Specifying That a Contract Is Governed by New York Law May Not Necessarily Be All You Think It Is

International Transactions and New York Law

In the past, our FYI / לידיעתך articles focused on a single topic. For this edition, we share two topics that may be or become relevant in your work.

Specifying that a contract is governed by New York Law may not necessarily be all you think it is.

A “thank you” goes to my partners, John McCarthy and Marc Latman, for bringing this topic up in another SGR publication.

It is not uncommon when Israeli companies are negotiating with U.S. companies, that the U.S. company is not comfortable having the contract governed by Israeli law. The Israeli company also does not want to have the law of the U.S. company’s home jurisdiction apply, so as is often common in international transactions, the parties agree that the contract will be governed by New York law, and even more, that the venue for resolving a dispute would be in New York. A reasonable assumption would be that this settles the topic that New York law applies for the entirety of the dispute. That is not necessarily correct. New York has a “borrowing statute” which will “borrow” the applicable statutory period of limitation where the cause of action accrued if the plaintiff is not viewed as a New York plaintiff. In this case, the statutory period of limitations from the plaintiff’s home forum would be “borrowed.” This could be good or bad depending on the context. If the Israeli company is sued in New York on a cause of action that is within the New York statutory period of limitations but the applicable statutory period of limitations from the plaintiff’s jurisdiction has expired, then the Israeli company may have a definitive defense in the New York court. On the other hand, if it is the Israeli company suing in New York thinking it can take advantage of a longer New York statutory period of limitations, it could find itself unable to pursue the claim if the statutory period of limitations in Israel has already expired. Thus, in drafting contracts, it would be prudent to provide in these situations that despite New York being the governing law, that this borrowing statute does not apply (there is no clear guidance from the Courts that this would be enforceable, but there is no harm in providing for it) and that despite New York law governing, the New York law applicable to “conflicts of law” will also not apply.

A Small Crack in the Extraterritorial Jurisdiction of the FCPA

A number of our readers may recall previous articles from us on the U.S. Foreign Corrupt Practices Act, and how the U.S. Department of Justice (the sole enforcement agency where U.S.-publicly traded securities are not involved) takes a near international approach to its jurisdiction. In a recently decided case from the United States Court of Appeals for the Second Circuit (U.S. v. Hoskins), the Second Circuit ruled that where a foreign national is not an agent, employee, officer, director or shareholder of an American issuer (meaning a publicly traded company) or U.S. concern (meaning a U.S. company whether or not publicly traded), the foreign national cannot be subject to the FCPA unless that person commits a crime within the territory of the United States. Before anyone feels too comfortable with this, keep in mind that this is the ruling of only one Circuit in the Court of Appeals and the Department of Justice could decide to appeal this ruling. Furthermore, prior enforcement actions have made it clear that the DOJ may not require physical presence in the United States to take the position that the bad act happened here. And the border between being an “agent” or not, may be a thin one. So while this may represent a small crack in the aggressive assertion of jurisdiction by of the DOJ; best practices still merits careful compliance for companies and their personnel with the FCPA and other anti-bribery laws.

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