Will New York apply the law the parties chose, and what does choosing 'the laws of New York' actually pull in?
For a contract relating to an obligation arising out of a transaction covering in the aggregate not less than $250,000, GOL § 5-1401(1) lets the parties agree that New York law governs whether or not the contract bears any reasonable relation to New York (except for contracts for labor or personal services, transactions for personal, family or household services, and to the extent UCC 1-301(c) provides otherwise) a cross-reference to a section that is not among the New York statutes published here, so the reach of that third carve-out cannot be read off § 5-1401 alone. Nothing in § 5-1401 limits or denies enforcement of a choice-of-law provision in any other contract (§ 5-1401(2)), so smaller deals and other choices are judged outside the statute. What the clause selects is the chosen state's SUBSTANTIVE law only: when parties include a choice-of-law provision, they intend the law of the chosen state, and no other state, to apply, and neither that state's common-law conflict-of-laws principles nor its statutory choice-of-law directives come with it, unless the parties expressly say otherwise (Ministers and Missionaries). A chosen foreign law is displaced on public-policy grounds only where the party resisting it carries a heavy burden of proving that applying it would offend a fundamental public policy of New York (Welsbach). Ministers and Missionaries is not confined to § 5-1401 contracts: answering certified questions from the Second Circuit, the Court extended the no-conflicts-analysis rule "to contracts that do not fall under General Obligations Law" § 5-1401, answering the first certified question in the negative and leaving the second unanswered as academic. The statute's forum companion is § 5-1402: a foreign corporation, non-resident or foreign state that chose New York law under § 5-1401 in a transaction of at least $1,000,000 and agreed to submit to New York courts may be sued here notwithstanding any act limiting the right to maintain the action.
The trap
New York's public policy is a much weaker escape hatch than drafters assume, and Welsbach proves it: a pay-if-paid clause is void in New York under Lien Law § 34, yet the Court of Appeals enforced the parties' choice of Florida law and let the clause stand, because 'plainly not every difference between foreign and New York law threatens our public policy'. The Court noted that neither party was a New York corporation and both were sophisticated commercial entities that entered the subcontract knowingly and voluntarily. Welsbach's result does not carry over to a construction contract covered by GBL article 35-E, a project whose aggregate cost 'equals or exceeds one hundred fifty thousand dollars', public works and small residential projects excluded: there GBL § 757(1) makes void a provision 'that makes the contract subject to the laws of another state', and Welsbach itself noted, in a footnote, that 'it was not until 2002 that New York enacted section 757 of the General Business Law rendering void any provision that makes a construction contract subject to the laws of another state'. The mirror trap is § 5-1401's exclusions: an employment or personal-services agreement gets no statutory blessing for a New York clause however large the dollar figure. And because the clause carries no conflicts rules with it, a party who wanted New York's statutory choice-of-law directives to travel with 'governed by New York law' has to say so expressly.
12 authorities
- statuteN.Y. GOB Law § 5-1401enactment date not established
The words that state the rule
1. The parties to any contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars, including a transaction otherwise covered by subsection (a) of section 1--301 of the uniform commercial code, may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state. This section shall not apply to any contract, agreement or undertaking (a) for labor or personal services, (b) relating to any transaction for personal, family or household services, or (c) to the extent provided to the contrary in subsection (c) of section 1--301 of the uniform commercial code.
- case26 N.Y.3d 466Ministers and Missionaries Benefit Board v. SnowN.Y.decided 2015read it at the source ↗
The words that state the rule
Therefore, we hold that, when parties include a choice-of-law provision in a contract, they intend that the law of the chosen state -- and no other state -- will be applied. In such a situation, the chosen state's substantive law -- but not its common-law conflict-of-laws principles or statutory choice-of-law directives -- is to be applied, unless the parties expressly indicate otherwise. Accordingly, the first certified question should be answered in the negative and the second certified question not answered as academic.
- case7 N.Y.3d 624Welsbach Electric Corp. v. MasTec North America, Inc.N.Y.decided 2006read it at the source ↗
The words that state the rule
We must determine whether New York’s public policy against such contracts is so fundamental that it should override the parties’ choice of law. We hold that it is not, and that the parties’ choice of law controls.
