Opinion ID: 2761876
Heading Depth: 2
Heading Rank: 1

Heading: Choice of Law Determination

Text: Because we are a federal court sitting in diversity, we apply the choice of law rules of the forum state: Pennsylvania. See, e.g., Pac. Employers Ins. Co. v. Global Reinsurance Corp. of Am., 693 F.3d 417, 432 (3d Cir. 2012). Pennsylvania’s approach to choice-of-law questions has two steps. First, we must apply Section 188(2) of the Restatement (Second) of Conflict of Laws (1971) to identify the relevant contacts between each state, the parties, and the subject matter. Then, we weigh those contacts according to the policy-oriented factors of Section 6 of the Restatement, discussed below. Section 188(2) sets forth the contacts we consider: (a) “the place of contracting;” (b) “the place of negotiation of the contract;” (c) “the place of performance;” (d) “the location of the subject matter of the contract,” and (e) “the domicile, residence, nationality, place of incorporation and place of business of the parties.” Id. Toll’s challenge to the choice-of-law determination is narrowly focused. He does not, for example, argue that there is no conflict between Pennsylvania and New York law on the 6 question of oral contracts. Nor could he because New York and Pennsylvania laws are polar opposites as they pertain to oral contracts: New York’s statute of frauds invalidates oral contracts that cannot be performed in a year where Pennsylvania has no such limitation.2 Compare N.Y. Gen. Oblig. Law § 5-701(a)(1) (2014), with 33 Pa. Cons. Stat. §§ 1-6 (2011). Toll does not fault the District Court’s use of the Restatement (Second) of Conflicts §6 to determine which state has the greater interest in seeing its laws enforced. Lastly, Toll accepts the procedure used by the District Court to resolve factual disputes as they relate to the choice-of-law determination. Instead, Toll hones his challenge to two points of the choice-of-law analysis undertaken by the District Court: the “most significant relationship” inquiry, and the “relative inquiries and policies” determination. The District Court, in going through the above factors, concluded that it was a wash. The analysis did not conclusively point to either New York or Pennsylvania as the applicable law, in part because there was conflicting evidence as to whether the alleged oral contract was agreed. Our review confirms that determination. Toll himself concedes that several of the Restatement factors are of little importance (the place of negotiation, for example) and Toll does not argue on appeal the importance of other factors (the place of negotiation and the parties’ domicile and residence, to name two). We further agree with the District Court that the place of performance is entitled to little weight because, without more, perceived performance in Pennsylvania cancels out 2 Toll does not contest that the alleged oral contract between him and Tannenbaum could not be performed within a year. Any such oral agreement would, therefore, be void under New York Law. 7 perceived performance in New York. This leaves Toll’s argument that because the place of contracting was so clearly Pennsylvania, the Commonwealth’s laws should apply. He submits that the District Court should have ended its inquiry and analysis on this point alone. Again, we agree with the District Court that, assuming Pennsylvania was the location of contracting, that factor alone has little significance in the overall scheme of things. The commentary to § 188 of the Restatement clarifies the importance of the place of contracting among the factors relevant to the choice of law analysis: Standing alone, the place of contracting is a relatively insignificant contact. To be sure, in the absence of an effective choice of law by the parties, issues involving the validity of a contract will, in perhaps the majority of situations, be determined in accordance with the local law of the state of contracting. In such situations, however, this state will be the state of the applicable law for reasons additional to the fact that it happens to be the place where occurred the last act necessary to give the contract binding effect. The place of contracting, in other words, rarely stands alone and, almost invariably, is but one of several contacts in the state. Restatement (Second) of Conflicts of Laws § 188, cmt. e (emphasis added). The place of contracting could have easily been New York, or any of the several other states in which Toll spends time. He testified to his desire to spend more time each year in Florida, for example, where he has his primary residence and pays taxes. Indeed, the record here shows that Toll spends only 25 percent of his time in Pennsylvania. Because the evidence is indeterminate on the place of contracting, and because this factor is “a relatively insignificant contact,” the place of contracting here adds little, if anything, to the choice-of-law determination. 