When negotiating or signing any type ofbusiness contract, it is important to take note of any “choice of law” provision. This refers to any clause which specifies the applicable state law in the event of any breach of contract or similar action to enforce either party's rights. You might think choice of law is obvious just because of the parties' location. But that is not always the case. For instance, if two companies are based in New York state, but one of them is incorporated in Delaware, that company might insist on a provision applying Delaware law.
Court of Appeals Applies New York Law in Pension Beneficiary Dispute
New York's highest court recently addressed an interesting case involving a choice of law provision. In this case, the contract involved a retirement plan administered by a New York nonprofit corporation. This particular retirement plan catered to Christian ministers and missionaries. A minister enrolled in two separate plans offered by the nonprofit had named his wife as beneficiary upon his death, with her father as the contingent beneficiary. Unfortunately, the minister and his wife later divorced, and he moved from New York to Colorado.
After the minister died in 2011, the pension plan was unsure to whom to pay benefits. The minister had not updated or altered his choice of beneficiaries following his divorce. Under the laws of both New York and Colorado, a final divorce judgment revokes any designation of a former spouse as a beneficiary under a pension plan. However, Colorado law goes a step further and revokes any designation of a former spouse's relatives, while New York law is silent on this subject. In other words, the minister's ex-father-in-law could not inherit from the pension plan as contingent beneficiary under Colorado law, but he could under New York law.
The pension plan filed suit in New York federal court to, in effect, determine which law applied. The federal courts, in turn, asked New York's Court of Appeals to address the question. A dividedCourt of Appeals held New York law should apply to the entire pension contract. To hold otherwise, the majority said, “would mean that the contracts here could be interpreted differently for each plan member, depending on where the member was domiciled at the time of his or her death.” The court said it was “unlikely” the pension plan drafted such contracts such that they would be “interpreted in many different ways based on the whim and movements of its plan members.”
Need Help With a Contract or Other Business Transaction?As the above case illustrates, a choice of law provision can significantly affect the interpretation and enforcement of a contract. That is why you should always work with an experienced New York corporate and business transactions attorney who can help you with the negotiating and drafting of a contract to ensure it meets your needs. Contact the offices of Waldhauser & Nisar, LLP, in New York City or Long Island if you would like to speak with an attorney today.