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The Scope of Generic Choice of Law Clauses The Scope of Generic Choice of Law Clauses
Tanya J. Monestier
University at Buffalo School of Law
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Recommended Citation Recommended Citation
Tanya J. Monestier,
The Scope of Generic Choice of Law Clauses
, 56 U.C. Davis L. Rev. 959 (2023).
Available at: https://digitalcommons.law.buffalo.edu/journal_articles/1149
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The Scope of Generic Choice of Law
Clauses
Tanya Monestier
*
Non-proceduralists have the perception that questions of jurisdiction or
choice of law are just preliminary issues that need to be dealt with before getting
to the real dispute, the things that matter. What they do not realize is that these
preliminary issues are often, themselves, the real dispute. They are the lever
which permits litigation to proceed or which stops a claim dead in its tracks.
Thus, these procedural matters — often dismissed as technicalities — have the
potential to shape the dispute in significant ways.
Take for instance, a staple of commercial and consumer contracting: the
ubiquitous choice of law clause. The choice of law clause in a contract usually
does not matter. Until, of course, it does. When claims are viable under the law
of one jurisdiction and not viable under the chosen law, the choice of law clause
matters a great deal. Litigants now have the opportunity to craft a legal
argument based on just a handful of words. How a court interprets these words
will determine whether the gateway will be opened for litigants to advance their
claims or whether they will, literally or figuratively, be sent home.
*
Copyright © 2023 Tanya Monestier. Professor of Law, University at Buffalo School
of Law. The author would like to thank Professor Ronald Brand for his thoughtful
comments on the paper.
959
960 University of California, Davis [Vol. 56:959
The interpretation of choice of law clauses normally proceeds according to
customary principles of contractual interpretation. For the most part, courts
are on the same page when it comes to interpreting clauses that do not leave
much wiggle-room — e.g., clauses that provide that “all disputes arising from
or related to the contract will be governed by [x] law.” Where things get dicey
is where parties have agreed to a generic choice of law clause. A generic choice
of law clause is one that provides that “the contract” will be “governed by” or
“subject to” the chosen law. Here, there is a split of authority on how to
interpret such language. Some courts hold that a generic choice of law clause
should be interpreted narrowly. That is, the parties’ chosen law should be
applied to contractual claims and contractual claims only. By contrast, come
courts interpret a generic choice of law clause in the polar opposite way. These
courts hold that the parties’ chosen law should apply to any and all disputes
between the parties, including, for instance, tort and statutory claims.
This Article examines this interpretative debate and sides with those courts
that interpret generic choice of law clauses narrowly. It examines in detail the
textual arguments in support of such an interpretation and advances
arguments in favor of the textual approach that courts have not considered. It
also engages with the broad approach on the merits, arguing that the
assumptions underpinning such an approach are questionable at best, and
flawed at worst.
While this is an Article that zooms in to the granular details of the
technicalities, it does so based on the reality that these technicalities have
profound implications for the litigants and for the broader administration of
justice.
T
ABLE OF CONTENTS
I
NTRODUCTION .............................................................................................. 961
I. C
HOOSING YOUR TORT LAW: CAN YOU DO THAT? ........................ 966
II. A T
YPOLOGY OF CHOICE OF LAW CLAUSES ..................................... 968
III. C
URRENT APPROACHES TO THE INTERPRETATION OF GENERIC
CHOICE OF LAW CLAUSES ................................................................. 972
A. The Narrow Approach ................................................................ 974
B. The Broad Approach ................................................................... 976
C. The Relatedness Approach ......................................................... 980
IV. H
OW SHOULD COURTS INTERPRET GENERIC CHOICE OF LAW
CLAUSES? ............................................................................................. 982
961 2023] The Scope of Generic Choice of Law Clauses
A. Contractual Interpretation of a Generic Choice of Law
Clause ..........................................................................................982
1. The Ambiguity Threshold ................................................. 983
2. Basic Contractual Interpretation.....................................987
3. A Reverse Onus? ................................................................. 991
4. A Textual Disconnect Between Choice of Law and
Choice of Forum Clauses ..................................................994
5. The Intention of the Parties .............................................998
6. The Need for Interpretation...........................................1002
B. Exploring the Policy-Based Arguments ....................................1004
1. Lawyer Intention or Party Intention? ...........................1005
2. What Do Parties Prefer? ..................................................1007
a. Parties Prefer Favorable Law .....................................1008
b. Parties Prefer Formal Rules ........................................1009
c. Parties Prefer Their Choice of Forum ........................ 1010
d. Non-Sophisticated Parties Do Not “Prefer”
Anything ........................................................................ 1011
3. The Predictability Rationale ............................................1013
4. The Broad Approach and Weaker Parties ......................1014
V. A
N ALTERNATIVE APPROACH ........................................................... 1016
C
ONCLUSION ................................................................................................ 1018
I
NTRODUCTION
When parties enter into a contract, they will often include a choice of
law clause that designates a particular body of law to govern their
relationship in the event of a future dispute.
1
An issue that courts
frequently face is what the appropriate scope of a choice of law clause
should be. Do the parties intend for the designated law to cover
contractual claims only? Or do they intend for the designated law to
extend to non-contractual claims as well? Where parties include scope-
related language, there is usually no difficulty. That is, where parties
indicate that they intend for all claims “arising from or related to” the
contract to be governed by the chosen law, there is little potential for
See Julian Nyarko, Stickiness and Incomplete Contracts, 88 U. CHI. L. REV. 1, 42 (2021)
(“Choice-of-law clauses are almost universally adopted, with most law firms including
them in over 96% of their contracts.”).
1
962 University of California, Davis [Vol. 56:959
disagreement about the parties’ choice. However, where parties simply
provide that their agreement shall be “governed by” or “subject to” the
laws of a certain state, the issue is more complicated. These “generic”
2
choice of law clauses present courts with a difficult and consequential
interpretation question: Are the claims being asserted covered by the
clause?
The title of this Article might lead one to believe that the issue is very
specialized. After all, how often do “scope” issues present themselves in
the context of “generic” choice of law clauses? The answer is all the time.
3
And a great deal turns on how broadly or how narrowly courts interpret
these generic choice of law clauses. Take a very recent Sixth Circuit case,
for example. In Adelman’s Truck Parts Corp. v. Jones Transport,
4
the
plaintiff owner of a trucking company sought to assert claims against the
defendant seller of a truck motor under the North Carolina Unfair and
Deceptive Trade Practices Act (“UDTPA”). The plaintiff sought treble,
consequential, and punitive damages in connection with the purchase of
a defective motor. The defendant argued that the parties were bound by
a choice of law clause which provided that, “This Purchase Order shall
be governed by and construed in accordance with the laws of the State of
Ohio.”
5
The issue, of course, was the appropriate scope of this generic
choice of law clause. Should the clause be interpreted narrowly, such that
it applied to only contractual claims? Or, should the clause be interpreted
broadly, such that Ohio law governed all claims related to the contract,
including statutory claims? The Sixth Circuit Court of Appeals settled on
the latter interpretation — i.e., Ohio supplied the governing law for all
claims related to the purchase of the truck. The result was that the
plaintiff was unable to pursue a statutory remedy under the North
Carolina UDTPA.
6
Had the court interpreted the choice of law clause
2
The term “generic” choice of law clause seems to have been first used extensively
in Roadway Package System, Inc. v. Kayser, 257 F.3d 287 (3d Cir. 2001). See also John F.
Coyle, The Canons of Construction for Choice-of-Law Clauses, 92 W
ASH. L. REV. 631 passim
(2017) (adopting the terminology).
3
1 TRANSNATIONAL CONTRACTS § 3B:10 (2022) (“A recurring issue faced by courts is
whether a contractual choice of law provision encompasses claims other than those
arising strictly from the contract.”).
4
797 F. App’x 997, 998-99 (6th Cir. 2020).
5
Id. at 1000.
6
Id. at 1001.
9
See, e.g., Whitesides v. E*TRADE Sec., LLC, No. 20-cv-05803, 2021 WL 930794
(N.D. Cal. Mar. 11, 2021); Bajwa v. United States Life Ins. Co., No. 19-cv-00938, 2021 WL
2661836 (E.D. Cal. June 29, 2021); Young v. Grand Canyon Univ., Inc., No. 19-CV-1707,
2021 WL 3403746 (N.D. Ga. July 22, 2021); Konair US, LLC v. DGI II, LLC, No. 19-cv-
05728, 2021 WL 135308 (N.D. Ga. Jan. 14, 2021);
Savis, Inc. v. Cardenas, 528 F. Supp. 3d
868 (N.D. Ill. 2021); Mirror Finish PDR, LLC v. Cosm. Car Co. Holdings, 513 F. Supp. 3d
1054 (S.D. Ill. 2021); Johnson, 2021 WL 4477893; Leblanc v. Delta Airlines, No. 19-13598,
2021 WL 1517907 (E.D. La. Apr. 16, 2021); Great Lakes Ins. SE v.
Andersson, 544 F. Supp.
3d 196 (D. Mass. 2021); CRG Fin., LLC v. Two Diamond Cap. Corp., No. 19-cv-10182, 2021
WL 2458202 (D. Mass. June 16, 2021); N. Shore Window & Door, Inc. v. Andersen Corp.,
No. 19-cv-6194,
2021 WL 4205196 (E.D.N.Y. Aug. 3, 2021); Palumbo v. Provident Tr. Grp.
LLC, No. 19-CV-0252, 2021 WL 1110797 (N.D.N.Y. Mar. 23, 2021); Audax Credit
Opportunities Offshore Ltd. v. TMK Hark Parent, Corp., No. 565123/2020, slip op. at 1
963 2023] The Scope of Generic Choice of Law Clauses
narrowly (that is, as extending only to breach of contract claims), the
plaintiff would have been permitted to advance his North Carolina
UDTPA claims.
It is clear that the interpretation question had a significant bearing on
the outcome of the Adelman’s case — i.e., it foreclosed certain statutory
avenues of redress for the plaintiff.
7
The same will be true in any other
litigated case. Parties do not litigate choice of law issues unless the stakes
are high enough to warrant it. It is a safe bet that every case involving a
choice of law scope issue will have a considerable impact on the
plaintiff’s recovery or the defendant’s defense.
8
Since 2020, dozens of
cases have considered scope issues in conjunction with choice of law
clauses.
9
In some of these cases, the results were probably pre-
7
See also ICS N. Am. Corp. v. Collage.com, Inc., No. 19-11521, 2020 WL 5801191, at *5
(E.D. Mich. Sept. 29, 2020) (“Collage’s argument [in favor of a broad interpretation]
carries the day. The choice of law provision at issue here is nearly identical to that at issue
in Adelman’s Truck Parts Corp. v. Jones Transp . . . .”).
8
See Johnson v. Diakon Logistics, No. 16-CV-06776, 2021 WL 4477893, at *1, *5 (N.D.
Ill. Sept. 30, 2021) (“Diakon contends that the Virginia choice-of-law provisions
contained within the Service Agreements preclude Plaintiffs’ claim under the
IWPCA. Plaintiffs attack this position on two grounds . . . . Plaintiffs assert that the
IWPCA claim, as a statutory claim, falls outside the coverage of the choice-of-law
provision . . . . Both sides acknowledge, however, that if Virginia law governs, Plaintiffs
will be unable to prevail on claims under the IWPCA.”).
(N.Y. Sup. Ct. Aug. 16, 2021); Ochoa v. Indus. Ventilation, Inc., No. 18-CV-0393, 2021 WL
5405203 (E.D. Wash. Nov. 18, 2021); Warwick v. Schneider Nat’l, Inc., 538 F. Supp. 3d 867
(E.D. Wis. 2021).
964 University of California, Davis [Vol. 56:959
ordained.
10
And in other cases, it was anybody’s guess what the court
would do.
11
Currently, the law is a hodge-podge, offering little
predictability to litigants whose outcome will depend on the
interpretation advanced by the court in which they sue or are sued.
This Article seeks to engage directly with the normative question of
how courts should interpret these clauses. It argues that courts should
adopt a textualist approach to the interpretation of generic choice of law
clauses. Under a textualist approach, these clauses would be read in
accordance with their plain meaning: as selecting the chosen law for
contractual claims, and contractual claims only. Extra-contractual
claims, such as tort or statutory claims, would be outside the ambit of
these clauses. If courts were to apply the same interpretative approach
to generic choice of law clauses, this would cut down on litigation
posturing and the eliminate the possibility of different results in very
similar cases. It would also properly place the burden on the parties to
draft clear choice of law clauses that accurately capture their intentions
and expectations.
This Article proceeds as follows: In Part II, I address an important
preliminary question that is curiously unexplored in the case law: Do
parties have the power to select the law that will govern their extra-
contractual claims via a choice of law clause? While courts assume the
answer is yes, it is not clear that principles underlying private ordering
apply outside the contract domain and that parties actually have the
power to choose their own tort, statutory, or other law. However, on the
assumption that parties can designate the governing law in extra-
10
See, e.g., Lynx Tech. Partners, Inc. v. Pitts Mgmt. Assocs., Inc., No. 18-cv-3881, 2021
WL 2516111, at *4 (E.D.N.Y. June 6, 2021) (holding that plaintiff’s equitable claim “falls
outside the scope of the contractual choice-of-law provision, which provides only that
Louisiana law ‘shall govern this Agreement’”); Audax Credit Opportunities Offshore Ltd.,
slip op. at 16 (holding that tort claims are outside the scope of a generic choice-of-law
clause and indicating that these “highly sophisticated parties could have drafted a
broader choice-of-law provision that encompasses extra-contractual claims relating to
the Original Agreement, but they did not do so”).
11
See, e.g., Mirror Finish PDR, LLC, 513 F. Supp. 3d at 1065 (conducting detailed
analysis on whether the plaintiff’s claims of unjust enrichment, fraud, breach of fiduciary
duty, and civil conspiracy are “dependent” on the contract so as to determine whether to
apply the parties’ chosen law to those claims); FinancialApps, LLC v. Envestnet, Inc., No.
19-1337, 2020 WL 3640063, at *4 (D. Del. July 6, 2020) (referring to “alternate strain[s] of
Delaware state caselaw” on the scope issue).
965 2023] The Scope of Generic Choice of Law Clauses
contractual matters, I proceed in Part III to lay out a typology of choice
of law clauses. I describe four different categories of choice of law
clauses: specific, nexus-based, generic, and atypical. This typology, in
turn, orients the reader to the scope issues presented by generic choice
of law clauses, and how those scope issues differ from those presented
by some of the other choice of law clause categories. In Part IV, I
transition to examining the three main approaches that courts have
developed to interpreting the scope of generic choice of law clauses: the
narrow approach, the broad approach, and the relatedness approach.
This sets the stage for the main thesis of this Article, explored in Part V:
that courts should interpret generic choice of law clauses narrowly. I
engage with this argument in two ways. First, I present a textual
interpretation of generic choice of law clauses, highlighting the flaws
inherent in the broad approach to interpretation. I carry the analysis
further than most courts have, probing, for example, issues of ambiguity,
hypothetical party intention, and the need for interpretation of such
clauses. Second, I engage with the arguments in favor of the broad
approach on the merits. In particular, I question the assumptions
underlying the broad approach in particular, the party preference
assumption and the predictability assumption. I make the argument that
it is not clear that parties “prefer” for the chosen law to extend beyond
the contract, and that the question of what parties prefer in this context
is perhaps an unanswerable one. In the penultimate section, Part VI, I
suggest the possibility of an alternative approach to interpreting generic
choice of law clauses. Courts could adopt a textualist approach to the
interpretation of choice of law clauses, but still apply the parties’ chosen
law to extra-contractual claims as a conflict of laws matter. Nothing
prevents a state from crafting a unique choice of law rule for disputes
that arise in the context of a larger contractual relationship between the
parties. Conceptualized as a choice of law rule, there is no obstacle to
courts applying the same law chosen by the parties for their contractual
disputes to other disputes emanating from that relationship. Finally, in
Part VII, I suggest that courts adopting a broad approach to the
interpretation of generic choice of law clauses should take a step back
and examine more carefully the assumptions and underpinnings of this
approach.
966 University of California, Davis [Vol. 56:959
I. C
HOOSING YOUR TORT LAW: CAN YOU DO THAT?
There i
s an important threshold issue that must be addressed before
turning to the question of how to interpret a generic choice of law clause.
That issue, which seems to have escaped any scrutiny, is whether parties
actually have the power to choose the tort or other law that will apply to
their dispute. Stepping back from the issue for a moment, the premise
seems a bit fantastical. For instance, let’s assume I walk into Wegmans
to do my regular weekly grocery shopping. Before being permitted to
enter, I am asked to sign a document that says, “The parties agree that
any and all tort claims arising from or related to Customer’s visit to
Wegmans shall be governed by New York law.” New York, I am told, is
where Wegmans is headquartered.
12
I live in New Jersey, not New York,
but I sign anyway. If I slip and fall during my Wegmans visit in New Jersey
and want to sue the grocery store for negligence, am I bound by my
choice of New York law? I suspect that a court might be reluctant to
enforce a choice of law clause designed to only cover tort claims. This is
true whether the clause was entered into ex ante or ex post.
