Hughes Electronics Corp. v. Citibank

• Decision Date: 30 June 2004
• Docket Number: No. B164083.,B164083.
• Citation: 120 Cal.App.4th 251,15 Cal.Rptr.3d 244
• Court: California Court of Appeals Court of Appeals
• Parties: HUGHES ELECTRONICS CORPORATION, et al., Plaintiffs and Respondents, v. CITIBANK DELAWARE, et al., Defendants and Appellants.

15 Cal.Rptr.3d 244

120 Cal.App.4th 251

HUGHES ELECTRONICS CORPORATION, et al., Plaintiffs and Respondents, v. CITIBANK DELAWARE, et al., Defendants and Appellants.

No. B164083.

Court of Appeal, Second District, Division 8.

June 30, 2004.

Review Denied September 22, 2004.^*

Westrup, Klick & Associates, R. Duane Westrup, Rhonda Klick, Lawrence R. Cagney, Long Beach, and Mark L. VanBuskirk for Defendants and Appellants.

Quinn Emanuel Urquhart Oliver & Hedges, Dale H. Oliver, Michael E. Williams and Michelle R. Fang, Los Angeles, for Plaintiffs and Respondents.

BOLAND, J.

A New York bank and its California customer agreed that disputes arising out of their banking relationship would be resolved under New York law. The customer sued in California under New York law for causes of action arising in California after the bank refused to credit its account for payment on a check bearing a forged endorsement. Under New York law, a three-year statute of limitations governed the claims. However, New York's "borrowing statute" required that each cause of action must be timely under both New York law and the law of the jurisdiction in which the claim arose. The customer's claims, asserted more than two years after it learned of the forgery and of the bank's allegedly wrongful payment of the check, were timely under the New York statute of limitations, but time-barred under California law. The trial court enforced the parties' contractual choice of law provision, but refused to enforce the borrowing statute and precluded the bank from asserting a statute of limitations defense. The jury found in favor of and awarded damages to the customer. The bank appealed.

We hold that, where parties to a valid and enforceable contractual choice of law provision make an unqualified choice to govern the resolution of their disputes by the "laws" of a foreign jurisdiction, a trial court may not choose to enforce some but not all of the applicable laws of that jurisdiction. We also conclude this action is governed by a one-year statute of limitations. (Code Civ. Proc., § 340 subd. (c).) Consequently, unless the bank is equitably estopped from asserting a statute of limitations defense, an issue which has not been litigated, this action was time-barred when it was filed. Accordingly, we reverse the judgment and remand the matter for trial on the issue of estoppel.

FACTUAL AND PROCEDURAL BACKGROUND

Respondent DIRECTV, Inc. is a wholly owned subsidiary of respondent Hughes Electronics Corporation. Hughes is a Delaware corporation and DIRECTV, Inc. is a California corporation. California is the principal place of business for each entity. Respondent Citibank Delaware is a Delaware corporation. Respondent Citibank NA is a Delaware corporation and its principal place of business is New York.

On May 15, 2001, Hughes and DIRECTV, Inc. (collectively DIRECTV) filed this action against Citibank Delaware, and Citibank NA (collectively Citibank). The facts are not in dispute.

DIRECTV and Citibank are parties to an integrated July 1995 Customer Agreement that "is governed by the laws of the State of New York...."

In December 1998, DIRECTV wrote a check on its Citibank account for $439,281.60, and mailed the check to the payee, American Express. The check was stolen from the mail, American Express' endorsement was forged, and the check was cashed by the thief in January 1999. DIRECTV was aware of the forgery and that the American Express check had been cashed by April 15, 1999. Citibank refused to re-credit DIRECTV's account for the forged endorsement.

On May 15, 2001, DIRECTV filed this action alleging two causes of action against Citibank for violation of section 4-401 of the New York Uniform Commercial Code and for breach of contract. DIRECTV's contract claim incorporates the allegations related to and is specifically predicated on Citibank's alleged violation of New York Uniform Commercial Code section 4-401.

The matter was tried in September 2003. By a pre-trial ruling on an in limine motion, the trial court found that DIRECTV's claims were governed by the three-year statute of limitations of New York Civil Practice Law and Rules (CPLR) 214(2),¹ rather than the one-year limitation period under California Code of Civil Procedure section 340 subdivision (c),² as Citibank had urged. The trial court refused to enforce New York's borrowing statute, CPLR 202.³

Citibank was barred from presenting a statute of limitations defense, and its proposed jury instructions on that point were rejected. The action was tried and judgment subsequently was entered on a unanimous verdict awarding damages of $439,281.60, plus prejudgment interest, to DIRECTV. Citibank appeals.

