April 18, 2021

Volume XI, Number 108

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April 16, 2021

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

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.

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© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 56
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Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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