the mall, the role of a food court, and Golden Cone's justifiable reliance upon representation concerning projected revenues;
    20
    (5) Whether the court erred in dismissing the Mall's counterclaim for unpaid rent;
    21
    (6) Whether the judgment amount is consistent with the court's finding of an offset for "minimum annual rental and other charges not paid" during Golden Cone's occupancy; and
    22
    (7) Whether substantial evidence supports the awards of punitive damages and attorney fees to Golden Cone.
    23
    LEASE PROVISION
    24

    The Mall asserts the following provision in the lease bars the misrepresentation claims made by Golden Cone:

    25
    It is understood and agreed by Tenant that Landlord and Landlord's agents have made no representations or promises with respect to the leased premises or the making or entry into this lease, except as in this lease expressly set forth, and that no claim or liability, or cause for termination, shall be asserted by Tenant against Landlord for, and Landlord shall not be liable by reason of, the breach of any representations or promises not expressly stated in this lease.
    26

    With regard to this provision, Golden Cone contends that the exculpatory clause argument by the Mall is being raised for the first time on appeal. The district court, however, entered a finding of fact relating to the lease provision, identical to the Mall's requested finding, stating:

    27
    The attorney for [Golden Cone] specifically brought to [its] attention the provisions of Article 33 of the lease which states, among other things, that no representations have been made to the tenant by the landlord unless specifically set forth in the lease.
    28

    The finding demonstrates that the provision was brought to the court's attention and was considered before it decided to rescind the lease. Additionally, in New Mexico exculpatory clauses do not preclude liability. Western States Mechanical Contractors, Inc. v. Sandia Corp., 110 N.M. 676, 798 P.2d 1062 (Ct.App.), cert. denied, 110 N.M. 653, 798 P.2d 1039 (1990).

    29
    Where one party to the contract has perpetrated a fraud upon the other, by means of which the latter was induced to enter into the contract, [one] cannot be precluded from seeking redress by a provision inserted in the contract by the party perpetrating the fraud, designed to shut the mouth of the adverse party as to such fraudulent representations which led up to the making of the contract. And this is true, whether the action be [1326] for rescission of the contract or for damages for deceit.
    30

    Berrendo Irrigated Farms Co. v. Jacobs, 23 N.M. 290, 296, 168 P. 483, 484 (1917). After the district court ordered Golden Cone to elect its remedy, it correctly permitted Golden Cone to proceed on its claims despite the language in Article 33 of the lease.

    31
    REPRESENTATIONS OF PROJECTED REVENUES
    32

    The district court found that the Mall's leasing agent represented to Golden Cone that its gross sales in the first year of business would be $300,000.00. This statement was found to be reckless and misleading and that Golden Cone justifiably relied thereon in entering into the lease. The court concluded that the representation was one of fact rather than opinion, justifiably relied upon by Golden Cone, which gave rise to the right to rescind the lease.

    33

    We disagree with the Mall's contention that the court erred as a matter of law in its ruling that fraud could be premised upon promises or conjectures as to future acts or events. When a party is challenging a legal conclusion, the standard for review is whether the law correctly was applied to the facts, viewing them in a manner most favorable to the prevailing party, indulging all reasonable inferences in support of the court's decision, and disregarding all inferences or evidence to the contrary. Texas Nat'l Theatres, Inc. v. City of Albuquerque, 97 N.M. 282, 639 P.2d 569 (1982).

    34

    Unlike the circumstances presented by this case, the Mall's reliance on Berrendo and those cases cited from other jurisdictions are distinguishable in that they involved the sales of existing businesses with representations made by the seller concerning future income, rather than representations concerning projected revenues for a new business enterprise under circumstances such as these. Register v. Roberson Construction Co., 106 N.M. 243, 741 P.2d 1364 (1987), stated the following on promises concerning future events to support an action for fraud:

    35
    While it is true that an action for fraud will ordinarily not lie as to a pattern of conduct based on promises that future events will take place, there are nonetheless the following well-established exceptions to this rule ... where the promises are based on contrary facts peculiarly within the promisor's knowledge, or where the promise is based on a concealment of known facts. Further, if the promise as to future events is part of an overall pattern designed to lead a party to act to his/her detriment, and in such a way as harmfully to alter a legal right possessed by the party, then promises as to future actions will support an action for fraud, especially in a situation where the defendant states an opinion or belief as to future occurrences which are shown to have had no support by the facts at the time the opinions or beliefs were given.
    36

    Id. at 246, 741 P.2d at 1367 (citations omitted). Accordingly, the district court was correct to permit the representations of projected revenues to serve as a basis for Golden Cone's claims.

    37
    NONDISCLOSURE AS A BASIS FOR RESCISSION
    38

    The Mall claims that nondisclosure to Golden Cone of complaints of low mall traffic is insufficient as a matter of law to rescind the lease. The uncontested finding of fact, however, that the Mall had a pattern of conduct of gaining prospective tenants' confidence, triggered the Mall's duty to disclose information about low levels of mall traffic under R.A. Peck, Inc. v. Liberty Federal Savings Bank, 108 N.M. 84, 766 P.2d 928 (Ct.App. 1988).

    39

    Whether a duty exists is generally a question of law for the trial court to decide. Schear v. Board of County Comm'rs, 101 N.M. 671, 687 P.2d 728 (1984). Several types of relationships between parties give rise to the duty to disclose — one being where it appears that one or each of the parties to the contract expressly reposes a trust and confidence in the other. Peck, 108 N.M. at 89, 766 P.2d at 933. Other findings of fact entered by the court indicate that the Mall had received reports [1327] from several food vendors regarding lack of traffic before signing the lease with Golden Cone. The court found that:

    40
    Prior to [Golden Cone] signing its lease, the [Mall] had already received complaints from a food court tenant about the lack of customers in the Mall and food court, which they did not tell [Golden Cone.] While [Golden Cone] continued to construct its leasehold space and purchase equipment, the [Mall was] receiving many complaints from various food court tenants and other tenants at the Mall about the lack;ack [sic] of customers coming to the Mall and low gross sales, which they did not tell [Golden Cone].
    41

    One month after opening, the Mall offered Golden Cone rent relief due to a lack of customers. As found by the court, Golden Cone "was shocked to find out that [the Mall] had been receiving complaints about the lack of customers and low sales before it had signed the lease and during the construction of its leasehold space and that the information had not been told to [Golden Cone]." As discussed in the following section, the owners of Golden Cone were newcomers to the food vending business, and, where traffic flow information was peculiarly within the Mall's knowledge, a continuing duty on the part of the Mall existed to disclose these material facts to the prospective lessee. Therefore, under these circumstances, nondisclosure was a proper basis for rescission.

    42
    SUBSTANTIAL EVIDENCE ISSUES
    43

    The Mall alleges that Golden Cone offered no substantial evidence of misrepresentations or justifiable reliance. The Mall also challenges the punitive damages award, which will be discussed later in this opinion, and alleges conflict between the court's findings and its conclusion that the Mall committed negligent misrepresentation, constructive fraud, and fraud against Golden Cone. Our review of the record proper and proceedings indicate that substantial evidence exists to support the court's findings of negligent misrepresentation, constructive fraud and fraud based upon the representations made and nondisclosure of facts concerning traffic at the Mall.

    44

    "A negligent misrepresentation is one where the speaker has no reasonable ground for believing that the statement made was true." SCRA 1986, 13-819. The degree of proof required of a party asserting negligent misrepresentation is a preponderance of the evidence. State ex rel. Nichols v. Safeco Ins. Co., 100 N.M. 440, 671 P.2d 1151 (Ct.App.), cert. denied, 100 N.M. 327, 670 P.2d 581 (1983). Negligent misrepresentation is grounded in negligence rather than an intent to deceive. Id. The district court's findings that the principals of Golden Cone "had no retail operating experience with shopping malls," that the representations made by the Mall's agents concerning daily car traffic, national food chains, and the food court's function as an anchor store encompassed information only within its scope of knowledge, and that the Golden Cone principals were justified in their reliance thereon, all are supported by substantial evidence and support the court's conclusion of negligent misrepresentation.

    45

    Breach of a legal or equitable duty is constructive fraud and it is not necessary to prove actual dishonesty of purpose nor intent to deceive. Archuleta v. Kopp, 90 N.M. 273, 276, 562 P.2d 834, 837 (Ct.App.) cert. denied, 90 N.M. 636, 567 P.2d 485 (1977). A finding of constructive fraud need not be based upon a fiduciary relationship between the parties, as constructive fraud is defined as "acts contrary to public policy, to sound morals, to the provisions of a statute, etc., however honest the intention with which they may have been performed." Wolf & Klar Cos. v. Garner, 101 N.M. 116, 118, 679 P.2d 258, 260 (1984). Although not required as proof of a claim of constructive fraud, several of the court's findings indicate that the representations at issue were made with the intent to deceive. Another uncontested finding refers to the Mall's pattern of conduct of making representations for the purpose of gaining confidence of prospective tenants and inducing them into entering a lease contrary to equitable principles of [1328] fairness, justice, and right dealing that dominate all commercial practices and dealings. See Newman v. Basin Motor Co., 98 N.M. 39, 644 P.2d 553 (Ct.App. 1982).

    46

    A successful fraud claim must prove a misrepresentation of fact, known by the maker to be untrue, made with the intent to deceive and to induce the other party to act upon it, and upon which the other party relies to his detriment. See Poorbaugh v. Mullen, 96 N.M. 598, 601, 633 P.2d 706, 709 (Ct.App. 1981) (Poorbaugh I). Though each element of fraud must be shown by clear and convincing evidence, if disputed, a reviewing court will resolve all conflicting evidence in favor of the prevailing party. Poorbaugh v. Mullen, 99 N.M. 11, 653 P.2d 511 (Ct.App.), cert. denied, 99 N.M. 47, 653 P.2d 878 (1982) (Poorbaugh II). On appeal, our duty is to liberally construe the trial court's findings in order to sustain a judgment. Arnold v. Ford Motor Co., 90 N.M. 549, 566 P.2d 98 (1977). Based upon our review of the record, and as discussed above, we find that the required level of proof was established and the evidence supports the court's findings of fraud by representations and nondisclosure.

    47

    The Mall also challenges the court's findings that Golden Cone justifiably relied upon the representations regarding projected revenues of $300,000.00 per year. Our review of the record, as well as the unchallenged findings of fact, support the court's findings on this point. The principals of Golden Cone had never operated a business in a food court of a shopping mall and were entitled to rely on the Mall's representations regarding material facts peculiar to this type of location. See Ledbetter v. Webb, 103 N.M. 597, 602, 711 P.2d 874, 879 (1985). Misrepresentation of a material fact, even if innocently made, will entitle the party who has justifiably relied thereon to rescind the contract. Prudential Ins. Co. v. Anaya, 78 N.M. 101, 428 P.2d 640 (1967). Ordinarily the question of materiality is one of fact. Modisette v. Foundation Reserve Ins. Co., 77 N.M. 661, 427 P.2d 21 (1967). The finding of reliance upon the Mall's representation of projected revenues is supported by substantial evidence.

    48
    DISMISSAL OF COUNTERCLAIM
    49

    The Mall grounds its argument that it is entitled to judgment on its counterclaim for unpaid rent upon the premise that the lease was enforceable and not subject to rescission. Based upon all of the above, however, we find no abuse of discretion by the district court and affirm the dismissal of the counterclaim.

    50
    OFFSET OF JUDGMENT
    51

    The evidence supports the Mall's claim that the court's judgment failed to incorporate the finding of fact that "[a]ny rescission damages will be offset by $10,939.32." Accordingly, we remand with instruction to reduce the restitutionary special damages by this amount. See Mendez v. Southwest Community Health Servs., 104 N.M. 608, 612, 725 P.2d 584, 588 (Ct. App.), cert. quashed, 104 N.M. 632, 725 P.2d 832 (1986) (when finding conflicts with conclusion or judgment, finding will prevail as long as it is supported by substantial evidence).

    52
    PUNITIVE DAMAGES
    53

    The district court awarded punitive damages based on the reckless or grossly negligent acts of the Mall. The court found that representations made by the Mall concerning projected revenues and car counts were made recklessly with the intent to deceive and the representations made concerning national chain food vendors were untrue and made with the intent to deceive. As to the representation the food court would serve the same as an anchor store, the district court found the statement to be recklessly made and misleading. The Mall argues that the court made no specific findings of fact of gross negligence and further claims that the award of punitive damages is not supported by substantial evidence.