In fact, it is unclear how a court would evaluate the enforceability of
such a clause. Under the Restatement (Second) of the Conflict of Laws
§ 187,
13
parties are allowed to choose the law that governs their
contractual disputes — but within limits.
14
If the “particular issue is one
which the parties could not have resolved by an explicit provision in their
agreement directed to that issue” then the parties’ choice of governing
law is circumscribed.
15
How would this translate into the tort context? It
wouldn’t. Because, by definition, you are dealing with a tort — not a
contract — so there is no “particular issue” you could have resolved by
explicit agreement. What, then, would the limits be for parties’ ex ante
(or even ex post) choice of tort law? Could the parties choose Alaskan law
to govern the slip and fall at Wegmans? Does the tort law that is selected
12
FAQs, WEGMANS, https://www.wegmans.com/service/faq/about-wegmans/ (last
visited July 27, 2021) [https://perma.cc/5DF7-ERCX].
13
RESTATEMENT (SECOND) OF CONFLICT OF L. § 187 (AM. L. INST. 1971).
14
The Commentary to section 187 speaks exclusively to the parties having the power
to determine the law that governs their contractual arrangements. See id. cmt. c (“The
parties, generally speaking, have power to determine the terms of their contractual
engagements.”) (emphasis added).
15
Id. § 187.
967 2023] The Scope of Generic Choice of Law Clauses
have to bear any sort of connection to the parties or the dispute? Clearly,
there is not a huge market for pure choice of tort law clauses. However,
is the situation any different when parties attempt to choose their tort
law through what is otherwise a valid contractual choice of law clause? If
the enforceability of a choice of tort law clause — on its own — is
questionable, should it not also be questionable in the context of a
contractual clause designating the governing law?
Surprisingly, courts have not expressed any concern about parties
being able to choose their tort or other law though a contractual choice
of law clause. For the most part, they just want parties to do it clearly.
Professor Hay is among the few scholars to consider whether parties are
actually able to choose the law that governs non-contractual claims via a
choice of law clause. He writes:
Section 187 of the Second Restatement speaks of the law of the
state chosen by the parties to govern their “contractual rights and
duties.” The Restatement is silent on whether the parties may
agree in advance on the law that will govern the parties’ non-
contractual rights, especially those arising from a future tort
between them. The most logical inference is that the
Restatement does not sanction such agreements. At the time of
the Restatement’s drafting, the principle of party autonomy,
which had been born in the contracts arena, had not migrated
outside that arena.
16
Professors Symonedies, Purdue, and von Mehren express a similar view:
A more difficult question is whether the parties have the power
to select the law that will govern issues that are not purely
contractual. One should not lightly assume an affirmative
answer, because, after all, the principle of party autonomy has
been born and nurtured exclusively in the area of contract. . . .
16
PETER HAY, PATRICK J. BORCHERS & SYMEON C. SYMEONIDES, CONFLICT OF LAWS
§ 18.10, at 1141 (5th ed. 2010); see also id. (“Recent codifications, including the two
American codifications, have had the opportunity to address this issue. The 1991
Louisiana codification explicitly confines pre-dispute choice-of-law agreements to
contractual issues. Oregon’s contracts codification of 2001 also does not allow pre-
dispute choice-of-law agreements for non-contractual issues.”).
968 University of California, Davis [Vol. 56:959
These authors posit that the question of whether parties have the ability
to choose the law that applies to non-contractual claims “has not been
sufficiently explored.”
17
However, they note that “[w]ith few exceptions,
. . . courts tend to assume that contracting parties have the power to
submit to the chosen law not only the purely contractual disputes, but
also tort-like issues arising from the same contractual relationship.”
18
It seems like the overwhelming, albeit implicit, consensus is that
parties can choose their tort or other law through a choice of law clause.
Even the courts that adopt the most conservative approach to the
enforceability of generic choice of law clauses allow parties to designate
their choice of law for tort and other non-contractual claims.
19
I therefore
proceed on the unsettled, but nonetheless accepted, assumption that
parties are permitted to choose the law that governs their non-
contractual claim through a choice of law clause.
20
I leave the predicate
question of whether choosing this law is permissible for another day and
for another author. The focus instead is on inquiring into when the
parties have, in fact, chosen their tort law.
II. A
T
YPOLOGY OF CHOICE OF LAW CLAUSES
This Article focuses on how courts should interpret generic choice of
law clauses. Prior to embarking on this task, however, it is helpful to
situate generic choice of law clauses within the landscape of choice of
law clauses in general. I suggest that there are four broad categories of
choice of law clauses: (1) specific; (2) nexus-based; (3) generic; and (4)
17
SYMEON C. SYMEONIDES, WENDY COLLINS PERDUE & ARTHUR TAYLOR VON MEHREN,
C
ONFLICT OF LAWS: AMERICAN, COMPARATIVE, INTERNATIONAL CASES AND MATERIALS 359 (2d
ed. 2003).
18
Id.
19
One notable exception is found in the corporate affairs doctrine. See Sagi Peari, An
Assessment of the U.S. Rules Which Determine the Relevant Law Applicable to Corporations: A
Suggestion for Reform, 45 D
EL. J. CORP. L. 469, 495 (2021) (applying law of the state of
incorporation despite choice of law clause).
20
See Pac. Controls Inc. v. Cummins Inc., No. 19-cv-03428, 2021 WL 4462725, at *4
(S.D.N.Y. Sept. 29, 2021) (“[B]oth parties agree that New Jersey law governs Pacific’s tort
claims because Pacific is headquartered in New Jersey and alleges to have suffered harm
there. Where the parties agree on which State’s law controls, ‘this is sufficient to establish
choice of law.’” (citations omitted)).
969 2023] The Scope of Generic Choice of Law Clauses
atypical.
21
These categories are intended to enable a reader to readily
distinguish generic choice of law clauses from other choice of law
clauses.
A specific choice of law clauses is one that specifically designates the
clause’s scope by enumerating the particular disputes to which it is
intended to apply. A specific choice of law clause might provide
something to the effect that “any and all claims, arising out of or related
to this Agreement, whether sounding in contract, tort, or otherwise, shall
be governed by the laws of the State of New York.”
A nexus-based choice of law clause, as its name suggests, contains
relatedness language such as “arise from” or “relate to.”
22
A nexus-based
choice of law clause may provide something to the effect that “Any and
all claims arising from or relating to this Agreement shall be governed by
the laws of the State of New York.”
23
Nexus-based choice of law clauses
are simply a less detailed version of specific choice of law clauses.
A generic choice of law clause is one that refers to the contract being
“governed by,” “construed and interpreted in accordance with,” or
“subject to” a certain law. Notably, a generic choice of law clause does
not contain nexus-based language.
Finally, an atypical choice of law clause is one that does not neatly fit
into the other categories or combines aspects of different categories. For
instance, the clause might provide that the “parties agree that all claims
will be resolved under” a certain law.
24
This is not quite a nexus-based
clause, since the provision does not explicitly say that all claims arising
from the contract will be governed by the chosen law. Likewise, it is not
quite a generic choice of law clause because it does not provide that “the
21
This typology was developed in conjunction with Tyler Martin, Esq., who wrote an
unpublished student Note on generic choice of law clauses.
22
See McPhee v. Gen. Elec. Int’l, Inc., 426 F. App’x 33, 34 (2d Cir. 2011); Cooper v.
Meridian Yachts, Ltd., 575 F.3d 1151, 1158-59 (11th Cir. 2009); Change Cap. Partners Fund
I, LLC v. Volt Elec. Sys., LLC, No. N17C-05-290, 2018 WL 1635006, at *2 (Del. Super. Ct.
2018); Capital Z Fin. Servs. Fund II, L.P. v. Health Net, Inc., 840 N.Y.S.2d 16, 23 (App. Div.
2007).
23
See McPhee, 426 F. App’x at *34.
24
See, e.g., Almeida v. BOKF, NA, 471 F. Supp. 3d 1181, 1191 (N.D. Okla. 2020) (“Here,
the trust indentures include the following choice-of-law provision: ‘The effect and
meaning hereof and the rights of all parties hereunder shall be governed by, and
considered according to, the laws of the state of [Alabama or Georgia].’”).
970 University of California, Davis [Vol. 56:959
contract” will be subject to the chosen law.
25
Hence, the catch-all
category.
These categories are intended to be descriptive. Not every choice of
law clause can readily be placed into one of these categories, though most
of them can. The chart below illustrates the four categories described
above:
Specific Choice
of Law Clauses
“Any and all
claims,
controversies, and
causes of action
arising out of or
relating to this
Agreement,
whether sounding
in contract, tort,
or statute, shall be
governed by the
laws of the State
of New York.”
Nexus-Based
Choice of Law
Clauses
“This Agreement,
and claims arising
from or relating to
this Agreement,
shall be governed
by the laws of the
State of New
York.”
“All disputes
arising out of or in
connection with
this Agreement
shall be governed
by the laws of the
State of New
York.”
“The laws of the
State of New York
shall govern any
and all claims
arising between
the parties.”
Generic Choice of
Law Clauses
“This Agreement
shall be governed
by the laws of the
State of New York.”
“This contract is
subject to the laws
of the State of New
York.”
“This Agreement
shall be interpreted
and enforced in
accordance with
the Laws of the
State of New York.”
Atypical Choice
of Law Clauses
“The effect and
meaning hereof
and the rights of
all parties
hereunder shall
be governed by,
and considered
according to, the
laws of the State
of New York.”
“The law of New
York governs all
matters with
respect to this
Agreement.”
“The parties
choose New York
as the governing
law.”
“Governing Law:
New York.”
“Any dispute
between the
25
See, e.g., King v. Bumble Trading, Inc., 393 F. Supp. 3d 856, 864 (N.D. Cal. 2019)
(“Both cases involved terms with only the generic ‘governed by and construed in
accordance with’ phrasing with no other qualifiers. Conversely, Bumble’s specifically
target its users’ ‘access to the App . . . Content, and any Member Content . . . .’ Thus,
Bumble’s added language distinguishes its terms from the narrower choice of law
provisions cited by Plaintiffs.” (citations omitted)).
971 2023] The Scope of Generic Choice of Law Clauses
parties will be
governed by New
York law.”
Each choice of law clause category discussed above presents
interpretation challenges that vary in difficulty. Interpreting a specific
choice of law clause is a usually very straightforward exercise because of
the express mention of the extra-contractual claims it is designed to
cover. The same can be said about nexus-based choice of law clauses.
Despite lacking the level of detail contained in a specific choice of law
clause, there is a general consensus among courts that these clauses are
drafted broadly enough to encompass any and all claims that arise from
or relate to the agreement in question.
26
Atypical choice of law they tend
to attract the most interpretative scrutiny.
27
Because the analysis will
track the exact wording of the clause, it is not surprising to see courts
reach “inconsistent results”
28
even though they are interpreting very
similar clauses.
26
See Pike Co. v. Universal Concrete Prods., Inc., 524 F. Supp. 3d 164, 179 (W.D.N.Y.
2021) (“As a general rule of thumb, provisions applying to disputes ‘arising out of’ or
‘relating to’ a contract are capacious enough to reach related tort claims, while provisions
stating that a contract will be ‘governed by’ or ‘construed in accordance with’ the law of
a state are not.” (internal citations omitted)).
27
See, e.g., Facility Wizard Software, Inc. v. Se. Tech. Servs., LLC, 647 F. Supp. 2d 938,
944 (N.D. Ill. 2009) (“The choice-of-law provision clearly states that Illinois law shall
apply to the ‘Agreement’ and ‘all rights and obligations hereunder, including matters of
construction, validity and performance.’ . . . [B]ecause FWS’s claims concern CPSS’s
(non-)performance under the contract, the choice of law provision clearly applies Illinois
law to the ‘performance’ of the contract. Thus, the parties intended Illinois law to apply
to FWS’s tort-based claims.”); El Pollo Loco, S.A. de C.V. v. El Pollo Loco, Inc., 344 F.
Supp. 2d 986, 989 (S.D. Tex. 2004) (“The Court recognizes that the phrase ‘[a]ll disputes
which may arise in connection with the performance of this Agreement’ is broader than
the choice of law clauses at issue in Benchmark and Caton, which only govern how the
respective agreements ‘shall be construed,’ and more closely resembles the phraseology
of the arbitration clause in Valero. Given the wording of the choice of law clause in the
Agreement, the Court finds that the choice of law clause applies to Plaintiff’s tort claims,
as well as its contract claims, because the tort claims are disputes that are connected
‘with the performance of th[e] Agreement.’”).
28
Pike Co., 524 F. Supp. 3d at 179.
972 University of California, Davis [Vol. 56:959
The focus of this Article is generic choice of law clauses. A large swath
of choice of law clauses in contracts are of this generic variety.
29
When
disputes arise, these clauses tend to provide fodder for litigation.
30
Generally speaking, neither party will take issue with the chosen law
applying to the contractual matters in dispute.
31
However, the plaintiff
will often seek to advance a tort, statutory, or other claim that is viable
only under some law other than that designated in the choice of law
clause. The plaintiff will argue that the choice of law clause should be
interpreted narrowly to apply only to contractual claims. This, in turn,
would allow the plaintiff to advance extra-contractual claims under some
other body of law.
32
How courts interpret these generic choice of law
clauses matters a great deal to the outcome of any given case. And
currently, courts have diametrically opposed approaches to how they
interpret generic choice of law clauses.
III. C
URRENT APPROACHES TO THE INTERPRETATION OF GENERIC
CHOICE OF LAW CLAUSES
The two most common variations of generic choice of law clauses are:
“This contract shall be interpreted and construed in accordance with X
law” and “This contract shall be governed by X law.” Other iterations
include: “This contract is subject to X law,” “The parties agree that X law
applies to this contract,” and “The parties choose X law for their
contract.” The commonality is that all these clauses is that they explicitly
refer only to “this” contract and contain no nexus-based language.
Despite the difference in the language employed, courts have largely
29
This is likely because choice of law clauses tend to be boilerplate, and boilerplate
tends to be sticky. See M
ITU GULATI & ROBERT E. SCOTT, THE THREE AND A HALF MINUTE
TRANSACTION: BOILERPLATE AND THE LIMITS OF CONTRACT DESIGN 11 (Univ. of Chi. Press
2013).
30
This is true for other choice of law categories as well.
31
Unless, of course, there is some basis for resisting the applicability of the chosen
law — such as public policy concerns.
32
This is a typical litigation posture in which this issue presents itself, but not the
only one. See, e.g., Heskiaoff v. Sling Media, Inc., 719 F. App’x 28, 29-31 (2d Cir. 2017)
(plaintiffs arguing that the choice of law clause should be interpreted broadly to allow for
the chosen law, California law, to apply to their extra-contractual claims).
973 2023] The Scope of Generic Choice of Law Clauses
treated these generic choice of law clauses as interchangeable.
33
For the
purpose of this Article, I, too, treat these clauses as interchangeable and
place them in the broad bucket of generic choice of law clauses.
The difficulty with these clauses lies not in distinguishing them from
one another (i.e., determining whether “interpreted in accordance with”
is different than “governed by”), but rather in determining how far they
should extend. In particular, courts must decide whether a generic choice
of law clause should be interpreted narrowly to apply exclusively to
contractual claims, or broadly to apply to any and all claims arising out
of the contract.
34
This issue is complicated by the lack of clarity on what law governs the
interpretation of a choice of law clause. When a court is tasked with
assessing whether to interpret a generic choice of law clause to
encompass non-contractual claims, should it use forum law to do so? Or,
should it use the parties’ chosen law? Courts are divided on this issue.
Most courts use forum law to interpret the scope of a choice of law
clause.
35
The leading case in this respect is Finance One Public Co. v.
Lehman Brothers Special Financing, Inc.
36
There, the Second Circuit Court
of Appeals noted that “courts consider the scope of a contractual choice-
of-law clause to be a threshold question like the clause’s validity” and
thus “[c]ourts . . . determine a choice-of-law clause’s scope under the
33
Coyle, supra note 2, at 656 (referring specifically to courts’ treatment of the two
most common iterations of generic choice of law clauses). Professor Coyle calls this “the
canon of linguistic equivalence.” See also Stephen L. Sepinuck, Drafting a Choice-of-Law
Clause, 10 T
RANSACTIONAL L. 4, 4 (2020) (“In theory, there is a difference between a
choice-of law clause that provides that a chosen state’s law is to be applied in
‘interpreting’ or ‘construing’ the agreement and one that provides that the chosen law
‘governs’ the contract . . . . Most courts to address this matter of phrasing have rejected
this theoretical distinction and concluded that the wording does not matter.”). But see
Run Them Sweet, LLC v. CPA Glob. Ltd., 224 F. Supp. 3d 462, 466-67 (E.D. Va. 2016)
(drawing distinction between the words “construed” and “governed”).
34
Coyle, supra note 2, at 666-67.
35
Pyott-Boone Elecs. Inc. v. IRR Tr. for Donald L. Fetterolf Dated Dec. 9, 1997, 918
F. Supp. 2d 532, 542 (W.D. Va. 2013) (“[I]t appears that a majority, albeit not an
overwhelming one, of courts that have addressed this issue have concluded that the scope
of a choice-of-law provision is a threshold issue of enforceability to be decided under
forum law.”).
36
414 F.3d 325 (2d Cir. 2005).
974 University of California, Davis [Vol. 56:959
same law that governs the clause’s validity — the law of the forum.”
