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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 23, 2019

New York Choice of Law Provision Enforceable Even Though Contract Not Connected to New York

On January 9, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in ABB, Inc. v. Havtech, LLC, 2019 NY Slip Op. 30095(U), enforcing a New York choice of law provision even though the contract had no connection to New York, explaining:

Havtech argues that the Agreement’s New York choice of law provision should not be enforced because the Agreement has no reasonable relationship to New York. However, pursuant to N.Y. General Obligations Law § 5-1401(1),

The parties to any contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars … may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state.

Havtech alleges that it sells approximately three million dollars’ worth of Products yearly and is seeking millions of dollars per year in gross profit on sales of Products in damages, which Havtech was able to purchase and distribute pursuant to the Agreement. Therefore, the Agreement satisfies the requirements of General Obligations Law § 5-1401(1) and is not required to have a reasonable relation to New York for the choice of law provision to be enforceable.

Although Havtech argues that the choice of law provision should be voided on public policy grounds, Havtech makes no showing that the application of New York law would violate any important public policy. The parties’ choice of New York law should be enforced, unless the public policy of another jurisdiction has an overriding concern so strong that it trumps New York’s strong public policy in maintaining and fostering its undisputed status as the preeminent commercial and financial nerve center of the world.

That the Agreement may implicate Maryland’s Dealer Act is not sufficient grounds to override the parties’ choice of law provision here. The fact that a statute is a policy choice is not evidence of an interest materially greater than New York’s.

When parties include a choice-of-law provision in a contract, they intend that the law of the chosen state-and no other state-will be applied. Consistent with the unambiguous terms of the Agreement, New York substantive law applies to the Agreement and Havtech may not assert the Maryland Counterclaims pursuant to the Dealer Act.

(Internal quotations and citations omitted).

The parties to commercial contracts often chose both the forum in which any dispute over the contract will heard and the law governing the interpretation of the contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding which law governs on contract and in which forum a dispute over the contract may be heard.

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