    54

    We stated in Romero v. Mervyn's, 109 N.M. 249, 784 P.2d 992 (1989), that "punitive damages may be recovered for breach of contract when the defendant's conduct was malicious, fraudulent, oppressive, [1329] or committed recklessly with a wanton disregard for plaintiff's rights." Id. at 255, 784 P.2d at 998. Any of the listed terms, standing alone, will support an award of punitive damages. Id. The substantial evidence that supports the district court's finding of fraud, as stated herein, also supports the court's finding of intentional deceit because intentional deceit is one of the elements of fraud. See Poorbaugh I, 96 N.M. at 601, 633 P.2d at 709. In addition, there is substantial evidence to support the trial court's findings as to the Mall's reckless conduct. Accordingly, we affirm the district court's award of punitive damages.

    55
    ATTORNEY FEES
    56

    We reverse the court's award of attorney fees. Rescission of the lease, which contained a provision for attorney fees, precluded any basis for such an award. Absent a specially authorizing statute or agreement, each party to a lawsuit bears its own attorney fees. First Nat'l Bank of Clovis v. Diane, Inc., 102 N.M. 548, 698 P.2d 5 (Ct.App. 1985). The trial court incorrectly relied upon the lease provision in making its awards, and, accordingly, we reverse.

    57

    Based upon the above, the judgment is affirmed in part, reversed in part, and remanded to the district court for entry of judgment consistent with this opinion.

    58

    IT IS SO ORDERED.

    59

    RANSON, C.J., and BACA, J., concur.

    60

    [1] Golden Cone's complaint alleged six counts — three based upon rescission of the lease and three seeking compensatory damages for alleged fraud, negligent misrepresentation and constructive fraud. The court granted the Mall's motion to compel an election of remedies with Golden Cone electing to pursue the remedy of rescission. See Smith v. Galio, 95 N.M. 4, 8, 617 P.2d 1325, 1329 (Ct.App. 1980) (when one remedy depends upon affirmance of a contract and another remedy depends upon the opposite, the remedies are inconsistent and the party seeking relief must elect one of them).

    61

    [2] Rescission is an equitable remedy to be tried by the court without a jury. SCRA 1986, 13-814 committee commentary.

  • 5 Intercontinental Planning v. Daystrom

    1
    24 N.Y.2d 372 (1969)
    2
    Intercontinental Planning, Limited, Appellant,
    v.
    Daystrom, Incorporated et al., Respondents.
    3

    Court of Appeals of the State of New York.

    4
    Argued December 9, 1968.
    5
    Decided April 10, 1969.
    6

    Charles S. Desmond, Stuart A. Jackson and John M. Cochran, III, for appellant.

    7

    Charles C. Parlin, Jr. and James A. Quaremba for respondent.

    8

    Judges SCILEPPI, BERGAN and BREITEL concur with Judge JASEN; Chief Judge FULD concurs in a separate opinion in which Judge BURKE concurs; Judge KEATING taking no part.

    9
    [375] JASEN, J.
    10

    The plaintiff, Intercontinental Planning, Limited is a New York corporation engaged in the business of bringing together European and American firms desiring to enter into business relationships. By this action plaintiff seeks to recover a finder's fee of $2,781,848 for its alleged services with respect to the acquisition in 1962 of a New Jersey electronics corporation, Daystrom, Incorporated, by defendant Schlumberger, Limited.[1] Defendants deny that plaintiff played any role with respect to this acquisition, and assert that neither they nor Daystrom ever requested or agreed to pay compensation for any services plaintiff may have rendered concerning this particular acquisition.

    11

    [376] This appeal is limited solely to plaintiff's cause of action in contract for recovery as a finder. Special Term granted defendants' motion for summary judgment upon the ground that plaintiff's action was barred by the New York Statute of Frauds. The Appellate Division unanimously affirmed the dismissal of plaintiff's cause of action in contract.[2]

    12

    It is firmly established, of course, that summary judgment may not be granted whenever the pleadings raise material and triable issues of fact. (Sillman v. Twentieth Century-Fox, 3 N Y 2d 395, 404.) We consider the evidentiary facts alleged in the light most favorable to plaintiff on this appeal from the grant of summary judgment to defendants. We conclude, however, that no triable issue of fact is raised when the evidentiary facts are so weighed.

    13

    The affidavits submitted upon the motion for summary judgment show that plaintiff's president, Salomon Jakob[3], met Jean Royer, the president of a small French electronics firm, Rochar Electronique, at a trade fair in New York City in May, 1960. Mr. Royer requested Mr. Jakob to introduce him to "American companies which had similar manufacturing capabilities and desired a foreign affiliation." Mr. Jakob undertook to locate interested American firms by placing an advertisement in the May 9, 1960 issue of the Wall Street Journal. Daystrom responded to this advertisement.

    14

    On May 20, 1960, Mr. Jakob introduced the presidents of Daystrom and Rochar at a luncheon meeting at the Pinnacle Club in New York City. Prior to this meeting, Daystrom agreed in principle to pay plaintiff a finder's fee should a suitable business relationship be established with Rochar. Negotiations were held at this meeting concerning the establishment of a business relationship between Daystrom and Rochar. Both principals indicated their readiness to pay plaintiff a finder's fee should an "active business relationship" be concluded between the two firms.[4]

    15

    [377] Between May 20, 1960 and June 20, 1960, several letters and telephone calls passed between Mr. Jakob in his New York office and Daystrom's president in his New Jersey office concerning the amount of the finder's fee to which plaintiff would be entitled should the business relationship be concluded. Daystrom's attorney drafted a proposed agreement, dated June 20, 1960, establishing the terms and amount of the finder's fee. This draft agreement was mailed to plaintiff's New York office. Mr. Jakob then traveled to New Jersey on June 27, 1960, and signed the agreement in Daystrom's New Jersey office. In pertinent part, this agreement states:

    16
    "As you requested, I am writing to confirm my understanding of the terms of our agreement reached through our discussions and telephone conversations by reason of which you have been acting in behalf of Daystrom, Incorporated with a view toward the acquisition of Rochar Electronique.
    17
    "Should we acquire the company in question by purchase of its stock or assets, we shall pay you a commission equal to * * *
    18
    "This shall be the entire agreement between us and if the foregoing is acceptable to you, please execute the acceptance noted below on one copy of this letter and return the same to us, whereupon it shall constitute an agreement on the terms stated herein.
    19

    Very truly yours, /s/ THOMAS ROY JONES Thomas Roy Jones President Accepted: By S. Jakob June 27, 1960"

    20

    The proposed acquisition of Rochar by Daystrom did not take place, however, as Rochar was acquired instead by defendant Schlumberger in July, 1960. Thereafter, Mr. Jakob "encouraged" Daystrom to negotiate with defendant Schlumberger.

    21

    Plaintiff alleges that, on November 22, 1960, Daystrom's president orally agreed to extend the terms of the written agreement to include a merger between defendant Schlumberger and Daystrom.[5] [378] Defendant Schlumberger acquired Daystrom in February, 1962, by purchasing its assets.

    22

    Plaintiff contends that the written finder's fee agreement, dated June 20, 1960, when interpreted in the light of other documents, establishes its right to compensation for the merger of defendant Schlumberger and Daystrom and constitutes an agreement sufficient to meet the New York Statute of Frauds. We note that plaintiff concedes that none of these other writings satisfies the applicable section of the Statute of Frauds (Personal Property Law, former § 31, subd. 10, now General Obligations Law, § 5-701, subd. 10) independent of the written agreement.

    23

    At the time the events in dispute occurred, subdivision 10 of former section 31 of the Personal Property Law read:

    24
    "Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking;
    25
    * * *
    26
    "10. Is a contract to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a corporation and including the creating of a partnership interest. This provision shall not apply to a contract to pay compensation to an auctioneer, an attorney at law, or a duly licensed real estate broker or real estate salesman."
    27

    It is settled that former section 31 (subd. 10) applies to claims for fees by finders as well as brokers. (Minichiello v. Royal Business Funds Corp., 18 N Y 2d 521, 527.) Plaintiff's contract cause of action is, therefore, encompassed by former section 31 (subd. 10), the applicable section of the Statute of Frauds.

    28

    We conclude that the writings relied upon by plaintiff are insufficient to constitute an enforceable agreement under subdivision 10 of former section 31.

    29

    "[I]n a contract action a memorandum sufficient to meet the requirements of the Statute of Frauds must contain expressly [379] or by reasonable implication all the material terms of the agreement, including the rate of compensation if there has been agreement on that matter". (Cohon & Co. v. Russell, 23 N Y 2d 569, 575; Poel v. Brunswick-Balke-Collender Co., 216 N.Y. 310, 314; Restatement, 2d, Contracts, § 207 [Tent. Draft No. 4, 1968]; cf. Matter of Levin, 302 N.Y. 535, 541; cf. Stulsaft v. Mercer Tube & Mfg. Co., 288 N.Y. 255, 258.) It is true that a memorandum sufficient to satisfy the Statute of Frauds need not be contained in a single document. Thus, the terms of an agreement between the parties may be established by a combination of signed and unsigned documents, letters or other writings provided "at least one writing, the one establishing a contractual relationship between the parties, must bear the signature of the party to be charged [or his authorized agent], while the unsigned document must on its face refer to the same transaction as that set forth in the one that was signed." (Crabtree v. Elizabeth Arden Sales Corp., 305 N.Y. 48, 56.) Nevertheless, it is equally well settled that extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face. (Tramco Ind. v. Broad Hollow Assoc., 23 N Y 2d 841; Rodolitz v. Neptune Paper Prods., 22 N Y 2d 383; Tobin v. Union News Co., 18 A D 2d 243, affd. 13 N Y 2d 1155; cf. General Phoenix Corp. v. Cabot, 300 N.Y. 87, 92; cf. Laskey v. Rubel Corp., 303 N.Y. 69, 71.)

    30

    The June 20, 1960 written agreement purports to be the complete agreement of the parties concerning plaintiff's right to a finder's fee and is signed by both parties. This agreement is clear and unambiguous on its face and specifically refers to the acquisition of "Rochar Electronique" by "Daystrom, Incorporated" — and not to the later purchase of Daystrom by defendant Schlumberger, Limited in February, 1962. It follows that plaintiff receives no support for its claim to a finder's fee for the merger of Daystrom and Schlumberger from the terms of the June 20 written agreement. Plaintiff cannot resort to extrinsic writings, none of which independently satisfies the Statute of Frauds, to create an ambiguity in the unambiguous and complete written agreement. (Tramco Ind. v. Broad Hollow Assoc., supra.)

    31

    Plaintiff, however, also alleges that Daystrom later orally agreed on November 22, 1960, to extend the terms of the June, [380] 1960 written finder's fee agreement to include its proposed acquisition by defendant Schlumberger, Limited.[6] A fortiori, this oral modification of the written agreement also fails to comply with the Statute of Frauds (Personal Property Law, former § 31, subd. 10) and cannot be enforced.

    32

    Special Term correctly concluded, therefore, that there was "no written note or memorandum evidencing any agreement with respect to the acquisition in question signed by the party to be charged, other than a document which, in clear and unambiguous language, refers solely to a prior contemplated acquisition."

    33

    Plaintiff's contract cause of action is inadequate, therefore, if New York law is applied. Plaintiff, alternatively, contends, however, that New Jersey's laws contain no Statute of Frauds applicable to this case, and should be applied under a "grouping of contacts" analysis of the choice of law. In any event, plaintiff argues, it is entitled to a full trial to show which jurisdiction has the most significant contacts with the litigation.

    34

    Our research indicates that New Jersey's Statute of Frauds does not apply to finder's fee agreements pertaining to the sale of businesses. (Cf. N. J. Stat. Ann. 25:1-5; 25:1-9; Tanner Assoc. v. Ciraldo, 33 N. J. 51; Fontana v. Polish Nat. Alliance of Brooklyn, 130 N. J. L. 503.) Therefore, plaintiff's agreements are unenforceable under New York law while New Jersey's Statute of Frauds does not bar an action on such an agreement.[7]

    35

    The contacts of the parties with New York and New Jersey are essentially undisputed, except for the alleged oral modification of the written agreement in November, 1960, to include the proposed Daystrom-Schlumberger merger. However, we conclude that New York law should be applied when the facts relating to the choice of law issue are considered in the light most favorable to plaintiff. It follows that the matter is determinable on the affidavits, as a matter of law, and there is no issue of [381] fact requiring a hearing concerning the applicable law (Cf. Matter of Bulova, 14 A D 2d 249.)