37
Not
all courts agree, however. Some courts, notably those in California, apply
the parties’ chosen law to determine the scope of the choice of law
clause.
38
The divergent approaches to the threshold determination of
which law governs the scope issue adds to the complications
immensely.
39
This Article concentrates on the correct doctrinal approach to the
interpretation of a generic choice of law clause. If courts were to apply a
consistent approach to interpreting generic choice of law clauses, the
“forum law” vs. “chosen law” question would be rendered moot. Below,
I explore in more detail the three main approaches that courts use to
interpret generic choice of law clauses.
A. The Narrow Approach
Certain cour
ts, following the lead of New York, hold that generic
choice of law clauses should be construed narrowly to apply to
contractual claims only.
40
These courts largely focus on characterizing
the claim at issue: Is the claim advanced contractual or non-contractual
in nature? If the claim is non-contractual, it is simply not covered by the
parties’ generic choice of law clause. Three seminal New York cases
paved the way for the bright-line rule that generic choice of law clauses
do not extend to non-contractual claims.
37
Id. at 333.
38
Wash. Mut. Bank, FA v. Superior Ct., 15 P.3d 1071, 1078 n.3 (Cal. 2001) (“[T]he
scope of a choice-of-law clause in a contract is a matter that ordinarily should be
determined under the law designated therein . . . .”).
39
If parties choose California law to govern their contract and the case is heard in a
jurisdiction that applies forum law to decide the scope issue, the result may be that the
clause is interpreted narrowly (despite the parties choosing California law, which
interprets such clauses broadly). Similarly, if the parties choose New York law and the
case is heard in a jurisdiction that applies the chosen law, the clause will be interpreted
narrowly, even if that jurisdiction follows a broad approach to interpretation. Multiple
permutations abound. An additional wrinkle presents itself in federal cases that are
transferred under 28 U.S.C. § 1404 (2018). See, e.g., Maltz v. Union Carbide Chems. &
Plastics Co., 992 F. Supp. 286, 296 (S.D.N.Y. 1998) (New York court applying Texas choice
of law principles to ascertain both validity and scope of choice of law clause).
40
Sepinuck, supra note 33, at 5 (“In most states, a choice-of-law clause that selects
the law of a state to govern ‘the contract’ will apply only to contract claims; it will not
cover tort claims or statutory claims.”).
975 2023] The Scope of Generic Choice of Law Clauses
In Knieriemen v. Bache Halsey Stuart Shields Inc.,
41
the plaintiff filed suit
against a brokerage firm alleging that it engaged in, among other things,
churning with respect to the plaintiff’s commodity trading account.
42
The
parties had entered into an agreement that contained the following
generic choice of law clause: “[t]his contract shall be governed by the
laws of the State of New York.”
43
The defendant argued that the plaintiff’s
tort claim should be governed by Louisiana law, not by the law
designated in the choice of law clause.
44
The court agreed, though its
reasoning was sparse. The fact “[t]hat the parties agreed that their
contract should be governed by an expressed procedure does not bind
them as to causes of action sounding in tort . . . .”
45
The court further
emphasized that “there is no reason why all [claims] must be resolved by
reference to the law of the same jurisdiction . . . .”
46
In Klock v. Lehman Brothers Kuhn Loeb Inc.,
47
the parties entered into a
contract providing that the agreement “shall be governed by the laws of
the State of New York.”
48
The court in Klock rejected the plaintiff’s
argument that the parties’ chosen law should govern the fraud claim,
reasoning that “[r]egardless of whether these clauses . . . can be said to
govern the entire relationship between the parties, it has been held in
New York that a contractual choice of law provision governs only a cause
of action sounding in contract.”
49
In Krock v. Lipsay,
50
parties entered into a transaction for the sale of a
waterfront property.
51
A mortgage document executed by the parties
contained a generic choice of law clause providing that “[t]his mortgage
shall be governed by and construed in accordance with the law of the
Commonwealth of Massachusetts . . . .”
52
The Second Circuit Court of
41
427 N.Y.S.2d 10 (App. Div. 1980).
42
Id. at 12.
43
Id.
44
Id.
45
Id. at 12-13 (emphasis added).
46
Id. at 13.
47
584 F. Supp. 210 (S.D.N.Y. 1984).
48
Id. at 215.
49
Id.
50
97 F.3d 640 (2d Cir. 1996).
51
Id. at 643.
52
Id.
976 University of California, Davis [Vol. 56:959
Appeals rejected the plaintiff’s argument that the parties’ choice of law
provision applied to the tort-based fraudulent misrepresentation claim.
53
The court held that there was “no way [the parties’ clause] could be read
broadly enough to apply to fraudulent misrepresentation” because the
clause did not reflect any intention to include non-contractual claims.
54
The court further explained that “[u]nder New York law, a choice-of-law
provision indicating that the contract will be governed by a certain body
of law does not dispositively determine that law which will govern a claim
of fraud arising incident to the contract.”
55
Although the clause in Krock
was construed narrowly, the court expressed its willingness to interpret
a choice of law clause to apply to non-contractual claims so long as the
“express language of the provision [is] ‘sufficiently broad’ as to
encompass the [parties’] entire relationship . . . .”
56
But, of course, in
such a case, the clause is no longer a generic one, but instead a specific
or a nexus-based one.
Since the 1990s, there have been a myriad of decisions by New York
courts reaffirming the principle that generic choice of law clauses do not
extend to non-contractual claims. Most states that have considered this
issue have followed New York’s lead in interpreting generic choice of law
clauses narrowly.
57
B. The Broad Approach
By contrast, some state
s employ what might be called a broad
approach to the interpretation of generic choice of law clauses.
58
These
courts interpret generic choice of law clauses to encompass non-
53
Id. at 645.
54
Id.
55
Id.
56
Id.
57
Courts in Texas, Pennsylvania, Arizona, Connecticut, Florida, Georgia, Iowa,
Indiana, Louisiana, Massachusetts, Michigan, New Jersey, North Carolina, Oregon,
Oklahoma, Wisconsin, and Washington follow the broad approach. See Coyle, supra note
2, at 668-70 (listing states); see also Ochoa v. Indus. Ventilation, Inc., No. 18-CV-0393,
2021 WL 5405203, at *4 (E.D. Wash. Nov. 18, 2021); Norred & Assocs., Inc. v. ADP Inc.,
No. 20-CV-00239, 2020 WL 10576414, at *2 (N.D. Ga. Sept. 17, 2020); Almeida v. BOKF,
NA, 471 F. Supp. 3d 1181, 1192 (N.D. Okla. 2020).
58
These states include Arkansas, California, Delaware, Illinois, Kansas, Minnesota,
Montana, Nebraska, and Virginia. See Coyle, supra note 2, at 680.
977 2023] The Scope of Generic Choice of Law Clauses
contractual claims despite the clauses’ lack of nexus-based language.
59
Under the broad approach, there is a sort of presumption that generic
choice of law clauses supply the controlling law for all claims arising from
or relating to the parties’ agreement.
The broad approach is most commonly associated with California and
the Nedlloyd Lines B.V. v. Superior Court decision.
60
In Nedlloyd, the parties
entered into a shareholders’ agreement which provided that “[t]his
agreement shall be governed by and construed in accordance with Hong
Kong law . . . .”
61
The plaintiff asserted a violation of the implied covenant
of good faith and fair dealing and breach of fiduciary duty.
62
The
defendant argued that the plaintiff’s claim was governed by Hong Kong
law pursuant to the choice of law clause.
63
The plaintiff, by contrast,
argued that its non-contractual claims should be governed by California
law.
64
The Nedlloyd court held that the law specified in the choice of law
clause governed all claims arising from the parties’ agreement. The court
focused on the phrase “governed by” and explained that the phrase
signifies a relationship of “absolute direction, control, and restraint.”
65
According to the court, the words “governed by” evidenced the parties’
“clear contemplation” that their agreement would be governed by Hong
Kong law absolutely.
66
The court further reasoned that the plaintiff’s
non-contractual claims were governed by Hong Kong law because its
claims arose from, and could only exist because of, the parties’
agreement.
67
The court expressed the view that this broach approach to
59
See Nw. Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (8th Cir.
1997) (Minnesota); Pyott-Boone Elecs. Inc. v. IRR Tr. for Donald L. Fetterolf Dated Dec.
9, 1997, 918 F. Supp. 2d 532, 544 (W.D. Va. 2013) (Virginia); Freedman v. Am. Online, Inc.,
325 F. Supp. 2d 638, 653-54 (E.D. Va. 2004) (Virginia); Nedlloyd Lines B.V. v. Superior Ct.,
834 P.2d 1148, 1155 (Cal. 1992) (California); Abry Partners V, L.P. v. F & W Acquisition
LLC, 891 A.2d 1032, 1048 (Del. Ch. 2006) (Delaware).
60
Nedlloyd Lines B.V., 834 P.2d 1148.
61
Id. at 1150.
62
Id.
63
Id.
64
Id.
65
Id. at 1154.
66
Id.
67
Id.
978 University of California, Davis [Vol. 56:959
interpreting choice of law clauses was consistent with “common sense
and commercial reality.”
68
The court in Nedlloyd emphasized that if
parties intend for a choice of law clause to be limited to contractual
claims only, the burden should be on them to use express contractual
language reflecting this intention.
69
Post-Nedlloyd, a number of courts have focused on whether a clause
contains “governed by” language. If so, they automatically interpret the
clause to apply to non-contractual claims. For example, in Olinick v. BMG
Entertainment, the parties’ choice of law clause provided “[t]his
Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York . . . .”
70
The court
reasoned that because the clause contained the words “governed by,” the
clause “encompasse[d] all causes of action arising from or related to that
agreement, regardless of how [the claims] are characterized . . . .”
71
It is not clear how much actually hinges on the particular phraseology
of the generic choice of law clause, however. There is dicta in some
California cases that generic choice of law clauses should be interpreted
broadly to apply to all claims arising from a contract, regardless of how
the clause is written.
72
For example, in G.P.P. Inc. v. Guardian Protection
Products, Inc., the parties entered into a contract that contained a choice
of law clause which provided “[t]he choice of law of the parties is the law
of the State of California.”
73
This was not a generic choice of law clause,
but rather an atypical choice of law clause. Nonetheless, the court’s
reasoning was instructive. The court held that “[u]nder California law,
the Nedlloyd test applies and broadly construes choice-of-law provisions
to encompass any claims — however styled — arising out of or related to
68
Id.
69
Id.; see Pyott-Boone Elecs. v. IRR Tr. for Donald L. Fetterolf Dated Dec. 9, 1997, 918
F. Supp. 2d 532, 545 (W.D. Va. 2013).
70
Olinick v. BMG Ent., 42 Cal. Rptr. 3d 268, 276 (Ct. App. 2006) (emphasis omitted).
71
Id. at 278 (quoting Nedlloyd Lines B.V., 834 P.2d at 1155). For another case where the
court focused on the “governed by” language, see Unit Process Co. v. Raychem Corp.,
Nos. A092407, A094012, 2002 WL 173286, at *1, *6 (Cal. Ct. App. Mar. 7, 2002).
72
Note that it is unusual to find a generic choice of law clause without the word
“govern” in it.
73
G.P.P., Inc. v. Guardian Prot. Prods., Inc., No. 15-CV-00321, 2015 WL 3992878, at
*15 (E.D. Cal. June 30, 2015) (alteration in original).
979 2023] The Scope of Generic Choice of Law Clauses
the contract.”
74
In that case, the court referred to the choice of law clause
as “similarly broad and set[ting] forth the parties’ choice of law as the
State of California, with no exceptions or qualifications.”
75
Similarly, in
Wissot v. Great-West Life & Annuity Insurance Co., the court considered the
following generic choice of law clause: “This policy is subject to the laws
of the State of Illinois . . . .”
76
Although the court applied Illinois law to
read the clause broadly, it indicated that “the result would remain the
same” under California law.
77
It is probably a safe bet to say that any
generic choice of law clause will be interpreted in a manner consistent
with Nedlloyd despite minor differences in wording.
One final point about the California approach. Even though California
courts state that the non-contractual claims must be related to the
contract, there is little meaningful scrutiny of relatedness in the cases.
78
Pretty much any tort, statutory, or other claim has been held to fall
within the scope of a generic choice of law clause under California law.
In fact, no court in California has articulated or employed a specific
relatedness test in the context of generic (or other) choice of law clauses.
The bottom line is that courts following the broad approach to generic
choice of law clauses typified by California courts will deem any such
clause to encompass non-contractual claims.
79
The only way to avoid
such a result would be for the parties to specifically denote their
intention not to have the chosen law extend beyond contractual claims.
74
Id.
75
Id. at *16; see also Medimatch, Inc. v. Lucent Techs. Inc., 120 F. Supp. 2d 842, 861
(N.D. Cal. 2000) (contract provided that the “construction, interpretation and
performance of [the contract]” would be governed by New Jersey law; court agreed with
the parties that New Jersey law covered all claims but did not specifically address the
scope issue).
76
Wissot v. Great-W. Life & Annuity Ins., No. CV 11-10040 (JCGx), 2012 WL
13059733, at *7 (C.D. Cal. Dec. 12, 2012).
77
Id.
78
See, e.g., Gustafson v. BAC Home Loans Servicing, LP, 294 F.R.D. 529, 536 (C.D. Cal.
2013); Dos Beaches, LLC v. Mail Boxes Etc., Inc., No. 09CV2401 (RBB), 2012 WL 506072,
at *19 (S.D. Cal. Feb. 15, 2012).
79
See, e.g., Brighton v. Lutheran Church-Mo. Synod, No. SACV 12-883 (MLGx), 2013
WL 12136522, at *3 (C.D. Cal. Feb. 1, 2013) (applying Nedlloyd and readily concluding that
the claims fell within the scope of the choice of law clause); Cannon v. Wells Fargo Bank
N.A., 917 F. Supp. 2d 1025, 1051-52 (N.D. Cal. 2013) (same); Estrella v. Freedom Fin.
Network, LLC, No. C 09-03156, 2010 WL 2231790, at *4 (N.D. Cal. June 2, 2010) (same).
980 University of California, Davis [Vol. 56:959
C. The Relatedness Approach
A third approach might be characterized as a “relatedness” approach.
The focus is largely on whether the non-contractual claims are
sufficiently related to the parties’ agreement so as to be encompassed by
the choice of law clause. Essentially, the relatedness approach is a slightly
more stringent version of the broad approach to the interpretation of
generic choice of law clauses. Courts that follow this approach are
prepared to interpret a generic choice of law clause broadly, but only with
respect to non-contractual claims that are “related” to the contract.
80
Interestingly, some of these courts adopt a “one/two punch” approach
to determining whether to apply the parties’ choice of law to tort and
other non-contractual claims. The first “punch” is to look at the wording
of the clause itself to ascertain whether it is broad enough to cover the
tort claim. If it is not, the second “punch” involves looking at whether
the tort claim is nonetheless so connected to the contract that the law
specified in the choice of law clause should apply regardless of its
particular phraseology.
81
This one/two punch is aptly described in Bajwa
v. United States Life Insurance Co., a recent California case applying Illinois
law to determine the scope of a choice of law clause.
82
In Bajwa, the court
concluded that the language of the choice of law clause — “the policy,
and all claims arising out of the policy, are governed by the laws of
Illinois” — did not extend to tort claims.
83
Nonetheless, under Illinois
law, any “tort claims that are dependent upon the contract are subject to
a contract’s choice-of-law clause regardless of the breadth of the
clause.”
84
80
See, e.g., Nw. Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (8th
Cir. 1997) (“These [tort] claims are closely related to the interpretation of the contracts
and fall within the ambit of the express agreement that the contracts would be governed
by Minnesota law.”).
81
See, e.g., Amakua Dev. LLC v. Warner, 411 F. Supp. 2d 941, 956 (N.D. Ill. 2006)
(“The Court concludes that the language of the Choice of Law Clause does not indicate
that the parties intended California law to apply to tortious conduct. . . . The Court next
considers whether Count III should be viewed as dependent on the Agreement, such that
the Choice of Law Clause should govern the fraud claim.”).
82
Bajwa v. U.S. Life Ins., No. 19-cv-00938, 2021 WL 2661836 (E.D. Cal. June 16, 2021).
83
Id. at *6.
84
Id.; see also Cunningham Charter Corp. v. Learjet, Inc., 870 F. Supp. 2d 571, 577 (S.D.
Ill. 2012) (“Thus, the language does not indicate the intent that Kansas law apply to the
981 2023] The Scope of Generic Choice of Law Clauses
The specific doctrinal test that courts adopt to determine relatedness
will differ from state to state. For instance, Illinois courts have adopted
the following three-part test to determine whether the tort claims at
issue are “dependent upon the contract”: “(1) the claim alleges a wrong
based on the construction and interpretation of the contract; (2) the tort
claim is closely related to the parties’ contractual relationship; or (3) the
tort claim could not exist without the contract.”
85
Some states do not
seem to articulate a particular test, so much as focus on whether the tort
claims are somehow meaningfully connected to the contract. For
instance, in Credit Payment Services, Inc. v. Moneygram Payment Systems,
Inc., the court applied the parties’ choice of law clause to a tort claim
because “any duty of care owed by Defendant can only be predicated on
the Parties’ business relationship as created by the Agreement.”
