The Ministers and Missionaries Benefit Board, Interpleader Plaintiff,v.Leon Snow et al., Appellants, v. The Estate of Clark Flesher, et al., Respondents.

Brief

N.Y.Mar 24, 2015

To be Argued by: JESSE WILKINS (Time Requested: 10 Minutes) CTQ 2015-00001 Second Circuit Court of Appeals Docket No.: 14-1021-cv Qtnurt nf Appeals nftqr nf New tnrk ______ _. .. ._ ____ __ N097. THE MINISTERS AND MISSIONARIES BENEFIT BOARD, Interpleader Plaintiff, -against- LEON SNOW, et al., -against- THE ESTATE OF CLARK FLESHER, et al., BRIEF FOR APPELLANTS PRESTON & WILKINS, LLC Attorneys for Appellants Appellants, Respondents. 3000 Hempstead Turnpike, Suite 317 Levittown, New York 11756 Tel.: (212) 809-5808 Fax: (212) 898-9034 Date Completed: June 9, 2015 TABLE OF CONTENTS Pages TABLE OF AUTHORITIES ................................................................................... iii PRELIMINARY STATEMENT .............................................................................. 1 JURISDICTION ......................................................................................................... 3 CERTIFIED QUESTIONS PRESENTED ............................................................... .4 Brief Responses to Certified Questions ................................................................ 5 STATEMENT OF FACTS ........................................................................................ 5 SUMMARY OF ARGUMENT ............................................................................... 12 ARGUMENT ........................................................................................................... l4 I. THE GOVERNING LAW PROVISIONS IN THE MMBB PLANS DO NOT REQUIRE THE APPLICATION OF ESTATES, POWERS, AND TRUSTS LAW §3-5.l(B)(2) ......................................................................... 14 A. The Governing Law Provisions in The MMBB Plans Do Not Require Application of Estates, Powers and Trusts Law §3-5.l(b)(2) because This Statutory Provision Addresses Wills and Testamentary Dispositions Thereunder ................................................................................................ 18 B. Given That the Courts of New York, California and Colorado All Are Likely To Honor Governing Law Provisions Chosen by Contracting Parties, There Exists No Conflict of State Laws and the Law of New York, the Forum State, Is the Appropriate Substantive Contract Law to Be Applied to the MMBB Plans ............................................................... 23 1 C. Although the MMBB Plans Were Not Consummated Expressly Pursuant to the New York General Obligations Law §5-1401, the Underlying Legislative Intent Warrants Application of the IRB-Brasil Holding on the Use of New York Substantive Contract Law Principles .......................... 27 D. The Governing Law Provisions of the MMBB Plans Designating New York Law as Applicable Mandate New York Substantive Contract Law Principles Only ......................................................................................... 34 E. Public Policy Mandates the Application of New York Law in Determining the Right to the Disputed Funds, as Between The Snows and The Estate ................................................................................................. 36 F. A Choice of Law Analysis, If Required, Would Result in the Use of New York Substantive Contract Law Principles Because There Are Sufficient Contacts Between the Contracts Herein and the State of New York ...... .40 G. New York Substantive Law Is the Applicable and Controlling Law for the MMBB Plans and Estates, Powers and Trusts Law §5-1.4 Properly Determines the Effect of Divorce, if Any, on the Snows' Rights as Designated Beneficiaries in the MMBB Plans ........................................ .41 II. THE SNOWS HAVE ANSWERED THE FIRST CERTIFIED QUESTION IN THE NEGATIVE. SHOULD THIS COURT, HOWEVER, DETERMINE THAT ESTATES, POWERS AND TRUSTS LAW §3- 5.1(b)(2) IS RELEVANT TO THE MMBB PLANS, THE BENEFITS THEREUNDER CANNOT BE DEEMED "PERSONAL PROPERTY OF THE DECEDENT NOT DISPOSED OF BY WILL" ................................. .45 CONCLUSION ........................................................................................................ 47 ii TABLE OF AUTHORITIES Pages Cases 2004 Stuart Moldaw Trust v XE L.I.F.E., L.L.C., 642 F Supp 2d 226, No. 08 Civ. 9421 (PKC), 2009 U.S. Dist. LEXIS 64658 [SD NY July 27, 2009] ................................. 40,42 Allstate Ins. Co. v Stolarz, 81 NY2d 219 [1993] ............................................................... 23 Bank of N.Y. v Yugoimport, 745 F3d 599 [2d Cir 2014] ..................................................................... 16, 27 Bio Med Techs. Corp. v Sorin CRM USA, Inc., 2015 U.S. Dist. LEXIS 10917 [D Colo 2015] ............................................ 25 Burke v Sterling Trust Co., 2014 U.S. Dist. LEXIS 50359 [D Colo 2014] ............................... 