Development of the Modern Rule

Although the language of section one suggests that the same respect should be accorded to “public acts” that is accorded to “judicial proceedings” (“full faith and credit shall be given in each State to the public acts, records, and judicial proceedings of every other State”), and the Court has occasionally relied on this parity of treatment,105 the Court has usually differentiated “the credit owed to laws (legislative measures and common law) and to judgments.”106 The current understanding is that the Full Faith and Credit Clause is “exacting” with respect to final judgments of courts, but “is less demanding with respect to choice of laws.”107

The Court has explained that, where a statute or policy of the forum state is set up as a defense to a suit brought under the statute of another state or territory, or where a foreign statute is set up as a defense to a suit or proceedings under a local statute, the conflict is to be resolved, not by giving automatic effect to the Full Faith and Credit Clause and thus compelling courts of each state to subordinate their own statutes to those of others, but by weighing the governmental interests of each jurisdiction.108 That is, the Full Faith and Credit Clause, in its design to transform the states from independent sovereigns into a single unified nation, directs that a state, when acting as the forum for litigation having multistate aspects or implications, respect the legitimate interests of other states and avoid infringement upon their sovereignty. But because the forum state is also a sovereign in its own right, in appropriate cases it may attach paramount importance to its own legitimate interests.109

As such, a state need not “substitute for its own statute, applicable to persons and events within it, the statute of another state reflecting a conflicting and opposed policy,” so long as the state does not adopt a “policy of hostility to the” public acts of that other state in so doing.110 In recent years, the Court has, in protracted litigation by a Nevada citizen in a Nevada court over alleged abusive practices by a California state agency, twice interpreted the “policy of hostility” standard.111 In 2003, in Franchise Tax Board of California v. Hyatt, the Supreme Court held that the Nevada Supreme Court did not exhibit “hostility” in declining to apply a California law affording complete immunity to state agencies, because the state high court had, in considering “comity principles with a healthy regard for California’s sovereign status,” legitimately relied on “the contours of Nevada’s own sovereign immunity from suit as a benchmark for its analysis.”112 Thirteen years later, after the case had been remanded and the Nevada Supreme Court had crafted a “special rule” for damages in the matter wherein the California state agency could not rely on the Nevada sovereign immunity statute limiting liability to $50,000, the Supreme Court reviewed whether the Nevada court’s ruling conflicted with the Full Faith and Credit Clause.113 In contrast to the 2003 ruling, the 2016 ruling held that the Nevada Supreme Court had acted in violation of the Full Faith and Credit Clause. Specifically, the High Court concluded that upholding the Nevada Supreme Court’s “special rule”—which was supported by a “conclusory statement” respecting California’s lack of oversight of its own agencies and was viewed by the Court as reflecting a “policy of hostility to the public Acts’ of a sister State”— would allow for a “system of special and discriminatory rules” that conflicted with the Constitution’s “vision of 50 individual and equally dignified States.”114 While the Franchise Tax Board litigation demonstrates that the “policy of hostility” standard still exists as a threshold inquiry into whether a state is providing full faith and credit to the public acts of a sister state, ordinarily a state has significant discretion in applying their own choice of law provisions in matters arising in that state’s courts, and the Court will not engage in any broad “balancing-of-interests” approach to determine the appropriate application of a given state law.115

Transitory Actions: Death Statutes.

The initial effort in this direction was made in connection with transitory actions based on statute. Earlier, such actions had rested upon the common law, which was fairly uniform throughout the states, so that there was usually little discrepancy between the law under which the plaintiff from another jurisdiction brought his action (lex loci) and the law under which the defendant responded (lex fori). In the late 1870s, however, the states, abandoning the common law rule on the subject, began passing laws that authorized the representatives of a decedent whose death had resulted from injury to bring an action for damages.116 The question at once presented itself whether, if such an action was brought in a state other than that in which the injury occurred, it was governed by the statute under which it arose or by the law of the forum state, which might be less favorable to the defendant. Nor was it long before the same question presented itself with respect to transitory action ex contractu, where the contract involved had been made under laws peculiar to the state where made, and with those laws in view.

Actions Upon Contract.

