Category Archives: commercial law

Be Careful Not to Undermine the Choice Of Law Provisions In Your Contracts.

One of the few ways to undermine the choice of law provision in your contract is to cite the wrong state’s law when you are trying to enforce it. That can be construed as a waiver of the choice of law.

A good example of this was a recent decision by the United States District Court for the Eastern District of California. The Court held that the parties, by their conduct, waived the New York law provision of the arbitration agreement by citing California law in their motion papers. This case involved an action for declaratory and injunctive relief by a California corporation against a Workers Compensation insurance provider.  Ellison Framing, Inc. v. Zurich American Insurance Company, 2011 WL 1322387 (E.D. Cal.).

The plaintiff, Ellison Framing, Inc., (“Ellison”) was a California corporation with its operations located entirely within California. Id. at 1.  Ellison purchased and renewed its Workers Compensation Insurance from the defendant, Zurich American Insurance Company (“Zurich”). Id. On November 15, 2010, Ellison filed a complaint with the California Department of Insurance claiming that Zurich had overcharged it with improper fees. Id. Zurich responded by making a demand for arbitration with the American Arbitration Association based on the arbitration clause of the parties deductible agreements. Id.

Based on the arbitration agreement and the venue provision contained within the agreement, the American Arbitration Association (AAA) determined that the arbitration would be conducted in Schaumburg, Illinois. Id. Ellison responded by filing an action in the Superior Court of California, “seeking declaratory and injunctive relief on the grounds that the venue provision of the arbitration agreement is unconscionable.” Id. Zurich moved this action to the United States District Court for the Eastern District of California based on diversity jurisdiction. Id.

The Court granted Zurich’s motion to compel arbitration because Ellison’s claim, that Zurich fraudulently overcharged by using improper fees fell within the scope of arbitration agreement. Id. at 5. But, the Court held that in spite of a choice of law provision in the agreement providing New York law as the governing law for all disputes, the parties, by their conduct, had waived the New York law provision by citing only to California law in their motion papers. Id.

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