24, 25 Economu v. Borg-Warner Corp., 652 F Supp 1242 [D Conn 1987] .................................................. 34 Estate of Susan Rudolph, 2007 N.Y. Misc. LEXIS 6450 [Sur Ct Aug. 31, 2007] ............................... 46 Fieger v Pitney Bowes Credit Corp., 251 F3d 386 [2d Cir 2001] .......................................................................... 24 Gramercy Inv. Trust v Lakemont Homes Nev., Inc., 198 Cal App 4th 903, No. £051384, 2011 Cal. App. LEXIS 1111 [Aug. 24, 2011] ...................................................................... 26 Bartol Prods. Corp. v Prudential Ins. Co., 290 NY 44 [1943] ......................................................................................... 15 IBM v Liberty Mut. Ins. Co., 363 F3d 137 [2d Cir 2004] ........................................................................... 26 iii Pages IRE-Brasil Resseguros, S.A. v Inepar Invs., S.A., 20 NY3d 310 [2012] .............................................................................. passim In re Estate of King, 196 Misc2d 250 [Sur Ct 2003] ..................................................................... 46 In re Estates of Covert, 97 NY2d 68 [2001] ....................................................................................... 15 In re Planet Hollywood Int'l, Inc., 2000 U.S. Dist. LEXIS 23309 [D Del2000] ..................................... 31 Indian Harbor Ins. Co. v City of San Diego, 9 72 F Supp 2d 634 [SD NY 2013] ........................................................... 31, 32 J. Aron & Co. v Chown, 231 AD2d 426 [1st Dept 1996] ................................................................ 23, 27 Koob v IDS Fin. Servs., 213 AD2d 26 [1st Dept 1995] ........................................................................ 16 Loeser v Gabae Dev. ULC, No. 12 Civ. 187 (LTS)(JCF), 2013 U.S. Dist. LEXIS 114521 [SD NY Mar. 25, 2013] ...................................................... 34 Mastrobuono v Shearson Lehman Hutton, Inc., 514 us 52 [1995] ................................................................................... 35, 36 Matter of Thomas, 63 AD 3d 1081 [2nct Dept 2009] ................................................................... 20 McCarthy v Aetna Life Ins. Co., 92 NY2d 436 [1998] .............................................................................. 22, 38 McCarthy v Aetna Life Ins. Co., 231 AD2d 211 [1st Dept 1997] ............................................................ passim iv Pages McPhee v. Gen. Elec. Int'l, Inc., 736 F Supp2d 676 [SD NY 2010] ................................................. 34 Ministers & Missionaries Benefit Bd. v Est. of Flesher, 2014 U.S. Dist. LEXIS 37822 [SD NY 2014] ............................................ 19 Nedlloyd Lines B. V. v Superior Ct., 3 Cal 4th 459, 834 P2d 1148, No. Nos. S015917, S019540, 1992 Cal. LEXIS 4143 [Aug. 31, 1992] ................................................ 25,26 Neto v Thorner, 718 F Supp 1222 [SD NY 1989] ........................................................... 45, 46 Osterweil v Bartlett, 20 NY3d 1058 [2013] .................................................................................... 3 Packman v Great-W. Life & Annuity Ins. Co., 2014 U.S. Dist. LEXIS 138854 [2014] ....................................................... 17 Patel v N.Y. Life Ins. Co., No. 11 Civ. 4895 (JPO), 2012 U.S. Dist. LEXIS 72717 [SD NY May 21, 2012] ........................ 23,40 Reger v Natl. Asso. of Bedding Mfrs. Group Ins. Trust Fund, 83 Misc2d 527 [Sup Ct 1975] ...................................................................... 17 Skandia Am. Reins. Corp. v Schenck, 441 F Supp 715 [SD NY 1977] ................................................................... 17 Smith Barney Shearson Inc. v Sacharow, 91 NY2d 39 [1997] ................................................................................ 35, 36 State v Home Indem. Co., 66 NY2d 669 [1985] .................................................................................... 14 Std. Sec. Life Ins. Co. v Bedell, 113 Mise 2d 259 [Sup Ct 1982] ................................................................... 31 v Pages Sun Life As sur. Co. of Can. v Gruber, No. 05 Civ. 10194 (NRB), 2007 U.S. Dist. LEXIS 92141 [SD NY Dec. 14, 2007] .................................................. 14, 15 TerraMatrix, Inc. v U.S. Fire Ins. Co., 939 P2d 483 [Colo App 1997] ..................................................................... 25 VFS Fin. Inc. v Elias-Savion-Fox L.L.C., 2014 U.S. Dist. LEXIS 166240 [SD NY 2014] .......................................... 32 Welsbach Elec. Corp. v MasTec N. Am., Inc., 7 NY 3d 624 [2006] .. .. .. .... .. .. .. .. .. .. .. .. .. .. .. .. .. .. .... .. .. ............ ...... .. .. .... .. .. .. .... .. .. 16 Wood Bros. Homes, Inc. v Walker Adj. Bur., 198 Colo 444 [1979] .................................................................................... 24 Woodling v. Garrett Corp., 813 F2d 543 [2d Cir 1987] ......................................................... 