Opinion ID: 763539
Heading Depth: 3
Heading Rank: 2

Heading: Contractual Choice of Law

Text: 41 Because parties are empowered to make contractual choice-of-law provisions, their expectations about the applicability of those choice-of-law provisions are a significant factor in the determination of whether an issue is substantive or procedural for choice-of-law purposes. In determining whether an issue is substantive or procedural, the Restatement considers whether the parties shaped their actions with reference to the local law of a certain jurisdiction. 11 See Restatement § 122 cmt. a; see also Dofasco, 1995 WL 655183, at  8-9 (applying Restatement factors and concluding that attorney's fees are substantive for Kansas choice-of-law purposes). 42 In accord with the Restatement, a few courts have concluded that party reliance on contractual choice-of-law provisions compels a conclusion that attorney's fees are substantive. Even though the Supreme Court of Delaware had held that attorney's fees are a procedural matter governed by the law of the forum, Chester v. Assiniboia Corp., 355 A.2d 880, 882 (Del.1976), the Delaware Court of Chancery concluded that the parties' contractual choice of law created a substantive claim of right to attorney's fees under Texas law. See El Paso, 1994 WL 728816, at  5. The facts of El Paso are quite similar to this case. In a breach-of-contract suit between Amoco and El Paso, the contract in question did not address attorney's fees but did contain a general choice-of-law provision designating Texas law as controlling. See id. Texas permits the recovery of attorney's fees and Delaware does not. See id. at  4. Amoco, the prevailing party, argued that because of the contractual choice-of-law provision, Texas law should govern and hence it should recover attorney's fees; El Paso argued that because Delaware considers attorney's fees to be procedural, the law of the forum should apply. See id. 43 The court stated that the core analysis should be whether the issue is one that constitutes or is vitally bound up with the adjudication of the asserted substantive right. Id. The court noted, however, that certain attorney's fees statutes, for example, those which award attorney's fees as a result of bad-faith litigation, do not involve a substantive right. See id. Thus, the court reasoned, the application of the law of the forum in those instances would not be perceived as failing to afford full faith and credit to sister states, or as disappointing the reasonable expectations of either party. See id. Not confronted with this type of attorney's fee, the court found compelling the contractual provision that Texas law governed. See id. at  5. Even though the contract did not specifically address attorney's fees, the parties had nevertheless made the victor's entitlement to fees a substantive contractual right by reason of designating as governing the law of ... Texas. Id. 44 The El Paso court is not alone. In Dofasco the Kansas federal district court concluded that attorney's fees were substantive in part because the contract, although silent as to attorney's fees, provided for Canadian law to control, tending to show that the parties had shaped their conduct in light of Canadian law. See Dofasco, 1995 WL 655183, at  8-9. Cf. Bensen v. American Ultramar Ltd., No. 92 CIV. 4220, 1997 WL 317343, at  15 (S.D.N.Y. June 12, 1997) (despite conclusion that attorney's fees were procedural under New York choice of law, stating that even if law of foreign jurisdiction applied, it would be unjust to compel plaintiff to absorb defendants' sizable legal bill when he was not aware of the possibility and did not have the opportunity to conduct the litigation accordingly). 12 45 In this case, the parties expressed in their choice-of-law provision that Kansas law would govern their agreement. They said nothing, however, about the allocation of attorney's fees. While Kansas law does not statutorily permit recovery of attorney's fees, it does not prohibit the parties from contracting to shift or allocate attorney's fees. See Kan. Stat. Ann. § 84-2-710, cmt.1 (1997) (Seller's incidental damages: Attorney's fees incurred in bringing the breach of contract action, however, are not recoverable as incidental damages under this section.); see also T.S.I. Holdings, Inc. v. Jenkins, 260 Kan. 703, 924 P.2d 1239, 1254 (Kan.1996). The parties' failure to provide for attorney's fees, in the face of their adoption of Kansas law, indicates their expectation that each party would bear its own costs. Moreover, the contract was created in 1994 when Bill's Coal, decided in 1989, was the law. Thus, if the parties contracted with an eye toward the applicable law, their expectation would have been that Kansas law would govern the recovery of attorney's fees. This court therefore concludes that, consistent with the parties' expectations, Oklahoma choice-of-law principles would apply Kansas law which does not allow recovery of attorney's fees absent a contractual provision to the contrary. 46 This decision is fully in accord with Rosene II. Rosene II states that rather than automatically applying the law of the state providing the substantive contract law, a district court must first apply the forum state's choice-of-law rules. 123 F.3d at 1353 (emphasis added). Rosene II thus prescribes a process by which a court must abide in determining a choice-of-law issue; it does not prescribe a result. A court is not permitted to slavishly adhere to the law of the state providing the substantive law. Neither, however, is a court prohibited from weighing heavily the expectations of the contracting parties when, as here, such parties' reliance is a consideration in the forum state's choice-of-law principles.