8 Toll argues that the guaranty he gave to the Wachovia Bank loan bolsters his connections with Pennsylvania. This argument is a distraction. Our focus for the choiceof-law question, Tannenbaum rightly points out, is not the formation of the Wachovia loan, but rather the circumstances surrounding the formation of the purported oral agreement. The Wachovia loans Toll references are distinct written agreements between Tannenbaum and the bank. We cannot see how these agreements, to which Toll was not even a party, tip the balance in favor of Pennsylvania in the choice-of-law analysis.3 An analysis of the choice-of-law factors, as the District Court found, does not conclusively point to either New York or Pennsylvania law. We must, therefore, shift our analysis to the relative interests and policies of each jurisdiction. See Blakesley v. Wolford, 789 F.2d 236, 238-39 (3d Cir. 1986); see also Restatement (Second) of Conflict of Laws § 188(1) (1971) (requiring a court to consider the Section 188(2) contacts in light of the policies 3 Toll also argues on appeal that the District Court inappropriately changed some of its choice-of-law factual conclusions at summary judgment from those it relied on to decide Tannenbaum’s motion to dismiss. Any such change is quite permissible and stems not from a judge’s caprice or disregard for the actual facts, but instead from the change in the legal standards to be applied. When reviewing a motion to dismiss, a district court is required to accept all allegations pleaded in the complaint as true and to confine its analysis to those averments. See Great W. Mining & Mineral Co. v. Fox Rothschild, LLP, 615 F.3d 159, 177 (3d Cir. 2010) (quotations omitted). Any inferences drawn from the complaint are to be in the plaintiff’s favor. Foglia v. Renal Ventures Management, LLC, 754 F.3d 153, 154 n.1 (3d Cir. 2014). There is a significant difference between the standard of review and the procedural posture for a motion to dismiss and that for a motion for summary judgment. At the summary judgment stage, the parties have engaged in discovery and may present a complete factual record to the court. See Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 772-73 (3d Cir. 2013). At summary judgment, some important facts differed in how they were presented in the complaint. For example, Toll’s complaint stated that the negotiations took place in Pennsylvania. A different picture emerged after the completion of discovery where Toll testified that the negotiations took place in several locations and were not just limited to the Commonwealth. The District Court acted properly and we find no error. 9 identified in Section 6). Among the factors a court may consider are: (a) “the needs of the interstate and international systems;” (b) “the relevant policies of the forum;” (c) “the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;” (d) “the protection of justified expectations;” (e) “the basic policies underlying the particular field of law;” (f) “certainty, predictability and uniformity of result;” and (g) “the ease in the determination and application of the law to be applied.” Restatement (Second) of Conflicts of Laws § 6(2) (1971). No one disputes that Pennsylvania and New York’s laws conflict on oral contracts and that each state has an interest in seeing its own laws enforced. Toll argues that Pennsylvania’s interests in permitting oral agreements are paramount, and that the District Court erred by applying New York law: not so. New York’s interests in prohibiting oral contracts are more compelling. First, New York law better fits the expectations of the parties. The District Court determined that because the parties selected New York law when they formalized other agreements based on the same subject matter, “they could reasonably and justifiably expect New York law to apply to other agreements as well.” Toll, 982 F. Supp. 2d at 556. We agree. Toll and Tannenbaum chose New York law when they wrote up the $50 million loan guaranty fee agreement. Furthermore, the record contains testimony that New York law was always invoked in agreements drafted by Tannenbaum’s representatives and that Toll signed those agreements without objection. Toll, therefore, should not be surprised to learn that New York law applies to his claims. 10 Next, we consider certainty, predictability, and uniformity of result. Like New York, most jurisdictions in this country require that parties memorialize all contracts of definite duration that cannot be completed within one year. See Restatement (Second) of Contracts § 130 (1981) (and cases cited therein). Pennsylvania is in the distinct minority. Thus, we think that to promote certainty, predictability, and uniformity of result, New York law should apply here. Next, the basic policies underlying the particular field of law, contract law here, should be reviewed. Contract jurisprudence contains several policies which favor written instruments over oral agreements. Reducing an agreement to writing not only prevents fraud and perjury but also can prevent courtroom errors that might arise due to the fallibility of human memory or the unavailability of witnesses. Furthermore, requiring written contracts ensures that the parties act with caution and deliberation. Lastly, by requiring written agreements, the parties are further compelled to set out in one document all of the material terms and conditions to their agreement. This, therefore, can avert any future disputes and litigation. In short, major policies underlying contract law favor the application of New York law. So, taking into consideration the factors outlined in Section 6, applying New York law makes the most sense. In our view, the policies underlying New York’s Statute of Frauds trump any interest Pennsylvania may have here in protecting Toll as he attempts to enforce an oral agreement.4 New York law will not only protect the justified 4 Again, Toll points to the District Court’s initial determination that New York policy interests in requiring written contracts were diminished when compared against 11 expectations of the parties, but will also advance the relevant policies of that state. Further, using New York law to resolve this dispute will promote predictability and advance basic policies underlying contract law. Toll has consistently acknowledged that his agreement with his former son-in-law was never reduced to writing and that its terms would not permit performance within one year of its inception. Therefore, under New York law, any such agreement is void. The District Court committed no error by granting Tannenbaum summary judgment on Toll's breach of contract claim.