    36

    Whether or not a contract, valid and enforceable in the jurisdiction where made, is subject to the Statute of Frauds of a jurisdiction where an action is brought upon the contract is a question not yet settled in this State. This court has recognized the existence of the problem and the conflict of authority on this point, but thus far has not found it necessary to resolve it. (Rubin v. Irving Trust Co., 305 N.Y. 288, 297-298; Russell v. Societe Anonyme des Etablissements Aeroxon, 268 N.Y. 173, 180-181; Reilly v. Steinhart, 217 N.Y. 549, 553; cf. 49 Am. Jur., Statute of Frauds [1968 Supp.], §§ 3.1, 3.2, 3.3; cf. Ann., Statute of Frauds and Conflict of Laws, 105 A. L. R. 652-681, supp. 161 A. L. R. 820-824; cf. Currie, Ehrenzweig and the Statute of Frauds: An Inquiry into the "Rule of Validation", 18 Okla. L. Rev. 243 [1965]; cf. Ehrenzweig, The Statute of Frauds in the Conflict of Laws: The Basic Rule of Validation, 59 Col. L. Rev. 874 [1959].)

    37

    Traditionally courts have arrived at their conclusion concerning the applicable law, i.e., lex loci or lex fori, by characterizing the Statute of Frauds as substantive or procedural and evidentiary. "If it is substantive, then the law of the place of contracting applies, and though the forum has its own Statute of Frauds, the latter would not be applicable. If it is procedural or evidentiary then the law of the forum applies though the contract was valid and enforceable where made." (Russell v. Societe Anonyme des Etablissements Aeroxon, supra, p. 181.) "Indeed the statute may even be regarded as having a dual nature — both substantive and procedural." (Rubin v. Irving Trust Co., supra, p. 298.) But this attempt to characterize the Statute of Frauds as procedural or substantive, concerned as it is with amorphous legal conclusions, does little more than restate the problem and has even less relevance to our modern approach to the conflict of laws.

    38

    However, as we view this case, it is unnecessary to characterize the Statute of Frauds as either substantive or procedural since New York law should be applied in either event. If the statute be viewed as procedural, there is no problem since the law of the forum would be applied. Likewise, New York's Statute of Frauds would be applied as the law of the State whose [382] law governs generally if the statute be considered substantive since New York has the paramount interest in the application of its law in this case. (Cf. Matter of Crichton, 20 N Y 2d 124, 133; Matter of Clark, 21 N Y 2d 478, 486; cf. Miller v. Miller, 22 N Y 2d 12, 15-16.)

    39

    The traditional view of the choice of law rules concerning contracts where the parties have not expressed their choice of law in their agreement was that matters bearing upon the execution, interpretation, and validity of contracts are determined by the law of the place where the contract is made while matters concerned with its performance are regulated by the law of the place where the contract, by its terms, is to be performed. (Swift & Co. v. Bankers Trust Co., 280 N.Y. 135, 141; Union Nat. Bank v. Chapman, 169 N.Y. 538, 543; cf. Restatement, Conflict of Laws, §§ 332, 358; cf. Goodrich, Conflict of Laws [3d ed., 1949], §§ 109, 114.) A contract was deemed made in the State where the last act necessary to make it binding takes place according to the law of contracts. (Cf. Goodrich, supra, § 107.)

    40

    However, the traditional view has been rejected by this court in favor of an approach which "gives to the place `having the most interest in the problem' paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction `most intimately concerned with the outcome of [the] particular litigation'". (Auten v. Auten, 308 N.Y. 155, 161.) "[T]he rule which has evolved clearly in our most recent decisions is that the law of the jurisdiction having the greatest interest in the litigation will be applied and that the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict." (Miller v. Miller, supra, pp. 15-16; Matter of Crichton, supra, p. 133; Matter of Clark, supra, pp. 485-486.)

    41

    It is clear that New York has the paramount interest in the application of its law when the contacts which New Jersey and this State have with the instant controversy are examined in relation to the policies and purposes to be vindicated by the conflicting laws.

    42

    The purpose of the New York statute is manifest from an examination of its legislative history. The provision extending the Statute of Frauds to cover business brokerage contracts [383] and agreements for finder's fees (Personal Property Law, former § 31, subd. 10, now General Obligations Law, § 5-701, subd. 10) was first enacted in 1949 upon the recommendation of the Law Revision Commission. In its report to the Legislature, the commission stated its reason for proposing subdivision 10 of section 31: "In recent years there have been a substantial number of reported cases of claims for commissions for services rendered in the sale of a going business or a business opportunity. Under existing law there is no requirement that business brokers' contracts for commissions be in writing. The nature of the transactions is such that, in the absence of the requirement of a writing, unfounded and multiple claims for commissions are frequently asserted, and employers often seek to escape liability by denying the fact of employment. These controversies are commonly resolved by juries on conflicting testimony, with the consequent danger of erroneous verdicts." (1949 Report of N. Y. Law Rev. Comm. [N. Y. Legis. Doc., 1949, No. 65 (G)], p. 615.)

    43

    We recently reviewed the legislative history of subdivision 10 of former section 31 and concluded that the report of the Law Revision Commission reflects the purpose of the statute. (Minichiello v. Royal Business Funds Corp., supra, 526-527.) It thus appears that the statute was based at least in part upon the premise that the "danger of erroneous verdicts" in allowing juries to determine claims for brokerage and finder's fees on oral testimony warranted the writing requirement. (Cf. Minichiello v. Royal Business Funds Corp., supra, pp. 526-527.) It follows from the purpose of the statute that one of the policies embraced by this provision is to protect the principals in the sale of a business interest from the type of claim being asserted here — a claim for a $2,780,000 finder's fee not supported by the written evidence.

    44

    This policy would include foreign principals who utilize New York brokers or finders because of the nature of the brokerage business as it is conducted here. It is common knowledge that New York is a national and international center for the purchase and sale of businesses and interests therein. We conclude therefore that the Legislature in enacting subdivision 10 of former section 31 intended to protect not only its own residents, but also those who come into New York and take advantage of our [384] position as an international clearing house and market place. This is true because of all the jurisdictions involved, New York law affords the foreign principals the greatest degree of protection against the unfounded claims of brokers and finders. This encourages the use of New York brokers and finders by foreign principals and contributes to the economic development of our State. Our brokers and finders need only ensure that their agreements for compensation comply with the Statute of Frauds to receive the benefits of New York's position as a business center.

    45

    It is clear that the instant dispute has sufficient contacts with New York to give our State a substantial interest in applying its policy. Plaintiff is a New York corporation and its international finder's business centers in this State. Moreover, plaintiff's representation of Rochar derived from a New York meeting with Rochar's president. Plaintiff solicited Daystrom's interest in Rochar through an advertisement placed in a New York newspaper, and Mr. Jakob introduced the presidents of the two original principals (Rochar and Daystrom) at a meeting in a New York restaurant. At this New York meeting the principals agreed to compensate plaintiff with a finder's fee if a business relationship was concluded between Rochar and Daystrom. The remaining contacts leading up to the execution of the written finder's fee agreement involve letters and telephone calls emanating from plaintiff's New York office and the New Jersey office of Daystrom. It is therefore clear that the services for which plaintiff claims compensation were substantially rendered in New York, and that our State has a substantial relationship with the formation and negotiation of the finder's fee agreement.[8] In fact, plaintiff concedes in its brief, "Were it not for the ordinary writing requirement of the Statute of Frauds, there can be no question but that a competent agreement [to compensate plaintiff] existed by June 17, 1960."[9] These contacts give New York a substantial interest [385] in applying its own law in view of the policy underlying the applicable provision of our Statute of Frauds to protect principals in business transactions from unfounded claims and thereby encourage use of New York as a national and international business center. (Cf. Restatement 2d, Conflict of Laws [Proposed Official Draft, Part II, 1968, § 188, Comment on subsection (2), pp. 206-210].)

    46

    On the other hand, New Jersey's Statute of Frauds does not apply to brokerage or finder's fee agreements pertaining to the sale of businesses. (Cf. N. J. Stat. Ann. 25:1-5; 25:1-9; Tanner Assoc. v. Ciraldo, supra; Fontana v. Polish Nat. Alliance of Brooklyn, supra.) The general purpose underlying a Statute of Frauds can be characterized as the protection of parties who are sued for alleged promises informally made or to protect the enacting State's courts from perjury and prevent their use as instruments of extortion. (Cf. Fontana v. Polish Nat. Alliance of Brooklyn, 130 N. J. L. 503 supra; cf. Currie, Ehrenzweig and the Statute of Frauds: An Inquiry into the "Rule of Validation", 18 Okla. L. Rev. 243, 248-249, supra.) The latter policy, that of regulating the administration of justice in the courts of the enacting State, is inapplicable when the action is brought in another State. New Jersey, therefore, has no interest in protecting the New York courts from perjury. The policy of protecting the enacting State's defendants, of course, survives even though a contract action be brought in another jurisdiction. Here, Daystrom was incorporated in New Jersey and had its business office in that State. However, New Jersey has no interest in having its lack of protection for its residents used to establish their liability in a suit brought by residents of other jurisdictions when the laws of the forum State offer a complete defense to the action. It follows from this analysis that no true conflict of law exists since the proposed exception to the local law of the forum would defeat a legitimate interest of the forum State without serving a legitimate interest of any other State. (See, e.g., Traynor, Is This Conflict Really Necessary?, 37 Texas L. Rev. 657 [1959]; Currie, Survival of Actions: Adjudication versus Automation in the Conflict of Laws, 10 Stan. L. Rev. 205 [1958]; Currie, On the Displacement of The Law of The Forum, 58 Col. L. Rev. 964 [1958]; Currie, Selected Essays on the Conflict of Laws; Cavers, The Choice of Law Process [386] [1965]; Currie, Comments on Babcock v. Jackson, 63 Col. L. Rev. 1212 [1963].)

    47

    The courts below, therefore, properly applied the New York Statute of Frauds to bar plaintiff's cause of action.

    48

    Accordingly, the order appealed from should be affirmed, with costs.

    49
    Chief Judge FULD (concurring).
    50

    Although I agree that we should affirm the grant of summary judgment to the defendants, I find it unnecessary to approach the case as if it were a normal, albeit intricate, problem in choice of law. The conceded facts stamp the issue before us as quite unusual and, in my view, any attempt to solve such a problem by applying our usual conflicts analysis is apt to produce needless confusion. The factor which sets this case apart is that the plaintiff early recognized the need for a writing and joined in executing one. The memorandum, signed in June, 1960, which established the terms and amount of the finder's fee, covered the abortive Rochar deal. In the plaintiff's claim, there is no circumstance to warrant enforcement of an oral agreement assertedly made five months later "extend[ing] the terms of the written agreement" (opn., p. 377).

    51

    To begin with, there is no doubt that this State's Statute of Frauds requires that a finder's fee agreement be in writing (Personal Property Law, former § 31, subd. 10 [now General Obligations Law, § 5-701, subd. 10]) and that the written memoranda upon which the plaintiff relies are insufficient to constitute an enforceable agreement. (See, e.g., Minichiello v. Royal Business Funds Corp., 18 N Y 2d 521; Cohon & Co. v. Russell, 23 N Y 2d 569, 572.) Consequently, there is no way under the law of New York for the plaintiff to prevail on the claim.

    52

    This does not mean that our courts will not enforce a contract, made in conformity with foreign law when, under our conflict of law rules, our State lacks a sufficient interest in the application of its own law. (Cf. Anderson v. A/S Berge Sigval Bergesen, 22 N Y 2d 944, affg. 29 A D 756.) But the case before us presents no such situation. With eyes open and apparently fixed upon the requirements of our Statute of Frauds, the plaintiff joined with Daystrom in executing a written agreement covering the main terms of the deal. Having thus wittingly acknowledged the controlling force of our statute upon the form [387] of their agreement, the plaintiff should not be allowed to turn away from it and obtain enforcement of an oral agreement "extending" — and, thereby, radically altering — the original contract.

    53

    In short, then, in these special circumstances, I would affirm the summary judgment awarded the defendants on the ground that our Statute of Frauds prevents enforcement of an oral extension of a complete written contract intentionally executed in accordance with the provisions of that statute.

    54

    Order affirmed.

