New York Court of Appeals Holds Upholds Broad Choice of New York Law Provision in Contract Even in Absence of Contacts With New York

by Sheppard Mullin Richter & Hampton LLP
Contact

In IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., No. 191, 2012 WL 6571286 (N.Y. Dec. 18, 2012), the Court of Appeals of the State of New York held that a broad choice of law provision in a contract precludes any need for conflict of law analysis. This decision increases the predictability of corporate contracts containing a New York choice of law provision: New York law will apply irrespective of whether any other jurisdiction’s law could apply.

This case began as a routine breach of contract claim. IRB-Brasil Resseguros, S.A. (“IRB”) sued Inepar Investments, S.A. (“IISA”) and Inepar S.A. Industria e Construҫoes (“ISAIC”) for breach of a loan agreement and note that was made by IISA and guaranteed by ISAIC. The contract at issue contained a choice of law provision which stated, in pertinent part, that “[t]his Agreement, the Notes, and the Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles.” The guarantee agreement also contained a choice of law provision which stated, in pertinent part, that it would be “governed by, and . . . be construed in accordance with, the laws of the State of New York.”

The Commercial Division trial court (Kornreich, J.) awarded IRB judgment against IISA and ISAIC, and a judicial hearing officer then determined that the amount owed to IRB according to the contract was $27,772,409.86 with an interest rate of 9.9%.

ISAIC appealed the trial court decision, arguing that the New York choice of law provision required the courts to do a conflict of law analysis applying New York conflicts law — in other words, ISAIC asserted that the choice of law provision did not mean that New York law necessarily applied to the contract, but only that New York law would be applied to the facts of the case to determine whether New York law actually trumped the laws of any other eligible jurisdiction (in this case, Brazil).

When a choice of law analysis is done in a breach of contract action, the New York court looks to apply the law of the jurisdiction “with the most significant relationship to the transaction and the parties.” ISAIC claimed that a New York conflict of law analysis would find that the law of Brazil applied, despite the existence of the New York choice of law provision. ISAIC then argued that under Brazilian law, ISAIC could not be found liable because the two officers that signed the guarantee lacked actual authority. Under New York law, the officers would be considered to have such authority and ISAIC would therefore be liable for the officers’ actions.

The Appellate Division, First Department, in a decision dated April 26, 2011, 2011 Slip Op 03275, nominally reduced the interest rate from 9.9% to 9% (the New York statutory interest rate for contract claims is 9%), and otherwise unanimously affirmed the trial court decision. ISAIC then appealed the First Department’s decision to the Court of Appeals.

The Court of Appeals upheld in full the First Department’s decision, finding that the New York choice of law provision meant that New York law should be applied to the substantive issues in dispute in the litigation — no conflicts analysis should be done. The Court of Appeals explained that the rationale for its ruling flowed from two provisions in the New York General Obligations Law (“NY-GOL”).

NY-GOL 5-1401 states that any contract, agreement or undertaking arising out of a transaction with a value of at least $250,000.00 may have a New York choice of law provision, “whether or not such contract, agreement or undertaking bears a reasonable relation to this state.” NY-GOL 5-1402 then provides that any foreign corporation, non-resident, or foreign state can be sued in New York as long as the transaction has a value of at least $1,000,000.00, and the contract “contains a provision [as contemplated by NY-GOL 5-1401] … whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.”

The Court of Appeals explained that the NY-GOL provisions are intended to “eliminat[e] uncertainty regarding the governing law,” in order to “promote and preserve New York’s status as a commercial center and to maintain predictability for the parties.” The courts of New York should not disregard any choice of law provision in a contract, even if the parties lack sufficient contacts with New York State. Further, “parties are not required to expressly exclude New York conflict-of-law principles in their choice-of-law provision in order to avail themselves of New York substantive law.” Both of the choice of law provisions here were found valid by the Court of Appeals, which noted that there was no substantive difference between the provisions in the main agreement and the guarantee agreement.

Under the IRB decision, any provision stating that a contract “shall be governed by, and construed in accordance with, the laws of the State of New York” is sufficient to designate New York as a proper venue. In other words, even if the parties do not explicitly designate New York courts as a location for any litigation, venue is proper under NY-GOL 5-1402 as long as there is a choice of law clause that meets the requirements of NY-GOL 5-1401 and the matter in controversy is worth at least $1,000,000.00.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP
Contact
more
less

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!