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19. Which of the following submissions on the instructions is correct?
The court has asked the parties to submit proposed jury instructions on punitive damages and the relevant authority to support those instructions. State A's choice-of-law rules select State A law, which limits punitive damages to five times the amount of compensatory damages. Assume that the US Supreme Court has held that the Constitution limits punitive damages to 10 times the amount of compensatory damages.
A real estate brokerage firm, which is incorporated and headquartered in State A, has brought a federal diversity action in State A against one of its former employees for theft of trade secrets. The former employee had worked at the firm's headquarters throughout her employment but is now a citizen of State B. The firm seeks compensatory and punitive damages.
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B is incorrect. This answer reaches the correct conclusion using incorrect legal reasoning. According to Klaxon, in cases governed by Erie, the court does not simply apply forum law but will instead apply whatever law would be applied by the courts of the state in which the district court is sitting. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 498 (1941). Here, answer choice B incorrectly states the rationale for which damages law applies because the court applies the choice-of-law rules of the state in which it sits, not necessarily the damages law of the state in which it sits.
C is incorrect. Under Erie, the fact that the action is in federal court does not create a right to apply federal law, instead state substantive law governs. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)
D is incorrect. While the constitutional limit preempts any state law that would extend the punitive damages limit, the state-law limit here is less than the constitutional limit and thus controls.