    55

    [1] Daystrom was liquidated subsequent to the transactions at issue in this case. Defendant Daystrom, Incorporated, a Texas corporation, has assumed its liabilities and defendant Schlumberger has guaranteed them. Daystrom (New Jersey) is hereafter referred to as Daystrom since defendant Daystrom (Texas) has no connection with the facts giving rise to this action.

    56

    [2] The Appellate Division modified portions of Special Term's order relating to other causes of action not pertinent on this appeal.

    57

    [3] Mr. Jakob was also plaintiff's sole stockholder and conducted its business from his Manhattan office.

    58

    [4] At this time, Rochar was engaged in advanced merger negotiations with defendant Schlumberger.

    59

    [5] This allegedly occurred at a meeting in Daystrom's New Jersey offices.

    60

    [6] The contemplated acquisition of Rochar by Daystrom to which the June written finder's fee agreement refers was impossible at this time since Rochar had been merged into defendant Schlumberger, Limited in July, 1960.

    61

    [7] Defendant Schlumberger, Limited is a Netherlands Antilles corporation and Rochar Electronique was a French corporation. No party, however, contends that the law of France or the Netherlands Antilles should be applied in this case.

    62

    [8] The place of the actual merger negotiations between the principals is of no significance, since our sole concern in this case is with the agreement concerning plaintiff's right to a finder's fee and not the eventual merger of defendant Schlumberger, Limited and Daystrom.

    63

    [9] This is prior to the execution of the written finder's fee agreement, dated June 20, 1960, by plaintiff in New Jersey on June 27, 1960.

  • 6 Bushkin Associates Inc. v. Raytheon Co

    1
    393 Mass. 622 (1985)
    2
    473 N.E.2d 662
    3
    BUSHKIN ASSOCIATES, INC., & another[1]
    vs.
    RAYTHEON COMPANY.
    4

    Supreme Judicial Court of Massachusetts, Suffolk.

    5
    September 12, 1984.
    6
    January 10, 1985.
    7

    Present: WILKINS, LIACOS, NOLAN, LYNCH, & O'CONNOR, JJ.

    8

    Alan D. Rose (R. Reed Baer with him) for the plaintiffs.

    9

    Neal C. Tully (Dana C. Hanson with him) for the defendant.

    10
    WILKINS, J.
    11

    We deal with questions certified to us by the United States Court of Appeals for the First Circuit, pursuant to S.J.C. Rule 1:03, as appearing in 382 Mass. 700 (1981). The principal question involves a conflict of laws issue: whether the [623] Massachusetts or the New York Statute of Frauds should be applied in this action involving an alleged oral agreement between the plaintiff Bushkin, a New York resident, and his New York corporation, on the one hand, and the defendant Raytheon Company (Raytheon), a Massachusetts based corporation, on the other. An action based on such an oral agreement would be barred under the New York Statute of Frauds (N.Y. Gen. Oblig. Law § 5-701[a][10] [McKinney 1978 & Cum. Supp. 1984]), but would not be barred under the Massachusetts Statute of Frauds (G.L.c. 259, § 1).

    12

    The Court of Appeals understandably concluded that it was not "confident of the choice that would be made by the Supreme Judicial Court in this important case." Our cases have not indicated with any certainty how this court would resolve the choice-of-law question presented to us (nor indeed the other questions certified to us, which concern G.L.c. 93A).

    13

    The three questions certified are:

    14

    "1. On the facts of this case, should New York or Massachusetts law determine the issue of validity of the alleged oral agreement between the parties?

    15

    "2. Does Massachusetts General Laws chapter 93A apply to the allegations of deceptive acts and practices?

    16

    "3. If the answer to question 2 is in the affirmative, is defendant entitled to the exemption of G.L.c. 93A, § 3 (1) (b) (i) in that the alleged actions forming the basis of the chapter 93A claim did not occur `primarily and substantially' in Massachusetts?"[2]

    17

    The Court of Appeals appended to its certification "the summary of relevant facts as set forth by the district court in its opinion." We quote those facts in the paragraphs immediately hereafter.

    18

    [624] "Factual Background.[fna]

    19

    "[a] Although Raytheon disputes many aspects of Bushkin's account of the facts relevant to this case, Raytheon is willing to, and indeed must, resolve any genuine disputes of fact in Bushkin's favor for the purposes of its motion for summary judgment. The following factual background, therefore, adopts Bushkin's version of any genuinely disputed facts."

    20

    "Bushkin, a New York resident, is an investment banker specializing in mergers and acquisitions. He is the president of Bushkin Associates, a corporation organized and based in New York. Raytheon is a Delaware corporation with its principal place of business in Massachusetts.

    21

    "Bushkin's dealings with Raytheon concerning possible mergers and acquisitions began in 1971. In 1974, Bushkin discovered that Beech [Aircraft Corporation] might be available for acquisition. He attended a meeting in January, 1974, with Olive Ann Beech and Frank Hedrick, the president and vice president respectively of Beech, at which he learned some information regarding the type of merger that might interest them.[fnb>]

    22

    "[fnb] This meeting was arranged by Howard Suslak and Fred Schreier, principals of MacDonald & Co., Inc. MacDonald & Co. has an agreement with Bushkin whereby it will receive a share of any award Bushkin might recover from Raytheon."

    23

    "On May 21, 1974, Bushkin, in New York, telephoned Robert Seaman, a vice president of Raytheon, in Massachusetts, to ask if Raytheon would be interested in acquiring a general aviation company. Seaman replied that Raytheon might be interested if the company were either Cessna or Beech. Seaman followed up with a May 24 letter to Bushkin, stating that Raytheon's interest in a general aviation company was uncertain. During a July 19, 1974, telephone conference, Seaman told Bushkin that it was unlikely that Raytheon would have an interest in a general aviation company.

    24

    "The next conversation on the subject, and the one in which Bushkin alleges the oral fee agreement was made, occurred on January 28, 1975. Bushkin apparently telephoned Seaman (or Seaman returned Bushkin's call). In either event, Bushkin was in New York and Seaman in Boston. Bushkin asked if Raytheon were still interested in general aviation. Seaman [625] replied yes, if the company were Beech or Cessna. Bushkin stated that he could reveal the name of the company, but first wanted to discuss a fee arrangement. Seaman told Bushkin that if Raytheon consummated an acquisition of the company Bushkin was discussing, Raytheon would pay a fee of one percent of the value of the transaction. Bushkin replied, `fine,' and then identified the company as Beech.[fnc] He went on to disclose information as to his understanding of the kind of acquisition or merger that Beech wanted.

    25

    "[fnc] The day before this conversation, Bushkin discussed Beech as a possible acquisition candidate, and allegedly entered into an oral fee agreement, with another company, Northwest Industries. After his conversation with Seaman, up until August 1979, Bushkin sought to interest several other companies in Beech."

    26

    "Seaman and Bushkin had a few more contacts with regard to Beech and, on June 27, 1975, Seaman presented Beech as a possible acquisition candidate to Thomas Phillips, Raytheon's chairman of the board. An internal Raytheon `acquisition log,' dated June 19, 1975, identifies Bushkin as the person who offered or suggested Beech as a candidate. On June 30, Seaman called Bushkin to report on the presentation, and to discuss various aspects of a possible Raytheon acquisition of Beech. Later that day, Seaman sent a memo to Phillips summarizing relevant aspects of his conversation with Bushkin.[fnd] In the memo, Bushkin was identified as `our contact in this matter.'

    27

    "[fnd] Bushkin told Seaman that Mrs. Beech was interested in a tax-free transaction, and dividend payouts to her and members of her family; that Beech was looking to develop a jet of its own; and believed that this kind of project could be better accomplished if it had the backing of a larger and financially stronger company; and that Beech wanted the Beech name to survive."

    28

    "In a telephone conversation on July 29, 1975, Seaman told Bushkin that Raytheon had decided it was not interested in pursuing Beech as an acquisition candidate. Bushkin had subsequent contacts with Seaman and Phillips with regard to possible acquisition candidates other than Beech. On one occasion in November 1975 Bushkin broached the subject of Beech with Phillips (in the course of discussions about another candidate), and Phillips replied that he was not interested.

    29

    [626] "On September 1, 1976, Raytheon entered into a written agreement with Lonsdale Enterprises, Inc., and its principals Royal Little and James Robison, for consulting services in connection with Raytheon's interest in mergers and acquisitions. About three months later, in letters to Phillips dated November 29 and December 9, 1976, Little and Robison suggested Beech as a possible acquisition candidate. Phillips' first reaction was not enthusiastic, but by February 16, 1977, Phillips indicated that he wanted to meet with Olive Beech. On February 28, while Bushkin was meeting with Phillips concerning another company, Bushkin again mentioned Beech, but Phillips said he was not interested. Nonetheless, on March 3, Phillips authorized Little and Robison to contact Beech through their business associate Angus MacDonald. In June, 1977, it became public knowledge that Beech was negotiating a merger with General Dynamics, and Raytheon, therefore, dropped the matter until those negotiations fell through.

    30

    "Phillips finally met with Frank Hedrick, vice president of Beech, on January 24, 1978, and with Olive Beech on July 12, 1978. After further negotiations and studies, Raytheon and Beech reached a preliminary agreement on October 1, 1979. Raytheon subsequently entered written agreements, dated November 26, 1979, to pay Lonsdale and MacDonald $600,000 and $500,000 respectively for their services in connection with the merger. The agreements were contingent on its consummation.

    31

    "In February, 1980, Raytheon acquired Beech. The value of the transaction was approximately $800,000,000.00."

    32

    The action came before the Court of Appeals on Bushkin's appeal following a Federal District Court judge's allowance of Raytheon's motion for summary judgment. In allowing that motion, the judge recognized that, in this diversity action, his obligation was to apply the choice-of-law rules of Massachusetts. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). He concluded that this court would not apply the principle that the choice of law would be governed by the place of contracting and concluded further that the principles stated in the Restatement (Second) of Conflict of Laws (1971) [627] were "not an effective means for resolving the choice of law problem in this case." In his view, "[d]etermining the projected scope of a law by application of an expanded interest analysis" helped to resolve the choice-of-law issue. Applying this analysis, he ruled that New York had a strong interest in protecting defendants against unfounded claims, even when New York brokers and finders sued non-New Yorkers. He said "Massachusetts, in contrast, has at most a minimal interest in applying its law to this case." He concluded that Bushkin could not avoid the laws of New York and should not benefit from forum shopping, and held that "[e]xpanded interest analysis clearly tips the scale in favor of applying New York law to the facts of this case."[3]

    33

    The judge further concluded that Bushkin's G.L.c. 93A claim merely restated his contract claim, believing that it was based solely on Raytheon's failure to abide by its agreement with Bushkin and its use, without payment, of information acquired pursuant to that agreement. Because the contract was unenforceable, it was his view that Bushkin's G.L.c. 93A claims must necessarily fail. He thus allowed Raytheon's motion for summary judgment and dismissed Bushkin's complaint.

    34

    We conclude that the alleged oral fee agreement is not barred by the New York Statute of Frauds because the law of Massachusetts determines the enforceability of the alleged oral agreement. We further decide that Raytheon is entitled to the exemption from G.L.c. 93A provided by G.L.c. 93A, § 3 (1) (b) (i), because Bushkin's G.L.c. 93A claim is not based on transactions and actions that occurred primarily in Massachusetts. We thus answer question three in the affirmative. Because Raytheon is exempt from liability under G.L.c. 93A, we need not answer question two, which inquires whether G.L.c. 93A applies to Bushkin's allegations of deceptive acts and practices.

