Court Opinion

ID: 9593504
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:22:48.844726+00
Date Added: 2024-06-11T08:52:38.291429
License: Public Domain

PANELLI, J., Concurring and Dissenting.
I generally concur in the majority opinion’s explanation of the standards controlling when a contractual choice-of-law provision will be honored by the courts of this state and with the majority’s application of these standards to Seawinds’s cause of action for breach of the covenant of good faith and fair dealing. I write separately to express my disagreement with the majority’s conclusion, based on the record before us, that the choice-of-law clause in this case governs Sea-winds’s cause of action for breach of fiduciary duty. In my view, the majority’s analysis of the scope of the choice-of-law clause is unsound.
The choice-of-law clause in this case reads in pertinent part: “This agreement shall be governed by and construed in accordance with Hong Kong law. . . -”1 The majority determines that the scope of the choice-of-law clause, which was incorporated into the first amended complaint by attachment, extends to related, noncontractual causes of action, such as Seawinds’s breach of fiduciary duty claim. In so doing, the majority opinion adopts the rule that “[wjhen 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.” (Maj. opn., ante, at p. 468.) Without citing any authority, the majority opinion announces a binding rule of contractual interpretation, based solely upon “common sense and commercial reality.” (Id. at p. 469.)
The problem with the majority’s approach is that it ignores controlling California law. On demurrer, a pleading must be liberally construed. (Code Civ. Proc., § 452.) The accepted rule of contractual construction on demurrer is that “[wjhere a written contract is pleaded by attachment to and incorporation in a complaint, and where the complaint fails to allege that the terms of the contract have any special meaning, a court will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action . . . .” (Hillsman v. Sutter Community Hospitals (1984) 153 Cal.App.3d 743, 749-750 [200 Cal.Rptr. 605]; accord Beck v. American *473Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1561 [260 Cal.Rptr. 237].) In this case, the language of the incorporated contract easily can be read to apply only to contractual causes of action: “This agreement shall be governed ... by Hong Kong law.”
In my view, the majority’s mistaken construction of the choice-of-law clause is clear when the language used in the present contract is compared, as Nedlloyd urges us to do, with the language construed by this court in Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491 [131 Cal.Rptr. 374, 551 P.2d 1206]. In that case, this court determined that claims for unfair competition and intentional interference with advantageous business relationships were governed by a choice-of-forum clause as “ ‘actions or proceedings instituted by . . . [Smith] under this Agreement with respect to any matters arising under or growing out of this agreement. . . .’” (Id. at p. 497, italics in the original.) In contrast to the language used by Nedlloyd and Seawinds in their agreement, the contractual language, “arising under or growing out of this agreement,” which was used in Smith, explicitly shows an intent to embrace related noncontractual claims, as well as contractual claims. Although similar language was readily available to them, the sophisticated parties in the present case did not draft their choice-of-law clause to clearly encompass related noncontractual causes of action.2 Therefore, on demurrer and in the absence of parol evidence, I cannot fairly construe the contractual language at issue here to be consistent with the interpretation proposed by Nedlloyd and adopted in the majority opinion. To do so would violate the statutory canon of contract interpretation that “[t]he language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” (Civ. Code, § 1638.)
Finally, the majority’s rule effectively subordinates the intent of the contracting parties to the need for predictability in commercial transactions. The majority strikes this balance despite the fact that our Legislature has commanded otherwise. Under California law, “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.” (Civ. Code, § 1636.) In contrast to this legislative command, the majority conclusively presumes that choice-of-law clauses entered into between or among commercial entities apply to related noncontractual causes of action regardless of whether the intent of the parties or the contract language (as in this case) shows otherwise. I believe that the departure by the majority from *474established California law is unwarranted and is unnecessary to further the goals of predictability in the enforcement of contracts and protection of the justified expectations of contracting parties. These goals can be adequately protected within the framework of the current law governing contractual interpretation by enforcing choice-of-law clauses in a manner consistent with the language of the contract and the intent of the parties.
I am keenly aware of the need for predictability in the enforcement of commercial contracts. Nevertheless, although courts and litigants may wish the law were otherwise, not every issue can be conclusively determined at the pleading stage. On the present record, the scope of the choice-of-law clause must be construed in favor of Seawinds.
Mosk, J., concurred.

I agree with the majority that the scope of the choice-of-law clause in this contract is a question that would ordinarily be determined under Hong Kong law. (Maj. opn., ante, at p. 469.) I further agree with the majority that, since the parties neither produced any evidence of Hong Kong law relating to. this subject nor requested judicial notice of any such law, we may apply California law to ascertain the scope of the clause. (Ibid.)

Despite the majority’s artfully crafted argument, the words “governed by” do not assist in defining what causes of action the choice-of-law clause was intended to address. Rather, the parties defined the scope of their choice-of-law clause by choosing the phrase “[t]his agreement.”