Each state has its own local laws which control how businesses can operate, how business partners can cooperate, and how disputes over contracts are settled in court. Through their contracts, businesses have the power to choose which state laws they want to govern their venture through a “choice of law” provision in their agreement.
Choice of law allows businesses to cherry pick the laws that are most conducive to their venture. So, which selection should you make for your next business contract?
Choice of Law
As most things legal, the answer is: it depends – in this case, on the nature of your business endeavor. Legal scholars have observed some state laws favor particular parties on various issues. For example, with industrial agreements, look to Alabama, Nebraska, or Idaho for the most favorable regulatory laws. If you’re employing key personnel or highly specialized workers, Florida has a larger “reasonable” scope for noncompete clauses. When dealing with a manufacturer, it might behoove you to adopt Mississippi law, which prevents suppliers from limiting standard implied warranties of merchantability and fitness for a particular purpose. Georgia places time limits on non-trade secret-related confidentiality obligations, so non-disclosure agreements with a business partner won’t last ad infinitum.
When dealing at arm’s length with an unfamiliar business relation, you may be more concerned with the laws of contract enforcement. Delaware has a dedicated business court with a wealth of well-developed case law. Arizona provides for the mandatory award of attorneys’ fees to the prevailing party in a contract lawsuit.
Under Ohio law, the statute of limitations for bringing a lawsuit after discovering a claim is one of the longest in the country: eight years for a written contract, and four years for the sale of goods under the UCC. If you’re a service provider with some auxiliary product sales, Ohio may be a good choice of law for your client contracts: the Ohio Revised Code limits products liability for professional service providers.
States on Selection
You likely won’t have all fifty states at your disposal when selecting choice of law. For a court to uphold your choice of law, there must generally be some connection between that location and either (a) one of the parties, or (b) some portion of the transaction or business. You could make a case for most states where your business is based online, however.
Spell Out Your Coverage
A choice of law isn’t as simple as saying, “we choose the state laws of X to control our agreement.” There are laws governing a party’s rights – substantive law – and laws governing the procedure for protecting those rights – procedural law. Make sure your choice of law language includes both, as some forum courts can be narrow in their choice of law interpretations.
Courts might be amenable to applying choice of law to the language of the contract, but they are far less inclined to apply tort choice of law to a dispute that is related to the agreement but beyond the “four corners” of the contract. Be sure that your language is sufficiently broad to encompass the entire relationship between the contracting parties, not just the contract terms.
This article is meant to be utilized as a general guideline for choosing a state’s laws for your business. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first. If you have questions about your particular legal situation, you should contact a legal professional.
Mark Turner can be reached by phone at (440) 571-7773 or by email at [email protected].
The Gertsburg Law Firm website has more than 80 articles on topics covering Employment Law, Consumer Law, and ways to protect your business. Browse our blog at www.gertsburglaw.com/blog/ for tons of free legal tips for your business.