    35
    [628] 1. On the facts of this case, should New York or Massachusetts law determine the issue of validity of the alleged oral agreement between the parties?
    36

    The plaintiff does not contend that his oral agreement would be enforceable under the substantive law of New York. The agreement would be held void under the New York Statute of Frauds. N.Y. Gen. Oblig. Law § 5-701(a)(10) (McKinney 1978 & Cum. Supp. 1984). The protection of the New York statute extends not only to residents, but also to "foreign principals who utilize New York brokers or finders." Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 383 (1969). According to the Court of Appeals "[i]t is common knowledge that New York is a national and international center for the purchase and sale of businesses and interests therein. We conclude therefore that the Legislature in enacting subdivision 10 of former section 31 [now N.Y. Gen. Oblig. Law § 5-701 (a)(10)] intended to protect not only its own residents, but also those who come into New York and take advantage of our position as an international clearing house and market place. This is true because, of all the jurisdictions involved, New York law affords the foreign principals the greatest degree of protection against the unfounded claims of brokers and finders. This encourages the use of New York brokers and finders by foreign principals and contributes to the economic development of our State. Our brokers and finders need only ensure that their agreements for compensation comply with the Statute of Frauds to receive the benefits of New York's position as a business center." Id. at 383-384.[4]

    37

    [629] It is also reasonably certain that, if this action had been commenced in New York, the New York courts under that State's choice-of-law rules would have looked to New York, and not to Massachusetts, substantive law. Decisions subsequent to the Daystrom case suggest that New York claims a paramount "interest" in applying its Statute of Frauds, even when defendants (like Raytheon) do not "come into New York." See Pallavicini v. International Tel. & Tel. Corp., 41 A.D.2d 66, 69 (1973), aff'd, 34 N.Y.2d 913 (1974). See also William J. Conlon & Sons v. Wanamaker, 583 F. Supp. 212, 215-216 (E.D.N.Y. 1984); O'Keeffe v. Bry, 456 F. Supp. 822, 827-828 (S.D.N.Y. 1978).

    38

    Another court has given a broad reach to the New York Statute of Frauds. In Denny v. American Tobacco Co., 308 F. Supp. 219 (N.D. Cal. 1970), the judge applied the "interest analysis" test used by California (see Bernkrant v. Fowler, 55 Cal.2d 588 [1961]), and held that the New York Statute of Frauds barred a quantum meruit action brought by a California "finder" against a New York defendant demanding compensation for information contained in a letter concerning the possible sale of a California company. Although both the plaintiff and the acquired company were from California, he concluded that California's interest in protecting the reasonable expectations of its residents was much less apparent than New York's clear interest "in protecting its residents from just the sort of claim as is involved here." Denny v. American Tobacco Co., supra at 223. The judge also commented that California law followed neither the first nor the second Restatement of Conflict of Laws and noted that "[a] practitioner of the second Restatement would be hard put to say which of these states [California or New York] had `the most significant relationship' with the `contract' involved herein." Id. at 222. He concluded nevertheless that, under the second Restatement, New York law "might well be said to have the most significant contacts with the transaction here." Id. at 223.

    39

    [630] Courts in other jurisdictions, however, have rejected the Empire State's imperial reach. In three decisions applying the "most significant relationship" test, courts, faced with a defense of the New York Statute of Frauds pleaded against a New York plaintiff, have chosen forum and not New York law. See Havenfield Corp. v. H & R Block, Inc., 509 F.2d 1263 (8th Cir.), cert. denied, 421 U.S. 999 (1975); Ehrman v. Cook Elec. Co., 468 F. Supp. 98 (N.D. Ill. 1979); Edwin F. Armstrong & Co. v. Ben Pearson, Inc., 294 F. Supp. 163 (E.D. Ark. 1967), aff'd sub nom. Leisure Group, Inc. v. Edwin F. Armstrong & Co., 404 F.2d 610 (8th Cir.1968). These cases are not directly on point because each case, but in varying degrees, presents "significant" contacts more strongly associated with the forum State than are the Massachusetts contacts in this case.

    40

    We surmise that the District Court judge in the case before us, by his reference to an expanded interest analysis, anticipated that we would adopt an approach to choice of law not unlike that of the California and New York courts. Of course, in the Denny case, the California Federal District Court applied New York law to protect a New York resident against a "finder" who "came into" New York. In our case, the question is whether the law of New York should be applied to protect a "resident" of Massachusetts from the claim of a New York broker or "finder."

    41

    The Court of Appeals and the District Court judge in this case were correct in concluding that this court would not permit the choice-of-law question to turn on where the contract was made. See McKinney v. National Dairy Council, 491 F. Supp. 1108, 1112 (D. Mass. 1980), to the same effect. See also Emery Corp. v. Century Bancorp., Inc., 588 F. Supp. 15, 17 (D. Mass. 1984) (tort case); Rudow v. Fogel, 12 Mass. App. Ct. 430, 436-437 (1981) (New York law governs question of constructive trust of Massachusetts real estate). We rejected that simple rule in Choate, Hall & Stewart v. SCA Servs., Inc., 378 Mass. 535, 540-541 (1979), and not solely for those cases in which reference to the law of the place of making would produce "awkward or arbitrary results." Id. at 541. Almost all [631] States have abandoned the lex loci rule (id.) and, as this case demonstrates, with good cause. Although for summary judgment purposes we must accept Bushkin's assertion that the contract was made in Massachusetts, the governing principles of law should hardly turn on a parsing of the disputed content of a telephone call or, more importantly, on the fortuitous fact that an oral offer was accepted orally in one State rather than in the other.

    42

    In our Choate, Hall & Stewart opinion, we noted that there were various doctrines that had replaced "one-factor tests with a more functional approach," but because of the particular facts of that case we were deprived "of an opportunity to elect among the extant doctrines." Id. at 541. In our opinions issued since the Choate, Hall & Stewart case, we have not dealt with choice-of-law questions in a contract case and, in the area of tort law, we have not elected by name any particular choice-of-law doctrine. See Cohen v. McDonnell Douglas Corp., 389 Mass. 327, 333-337 (1983).

    43

    The facts of this case present us with the "opportunity" unavailable in the Choate, Hall & Stewart case. As with our tort cases, we decide here not to tie Massachusetts conflicts law to any specific choice-of-law doctrine, but seek instead a functional choice-of-law approach that responds to the interests of the parties, the States involved, and the interstate system as a whole. Having surveyed the academic commentary and recent decisional law, we agree with Professor Leflar's perception that, despite the rhetoric of choice-of-law scholars, the courts and commentators "are arriving at results broadly consistent with each other's holdings." R.A. Leflar, American Conflicts Law § 99, at 198 (3d ed. 1977).

    44

    We, therefore, determine the choice-of-law question by assessing various choice-influencing considerations. It is, of course, obvious that, when courts turn to such considerations, they undertake to reach a fair result in a given case but may provide little guidance for anticipating the "fair result" in other cases. By considering a variety of factors and not simply, as some have argued, choosing the State with the greatest "interest" in the particular issue, some vagueness in the formulations [632] applied is probably unavoidable. Reese, The Second Restatement of Conflict of Laws Revisited, 34 Mercer L. Rev. 501, 518 (1983). Our approach, however, while producing less predictability, rejects artificial constructions. This, after all, was the primary reason for rejecting the traditional lex loci approach in favor of more modern methods. It makes little sense to reject one artificial approach only to replace it with another.

    45

    One obvious source of guidance is the Restatement (Second) of Conflict of Laws (1971). Under that Restatement, a choice-of-law question involving a Statute of Frauds is resolved according to the choice-of-law principles applicable to all substantive contract issues (§ 141). The principles contained in § 186 and § 187 provide that, in the absence of a choice of law by the parties, their rights "are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6." Id. at § 188(1). "[T]he contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties." Id. at § 188(2). Factors under § 6 that are said to be relevant to the choice of the applicable rule of law include: "(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 of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied." Id. at § 6(2).

    46

    We do not view the process, intended under § 188, for determining the State with the most significant relationship to the issue as simply adding up various contacts. Each side has argued to us that the contacts with the State whose law it wishes [633] applied are greater in quantity.[5] Understandably they do not agree on which contacts are important or even relevant, such as events occurring after the date of the alleged contract.[6] In [634] any event, the contacts analyzed by themselves (without regard to § 6 principles) lead us neither to Massachusetts nor to New York as the State with the more significant relationship to the transaction or the parties. No simple and objective test can provide an acceptable choice-of-law answer in this case, nor should it.

    47

    We choose, instead, to emphasize the choice-influencing factors listed in § 6 (2) of the Restatement (Second) of Conflict of Laws, quoted above. Alternatively, we could consider the five considerations proposed by Professor Leflar in American Conflicts Law, supra at 195, on which we have previously relied. Saharceski v. Marcure, 373 Mass. 304, 312 n. 7 (1977).[7] We agree with Professor Leflar that these five considerations generally parallel the considerations contained in longer lists, including § 6 (2) of the Second Restatement. R.A. Leflar, American Conflicts Law, supra at 194-195. We feel free, however, to borrow from any of the various lists to help focus our attention on the considerations particularly relevant to the case before us.

    48

    We begin by noting that the laws of both Massachusetts and New York favor the enforcement of contracts. The difference is that New York believes that the protection of defendants' rights requires that, in the circumstances of this case, there be a writing to prove the defendant's promise, while the law of Massachusetts does not (G.L.c. 259, § 1).[8] New York has [635] given focused attention to this question and its conscious adoption of a position on the question is obvious. Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 383 (1969). However, one would hardly expect the Massachusetts Legislature to state affirmatively that no writing is required in the circumstances of an oral agreement to pay such a broker's or finder's fee when the Massachusetts Statute of Frauds already achieves that result. The choice by Massachusetts to permit a trier of fact to resolve conflicts in testimony, as is true in many cases involving large sums of money, is a policy that should be balanced against the policy of New York. We find, therefore, that the "relative interests [of New York and Massachusetts] in the determination of the particular issue" in this case, Restatement (Second), supra at § 6 (2) (c), point clearly toward neither State.

    49

    We find similarly that other important considerations, such as uniformity of result, maintenance of interstate order, and simplification of the judicial task, R.A. Leflar, American Conflicts Law, supra at 195, point toward neither Massachusetts nor New York. Uniformity and interstate order could be advanced only if all States accepted New York's extrajurisdictional reach, but other jurisdictions have not done so. See, e.g., Havenfield Corp. v. H & R Block, Inc., 509 F.2d 1263 (8th Cir.1975).

    50

    One significant consideration, the justified expectations of the parties, militates for Massachusetts law. Restatement (Second), supra at § 6 (2) (d); § 141, comment (g); § 188 comment (b); R.A. Leflar, American Conflicts Law, supra at § 103. Here Bushkin and Raytheon expected that any oral agreement would be enforced. Raytheon had made other, similar oral agreements to which it expected to be bound, including others with Bushkin. Since Bushkin is not in the business of supplying free information, we may assume he expected any agreement for such information to be enforced as well.

    51

    Finally, we note that, although the Statute of Frauds involves a question of substantive law and is not a procedural rule governed by the law of the forum (but see Emery v. Burbank, 163 Mass. 326, 329 [1895]), the Statute of Frauds concerns the [636] necessary proof of a case and not the substantive merits of a plaintiff's claim. Cf. Twerski & Mayer, Toward a Pragmatic Solution of Choice-of-Law Problems — At the Interface of Substance and Procedure, 74 Nw. U.L. Rev. 781, 784-786 (1979). Where relevant contacts and considerations are balanced, or nearly so, we are inclined to resolve the choice by choosing that law "which would carry out and validate the transaction in accordance with intention, in preference to a law that would tend to defeat it" (footnotes omitted). Boston Safe Deposit & Trust Co. v. Paris, 15 Mass. App. Ct. 686, 691 (1983). In this case, the law that will validate the agreement, if indeed there was an agreement, is that of Massachusetts.

    52

    In answer to the first question, we conclude that the law of Massachusetts should determine the issue of the validity of the alleged oral agreement between the parties.

    53
    2. Does Massachusetts General Laws chapter 93A apply to the allegations of deceptive acts and practices?
    54

    We construe question two as inquiring about the extent to which, apart from any exemption, G.L.c. 93A applies to allegedly unfair or deceptive acts or practices of the sort alleged in this interstate transaction.[9] Because we conclude in our answer to the third question that Raytheon is exempt from Bushkin's G.L.c. 93A claim, we need not answer the question.

    55
    [637] 3. If the answer to question 2 is in the affirmative, is defendant entitled to the exemption of G.L.c. 93A, § 3 (1) (b) (i) in that the alleged actions forming the basis of the chapter 93A claim did not occur "primarily and substantially" in Massachusetts?
    56

    Under G.L.c. 93A, § 3 (1) (b), as amended by St. 1969, c. 814, § 2,[10] Raytheon is exempt from Bushkin's G.L.c. 93A claim unless that claim involved "transactions and actions which (i) occur[red] primarily and substantially within the commonwealth." This exemption represents a legislative determination that G.L.c. 93A should not apply to certain transactions and actions that do not occur principally and significantly in Massachusetts. This court has had little occasion to consider the scope of the exemption. In Burnham v. Mark IV Homes, Inc., 387 Mass. 575, 580 (1982), we noted that the facts of the case did "not require us to define the outer boundaries of those transactions and actions which may be held to have occurred primarily and substantially within the Commonwealth." Federal cases have involved this general issue, but on the facts the various judges have been able to determine with relative ease whether particular actions and transactions occurred primarily and substantially in Massachusetts or elsewhere.[11]

    57

    [638] Bushkin's G.L.c. 93A claim is based on alleged representations made during a telephone call or calls in 1975 between a Raytheon officer in Massachusetts and Bushkin in New York. Bushkin asserts that Raytheon's officer obtained information from Bushkin concerning Beech by falsely representing that Raytheon would pay for Bushkin's services.[12] Bushkin in New York then relied on those representations and from New York disclosed the name of Beech and provided information about Beech. Thereafter, Bushkin alleges he sustained a loss.

