It is not uncommon for parties to a contract to decide which law will govern their contractual relationship, by including a choice of law provision in the contract. There are some significant differences between state laws: for example, the statute of limitations for a breach of contract claim is 6 years in Massachusetts while it is only 3 years in Delaware. If a claim is brought beyond the statute of limitations, the court will dismiss it. Therefore, when deciding which law will govern a contract, parties must be aware that the outcome of future litigated disputes may greatly vary depending on the law they choose.
Generally, the parties’ choice of law will be upheld in court, meaning that if a lawsuit is brought in Massachusetts concerning a contract governed by Delaware law, the Massachusetts court will apply Delaware law. Under some circumstances, however, the court will depart from that general principle and will apply the law of the state where the court sits (known as the “forum state”) instead of the law chosen by the parties.
The Appeals Court recently dealt with this issue in Petrucci v. Esdaile. In that case, the plaintiff sued his former partners, alleging that they acted to freeze him out of the company they founded and that they, among other things, breached the limited liability company agreement. The agreement at issue provided that it was “governed exclusively by the laws of the State of Delaware.” The defendants moved to dismiss the breach of contract claim as time-barred.
Despite the express choice of law contained in the contract, the Trial Court judge ruled that the Massachusetts 6-year statute of limitations for breach of contract claims applied and, therefore, the plaintiff’s breach of contract claim was not time-barred. In reaching this conclusion, the judge relied on a 2011 Appeals Court case, Anderson v. Lopez, and performed a functional analysis based on principles summarized in the Restatement (Second) of Conflict of Laws (§142 and §187), by considering several factors: the parties’ place of residence, the place of execution of the contract, and the place where the wrongful conduct occurred.
Noting that (1) the defendants lived and worked in Massachusetts during the relevant time period and continue to live there, (2) the contract was executed in Massachusetts and (3) the wrongful conduct allegedly occurred in Massachusetts, the judge concluded that Massachusetts had a “substantial interest in maintenance and resolution” of the claim and, therefore, the Massachusetts 6-year statute of limitations should apply. The Appeals Court adopted the Trial Court judge’s reasoning and affirmed his decision as to the statute of limitations.
It is worth noting, however, that when it came to the merits of the breach of contract claim and other claims raised by the plaintiff, the Trial Court judge and the Appeals Court both applied Delaware law because the contract provide that its application and interpretation would be governed by Delaware law.