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Choice of Law in Tort and Contract Actions

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Choice of law refers to the decision a court must make about the substantive law it will apply to the facts of a case when there is a conflict of law. A conflict of law arises when the law of more than one jurisdiction may apply to the dispute and the laws of the jurisdictions differ. As one might expect, different states apply different choice of law tests to determine which law to apply. The tests depend on the nature of the case and the manner in which the case was brought before the court. Generally, there are three tests that courts use in this context: the traditional test, the significant relationship test, and finally, the governmental interest analysis test.

Choice of Law Test 1: The Traditional Test

Courts employing the traditional test apply the law of the place where the event that gave rise to the claim occurred and that created the right upon which the party brings the lawsuit. In a tort action, such as an action based in negligence, the law of the place of the wrong—of the tort—is applied. In contract actions, the law applied is the law of the jurisdiction in which the contract was made.

Choice of Law Test 2: The Significant Relationship Test

Courts using the significant relationship test apply the law of the jurisdiction that has the most significant relationship to the dispute. In tort actions, courts generally consider factors such as the place of the injury, the place where the conduct causing the injury occurred, the domicile of the parties, and the place where any relationship between the parties is based. In contract actions, courts look to the place of contracting, of negotiations, of performance, the location of the subject matter, and domicile of the parties.

Choice of Law Test 3: The Governmental Interest Analysis Test

Finally, courts applying the governmental interest analysis test consider the policies underlying the law of each state and apply the law of the jurisdiction that has the greatest interest in the litigation. Factors considered by courts applying this test include, predictability of results, maintenance of interstate and international order, simplification of the judicial task, advancement of the forum’s governmental interests, and application of the better rule of law. It should be noted that some states apply their own tests to determine choice of law.

Interestingly, New York applies the third test, the governmental interest analysis. In tort actions, a New York court, after identifying the types of laws in conflict, applies the law of the jurisdiction in which the tort took place, if the conflict involves laws that regulate conduct. In a contract dispute, a New York court, first having determined whether or not the contract contains a choice of law provision, applies the law of the state chosen by the parties if the law has a reasonable relationship to the parties or transaction and does not violate the public policy of the state. If the contract does not contain such a provision, New York applies a center of gravity analysis, which involves analysis of the significant relationship test factors.

To learn more about the substantive law that may apply to your specific matter, or for services related to your specific situation, contact our knowledgeable corporate governance attorneys at (212) 404-8644 or email to get the help you need. 

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