34 Zasuly v Mut. Ben. Health & Ace. Assn., 1 19 NY2d 385 [1967] .................................................................................... 16 Statutes 28 usc§§ 1291, 1294 ............................................................................................. 3 28 usc§§ 1332, 1335 ............................................................................................. 3 Estates, Powers and Trusts Law§ 3-5.1 (a) (2) ............................................... 19, 45 Estates, Powers and Trusts Law§ 3-5.1 (b) (2) ............................................. passim Estates, Powers and Trusts Law § 5-1.4 .......................................................... 41, 44 Estates, Powers and Trusts Law§ 13-3.2 .............................................................. 46 vi Pages Estates, Powers and Trusts Law§ 13-3.2 (a) ................................................... 37, 38 General Obligations Law § 5-1401 .. . .. .. . .. .. . .. . . . . . . . . . . . .. .. . .. .. . . . .. . . .. .. . . . . . .. . . .. . . . .. . . passim General Obligations Law§ 5-1402 ............................................................ 28, 29, 33 Rules USCS Ct App 2d Cir, Local R 27.2 ....................................................... 3 22 NYCRR § 500027 ........................................................................ 3 Other Restatement (Second) of Conflict of Laws §187 [1971] ..................... 24. 25, 26,33 Vll PRELIMINARY STATEMENT The United States Court of Appeals for the Second Circuit ("Second Circuit") certified two questions to this Court that are directly related to the proper determination of which of two competing claimants are entitled to receive benefits from a decedent's group death benefit plan and a group retirement plan. The decedent, while married, designated his now former spouse and her father respectively as the primary and the contingent beneficiaries on the two plans. The decedent, subsequent to the divorce from the former spouse, never changed either of the plans' designated beneficiaries. The plans each contained a governing law provision that stated the laws of the State of New York would to be applied to any contractual disputes. The first question certified to this Court inquires whether the governing law provision that states the contract is to be governed by and construed in accordance with New York law may require the application of New York Estates, Powers & Trusts Law § 3-5.1(b)(2), which statutory provision may require the application of the law of another state. In framing the first question, the Second Circuit identifies the contract as one that is not expressly consummated pursuant to New York General Obligations Law§ 5-1401. Because New York courts regularly uphold choice-of- law provisions that do not run afoul of New York public policy, the contracts' governing law provisions could be upheld in the matter herein with a finding that 1 there is no need to reach beyond New York contractual principles to apply Estate Powers & Trusts Law§ 3-5.1(b)(2), a statutory provision that addresses wills and testamentary dispositions. Should this Court answer the first question in the affirmative, the second certified question inquires whether a person's entitlement to the proceeds of the plans, paid upon the death of the person having made the beneficiary designations, constitute "personal property ... not disposed of by will' within the meaning of the statutory provision [Estates, Powers & Trusts Law§ 3-5.1(b)(2)]. A determination that the governing law provisions do not require the application of the statutory will provision would seemingly end the inquiry presented to this Court on the issue raised in the second question. Assuming, arguendo, that the statutory will provision has any degree of relevancy to the contracts herein, the contractual benefits should not be found to be "personal property not disposed of by will". Such benefits derive from contracts made between the decedent, as a plan participant in each of the plans, and the plan administrator, obligated to pay in accordance with the decedent's instructions contained in the designated beneficiary forms held by the plan administrator, and subject, at most, to other statutory constraints such as the effect of divorce on the designations pursuant to the applicable governing law. 2 The Second Circuit, in certifying the two questions to this Court, recognized that the questions are likely of great importance to New York law, and likely to implicate significant issues of public policy. Accordingly, the appellants respectfully submit that this Court should answer each of the two certified questions with a "No", thereby ruling as an initial matter that the governing law provisions do not require the application of Estates, Powers & Trusts Law § 3-5.1(b)(2). It the statutory provision is not to be applied, the plan benefits cannot be deemed "personal property otherwise not disposed of by will" as defined in the