In Chicago & Alton R.R. v. Wiggins Ferry Co.,117 the Court indicated that it was the law under which the contract was made, not the law of the forum state, that should govern. Its utterance on the point was, however, not merely dictum, but was based on an error, namely, the false supposition that the Constitution gives “acts” the same extraterritorial operation as the Act of 1790 does “judicial records and proceedings.” Notwithstanding which, this dictum is today the basis of “the settled rule” that the defendant in a transitory action is entitled to all the benefits resulting from whatever material restrictions the statute under which plaintiff ’s rights of action originated sets thereto, except that courts of sister states cannot be thus prevented from taking jurisdiction in such cases.118

However, the modern doctrine permits a forum state with sufficient contacts with the parties or the matter in dispute to follow its own law. In Allstate Ins. Co. v. Hague,119 the decedent was a Wisconsin resident who had died in an automobile accident within Wisconsin near the Minnesota border in the course of his daily employment commute to Wisconsin. He had three automobile insurance policies on three automobiles, each limited to $15,000. Following his death, his widow and personal representative moved to Minnesota, and she sued in that state. She sought to apply Minnesota law, under which she could “stack” or aggregate all three policies, permissible under Minnesota law but not allowed under Wisconsin law, where the insurance contracts had been made. The Court, in a divided opinion, permitted resort to Minnesota law, because of the number of contacts the state had with the matter. On the other hand, an earlier decision is in considerable conflict with Hague. There, a life insurance policy was executed in New York, on a New York insured, with a New York beneficiary. The insured died in New York, and his beneficiary moved to Georgia and sued to recover on the policy. The insurance company defended on the ground that the insured, in the application for the policy, had made materially false statements that rendered it void under New York law. The defense was good under New York law, impermissible under Georgia law, and Georgia’s decision to apply its own law was overturned, the Court stressing the surprise to the parties of the resort to the law of another state and the absence of any occurrence in Georgia to which its law could apply.120

Stockholder Corporation Relationship.

The protections of the Full Faith and Credit Clause extend beyond transitory actions. Some legal relationships are so complex, the Court holds, that the law under which they were formed ought always to govern them as long as they persist.121 One such relationship is that of a stockholder and his corporation. Hence, if a question arises as to the liability of the stockholders of a corporation, the courts of the forum state are required by the Full Faith and Credit Clause to determine the question in accordance with the constitution, laws and judicial decisions of the corporation’s home states.122 Illustrative applications of the latter rule are to be found in the following cases. A New Jersey statute forbidding an action at law to enforce a stockholder’s liability arising under the laws of another state and providing that such liability may be enforced only in equity, and that in such a case the corporation, its legal representatives, all its creditors, and stockholders, should be necessary parties, was held not to preclude an action at law in New Jersey by the New York superintendent of banks against 557 New Jersey stockholders in an insolvent New York bank to recover assessments made under the laws of New York.123 Also, in a suit to enforce double liability, brought in Rhode Island against a stockholder in a Kansas trust company, the courts of Rhode Island were held to be obligated to extend recognition to the statutes and court decisions of Kansas whereunder it is established that a Kansas judgment recovered by a creditor against the trust company is not only conclusive as to the liability of the corporation but also an adjudication binding each stockholder therein. The only defenses available to the stockholder are those which he could make in a suit in Kansas.124

Fraternal Benefit Society: Member Relationship.

The same principle applies to the relationship that is formed when one takes out a policy in a “fraternal benefit society.” Thus, in Royal Arcanum v. Green,125 in which a fraternal insurance association chartered under the laws of Massachusetts had been sued in the courts of New York by a citizen of the latter state on a contract of insurance made in that state, the Court held that the defendant company was entitled under the full faith and credit clause to have the case determined in accordance with the laws of Massachusetts and its own constitution and by-laws as these had been construed by the Massachusetts courts.

