Court Rules Contract's Choice Of Law Does Not Reach California Securities Law Claims

Allen Matkins

Allen Matkins

Donna Morgan signed two agreements to acquire ownership interests in two Nevada limited liability companies. The agreements contained identical choice-of-law provisions, contemplating that Nevada law would "govern the validity, construction, performance[,] and affect [sic] of" the contracts. Unhappy with her purchases, Ms. Morgan filed suit for or federal and state securities fraud, breach of contract, promissory fraud, and breach of the implied covenant of good faith and fair dealing. While both sides agreed that the choice of law clause was valid, the defendants argued that the plaintiff's California securities law claims were precluded by the Nevada choice of law.

U.S. District Judge Jennifer A. Dorsey resolved the matter by reading the examining the choice of law clause itself, concluding that "Simply, the choice-of-law clause's unambiguous terms do not cover Morgan's state-law securities claim". In reaching this conclusion, she noted that the clause was not as broad as some that apply to claims "'arising out of' the contract or relationships that are wholly 'governed by' one state's law". Morgan v. Bash, 2021 U.S. Dist. LEXIS 28368

In basing her ruling on the text of the choice of law clause, Judge Dorsey was able to avoid deciding the plaintiff's contention that California law prohibits waivers of securities law claims, an issue that I've touched upon in these posts:

Finally, this post links California's anti-waiver statute to Aristotle: How To Argue A Contracts Case Like Aristotle.

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.

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