Google Answers Logo
View Question
 
Q: How find out which state's law applies? ( Answered,   4 Comments )
Question  
Subject: How find out which state's law applies?
Category: Relationships and Society > Law
Asked by: gagaga-ga
List Price: $4.00
Posted: 26 May 2002 15:58 PDT
Expires: 02 Jun 2002 15:58 PDT
Question ID: 18212
What's the best way to go about researching whether California or New
York law applies to a breach of fiduciary duty claim made by a
California resident who is a member of a limited liability company
which is organized under the laws of New York and has both NY and CA
offices?  (I have access to law search engines, but am unsure how to
get started.)

Request for Question Clarification by mvguy-ga on 26 May 2002 22:10 PDT
Do you have the documents used to form the company? It isn't unusual
for the incorporation papers (or the equivalent) to indicate which
state's laws apply. Also, what year was the LLC formed?  Thanks!
Answer  
Subject: Re: How find out which state's law applies?
Answered By: weisstho-ga on 27 May 2002 13:13 PDT
 
Interesting question!  In the legal field the "choice of law" (also
known as "conflict of laws") questions can be among the toughest to
feret out the answer. It is in this area where it becomes most
apparent that law is an art, not a science.

Firstly, the advice given by others here is to be well taken.

As mvguy indicates - check the membership agreement (aka operating
agreement) for a choice of law provision governing disputes between
members (or alternatively members and managers, depending on the type
of LLC). I think that you will find that both states, New York and
California, as well as most other states, will tend (though not
blindly) to follow a contractual provision apertaining to choice of
law:  "[w]hen a rational businessperson enters into an agreement
establishing a transaction or relationship and provides that disputes
arising from the agreement shall be governed by the law of an
identified jurisdiction, the logical conclusion is that he or she
intended that law to apply to all disputes arising out of the
transaction or relationship." Washington Mutual Bank, FA v. Superior
Court, 103 Cal.Rptr.2d 320 (Cal. 2001).

The more difficult issues arise when the operating agreement is silent
on the issue.  The following is excerpted from the California decision
Washington Mutual Bank, FA v. Superior Court, 103 Cal.Rptr.2d 320
(Cal.2001):

"When there is no advance agreement on applicable law, but the action
involves the claims of residents from outside California, the trial
court may analyze the governmental interests of the various
jurisdictions involved to select the most appropriate law."

"California has adopted the Restatement, Second, of Conflict of Laws
position, specifically that of section 187.  Under that approach, the
court must first determine: "(1) whether the chosen state has a
substantial relationship to the parties or their transaction, or (2)
whether there is any other reasonable basis for the parties' choice of
law. If neither of these tests is met, that is the end of the inquiry,
and the court need not enforce the parties' choice of law. If,
however, either test is met, the court must next determine whether the
chosen state's law is contrary to a fundamental policy of California.
If there is no such conflict, the court shall enforce the parties'
choice of law. If, however, there is a fundamental conflict with
California law, the court must then determine whether California has a
'materially greater interest than the chosen state in the
determination of the particular issue....' (Rest.,  187, subd. (2).)
If California has a materially greater interest than the chosen state,
the choice of law shall not be enforced, for the obvious reason that
in such circumstance we will decline to enforce a law contrary to this
state's fundamental policy."

As you can see, this approach leaves the court with substantial
discretion to do what it believes is just and necessary to protect its
state's interest.

Why this issue becomes highly disputed is that offensive (vs.
defensive, not smelly  :-) pleading will find that the plaintiff will
file in that forum state and venue where he/she has the greatest
advantage.  An attorney would have to counsel you here, but you will
probably find, if the operating agreement is silent as to choice of
law, that you can file in either jurisdiction, and argue that the law
of that jurisdiction should apply. THEN, if the defendant wants to
argue for a change, its his dime (that's not to say that your
attorneys meter isn't running, but the other sides will be clicking a
lot faster than yours).

You have other interesting choices as well, for example whether to
file in Federal Court of State Court, and where. Many practitioners
would believe that Fed Court has its advantages what with smaller
dockets and the ability to focus more clearly on more complex
litigation.

A question for me to pose to you:  Have you considered a "Shareholder
Derivative Suit"?  This concept is equally applicable to LLC's and is
a terribly effective tool for seeking redress for minority member
oppression and the like. Nice thing is, if you prevail, you can almost
always get attorneys fees. And, the nasty insiders in some cases must
recuse themselves from the board deliberations concerning the
litigation. Just an idea to toss into the mix.

Here are a couple of sites that I think are very instructive in this
complex area - I think you will find that they are rich:

http://www.law.cornell.edu/topics/conflicts.html
http://www.willamette.edu/wucl/wlo/conflicts/index.htm
http://www.nvinc.com/california_approach.htm

ALSO, you mentioned that you have access to legal search engines (I
presume something like Lexis, Westlaw, or Loislaw). Find these cases
from the Delaware Chancery Courts and I believe that you will find
them very instructive:

Court of Chancery of Delaware.
In re BIGMAR, INC., SECTION 225 LITIGATION
No. CIV.A. 19289-NC.
Date Argued: March 1, 2002.
Post-Argument Submissions Completed: March 28, 2002.
Date Decided: April 5, 2002.


