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Michael Greve directs the Federalism Project and the Liability Reform Project at the American Enterprise Institute. April proved to be the cruelest of constitutional moments. The U.S. Supreme Court issued two inconsistent decisions on state court liability rulings. To compound the confusion, both cases probably reached the right result-but on preposterous grounds. Justice Anthony M. Kennedy’s much-noted opinion for a 6-3 majority in State Farm v. Campbell, setting aside a $145 million punitive damages ruling by the Utah Supreme Court, observed that the conduct for which State Farm was punished occurred mostly outside Utah and, moreover, was lawful in many of those jurisdictions. Unless extraterritorial conduct has a nexus to the specific harm suffered by the plaintiff, Kennedy averred, juries and state courts may not consider it in assessing punitive damages. Relying on the previous decision in BMW v. Gore (1996), he read the due process clause as barring states from regulating and punishing conduct outside their own jurisdictions. Two weeks later, in the wholly unnoted California Franchise Tax Board v. Hyatt, the court upheld a Nevada citizen’s right to sue a California state agency for intentional torts-in a Nevada state court, under Nevada law and in derogation of California’s statutory immunity laws (which bar intentional tort claims against state agencies). Writing for a unanimous court, Justice Sandra Day O’Connor proclaimed that state courts need not credit a sister state’s public enactments-not even those that protect a state’s core sovereign functions. Hyatt makes no mention of State Farm, though they both deal with the extraterritorial reach of state court verdicts. The strange disjunction shows that the constitutional dimension of state court jurisdiction eludes the justices’ consideration, let alone their comprehension. While the State Farm court was entirely right to worry about extraterritoriality, that problem is hardly limited to punitive damages. Suppose a state jury awards substantial compensatory damages for an injury resulting from a product design: The manufacturer will either modify the “defective” design or, when that is impossible (as with pharmaceutical drugs), yank the product off the market. Either way, the award effectively punishes conduct that is legal in other states. Either way, it vitiates sister states’ policy choices to keep the unmodified product legal and available. In fact, extraterritoriality problems arise from our unconstitutional choice-of-law regime, under which defendants may be sued in any state where they have minimum contacts. Plaintiffs choose the most favorable forum court, which then chooses to apply its home state law-regardless of, or even against, the defendant’s home-state law. This leaves manufacturers at the mercy of all states’ laws. There would be no extraterritoriality and no liability crisis if consumers and sellers could choose their forum and law by contract. (Consumers could purchase a Jeep with Michigan liability protections or else-for a higher price-one with Mississippi protections.) Unfortunately, however, choice of law clauses in consumer contracts are generally unenforcable. At present, defendants’ home-state law-including liability limitations-has no purchase in the plaintiff’s home court. The U.S. Constitution unequivocally commands states to give “full faith and credit” to a sister state’s laws. Prior to 1937, the Supreme Court enforced that command. The modern court, however, has consistently pooh-poohed the full faith and credit clause as a constitutional constraint on state courts’ choice of law. In Hyatt, the court buried the clause. California had committed the alleged torts in Nevada, against a Nevada citizen-which fully justifies the application of Nevada law. Eschewing that obvious territorial rationale, O’Connor ringingly declared that state courts may give full faith and credit by giving zero credit to sister-state law. Otherwise, the court would have to “balance” competing state interests to resolve conflicts of laws, “with no rudder to steer” it. A simple territoriality rule would solve Hyatt and countless conflicts cases like it, sans rudder. But even a balancing test would be a model of predictability and legitimacy compared to State Farm’s substantive due process fabrication -corporate America’s very own trimester solution. The State Farm dissenters (Antonin Scalia, Clarence Thomas and Ruth Bader Ginsburg) deny that extraterritorial state court jurisdiction is a constitutional problem. The other justices deal with the problem when it seems to get out of hand (as with punitives), not by going back to the constitutional text and logic, but by making up due process ratios. Both camps are irresponsible in their own fashion. But in their contempt for the written Constitution, they are unanimous.

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