DISCUSSION

This appeal raises the question of whether a choice of law provision in the parties' written agreement, which states the agreement are governed by New York "laws," requires application of New York's statute of limitations to the claims, or whether the parties' agreement also encompasses application of New York's "borrowing" statute by virtue of which California's shorter statute of limitations would bar this action. The interpretation of a choice of law clause on undisputed facts presents a purely legal question which we review de novo. (Hambrecht & Quist Venture Partners v. American Medical Internation., Inc. (1995) 38 Cal.App.4th 1532, 1539, fn. 4, 46 Cal.Rptr.2d 33 (Hambrecht); American Home Assurance Co. v. Hagadorn (1996) 48 Cal.App.4th 1898, 1907, fn. 6, 56 Cal.Rptr.2d 536.)

Citibank insists the trial court correctly upheld the parties' agreement to be bound by New York law, but erred in refusing to apply New York's borrowing statute. DIRECTV argues the court correctly found, based on the parties' choice of law provision, that New York's three-year statute of limitations, CPLR 214(2), applied to its claims. Citibank has the better argument. By choosing to be bound by New York "law," the parties agreed to be bound by the entire body of that state's laws, including its borrowing statute.

1. The choice of law provision is enforceable.

When California is the forum, disputes arising out of contractual choice of law provisions are resolved in accordance with the decision in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (Nedlloyd). In Nedlloyd, the Supreme Court concluded California courts must apply the principles articulated in the Restatement Second of Conflict of Laws (Restatement), section 187, which strongly favor enforcement of choice of law provisions, so long as those provisions are freely and voluntarily agreed upon. (Nedlloyd, supra, 3 Cal.4th at pp. 464-465, 11 Cal.Rptr.2d 330, 834 P.2d 1148.) The proper analytical approach, under Nedlloyd and the Restatement, is to determine whether (1) the chosen state has a substantial relationship to the parties or their transaction, or (2) any other reasonable basis exists for the parties' choice of law. If either test is met, the choice of law provision will be enforced unless the chosen state's law is contrary to a fundamental public policy of California. (Id. at p. 466, 11 Cal.Rptr.2d 330, 834 P.2d 1148; Rest., § 187, subd. (2).) The requirements for enforcing the choice of law provision are satisfied here.

First, Citibank's principal place of business is in New York. This fact alone is sufficient to establish a "substantial relationship" between New York and the parties as well as a "reasonable basis" for a contractual provision requiring application of New York law. "`If one of the parties resides in the chosen state, the parties have a reasonable basis for their choice.' [Citation.]" (Nedlloyd, supra, 3 Cal.4th at p. 467, 11 Cal.Rptr.2d 330, 834 P.2d 1148; Hambrecht, supra, 38 Cal.App.4th at p. 1547, 46 Cal.Rptr.2d 33.)

Second, neither party contends, nor do we conclude, that any fundamental public policy of California is offended by application of New York law. Indeed, both states have adopted the provisions of the national model Uniform Commercial Code (UCC) which provides the statutory basis for the claims at issue. (Compare 23B pt. West's Cal. U. Comm.Code (2002) § 4401, subd. (a), and id., foll. § 4401, Cal. Code Com. par. 2, p. 153 [bank pays forged check at its peril and cannot charge depositor's account unless bank can show negligence on part of customer and its own freedom from negligence], with N. Y. U. Comm.Code §§ 4-401(1); Monreal v. Fleet Bank (2000) 95 N.Y.2d 204, 713 N.Y.S.2d 301, 302-303, 735 N.E.2d 880, 881-882 [Under New York's version of UCC, forged endorsement is wholly inoperative and bank must recredit drawer's account, or be strictly liable]; Royal Ins. Co. of America v. Citibank, N.A. (N.Y.App.Div.2003) 306 A.D.2d 158, 763 N.Y.S.2d 539 [same].) Accordingly, this case presents no impediment to enforcement of the parties' choice of law provision.

2. New York's borrowing statute must be enforced.

a. New York law supports enforcement of CPLR 202.

The parties' written agreement simply states that it "is governed by the laws of the state of New York...." The agreement does not refer to nor attempt to distinguish or exclude New York's substantive laws from its procedural provisions. The question posed is whether the trial court erred in enforcing certain provisions of New York law — the law governing the substantive claims and the procedural law establishing a three-year statute of limitations — but refusing to enforce another — the borrowing statute of that same jurisdiction.

There can be no question that, had this case been adjudicated in New York, New York law would require application of that state's borrowing statute and, in turn, California's shorter statute of limitations.⁴ In an action brought in New York by a nonresident plaintiff on a cause of action accruing outside that state, CPLR 202 requires that the applicable limitation period be the shorter of the statutes of limitations of New York or the state where the cause of action...