Be Clear (and Broad) in Your Choice of Law Provisions

In MIM Mass Convertible Note, the parties had a business relationship memorialized by a promissory note and Loan Agreement, paragraph 23 of which stated that “The laws of [South Carolina] shall govern in the interpretation, enforcement, and all other aspects of the obligations and duties created under this Agreement and all other instruments referred to in this Agreement.” Sounds pretty clear and all-encompassing, right…?

The relationship between the parties eventually soured, and the plaintiff filed suit. The defendant answered, and filed counterclaims, including a counterclaim for deceptive and unfair conduct in violation of Massachusetts General Laws Chapter. 93A.

The plaintiff moved to dismiss the Chapter 93A counterclaim, arguing that the choice of law provision in the Loan Agreement limited claims to those available under South Carolina law, and Chapter 93A was a Massachusetts statute. In addressing that motion, the Superior Court emphasized that the choice of law provision in the Loan Agreement was self-limiting and only applied to obligations and duties created under the Loan Agreement and instruments referred to therein. The choice of law provision did not, on the other hand, apply to tortious conduct or unfair acts. The Superior Court then went on to more specifically rule that:

Where, as here, a choice of law provision fails to articulate sufficiently or explicitly that another state’s law governs the parties’ rights and obligations created by statute, then the contract’s choice of law will not displace otherwise applicable statutes or legal obligations or otherwise govern all disputes between the parties.

Thus, the motion to dismiss was denied and the defendant was permitted to pursue its Chapter 93A claim. Had the choice of law provision more broadly stated: “The laws of South Carolina shall govern the interpretation and enforcement of this Agreement, any instrument referred to herein, and any disputes that may arise between the parties,” the result likely would have been different.

Notwithstanding this ruling, there is one silver lining for the plaintiff, and one “be careful what you ask for” concern for the defendant. Apparently, the Plaintiff suggested in a Reply Memorandum in support of its Motion to Dismiss that if that Motion was denied, the Plaintiff would seek leave to amend to add its own Chapter 93A claim….