Nor has the Court manifested any disposition to depart from this rule. In Sovereign Camp v. Bolin,126 it declared that a state in which a certificate of life membership of a foreign fraternal benefit association is issued, which construes and enforces the certificate according to its own law rather than according to the law of the state in which the association is domiciled, denies full faith and credit to the association’s charter embodied in the status of the domiciliary state as interpreted by the latter’s court. “The beneficiary certificate was not a mere contract to be construed and enforced according to the laws of the State where it was delivered. Entry into membership of an incorporated beneficiary society is more than a contract; it is entering into a complex and abiding relation and the rights of membership are governed by the law of the State of incorporation. [Hence] another State, wherein the certificate of membership was issued, cannot attach to membership rights against the society which are refused by the law of domicile.” Consistent with that, the Court also held, in Order of Travelers v. Wolfe,127 that South Dakota, in a suit brought therein by an Ohio citizen against an Ohio benefit society, must give effect to a provision of the constitution of the society prohibiting the bringing of an action on a claim more than six months after disallowance by the society, notwithstanding that South Dakota’s period of limitation was six years and that its own statutes voided contract stipulations limiting the time within which rights may be enforced. Objecting to these results, Justice Black dissented on the ground that fraternal insurance companies are not entitled, either by the language of the Constitution, or by the nature of their enterprise, to such unique constitutional protection.

Insurance Company, Building and Loan Association: Contractual Relationships.

Whether or not distinguishable by na- ture of their enterprise, stock and mutual insurance companies and mutual building and loan associations, unlike fraternal benefit societies, have not been accorded the same unique constitutional protection; with few exceptions,128 they have had controversies arising out of their business relationships settled by application of the law of the forum state. In National Mutual B. & L. Ass’n v. Brahan,129 the principle applicable to these three forms of business organizations was stated as follows: where a corporation has become localized in a state and has accepted the laws of the state as a condition of doing business there, it cannot abrogate those laws by attempting to make contract stipulations, and there is no violation of the Full Faith and Credit Clause in instructing a jury to find according to local law notwithstanding a clause in a contract that it should be construed according to the laws of another state.

Thus, the Court held in Brahan, when a Mississippi borrower, having repaid a mortgage loan to a New York building and loan association, sued in a Mississippi court to recover, as usurious, certain charges collected by the association, the usury law of Mississippi rather than that of New York controlled. In this case, the loan contract, which was negotiated in Mississippi subject to approval by the New York office, did not expressly state that it was governed by New York law. Similarly, when the New York Life Insurance Company, which had expressly stated in its application and policy forms that they would be controlled by New York law, was sued in Missouri on a policy sold to a resident thereof, the court of that state was sustained in its application of Missouri, rather than New York law.130 Also, in an action in a federal court in Texas to collect the amount of a life insurance policy which had been made in New York and later changed by instruments assigning beneficial interest, it was held that questions (1) whether the contract remained one governed by the law of New York with respect to rights of assignees, rather than by the law of Texas, (2) whether the public policy of Texas permits recovery by one named beneficiary who has no beneficial interest in the life of the insured, and (3) whether lack of insurable interest becomes material when the insurer acknowledges liability and pays the money into court, were questions of Texas law, to be decided according to Texas decisions.131 Similarly, a state, by reason of its potential obligation to care for dependents of persons injured or killed within its limits, is conceded to have a substantial interest in insurance policies, wherever issued, which may afford compensation for such losses; accordingly, it is competent, by its own direct action statute, to grant the injured party a direct cause of action against the insurer of the tortfeasor, and to refuse to enforce the law of the state, in which the policy is issued or delivered, which recognizes as binding a policy stipulation which forbids direct actions until after the determination of the liability of the insured tortfeasor.132

Consistent with the latter holding are the following two involving mutual insurance companies. In Pink v. A.A.A. Highway Express,133 the New York insurance commissioner, as a statutory liquidator of an insolvent auto mutual company organized in New York, sued resident Georgia policyholders in a Georgia court to recover assessments alleged to be due by virtue of their membership in it. The Supreme Court held that, although by the law of the state of incorporation, policyholders of a mutual insurance company become members thereof and as such liable to pay assessments adjudged to be required in liquidation proceedings in that state, the courts of another state are not required to enforce such liability against local resident policyholders who did not appear and were not personally served in the foreign liquidation proceedings but are free to decide according to local law the questions whether, by entering into the policies, residents became members of the company. Again, in State Farm Ins. Co. v. Duel,134 the Court ruled that an insurance company chartered in State A, which does not treat membership fees as part of premiums, cannot plead denial of full faith and credit when State B, as a condition of entry, requires the company to maintain a reserve computed by including membership fees as well as premiums received in all states. Were the company’s contention accepted, “no State,” the Court observed, “could impose stricter financial standards for foreign corporations doing business within its borders than were imposed by the State of incorporation.” It is not apparent, the Court added, that State A has an interest superior to that of State B in the financial soundness and stability of insurance companies doing business in State B.

