Choice-of-law cheat sheet for contract negotiators

Author’s note: Choosing the law that will govern a contract can sometimes be important. This page (under construction) points out some things in the laws of various states that may be of interest to contract negotiators. Suggestions are welcome – please email me at dc ahtt toedt daht comm.

Alabama

Punitive damages restrictions: By statute, Alabama law limits punitive damages — see Ala. Code §§ 6-11-20 and 6-11-21.

Alaska

Limitation-of-negligence-liability clauses are invalid: Alaska’s supreme court has held that contract clauses purporting to exculpate a party from liability for its own negligence are invalid under the state’s anti-indemnity statute, AS 45.45.900. See City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d 1271 (Alaska 1994), discussed in Richard F. Paciaroni and Janet M. Serafin, Anti-Indemnity Statutes: A Threat to Limitation of Liability Clauses? (Dec. 1, 2007).

Arkansas

Limitation of liability: According to researchers, a 1990 Arkansas Supreme Court case held that, if a buyer’s limited remedy fails of its essential purpose, then consequential damages become recoverable. See Great Dane Trailer Sales, Inc. v. Malvern Pulpwood, Inc., 785 S.W.2d 13, 17–18 (Ark. 1990) (not readily available online), cited here (see footnote 247) and here.

California

See the separate California cheat-sheet page.

Connecticut

Resale price maintenance (“vertical price fixing”): See the discussion below.

Florida

Punitive-damages restrictions: A Florida statute restricts punitive damages — see Fla. Stat. § 768.73.

Georgia

Confidentiality obligations for non-trade-secrets must have time limits: “Under Georgia law, the length of time that you can protect confidential information that does not qualify as a trade secret is limited. See [C. Geoffrey Weirich & Daniel P. Hart, Protecting Trade Secrets and Confidential Information in Georgia, 60 Mercer L. Rev. 533, 552 & nn.85-87]. I think that places the burden on the owner of the confidential information to show that it is a trade secret, unless you specifically draft around it.”

–Submitted by Chris Lemens, who didn’t provide a link to more information about him. The Weirich & Hart article cites O.C.GA. § 10-1-767(b)(1) (2000) and several Georgia appellate cases that were not found on-line: Wright v. Power Indus. Consultants, Inc., 234 Ga. App. 833, 837, 508 S.E.2d 191, 195 (1998) (nondisclosure clause with no time limit is unenforceable for non-trade-secret information), rev’d on other grounds by Advance Tech. Consultants, Inc. v. Roadtrac, LLC, 250 Ga. App. 317, 551 S.E.2d 735 (2001); Allen v. Hub Cap Heaven, 225 Ga. App. 533, 539, 484 S.E.2d 259, 265 (1997) (same). The article also cites three cases holding that two-year nondisclosure agreements were enforceable: Lee v. Envtl. Pest & Termite Control, Inc., 271 Ga. 371, 374, 516 S.E.2d 76,78-79 (1999); Physician Specialists in Anesthesia, P.C. v. MacNeill, 246 Ga. App. 398, 408, 539 S.E.2d 216,225 (2000); Griffin, 215 Ga. App. at 63, 449 S.E.2d at 860.

Limitation of liability clauses that encompass third-party claims can be fatal to protection: In Lanier at McEver, L.P. v Planners and Engineers Collaborative, Inc., 284 Ga. 204, 663 S.E.2d 240 (2008), the Georgia Supreme Court held that a contract clause capping an engineering firm’s liability, including in respect of third-party claims, was effectively an indemnity clause, under which the client was obligated to indemnify the engineering firm from the consequences of the firm’s own negligence. That, said the court, violated Georgia’s anti-indemnity law. (See also the discussion of the case in this article by John Fedun of Howrey LLP.)

Hawaii

Resale price maintenance (“vertical price fixing”): See the discussion below.

Kansas

Resale price maintenance (“vertical price fixing”): See the discussion below.

Illinois

Punitive-damages restrictions: See 735 ILCS 5/2?1115.05: “The amount of punitive damages that may be awarded for a claim in any civil action subject to this Section shall not exceed 3 times the amount awarded to the claimant for the economic damages on which such claim is based.” The statute also imposes a clear-and-convincing-evidence proof requirement.

