IRB-Brasil Resseguros, S.A. v. Inepar Investments, S.A.

OPINION OF THE COURT

The issue before the Court is whether a conflict-of-laws analysis must be undertaken when there is an express choice of New York law in the contract pursuant to General Obligations Law § 5-1401. We hold that the need for a conflict-of-laws analysis is obviated by the terms of the parties’ agreement.

Defendant Inepar S.A. Industria e Construgoes (IIC) is a Brazilian power company which held a 60% stake in defendant Inepar Investments, S.A. (Inepar), a corporation organized under the laws of Uruguay. IIC specializes in providing equipment and services for the generation, transmission, distribution, and consumption of electric power.

In September 1996, Inepar issued $30 million in Global Notes in the Guaranteed Euro Medium-Term Note Program (the

Plaintiff IRB-Brasil Resseguros, S.A. (IRB), a 50% state-owned corporation organized under the laws of Brazil, bought $14 million of Inepar’s Global Notes through brokers Smith Barney and Lehman Brothers. IRB received eight interest payments on the Global Notes between April 1997 and October 2000. The interest payments ceased after October 2000, and IRB never received the payment of the principal of $14 million from either IIC or Inepar.

IRB commenced the instant action against IIC and Inepar seeking payment of the Global Note principal and the unpaid accrued interest. Inepar defaulted in this action, and IIC moved for summary judgment, arguing that the Guarantee was void under Brazilian law because it was never authorized by IIC’s board of directors. IIC claimed that New York’s conflict-of-laws principles should apply, resulting in the application of Brazilian substantive law. IRB also moved for summary judgment. Supreme Court denied IIC’s motion and granted IRB summary judgment on the issue of liability only. A Special Referee appointed to hear and determine the issue of damages directed that judgment be entered against IIC in the sum of $27,772,409.86 and that interest on the award be paid at a 9.9% rate. Supreme Court ruled that “a choice-of-law clause in the agreement denoting that New York law governs the parties [’] rights and obligations, shall be given mandatory effect” under

The Appellate Division modified the judgment only to the extent of limiting the rate of postjudgment interest to the statutory rate of 9% per year, and otherwise affirmed ( 83 AD3d 573 [1st Dept 2011]). This Court granted leave to appeal ( 17 NY3d 717 [2011]), and we now affirm.

General Obligations Law § 5-1401 (1) states in relevant part:

“The parties to any contract . . . arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars . . . may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state.”

The Legislature passed the statute in 1984 in order to allow parties without New York contacts to choose New York law to govern their contracts. Prior to the enactment of section 5-1401, the Legislature feared that New York courts would not recognize “a choice of New York law [in certain contracts] on the ground that the particular contract had insufficient ‘contact’ or ‘relationship’ with New York” (Sponsor’s Mem, Bill Jacket, L 1984, ch 421 at 8). Instead of applying New York law, the courts would conduct a conflicts analysis and apply the law of the jurisdiction with “ ‘the most significant relationship to the transaction and the parties’ ” (Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309 , 317 [1994] [quoting Restatement (Second) of Conflict of Laws § 188 (1)]). As a result, parties would be deterred from choosing the law of New York in their contracts, and the Legislature was concerned about how that would affect the standing of New York as a commercial and financial center (see Sponsor’s Mem, Bill Jacket, L 1984, ch 421). The Sponsor’s Memorandum states, “In order to encourage the parties of significant commercial, mercantile or financial contracts to choose New York law, it is important . . . that the parties be certain that their choice of law will not be rejected by a New York Court” (id. at 8). The Legislature desired for parties with multijurisdictional contacts to avail themselves of New York law if they so designate in their choice-of-law provisions, in order to eliminate uncertainty and to permit the parties to choose New York’s “well-developed system of commercial jurisprudence” (id. at 7).

“any person may maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to any contract, agreement or undertaking for which a choice of New York law has been made in whole or in part pursuant to section 5-1401 and which (a) is a contract, agreement or undertaking, contingent or otherwise, in consideration of, or relating to any obligation arising out of a transaction covering in the aggregate, not less than one million dollars, and (b) which contains a provision or provisions whereby such foreign corporation or non-resident agrees to submit to the jurisdiction of the courts of this state.”

Section 5-1402 (1) opened New York courts up to parties who lacked New York contacts but who had (1) engaged in a transaction involving $1 million or more, (2) agreed in their contract to submit to the jurisdiction of New York courts, and (3) chosen to apply New York law pursuant to General Obligations Law § 5-1401. The statutes read together permit parties to select New York law to govern their contractual relationship and to avail themselves of New York courts despite lacking New York contacts.

Applying General Obligations Law §§ 5-1401 and 5-1402 to the facts of the present case, we conclude that New York substantive law must govern, since the parties designated New York in their choice-of-law provision in the Guarantee and the transaction exceeded $250,000. IIC argues that the “whole” of New York law should apply, including New York’s common-law conflict-of-laws principles. IIC maintains that the Guarantee’s choice-of-law provision would have had to expressly exclude New York’s conflict-of-laws principles in order for New York substantive law to apply; otherwise, IIC claims that the court must engage in a conflicts analysis that results in the application of Brazilian substantive law. IIC’s argument is unpersuasive. Express contract language excluding New York’s conflict-of-laws principles is not necessary. The plain language of General Obligations Law § 5-1401 dictates that New York substantive law applies when parties include an ordinary New York choice-of-law provision, such as appears in the Guarantee, in their contracts. The goal of General Obligations Law § 5-1401 was to promote and preserve New York’s status as a com