Workers’ Compensation Statutes.

Finally, the relationship of employer and employee, insofar as the obligations of the one and the rights of the other under worker’s compensation acts are concerned, has been the subject of differing and confusing treatment. In an early case, the injury occurred in New Hampshire, resulting in death to a workman who had entered the defendant company’s employ in Vermont, the home state of both parties. The Court required the New Hampshire courts to respect a Vermont statute which precluded a worker from bringing a common-law action against his employer for job related injuries where the employment relation was formed in Vermont, prescribing a constitutional rule giving priority to the place of the establishment of the employment relationship over the place of injury.135 The same result was achieved in a subsequent case, but the Court promulgated a new rule, applied thereafter, which emphasized a balancing of the governmental interests of each jurisdiction, rather than the mere application of the statutory rule of one or another state under full faith and credit.136 Thus, the Court held that the clause did not preclude California from disregarding a Massachusetts’s workmen’s compensation statute, making its law exclusive of any common law action or any law of any other jurisdiction, and applying its own act in the case of an injury suffered by a Massachusetts employee of a Massachusetts employer while in California in the course of his employment.137 It is therefore settled that an injured worker may seek a compensation award either in the state in which the injury occurred or in the state in which the employee resided, his employer was principally located, and the employment relation was formed, even if one statute or the other purported to confer an exclusive remedy on the workman.138

Less settled is the question whether a second state, with interests in the matter, may supplement a workers’ compensation award provided in the first state. At first, the Court ruled that a Louisiana employee of a Louisiana employer, who was injured on the job in Texas and who received an award under the Texas act, which did not grant further recovery to an employee who received compensation under the laws of another state, could not obtain additional compensation under the Louisiana statute.139 Shortly, however, the Court departed from this holding, permitting Wisconsin, the state of the injury, to supplement an award pursuant to the laws of Illinois, where the worker resided and where the employment contract had been entered into.140 Although the second case could have been factually distinguished from the first,141 the Court instead chose to depart from the principle of the first, saying that only if the laws of the first state making an award contained “unmistakable language” to the effect that those laws were exclusive of any remedy under the laws of any other state would supplementary awards be precluded.142 Although the overwhelming number of state court decisions since follow McCartin, and Magnolia has been little noticed, all the Justices expressed dissatisfaction with the former case as a rule of the Full Faith and Credit Clause, although a majority of the Court followed it and permitted a supplementary award.143

Full Faith and Credit and Statutes of Limitation.

The Full Faith and Credit Clause is not violated by a state statute providing that all suits upon foreign judgments shall be brought within five years after such judgment shall have been obtained, where the statute has been construed by the state courts as barring suits on foreign judgments, only if the plaintiff could not revive his judgment in the state where it was originally obtained.144

