Decisions on choice-of-law motions often have significant implications on liability and damages issues and, importantly, settlement discussions. Most recently, in multidistrict litigation arising from the crash of Continental Connection Flight 3407 on February 12, 2009, the district court held that the federal standards of care apply to the plaintiffs’ state-law negligence claims and that New York law applies to the plaintiffs’ claims for punitive damages.1 The determination on punitive damages allegations against Colgan Airlines, the operator of the flight, was particularly relevant because the law of Virginia, unlike New York, places a cap on an award of punitive damages.

Federal Standards Apply to State-Law Negligence Claims

Plaintiffs, the relatives and beneficiaries of the deceased passengers, brought state-law claims for inadequate safety programs, negligent hiring, training and supervision of the flight crew, as well as respondeat superior claims for the negligent operation of Flight 3407. Following the Second Circuit’s decision in Goodspeed Airport LLC v. E. Haddam Inland Wetlands & Watercourses Comm’n,2 the district court held that the Federal Aviation Act of 1958 and its accompanying regulations entirely preempt state regulation of air safety, including state negligence standards. The court determined that “[f]ederal regulation of this field is extensive and exclusive” and includes an overarching standard of care for the safe operation of aircraft, which is supplemented by numerous specific regulations.3 In finding that federal law provides the applicable standard of care for these claims, the court noted that “[t]here is little question that these claims directly implicate air safety, and indeed, there is no argument from Plaintiffs that their claims fall outside the air safety field.”4

The court confirmed, however, that state law causes of action and remedies remained available to plaintiffs under the savings clause in the Federal Aviation Act. Thus, if the plaintiffs prove that the defendants were negligent under the applicable federal standard of care, then they could pursue remedies under New York law.

New York Law Governs Punitive Damages

The court found that New York, not Virginia, had “the greatest interest and most significant relationship to the crash” for the purposes of determining the law that governs the plaintiffs’ claim for punitive damages. The defendants argued that Virginia law should apply because Colgan’s domicile and principle place of business were located in Virginia at the time of the accident and many corporate acts took place there. The plaintiffs instead focused on New York as the place of the crash and injury. Virginia law limits punitive damages to $350,000, while New York law has no limitation.

In determining which law to apply, the court considered the choice-of-law rules of the five states where individual actions are pending – Connecticut, Florida, New Jersey, New York and Pennsylvania – and found that all follow an “interest analysis” similar to that applied by New York courts. The court first recognized that the purpose of punitive damages is to be conduct-regulating, which favors the application of the law of the lex loci delicti, the place of the wrong. Acknowledging that the place of an air crash is largely fortuitous, the court placed greater emphasis on the place of the wrongful conduct and tort. Factors favoring application of New York law included that: (1) the crash occurred in New York, resulted in the deaths of New York residents, destroyed New York property, and required a significant emergency response from New York personnel; (2) the defendants “failed to adequately supervise their flight crews and negligently operated an aircraft in New York in an unsafe manner”; (3) New York was the domicile of the majority of decedents and plaintiffs; and (4) the conduct of the defendants “came to disastrous fruition in New York.”5

The court conceded that many corporate decisions and acts took place in Virginia, including a number of significant contacts relating to punitive damages. For example, at the time of the accident, Colgan had its headquarters, operations control center, training and human resources department, and dispatchers located in Virginia. Ground school training for the co-pilot took place in Virginia and several key corporate officers, including the chief pilot, were located in Virginia.

However, the court determined that not all relevant conduct occurred in Virginia. In addition to all of the alleged operational errors and omissions taking place during the flight, the evidence showed that Colgan conducted business in New York, held interviews and training in New York, maintained bases at LaGuardia and Albany airports, scheduled regular flights to and from New York, and had a maintenance base in Albany. The court further determined that Virginia’s interest was severely undermined by the fact that Colgan moved its headquarters and domicile from Virginia to Tennessee. Accordingly, the Court found “no cause to depart from New York’s general rule of applying lex loci delicti to choice-of-law questions involving conduct-regulating laws.”6