Maryland

Resale price maintenance (“vertical price fixing”): See the discussion below.

UCITA: Maryland has adopted the Uniform Computer Information Transactions Act. (Suggested by Jeff Gordon.)

Mississippi

Resale price maintenance (“vertical price fixing”): See the discussion below.

Missouri

Resale price maintenance (“vertical price fixing”): See the discussion below.

Nebraska

Limitation-of-negligence-liability clauses are invalid: According to this article, in 2006 a federal district court held that a contract clause that limited a party’s liability for negligence to $100,000 was invalid under Nebraska’s anti-indemnity statute. See Richard F. Paciaroni and Janet M. Serafin, Anti-Indemnity Statutes: A Threat to Limitation of Liability Clauses? (Dec. 1, 2007), discussing Omaha Cold Storage Terminals, Inc. v. The Hartford Ins. Co., No. 8:03CV445, 2006 WL 695456 (D. Neb. Mar. 17, 2006).

Nevada

Economic-loss doctrine & design professionals’ liability: In 2009, the Nevada Supreme Court declined to make an exception to the economic-loss doctrine in cases where purely-economic harm is allegedly caused by the negligence of design professionals. Terracon Consultants W., Inc. v. Mandalay Resort Group, 125 Nev. Adv. Op. No. 8 (March 26, 2009) (en banc). The opinion does not seem to be available on-line; see this case note by Ian Houston in the Nevada Law Journal. (Hat tip: Greg Gilbert at Holland & Hart.)

Resale price maintenance (“vertical price fixing”): See the discussion below.

New Hampshire

Resale price maintenance (“vertical price fixing”): See the discussion below.

New Jersey

Bulk-sale purchasers of a business’s assets might be liable for all of the seller’s state taxes: The New Jersey Bulk Sale Law, N.J.S.A. 54:50-38, requires a purchaser of a business’s assets in a “bulk sale” to file a form with the state authorities and possibly to escrow some of the purchase price. A purchaser that fails to do so could be liable for all of the seller’s state sales- and income taxes, even if the liability exceeds the purchase price. Apparently, a “bulk sale” could consist of a sale of less than all of the seller’s assets if not made in the ordinary course of business. See this Duane Morris memo, apparently written by attorney Stanley R. Kaminski, along with this frequently-asked-questions document by the state’s division of taxation. [ADDED 2011-11-09]

Fee-shifting: New Jersey Court Rule 4:58 is a fee-shifting provision, under which a claimant that refuses a settlement offer, but then does not achieve a more-favorable result at trial, must pay the offeror’s post-offer attorneys’ fees and expenses. See this article for more details.

Resale price maintenance (“vertical price fixing”): See the discussion below.

New York

See the separate New York cheat-sheet page.

Ohio

Product-liability protection for professional service providers: Ohio’s product-liability laws define ‘supplier’ in a way that excludes “[a] provider of professional services who, incidental to a professional transaction the essence of which is the furnishing of judgment, skill, or services, sells or uses a product[.]” See Ohio Rev. Code § 2307.71(A)(15)(b)(iii). A service provider doing business in Ohio therefore might want its contract to state explicitly that this is the role it is playing — it probably wouldn’t stop a third party from suing the provider (especially if the third party didn’t have access to the contract), but it might help the provider establish that it came within the statutory exclusion. (Suggested by Karen J. Huckaby.)

Resale price maintenance (“vertical price fixing”): See the discussion below.

Oklahoma

“Goods” does not include information: In 2005, Oklahoma amended its version of the Uniform Commercial Code to provide that the term “goods” does not include information. See 12A Okla. Stat. Ann. §§ 2-105(1) & 2A-103(1)(h). Another amendment excluded “license[s] of information” from the definition of “contract for sale.” See id. § 2-106(1) [Added 2010-03-02; hat tip: UNLV law professor Keith Rowley at the ContractsProf Blog.]

