Choice of Law Provisions and Venue Provisions in Contracts Deborah Everds 03 Apr 2000 13:57 EST
Conflicts of Law is actually a very complicated area of law, and not as straightforward as it appears. Below is an analysis of Choice of Law and Venue considerations in Contracts that I sent to one of the Consulting Firms. In contracts where there is no choice of law by the parties, Courts look their state's conflict of laws to determine which state law should govern. In Federal District Court, the Court will look to the state's conflict laws in which the court resides. Most state's look at the factors set forth in the Restatement (Second) of Conflict of Laws to determine which state law should govern contracts where there is no choice of law provision. A typical provision I would put in clinical trial contracts I negotiated was "this agreement shall be deemed to be made in, and in all respects shall be interpreted, construed and governed by and in accordance with the law of (State), without regard to the conflict of law principles of (State). Typically when Court's interpret a contract, they ascertain the intent of the parties, and give effect to those intentions. As long as the contract is unambiguous, the intent of the parties will be determined from the contract alone. As long as the choice of law is not arbitrary, in that there is some reason for choosing that state's law, e.g., one of the parties to the contract resides, the state is the place of performance, or the state is the place where the contract was formed, or is the state where the contract is to be performed, the choice of law provision should be enforced by the courts. If for instance, the contract merely states that the contract shall be governed by the laws of the state of X, Courts will look to State X conflict law, conduct a conflicts analysis, and determine whether State X law is to be applied when construing the contract. For instance, Illinois follows the Restatement (Second) of Conflict of Laws, and so the Court would look to the Restatement Second to determine if Illinois law is applicable to the contract. When you add in the provision "without regard to State X choice of law principles," the Court can skip applying the Restatement (Second or First, or whatever Conflicts Law they utilize) provisions to see if State X law governs the contract, and just apply State X law directly to the contract. However, you probably need to work with Counsel to determine if they wish to have their state's contract law apply. Some states have contract law that may be outside the mainstream, e.g., Louisiana, or underdeveloped state law in some area, e.g., Wyoming, and therefore their counsel would prefer to use another state's law. Although, probably most institutions would prefer to have their state's law apply. Besides dealing with choice of law issues, venue should be brought in a convenient forum, so that if a dispute arose, travel costs would not have be incurred traveling to another state to litigate. Basically, any Court can apply any state's law, so the choice of law provision does not guarantee that the case will be litigated in a convenient forum for your client. If the parties to an action are from different states or have diversity of citizenship, and the amount at issue is worth $75,000 or more, you can bring suit in federal court, which can decide the case because it is sitting in diversity. The federal district court should apply the substantive law of the choice of law stipulated in the contract, and federal procedural rules. For instance, I would try to put in the contract that if any case or controversy arose regarding the contract, all actions or proceedings, with regard to the construction, performance, and/or enforcement of the contract would be brought in Federal District Court for the Northern District of Illinois, provided jurisdiction could be obtained. You can also write in a provision for state court, but if a contract is worth less than $75,000, it's usually not worth litigating for a big pharmaceutical company or a large institution. Hope this is helpful. Deborah Everds, J.D. Deborah Everds Research Administrator CMB, NUMS Chicago xxxxxx@northwestern.edu ====================================================================== Instructions on how to use the RESADM-L Mailing List, including subscription information and a web-searchable archive, are available via our web site at http://www.hrinet.org (click on "Listserv Lists") ======================================================================