86
In
Northwest Airlines, Inc. v. Astraea Aviation Services, Inc., the court noted
that “[a]lthough mainly styled as torts, these claims stem from
Northwest’s alleged failure promptly to provide functioning parts and
adequate support . . . as required under the contracts.”
87
Thus, the tort
claims were “closely related to” the interpretation of the contracts and
fell within the choice of law clause.
88
In Adelman’s Truck Parts Corp. v.
Jones Transport, the Sixth Circuit Court of Appeals noted that the
plaintiff’s statutory claim “arose out of and [was] directly related to” the
contract and therefore would be subject to the parties’ choice of
governing law.
89
In all of these cases, courts employed a loose, but
unarticulated, connection-based test to determine whether the parties’
choice of law clause extended to tort claims.
The relatedness approach usually leads courts to interpret a choice of
law clause broadly. In this respect, there is often little difference between
instant fraud-related claims. However, as defendant points out, the breadth of the
language is not determinative. Thus, the Court must consider whether the fraud-related
claims in Counts IV and VI are dependent upon the contract.”).
85
Amakua Dev. LLC, 411 F. Supp. 2d at 955.
86
Credit Payment Servs. Inc. v. Moneygram Payment Sys., Inc., No. 14-CV-62, 2015
WL 12531989, at *4 (E.D. Tenn. Feb. 13, 2015) (emphasis added).
87
Nw. Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (8th Cir. 1997)
(emphasis added).
88
Id.
89
Adelman’s Truck Parts Corp. v. Jones Transp., 797 F. App’x 997, 1001 (6th Cir.
2020).
982 University of California, Davis [Vol. 56:959
the broad approach and the relatedness approach to determining the
scope of a generic choice of law clause.
90
Unless the context dictates
otherwise, reference to the broad approach in this Article is intended to
include the relatedness approach as well.
IV. H
OW SHOULD COURTS INTERPRET GENERIC CHOICE OF LAW
CLAUSES?
I transition in this Part t
o the question of how courts should interpret
generic choice of law clauses. I argue that courts should interpret generic
choice of law clauses narrowly to apply only to contractual claims. For
non-contractual claims such as tort or statutory claims, courts should
conduct a choice of law analysis to ascertain the appropriate governing
law. The narrow approach remains faithful to the actual words of the
parties and preserves the distinction between specific or nexus-based
choice of law clauses and generic choice of law clauses.
A. Contractual Interpretation of a Generic Choice of Law Clause
The goal of contract inter
pretation is to ascertain the meaning of the
parties, as expressed in their contract.
91
Despite this wholly
uncontroversial proposition, the normal rules of contractual
interpretation are largely disregarded by courts adopting a broad
90
See Coyle, supra note 2, at 673 (“In practice, the two approaches are more alike
than they are different. Both posit that tort and statutory claims that are ‘related’ to a
contract claim are generally governed by the law set forth in a generic choice-of-law
clause. The only meaningful difference between them is the rigor with which the courts
police the boundary between related and unrelated claims.”).
91
11 SAMUEL WILLISTON & RICHARD A. LORD, WILLISTON ON CONTRACTS § 30:2 (4th ed.
1990) (“[T]he process of interpretation and construction of contracts requires that when
a written memorial of the parties’ bargain exists, the law cannot recognize their will or,
as it is more frequently stated, their intent unless it is expressed or implied in the writing . . .
.” (emphasis added)); see also id. § 31:4 (“Except in cases of ambiguity, . . . the object in
interpreting or construing a written contract is to ascertain the meaning and intent of
the parties as expressed in and determined by the words they used, irrespective of their
supposed actual, subjective intent, and to give effect to their apparent, objectively
expressed intent . . . .” (emphasis added)); Pyott-Boone Elecs. Inc. v. IRR Tr. for Donald
L. Fetterolf Dated Dec. 9, 1997, 918 F. Supp. 2d 532, 544 (W.D. Va. 2013) (“A court
interpreting one of these provisions, therefore, should always be guided primarily by its
effort to effectuate the intent of the parties as reflected in the language of their
agreement.”).
1. The Ambiguity Threshold
983 2023] The Scope of Generic Choice of Law Clauses
approach to the scope of generic choice of law clauses. These courts
ignore the ambiguity threshold for contractual interpretation, fail to
apply basic principles of contractual interpretation, read generic choice
of law clauses as nexus-based choice of law clauses, place the onus on the
parties to exclude non-contractual claims, fail to demonstrate
consistency in interpreting forum selection clauses and choice of law
clauses, and improperly consider hypothetical intent instead of actual
intent. Each of these considerations is discussed in turn.
A choice of law clause is subject to the same rules of interpretation as
any other contractual provision.
92
At common law, prior to interpreting
a provision of a contract, a party must demonstrate that the clause is
ambiguous.
93
The ambiguity threshold is complicated in and of itself.
There are two approaches that courts use to assess whether a word or
phrase in a contract is ambiguous: the plain meaning approach and the
contextual approach. The plain meaning approach looks at the
contractual language on its face. If the words have a “plain meaning,” the
court will conclude that the provision is not ambiguous and simply go
ahead and apply its plain meaning.
94
By contrast, some courts follow the
contextual approach, which is based on the premise that words do not
have constant meaning and that ambiguity can only be divined from
92
William J. Woodward, Jr., Constraining Opt-Outs: Shielding Local Law and Those It
Protects from Adhesive Choice of Law Clauses, 40 L
OY. L.A. L. REV. 9, 16 (2006) (“In the
complex analysis that often accompanies choice of law clauses, it is easy to lose sight of
the fact that the enforcement of these provisions depends on plain, ordinary contract
law.”).
93
11 WILLISTON & LORD, supra note 91, § 30:4 (“It is a generally accepted proposition
that when the terms of a writing are plain and unambiguous, there is no room for
interpretation or construction since the only purpose of judicial construction is to
remove doubt and uncertainty.”). Note that Article 2 of the Uniform Commercial Code
does not require a threshold finding of ambiguity prior to a court being able to interpret
the words of a contract.
94
Malmsteen v. Universal Music Grp., Inc., 940 F. Supp. 2d 123, 130 (S.D.N.Y. 2013)
(“To give effect to the intent of the parties, a court must interpret a contract by
considering all of its provisions, and ‘words and phrases . . . should be given
their plain meaning.’ ‘A written agreement that is clear, complete and subject to only one
reasonable interpretation must be enforced according to the plain meaning of the
language chosen by the contracting parties.’” (citations omitted)).
984 University of California, Davis [Vol. 56:959
context and extrinsic evidence.
95
The contextual approach thus looks to
extrinsic evidence to determine whether an otherwise facially
unambiguous provision is, in fact, ambiguous. Regardless of which
approach a jurisdiction purports to follow,
96
the bottom line is that
ambiguity is the threshold gate into interpretation. Only once a court
determines that a word or phrase is ambiguous is it permitted to engage
in contractual interpretation. Ironically, there is almost no effort in any
of the choice of law clause cases to address this threshold inquiry.
97
Instead, most courts following a broad approach to the scope of generic
choice of law clauses seem to proceed on the assumption that such
clauses are de facto ambiguous and therefore require interpretation.
98
Seldom is mention ever made of ambiguity.
99
Instead, the entire focus is
on interpreting the choice of law clause.
Under the plain meaning approach, generic choice of law clauses are
not ambiguous. Therefore, there is no need to interpret them; one simply
applies the plain meaning of the clause.
100
A typical generic choice of law
95
See Pac. Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641, 644
(Cal. 1968) (“A rule that would limit the determination of the meaning of a written
instrument to its four-corners merely because it seems to the court to be clear and
unambiguous, would either deny the relevance of the intention of the parties or
presuppose a degree of verbal precision and stability our language has not attained.”).
96
See Alan Schwartz & Robert E. Scott, Contract Interpretation Redux, 119 YALE L.J.
926, 964 n.1 (2010) (“A strong majority of U.S. courts continue to follow the traditional,
‘formalist’ approach to contract interpretation. A state-by-state survey of recent court
decisions shows that thirty-eight states follow the textualist approach to interpretation.
Nine states, joined by the Uniform Commercial Code for sales cases (UCC) and the
Restatement (Second) of Contracts, have adopted a contextualist or ‘antiformalist’
interpretive regime. The remaining states’ doctrines are indeterminate.”).
97
For an exceptional case that did make some effort to address the ambiguity
question, see Warren E. Johnson Cos. v. Unified Brand, Inc., 735 F. Supp. 2d 1099, 1108
(D. Minn. 2010).
98
Those courts that follow a narrow approach to contractual interpretation have
presumably concluded that the generic choice of law clause is not ambiguous and proceed
to apply the plain meaning of the clause. There is rarely reference, however, in these cases
to the ambiguity issue at all.
99
For a rare case referencing ambiguity, see King v. Bumble Trading, Inc., 393 F.
Supp. 3d 856, 863 (N.D. Cal. 2019) (holding that choice of law provision was not
ambiguous).
100
There is disagreement on this point as well. See, e.g., Nedlloyd Lines B.V. v.
Superior Ct., 834 P.2d 1148, 1168 (Cal. 1992) (Kennard, J., concurring and dissenting)
985 2023] The Scope of Generic Choice of Law Clauses
clause reads, “This contract shall be governed by X law.” Under a plain
meaning approach, there is nothing ambiguous about the clause.
101
It
provides that “this contract” will be governed by X law.
102
It does not
provide that other claims related to this contract will also be governed
by X law.
The silence with respect to other claims does not render the clause
ambiguous.
103
In the words of the Seventh Circuit Court of Appeals,
“[s]ilence creates ambiguity . . . only when the silence involves a matter
naturally within the scope of the contract as written. A contract is not
ambiguous merely because it fails to address some contingency[.]”
104
An
illustration to underscore this point might be helpful. Assume I enter
into a contract with a painter to paint my “kitchen and dining room
walls.” The fact that I did not specify whether I wanted the painter to
paint my family room, bedroom, and bathroom does not render the
clause in the contract ambiguous.
105
The clause is clear: there is a contract
(“[I]t cannot be said of the choice-of-law clause in this case that it was clearly intended
by the parties to encompass related noncontractual causes of action. Nor, however, can
it be said that the choice-of-law clause here was plainly intended to exclude related
noncontractual causes of action. Instead, the clause is ambiguous; it is not clear whether
the parties intended it to govern related noncontractual causes of action.” (emphasis
added)); see also id. at 1170 (“Indeed, the very fact that Justices Panelli and Mosk disagree
with the majority regarding the meaning of the clause, and that both the majority and
these two justices find the clause clear, but conclude it has opposite meanings, ironically
and convincingly demonstrates that the clause is ambiguous.”).
101
See id. (“Indeed, the ambiguity in the scope of this clause proceeds not so much
from its language as from its context. Taken without reference to context, the clause is
unambiguous, but not in the manner suggested by the majority. Because the clause refers
only to ‘this Agreement,’ and not, like the similar clause at issue in Smith, to ‘matters
arising under or growing out of this agreement . . . .’, it appears on its face not to apply to
noncontractual causes of action.”).
102
GLEN BANKS, NEW YORK PRACTICE SERIES - NEW YORK CONTRACT LAW § 9:24 (2d ed.
2006) (“Ambiguity generally does not arise from a contract’s silence on an issue. An
ambiguity does not arise out of what was not written at all, but only out of what was
written so blindly or imperfectly that its meaning is doubtful.”).
103
11 WILLISTON & LORD, supra note 91, § 30:4 (“A contract’s silence on a particular
issue does not, by itself, create ambiguity as a matter of law, though it will create an
ambiguity when it involves a matter naturally within the scope of the contract.”).
104
Consol. Bearings Co. v. Ehret-Krohn Corp., 913 F.2d 1224, 1233 (7th Cir. 1990).
105
See Steven J. Burton, A Lesson on Some Limits of Economic Analysis: Schwartz and
Scott on Contract Interpretation, 88 I
ND. L.J. 339, 343 (2013) (chronicling four types of
contractual ambiguity identified by Professor Farnsworth: “term ambiguity”; “sentence
986 University of California, Davis [Vol. 56:959
to paint kitchen and dining room walls. Full stop. The analysis with
respect to choice of law clauses is identical. When parties have agreed to
a generic choice of law clause, they have agreed to have “the contract”
interpreted in accordance with the chosen law. The failure of the parties
to include broader language signals only one thing: that the parties did
not — by their words — intend anything but the contract to be subject to
the chosen law.
106
Of course, there is another approach to ambiguity. Under the
contextual approach, a court may interpret words in a contract that
appear on their face to be clear but are rendered ambiguous in light of
extrinsic evidence. Pacific Gas Company v. G.W. Thomas Drayage & Rigging
Co. is one of the leading cases in this respect.
107
In Pacific Gas, the
defendant agreed to indemnify the plaintiff against “against all loss,
damage, expense and liability resulting from . . . injury to property,
arising out of or in any way connected with the performance of this
contract.”
108
Despite the seemingly clear obligation to indemnify the
plaintiff against “all loss,” the defendant argued that the clause was
intended to cover only injury to the property of third parties and not
injury to the plaintiff’s property (i.e., it was a third party indemnification
agreement).
109
The court allowed the defendant to adduce extrinsic
evidence to establish that the clause was ambiguous and to establish its
meaning.
110
Notably the defendant was permitted to introduce evidence
of “admissions” by plaintiff’s agents and evidence of “defendant’s
conduct under similar contracts entered into with plaintiff,” among
other things, to show that the parties intended the clause to cover only
injury to the property of third parties.
111
ambiguity”; “structural ambiguity” and “vagueness”). A generic choice of law clause does
not fit into any of these categories.
106
See BANKS, supra note 102, § 9:24 (“When the parties’ contract omits terms —
particularly those found in other, similar contracts — the inescapable conclusion usually
is that the parties intended the omission.”).
107
Pac. Gas & Elec. Co. v. G. W. Thomas Drayage & Rigging Co., 442 P.2d 641 (Cal.
1968).
108
Id. at 642.
109
Id.
110
Id. at 646.
111
Id. at 642.
2. Basic Contractual Interpretation
987 2023] The Scope of Generic Choice of Law Clauses
When interpreting generic choice of law clauses, courts adopting a
broad approach must be assuming that a clause is ambiguous but failing
to say so explicitly. In the words of one of the dissenting judges in
Nedlloyd, “the very fact that [the dissenting judges] disagree with the
majority regarding the meaning of the clause, and that both the majority
and these two justices find the clause clear, but conclude it has opposite
meanings, ironically and convincingly demonstrates that the
clause is ambiguous.”
112
Simply because a judge can interpret a clause in
two different ways does not, in itself, render a clause ambiguous under
the contextual approach. What is required, per Pacific Gas, is that the
party seeking to establish ambiguity introduce extrinsic evidence that the
parties had a meaning other than that facially evidenced by the words of
the contract.
113
In the generic choice of law clause cases, parties may be
arguing that the contractual language is ambiguous but are failing to
provide evidence of actual party intent to establish that ambiguity — a
prerequisite to contractual interpretation, even under the contextual
approach.
In short, these courts are working from the wrong starting point. They
are working from the starting point of “We can conjure up two different
meanings and therefore the clause is ambiguous.” Rather, they should be
working from the starting point of “Is there evidence from the parties that
in selecting these words for the clause, they intended something other
than the plain meaning?” All of this to say that even under the contextual
approach, interpretation of a generic choice of law clause should be a
non-starter unless a party introduces extrinsic evidence of actual party
intent.
114
It is clear that courts are b
ypassing ambiguity as threshold inquiry and
proceeding right to the “meat” of contractual interpretation. And there,
112
Nedlloyd Lines B.V. v. Superior Ct., 834 P.2d 1148, 1170 (Cal. 1992) (Kennard, J.,
concurring and dissenting).
113
See, e.g., M & G Polymers USA, LLC v. Tackett, 574 U.S. 427, 444 (2015) (Ginsburg,
J., concurring) (“If, after considering all relevant contractual language in light of industry
practices, the Court of Appeals concludes that the contract is ambiguous, it may turn to
extrinsic evidence — for example, the parties’ bargaining history.”).
114
Id. at 443.
988 University of California, Davis [Vol. 56:959
courts like Nedlloyd are failing to remain faithful to the actual words of
the parties’ contact. The choice of law clause in Nedlloyd read as follows:
“This agreement shall be governed by and construed in accordance with
Hong Kong law[.]”
115
The court in Nedlloyd ascribed great significance to
the two words “governed by.” The court stated:
The phrase “governed by” is a broad one signifying a relationship
of absolute direction, control, and restraint. Thus, the clause
reflects the parties’ clear contemplation that “the agreement” is
to be completely and absolutely controlled by Hong Kong law.
No exceptions are provided. . . .
If Hong Kong law were not applied . . . , it would effectively
control only part of the agreement, not all of it. Such an
interpretation would be inconsistent with the unrestricted
character of the choice-of-law clause.
116
Notice the hyperbolic language: “absolute direction, control and
restraint”; “completely and absolutely controlled”; “no exceptions
provided”; “unrestricted character.” The court in Nedlloyd read far too
much into two words, divorced from the actual clause in which they
appeared. The court put the exclusive emphasis on the words “governed
by” while largely ignoring what it qualified: “[t]his agreement.”
