Choice of Law. New York's highest court holds that a choice of New York law clause is a choice of the internal law of the State and not of New York conflict-of-laws principles.
At issue in this case was a Fiscal Agency Agreement among Inepar Investments, S.A. ("Inepar") as issuer, Inepar S.A. Industria e Construcoes ("IIC") as guarantor, and the Chase Manhattan Bank as the fiscal and paying agent. The Fiscal Agency Agreement stated that "[t]his Agreement, the Notes, and the Guarantee shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles." The Guarantee provided that it would be "governed by, and . . . be construed in accordance with, the laws of the State of New York."
Plaintiff IRB-Brasil Resseguros S.A. ("IRB") bought $14 million of Inepar's Global Notes. IRB commenced the instant action against IIC and Inepar seeking payment of the Global Note principal and the unpaid accrued interest. IIC moved for summary judgment, arguing that the Guarantee was void under Brazilian law because it was never authorized by IIC's board of directors. IIC further argued that the Guarantee's choice-of-law provision would have had to expressly exclude New York's conflict-of-laws principles in order for New York substantive law to apply; because it did not, according to IIC, the court must engage in a conflicts analysis that results in the application of Brazilian substantive law.
The Court of Appeals referred to § 5-1401 of New York's General Obligation Laws, which states, in relevant part:
The parties to any contract . . . arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars . . . 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.
The court held that the plain language of § 5-1401 dictates that New York substantive law applies when parties include an ordinary New York choice-of-law provision, such as appears in the Guarantee. The court further explained that parties are not required to expressly exclude New York conflict-of-laws principles in their choice-of-law provision in order to avail themselves of New York substantive law. Rather, in the event parties wish to employ New York's conflict-of-laws principles to determine the applicable substantive law, they should expressly so designate in their contract.