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July 25, 2014

Court of Appeals Affirms Validity of New York Choice-of-Law Provisions

The New York Court of Appeals has held that where a contract contains a New York choice-of-law provision and is otherwise subject to New York General Obligations Law Section 5-1401, New York substantive law will apply and the court need not conduct a conflict-of-laws analysis.

The parties in the case were Brazilian entities. Plaintiff purchased $14 million of defendant’s global notes. The relevant guarantee contained a choice-of-law provision providing that it would be governed by New York law. Plaintiff commenced an action after interest payments ceased and it failed to receive payment of the global note principal. Defendant moved for summary judgment contending that New York’s choice-of-law principles should apply to the guarantee, resulting in the application of Brazilian law which, defendant argued, would render the guarantee void. Defendant asserted that because the guarantee lacked an express exclusion of New York’s conflict-of-laws principles, the court must conduct a conflicts analysis. Plaintiff also moved for summary judgment.

The New York Court of Appeals found that where a contract was governed by New York General Obligations Law Section 5-1401, which generally covers all commercial contracts involving not less than $250,000, and contains a New York choice-of-law provision, New York substantive law will apply even if the contract did not expressly exclude New York choice-of-law principles. Thus, the court can apply New York substantive law without conducting a conflict-of-laws analysis. The court added that requiring a court to engage in a conflict-of-laws analysis despite the parties’ expressed desire to apply New York law would frustrate the Legislature’s goal of eliminating uncertainty regarding governing law.

IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A., No. 191, 2012 N.Y. LEXIS 3555 (December 18, 2012).

©2014 Katten Muchin Rosenman LLP

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About this Author

Bruce M. Sabados, Financial Institutions Attorney, Katten Muchin Law Firm
Partner

Bruce M. Sabados concentrates his practice in complex commercial litigation, with an emphasis on securities- and financial services-related matters and secured lender litigation. He represents both plaintiffs and defendants in a variety of commercial matters in federal and state courts and in arbitration. His clients include securities firms, international banks, hedge funds, high net worth individuals and asset-backed lenders. Bruce handles matters involving fraud, restrictive covenants, breaches of contract, business torts and Racketeer Influenced and Corrupt Organizations Act (RICO). He...

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