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How the ‘choice of Law’ You Make in Your Commercial Contract in Georgia Can Make All of the Difference

Poole Huffman, LLC

In any commercial agreement, there are many terms that can be of great importance. Some may be obvious, while other essential provisions may go “under the radar.” Even something as minute as deciding which state’s laws will be used to resolve any disputes can make all of the difference should you find yourself in litigation. In one recent case, a contract’s clause regarding the controlling law allowed a plaintiff to revive its case because the chosen state had a broader basis for allowing plaintiffs to obtain recovery. Cases like these highlight the importance of making sure you have skilled Georgia business counsel representing you, whether you are negotiating or litigating your contract.

In that recent case, decided by the 11th Circuit Court of Appeals, whose decisions affect federal actions in Georgia, Florida, and Alabama, a group of business entities reached an agreement with a hedge fund for a line of credit. The borrowers eventually became displeased with the lender’s dispersal of funds and asked the lender to allow them to obtain additional financing from another lender. The hedge fund said no. This set of problems allegedly cost the borrowers the chance to complete an acquisition deal.

The two sides continued to encounter problems. The borrower allegedly continued not to receive funds as it should have. According to the lender, the borrower was the party who defaulted. Eventually, the borrowers sued, alleging a multitude of claims. The borrower had a substantial problem with its case, though:  the release provision contained in the agreement documents it signed. Almost all of the claims that the borrowers asserted in their lawsuit were causes of action that they were expressly prohibited from asserting in a lawsuit, based upon the terms of the release.

The borrowers had one claim – breach of contract – that was not covered by the release. The federal district court concluded that the borrowers’ complaint did not state a valid case of breach of contract, so it threw out the whole lawsuit.

The borrowers were eventually able to get their breach of contract claim revived on appeal. The problem with the lower court’s ruling related to an issue that can be important to many commercial contract cases, which is something called “choice of law.” That term basically means a legal determination of which state’s laws will be used to resolve disputes between the contract’s parties. In this case, although the borrowers sued in federal court in Florida, the document stated that Nevada law would be used to resolve disputes. This was very important because Nevada law gives a plaintiff a wider array of ways of making a successful claim. Nevada law says that a contract party may violate the implied obligation to deal in good faith, even if that party never actually breached the letter of the agreement. (Florida, on the other hand, requires a breach of the actual agreement before considering breach-of-good-faith arguments.)

In these borrowers’ case, the lower court should have used Nevada law to assess the plaintiffs’ breach arguments. Since the court used Florida law, that meant that the borrowers were entitled to another opportunity to argue their breach case.

Whether you are preparing to enter a commercial contract or are working through a contract dispute, the experienced Atlanta contract litigation attorneys at Poole Huffman, LLC are here to help. Our attorneys have spent many years formulating and executing effective strategies to protect and enhance our clients’ interests. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

More blog posts:

Securing Your Credit Union Pt. Ii: Keeping Internal Fraud Out, Atlanta Business Litigation Attorneys, Nov. 16, 2015

Securing Your Credit Union Pt. I: Making Cybersecurity a Top Priority, Atlanta Business Litigation Attorneys, Sept. 11, 2015

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