statutory provision. JURISDICTION This case was originally filed as an interpleader action in the United States District Court for the Southern District of New York on December 23, 2011. [A14]. The District Court had jurisdiction over this action pursuant to 28 USC §§ 1332, 1335. On March 26, 2014, the District Court entered a final judgment granting summary judgment for the Estate of Clark Flesher and Michele Arnoldy, and denying summary judgment for Leon and LeAnn Yowell Snow. [A243]. Interpleader-Defendants-Appellants filed a timely Notice of Appeal on April 7, 2014. [A248]. The United States Court of Appeals for the Second Circuit had jurisdiction pursuant to 28 USC §§ 1291, 1294. This Court has jurisdiction to entertain this appeal pursuant to § 500.27 of this Court's Rules of Practice. See, 3 Osterweil v Bartlett, 20 NY3d 1058 [2013] [accepting certification pursuant to 22 NYCRR § 500.27]. The Second Circuit certified two questions to the New York Court of Appeals pursuant to New York Court of Appeals Rule 500.27 and Second Circuit Rule 27 .2. [A248]. This Court accepted the certified questions on March 26, 2015. [A263]. CERTIFIED QUESTIONS PRESENTED The United States of Appeals for the Second Circuit certified two questions to the New York Court of Appeals: 1. Whether a governing-law provision that states that the contract will be governed by and construed in accordance with the laws of the State of New York, in a contract not consummated pursuant to New York General Obligations Law§ 5-1401, requires the application of New York Powers and Trusts Law, § 3-5.1(b)(2), a New York statute that may, in tum, require application of the law of another state? 2. If so, whether a person's entitlement to proceeds under a death benefit or retirement plan, paid upon the death of the person making the designation, constitutes "personal property ... not disposed of by will" within the meaning of New York Estates, Powers & Trusts Law section 3-5.1(b)(2)? 4 Brief Responses to Certified Questions: 1. No. 2. No. STATEMENT OF FACTS The Interpleader Defendants Named as Designated Beneficiaries LEANN YOWELL SNOW, is currently known, officially and professionally, as Rev. Dr. LeAnn Snow Flesher (hereinafter "LeAnn Snow"). [A174, n .• 1.1-1 ,. ·'•<.''', TF I '3(•11, J '{ Peroni!!, Jl"1 E:..,ck ..,,. ,o;p I R':; PILLITTERE,JT I FLB .JL ( Ho<-'ll ,Pe '( I 0R[•IJI1, F J BE titlE TT ,LE ABS ,HG PROUD,G P. I ,·,r I( HI , 11·1 AB=· H II< I 1·1[•, D ·; P..;,pp I CD flO ILHND ,I-IF H [ t·ICHEY I MD y Re-t-talta-ta.AP ·; '( Hoblock,HJ y RIIIERA,J y BRt)D'Sk. Y , RL ABS HOCHBRUECKNER,G.J y ROBACH,RJ '( Burt'OWli ,GI-l ·y HO'tT ,WE y ROBLES,VL '( B•.J.Sh I WE ELB JACOBS,RS y RUGGIERO,RS '( Bl'TLER,DJ ABS JEI'IK INS, C 1' Al-l )' y I< E P.._l '( RYAN I I.JJ )' TF '( K<>ll.', tlw l111:. i it>ll l:t"''• llw l•:llll·.ill)' t;,.,.., llw !•:trtn•,rsllip llw 11111 ·I .,r .. pruf it •·;·r;•oral iPil l :1..., ·illd t .... ,. i vI 1 pral'l II' I' lHW :11HI r11l ltl 1'\' 1,,- t.inn tu Jli'IIVIding for the t•JJfuJ't'l'lllOnt of gnVt.'flllng l:t"' in L'l'rlain rnnt:rad.H invr>lving at lt•:thl two lmndrt•d fl.fty dn!·- lars !"his hill adds tww nth! 2 tn ,\rticle 5 of the Gt>ncrnl Obligations Law, to provide f1.1r th•· ···nfnn: .. m,·nt of the dw:ice of t\cw York law as govl.'rning lnw in a non-consumer tram;:.. :tl'l i••n inv,,lving at least $250,000. · This bill adds a new paragraph to Section 1314, subdivision (b) of the Business Corp- ••ral ion L1w, SN:t ion 200-b, subdivision 2, of the B;mking Law, Section 121-1, StJbdivision 2 of the Partnurship Law, and Section 1315, subdivision (b) of the Not-for-Profit Law, to grant to New York courts subject matter jurisdiction in an action l-rought by a non-New York plaintiff against a non-New York defendant when the action arises out of a non-consu111er contract (a) which involves at least $250,00, (b) in which the (kfc•ndant agrees to submit to the jurisdiction of the New York courts, and (c) which either (i) provides that New York law i.s to govern it or (ii) has as a party a person with significant New York contacts. This bill modifies Rule 327 of the Civil Practice l.aw and Rules to provide that in the case of un action nri.sing out of a contract which involves at least $250,000 and :Is stated to be governed by New York law, the court will not grant a stay or dismissal that rule if the party seeking such stay or dismi.ssal has wai.ved the defense of an inconvenient forum (forum non conveniens). FOR SUPPORT York is one of the world's major financial and commercial centers, but its position is by no mt• -. :· _: l i 1 . "''. ,) ,, ,. 1''•-,:-.il•l•· tl11t. 111\ll•·r· j•ll':•t'lll 'l-••11. -1\,', ·.,1i:., t"i)lJJ't;-i \•/tttJ!I.J t• •• J, .• i,•· ••I \.;, . ..., y,,Ji: l.il•' ••II tlw ;'.1'•"''"' II'"' 11!1' l'·•rli•lil:Jr ,.,-Jdl'·ll'l lliid in:dil·- : r .l, 1 '' •11· '' r, · J .1 r i t! ! 1 i I''' h" i f l1 ··;, i.·.' 'a', • r·t·. • 1.1 •· . r . · , :-- i · · r · Jli., · , t 1 i1 i }; ! 1( ,. i: j i ;, - ..... ,.., i •. :.