Footnotes

105
See Chicago & Alton R.R. v. Wiggins Ferry Co., 119 U.S. 615, 622 (1887) (statutes); and Smithsonian Institution v. St. John, 214 U.S. 19 (1909) (state constitutional provision). [Back to text]
106
Baker v. General Motors Corp., 522 U.S. 222, 232 (1998), quoted in Franchise Tax Bd. of Cal. v. Hyatt, 538 U.S. 488, 494 (2003). Justice Nelson, in the Dred Scott case, drew an analogy to international law, concluding that states, as well as nations, judge for themselves the rules governing property and persons within their territories. Scott v. Sandford, 60 U.S. (19 How.) 393, 460 (1857). “One State cannot exempt property from taxation in another,” the Court concluded in Bonaparte v. Tax Court, 104 U.S. 592 (1882), holding that no provision of the Constitution, including the Full Faith and Credit Clause, enabled a law exempting from taxation certain debts of the enacting state to prevent another state (the state in which the creditor resided) from taxing the debts. See also Bank of Augusta v. Earle, 38 U.S. (13 Pet.) 519, 589–96 (1839); Kryger v. Wilson, 242 U.S. 171 (1916); and Bond v. Hume, 243 U.S. 15 (1917). [Back to text]
107
Baker v. General Motors Corp., 522 U.S. at 232. [Back to text]
108
Alaska Packers Ass’n. v. Industrial Accident Comm’n, 294 U.S. 532 (1935); Bradford Elec. Co. v. Clapper, 286 U.S. 145 (1932). When, in a state court, the validity of an act of the legislature of another state is not in question, and the controversy turns merely upon its interpretation or construction, no question arises under the Full Faith and Credit Clause. See also Western Life Indemnity Co. v. Rupp, 235 U.S. 261 (1914), citing Glenn v. Garth, 147 U.S. 360 (1893); Lloyd v. Matthews, 155 U.S. 222, 227 (1894); Banholzer v. New York Life Ins. Co., 178 U.S. 402 (1900); Allen v. Alleghany Co., 196 U.S. 458, 465 (1905); Texas & N.O.R.R. v. Miller, 221 U.S. 408 (1911). See also National Mut. B. & L. Ass’n v. Brahan, 193 U.S. 635 (1904); Johnson v. New York Life Ins. Co., 187 U.S. 491, 495 (1903); Pennsylvania Fire Ins. Co. v. Gold Issue Mining Co., 243 U.S. 93 (1917). [Back to text]
109
E.g., Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981); Nevada v. Hall, 440 U.S. 410 (1979); Carroll v. Lanza, 349 U.S. 408 (1955); Pacific Employers Ins. Co. v. Industrial Accident Comm’n, 306 U.S. 493 (1939); Alaska Packers Ass’n v. Industrial Accident Comm’n, 294 U.S. 532 (1935). [Back to text]
110
See Carroll, 349 U.S. at 412–13. [Back to text]
111
See Franchise Tax Bd. of Cal. v. Hyatt (Franchise Tax Bd. II), 578 U.S. ___, No. 14–1175, slip op. (2016); Franchise Tax Bd. of Cal. v. Hyatt (Franchise Tax Bd. I), 538 U.S. 488 (2003).I), 538 U.S. 488 (2003). [Back to text]
112
See Franchise Tax Bd. I, 538 U.S. at 499. [Back to text]
113
See Franchise Tax Bd. II, slip op. at 3–4. [Back to text]
114
See id. at 7. [Back to text]
115
Id. at 7–8 (noting that while the Court, in the instant case, could “safely conclude” that Nevada’s special rule violated the Constitution, the Court had “abandoned” any broader balancing test with respect to the Full Faith and Credit Clause and “public acts”). [Back to text]
116
Dennick v. Railroad Co., 103 U.S. 11 (1881), was the first so-called “Death Act” case to reach the Supreme Court. See also Stewart v. Baltimore & O.R.R., 168 U.S. 445 (1897). Even today the obligation of a state to furnish a forum for the determination of death claims arising in another state under the laws thereof appears to rest on a rather precarious basis. In Hughes v. Fetter, 341 U.S. 609 (1951), the Court, by a narrow majority, held invalid under the full faith and credit clause a statute of Wisconsin which, as locally interpreted, forbade its courts to entertain suits of this nature; in First Nat’l Bank v. United Air Lines, 342 U.S. 396 (1952), a like result was reached under an Illinois statute. More recently, the Court has acknowledged that the Full Faith and Credit Clause does not compel the forum state, in an action for wrongful death occurring in another jurisdiction, to apply a longer period of limitations set out in the wrongful death statute of the state in which the fatal injury was sustained. Wells v. Simonds Abrasive Co., 345 U.S. 514 (1953). Justices Jackson, Black, and Minton, in dissenting, advanced the contrary principle that the clause requires that the law where the tort action arose should follow said action in whatever forum it is pursued. [Back to text]