117
The
clause simply says that this agreement will be “governed by” a certain
law.
118
This means that matters related to performance obligations,
breach, interpretation, and the like — matters concerning this contract
115
Nedlloyd, 834 P.2d at 1150 (majority opinion).
116
Id. at 1154.
117
See Anya Bernstein, Before Interpretation, 84 U. CHI. L. REV. 567, 568 (2017)
(“Interpretation requires an object: a text, an act, a concept, a something to be interpreted.
An interpreter must pick out that object. . . . As communicators, they can creatively
deploy and combine a variety of rhetorical moves.”). Bernstein was speaking specifically
of statutory interpretation, but the comments are no less true of contractual
interpretation.
118
See, e.g., Ochoa v. Indus. Ventilation, Inc., No. 18-CV-0393, 2021 WL 5405203, at *4
(E.D. Wash. Nov. 18, 2021) (“The sole term ‘agreement’ supports the Court’s conclusion
that the contracts solely govern claims sounding in contract.”); Com. Point Cap., Inc. v.
First Data Corp., No. 19-cv-556-W (LL), 2019 WL 7020057, at *3 (S.D. Cal. Dec. 20, 2019)
(“The clearest reference to the agreement’s scope is the phrase ‘[t]his agreement.’”).
989 2023] The Scope of Generic Choice of Law Clauses
— are controlled by the parties’ chosen law. That is all.
119
The wording
itself does not speak to the parties’ intention to have their entire
relationship governed by the chosen law.
Additionally, the language of generic choice of law clauses can readily
be contrasted with the language of specific or nexus-based choice of law
clauses. With the latter, parties specify that all claims arising from or
related to their contract will be governed by a certain law; under the
former, they simply provide that “the contract” will be governed by a
certain law. It is not hard to see how the existence of this alternate
phraseology would have an impact on the proper interpretation of a
generic choice of law clause. The clauses use very different language: one
includes “arising from or related to” language and one does not. As a
basic interpretation matter, the omission of the critical relatedness
language should mean that the choice of law clause does not extend any
further than the contract itself. If the parties wanted a choice of law
clause to govern non-contractual claims, there was plenty of language
readily available to effectuate that intention. The choice not to include
that relatedness language must be given effect.
120
These are basic bread-
and-butter principles of contractual interpretation that are used by
courts all the time. Yet, they are seemingly ignored by those courts
seeking to give generic choice of law clauses a broad interpretation.
121
119
Contrast this with the following choice of law clause: “This Agreement shall be
construed, interpreted and enforced in accordance with, and the Company [Plaintiff] shall
be governed by, the laws of the State of New York excluding any that may direct the
application of the laws of another jurisdiction.” Credit Payment Servs., Inc. v.
Moneygram Payment Servs., No. 14-CV-62, 2015 WL 12531989, at *4 (E.D. Tenn. Feb. 13,
2015) (emphasis added).
120
Some courts that employ the relatedness approach acknowledge that as a matter
of contractual interpretation, generic choice of law clauses do not extend beyond
contractual claims. See, e.g., Cunningham Charter Corp. v. Learjet, Inc., 870 F. Supp. 2d
571, 577 (S.D. Ill. 2012) (finding that the general choice of law clause extends only to
contract claims and not tort claims because the parties did not specify their intent for
the clause to govern all claims). Despite this conclusion, these courts proceed to
nonetheless apply the chosen law where the tort or other claims are sufficiently related
to the contract.
121
This is particularly problematic since the party alleging that the choice of law
clause applies bears the burden of proof on this issue. See Clark v. Advanceme, Inc., No.
CV 08-3540 (FFMx), 2009 WL 10672598, at *3 (C.D. Cal. Jan. 20, 2009) (“The advocate
of the choice-of-law clause — here, Defendant — has the burden of establishing that
claims are within its scope.”). Thus, even if it were a close call (which it is not), the tie
990 University of California, Davis [Vol. 56:959
This Southern District of New York in In re Lois/USA, Inc. laid out this
common-sense interpretation of a generic choice of law clause.
122
The
court there was dealing with the following choice of law clause: “This
Agreement and the other Financing Agreements . . . shall be construed in all
respects in accordance with, and governed by, . . . Illinois [law].”
123
The
court noted that the language “is about as broad as this Court can
imagine when it comes to covering any actual or alleged agreement or
contract” but was “notably silent in covering matters other than
agreements between the parties.”
124
The court pointed out that the clause
“does not, by way of example, say what it easily could have — saying, in
words or substance, that ‘any and all dealings between the parties with
respect to the financing,’ or that ‘any dispute between the parties with
respect to the subject matter of the financing,’ shall be governed by
Illinois law.”
125
Because the contract was silent on the clause’s extra-
contractual applicability, the court declared that it was “reluctant to
rewrite the Agreement to broaden the choice-of-law clause’s scope to
cover claims that the choice-of-law clause did not address.”
126
One quick drafting exercise illustrates the illogic of the broad approach
to “governed by” or similar language in generic choice of law clauses.
Consider the following drafting variations:
1. This contract is governed by New York law.
2. Any disputes arising from or related to this contract are
governed by New York law.
Under the broad approach to interpretation, (1) is interpreted as
though it were (2). That is, a generic choice of law clause is interpreted as
though it contained “arising from” or “related to” language. Put a
different way, courts using the broad approach to interpretation treat a
generic choice of law clause the exact same way they would a nexus-based
would go to the party resisting the application of the choice of law clause to extra-
contractual claims.
122
Lois/USA, Inc. v. Conseco Fin. Servicing Corp. (In re Lois/USA Inc.), 264 B.R. 69,
97 (Bankr. S.D.N.Y. 2001).
123
Id.
124
Id.
125
Id.
126
Id. at 101.
3. A Reverse Onus?
991 2023] The Scope of Generic Choice of Law Clauses
or specific choice of law clause. So, whether parties provide that “All
matters arising from or related to this contract are governed by X law” or
they provide that “This contract will be governed by X law,” it all means
the same thing. The distinction between specific or nexus-based choice of
law clauses and generic choice of law clauses is collapsed. It is hard to
understand how a court could read these clauses the exact same way.
One final note: generic choice of law clauses, like most choice of law
clauses, tend to be boilerplate. They are usually lifted wholesale from
standard templates and then plopped into contracts without meaningful
scrutiny.
127
It is safe to say that lawyers generally give the decision to
select a particular law little thought,
128
and that they give the actual
wording of the clause even less thought. In light of this, are we putting
too much stock in the “textual” interpretation? It is really appropriate to
parse words when everyone knows that the parties (or, more accurately,
their lawyers) gave virtually no thought to those words? The answer is
yes. Contractual interpretation is contractual interpretation. There is no
basis for saying “these terms are boilerplate and so we are not going to
apply normal principles of contractual interpretation to them.” To
conclude otherwise would not only be unworkable, but it would put all
contract boilerplate beyond interpretation’s reach.
129
Proponents of the broad
approach to generic choice of law clauses
would put the onus on the drafters of the contract to somehow exclude
127
Coyle, supra note 2, at 641.
128
Many lawyers reflexively choose a particular state’s law based not on its content
per se but based on other factors: it is the corporation’s “home” law; it is the law with
which the lawyer is most familiar; it is a sophisticated body of law that other lawyers
typically choose for this sort of contract. Sepinuck, supra note 33, at 4 (“It would be
tempting to assume that transactional lawyers drafting choice-of-law clauses determine
what state’s law to select based on research; that is, they make an informed decision
about what state’s law is in the client’s best interest. Unfortunately, that is not always the
case. Some transactional lawyers reflexively select the law of the client’s home state or
principal office, or select the law of a jurisdiction, such as New York or Delaware, that is
widely believed to be well developed or conducive to business.”).
129
Forum selection clauses are also boilerplate, and yet courts (including California
courts) interpret them using normal principles of contractual interpretation.
992 University of California, Davis [Vol. 56:959
the chosen law for non-contractual disputes.
130
They would have the
parties clearly spell out in the choice of law clause that the clause only
covers contractual claims. This suggestion is peculiar. Why would a
drafter of a choice of law clause ever think to explicitly exclude
something that has not been included? The requirement to draft around
something that is being read into the clause is illogical. The painting
example neatly illustrates this point. One would never draft a clause that
says “Painter agrees to paint my kitchen and dining room. Painter does
not agree to paint my family room, bedroom, and bathroom.” The
silliness of this example illustrates the silliness of placing the burden on
the parties to exclude something they have not agreed to in the first
place.
Moreover, aside from using a generic choice of law clause, it is actually
quite difficult to draft a choice of law clause that evidences a party’s
intent to limit the choice of law clause to contractual claims only.
Consider the following language that parties might use to convey their
intention: “This contract is governed by New York law. Any matters
outside this contract, including tort and statutory claims, are not
governed by New York law.” This language was chosen to mimic the
structure of the first choice of law clause referred to in the previous
section. There are myriad problems with this formulation.
First, it contains a generic choice of law clause along with limiting
language, which means that the Nedlloyd interpretation of “governed by”
falls apart. Nedlloyd provides that the words “governed by” show that the
parties intend for the entirety of their relationship to be subject to the
chosen law. With limiting language embedded within the clause,
“governed by” can no longer be read this way. In other words, it is
inconsistent to read “governed by” broadly when the remainder of the
clause clearly denotes the parties’ intention not to have the chosen law
apply to non-contractual claims.
130
Pyott-Boone Elecs. Inc. v. IRR Tr. for Donald L. Fetterolf Dated Dec. 9, 1997, 918
F. Supp. 2d 532, 545 (W.D. Va. 2013) (“If parties wish to exclude causes of action arising
in tort or by statute from the coverage of their agreement, they may do so, but they should
reflect that intent in their contract.”); Olinick v. BMG Ent., 42 Cal. Rptr. 3d 268, 278 (Ct.
App. 2006) (“If sophisticated parties, such as those now before us, truly intended the
result being advocated by Olinick, they should have specified what jurisdiction’s law
applies to what issues.”). To the author’s knowledge, no court has actually suggested
language on how parties would actually do so.
993 2023] The Scope of Generic Choice of Law Clauses
Second, the provision as written does not actually make sense. The
provision states that tort and statutory claims “are not governed by New
York law.” The problem is that the parties cannot by contract exclude
the operation of New York law if that happens to be the law that would
otherwise apply under the forum’s choice of law rules. If a New York
court concludes that the chosen law is the otherwise applicable law
under whatever choice of law analysis it adopts, the parties’ intentions to
the contrary will not be honored.
Alternative formulations fare slightly better but could still lead to
interpretive issues. For instance, the contract might provide that “The
parties choose New York law to govern their contractual claims only.”
Again, the parties cannot prevent the court from applying New York law
if that is the otherwise applicable law. Moreover, it is hard to see much
of a difference between “The parties choose New York law to govern
their contractual claims only” and “This contract is governed by New
York law.” The best formulation would probably be something to the
effect of “The parties do not intend for this choice of law clause to extend
to non-contractual claims.” Here, we avoid a statement that purports to
displace a court’s authority to decide the otherwise applicable law. But,
choice of law clauses are usually not drafted using words of intention;
they are drafted as categorical imperatives: “X law governs”; “The
contract is subject to X law”; “All disputes will be resolved in accordance
with X law.” The problem is not insurmountable, but it does illustrate
the awkwardness of having parties draft a clause which is unmistakably
explicit about its coverage.
One final point about drafting. One might question why the better
solution is to require parties to exclude non-contractual claims rather
than to include non-contractual claims.
131
It involves next-to-zero effort
for a party to convert a generic choice of law clause into a specific or a
nexus-based one and therefore evidence its intent to include non-
contractual claims within its ambit. By contrast, it requires jumping
through hoops to do the reverse, as the exercise above has demonstrated.
131
See Ronald J. Gilson, Charles F. Sabel & Robert E. Scott, Text and Context: Contract
Interpretation as Contract Design, 100 C
ORNELL L. REV. 23, 41 (2014) (“[A] textualist theory
of interpretation also creates an incentive to draft carefully. Under a contextualist theory,
a party for whom a deal has turned out badly has an incentive to claim that the parties
meant their contract to have a different meaning than the obvious or standard one.”).
994 University of California, Davis [Vol. 56:959
To do so, one must read a generic choice of law clause as implicitly
including non-contractual claims, and then draft around this implicit
reading. If parties cannot be expected to do the former, they certainly
will not do the latter.
Reality should not be ignored here. Parties simply will not change
drafting practices either way.
132
The scope issue has presented itself for
decades and still, scores of cases take up the issue every year. If parties
refuse to change their drafting to incorporate best practices, why should
they be rewarded through an extremely generous interpretation of their
clauses? And why should parties who insist a clause be interpreted in
accordance with its actual and literal meaning be punished for failing to
engage in drafting gymnastics? All of this to say that courts adopting a
broad approach to generic choice of law clauses are putting the burden
on the wrong party.
4. A Textual Disconnect Between Choice of Law and Choice of
Forum Clauses
There is
another interpretative anomaly that is worth exploring in the
context of generic choice of law clauses. Courts that follow a broad
approach to generic choice of law clauses do not seem to employ
comparable principles to the interpretation of forum selection clauses.
In other words, there is a disconnect between the interpretative
approach courts use for forum selection clauses, on the one hand, and
choice of law clauses, on the other.
As discussed, California courts interpret choice of law clauses without
relatedness language very broadly. By contract, they interpret forum
selection clauses with relatedness language fairly narrowly. A recent
California case, Clark-Alonso v. Sw. Airlines Co.,
133
illustrates this point. In
Clark-Alonso, the forum selection clause provided:
You and we consent to the personal and exclusive jurisdiction
and venue of the state and federal courts within Dallas County,
Texas. You and we also agree to litigate any disputes between or
involving you and us exclusively in the state and federal courts
132
Coyle, supra note 2, at 672 (“To date, however, many contracting parties have
declined to redraft their clauses to give them a more expansive scope.”).
133
440 F. Supp. 3d 1089 (N.D. Cal. 2020).
995 2023] The Scope of Generic Choice of Law Clauses
within Dallas County, Texas. You agree that any cause of action
arising out of and/or relating to this program be commenced
within (2) years after the cause of action accrues.
134
The plaintiff filed suit in California in contravention of the Texas forum
selection clause. The plaintiff argued that his claim was “not covered” by
the Texas forum selection clause and therefore he was entitled to
proceed in California.
135
The court agreed. In concluding that the forum
selection clause did not extend to the plaintiff’s claim, the court carefully
scrutinized the words of the forum selection clause at issue. It
distinguished between forum selection clauses containing “arising out
of” language and forum selection clauses containing “related to”
language.
136
The court indicated that a forum selection clause that
contains the words “arising out of” only applies to disputes concerning
the interpretation and performance of the contract. By contrast, forum
selection clauses that use “related to” language are broader and cover all
disputes having some “logical or causal connection” to the contract.
137
Thus, if a clause contained “arising from” language, it would be read
narrowly; if it contained “related to” language, it would be interpreted
broadly. Because the forum selection clause in Clark-Alonso utilized the
“arising from” formulation, it would be interpreted narrowly. As such,
the court concluded that the Texas forum selection clause at issue did
not cover the plaintiff’s extra-contractual claims and therefore, he could
proceed to adjudicate those claims in California.
138
For our purposes, the takeaway is twofold. First, California courts
engage in a robust contractual interpretation analysis when it comes to
forum selection clause in a way that they do not with generic choice of
134
Id. at 1092. Forum selection clauses and choice of law clauses tend to match.
Nyarko, supra note 1, at 40 (“If a contract includes both a choice-of-forum and a choice-
of-law clause, parties consistently match the substantive law to the forum.”).
135
Clark-Alonso, 440 F. Supp. 3d at 1093-94.
136
Id. at 1094-95. The court in Clark-Alonso may actually have misinterpreted the
forum selection clause since the parties actually agreed to litigate “any disputes” between
them in Texas. The “arising out of” language was found in a separate clause dealing with
a two-year statute of limitations.
137
Id. at 1094.
138
Id. at 1095.
996 University of California, Davis [Vol. 56:959
law clauses.
139
And second, California courts are not prepared to extend
forum selection clauses broadly even when they contain relatedness
language,
140
even though they will extend generic choice of law clauses
broadly when they do not contain relatedness language.
141
The anomaly is even more acute when one considers that choice of law
clauses and forum selection clauses tend to appear in tandem. Most
contracts that contain a forum selection clause will also contain a choice
of law clause choosing the law of the state designated in the forum
selection clause.
142
Consider, for instance, the choice of law clause and
139
California courts also engage in robust contractual interpretation of atypical
choice of law clauses. See Yotrio Corp. v. Coop, No. 18-10101 (FFMx), 2019 WL 1877598,
at *2 (C.D. Cal. Apr. 12, 2019) (concluding that choice of law provision was narrow in
scope and “merely provides that California law will apply to issues relating to the
‘meaning, effect or validity’ of the Agreement”).
