Opinion ID: 1349036
Heading Depth: 3
Heading Rank: 3

Heading: Fiduciary duty cause of action

Text: (4a) Seawinds contends that, whether or not the choice-of-law clause governs Seawinds's implied covenant claim, Seawinds's fiduciary duty claim is somehow independent of the shareholders' agreement and therefore outside the intended scope of the clause. Seawinds thus concludes California law must be applied to this claim. We disagree. When two sophisticated, commercial entities agree to a choice-of-law clause like the one in this case, the most reasonable interpretation of their actions is that they intended for the clause to apply to all causes of action arising from or related to their contract. Initially, such an interpretation is supported by the plain meaning of the language used by the parties. (5)(See fn. 7.) The choice-of-law clause in the shareholders' agreement provides: This agreement shall be governed by and construed in accordance with Hong Kong law and each party hereby irrevocably submits to the non-exclusive jurisdiction and service of process of the Hong Kong courts. (Italics added.) [7] (4b) The phrase governed by is a broad one signifying a relationship of absolute direction, control, and restraint. Thus, the clause reflects the parties' clear contemplation that the agreement is to be completely and absolutely controlled by Hong Kong law. No exceptions are provided. In the context of this case, the agreement to be controlled by Hong Kong law is a shareholders' agreement that expressly provides for the purchase of shares in Seawinds by Nedlloyd and creates the relationship between shareholder and corporation that gives rise to Seawinds's cause of action. Nedlloyd's fiduciary duties, if any, arise from  and can exist only because of  the shareholders' agreement pursuant to which Seawinds's stock was purchased by Nedlloyd. In order to control completely the agreement of the parties, Hong Kong law must also govern the stock purchase portion of that agreement and the legal duties created by or emanating from the stock purchase, including any fiduciary duties. If Hong Kong law were not applied to these duties, it would effectively control only part of the agreement, not all of it. Such an interpretation would be inconsistent with the unrestricted character of the choice-of-law clause. Our conclusion in this regard comports with common sense and commercial reality. When a rational businessperson enters into an agreement establishing a transaction or relationship and provides that disputes arising from the agreement shall be governed by the law of an identified jurisdiction, the logical conclusion is that he or she intended that law to apply to all disputes arising out of the transaction or relationship. We seriously doubt that any rational businessperson, attempting to provide by contract for an efficient and business-like resolution of possible future disputes, would intend that the laws of multiple jurisdictions would apply to a single controversy having its origin in a single, contract-based relationship. Nor do we believe such a person would reasonably desire a protracted litigation battle concerning only the threshold question of what law was to be applied to which asserted claims or issues. Indeed, the manifest purpose of a choice-of-law clause is precisely to avoid such a battle. Seawinds's view of the problem  which would require extensive litigation of the parties' supposed intentions regarding the choice-of-law clause to the end that the laws of multiple states might be applied to their dispute  is more likely the product of postdispute litigation strategy, not predispute contractual intent. If commercially sophisticated parties (such as those now before us) truly intend the result advocated by Seawinds, they should, in fairness to one another and in the interest of economy in dispute resolution, negotiate and obtain the assent of their fellow parties to explicit contract language specifying what jurisdiction's law applies to what issues. Justice Mosk long ago cogently observed that, Given two experienced businessmen dealing at arm's length, both represented by competent counsel, it has become virtually impossible under recently evolving rules of evidence to draft a written contract that will produce predictable results in court. The written word, heretofore deemed immutable, is now at all times subject to alteration by self-serving recitals based upon fading memories of antecedent events. This, I submit, is a serious impediment to the certainty required in commercial transactions. ( Delta Dynamics, Inc. v. Arioto (1968) 69 Cal.2d 525, 532 [72 Cal. Rptr. 785, 446 P.2d 785] (dis. opn. of Mosk, J.).) With due acknowledgment of Justice Mosk's prescience, other courts have more recently reiterated that, While [the] rule [of easily pleaded ambiguity] creates much business for lawyers and an occasional windfall to some clients, it leads only to frustration and delay for most litigants and clogs already overburdened courts. ( Trident Center v. Connecticut General Life Ins. (9th Cir.1988) 847 F.2d 564, 569; Wilson Arlington Co. v. Prudential Ins. Co. (9th Cir.1990) 912 F.2d 366, 370.) We need not envelop choice-of-law clauses in this fog of uncertainty and ambiguity. For the reasons stated above, we hold a valid choice-of-law clause, which provides that a specified body of law governs the agreement between the parties, encompasses all causes of action arising from or related to that agreement, regardless of how they are characterized, including tortious breaches of duties emanating from the agreement or the legal relationships it creates.
Applying the test we have adopted (see pt. I, ante, at pp. 464-466.), we find no reason not to apply the parties' choice of law to Seawinds's cause of action for breach of fiduciary duty. As we have explained, Hong Kong, the chosen state, has a substantial relationship to the parties because two of those parties are incorporated there. Moreover, their incorporation in that state affords a reasonable basis for choosing Hong Kong law. (See pt. II.B.1., ante, at pp. 467-468].) Seawinds identifies no fundamental public policy of this state that would be offended by application of Hong Kong law to a claim by a Hong Kong corporation against its allegedly controlling shareholder. We are directed to no California statute or constitutional provision designed to preclude freedom of contract in this context. Indeed, even in the absence of a choice-of-law clause, Hong Kong's overriding interest in the internal affairs of corporations domiciled there would in most cases require application of its law. (See Rest., § 306 [obligations owed by majority shareholder to corporation determined by the law of the state of incorporation except in unusual circumstances not present here]; McDermott Inc. v. Lewis (Del. Super. Ct. 1987) 531 A.2d 206, 214-216 [corporate voting rights dispute governed by law of state of incorporation]; Matter of Reading Co. (3d Cir.1983) 711 F.2d 509, 517 [minority shareholder fiduciary duty claim governed by law of state of incorporation].) For strategic reasons related to its current dispute with Nedlloyd, Seawinds seeks to create a fiduciary relationship by disregarding the law Seawinds voluntarily agreed to accept as binding  the law of a state that also happens to be Seawinds's own corporate domicile. To allow Seawinds to use California law in this fashion would further no ascertainable fundamental policy of California; indeed, it would undermine California's policy of respecting the choices made by parties to voluntarily negotiated agreements.