    58

    Raytheon has met its burden of showing that the transactions and actions on which Bushkin relies did not occur primarily in Massachusetts. G.L.c. 93A, § 3 (2). The telephone conversations were between New York and Massachusetts. The alleged unfair or deceptive acts or practices were statements made in Massachusetts but received and acted on in New York. Any loss was incurred in New York.

    59

    If it were proper (and we need not decide the point)[13] to engage in a broader analysis of this issue, similar to the functional [639] approach we used to decide the choice-of-law question in this action, the result would be the same. The significant contacts in this action are approximately in balance (see note 5 above) and thus show no primary involvement with Massachusetts. Further, the choice-influencing factors on which we relied to answer the first question (expectations of the parties and the presumption of a contract's validity) are not relevant to the G.L.c. 93A claim and provide no basis for resolving this third question.

    60

    We therefore answer Question three in the affirmative.

    61

    4. Our answer to the first question is that the law of Massachusetts should determine the issue of the validity of the alleged oral agreement between the parties. We answer the third question in the affirmative, and thus need not answer the second question.

    62

    ---------

    63

    [1] Merle J. Bushkin. We shall sometimes refer to the plaintiffs collectively as Bushkin but intend to refer to Merle J. Bushkin himself when we describe personal conduct.

    64

    [2] As to the third question, the Court of Appeals pointed out that the District Court did not reach it but that they added it "having in mind that the Supreme Judicial Court had only a limited opportunity to address the scope of `primarily and substantially' in Burnham v. Mark IV Homes, Inc., 387 Mass. 575, 580 (1982)."

    65

    [3] Neither party has suggested that the law of Kansas, the State in which Beech's operations were principally located, or the law of Delaware, the State of Raytheon's incorporation, are relevant to the choice-of-law question.

    66

    [4] The court noted that the law was enacted in 1949 on the recommendation of the Law Revision Commission which stated its reasons for proposing it. "In recent years there have been a substantial number of reported cases of claims for commissions for services rendered in the sale of a going business or a business opportunity. Under existing law there is no requirement that business brokers' contracts for commissions be in writing. The nature of the transactions is such that, in the absence of the requirement of a writing, unfounded and multiple claims for commissions are frequently asserted, and employers often seek to escape liability by denying the fact of employment. These controversies are commonly resolved by juries on conflicting testimony, with the consequent danger of erroneous verdicts. (1949 Report of N.Y. Law Rev. Comm['n] [N.Y. Legis. Doc., 1949, No. 65 (G)], p. 615.)" Id. at 383.

    67

    [5]In support of his view that Massachusetts has the "more significant contacts," Bushkin points to the facts that (1) Raytheon has its principal place of business in Massachusetts, (2) Raytheon's corporate officers who dealt with Bushkin and worked out the merger with Beech lived and worked in Massachusetts, (3) Bushkin's offer of a fee agreement was orally accepted in Massachusetts, (4) information concerning Beech was delivered to Raytheon in Massachusetts, and (5) the place of performance (according to Bushkin) was Massachusetts. In turn, Bushkin argues that New York contacts "are almost absent."

    68

    Raytheon in turn points to the following contacts with New York: (1) Bushkin Associates, Inc., is a New York corporation with its sole place of business in New York, (2) Merle J. Bushkin is a resident of New York, (3) he learned of the availability of Beech from another New York broker, (4) Bushkin's contacts with Raytheon were initiated from New York, (5) Bushkin's services were performed in New York, (6) any loss Bushkin sustained occurred in New York, and (7) numerous aspects of the arrangement for the merger were carried out for Raytheon (and Beech) in New York, including the efforts of Raytheon's (and Beech's) legal counsel and investment bankers.

    69

    [6] The extent to which posttransaction events properly may be considered as decision-influencing contacts no doubt depends on the particular issue and the circumstances. R.A. Leflar, American Conflicts Law § 109, at 221 (3d ed. 1977). For the purpose of determining the constitutionality of choice-of-law decisions, a majority of the Supreme Court have viewed as acceptable a State's reliance on posttransaction events. Allstate Ins. Co. v. Hague, 449 U.S. 302, 319 (1981). Opinions involving the New York Statute of Frauds defense in broker's fee cases have considered events subsequent to the time of the fee agreement (Ehrman v. Cook Elec. Co., 468 F. Supp. 98, 100 [N.D. Ill. 1979]; Edwin F. Armstrong & Co. v. Ben Pearson, Inc., 294 F. Supp. 163, 167 [E.D. Ark. 1967], aff'd sub nom. Leisure Group, Inc. v. Edwin F. Armstrong & Co., 404 F.2d 610 [8th Cir.1968]), and one opinion explicitly recognized as relevant the circumstances of the making of the agreement between the broker's customer (the defendant) and the third party. See Havenfield Corp. v. H & R Block, Inc.,509 F.2d 1263, 1268 (8th Cir.), cert. denied, 421 U.S. 999 (1975) ("it is the fact that the acquisition was consummated that gives rise to liability on the finder's fee contract, so the two contracts are very closely connected").

    70

    Reliance on posttransaction events, even ones not under the control of the parties, as an element in a choice-of-law decision injects an ambulatory quality into the issue that discourages certainty. Leflar, The Nature of Conflicts Law, 81 Colum. L. Rev. 1080, 1085 (1981). Particularly in a choice-of-law case involving the applicability of the Statute of Frauds, it seems appropriate "to give greater weight to contacts in existence at the time of contracting than to contacts which arise after that time." McKinney v. National Dairy Council, 491 F. Supp. 1108, 1114 (D. Mass. 1980). We think, for example, that the Statute of Frauds question should not be influenced by a postcontract decision by Raytheon and Beech to use professional advisors in New York rather than in Chicago, Boston, or Topeka to carry out the negotiations and closing of the transaction.

    71

    [7] These five factors are: "(A) Predictability of results; (B) Maintenance of interstate and international order; (C) Simplification of the judicial task; (D) Advancement of the forum's governmental interests; (E) Application of the better rule of law." R.A. Leflar, supra at 195.

    72

    [8] By St. 1984, c. 321, G.L.c. 259 was amended by adding § 7, which provides that a writing is required to enforce an agreement to pay compensation for services of the type Bushkin alleges he performed in this case. That statute has no direct application to this case. We do not view its enactment as having any significant bearing on the policy considerations that guide us to the answers in this case.

    73

    [9] Although it urges us to answer the second question in the negative, Raytheon makes no argument in its brief that, if the New York Statute of Frauds does not apply to this case, G.L.c. 93A does not apply to the alleged unfair or deceptive acts or practices on which Bushkin relies. It argues, however, that it is exempt from G.L.c. 93A, an issue presented in the third question.

    74

    [10] "Section 3 (1). Nothing in this chapter shall apply to ... (b) trade or commerce of any person of whose gross revenue at least twenty per cent is derived from transactions in interstate commerce, excepting however transactions and actions which (i) occur primarily and substantially within the commonwealth, and (ii) as to which the Federal Trade Commission or its designated representative has failed to assert in writing within fourteen days of notice to it and to said person by the attorney general its objection to action proposed by him and set forth in said notice."

    75

    By St. 1983, c. 242, the exemption provided by § 3 and involved in this question was eliminated. The events involved in the G.L.c. 93A claim occurred in 1975.

    76

    [11] See Computer Syss. Eng'g, Inc. v. Qantel Corp., 571 F. Supp. 1365, 1371-1372 (D. Mass. 1983), aff'd, 740 F.2d 59 (1st Cir.1984); Evans v. Yegen Assocs., 556 F. Supp. 1219, 1228 (D. Mass. 1982); Turner v. Johnson & Johnson, 549 F. Supp. 807, 813 (D. Mass. 1982); American Hosp. Supply Corp. v. Roy Lapidus, Inc., 493 F. Supp. 1076, 1078 (D. Mass. 1980); Boston Super Tools, Inc. v. RW Technologies, Inc., 467 F. Supp. 558, 562 (D. Mass. 1979); U.S. Broadcasting Co. v. National Broadcasting Co.,439 F. Supp. 8, 11 (D. Mass. 1977).

    77

    Only two of these opinions involved any discussion of the circumstances leading to the judges' conclusions. In the Evans case, the judge ruled that, while unfair and deceptive acts took place both in Florida and in Massachusetts, the communication of the misrepresentation occurred while the defendant's agent was speaking with the plaintiff in Massachusetts. 556 F. Supp. at 1228. The court ruled, therefore, that "more" of the transactions occurred in Massachusetts than elsewhere, "thus satisfying the requirement that they `occur primarily and substantially within this [sic] commonwealth.'" Id. In the Qantel case, the analysis was similar, with the judge finding that the actual misrepresentations occurred "mainly" while the defendant's agents were in Massachusetts. 571 F. Supp. at 1372. The court ruled that "Qantel has failed to meet its burden of proving an exemption under § 3." Id.

    78

    There is no legislative history that serves as an aid to the construction of G.L.c. 93A, § 3 (1) (b) (i).

    79

    [12] Bushkin disclaims any G.L.c. 93A violation on Raytheon's refusal to honor a contract. Other allegations of Raytheon's unfair or deceptive acts or practices suggested by Bushkin cannot have caused Bushkin any loss of money or property. See G.L.c. 93A, § 11.

    80

    [13] See Burnham v. Mark IV Homes, Inc., 387 Mass. 575, 580 n. 9 (1982).

  • 7 Rosenthal v. Fonda

    1
    862 F.2d 1398 (1988)
    2
    Richard M. ROSENTHAL, Plaintiff-Appellant,
    v.
    Jane FONDA, et al., Defendant-Appellee.
    3
    No. 87-5659.
    4

    United States Court of Appeals, Ninth Circuit.

    5
    Argued and Submitted August 1, 1988.
    6
    Decided December 13, 1988.
    7

    [1399] Lawrence B. Steinberg, Wyman, Bautzer, Kuchel & Silbert, Los Angeles, Cal., for plaintiff-appellant.

    8

    Stanton L. Stein, Stein & Kahan, Santa Monica, Cal., for defendant-appellee.

    9

    Before FLETCHER, CANBY and O'SCANNLAIN, Circuit Judges.

    10
    CANBY, Circuit Judge:
    11

    Richard Rosenthal appeals the district court's grant of summary judgment in favor of Jane Fonda and four of her related corporations. The district court determined that New York law controlled this dispute and that New York's statute of frauds barred Rosenthal's claim against Fonda for breach of an oral contract. On appeal, Rosenthal contends that California, not New York, law should control this action and that California's statute of frauds does not bar his oral contract claim against Fonda. In addition, Rosenthal contends that even if New York law does properly control, his contract with Fonda is not barred by New York's statute of frauds. We affirm the district court's holding that New York's statute of frauds controls and that it serves to bar Rosenthal from enforcing this oral contract against Fonda.

    12
    FACTUAL BACKGROUND
    13

    This action arises out of the twelve year relationship between Jane Fonda and her former attorney and general business manager, Richard Rosenthal. In 1968, Fonda, a California resident, retained the services of a New York law firm. She entered into an oral agreement with the firm that she would pay five percent of her earnings as compensation for the firm's services. Rosenthal, an attorney with the firm, assumed responsibility for a large share of the firm's activities on Fonda's behalf. In 1971, the law firm dissolved and in 1972, Rosenthal began to represent Fonda as an independent private practitioner. Rosenthal alleges that in April of 1972, he and Fonda entered into an oral contract whereby [1400] he agreed to continue performing a variety of services for Fonda and she, in turn, agreed to pay him ten percent of all gross professional income derived from the projects that were initiated during his tenure.