140
See, e.g., Rey v. Rey, 666 F. App’x 675, 676 (9th Cir. 2016) (“First, we note that it is
not enough for the Euroinvest Agreement to merely ‘relate in some way’ to Jean Pierre’s
claims. A broad forum selection clause may reach that far by its terms, but the clause at
issue here encompasses only disputes ‘stemming from’ the Euroinvest Agreement. We
conclude this language is comparable to ‘arising under’ language — i.e. the forum
selection clause at issue here is narrow in its scope.” (citation omitted)); Guo v. Kyani,
Inc., 311 F. Supp. 3d 1130, 1141 (C.D. Cal. 2018) (“[T]hese claims arise out of alleged
conduct outside of what occurred and was contemplated by that agreement, i.e.,
[defendant’s] alleged fraudulent business practices, including the alleged deceptive
misrepresentations it made to prospective distributors. Consequently, they are not
within the scope of the forum selection clause . . . .”).
141
Some California courts interpret forum selection clauses with “arising from” or
“related to” language broadly, using the Nedlloyd holding as loose precedent. Olinick v.
BMG Ent., 42 Cal. Rptr. 3d 268, 279 (Ct. App. 2006) (“Nedlloyd’s rationale with respect to
the scope of the choice-of-law provision is equally applicable to the scope of the forum
selection clause. As indicated, with respect to forum selection, the Agreement provides:
‘The parties agree to the exclusive jurisdiction and venue of the Supreme Court of the
State of New York for New York County and/or the United States District Court for the
Southern District of New York for the resolution of all disputes arising under this Agreement.’
In the absence of any limiting or qualifying language in Paragraph G, we conclude the
forum selection clause ‘encompasses all causes of action arising from or related to [the]
[A]greement, regardless of how they are characterized.’” (citation omitted)). The court in
Olinick referred to this logic as “parity of reasoning.” Id. What it did not seem to grasp is
that the language of the choice of law clause was decidedly different than the language of
the forum selection clause, with the former omitting the critical nexus-based language.
142
Kyle Chen, Harold S. Haller, Juliet P. Kostritsky & Wojbor A. Woyczynski,
Empirical Study Redux on Choice of Law and Forum in M&A: The Data and Its Limits, 16 J.
997 2023] The Scope of Generic Choice of Law Clauses
the forum selection clause in Verdugo v. Alliantgroup, L.P.
143
In that case,
the parties agreed “that . . . personal jurisdiction shall be had solely in [the]
State of Texas [and that] [t]he sole venue for disputes arising hereunder
shall be in Harris County, Texas.”
144
They also agreed to a generic choice
of law clause whereby “this [a]greement” would be “governed in all
respects” by Texas law.
145
Even though the interpretation of these clauses
was not at issue in Verdugo,
146
it is clear that a California court would read
the forum selection clause narrowly because it included “arising out of”
language.
147
And it would read the generic choice of law clause broadly
because of the rule laid out in Nedlloyd. Consequently, extra-contractual
claims would not be covered by the broad forum selection clause but
would be covered by the narrow choice of law clause. This disconnect is
nonsensical.
New York courts have compared the language employed in typical
forum selection clauses to that employed in generic choice of law clauses.
They reason, quite logically, that broad forum selection clauses
containing nexus-based language should be read broadly and that narrow
generic choice of law clauses should be read narrowly. In a recent case,
the Southern District of New York commented that the “differing
language utilized in the forum selection clause and the choice-of-law
clause illustrates a divergence in the two provisions’ scopes.”
148
The
court observed that the “agreement’s forum selection clause requires
‘any legal suit, action or proceeding . . . arising out of or relating to this
agreement’ to be brought in New York.”
149
In contrast, “the choice-of-law
clause provides that ‘matters of construction, validity and performance
. . . shall be governed by, and construed in accordance with’ New York
BUS. & SEC. L. 1, 2 (2016) (“Parties are reluctant to split choice of law and choice of forum,
tending to prefer a court to apply its own state’s laws.”).
143
187 Cal. Rptr. 3d 613, 616 (Ct. App. 2015).
144
Id. at 617.
145
Id.
146
The issue in the case largely centered around whether the forum selection clause
was contrary to public policy. See id. at 618.
147
See id. at 616.
148
J&R Multifamily Grp., Ltd. v. U.S. Bank Nat’l Ass’n as Tr. for Registered Holders of
UBS-Barclays Com. Mortg. Tr. 2012-C4, Com. Mortg. Pass-Through Certificates, Series
2012-C4, No. 19-cv-1878, 2019 WL 6619329, at *4 (S.D.N.Y. Dec. 5, 2019).
149
Id.
998 University of California, Davis [Vol. 56:959
law.”
150
The Court noted that the “drafters’ decision to utilize different,
narrower language in the choice-of-law provision reflects an intended
distinction” and that “[t]he drafters were capable of writing a choice-of-
law provision sufficiently broad to cover torts by mimicking the adjacent
forum selection clause, but chose not to do so.”
151
Thus, we are left with inconsistent interpretations of similar
provisions. California courts will largely gloss over the actual wording of
a generic choice of law clause, while strictly dissecting the wording of a
forum selection clause. The net effect of this is to construe forum
selection clauses narrowly, so that parties can advance claims in
California courts, and to simultaneously construe choice of law clauses
broadly so that causes of action arising under California law (rather than
the chosen law) are not able to be pursued by the parties.
5. The Intention of the Parties
Although the court in Nedlloyd proffered a textual interpretation of the
words “governed by,” it is clear that the broad approach to the
interpretation of generic choice of law clauses is premised on
assumptions about what reasonable people in the position of the parties
would have wanted if they had directed their minds to the issue.
152
The
court in Nedlloyd surmised that no “rational businessperson, attempting
to provide by contract for an efficient and businesslike resolution of
150
Id.
151
Id.
152
A number of courts have piggybacked off Nedlloyd’s “reasonable businesspeople”
argument. See Volvo Grp. N. Am., LLC v. Forja de Monterrey S.A. de C.V., No. 16-cv-114,
2019 WL 4919632, at *4 (M.D.N.C. Oct. 4, 2019) (“[M]any courts . . . have found it
reasonable to assume that, when sophisticated parties agree to a choice-of-law clause,
the law selected in that clause should apply to all causes of action arising from or
substantially related to their contract.”); Zaklit v. Glob. Linguist Sols., LLC, No. 14cv314
(JCC/JFA), 2014 WL 3109804, at *11 (E.D. Va. July 8, 2014) (“The only reasonable
inference is that the parties intended to provide for an efficient and businesslike
resolution of possible future disputes by choosing a single forum and a single body of law
to govern all claims, irrespective of where the events giving rise to those claims
occurred.”); Masters Grp. Int’l, Inc. v. Comerica Bank, 352 P.3d 1101, 1115 (Mont. 2015)
(“This case involves a large-scale financial transaction negotiated between two
sophisticated and counseled entities that had an ongoing business relationship over two
years. It is reasonable under these circumstances to infer that [the parties] intended the
choice-of-law provision to apply to all disputes arising out of their dealings.”).
999 2023] The Scope of Generic Choice of Law Clauses
possible future disputes, would intend that the laws of multiple
jurisdictions would apply to a single controversy having its origin in a
single, contract-based relationship.”
153
The court assumed that “[w]hen
a rational businessperson enters into an agreement establishing a
transaction or relationship and provides that disputes arising from the
agreement shall be governed by the law of an identified jurisdiction, the
logical conclusion is that he or she intended that law to apply to all
disputes arising out of the transaction or relationship.”
154
This raises the
following question: Can courts interpret contracts by resorting to
assumptions about what the parties hypothetically would have wanted?
A number of commentators and jurists say yes.
155
But a recent United
States Supreme Court decision seems to say no. In M & G Polymers USA,
LLC v. Tackett, the Court plainly stated that courts cannot rely on the
assumed or supposed intent of the parties in interpreting their
contractual language. In that case, a collective bargaining unit entered
into a contract with an employer on behalf of retirees. The contract
stated that “Effective January 1, 1998, and for the duration of this Agreement
thereafter, the Employer will provide the following program of [benefits]
. . . .”
156
The contract provided for renegotiation of its terms in three
years.
157
After the contract expired, the employer announced that it
would begin requiring retirees to contribute to the cost of their health
care benefits. The retirees argued that the employer “had promised to
provide lifetime contribution-free health care benefits for them, their
surviving spouses, and their dependents . . . .”
158
153
Nedlloyd Lines B.V. v. Superior Ct., 834 P.2d 1148, 1154 (Cal. 1992).
154
Id.
155
See Bruce L. Hay, Procedural Justice – Ex Ante vs. Ex Post, 44 UCLA L. REV. 1803, 1811
(1997) (“These preferences may be actual or they may be ‘hypothetical’ (meaning
preferences the parties would have expressed had they been asked).”); Richard A.
Posner, The Law and Economics of Contract Interpretation, 83 T
EX. L. REV. 1581, 1590 (2005)
(referring to one of the options for contractual interpretation as: “Pick the economically
efficient solution on the assumption that that is probably what the parties intended, or
at least would have intended had they thought about the issue”). But see Schwartz & Scott,
supra note 96, at 939 (“We now assume for purposes of discussion that interpretations
should be goal neutral; the state should seek to recover the parties’ objective ex ante
intentions.” (emphasis added)).
156
M & G Polymers USA, LLC v. Tackett, 574 U.S. 427, 431 (2015) (emphasis added).
157
Id.
158
Id. at 432.
1000 University of California, Davis [Vol. 56:959
The Sixth Circuit Court of Appeals determined that the contractual
provision stating that the employer “will provide” certain benefits was
ambiguous as to duration.
159
Consequently, it looked to other provisions
of the agreement to help resolve the ambiguity. It also turned to “the
context” of labor negotiations to conclude that even though the contract
contained a general durational clause (i.e., the contract would expire in
three years), other contextual clues “outweigh[ed] any contrary
implications derived from a routine duration clause.”
160
The Supreme Court was tasked with determining whether the Sixth
Circuit had followed appropriate principles of contractual
interpretation. The Court concluded that it had not. The Court stated
that the Sixth Circuit’s approach “violate[d] ordinary contract
principles” and “distort[ed] the attempt ‘to ascertain the intention of the
parties.’”
161
It referred to the lower court’s assessment of “likely behavior”
in the collective bargaining arena to be “too speculative and too far
removed from the context of any particular contract to be useful in
discerning the parties’ intention.”
162
Thus, the Court was clear that the
goal of contractual interpretation is to ascertain the intention of “the
parties” themselves and that certain “context” evidence was too
attenuated to be helpful in that determination. The Court further stated:
[T]he Court of Appeals derived its assessment of likely behavior
not from record evidence, but instead from its own suppositions
about the intentions of employees, unions, and employers
negotiating retiree benefits. . . . Although a court may look to
known customs or usages in a particular industry to determine
the meaning of a contract, the parties must prove those customs
or usages using affirmative evidentiary support in a given case.
163
The Court thus held that judges cannot rely on their “own suppositions”
about the intent of similarly-situated parties, but instead must base their
interpretation on “affirmative evidentiary support.”
164
The Court
159
Id. at 436.
160
Id. at 437.
161
Id. at 438.
162
Id. at 438-39.
163
Id. at 439 (citations omitted).
164
See id.
2023] The Scope of Generic Choice of Law Clauses 1001
ultimately determined that where a contract is silent on the duration of
benefits in a collective bargaining agreement, a court is not permitted to
simply “infer” that the parties intended for those benefits to vest for
life.
165
Finally, the Court called particular attention to the strain of case
law that required a contract “to include a specific durational clause for
retiree health care benefits to prevent vesting.”
166
The Court reasoned
that such a requirement would “distort the text of the agreement”
167
and
conflict with ordinary principles of contract law.
Though the context is quite different (interpretation of a collective
bargaining agreement versus interpretation of a choice of law clause), the
Supreme Court’s opinion is nonetheless on point. The retirees’ contract
was arguably
168
silent on how long benefits were supposed to last. In this
respect, it is similar to a generic choice of law clause that is silent on its
scope. The Court’s conclusion was that courts cannot fill this silence by
speculation and inferences about what the parties would have wanted.
They must fill this silence by resort to evidence in the record.
Accordingly, the Court rejected contractual interpretation premised on
what a hypothetical party would have wanted the clause to mean. The
goal is to get at the actual intent of the parties to this contract,
169
using
the words of the contract itself, and perhaps relevant extrinsic
evidence.
170
The goal is not to make a policy decision based on
165
Id. at 442. The concurrence added: “Today’s decision rightly holds that courts must
apply ordinary contract principles, shorn of presumptions, to determine whether retiree
health-care benefits survive the expiration of a collective-bargaining agreement.” Id. at
443 (Ginsburg, J., concurring).
166
Id. at 440 (majority opinion) (emphasis added).
167
Id.
168
I say “arguably” because a plain reading of the contract would suggest that the
benefits were to last the duration of the contract, three years. See id. at 431.
169
See id. at 438.
170
See, e.g., Joshua M. Silverstein, The Contract Interpretation Policy Debate: A Primer,
26 S
TAN. J.L. BUS. & FIN. 222, 227 (2021) (“Under textualism, interpretation focuses
principally on the text of the parties’ agreement. The locus of contextualist interpretation
is broader. While adherents of contextualism grant critical weight to the words set forth
in the parties’ compact, contextualist interpretation emphasizes reading contractual
language in context. Thus, contextualist authorities focus on both the contract’s express
terms and extrinsic evidence.”). It is also noteworthy that the Court in M & G Polymers
USA rejected the idea that parties should be obligated to contract around a presumption
that is based upon speculation about what hypothetical parties would have intended. M
6. The Need for Interpretation
1002 University of California, Davis [Vol. 56:959
assumptions, speculation, or conjecture about what reasonable people in
the position of the parties would have preferred.
Despite the Supreme Court’s decision in M & G Polymers USA, it is likely
that courts will continue to use intuition and speculation about
hypothetical party intent as a guide to interpretation. That is, courts that
adopt a broad approach to the interpretation of generic choice of law
clauses will continue to do so based largely on assumptions about what
parties “would want” the clause to mean.
171
I suggest, however, that there
is a distinction to be drawn between using hypothetical intent to interpret
substantive provisions of a contract and using hypothetical intent to
interpret procedural provisions of a contract.
172
By substantive provisions,
I am referring to those provisions that bear directly on the parties’
performance obligations. And by procedural provisions, I am referring to
clauses that purport to regulate by contract certain procedural aspects of
litigation such as forum selection and choice of law.
With substantive contractual provisions, if it is impossible to divine
party intent from the contract itself or from the context, then a court is
often obligated to do something to fill that interpretative void. For
instance, in Frigaliment Importing Co. v. B.N.S. International Sales Corp.
173
— the darling of 1L Contracts textbooks — the court needed to figure
out what the parties meant by “chicken.” If the parties meant “broiler,”
then the seller was in breach. If the parties meant “stewing chicken,”
then the seller was not in breach. The court needed to pick one
& G Polymers, 574 U.S. at 438. In this regard, there is another parallel with choice of law
clauses: parties should not be required to “include a specific” clause in their contract in
order to prevent it from being read in accordance with its plain meaning. See id. at 440.
171
Most of the cases citing Nedlloyd reference the “rational businessperson”
argument, not the textual argument.
172
See Christopher R. Drahozal & Peter B. Rutledge, Contract and Procedure, 94 MARQ.
L. R
EV. 1103, 1105-06 (2011) (“Here, we address a related but underexplored manifestation
— bargaining over procedural rights even before a dispute arises . . . . We refer to such
pre-dispute agreements as ‘procedural contracts.’”); Judith Resnik, Procedure as Contract,
80 N
OTRE DAME L. REV. 593, 626-28 (2005) (referring to matters such as forum selection
clauses as “contract procedure”).
173
190 F. Supp. 116, 117 (S.D.N.Y. 1960).
2023] The Scope of Generic Choice of Law Clauses 1003
interpretation or the other, even if it would have meant resorting to the
hypothetical intention of buyers and sellers “dealing in” chicken.
174
With generic choice of law clauses, things are different. All courts agree
that a generic choice of law clause covers contractual disputes. What they
do not agree on is the meaning to be ascribed to the clause’s purported
silence on non-contractual claims.
175
But, unlike the chicken conundrum,
courts do not need to resolve this issue as a contractual matter.
176
And
they certainly do not need to resolve this issue by reference to
hypothetical party intent. This is because there is a fallback: the forum’s
default rules on choice of law. If the court in the Frigaliment case did not
resolve the issue of “what is chicken?” the case would be at a standstill.
There would be no determination of whether the seller breached the
contract and whether the buyer was obligated to pay for the chicken. By
contrast, if a court considering a generic choice of law clause does not
resolve the “silence” issue, then the court can simply proceed by applying
normal conflict of laws rules to ascertain the appropriate governing law.
Thus, one can draw a distinction between those terms that need to be
interpreted as a matter of contract law
177
and those terms that do not
need to be interpreted as a matter of contract law.
178
To the extent that
174
The court did not need to do this since there was ample textual and extrinsic
evidence of the parties’ actual intent. See id. at 121.
175
See generally Robert E. Scott, The Case for Formalism in Relational Contract, 94 NW.
U. L. R
EV. 847, 859-60 (2000) (“[T]here is a third strategy for courts to consider: decline
to fill gaps at all. . . . If correct interpretation is indeed an important value and if this
requires interpretation that is transparent and predictable, then it follows that restricting
the role of legal enforcement to the enforcement of facially unambiguous express terms
will (over time) generate better and more accurate interpretations of those portions of
disputed contracts that the parties choose to reduce to formal, legal terms.”). Professor
Scott advocates this mode of interpretation for all contractual terms in general — but the
case is particularly compelling for those terms that do not actually require interpretation
pursuant to the contract.
