Specifying That a Contract Is Governed By New York Law May Not Necessarily Be All You Think It Is
In the past, our FYI / לידיעתך articles focused on a single topic.
United States
Corporate/Commercial Law
In the past, our FYI /
לידיעתך articles focused
on a single topic. For this edition, we share two topics that may
be or become relevant in your work.
Specifying that a contract is governed by New York Law may not
necessarily be all you think it is.
A "thank you" goes to my partners,
John McCarthy and
Marc Latman, for bringing this topic up in another SGR
publication.
It is not uncommon when Israeli companies are negotiating with
U.S. companies, that the U.S. company is not comfortable having the
contract governed by Israeli law. The Israeli company also does not
want to have the law of the U.S. company's home jurisdiction
apply, so as is often common in international transactions, the
parties agree that the contract will be governed by New York law,
and even more, that the venue for resolving a dispute would be in
New York. A reasonable assumption would be that this settles the
topic that New York law applies for the entirety of the dispute.
That is not necessarily correct. New York has a "borrowing
statute" which will "borrow" the applicable
statutory period of limitation where the cause of action accrued if
the plaintiff is not viewed as a New York plaintiff. In this
case, the statutory period of limitations from the plaintiff's
home forum would be "borrowed." This could be good or bad
depending on the context. If the Israeli company is sued in New
York on a cause of action that is within the New York statutory
period of limitations but the applicable statutory period of
limitations from the plaintiff's jurisdiction has expired, then
the Israeli company may have a definitive defense in the New York
court. On the other hand, if it is the Israeli company suing in New
York thinking it can take advantage of a longer New York statutory
period of limitations, it could find itself unable to pursue the
claim if the statutory period of limitations in Israel has already
expired. Thus in drafting contracts it would be prudent to provide
in these situations that despite New York being the governing law,
that this borrowing statute does not apply (there is no clear
guidance from the Courts that this would be enforceable, but there
is no harm in providing for it) and that despite New York law
governing, the New York law applicable to "conflicts of
law" will also not apply.
A Small Crack in the Extraterritorial Jurisdiction of the
FCPA
A number of our readers may recall previous articles from us on
the U.S. Foreign Corrupt Practices Act, and how the U.S. Department
of Justice (the sole enforcement agency where U.S. publicly traded
securities are not involved) takes a near international approach to
its jurisdiction. In a recently decided case from the United States
Court of Appeals for the Second Circuit (U.S. v. Hoskins), the
Second Circuit ruled that where a foreign national is not an agent,
employee, officer, director or shareholder of an American issuer
(meaning a publicly traded company) or U.S. concern (meaning a U.S.
company whether or not publicly traded), the foreign national
cannot be subject to the FCPA unless that person commits a crime
within the territory of the United States. Before anyone feels too
comfortable with this, keep in mind that this is the ruling of only
one Circuit in the Court of Appeals and the Department of Justice
could decide to appeal this ruling. Furthermore, prior enforcement
actions have made it clear that the DOJ may not require physical
presence in the United States to take the position that the bad act
happened here. And the border between being an "agent" or
not, may be a thin one. So while this may represent a small crack
in the aggressive assertion of jurisdiction by of the DOJ; best
practices still merits careful compliance for companies and their
personnel with the FCPA and other anti-bribery laws.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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