    14

    Rosenthal continued to represent Fonda from his New York office. In 1978, Rosenthal and his family moved to California, at Fonda's request, so that he could be closer to her and represent her more efficiently. Despite relocating, Rosenthal maintained a home and an office in New York. Fonda discharged Rosenthal approximately two years later, on May 30, 1980.

    15

    Rosenthal brought suit against Fonda in California district court to recover commissions on projects that were initiated during his tenure and produced or continued to produce income after his termination. The district court granted Fonda's motion for partial summary judgment, holding that New York's statute of frauds applied and served to bar Rosenthal's oral contract claim unless Fonda was equitably estopped from asserting the statute as a defense. After a bench trial on the equitable estoppel issue, the district court granted Fonda's motion for a directed verdict, ruling that she was not equitably estopped from asserting the defense.[1] Accordingly, the court entered judgment for Fonda.

    16
    DISCUSSION
    17

    We have jurisdiction pursuant to 28 U.S.C. § 1291. Rosenthal appeals the district court's grant of summary judgment in favor of Fonda, thus, we review the court's decision de novo. KL Group v. Case, Kay & Lynch, 829 F.2d 909, 914 (9th Cir.1987). See also Ledesma v. Jack Stewart Produce, Inc., 816 F.2d 482, 484 (9th Cir.1987) (district court's conflict of law determination is reviewed de novo). Rosenthal contends that the district court should have applied California, not New York, law to resolve this dispute. The district court correctly recognized that a federal court sitting in diversity must apply the conflict of law rules of the forum. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). This case comes from the United States District Court for the Central District of California; therefore, California's conflict of law rules apply to determine whether California or New York law should properly control this case. California utilizes the "governmental interest" analysis in deciding conflicts of law. See Liew v. Official Receiver and Liquidator, 685 F.2d 1192, 1195-96 (9th Cir.1982).

    18

    The application of California's governmental interest analysis requires three steps. Liew, 685 F.2d at 1196. First, the substantive law of each state must be examined to assure that the laws differ as applied to this transaction. Second, if the laws do differ, the court must determine whether a "true conflict" exists in that both New York and California have an interest in having its law applied. Finally, if a true conflict exists, the court must determine which state's interest would be more impaired if its policy were subordinated to the policy of the other. Id. The conflict is resolved by applying the law of the state whose interest would be most impaired if its law were not applied. Id.

    19
    I. Do The Laws of the Two States Differ?
    20

    The principal issue in this dispute is whether Rosenthal's breach of oral contract claim is barred under the statute of frauds provision that requires that all contracts not to be performed within one year be in writing. Textually, the relevant New York and California provisions of the statute of frauds are essentially identical. New York's statute of frauds provides that "[e]very agreement, promise or undertaking is void or unenforceable unless it or some note or memorandum thereof be in writing and subscribed by the party to be charged therewith, or his agent, if such agreement, promise or undertaking, by its terms is not to be performed within one year from making thereof ..." N.Y.Gen.Oblig.Law § 5-701. Similarly, California's statute provides that "[t]he following contracts [1401] are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent: 1. An agreement that by its terms is not to be performed within a year from the making thereof ..." Cal.Civ.Code § 1624.1.

    21

    The district court found that while these two provisions are facially identical, they are interpreted differently. The court correctly determined that in California, Rosenthal's employment contract with Fonda, terminable at the will of either party, would fall outside the bar of the state's statute of frauds because it is capable of being performed within a year. See Eisenberg v. Insurance Company of North America, 815 F.2d 1285, 1291 (9th Cir.1987). California's one year provision is interpreted literally and narrowly. Plumlee v. Poag, 150 Cal.App.3d 541, 198 Cal.Rptr. 66, 71 (1984). Only those oral contracts which "expressly preclude performance within one year" or that "cannot possibly be performed within one year" are unenforceable. Id.; White Lighting Co. v. Wolfson, 68 Cal.2d 336, 66 Cal.Rptr. 697, 701, 438 P.2d 345, 349 (1968); see Robards v. Gaylord Brothers, Inc., 854 F.2d 1152 (9th Cir.1988). In this case, Fonda could have discharged Rosenthal after he had worked for her for six months; therefore, this contract was capable of being performed within one year. Moreover, California's statute of frauds does not invalidate oral employment contracts that call for the payment of commissions after one year or upon termination of the employment relationship. White Lighting, 66 Cal.Rptr. at 701-02, 438 P.2d at 349-50. Thus, Rosenthal's oral contract with Fonda would not be barred under California's statute of frauds.

    22

    In New York, however, while a typical employment contract with no fixed term is not barred by the statute of frauds, Fisher v. Ken Carter Industries, Inc., 127 A.D.2d 817, 512 N.Y.S.2d 408, 409 (1987), a commission sales arrangement that extends beyond the employee's termination or that has no specific time frame has repeatedly been held to be one that cannot be performed within one year. See Zupan v. Blumberg, 2 N.Y.2d 547, 161 N.Y.S.2d 428, 429, 141 N.E.2d 819, 822 (1957); Urvant v. Imco Poultry, Inc., 325 F.Supp. 677, 683-85 (E.D.N.Y.1970), aff'd, 440 F.2d 1355 (2d Cir.1971) (summarizing New York case law applying the one year provision to continuing commission arrangements). The New York rule was enunciated in McCollester v. Chisholm, 104 A.D.2d 361, 478 N.Y.S.2d 691 (1984), aff'd, 65 N.Y.2d 891, 493 N.Y.S.2d 310, 482 N.E.2d 1226 (1985):

    23
    A service contract of indefinite duration, in which one party agrees to procure customers, or accounts, or orders on behalf of the second party, is not by its terms performable within one year — and hence must be in writing and signed by the party to be charged — since performance is dependent, not upon the will of the parties to the contract, but on that of a third party.
    24

    Id. at 692.

    25

    The key element in deciding whether New York's statute of frauds applies to bar a commission sales agreement is whether the defendant can unilaterally terminate the contract, discharging all promises made to the plaintiff including the promise to make commission payments. See North Shore Bottling Co. v. C. Schmidt & Sons, Inc., 22 N.Y.2d 171, 292 N.Y.S.2d 86, 90, 239 N.E.2d 189, 191 (1968). If commission payments are due under the contract after one party has fully performed, the contract, by its own terms, cannot be performed within a year because there is no way the defendant can unilaterally terminate the contract. See Shirley Polykoff Advertising, Inc. v. Houbigant, Inc., 43 N.Y.2d 921, 403 N.Y.S.2d 732, 733, 374 N.E.2d 625, 626 (1978) (contract providing that advertising agency receive $5,000 a year for every year the advertisement is used cannot be performed within one year). See also Urvant, 325 F.Supp. at 685-86 (Under New York law, the statute of frauds is applicable "where nothing in the commission contract contemplates its fulfillment within a year and no term or event controlled by the parties will bring the contract to an end with its promises discharged.").

    26

    [1402] In the present case, Rosenthal contends that Fonda promised him a percentage fee every time a project initiated during his tenure generated income. Fonda could not unilaterally terminate this contract once Rosenthal performed because she would continue to owe Rosenthal money under the contract for as long as his projects generated income. Moreover, Fonda's liability to perform under the contract and make commission payments to Rosenthal is dependent not upon her will, but upon the will of others who may elect, for example, to exhibit her works. This contract, therefore, would be barred under New York's statute of frauds as one that by its own terms could not be performed within a year.

    27
    II. Does A "True Conflict" Exist?
    28

    Because the substantive law of California and that of New York differ when applied to this oral contract, we must next determine whether both New York and California have an interest in having their own law applied. Liew, 685 F.2d at 1196. If only one state has a legitimate interest in the application of its law, there is no real problem; the law of the interested state should control. Hill v. Hill, 193 Cal.App.3d 1118, 238 Cal.Rptr. 745, 748 (1987).

    29

    California, as the forum state, has an interest in having its law applied to this case. See Hill, 238 Cal.Rptr. at 749. "Generally, the preference is to apply California law, rather than choose the foreign law as a rule of decision." Strassberg v. New England Mut. Life Ins. Co., 575 F.2d 1262, 1264 (9th Cir.1978). As the forum, a California court will conclude that a conflict is "false" and apply its own law unless the application of the foreign law will "significantly advance the interests of the foreign state." Id. See also S.A. Empresa de Viacao Aerea Rio Grandense v. Boeing Co., 641 F.2d 746, 749 (9th Cir.1981). California presumably also has an interest in the enforcement of oral contracts involving one of its domiciliaries, although it may be questioned whether it is interested in applying its rule to protect a domiciliary of New York when New York would not protect him.

    30

    New York can be said to have an interest if the policies underlying its statute of frauds would be advanced when the law is applied to this transaction. See Fleury v. Harper & Row, Publishers, Inc., 698 F.2d 1022, 1025 (9th Cir.), cert. denied, 464 U.S. 846, 104 S.Ct. 149, 78 L.Ed.2d 139 (1983). The district court correctly found that New York's statute of frauds is meant to protect not only the state's residents, but also nonresidents who employ New York agents. See e.g., Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 300 N.Y.S.2d 817, 826, 248 N.E.2d 576, 582 (1969) (construing policy behind provision of New York's statute of frauds requiring that finder's fee agreements be in writing). In O'Keeffe v. Bry, 456 F.Supp. 822 (S.D.N.Y.1978), the court found that Georgia O'Keeffe, a New Mexico resident who had employed the services of a New York agent, had brought her business to New York and was thus entitled to the protections of New York's statute of frauds. Id. at 828. See also Haydu v. Hospital For Joint Diseases Orthopaedic Institute, 557 F.Supp. 577, 580 (S.D.N.Y.1983) (New York is interested in protecting nonresidents to create a stable financial center that will attract out-of-state business). Thus, New York has an expressed interest in extending the protections of its statute of frauds to nonresidents, like Fonda, who choose to employ or do business with New York residents.

    31

    In addition, New York has sufficient contacts with this transaction to justify a significant interest in having its own law applied. See Robert McMullan & Son, Inc. v. U.S. Fidelity & Guaranty Co., 103 Cal.App.3d 198, 162 Cal.Rptr. 720, 723 (1980)" `[w]ith the governmental interest approach, "relevant contacts"... are not disregarded, but are examined in connection with the analysis of the interest of the involved state in the issues....'" (quoting Dixon Mobile Homes, Inc. v. Walters, 48 Cal.App.3d 964, 972, 122 Cal.Rptr. 202, 207-08 (1975)). Rosenthal was a New York resident, licensed to practice law only in New York, at the time he entered into the contract with Fonda. In addition, he performed [1403] many years of service under the contract from his New York office; it was not until 1978 that Rosenthal became licensed to practice law in California and moved to Los Angeles. Even after he moved, Rosenthal maintained a home and office in New York. These contacts with New York serve to support New York's interest in having its own law apply to govern this transaction. Thus, both California and New York have a legitimate interest in having their own law apply to this case.

    32
    III. The "Comparative Impairment" Analysis.
    33

    Under the third step in California's governmental interest analysis, the conflict between New York and California law must be resolved by applying the law of the state whose interest would be most impaired if its law were not applied. Liew, 685 F.2d at 1196. The district court held that New York's stricter statute of frauds should be applied because New York has an interest in protecting more people than California and California's interest would not be frustrated by the application of New York law.

    34

    New York courts have made it clear that New York has a strong interest in protecting out-of-state residents, even while making it easier to prove liability against its own residents, in order to encourage the national use of New York services. See O'Keeffe, 456 F.Supp. at 828.

    35

    It is true that California has some interest in applying the one year provision of the statute of frauds very narrowly to promote the enforceability of otherwise valid oral contracts. See Plumlee, 198 Cal.Rptr. at 71. It is also true that one of the parties to the oral agreement is a domiciliary of California. Nevertheless, California does not have a strong interest in applying its policy against its domiciliary in order to protect a New York plaintiff that New York has no interest in protecting.[2]

    36

    In addition, the parties' reasonable expectations were probably that New York law would apply to their contract. See Roesgen v. American Home Products Corp., 719 F.2d 319, 321 (9th Cir.1983) (California forum will not apply California law when the facts indicate that the parties' only reasonable expectations were that the law of a foreign state would apply). Fonda sought out a New York law firm to represent her interests and Rosenthal was a New York resident, licensed to practice law in New York, when he entered into this agreement. The contract was "substantially performed" by Rosenthal from his New York office. See id. Rosenthal entered into the oral agreement with Fonda in April, 1972 and carried out his services from New York until 1978, when he moved to Los Angeles. Fonda terminated his services approximately two years later. Thus, the bulk of their agreement was performed by Rosenthal in New York. These facts indicate that the parties would have reasonably expected New York law to govern their agreement. Thus, the district court correctly concluded that New York's policies would be most impaired if its law were not applied.

