Choice of Law Clause: Which Law Should Be Applied?

• Posted on: Feb 28 2022

In drafting a contract, it is very common for the parties to include a choice of law provision. These provisions typically provide that a particular state’s law will apply regardless of conflict of laws principles. Questions arise as to which law to apply when a dispute takes place in a state that is different than the one in the contract. 

Today we examine Morplay Management Inc. v. Castro, 2022 N.Y. Slip Op. 30467(U) (Sup. Ct., Feb. 7, 2022) (here), in which the Court was asked to decide whether the law of New York should apply as required in the parties’ contract or the law of Florida where the parties worked and resided and where the contract was entered.

Are Choice of Law Provisions Enforceable?

Generally, courts will enforce a choice-of-law provision so long as the chosen law bears a reasonable relationship to the parties or the transaction.¹ Including such a provision “demonstrates the parties’ intent that courts not conduct a conflict-of-laws analysis … unless the parties expressly indicate otherwise”.² 

An exception exists “where the chosen law violates some fundamental principle of justice, some prevalent conception of good morals, [or] some deep-rooted tradition of the common weal”.³ “The party seeking to invoke the exception bears a heavy burden of proving that application of the chosen law would be offensive to a fundamental public policy of this State”.⁴ “Although [courts] possess the power to set aside agreements on this basis, [the courts’] usual and most important function is to enforce contracts rather than invalidate them on the pretext of public policy, unless they clearly contravene public right or the public welfare”.⁵ 

Against the foregoing legal principles, the Morplay Court held that the law of New York should apply as required in the parties’ contract.

Morplay Management Inc. v. Castro

The parties entered into a management agreement on September 19, 2018, pursuant to which plaintiff would “use its resources, contacts, expertise, and commercially reasonable efforts to promote, develop, enhance, and guide [defendant’s] career … and to achieve [defendant’s] career goals”. In exchange, defendant, a wardrobe stylist, agreed to pay plaintiff a 20% commission on any earnings derived from [plaintiff’s] services”. The agreement was for an initial term of two years, automatically extended for an additional three years if defendant met certain monetary or social media goals during the initial term, and thereafter from month to month until one party gave notice that it was terminating the agreement. Further, defendant acknowledged that plaintiff was “not an employment agent, theatrical agent, or licensed artists’ manager, and that [plaintiff] ha[d] not promised to procure employment or engagements for [defendant]”. Although the contract was entered in Miami, Florida, the agreement provided that New York law would govern any dispute under the terms of the contract.

Plaintiff alleged that during the term of the agreement it introduced defendant to at least 20 potential new clients, many of whom retained defendant to provide stylist services. Plaintiff also alleged that it provided a project manager for defendant, as well as other logistical and administrative support for her business. Plaintiff did not directly book clients for defendant. Instead, plaintiff made introductions to potential clients which defendant then engaged herself. Plaintiff contended that, because of its services, Defendant now earns over $500,000 per year. 

In January 2020, defendant stopped paying commissions and, on May 7, 2020, repudiated the agreement, stating that it was unenforceable. Plaintiff contended that the agreement remains in effect and has continued promoting defendant as a wardrobe stylist.

Defendant moved to dismiss, arguing, among other things, that the Court should ignore or invalidate the choice of law provision in the agreement on the grounds that plaintiff chose New York law to avoid application of Florida’s prohibition on operating an unlicensed talent agency.

As an initial matter, the Court held that defendant could not ignore the law of the jurisdiction (e.g., New York) set forth in the agreement, noting that she “freely chose to have New York law govern this dispute.” And, as explained by the Court, “‘[f]reedom of contract prevails in an arm’s length transaction between sophisticated parties … and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain’”.⁶ 

The Court found that there were no “countervailing public policy concerns”. Indeed, noted the Court, defendant did “not identify a true conflict [between New York and Florida law] that would counter New York’s strong interest in enforcing the choice of law provision.” The reason, explained the Court, was because “both Florida and New York provide for statutory licensing schemes for management, talent, or employment agents … and both states either refuse to enforce contracts or void contracts ab initio with unlicensed individuals or entities under certain circumstances”. Accordingly, concluded the Court, New York law would apply as set forth in the choice of law provision of the agreement.

Having determined that New York law governed the outcome of the dispute, the Court turned to plaintiff’s claims.

In moving to dismiss, defendant argued that the agreement was unenforceable because it violated New York law; namely, the statutory requirement that employment agencies be licensed. The Court found that there were issues of fact that could not be determined on a motion to dismiss.

The Court explained that the record did not indicate whether plaintiff ever obtained a license, or was required to obtain a license, under New York law. Defendant maintained that Plaintiff was required to do so. Plaintiff asserted that the statute did not apply to it because it is not an agency covered by the law, notwithstanding the fact that it helped procure at least 20 new clients for defendant, including some of Plaintiff’s other clients, which defendant would not otherwise have been able to procure for herself. Accordingly, the Court held that “a question of fact exists as to whether [plaintiff’s] services fall within the ambit of the statute or not”.

Takeaway

It has long been held that absent a violation of law or some transgression of public policy people are free to enter contracts, making whatever agreement they wish no matter how unwise they may seem to others.⁷ Consequently, when a contract dispute arises, it is the court’s role to enforce the agreement rather than reform it.⁸ In order to enforce the agreement, the court must construe it in accordance with the intent of the parties, the best evidence of which is the very contract itself and the terms contained therein.⁹ Thus, “when the parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms”.¹⁰ 

In Morplay, the parties provided for a choice of law provision in their agreement. There was no dispute that the agreement reflected the parties’ intent. Since the choice of law provision did not violate public policy, under principles of contract interpretation, the Court held that it was enforceable.

Footnotes

1. Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629 (2006).
2. Ministers & Missionaries Benefit Bd. v. Snow, 26 N.Y.3d 466, 468 (2015), rearg. denied, 26 N.Y.3d 1136 (2016).
3. Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364, 368 (2015) (internal citations and quotation marks omitted).
4. Id. (internal citations and quotation marks omitted).
5. 159 MP Corp. v. Redbridge Bedford, LLC, 33 N.Y.3d 353, 361 (internal quotation marks and citations omitted), rearg. denied, 33 N.Y.3d 1136 (2019).
6. Oppenheimer & Co., Inc. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 695 (1995).
7. Rowe v. Great Atlantic & Pacific Tea Co., Inc., 46 N.Y.2d 62, 67-68 (1978).
8. Grace v. Nappa, 46 N.Y.2d 560, 565 (1979). 
9. Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002).
10. Vermont Teddy Bear Co., Inc. v. 583 Madison Realty Co., 1 N.Y.3d 470, 475 (2004) (internal quotation marks omitted).