Court of Chancery of Delaware.
David B. CLARK, and United California Discount Corporation, a
California
corporation, Plaintiffs,
v.
Phillip KELLY and La Empresa De La Mar D'Oro, Inc., a California
corporation,
Defendants,
and
RIVIERA FINANCE LLC, a Delaware limited liability company, Nominal
Defendant.
No. C.A. 16780.
June 24, 1999.

Search Terms Used:
://www.google.com/search?sourceid=navclient&querytime=Fx2WjB&q=%22choice+of+law%22

://www.google.com/search?sourceid=navclient&q=%22choice+of+law%22+california+%22New+York%22

I hope that this will help you in answering your question. If you
require ANY need for clarification, please ask and I will be glad to
help some more.

Best of luck!  And thanks again for a question on this fascinating
area of the law.

Tom
Comments  
Subject: Re: How find out which state's law applies?
From: ez-ga on 26 May 2002 20:50 PDT
 
Unfortunately in matters of law, you may not find the same answer from
two people. (Even judges or attorneys!) However, there are some places
you can start.

Make sure you study the bylaws of the LLC carefully. The answer may
have been spelled out when the LLC was formed. (Often there is a
stipulation for what state and jurisdiction complaints are to be
held).

You can also try some general answer sites on the net:

<a href="http://www.lawguru.com/">lawguru.com</a> has some
specific answers and a huge database of legal questions from
other people. Attorney's answer for free from all over the
country.

Here is one such answer regarding LLC's:

<a href="http://www.lawguru.com/cgi/bbs/mesg.cgi?i=100077327">
http://www.lawguru.com/cgi/bbs/mesg.cgi?i=100077327</a>

Honestly, most of the answers, even from attorneys, end with
the common sense approach -- seek advice from a local attorney.

Here are some firms that advertise free consultations, which
may give you the direction you need to go in before paying 
someone:

<a href="http://www.ibusinessadvisors.com/">http://www.ibusinessadvisors.com/</a>
and 
<a href="http://www.calattorney.net/business/internet.shtml">http://www.calattorney.net/business/internet.shtml</a>
are in California. 

For New York, try:
<a href="http://www.webspan.net/~jsmarg/">John Smargiassi</a>

If those attorney's don't work, try this service:

<a href="http://www.lawyers.com/">Lawyers.com</a>

Good luck!
Subject: Re: How find out which state's law applies?
From: fuzzy_logic-ga on 27 May 2002 04:08 PDT
 
the answer for such a question is a very simple one

if in the terms and conditions of a sale of products or services, it
states that all transactions of a sale are bound to a head office,
wherever the head office located, then the state law of the state
where the head office is located applies. If however the customer has
not signed terms and conditions to that affect then the state law of
where the product or services where purchased will apply.

I recommend that if you want one state law to apply over the other,
then you will need to stipulate that in the terms and conditions of a
sale, that the customer signs during the transaction.
Subject: Re: How find out which state's law applies?
From: shaneh-ga on 27 May 2002 13:16 PDT
 
Hello, 

I am assuming this is a claim between general partners of a LLC. I am
also assuming there is a partnership agreement that has been ratified
by all members. If that is the case, in the agreement there should be
a clause stipulating which jurisdiction (Usually detailing the State,
County and City) the contract was drawn on.

If there is such a clause, your question is answered.  If there isn't,
the jurisdiction would be wherever the LLC is organized. In this case,
New York.

On another note, most partnership agreements require the members of
the partnership to take certain actions to wholly ratify the contract
(Such as agree on the value of the partnership, agree on an
arbitration process and contribute their fiduciary share.) If that is
the case with your contract, and the member hasn't yet contributed
their share, the contract may not technically be in effect.
Subject: Re: How find out which state's law applies?
From: weisstho-ga on 10 Jun 2002 13:12 PDT
 
Respectfully, don't confuse "jurisdiction" with "choice of law".  A
court in California, for example, could decide a case using New York
law. Many of the agreements, at least in my experience, will specify
Choice of Law (e.g. any dispute will be settled using the law of State
X).

Jurisdiction, on the other hand, gets to the question of WHERE you can
sue. Most states will not permit this to be contracted away - it is
what it is. There is a ton of case law on this, as well as long-arm
statutes of all of the 50 states, that specify the Where.

Tom

Important Disclaimer: Answers and comments provided on Google Answers are general information, and are not intended to substitute for informed professional medical, psychiatric, psychological, tax, legal, investment, accounting, or other professional advice. Google does not endorse, and expressly disclaims liability for any product, manufacturer, distributor, service or service provider mentioned or any opinion expressed in answers or comments. Please read carefully the Google Answers Terms of Service.

If you feel that you have found inappropriate content, please let us know by emailing us at answers-support@google.com with the question ID listed above. Thank you.
Search Google Answers for
Google Answers  


Google Home - Answers FAQ - Terms of Service - Privacy Policy