No one puts a choice of law provision at the beginning of a contract.  They are nearly always relegated to the boilerplate provision at the end.  This placement often belies their critical importance.  Cases are lost or won on the basis of the choice of law.

It’s no secret that a great many corporations located in California are incorporated in Delaware.  Is the fact of Delaware incorporation sufficient to uphold a Delaware choice of law?  In Ruiz v. Affinity Logistics Corp., (9th Cir. Case No. 10-55581, Feb. 8, 2012), the Court of Appeals said no. 

The case involved an “Independent Truckman’s Agreement and an Equipment Lease Agreement.  These agreements purported to establish an independent contractor relationship and stipulated that Georgia law applied (the state in which the defendant was incorporated and had its principal office).  The plaintiff claimed that California law should be applied and that the agreement established an employer/employee relationship.

Citing Nedlloyd Lines B.V. v. Superior Court, 834 P.2d 1148 (Cal. 1992), the Court of Appeals found that California courts will apply the parties’ choice of law unless the analytical approach set forth in Section 187(2) of the Restatement (Second) of Conflict of Laws dictates a different result.  While the Court found that as a threshold matter the chosen state had a substantial relationship (by virtue of the defendant’s incorporation and principal office location), the analysis should not end there.*  A court should next ask whether the chosen state’s law is “contrary to a fundamental policy of California” and whether California has a materially greater interest in resolution of the issue.  Applying this rubric, the Court invalidated the parties’ contractual choice of law.

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