Choice of Law Provisions

When disputes arise between parties, the determination of what law applies is typically one of the first and most important steps that must take place during litigation.  Parties will often include a contract provision specifying which law will apply; the question in these cases is whether the provision will be enforceable.  This often becomes an issue of contention in business and commercial transactions or in construction matters.  In any dispute, parties should seek representation by an experienced litigation attorney to protect their interests.

Texas Supreme Court Decision

When a case is controlled by Texas law, the Texas Supreme Court decision, DeSantis v. Wackenhut Corp., 793 S.W.2d 670 (Tex. 1990), governs choice of law issues.  In DeSantis v. Wackenhut, the Court determined that when the parties to an agreement intend to perform their obligations in more than one jurisdiction, they may indicate in the agreement what law governs in the event of a dispute.  The Court also determined that the law chosen must have some relation to the parties or the agreement.  As part of its decision, the Court adopted Section 187 of the Restatement (Second) of Conflict of Laws, which also implicates Section 188 of the Restatement. 

Section 187 of the Restatement notes that the law chosen by the parties should apply, unless the chosen state law fits either of the following standards:

• The chosen law has no "substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice."
• The chosen state law is "contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue."

If either of the above are found to apply, the Court will then undertake the analysis dictated by Section 188 of the Restatement, under which the most significant relationship test is applied.  This test looks at what local state law has the most significant relationship to the transaction and the parties based on contacts and a series of balancing tests, such as the "relevant policies of the forum" or the "certainty, predictability and uniformity of result."  The interaction of Section 187 and 188 may be dictated by the type of contract provision at issue, whether the contract provision is an express provision or various other circumstances.

The standards delineated in the Restatement, thus, demand that decision makers perform a complex analysis to determine what law applies.  At the same time, the Restatement provides an opportunity for lawyers to make creative arguments on behalf of their clients.

Legal Advice

This area of the law may undergo further changes in the future, since the Texas Supreme Court is often asked to consider cases with choice of law provisions at issue.  Moreover, the Texas State Legislature could easily pass legislation that affects choice of the law provisions, such as prior legislation affecting choice of law provisions in contracts valued at $1 million dollars or more.

For general information on choice of law issues, the Legal Information Institute from Cornell University Law School provides some resources on its website.  To receive knowledgeable advice regarding what law might apply to your case or how a particular choice of law provision will be applied, please contact Wigington & Dankesreiter, L.L.P.