176
See, e.g., Pike Co. v. Universal Concrete Prods., Inc., 524 F. Supp. 3d 164, 180
(W.D.N.Y. 2021) (claiming that the court “not need to resolve th[e] difficult question” of
whether the atypical choice of law clause extended to non-contractual claims and simply
conducted choice of law analysis instead).
177
And perhaps hypothetical intention makes sense here, in the absence of actual
intention.
178
Where a court can simply employ its procedural rules to fill any purported gaps.
1004 University of California, Davis [Vol. 56:959
hypothetical intention is relevant at all, it should only be in the former
context and not the latter.
* * *
It does not require detailed and robust contractual interpretation to
discern what is patently obvious about a generic choice of law clause: that
parties have not, by their language, included extra-contractual claims
within its scope. Nonetheless, the courts that adopt a broad approach to
the interpretation of generic choice of law clauses hold otherwise. They
ostensibly do so based on the conclusion that words like “governed by”
signal an absolute and unequivocal intention to submit all disputes to
resolution under the chosen law. But the logic and reasoning are
tenuous.
179
What is really motivating these courts is a desire to impose
the “best” interpretation on the clause — one that they believe probably
comports with parties’ expectations and appears to make the most
practical sense.
B. Exploring the Policy-Based Arguments
Even though courts should not interpret generic choice of law cl
auses
based on the assumed intentions of the parties, it is apparent that
California (and other) courts clearly do so,
180
and will continue to do so
179
It is particularly ironic that California courts hold fast to the myth that the text of
generic choice of law clauses lends itself to a broad interpretation. This is because
California courts apply the parties’ chosen law to interpret the scope of the clause,
meaning that California courts often have occasion to apply non-California law to the
issue. See Triton Eng’g v. Crane Co., No. SACV 12-01617 (JEMX), 2013 WL 12136597, at *2
(C.D. Cal. Feb. 21, 2013). The result is a disconnect between the California cases applying
the broad approach and the California cases applying the narrow approach. See, e.g., id. at
*3 (“‘To determine whether the parties intended the choice-of-law clause to cover the
tort claims, the Court must focus on the objective manifestations of their agreement —
i.e., “the actual words used” — rather than on the unexpressed subjective intent of the
parties.’ Here, the choice-of-law provision in the 2008 agreement governs only the
purchase order ‘in all respects.’ Plaintiff’s present claims are only tenuously related to
the purchase order . . . . None of the causes of action sound in contract, and the
Defendants have not shown that the parties agreed that Washington law would apply to
the [other] claims.” (citations omitted)).
180
For an example of a case that did so, see Volvo Group North America, LLC v. Forja
de Monterrey S.A. de C.V., No. 16-CV-114, 2019 WL 4919632, at *6 (M.D.N.C. Oct. 4, 2019)
(“In sum, this Court believes that (a) the longstanding duration of the parties’ agreement,
2023] The Scope of Generic Choice of Law Clauses 1005
unless persuaded otherwise.
181
Thus, one must engage with the California
“rational businesspeople” argument on its merits. Is it actually true that
rational businesspeople prefer the broad approach to the interpretation
of a generic choice of law clause? Is the question even one that is capable
of being answered? Below, I grapple with these questions and explore the
weaknesses of California’s policy-based approach to generic choice of
law clauses.
1. Lawyer Intention or Party Intention?
Professor Co
yle sought to answer the question of whether parties
prefer a broad or narrow reading of generic choice of law clauses by
interviewing fifty-seven lawyers.
182
The “overwhelming majority — fifty-
four out of fifty-seven respondents — stated that they generally wanted
their choice-of-law clause to cover tort and statutory claims as well as
contract claims.”
183
More specifically, “forty out of fifty-three [] stated
that they wanted their clauses to cover related tort and statutory claims”
while ten attorneys “wanted the chosen law to apply to all contract, tort,
and statutory claims between the parties.”
184
Professor Coyle reports that
“[o]nly three lawyers indicated that they wanted the choice-of-law clause
to cover contract claims exclusively.”
185
To the extent that these findings
can be extrapolated on a macro-scale, the results are not surprising.
(b) the ‘close relationship’ between Forja’s fraudulent inducement counterclaim and that
agreement, and (c) the parties’ express desire to uniformly apply the laws of New York
to all claims in this case would lead the North Carolina Supreme Court to construe the
choice-of-law clause [broadly].”).
181
See Geoffrey P. Miller, Bargains Bicoastal: New Light on Contract Theory, 31 CARDOZO
L. REV. 1475, 1478 (2010) (“New York judges are formalists. Especially in commercial
cases, they have little tolerance for attempts to re-write contracts to make them fairer or
more equitable, and they look to the written agreement as the definitive source of
interpretation. California judges, on the other hand, more willingly reform or reject
contracts in the service of morality or public policy; they place less emphasis on the
written agreement of the parties and seek instead to identify the contours of their
commercial relationship within a broader context framed by principles of reason, equity,
and substantial justice.”).
182
Coyle, supra note 2, at 696-97.
183
Id. at 697.
184
Id.
185
Id.
1006 University of California, Davis [Vol. 56:959
Lawyers prefer the certainty of the known to the uncertainty of the
unknown.
Professor Coyle’s informal study rests on the assumption that these
lawyer preferences can act as a surrogate for party preferences or party
intent.
186
But as Professor Kostritsky explains, there is an embedded
agency problem one must consider.
187
She notes that choice of law
decisions are made by the lawyer — and not the client.
188
It is therefore
unclear what impact this has on the determination of “party intent” with
respect to a choice of law clause.
189
Is the lawyers’ intent de facto the
client’s intent? Professor Kostrisky further notes the potential for
conflicts of interest. In her words, the interests of the lawyer and the
interests of the client may not be “coterminous.”
190
She posits that a
lawyer might choose a law based on concerns unique to the lawyer such
as “lower[ing] the costs of understanding” other states’ laws.
191
This is
true even where this could act to the detriment of the client.
192
All these
186
Professors Brand and Fletchner offer a different critique of Professor Coyle’s
reliance on lawyer interviews to ascertain party preferences in interpreting generic
choice of law clauses: “Coyle’s interpretive rule is based on his empirical study of
contracts drafted by U.S. parties, including interviews with U.S. contract drafters. The
initial problem here is that the inquiry was limited to parties from [the United States].”
Ronald A. Brand & Harry Flechtner, Rewarding Ignorance of the CISG: A Response to John
Coyle, T
RANSNAT’L LITIG. BLOG (June 13, 2022), https://tlblog.org/rewarding-ignorance-of-
the-cisg-a-response-to-john-coyle/ [https://perma.cc/J4UQ-3RPF]. They also echo the
argument advanced earlier in this Article that parties should not be rewarded for poor
draftsmanship. See id. (“U.S. lawyers’ abject ignorance of law revealed in Professor
Coyle’s empirical work is not something to be encouraged and rewarded by the
interpretation he advances.”). Brand and Fletchner’s critique is specifically directed at
Coyle’s argument that generic choice of law clauses in international sales contracts
should be read to exclude the Convention on the International Sale of Goods. See id.
However, the arguments apply with similar force to generic choice of law clauses in non-
sale transactions.
187
Juliet P. Kostritsky, Context Matters – What Lawyers Say About Choice of Law
Decisions in Merger Agreements, 13 D
EPAUL BUS. & COM. L.J. 211, 213 (2015).
188
Id.
189
Id. at 224.
190
Id. at 222.
191
Id.
192
She also makes the argument that it is unclear whether a commercial firm “is even
capable of manifesting intent.” Id. at 223 (“[I]n the case of a corporation, there may be a
person within the corporation appointed to make certain decisions. Is this person’s
decision as to choice of law necessarily representative of the corporation’s (the client’s)
2023] The Scope of Generic Choice of Law Clauses 1007
agency problems render it unclear whether extrapolations can be made
from “lawyer” intent to “party” intent and whether the question of party
intent (at least in this context) is a meaningful one at all.
Nonetheless, lawyer intent is the only thing we have to go by when
interpreting choice of law clauses. Thus, to the extent that one thinks
intent is relevant, lawyer intent must serve as a proxy for party intent
because parties simply don’t have any “intent” in this regard.
193
While
parties themselves may have intent concerning the substantive matters
that the contract covers,
194
it would be foolish to think that they have any
sort of intent concerning the scope of their choice of law clause. To use
the language of Nedlloyd, no “rational businessperson” would sit her
office contemplating whether she wants the chosen law, which she
knows nothing about, to govern unknown extra-contractual claims
which may never arise.
195
Thus, even though there are issues involved in
imputing lawyers’ intentions to their clients, we nonetheless must do so;
otherwise, the “intention” argument falls apart entirely. Accordingly,
when I refer to party “intent” or party “preferences” below, I do so on
the understanding that this is an imputed intent or preference.
2. What Do Parties Prefer?
Nedlloyd and the cases that follow it
focus on the question of what
reasonable businesspeople would have preferred if they considered the
scope question in advance. Reasonable businesspeople, Nedlloyd tells us,
would prefer one unitary body of law — that selected in the clause — to
govern the entirety of the dispute between the parties. After all, who
wants two (or more) different laws applying to one singular dispute
decision, or is it merely a single person’s decision? Further, should the law assess the
choice differently with a sole proprietor than a corporation, or should it automatically
accept that a corporation’s decision-maker represents the intent of the corporation?”);
see also Nyarko, supra note 1, at 24 (“In particular, the relevant literature relaxes the
assumption of contractual parties as unitary actors. It argues that that the provisions in
the agreements are based on templates used by the drafting law firms. These law firms
would generally be resistant to making changes to their templates, even if it were for the
good of their client.”).
193
Apart, of course, from the actual wording of the choice of law clause itself.
194
Such as price, terms, warranties, disclaimers, specialized clauses, etc.
195
See Chen et al., supra note 142, at 41 (“[F]ew laymen — and not all that many
lawyers — have any concept of the real differences between state laws.”).
a. Parties Prefer Favorable Law
1008 University of California, Davis [Vol. 56:959
arising from a contractual relationship? Below, I explain why the
question of what parties “prefer” is not one that lends itself to a simple
answer.
At the time of contracting, the parties do not know what claims will
eventually be asserted. In turn, they do not know if the law designated in
the choice of law clause is actually favorable to them or not. So, it is not
particularly helpful to ask an “all things being equal” question about
which law they would want to apply when they have no idea how a
dispute will arise and what side they will be on.
196
An analogy might be
helpful. Let’s assume I’m in the market for a mortgage. I am satisfied with
my current bank, and the bank is conveniently located down the street.
I’m asked whether I would “prefer” to have a mortgage at this bank for
the house I’m going to buy in three months. Sure, why not? All things
being equal, it’s my local bank and I’m happy with it. But I don’t know
what I don’t know. What if other bank rates are better in three months?
What if my bank imposes terms that other banks don’t impose? The point
is that it is an artificial question to ask what I would “prefer” when I don’t
have all the relevant information. The true answer is this: I prefer the
bank that gives me the best rate and terms. The same is true in the choice
of law context. Parties prefer the tort, statutory, or other law that is most
favorable to them. But they simply don’t know what that is until a dispute
arises.
To the extent that parties “prefer” for the chosen law to govern non-
contract claims, it is only because of the perceived simplicity factor, and
not because — in substance — they prefer the content of the chosen law.
That is, if a party is asked whether they prefer for their choice of law to
extend to non-contractual claims, they will likely say yes, but only
because it seems easier for all claims to fall under one body law rather
than having multiple laws apply to the same dispute. These same parties
will sing a different tune when a dispute arises, and they realize that some
other body of law is actually more favorable for them.
197
196
The following discussion refers to “party” intention, recognizing that the intention
of the lawyers is the only proxy we have for party intention.
197
Professor Hay has written about this ex ante/ex post preference problem. Hay, supra
note 155, at 1804-05. He argues that fairness dictates that courts effectuate the parties’ ex
b. Parties Prefer Formal Rules
2023] The Scope of Generic Choice of Law Clauses 1009
The Nedlloyd approach is based on the premise that parties prefer a
substantive legal rule that interprets generic choice of law clauses
broadly to encompass non-contractual claims. To get to this substantive
legal rule, however, courts must look beyond the wording used by the
parties and employ a non-formalist approach to interpretation. The
Nedlloyd rule, in short, is a policy-based one — one that is consistent
with, and emblematic of, a contextualist approach to contract
interpretation.
198
Research, however, demonstrates that commercial parties prefer
formal rules to contextual ones.
199
Professor Miller writes:
Both approaches to contract law [formalist and contextualist]
are commendable. Both serve important social goals and employ
sophisticated and well-reasoned doctrines in the service of those
ends. This article takes no position on whether one is better than
the other. What is clear, however, is that contracting parties do
take a position on this question. The testimony of the
marketplace—the verdict of thousands of sophisticated parties
whose incentives are to maximize the value of contract terms—
is that New York’s formalistic rules win out over California’s
ante preferences in cases where they diverge from the parties’ ex post preferences. The
argument rests, however, on the assumption that the ex ante intention of the parties is
known. In the generic choice of law context, what is known is that the parties prefer for
a certain law — the chosen law — to govern their contractual claims. And that law is
typically given effect, even if one of the parties changes their ex post preferences. What is
not actually known, but is simply assumed, is that parties would also want that chosen
law to govern non-contractual claims. Here, the ex ante/ex post argument is less
persuasive. We know that the parties currently manifest different preferences as to the
governing law. And we assume that the parties, ex ante, would have wanted the choice of
law clause to govern all claims. In this situation, it is more problematic to give effect to
hypothetical preferences over actual preferences.
198
See Nedlloyd Lines B.V. v. Superior Ct., 834 P.2d 1148, 1149 (Cal. 1992).
199
Jody S. Kraus & Robert E. Scott, Contract Design and the Structure of Contractual
Intent, 84 N.Y.U. L. R
EV. 1023, 1026 (2009) (“[C]ommercially sophisticated parties would
prefer a regime in which courts apply formal doctrine exclusively, unless at the time of
formation the parties have expressly indicated their desire for courts to apply equitable
doctrine as well.”).
1010 University of California, Davis [Vol. 56:959
contextualist approach. As predicted by theory, sophisticated
parties prefer formalistic rules of contract law.
200
Thus, to the extent that the California approach to the interpretation of
generic choice of law rests on party preferences, we cannot ignore the
fact that parties prefer the formalist approach adopted by New York
courts, and not the contextual approach adopted by California courts.
201
Thus, the question might be recast: Do parties prefer formal rules
(New York) or contextual rules (California)?
202
Asked in this way, it is
not so clear that party preferences militate in the direction that Nedlloyd
suggests. In other words, how you ask the question matters. If one asks
what type of regime (formal or contextual) parties prefer, one might get
one answer: parties prefer the formal approach to contact interpretation
which interprets generic choice of law clauses narrowly. If one asks what
specific rule parties would prefer, one might get another answer: parties
prefer a broad rule to govern scope issues.
c. Parties Prefer Their Choice of Forum
Above, I have addressed
arguments that parties prefer favorable law
and that they prefer formal rules. Another thing to consider is that
parties prefer to litigate in their choice of forum far more than they prefer
their chosen law to govern non-contractual claims. Professor Kostritsky
200
Miller, supra note 181, at 1478. But see Shawn Bayern, Contract Meta-Interpretation,
49 UC D
AVIS L. REV. 1097, 1104-14 (2016) (taking issue with some of the premises
underlying the conclusion that businesses prefer formal rules).
201
Schwartz & Scott, supra note 96, at 931 (“[T]he majoritarian party preference is
textualist . . . : business parties commonly prefer judicial interpretations to be made on a
limited evidentiary base, the most important element of which is the contract itself.”);
see also Lisa Bernstein, Black Hole Apparitions, 67 D
UKE L.J. ONLINE 102, 116 n.58 (2017)
(“The best available, though imperfect, empirical evidence suggests that sophisticated
commercial parties prefer textualist adjudication.”); Schwartz & Scott, supra note 96, at
932 (“[B]oth the available evidence and prevailing judicial practice support the claim that
sophisticated parties prefer textualist interpretation.”).
202
See Bayern, supra note 200, at 1101 (“The article’s first, most general argument is
that contracts should be interpreted using the methodology that best suits their
circumstances on grounds of morality and policy. Apart from limited exceptions, the
methodology that satisfies this criterion will be the one that the parties preferred — or,
failing that, the one that reasonable parties in their circumstances would have
preferred.”).
2023] The Scope of Generic Choice of Law Clauses 1011
posits that choice of forum is really the impetus behind choice of law.
203
What parties and lawyers care about is where they litigate — not
necessarily what body of law they litigate under.
204
It stands to reason,
then, that what body of law non-contractual claims are litigated under is
far removed from the nucleus of things that lawyers (and, by extension,
their clients) think about or care about.