·:: ,1,·t··I'J•·d 1'·11'1 lo•llll, li:·:ili)' ! ,•,.,' 11! \•·1-; '>'•·1·1-'. 1•.•1' ltld_jnr ! ]., 11 i1 ... 11l ,tf 11h· .iidilli' 1d 1 ._., .. ;ilid f in.rq1 :tl ! I ! • ,. ·,',I',,, • :1. ··•:r.;:·,· 1],, Jl.ll't j, .. ••l ::i)'Jlil io·:111! , . .,,.,..,,,.,., i.rl, Jili'l'i'illll ilo· nJ fin.JIIl'i;rl ·;.< 1 '' I•• ,·}.,., .. · y,qk l:ih', it i:; iLojllun:tl:; i"""t ··:-.p•·rt in York Ltw, and it i:. th•L trll«'t:::"''l t .. J. :1 ,.,,llrt I<• !>,· I<'rk ,·otii'IS. 'I\1 thL· t·>:!.l•nl lll:ll Lltl'J't' is llll••·rtalnty nlwut . lt lvould :11:--.o• J,(•tH?fit corporations doing husint:ss in Nvw York to IH' mnn:o certain that suits cnn hL· brought in York cv(.•n wiK'J'e the contract is not !',t•venlC'd by New York law. The policies underlying tltt< proposed legisLHion are consistent with the concept of liadting the involvvm('nt of New York Courts to c-ases where there are requisite New York contracts. The <'l'ntrnl prPmisc of the proposa•l is that where parties at arms' length agre(.• to resolv{' disputes arising out of thc·ir contract in New York courts, and C>ither s(•]cct Nt!W York Llw to gov(•rn their contract, or have another important contact \>'ith York, then NPw 'r\1rk dnvs have, by virtue of tht, mutunl consent of all parti.es to the cPnlract, significilnt contact with the p;lrtil"s :tnd the underlying tra!lSactions. The• propdsvd lr·gislat ion is dvsi.gned not only to promote the i.nte1·est of cC'rtainty in int1·1'ild ;unvndments arc 1 ilwly to be de and in :my l'VPnt far outwt•ighcd by tlw benefits. it is true that the New York court is supported by gL·nCsult in s0me incrc>nses in litigation, there are also likely to be !tidden, off-setting efficiencies - for example, in the form of reduced court time (k·volt:d t,) presc·ntly-c·xJsting motion practice litigating the issue of proper forum and other i s•>tJi!S add res::a•d by I he amc•ndmen t s. Tlw propt'sed amendments wi 11 undoubtedly rl!Slll t in t'conomic benefit to the financial cor:ununity as a whole (including bnt comp:mies) and the service industries which !>upport such (for example, food, hotel and allied industri.es, and printing, accounting, and legal btJsinesses). Steps taken to enhance the attractiveness of New York as major financial capital will have henc>ficial effects rc.:1ching far beyond the financial community itself. Until existing ambigLiities in the jurisdictional laws of New York are addressed, parties to substantial multi-jurisdiction contrricts will continue to be reluctant to choose York law to govc•rn them if, parties 1 willingness to submit i - : t. I ', I • tt• till' l•>ll ,,, llll· Nl'W \'11rk '"'"'lh, ll"''' Is"''" llk"IHu•od tluH Mm:h (·ourtto ,,.,,,.,,. 111 ,llot•pl tlw ohodo'l' of Nl·W York Ltw or IL·I•Hh! on ehhur jurtsdh·tiotlitl "' t. tun,; .. :. ":n,·ni<'llS grutiiHIH tu ;tn ;wllull 1111 rlu: umtfllC'I Jf fl dlNputu tfot•" 1 t .,, • l• t.. ,,.., it h lu Y11rk In lw the w11r I d 1 r-; f I 11 111c l11l ond 1 egal capflal tH•· .. , • •i''''·'''"' .. nd IIIL• bvu,·flts to !'\t•w York In twrmittlng bualnctts around tlw \, ... , l.t ,,, • '""'• Ynrk l:tw fnr rlwlr ,·onlrat·ts art· tw l'lt·ar. lhat the rittk of JSH!nl· \'<'1'\' ··ll!'.ht ill. rv.thl' in !Ill• <'liS(' },,ad of tlw (';(•W York t'lllll'tH l'iltl be withPIII un,IIIL' .tl 1 I It· i· II f I\' ItA II !his act shall rak(· l'lft•,·t .ond sl1all Ill <·onlrllcts enttored into aflt>r tht· 1'1 fpct lvl' datt> lwl"l'tll .111d .q•ply to vo•nt l'ill'lS •·nt••r"'d into on or lwfore th£• t•ffL•ctivt· date· hen•of in l'lll11Wl'tinn with ;Jny ;tc·t inn or procce>ding commenced on or aft ... •r thP pfft·l·t iVL' dntt• hL>rl'of. 009 J\(jf)(;J·:•r REP\JH'l' ON B 1 LJ .. 3 P.F:CC:•lNEriDI\'1' ION Session Year l9B4 St:NA'fE ASSEMBI,Y 7307--/\ Title: AN ACT to amend the general obliryations law and the civil practice law and rules, in relation to providing for the mandatory enforcement of governing law clauses in certain contracts involving at least two hundred fifty thousand dol!r1rs The above bill has been referred to the Division of the Budget for comment. After careful review, we find that the bill has no appreciable effect on State finances or programs, and/or that this Division does not have the technical expertise to comment on the bill • . /\:'-! (}" # We therefore make no recommendat1on. · 010 11-f,__t,.oi\'.''