Contractual choice-of-law provisions are one of the most frequently used yet repeatedly misunderstood provisions in modern contracts. In-house counsel and other practitioners frequently assume—often incorrectly—that a “standard” choice-of-law provision will cover all claims and issues. However, several recent decisions make clear that this is not the case. In-house counsel should take heed of the lessons derived from those opinions so as not to be caught off guard by choice-of-law provisions that fall short of expectations.
Consider the following scenario: a company enters into a contract and chooses to have New York law applied to any disputes that may arise. Its in-house counsel thus drafts the following seemingly broad choice-of-law clause:
“This Agreement shall be deemed to be executed and to be performed in the State of New York, and shall be construed in accordance with the laws of the State of New York as to all matters, including but not limited to matters of validity, construction, effect, and performance.”
Litigation ensues. The opposing party interposes tort causes of action relating to the performance of the contract. The company is not concerned because New York law is clearly in its favor. But is this choice of law clause broad enough to cover tort claims that arise from the performance of the agreement?
This summer, in Innovative Biodefense Inc. v. VSP Technologies Inc., the Southern District of New York was presented with this question and answered “no.” Despite the seemingly broad “all matters” language, the District Court found that the choice-of-law provision was not sufficiently broad to encompass the tort claims.
Innovative serves as a reminder that the intricacies of choice-of-law provisions can trip up drafters and litigators alike. This article explores three pitfalls that should be on every in-house counsel’s radar when dealing with choice-of-law provisions.