- case7 N.Y.3d 624Welsbach Electric Corp. v. MasTec North America, Inc.N.Y.decided 2006read it at the source ↗
The words that state the rule
In short, Welsbach has not sustained its “heavy burden” of proving that application of Florida law would be offensive to a fundamental public policy of this State (see Cooney, 81 NY2d at 80 ). Accordingly, the order of the Appellate Division should be reversed, with costs, plaintiffs motion, insofar as it seeks to dismiss the fifth and eleventh affirmative defenses interposed in the answer, denied and the certified question answered in the negative.
- statuteN.Y. GOB Law § 5-1401enactment date not established
The words that state the rule
2. Nothing contained in this section shall be construed to limit or deny the enforcement of any provision respecting choice of law in any other contract, agreement or undertaking.
- statuteN.Y. GOB Law § 5-1402enactment date not established
The words that state the rule
1. Notwithstanding any act which limits or affects the right of a person to maintain an action or proceeding, including, but not limited to, paragraph (b) of section thirteen hundred fourteen of the business corporation law and subdivision two of section two hundred-b of the banking law, any person may maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to any contract, agreement or undertaking for which a choice of New York law has been made in whole or in part pursuant to section 5-1401 and which (a) is a contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate, not less than one million dollars, and (b) which contains a provision or provisions whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.
- case26 N.Y.3d 466Ministers and Missionaries Benefit Board v. Snowdecided 2015read it at the source ↗
The words that state the rule
We now extend that holding to contracts that do not fall under General Obligations Law § 5- 1401, and clarify that this rule obviates the application of both common-law conflict-of-laws principles and statutory choice-of-law directives, unless the parties expressly indicate otherwise.
- case7 N.Y.3d 624Welsbach Electric Corp. v. MasTec North America, Inc.decided 2006read it at the source ↗
The words that state the rule
As we said in Cooney v Osgood Mach. ( 81 NY2d 66, 79 [1993]), “plainly not every difference between foreign and New York law threatens our public policy. Indeed, if New York statutes or court opinions were routinely read to express fundamental policy, choice of law principles would be meaningless.”
- case7 N.Y.3d 624Welsbach Electric Corp. v. MasTec North America, Inc.decided 2006read it at the source ↗
The words that state the rule
Section 34 seeks to protect New York subcontractors from the oppressive use of bargaining power. Here, neither party is a New York corporation; notably, MasTec is a Florida corporation. As dissenting Justice Krausman pointed out, both are sophisticated commercial entities that knowingly and voluntarily entered into the subcontract. Considering these factors and given the checkered history of pay-if-paid clauses in the construction industry, we cannot say they are “truly obnoxious” so as to void the parties’ choice of law.
- case7 N.Y.3d 624Welsbach Electric Corp. v. MasTec North America, Inc.N.Y.decided 2006read it at the source ↗
The words that state the rule
Moreover, it was not until 2002 that New York enacted section 757 of the General Business Law rendering void any provision that makes a construction contract subject to the laws of another state.
- statuteN.Y. GBS Law § 757enactment date not established
The words that state the rule
§ 757. Void provisions. The following provisions of construction contracts shall be void and unenforceable: 1. A provision, covenant, clause or understanding in, collateral to or affecting a construction contract, with the exception of a contract with a material supplier, that makes the contract subject to the laws of another state or that requires any litigation, arbitration or other dispute resolution proceeding arising from the contract to be conducted in another state.
- statuteN.Y. GBS Law § 756enactment date not established
The words that state the rule
1. "Construction contract" means a written or oral agreement for the construction, reconstruction, alteration, maintenance, moving or demolition of any building, structure or improvement, or relating to the excavation of or other development or improvement to land, and where the aggregate cost of the construction project including all labor, services, materials and equipment to be furnished, equals or exceeds one hundred fifty thousand dollars. For the purposes of this article a construction contract shall not include any such contract made and awarded by the state, any public department, any public benefit corporation, any public corporation or official thereof, or a municipal corporation or official thereof for construction, reconstruction, alteration, repair, maintenance, moving or demolition of any public works project nor any contract with a contractor or subcontractor which is part of such project; or any such contract the purpose of which is the construction, reconstruction, alteration, repair, maintenance, moving or demolition of an individual one, two or three family residential dwelling or a residential tract development of one hundred or less one or two family dwellings, or any residential construction project where the aggregate size of such project is four thousand five hundred square feet or less, or any residential project of fewer than seventy-five units which receives financial assistance from the federal government, the state or a municipal entity designed for households earning an average of one hundred twenty-five percent of the housing and urban development agency area median income.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.