• -- ht.lr';,,_• ! · . . • .J · i.. .. ., 1 ._. I. .:._- • ' · .. t_ _, . -. ,..., • COMMUN.T'f OFF"J•:f. NEW ¥ORr<, NEW YOR:IP( l0028 THE ASSEMBLY STATE OF" NEW YORK ALBANY July 24, 1984 Honorable Gerald c. Counsel to the Governor Executive Chamber Albany, NY 12224 Dear Mr. Crotty: CMAiJI (-.0t.1Mt'f'Tit- 0"1 toollf.),M(.jllt Ot:flotOCfiA.TtC ftt ._;f)'t tot(:M.f::A ST,.,NDll-4;} -·'• C.O'/[ OJlf ,_.., .. ,' .q · . Pursuant to your request, I am writing in support of Assembly Bill 7307-A which is currently before Governor Cuomo for executive action. This legislation provides for the enforcement of the choice of New York law as governing law in a nonconsumer contractual obligation involving at least $250,000. The legislation also permits foreign corporations, non-residents or foreign states to be sued in the case of a non-consumer contractual obligation involving at least $1,000,000 and in which the defendant agrees to submit tothe jurisdiction of New York Courts and which either (i) provides that New York law is to govern in whole or in part or (ii) has as a party a person with significant New York contacts •. Accordingly, the legislation modifies Rule 327, Civil Practice Law and Rules to render the inconvenient forum doctrine inapplicable in such situations. Under present New York law, it is possible that some New York Courts would reject a contractual choice of New York law on the grounds that the particular contract had insufficient "contact" or "relationship" with New Yt')rk ... This uncertainty has deterred parties from choosingthlr:tbll! Gerald C. Crotty Coun:;el to the Governor Exccut i Vl! Ch:t:nher State Capitol Albany, York Dear :Otr. Crotty: 12224 ,\.I.OANY, NE'W YOIIK 11, 1I:Ui RT J SISE ' ,,,t""f ArJrnnH!'I.ttittlvt: Jurtge STATE OF NEW YORK UNIFIED COURT SYSTEM (OFFiCE OF COURT ADMINISTRATIONI 270 BROADWAY NEW YORK. NEW YORK 10007 (212) 5872010 July 5, 1984 Honorable Gerald c. Crotty Counsel to the Governor Executive Chamber Albany, New York Re: Assembly 7307-A Dear Mr. Crotty: /1-73 0 7nable relation to New York. Present law generally . . the ability of parties to stipulate in thelr 0 •J .. ... I . that the law of a particular state will govern contruction of the contract. See, A.S. Rarnpell, Inc. v. Hyster Co., 3 NY2d 369 (1957); UCC 1-105. Nevertheless, the parties• ability to choose governing law is not unlimited and will not be given effect unless there is a reasonable relation- ship to New York. This rule is universally followed. See, Restatement, Conflict of Laws 2d §187. This bill would create a major exception to this rule. While t he bill only covers contracts involving more b1an $250,000 ,a sum which would sernrningly mean that sophisticated busine!=is persons are involved and know what they are doing, nonetheless, the need for this bilr, should be closely scrutinized to af!certain if it is truly needed. This follows because of the severe inroads placed upon.the New York courts ability to disregard such clauses when no such relation is present. The bill would also mandate under new GOL §5,;;:.1042 that a contractual provision specifying that thE! agree to subrni t to the jurisdiction of the New York.·. courts . . :··. :... . .··. ', {:'>:"·. :.::·::_. be enforced provided that New York law is ·to .. :u_ndef §5-104, and the contract involves at lea:st$1 . . - ' - . . This is reinforced by an amendment to CPLR)2'7·i;:, provide that the doctrine of - 2 - apply to such a contractually agreed upon forum. No requirement that any of the parties be a New York resident or that the contract affects New York is imposed. Thus, under the section, a California citizen and Illinois citizen could agree that a dispute between them over a contract involving Texas oil be heard in New York under New York law, and a New York court must hear it if $1,000,000 is at stake. This too changes present law. See, Siegel, New York Practice §98. This provision could lead to New York courts being the forum for countless suits in the future. New York courts' already scarce resources could be spent there- fore in determining cases which wi 11 have absolutely no impact on New York or its citizens. Again, whether there is a true need for the bill should be ascertained. 0 . . '· ; t. - 3 - Honorable Mario M. Cuomo THE CITY OF NEW YORK OFFICE OF THE MAYOR NEw YoRK, N.Y. tooo7 July 10, 1984 A#7307-A - by M. of A. Siegel AN ACT to amend the general obligations law and the civil practice law and rules, in relation to providing for the mandatory enforcement of governing law clauses in certain contracts involving at least two hundred fifty thousand dollars APPROVAL RECOMMENDED Governor of the State of New York Albany, New York Dear Governor Cuomo: The above bill is before you for executive action. This bill adds new Title 14 to Article 5 of the General Obli- gations Law, to provide for the enforcement of the choice of New York law as governing law in a non-consumer contractual obligation involving at least $250,000. It also modifies the limitation contained in varinuR statutes, such as Section 1314, subdivision (b} of the Business Corporation Law and Section 200b, subdivision (2) of the Banking Law, · to permit foreign corporations or non-residents to be sued in the case of a non-consumer contractual obligation involving at least $1 ,·000, 000 and in which the defendant agrees to submit to the jurisdictiorf 6f the New York Courts and which either (i) provides that New y()·rk law is to govern in whole or in part or (ii) has as a party a perso_n with; signifi- cant New York contracts. Finally, this bill modifies Rule 3270f the · Civil Practice Rules to render inapplicable the