July 16, 2021

Choice of Law Clauses: Boilerplate They Ain’t!

While the parties give a lot of attention to deciding which jurisdiction’s law will govern disputes arising out of an acquisition agreement, in many cases they treat the language of the choice of law clause itself as “boilerplate.” This Weil blog says that’s a big mistake. Here’s the intro:

Choice-of-law clauses are part of the much-maligned miscellany that are consigned to the back of a merger or acquisition agreement. As long as the clause purports to select the law of the state chosen by the parties, why worry about the details of the exact words used to select that chosen law? Indeed, with all of the complex issues requiring attention at the front of the agreement, many consider it the M&A equivalent of “bikeshedding” to spend any time on such trivial issues as the specific wording of a choice-of-law clause. But when disputes arise regarding the front part of that complex merger or acquisition agreement, the exact wording of that otherwise trivial choice-of-law clause can actually be outcome determinative.

And many deal professionals and their counsel remain blissfully unaware of the impact slight changes in the wording of a choice-of-law clause can have—i.e., does the chosen state’s law apply to only contract-based claims, or to all claims arising out of the parties dealings related to the agreement (whether based in contract or tort), and does the chosen state’s statute of limitations apply to the substantive cause of action (whether in contract or tort), or does the statute of limitations of the forum state (when different from the chosen state) apply, even when the forum court is otherwise applying the substantive law of the chosen state?

The blog reviews recent case law on these and other choice of law issues from Delaware and other jurisdictions, and offers suggested language for an updated version of a choice of law clause that addresses them.

John Jenkins