117
119 U.S. 615 (1887). [Back to text]
118
Northern Pacific R.R. v. Babcock, 154 U.S. 190 (1894); Atchison, T. & S.F. Ry. v. Sowers, 213 U.S. 55, 67 (1909). [Back to text]
119
449 U.S. 302 (1981). See also Clay v. Sun Ins. Office, 377 U.S. 179 (1964). [Back to text]
120
John Hancock Mut. Life Ins. Co. v. Yates, 299 U.S. 178 (1936). [Back to text]
121
Modern Woodmen v. Mixer, 267 U.S. 544 (1925). [Back to text]
122
Converse v. Hamilton, 224 U.S. 243 (1912); Selig v. Hamilton, 234 U.S. 652 (1914); Marin v. Augedahl, 247 U.S. 142 (1918). [Back to text]
123
Broderick v. Rosner, 294 U.S. 629 (1935). See also Thormann v. Frame, 176 U.S. 350, 356 (1900); Reynolds v. Stockton, 140 U.S. 254, 264 (1891). [Back to text]
124
Hancock Nat’l Bank v. Farnum, 176 U.S. 640 (1900). [Back to text]
125
237 U.S. 531 (1915), followed in Modern Woodmen v. Mixer, 267 U.S. 544 (1925). [Back to text]
126
305 U.S. 66, 75, 79 (1938). [Back to text]
127
331 U.S. 586, 588–89, 637 (1947). [Back to text]
128
New York Life Ins. Co. v. Head, 234 U.S. 149 (1914); Aetna Life Ins. Co. v. Dunken, 266 U.S. 389 (1924). [Back to text]
129
193 U.S. 635 (1904). [Back to text]
130
New York Life Ins. Co. v. Cravens, 178 U.S. 389 (1900). See also American Fire Ins. Co v. King Lumber Co., 250 U.S. 2 (1919). [Back to text]
131
Griffin v. McCoach, 313 U.S. 498 (1941). [Back to text]
132
Watson v. Employers Liability Corp., 348 U.S. 66 (1954). In Clay v. Sun Ins. Office, 363 U.S. 207 (1960), three dissenters, Justices Black, and Douglas, and Chief Justice Warren, would have resolved the constitutional issue which the Court avoided, and would have sustained application of the forum state’s statute of limitations fixing a period in excess of that set forth in the policy. [Back to text]
133
314 U.S. 201, 206–08 (1941). However, a decree of a Montana Supreme Court, insofar as it permitted judgment creditors of a dissolved Iowa surety company to levy execution against local assets to satisfy judgment, as against title to such assets of the Iowa insurance commissioner as statutory liquidator and successor to the dissolved company, was held to deny full faith and credit to the statutes of Iowa. Clark v. Williard, 292 U.S. 112 (1934). [Back to text]
134
324 U.S. 154, 159–60 (1945). [Back to text]
135
Bradford Elec. Co. v. Clapper, 286 U.S. 145 (1932). [Back to text]
136
Alaska Packers Ass’n v. Industrial Accident Comm’n, 294 U.S. 532 (1935). The state where the employment contract was made was permitted to apply its workmen’s compensation law despite the provision in the law of the state of injury making its law the exclusive remedy for injuries occurring there. See id. at 547 (stating the balancing test). [Back to text]
137
Pacific Employers Ins. Co. v. Industrial Accident Comm’n, 306 U.S. 493 (1939). [Back to text]
138
In addition to Alaska Packers and Pacific Ins., see Carroll v. Lanza, 349 U.S. 408 (1955); Cardillo v. Liberty Mutual Co., 330 U.S. 469 (1947); Crider v. Zurich Ins. Co., 380 U.S. 39 (1965); Nevada v. Hall, 440 U.S. 410, 421–24 (1979). [Back to text]
139
Magnolia Petroleum Co. v. Hunt, 320 U.S. 430 (1943). [Back to text]
140
Industrial Comm’n v. McCartin, 330 U.S. 622 (1947). [Back to text]
141
Employer and employee had entered into a contract of settlement under the Illinois act, the contract expressly providing that it did not affect any rights the employee had under Wisconsin law. 330 U.S. at 624. [Back to text]
142
330 U.S. at 627–28, 630. [Back to text]
143
Thomas v. Washington Gas Light Co., 448 U.S. 261 (1980). For the disapproval of McCartin, see id. at 269–72 (plurality opinion of four), 289 (concurring opinion of three), 291 (dissenting opinion of two). But the four Justice plurality would have instead overruled Magnolia, id. at 277–86, and adopted the rule of interest balancing used in deciding which state may apply its laws in the first place. The dissenting two Justices would have overruled McCartin and followed Magnolia. Id. at 290. The other Justices considered Magnolia the sounder rule but decided to follow McCurtin because it could be limited to workmen’s compensation cases, thus requiring no evaluation of changes throughout the reach of the Full Faith and Credit Clause. Id. at 286. [Back to text]
144
Watkins v. Conway, 385 U.S. 188, 190–91 (1965). [Back to text]