NYLE Conflict of Laws 2 — Questions and Answers
Question 1: A New York court must decide which state's law governs a contract that has no choice-of-law clause. Which approach does New York apply?
- The law of the place where the contract was signed, in every case
- A flexible center-of-gravity or grouping-of-contacts analysis (Correct answer)
- The law of the plaintiff's domicile
- The law of the state with the longest statute of limitations
Correct answer: A flexible center-of-gravity or grouping-of-contacts analysis
New York applies a flexible center of gravity, or grouping of contacts, inquiry to contracts that do not contain a choice-of-law provision (Auten v Auten, 308 NY 155 [1954]).
The court considers the spectrum of significant contacts to determine which state has the most significant contacts with the particular dispute (Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219, 226 [1993]). The rigid place-of-making rule is not the New York test, and neither the plaintiff's domicile nor limitation periods is the controlling criterion.
Question 2: Which of the following are the significant contacts that a New York court weighs under the grouping-of-contacts analysis for a contract without a choice-of-law clause?
- The forum where suit is filed and the plaintiff's preferred law
- The places of contracting, negotiation, and performance, the location of the subject matter, and the domicile or place of business of the parties (Correct answer)
- The language in which the contract is written and the date it was signed
- Only the place of performance
Correct answer: The places of contracting, negotiation, and performance, the location of the subject matter, and the domicile or place of business of the parties
Significant contacts are the places of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile or place of business of the contracting parties.
The NYLC outline lists these three groups (Matter of Allstate Ins. Co. [Stolarz], 81 NY2d 219, 226 [1993]). In an insurance contract, the principal location of the insured risk is given heavy weight (Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309 [1994]). Where the policies behind conflicting laws are readily identifiable and reflect strong governmental interests, those interests may also be considered.
Question 3: A Delaware company and a Texas company sign a $500,000 supply contract that states New York law governs. The contract has no connection to New York. The Texas company later argues that the clause is unenforceable for lack of a reasonable relation to New York. Is the clause enforceable?
- No, because a choice of New York law requires a reasonable relation to New York
- No, because the contract must be for at least $1,000,000
- Yes, but only if the contract was signed in New York
- Yes, under General Obligations Law 5-1401, which allows the choice whether or not the contract bears a reasonable relation to New York (Correct answer)
Correct answer: Yes, under General Obligations Law 5-1401, which allows the choice whether or not the contract bears a reasonable relation to New York
GOL 5-1401 lets the parties to a contract covering at least $250,000 agree that New York law governs, whether or not the contract bears a reasonable relation to New York.
The $500,000 transaction exceeds the $250,000 threshold and is not a labor or personal services contract. The $1,000,000 threshold belongs to GOL 5-1402 (choice of forum), not 5-1401. Under IRB-Brasil Resseguros, S.A. v Inepar Invs., S.A., 20 NY3d 310 (2012), when 5-1401 applies the courts enforce the New York choice without a conflicts analysis.
Question 4: An executive based in California and a New York employer sign a $400,000 employment agreement for the executive's personal services that selects New York law. California has no relation to New York for this dispute. Does GOL 5-1401 automatically make the New York choice-of-law clause enforceable?
- Yes, because the amount exceeds $250,000
- No, because GOL 5-1401 does not apply to contracts for labor or personal services, so the clause is tested under the general rule (Correct answer)
- Yes, because every employment contract is governed by the law of the employer
- No, because choice-of-law clauses are never enforced in employment contracts
Correct answer: No, because GOL 5-1401 does not apply to contracts for labor or personal services, so the clause is tested under the general rule
GOL 5-1401 does not apply to any contract for labor or personal services, or relating to personal, family or household services. The clause is then tested under the general rule.
The general rule is that a chosen law is honored unless the chosen jurisdiction has no reasonable relation to the agreement or enforcement would violate a fundamental public policy of New York (Eastern Artificial Insemination Coop. v La Bare, 210 AD2d 609 [3d Dept 1994]). The clause is not void per se, but it does not get the statutory safe harbor that applies to a $250,000 commercial contract.
Question 5: A $2,000,000 loan agreement between a foreign corporation and a New York lender selects New York law under GOL 5-1401 and contains the foreign corporation's agreement to submit to the jurisdiction of New York courts. The lender sues in New York, and the borrower moves to dismiss on the ground of inconvenient forum. What is the result?
- The motion must be granted because the borrower is a foreign corporation
- The motion must be denied, because GOL 5-1402 and CPLR 327(b) bar a forum non conveniens dismissal (Correct answer)
- The motion is granted if the borrower shows that a foreign court is more convenient
- The motion is granted unless the lender consents to New York law
Correct answer: The motion must be denied, because GOL 5-1402 and CPLR 327(b) bar a forum non conveniens dismissal
When a contract of at least $1,000,000 selects New York law under GOL 5-1401 and the foreign party agrees to New York jurisdiction, GOL 5-1402 permits the action, and CPLR 327(b) forbids a stay or dismissal on inconvenient forum grounds.
The NYLC outline explains the three requirements: a New York choice of law under 5-1401, a transaction of at least $1,000,000, and the foreign corporation, non-resident, or foreign state's agreement to submit to New York courts. CPLR 327(b) then provides that the court shall not stay or dismiss the action on the ground of inconvenient forum.
Question 6: Which pair of dollar thresholds correctly describes the New York statutes on choice of law and choice of forum clauses?
- GOL 5-1401 requires at least $100,000; GOL 5-1402 requires at least $500,000
- GOL 5-1401 requires at least $250,000; GOL 5-1402 requires at least $1,000,000 (Correct answer)
- GOL 5-1401 requires at least $1,000,000; GOL 5-1402 requires at least $250,000
- Both statutes require at least $500,000
Correct answer: GOL 5-1401 requires at least $250,000; GOL 5-1402 requires at least $1,000,000
GOL 5-1401 (choice of law) applies to transactions of not less than $250,000, and GOL 5-1402 (choice of forum) applies to transactions of not less than $1,000,000.
Both statutes read in the aggregate transaction amount. GOL 5-1402 also requires that a choice of New York law have been made under 5-1401, and that the foreign corporation, non-resident, or foreign state agreed to submit to the jurisdiction of New York courts. Neither applies to contracts for labor or personal services, and 5-1401 does not apply where UCC 1-301(c) provides otherwise.
Question 7: A contract between two commercial parties states that it is governed by New York law. A dispute arises, and one party argues that New York's conflict-of-laws rules would point to the law of another state. How should a New York court treat the clause?
- Apply New York's conflict-of-laws rules and follow them to the other state's law
- Apply New York substantive law, because a New York choice-of-law clause selects substantive law and not New York's conflicts rules (Correct answer)
- Disregard the clause and apply the grouping-of-contacts test
- Apply the law of the state with the most contacts, then New York law as backup
Correct answer: Apply New York substantive law, because a New York choice-of-law clause selects substantive law and not New York's conflicts rules
A clause selecting New York law is read as selecting New York's substantive law, not its conflict-of-laws rules, so there is no renvoi to another state's law.
The Court of Appeals so held in Ministers & Missionaries Benefit Bd. v Snow, 26 NY3d 466 (2015), and the same approach follows from IRB-Brasil Resseguros, S.A. v Inepar Invs., S.A., 20 NY3d 310 (2012), where a GOL 5-1401 choice displaces any conflicts analysis. Renvoi is generally avoided in contract cases because it would defeat the parties' expectations. Contrast EPTL 3-5.1, where the statute refers to the 'law' of the situs, including its conflicts rules.