inconvenien.t,,:fqr\llft' doctrine if non-consumer obligations involve at least $1·,ooo:;OO'O ;and in which the defendant agrees to submit to the jurisdiction. of the New York courts. · New York is one of the world's major arld . centers. Its position, however, is by no means it .... ! important that the State remain alert to ways ih wJ!icl:), little cost, its position can be enhanced. · ·) ·' Honorable Mario M. Cuomo July 10, 1984 Page two A#7307-A As business has become more geographically diverse, the typical commercial, mercantile or financial contract has become more and more likely to involve parties located in more than one state or more than one nation. Indeed, financial contracts involving signatories based in a dozen or more jurisdictions are by no means uncommon. It is standard practice in such contracts to prescribe that the contract shall be governed by and construed in accordance with the law of a jurisdiction with a well developed system of commercial jurisprudence, and the parties thereto wish to have the option of electing such laws. However, it is possible that, under present New York law, some New York Courts would reject a choice of New York law on the ground that the particular contract had insufficient "contr•ct" or "relation- ship" with New York. The mere existence of this possibility has frequently deterred parties from the law of.New York for major contracts, to the detriment of the standing of New York as a commercial and financial center. In order to encourage the parties to significant commercial, mercantile or financial contracts to choose New York' law, it is important not only that the parties be certain that their choice of law will not be rejected by a New York Court but also that, in the unlikely event that a dispute does arise and the parties have agreed that such dispute may be heard by a New York Court, such Court will in fact proceed to hear and determine the case. New York courts are the tribunals most expert in New York law, and although it is not uncommon for a court to be required to apply the law of another jurisdiction to the facts before it, it is to be expected that the parties to a contract who decide to choose New York law will also wish to provide that actions on such contracts be heard by the New York Courts. To the extent there is uncertainty about any aspect of the ability of a contracting party effectively to submit itself to the jurisdiction of the New York Courts_, such uncertainty will almost certainly operate to deter the parties selecting New York law in the first Flace. However, it is not intended; by virtue of the proposed modification to the inconvenient fortim rule to imply that any action arising out of or relating to any contract, agreement or undertaking not covered by the new rule is to be stayed or dismissed under the existing rule. The policies underlying the proposed legislation are consistent with the concept of limitir.J the involvement of New York Courts to cases with requisite New York contact. The central premise _:of the proposal is that where parties at arms length agref!>,to in a New York Court, and select New York law to York · Joes have, by virtue of the mutual consent of all contact with the parties and the underlying trartsacti(f)i'f. ·. ··J' · · the bill refers to United States dollars for .,,, ·ot , applicability, it is assumed that New York lent in foreign currency and/or goods and serviC:ei. · ·• '}:' · :;> ·· · · · · . i . .. ··-·· - "'t ·j)2l··· Honorable Mario M. Cuomo July 10, 1984 Page three AI7307•A Until existing ambiguities in the jurisdictional lc!\\f• ()!New York are addressed, parties to substantial multijurisdictipn contracts will continue to be reluctant to choose New law to them if, notwithstanding the parties• willingness to submit to thejurisdiction of the New York Courts, there is any likelihood thatsucl1 will refuse to accept the choice of New York law or refuse on efther jurisdictional or forum non conveniens grounds t:()ientertain-an action on the contract if a dispute does arise: In 'that: cortllE!cttdn, _it is assumed that the New York courts will interpret the word "bOn-resident" in Section 5-1402 liberally for purposes of Rulf;! 327 fol"t:dgn sovereigns and instrumental! ties as well as par;trierships. The benefits to New York in being a world financial:and capital are of such importance and the benefits to New York ih around the world to choose New York law for their are clear that the risk of some very slight increase in the .case load of the New York Courts can be accepted without undue alarm. ·· ·.· Accordingly, I urge your approval of this bill which is part of the City•s 1984 Legislative Program. Very trulyyc>,tits, EDWARD -.-... .....,..,. - .. ....- ..... ......... ,.'9->, - ......... .. ......,.. .. .o ..... .......... ,..,.. .. .. tJoa'_l; ......... .. _,__ ..... , • .,.,.a. .. ............ _,.. ... ...,.. ........ ...,... ....... ,c.- ....... ... .......,.. .; .,. ..,.,..._ ....... ti'L.:...-'"'Al<" ,;..