Rhode Island

Automatic renewal of personal-property leases: See the statutory provisions quoted in this compilation by the Equipment Leasing and Finance Association. [ADDED 2010-01-15; hat tip: Winston & Strawn LLP]

South Carolina

Resale price maintenance (“vertical price fixing”): See the discussion below.

Texas

Attorneys’ fees clauses: Even without an attorneys’-fees clause, a party that successfully sues to enforce its rights under an oral or written contract is entitled to recover its reasonable attorneys’ fees, in addition to the amount of the claim and costs. See Tex. Civ. Prac. & Rem. Code § 38.001(8).

The Texas Supreme Court has held [link] that this right of recovery extends to a party suing for breach of warranty, not just breach of contract. 

On the other hand, this right of recovery apparently does not include a party that successfully defends against a breach-of-contract suit; for that, the contract would have to include a prevailing-party attorneys-fees clause.

Deceptive Trade Practices Act: The Texas DTPA is a consumer-protection statute that provides for up to treble damages in cases of ‘knowing’ and/or ‘intentional’ unfair practices (section 17.46 contains a laundry list), including among other things breach of warranty. A successful plaintiff is also entitled to recover attorneys’ fees. To be eligible for DTPA protection, consumers must follow a demand procedure. Section 17.49 lists exemptions. See also this State Bar of Texas FAQ document. (Suggested by Tim Donovan.)

Express negligence rule: Under the Texas “express negligence” doctrine, an indemnity clause that indemnifies a party from the consequences of its own negligence is unenforceable unless the clause expressly and conspicuously says so.  See, e.g., this article and this one and this one. (Suggested by Rita Campanile.)

Limitation periods: Under Section 16.070 of the Texas Civil Practice & Remedies Code, a contractual statute of limitations shorter than two years is void. The only exception, under subdivision (b), is in connection with the sale of a business entity for an aggregate value of not less than $500,000.

Notice requirements for damages claims: Under Section 16.071 of the Texas Civil Practice & Remedies Code, “[a] contract stipulation that requires a claimant to give notice of a claim for damages as a condition precedent to the right to sue on the contract is not valid unless the stipulation is reasonable. A stipulation that requires notification within less than 90 days is void.”

Virginia

UCITA: Virginia has adopted the Uniform Computer Information Transactions Act. See generally Carlyle C. Ring, Jr., An Overview of the Virginia UCITA, 8 RICH. J.L. & TECH. 1 (Fall 2001). (Suggested by Jeff Gordon.)

Washington (state)

Ban on sale of products containing misappropriated IT: In April 2011, the state of Washington enacted a law with the following language:

1 NEW SECTION. Sec. 2.  Any person who manufactures an article or
2 product while using stolen or misappropriated information technology in
3 its business operations after notice and opportunity to cure as
4 provided in section 5 of this act and, with respect to remedies sought
5 under section 6(6) or 7 of this act, causes a material competitive
6 injury as a result of such use of stolen or misappropriated information
7 technology, is deemed to engage in an unfair act where such an article
8 or product is sold or offered for sale in this state, either separately
9 or as a component of another article or product, and in competition
10 with an article or product sold or offered for sale in this state that
11 was manufactured without violating this section. A person who engages
12 in such an unfair act, and any articles or products manufactured by the
13 person in violation of this section, is subject to the liabilities and
14 remedial provisions of this chapter in an action by the attorney
15 general or any person described in section 6(5) of this act, except as
16 provided in sections 3 through 9 of this act.

[Suggested by Hank Jones.]

(It remains to be seen whether this language might be successfully challenged on preemption grounds.)

West Virginia

Resale price maintenance (“vertical price fixing”): See the discussion below.

Limitation of liability: 2006 state-by-state survey

Thanks to IACCM member Robin Foster for pointing out a 2006 Pillsbury Winthrop memo (an 83-page PDF) that contains a brief, state-by-state summary of laws concerning limitation of liability.

Resale price maintenance (“vertical price fixing”) can cause serious trouble under state law

Drafters of distributor- and reseller agreements should be extremely cautious about agreeing to the pricing that the “downstream” party will charge to its own customers. See a spring 2010 article by Scott Martin of Greenberg Traurig at http://goo.gl/eAky.