Why Does the Other Party Want to Apply NY Law?
This post is based on a question that I answered on OnStartups. Q. I’m in the process of closing a deal with a new client, and the only sticking point is the choice of applicable law. I am located in state A, the client in state B. My contract says it will be governed by the law of state A. The client wants to change this to New York. Why? Would doing so open my company up to any unintended side effects/liabilities (e.g., taxes)?
A. The reason for the change is precisely because NY law is neutral (neither A nor B), not to mention well-known and well-respected. As a result, the choice-of-law issue disappears – neither party wins, and neither loses on this negotiation point. In other words, the other party is removing this issue in an effort to reach agreement.
Don’t spend time or money worrying about unintended side effects / liabilities – you probably cannot readily determine whether they exist or what they are at this time, or which party they would favor, and they probably are not material, in any event.
The issue you didn’t mention is whether there is a forum-selection clause – i.e., whether the parties agree to (perhaps exclusive) jurisdiction and venue in A or B. That’s the provision that gives one party a noticeable tactical advantage if litigation occurs.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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