    37
    CONCLUSION
    38

    Under California's three step governmental interest test, the relevant statute of frauds provisions in California and New York produce different results when applied to this transaction, each state has an interest in having its own law applied, and New York's interest would be most impaired if its policies were subordinated to California's policies. Thus, the district court correctly determined that New York's law should govern this dispute. Rosenthal's oral fee agreement with Fonda would be barred under New York's statute of frauds as an agreement that cannot, by its own terms, be performed within one year. Accordingly, the district court's [1404] grant of summary judgment in favor of Fonda is AFFIRMED.

    39

    ----------

    40

    [1] Rosenthal does not appeal the district court's ruling on the question of estoppel.

    41

    [2] We note that under recent legislation, California now requires certain attorney-client contracts to be in writing. See Cal.Bus. & Prof.Code § 6147 (West Supp.1988) (oral contingency fee contract voidable at option of plaintiff; attorney may recover only a reasonable fee); id. at § 6148 (contract for attorney's services must be in writing in any case in which it is reasonably foreseeable that total expenses to client, including attorney's fees, will exceed $1,000).

  • 8 Denny v. American Tobacco Company

    1
    308 F.Supp. 219 (1970)
    2
    Frank P. DENNY, Plaintiff,
    v.
    The AMERICAN TOBACCO COMPANY and Sunshine Biscuits, Inc., Defendants.
    3
    No. 51305.
    4

    United States District Court N. D. California.

    5
    January 14, 1970.
    6

    [220] Owen M. Panner, of McKay, Panner, Johnson, Marceau & Karnopp, Bend, Or., and W. Edmund Parent, II, Santa Barbara, Cal., for plaintiff.

    7

    Pillsbury, Madison & Sutro, San Francisco, Cal., for defendants, with James Michael, George A. Sears, Robert M. Westberg and Gary H. Anderson, San Francisco, Cal., appearing.

    8
    [221] ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
    9
    WOLLENBERG, District Judge.
    10

    This is a diversity suit brought by a California plaintiff against the American Tobacco Company, a New Jersey corporation, and Sunshine Biscuits, Inc., which is incorporated under the laws of the State of Delaware. Sunshine is a wholly owned subsidiary of American; both companies are headquartered and have their principal place of business in New York.

    11

    Plaintiff's claim arises from a letter, dated June 8, 1967, which he sent to Mr. R. H. Schust, Vice-President in charge of sales for Sunshine. The letter informed Sunshine that Bell Brand Foods, a California-based snack-food company, "might be for sale `if the right people come along'". Plaintiff added that he would fill in the details if Sunshine so desired, and that Sunshine should give him a call if it were indeed interested in pursuing the matter. No answer was sent to this letter; nor was any call ever made to plaintiff relating to the information therein. Sunshine did, however, acquire Bell in December, 1968, and it is plaintiff's contention that his services were the procuring cause of this acquisition, and that he is entitled to recovery quantum meruit. Defendants move for summary judgment on alternate grounds: first, that the action is barred by the New York Statute of Frauds; and, second, that there is no genuine issue as to any material fact. Since the court finds the Frauds point to be well taken, it does not reach the second ground of the motion.

    12

    There seems to be little contest that the New York Statute of Frauds prohibits recovery of a "finder's fee" in connection with a corporate acquisition, absent a writing signed by the party against whom the fee is claimed. New York General Obligations Law, McKinney's Consol.Laws, c. 24-a, § 5-701 (10). Nor is it denied that this law has been applied by the New York courts to bar recovery, quantum meruit, such as is demanded herein. Minichiello v. Royal Business Funds Corporation, 18 N.Y.2d 521, 277 N.Y.S.2d 268, 223 N.E.2d 793, 795, 24 A.L.R.3d 1154 (1966); cert. den. 389 U.S. 820, 88 S.Ct. 41, 19 L.Ed.2d 72 (1967). What is very much in question, however, is whether it is New York's law which is to be applied to the facts of this case.

    13

    In diversity cases, the federal courts are to apply the substantive law of the states. The Statute of Frauds, having as it does a definite bearing upon the outcome of a case such as this, is considered "substantive" for the purpose of this rule. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Byrd v. Blue Ridge Rural Electric Co., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958); Stahlman v. National Lead Co., 5 Cir., 318 F.2d 388 (1963).

    14

    It is not always clear, however, which state's version of the Statute of Frauds is to be applied in a given situation, and when a federal court sitting in a diversity case finds itself faced with an apparent conflict between the relevant laws of two or more states, it must resolve the conflict in accord with the conflict of laws principles developed by the courts of the state in which it sits. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). This court must, for example, refer itself to the conflicts principles developed by the courts of California, and when it does so, it finds the rules offered by the parties herein to be inappropriate.

    15

    Both parties cite Van Rensselaer v. General Motors Corporation, D.C., 223 F.Supp. 323 (1962), which in turn relies upon the philosophy of the first Restatement, Conflict of Laws (1934). Defendant, pointing out that any "acceptance" of plaintiff's proferred information would have occurred in New York, relies on the ancient rule that the "place of acceptance" generally determines the law applicable to a contract. Plaintiff in turn claims that the crucial point is that [222] the benefit of his information was received in California, and that this state is in effect the "place of performance" of the implied obligation herein.[1] Restatement I, Conflict of Laws, §§ 452-453.

    16

    California law, however, has for some time left behind the principles of the first Restatement, and, in contract actions such as this, asks first whether the alleged agreement has "substantial contacts" with more than one state, and whether, given such multi-state contacts, the legitimate governmental interests of one state are more crucially involved than are the interests of other states involved. Bernkrant v. Fowler, 55 Cal.2d 588, 12 Cal.Rptr. 266, 360 P.2d 906 (1961); People v. One 1953 Ford Victoria, 48 Cal.2d 595, 311 P.2d 480 (1957).

    17

    The approach taken by the California court in Bernkrant, cit. supra, has attracted considerable attention from both scholars and jurists. See, for example, Cramton and Currie, Conflict of Laws, pp. 302ff. (1968); Note, 49 Calif. L. Rev. 963 (1961); Ideal Structures Corp. v. Levine Huntsville Development Corp., 5 Cir., 396 F.2d 917 (1968); Lester v. Aetna Life Insurance Co., D.C., 295 F.Supp. 1208 (1968). It marked a clean break with the first Restatement, and a considerable departure from the "center of gravity" approach of the second Restatement, Conflict of Laws (1956-68). This Court, therefore, in considering the applicability to a transaction of two versions of the Statute of Frauds, must not only consider the "contacts" between New York, California, and the transaction, but must also ask itself whether application of the varying statutes involved to the facts of the case at hand will further the legitimate policy interests of the states. Only if two or more states are found to have their policies at stake is there said to be a "true conflict", in which case the policy of the forum, at least in theory, will prevail. See Traynor, Is This Conflict Really Necessary? in 37 Texas L.Rev. 657 (1959).

    18

    Turning then to the case at bar, we find it clear that the relationship sued on here involved both New York and California to a substantial degree. Plaintiff's letter was sent to New York, and invited a response which could be reasonably expected to emanate from New York. The "use" allegedly made of plaintiff's information took the form of negotiations in both New York and California, and a final acquisition agreement which was made subject to New York law. The "subject matter" of the negotiations was, of course, a corporation which had its principal place of business in California. A practitioner of the second Restatement would be hard put to say which of these states had "the most significant relationship" with the "contract" involved herein.

    19

    At first glance, it might also appear that both states have an interest in applying their own versions of the Statute of Frauds. New York's interest is clear, and was spelled out in Minichiello v. Royal Business Funds Corp., cit. supra:

    20
    "The Legislature amended subdivision 10 to clearly apply the section to finders and to preclude any recovery in quantum meruit. * * * The nature of the transactions is such that, in the absence of the requirement of a writing, unfounded and multiple claims for commissions are frequently asserted * * * to allow recovery for the reasonable value of these services is to substantially defeat the writing requirement." Id., 277 N.Y. S.2d at 271, 223 N.E.2d at 795.
    21

    Protection from unfounded claims is, then, the general policy behind this Statute of Frauds. Defendants, as corporate "residents" of New York, with their principal place of business in that state, had a right to rely on the Statute, and, in fact, the record indicates that their [223] reasonable expectation was that no finders fee would be payable in connection with their purchase of Bell Brand Foods.[2]

    22

    California's interest in a contract valid under its Statute of Frauds, though invalid under the Statute of a foreign state, is primarily in upholding the reasonable expectations of its residents who are parties to agreements that would be valid and enforceable absent any Frauds restriction. Bernkrant v. Fowler, cit., 55 Cal.2d at p. 594, 12 Cal.Rptr. 266, 360 P.2d 906. We do not find that interest to be at stake here. Plaintiff was indeed a resident of California when he wrote to defendants. But plaintiff, whose sagacity and business acumen the record makes clear, sent information to a New York corporation, and himself specified that the corporation should answer — from New York — only if it were interested in pursuing the matter. Plaintiff has called this letter "just another shot in the dark" and indeed it was. On one hand, as an astute businessman, he could well be said to have been on notice that any dealings he had with defendants would be subject to New York law. On the other hand, and more importantly from the standpoint of Bernkrant, there was no clear contract, oral or written, between the parties herein. In Bernkrant, the oral contract between the parties, and performance by the plaintiffs, was clear. The agreement took place in Nevada, whose Statute of Frauds did not apply; hence the expectations of both parties were that they would be bound. This is not the case here: a letter/offer was sent to a corporation headquartered in a state whose law barred finders' fees without written agreement. No reply to the letter was sent or received, though the offer had provided that acceptance should be indicated by some sort of communication. Plaintiff, upon these undisputed facts, could not have had the kind of expectations of which the Court was so solicitous in Bernkrant and analogous cases.[3]

    23

    In short, we find that under several alternative conflicts theories, New York's law could, and probably would be applied by the courts of California. Under the "center of gravity" approach, taken by the second Restatement, New York might well be said to have the most significant contacts with the transaction here: the offer was sent to New York, invited a New York acceptance, and the benefits allegedly derived from the offer accrued at least as much in New York as in California. Secondly, insofar as these parties, all with relatively equal bargaining power, could be said to have chosen any state's law as applicable to their dealings, that law would be the law of New York. Finally, taking the "interest analysis" approach endorsed by Justice Traynor, it seems that New York's interest is clear in protecting its residents from just the sort of claim as is involved here. California's interest in protecting the reasonable expectations of its residents is, however, much less apparent. Whether [224] it be said that there is no "true conflict" or simply that California's legislature did not intend its policy to reach cases like this, the effect is the same, and New York's law is applicable.

    24

    Accordingly, defendants' motion for summary judgment is hereby granted.

    25

    ---------

    26

    [1] California's Statute of Frauds does not appear to bar recovery of a "finder's fee" in an action quantum meruit.

    27

    [2] Affidavit of James L. Bauchat, Member, Board of Directors, and President (1968-69) of Sunshine Biscuits, Inc.

    28

    [3] The issues raised herein are obviously far from resolved, either by scholars or by judges. One noteworthy approach, for example, would seem at first blush to run counter to the analysis herein. Professor Ehrenzweig has argued that the "true rule" behind conflicts decisions dealing with the Statute of Frauds is that the validity of contracts will be upheld whenever possible. See Ehrenzweig, The Statute of Frauds in the Conflict of Laws: Basic Rule of Validation, 59 Columbia L. Rev. 874 (1959). However, the applicability of the rule of validation depends upon the maxim that "contracting parties intend to be bound by their obligations". Id. at 874. Thus the court, if convinced that there was indeed an agreement, untainted by fraud or perjury, will have "no sympathy for a party whose only excuse for repudiation is lack of a statutory formality". Id. at 876. The Court's attitude might well be different if both parties admit that there was no acceptance of an unsolicited offer, and where the undisputed evidence is that the defendant reasonably assumed that there was no contract between it and plaintiff.

You've reached the bottom of your content preview.
To view the rest in your browser, click here.
To export the complete content in DOC format, click the blue export button in the upper right corner of this page.

(Note: If you view the entire playlist, any changes you've made to export settings will be lost. Large playlists may temporarily freeze your browser while loading, as well.)