205
I recognize that the answer “parties prefer their choice of forum” is
not responsive to the question of which law parties would prefer to
govern their non-contractual claims. But nonetheless, the observation is
important. Parties are very concerned with where their dispute is
litigated. They are somewhat concerned with the body of law under
which a dispute is litigated. They are not at all concerned with the body
of law under which related (or non-related) non-contractual claims are
litigated. Hence the reason why several lawyers Professor Coyle
interviewed suggested that this was an issue they had never thought
about even after decades of practice. So, how concerned should we be
about what parties “prefer” when the parties themselves really don’t care
about the issue at all?
206
d. Non-Sophisticated Parties Do Not “Prefer” Anything
Finally, whatever int
ention or preferences sophisticated
businesspeople may have regarding choice of law clauses does not
translate into preferences for non-sophisticated parties: employees,
203
Kostritsky, supra note 187, at 226.
204
Id. at 224 (“A key point I learned from counsel interviews is that clients care about
forum more than they care about the choice of law issue.”).
205
See Coyle, supra note 2, at 698-99 (“Still another lawyer — who worked as an in-
house counsel for many years and who served as a general counsel for a publicly traded
company in Minnesota — candidly acknowledged that this was an issue that neither he
nor his team had ever thought about: ‘Although I worked for a public company, I can’t
say that our analysis of choice-of-law clauses was as sophisticated as you might suggest
by your questions. I’d be little more proud of my efforts if I could state that we had policy
positions on your questions. With a small staff and a commitment to ‘getting the
transactions completed’ I admit that your [question] suggests a level of sophistication
that did not exist in our practice. We were mindful of the choice-of-law clauses, and
generally preferred to identify our home state with which we were most comfortable, but
that was generally the extent of our focus on that specific clause.’”).
206
They obviously care about this issue ex post when the lay of the land is known to
them.
1012 University of California, Davis [Vol. 56:959
consumers, franchisees, signatories to standard contracts of adhesion,
and the like. Yet, the Nedlloyd holding applies equally across the board:
generic choice of law clauses are interpreted broadly to apply to all claims
arising from or related to a contract. In Washington Mut. Bank, FA v.
Superior Ct, the California court considered whether choice of law
clauses in contracts of adhesion should be treated differently than those
appearing in freely negotiated contracts between sophisticated
parties.
207
The court concluded “[e]ven though Nedlloyd was decided in
the context of a negotiated arm’s length transaction between
sophisticated business entities, its analysis appears suitable for a broader
range of contract transactions.”
208
While the court was not specifically
considering scope issues, it was clear that no meaningful distinction is
drawn between different categories of choice of law clauses (e.g.,
commercial vs. consumer).
Scholars have noted the tendency of law developed in one context to
morph into a different context, denominating this phenomenon
“contract creep.”
209
The problem, of course, is that the rationales
underlying the original holding do not apply with equal force (or at all)
to the context of non-negotiated contracts of adhesion. Thus, even if
sophisticated parties would prefer all claims related to a contract to be
resolved under one body of law, those preferences cannot be said to
extend to non-sophisticated parties.
210
The latter have absolutely no
intentions in this respect. In sum, the party intention argument rings
hollow outside the context in which it originated.
* * *
207
Wash. Mut. Bank v. Superior Ct., 15 P.3d 1071, 1078-79 (Cal. 2001).
208
Id. at 1079.
209
Tal Kastner & Ethan J. Leib, Contract Creep, 107 GEO. L.J. 1277, 1279 (2019)
(“Courts and scholars too often fail to address the tendency for contract rules developed
for sophisticated party transactions to migrate into contract law for consumer
transactions, and for consumer contract regimes to bleed into the contract law for
sophisticated transactions.”).
210
See Mo Zhang, Contractual Choice of Law in Contracts of Adhesion and Party
Autonomy, 41 A
KRON L. REV. 123, 129 (2008) (“[C]ontracts of adhesion do not conform to
the notion of autonomy that underlies the choice of law by the parties and is incompatible
with the principle of mutuality on which the power of the parties to make the choice of
applicable law rests.”).
2023] The Scope of Generic Choice of Law Clauses 1013
Returning to the original question: What do parties prefer? This is
perhaps an unanswerable question. Parties, in the abstract, prefer
simplicity in the form of a choice of law clause covering all claims.
Parties, in reality, prefer whatever law produces favorable results —
something they will not know until after a dispute arises. Commercial
parties, in general, prefer formal rules to contextual ones. Parties prefer
to litigate in their chosen forum — and do not care as much about their
chosen law (and certainly, do not care about whether the law does or
does not extend to non-contractual claims). And non-sophisticated
parties have no intentions at all to speak of. In light of this, it is not
particularly helpful to talk about party preferences or intentions, much
less for courts to make assumptions about them.
3. The Predictability Rationale
The desire fo
r predictability and certainty is at the heart of the Nedlloyd
decision. The Court observed that a rational businessperson would not
“desire a protracted litigation battle concerning only the threshold
question of what law was to be applied to which asserted claims or
issues.”
211
It pointed out that “the manifest purpose of a choice-of-law
clause is precisely to avoid such a battle.”
212
This logic presupposes that interpreting generic choice of law clauses
broadly avoids battles over threshold questions such as what law applies.
That assumption is doubtful.
213
There have been hundreds of cases where
this exact issue has been raised and litigated. Whether a court interprets
a choice of law clause broadly likely does not deter a party from trying to
convince a court to apply some favorable body of law other than that
designated in a generic choice of law clause.
214
Moreover, any bright-line approach to the interpretation of generic
choice of law clauses likely provides predictability for parties. Both the
211
Nedlloyd Lines B.V. v. Superior Ct., 834 P.2d 1148, 1154 (Cal. 1992).
212
Id.
213
There is really no way to readily test this assumption since we do not know how
many parties decided not to litigate the choice of law issue in light of California’s
announced broad approach to generic choice of law clauses.
214
See Woodward, Jr., supra note 92, at 23-24 (“To be sure, no simple choice of law
clause can eliminate later argument on a variety of ‘what part of that chosen jurisdiction’s
law applies,’ but at least it tends to reduce later argument on the broader question.”).
1014 University of California, Davis [Vol. 56:959
broad and narrow approaches are bright-line rules; they just cut different
ways. Certainly, there is some unpredictability on the margins of both
approaches. Under the broad approach, parties may not know how
stringently a court will interpret the relatedness requirement. Thus, the
precise contours of “what’s in and what’s out” may not be able to be
ascertained in advance. Under the narrow approach, parties may not
know how a court will categorize a certain claim. For example, is an
unjust enrichment claim one that sounds in contract or not?
215
But both
approaches are predictable in that they let parties know where they
stand. Thus, the Nedlloyd rationale centered on predictability and
avoiding litigation applies with equal force to both the broad and narrow
approaches to generic choice of law clause interpretation.
4. The Broad Approach and Weaker Parties
It should no
t come as a surprise that, in general, California’s anti-
formalist approach to contractual interpretation favors consumers,
employees, franchisees, and other individuals and entities with lesser
bargaining power. It is thus ironic that California’s broad approach to the
interpretation of generic choice of law clauses tends to work to the
detriment of these weaker parties.
216
Recall the Adelman’s case discussed at the beginning of this Article.
217
In that case, Jones
218
was a small business owner from North Carolina
215
See Tropical Sails Corp. v. Yext, Inc., No. 14 CIV. 7582, 2017 WL 1048086, at *12
(S.D.N.Y. Mar. 17, 2017) (“In addition, ‘[s]ome controversy appears to exist as to whether
a claim for unjust enrichment is governed by a contract’s enforceable choice-of-law
provision, or whether it is instead governed by the law of the state that New York’s
interests analysis yields, being a fundamentally non-contractual cause of action.’”
(quoting 2002 Lawrence R. Buchalter Alaska Tr. v. Phila. Fin. Life Assurance Co., 96 F.
Supp. 3d 182, 233 (S.D.N.Y. 2015)) (alteration in original)).
216
See, e.g., CajunLand Pizza, LLC v. Marco’s Franchising, LLC, 513 F. Supp. 3d 801,
803 (N.D. Ohio 2021) (court interpreted choice of law clause broadly to preclude
franchisee claims under Louisiana statute); Gaby’s Bags, LLC v. Mercari, Inc., No. CR 20-
00734, 2020 WL 1531341, at *2 (N.D. Cal. Mar. 31, 2020) (three of the plaintiff’s four claims
against online selling platform were extinguished because California choice of law clause
was interpreted broadly).
217
Adelman’s Truck Parts Corp. v. Jones Transp., 797 F. App’x 997 (6th Cir. 2020).
218
Technically, Jones was the defendant since Adelman’s Truck Parts filed an action
for a declaratory judgment. However, Jones filed a cross-motion as the buyer of the
defective motor and would typically have been the plaintiff in a scenario like this.
2023] The Scope of Generic Choice of Law Clauses 1015
who ran a tracking company.
219
He bought a truck motor from an out-of-
state company, paying $5000 plus $304 in freight charges.
220
The motor
was fatally defective, causing Jones to temporarily shut down his
business. Jones estimates that he lost over $30,000 in business because
of the defective motor. Jones sought to assert claims against the
defendant seller under the consumer protection laws of his home state.
Under North Carolina law, Jones would have been entitled to treble
damages, an amount over $100,000. However, the Sixth Circuit held that
Ohio law, not North Carolina law, applied. That is, it interpreted the
generic choice of law clause broadly to apply to all claims, including tort
and statutory claims. Ohio law did not provide a comparable remedy to
the plaintiff, and he was ultimately limited to the repair or replace
remedy provided for in the contract.
221
In short, the broad approach to
the interpretation of choice of law clauses precluded the “small guy”
from being able to benefit from the consumer protection of law of his
home state.
222
Certainly, not every case will present in this manner — and sometimes
it will be the plaintiff advocating for broad approach to the interpretation
of a generic choice of law clause. But more times than not, the broad
approach ends up subjecting weaker parties to the law chosen by the
stronger party to the contract.
223
This, in turn, precludes the party with
less bargaining power from benefiting from tort, statutory or other law
219
Second Brief of Appellant/Cross-Appellant Adelman’s Truck Parts Corp. at 1,
Adelman’s Truck Parts Corp. v. Jones Transp., 797 F. App’x 997, 998 (6th Cir. 2020) (Nos.
19-3349, 19-3387) (“Jones is a citizen of North Carolina.”).
220
Adelman’s Truck Parts Corp., 797 F. App’x at 998.
221
Id. at 1001-02.
222
Indeed, the critique is broader than this. Arguably, it is unfair to enforce choice of
law clauses against weaker parties in general. See Woodward, Jr., supra note 92, at 22
(“Widespread enforcement of adhesive choice of law clauses can . . . disadvantage
customers by substituting a weaker form of customer protection for that which their own
state offers . . . .”).
223
See, e.g., King v. Bumble Trading, Inc., 393 F. Supp. 3d 856, 867 (N.D. Cal. 2019)
(certain claims of class members’ who used defendant’s dating service dismissed because
of choice of law clause); G.P.P., Inc. Guardian Innovative Sols. v. Guardian Prot. Prod.,
Inc., No. 15-CV-00321, 2015 WL 3992878, at *13 (E.D. Cal. June 30, 2015) (family furniture
business’ claims of negligence per se and under the North Carolina UDTPA claim
dismissed because of choice of law clause).
1016 University of California, Davis [Vol. 56:959
that might otherwise be available and applicable absent the
interpretation given to the choice of law clause.
* * *
This Section was intended to illustrate that the broad approach to the
interpretation of generic choice of law clauses lacks merit in its own
right. It rests on questionable assumptions about party preferences and
about predictability that simply don’t hold up upon closer scrutiny. And
the net effect of the broad approach to generic choice of law clauses is to
foreclose avenues of redress for unsuspecting plaintiffs — something
that California courts are not usually eager to do.
V. A
N ALTERNATIVE APPROACH
Above, I argued that courts should interpret generic choice of law
clauses narrowly. This is the only interpretation that makes sense from a
textual perspective. I also argue that some of the assumptions
underpinning the broad approach are questionable. Nonetheless, there
is appeal to the “one and done” approach. It is cleaner, simpler, and
avoids the potential for multiple laws applying to a singular dispute.
From an efficiency perspective, it is obviously a preferable rule as it
obviates the need for a separate choice of law analysis. But that does not
mean a court can gloss over the parties’ contractual language and impose
what it intuitively feels is the best result. With that said, there is nothing
preventing courts from fashioning a specific choice of law rule in the
context of statutory, tort or other claims that arise in the context of a
contractual relationship between parties.
As discussed earlier, some courts adopt what I have termed a “one/two
punch” to generic choice of law clauses. These courts generally
acknowledge that the wording of generic choice of law clauses does not
extend to non-contractual claims. In other words, these courts are
faithful to traditional contract interpretation principles. But then they go
ahead and apply the chosen law anyway, as long as whatever relatedness
threshold they have adopted has been satisfied. This is a curious
approach — and one that is worth considering in more detail. The
question is, what exactly are these courts doing? Are these courts extending
the parties’ choice to non-contractual claims with respect to claims that
are sufficiently related to the contract? Or, are courts adopting a discrete
2023] The Scope of Generic Choice of Law Clauses 1017
and nuanced choice of law rule? If the former, this is problematic for the
reasons described. Once courts have concluded that the language does
not encompass related contract claims, they should not be allowing a “do
over” under the auspices of a relatedness inquiry. If the latter, however,
then we these courts may be onto something.
It might be helpful to spell this out in more detail. Under Step 1, a court
determines whether, as a matter of contractual interpretation, the clause
extends to non-contractual claims. If yes, it applies the chosen law. If not,
it proceeds to the next step. Under Step 2, a court must then decide what
law to apply to the non-contractual claims. Ordinarily, this would be
done via a traditional conflict of laws analysis. For instance, a Second
Restatement jurisdiction would apply section 145’s most significant
relationship test.
224
A lex loci jurisdiction would apply the law of the place
where the tort occurred.
225
And so on. States are free to select and craft
their own conflict of laws rules.
226
There is nothing preventing a court
from devising a unique conflicts rule dealing with tort or other claims
that arise in the context of a contract containing a choice of law clause.
In such a case, the court would not be applying the chosen law because
the parties chose that law, but because their state-based conflicts rule
dictated that result.
Of course, on some level, this is all just semantics — we get to the same
result either way. But, conceptually, there is a big difference. It makes no
sense to say that even though the parties do not intend for their choice
of law clause to govern non-contractual claims, we will go ahead and
224
See, e.g., Stanley Works Isr. Ltd. v. 500 Grp., Inc., 332 F. Supp. 3d 488, 498 (D. Conn.
2018) (interpreting choice of law clause narrowly and proceeding to Second Restatement
choice of law analysis).
225
See, e.g., Wilferd v. Digit. Equity, LLC, No. 20-cv-01955, 2020 WL 6827905, at *3
(N.D. Ga. Nov. 20, 2020) (since choice of law clause did not extend to tort claim, “[c]ourt
instead must apply Georgia’s traditional choice of law rules for tort claims. Georgia
follows the doctrine of lex loci delicti . . . .”).
226
Patricia Youngblood Reyhan, Choice of What? The New York Court of Appeals Defines
the Parameters of Choice-of-Law Clauses in Multijurisdictional Cases, 82 A
LB. L. REV. 1241,
1245-46 (2019) (“The menu of choice-of-law rules for other legal areas — contracts and
torts particularly — is ample and varied. States have chosen ‘interest’ analysis,
‘Restatement’ or ‘most significant relationship analysis,’ ‘grouping of contacts’ analysis,
‘choice influencing factors’ analysis, and state-specific variations of these as their
governing choice-of-law method. There are few constraints on a state’s decision as to
which method it deems appropriate.”).
1018 University of California, Davis [Vol. 56:959
extend that chosen law anyway to related non-contractual disputes. But
it does logically hold together for states to devise a unique choice of law
rule to deal with claims that arise in the broader context of the parties’
contractual relationship. Such an approach privileges efficiency and
orderliness in the judicial administration of justice without sacrificing
basic principles underlying contractual interpretation and the conflict of
laws.
C
ONCLUSION
Since Nedlloyd was decided in the early 1990s, courts have hopped on
the “rational businesspeople” bandwagon without much thought. This
Article suggests that it may be time for those courts that adopt a broad
approach to the interpretation of generic choice of law clauses to “take a
beat” and really question what it is that they are doing.
227
Are they
remaining faithful to the text of the clause? Are they being internally
consistent when it comes to the interpretation of forum selection clauses
vs. choice of law clauses? Are they interpreting clauses broadly because
of unsupported assumptions about what some mythical parties would
“prefer”?
There is no reason that generic choice of law clauses should be
interpreted in any way other than in accordance with their plain
meaning. The goal of contract interpretation is to give effect to the
intention of the parties as expressed in the words of their contract. The
goal is not to divine what the parties would probably have wanted if they
thought about it, or for a court to impose its preferred interpretation on
the parties. The parties have the ability to draft a choice of law clause to
encompass extra-contractual claims: let them do so. Until then, courts
should remain true to basic principles of contract interpretation. This
would mean interpreting generic choice of law clauses the way parties
have written them — to apply to contractual claims and contractual
claims only.
227
Ian Conversation, Take a Beat, URB. DICTIONARY (Jan. 28, 2012),
https://www.urbandictionary.com/define.php?term=Take%20a%20beat [https://perma.cc/
WX33-JEMT].