···· :jlot.}"'-" ,, ............. ....... J'! ....... ....... "t.<.i'- .......... .. .... ... : ........ ;' .......... 'f .. "' '"·';·· '•rri ting to urge tht7! c .sign .. r. ic;h 11fould add a new t·i tle H General ... to deo:1l wit.h ... i ·;;lause5 .·::-;., of law and choice of .: ce:t.tain ,; E..,act::ment o.f this bill .,i.l.) )::;.,;:: i.ei.ng governed by ani ted JU.ugdom -- ·:: }... J n and dra!ted iJ:1 tondnn. 'T'J)is .• i. 1t.i. :: concern iL.a reapect contt·aots ur;:;1f.2.c:.ant aJK>unt of !!lOney ar,d wbe.r•.· ae b·. .:, 'Tclunt.ary conse.ntual acg·:lescence t•.:· . i:! i.n t.he ::::ontract. ..... •oq • I · , .. • ·;.y · r 1 1 f.', (;iJ t' i :·.,;,. :.i..i) AJ.· ·v I 'J 2.. k-.1 ,/ .. ·· ... s. Simmon• Cha.m.t:;o(,"Jrs, Yo!·'( l 2! .z• .· new york state bankers association ..iames P. Murphy. Executive Vice Presidentf212) 949·1170 Han. Gerald C. Crotty Counsel to the Governor Executive Chamber State Capitol Albany, New York 12224 RE: A. 7307-A (Siegel) Dear Mr. Crotty: July 11, 1984 48S LEXINGTON AVENUE NFWYORK,N.V. 10017 12121 949·1155 The New York State Bankers Association, representing the conmercial banking industry in this State, strongly recommends that the above-referenced bill be approved. Enactment of this legislation will enhance New York's.positlon as the nation's leading commercial center by facilitating access to New York courts and expanding the applicability of New York law for parties involved in substantial commercial transactions. Specifically, thiS bill would allow parties to a COIIIIIercial agreement involving $250,000 or more to provide that their transaction will be gOverned by New York law. It further allows for an action to be maintained in a New Yotk court against a non-domiciliary where the underlying agreement or more and contains a provision whereby the non-resident to the jurlsdication of New York courts. These provisions will eliminate several existing substantive ana procedural obstacles that serve to deter parties to significant international or interstate commercial agreements from designating that their contracts will be governed by New York law. Commercial contracts often involve parties located in mote than one state ot one country, and transactions involving parties based ina doZen mote jurisdictions have become increasingly common. Parties tO these ... e.!ll"t: widely regard New York as a forLa which neutrally and cOtll(le!tet,t stable and sophisticated body of .c011111erciallaw, and are disposed to agreeing that their contracts be governed by accordance with New York law. 1-bwever, bt=cause of the .. York court would reject such a choice of law or forum on transaction was not sufficiently related to New York, . choose to be governed by the la'fs of. another jurisc:Uctic:Jn .. · ThJ.s •"t®deS York's position as one of the world's leadinJ financial and This legislation will not only prove beneficial to l"nr•t:Piirot' will also provide significant this State Parties without substantial connections here 11ay be ,'lVIII,_ in New York. if r:an be assured of determine their rights and duties •. The business aNd York will also benefit if these significant commercial agreements are governed by New York law, as will the service industries that support these communities. Most significantly, this legislation will serve to preserve and enhance New York's stature as a preeminate financial and commercial center. This important legislation can be implemented with little burden on the State's court system. Although its provisions render the doctrine of incovenient forum inapplicable to nonconsumer contracts of at least $1,000,000, only a minute number of such multi-jurisdictional contracts actually result in litigation. Moreover, this legislation will eliminate the necessity of litigating the issue of proper law and forum that may arise from these contracts under current law. Accordingly, the benefits of this legislation substantially outweigh any detriments and we respectfully request that it be approved. JPM/eg Very truly 'l ') r--u ... ;) JO::>f.PH D Bt::CKt::H CHAIR lTHFL·JOR ONE BROADWAY NEW YORK 10004 (212l 480·4800 Gerald Crotty, Esq. THE Al:JSO(';IA TION Ot' THI' SAR OF THE CIT) Ot' NEI'V YORK 42 WEST 44TH STREt:T NEW YORK 10036 COMMI I TEE ON FOREIGN AND COMI'ARATIVE lAW July 9, 1984 Counsel to the Governor Executive Chamber - Capitol Albany, New York 12224 Re: A. 7307-A (March 28, 1983) Dear Mr. Crotty: EZEQUJEL A CAMERINI 71HFLOOR ONE BROADwAY NEW YORK 10004 (212> 480·4800 we understand that the above bill has been passed by the Legislature and is now on the Governor's desk for signature. The bill would give effect to choice.of law and choice of forum clauses in contracts involving sizable transactions. This Committee strongly supported an earlier version of the bill and believes that the bill as passed achieves the major objectives of the earlier ver.sion; We accordingly urge that the Governor give his assent tothe bill as passed. Very truly yoU.:tsl. . . .• f .. 02H