IRB-Brasil Resseguros, S.A. v. Inepar Invs., S.A.
Decision Date | 18 December 2012 |
Citation | 2012 N.Y. Slip Op. 08669,958 N.Y.S.2d 689,20 N.Y.3d 310,982 N.E.2d 609 |
Parties | IRB–BRASIL RESSEGUROS, S.A., Respondent, v. INEPAR INVESTMENTS, S.A., Defendant, and Inepar S.A. Industria e Construções, Appellant. |
Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Hoguet Newman Regal & Kenney, LLP, New York City (Frederic S. Newman and Helene R. Hechtkopf of counsel), for appellant.
Skadden, Arps, Slate, Meagher & Flom LLP, New York City (Lea Haber Kuck, Elizabeth A. Hellmann, Sarah H. Yardeni and Amanda Raymond Kalantirsky of counsel), respondent.
The issue before the Court is whether a conflict-of-laws analysis must be undertaken when there is an express choice of New York law in the contract pursuant to General Obligations Law § 5–1401. We hold that the need for a conflict-of-laws analysis is obviated by the terms of the parties' agreement.
Defendant Inepar S.A. Industria e Constru-cões (IIC) is a Brazilian power company which held a 60% stake in defendant Inepar Investments, S.A. (Inepar), a corporation organized under the laws of Uruguay. IIC specializes in providing equipment and services for the generation, transmission, distribution, and consumption of electric power.
In September 1996, Inepar issued $30 million in Global Notes in the Guaranteed Euro Medium–Term Note Program (the Global Note Program) in order to raise capital and refinance debt previously incurred by Inepar and IIC. The Global Notes were denominated in U.S. dollars, issued on September 30, 1996, matured on October 1, 2001, and paid interest at a fixed rate of 9.9% per annum. A Fiscal Agency Agreement (the Agreement) between Inepar as issuer, IIC as guarantor, and the Chase Manhattan Bank as the fiscal and paying agent, governed the Global Note Program. IIC provided in a Guarantee to “unconditionally and irrevocably guarantee ... the due and punctual payment of principal and interest” under the terms of the Global Notes. The Agreement stated that “[t]his Agreement, the Notes, and the Guarantees shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles.” The Guarantee provided that it would be “governed by, and ... be construed in accordance with, the laws of the State of New York.” New York was designated as the venue in the Guarantee, and thereunder IIC submitted to the jurisdiction of New York courts.
Plaintiff IRB–Brasil Resseguros, S.A. (IRB), a 50% state-owned corporation organized under the laws of Brazil, bought $14 million of Inepar's Global Notes through brokers Smith Barney and Lehman Brothers. IRB received eight interest payments on the Global Notes between April 1997 and October 2000. The interest payments ceased after October 2000, and IRB never received the payment of the principal of $14 million from either IIC or Inepar.
IRB commenced the instant action against IIC and Inepar seeking payment of the Global Note principal and the unpaid accrued interest. Inepar defaulted in this action, and IIC moved for summary judgment, arguing that the Guarantee was void under Brazilian law because it was never authorized by IIC's board of directors. IIC claimed that New York's conflict-of-laws principles should apply, resulting in the application of Brazilian substantive law. IRB also moved for summary judgment. Supreme Court denied IIC's motion and granted IRB summary judgment on the issue of liability only. A Special Referee appointed to hear and determine the issue of damages directed that judgment be entered against IIC in the sum of $27,772,409.86 and that interest on the award be paid at a 9.9% rate. Supreme Court ruled that “a choice-of-law clause in the agreement denoting that New York law governs the parties['] rights and obligations, shall be given mandatory effect” under General Obligations Law § 5–1401 (2009 N.Y. Slip Op. 31723[U], at *16 [Sup.Ct.N.Y. County 2009] ).
The Appellate Division modified the judgment only to the extent of limiting the rate of postjudgment interest to the statutory rate of 9% per year, and otherwise affirmed (83 A.D.3d 573, 922 N.Y.S.2d 308 [1st Dept.2011] ). This Court granted leave to appeal (17 N.Y.3d 717, 936 N.Y.S.2d 75, 959 N.E.2d 1024 [2011] ), and we now affirm.
General Obligations Law § 5–1401(1) states in relevant part:
“The parties to any contract ... arising out of a transaction covering in the aggregate not less than two hundred fifty thousand dollars ... may agree that the law of this state shall govern their rights and duties in whole or in part, whether or not such contract, agreement or undertaking bears a reasonable relation to this state.”
The Legislature passed the statute in 1984 in order to allow parties without New York contacts to choose New York law to govern their contracts. Prior to the enactment of section 5–1401, the Legislature feared that New York courts would not recognize “a choice of New York law [in certain contracts] on the ground that the particular contract had insufficient ‘contact’ or ‘relationship’ with New York” (Sponsor's Mem., Bill Jacket, L 1984, ch 421 at 8). Instead of applying New York law, the courts would conduct a conflicts analysis and apply the law of the jurisdiction with “ ‘the most significant relationship to the transaction and the parties' ” ( Zurich Ins. Co. v. Shearson Lehman Hutton, 84 N.Y.2d 309, 317, 618 N.Y.S.2d 609, 642 N.E.2d 1065 [1994] [quoting Restatement (Second) of Conflict of Laws § 188(1) ] ). As a result, parties would be deterred from choosing the law of New York in their contracts, and the Legislature was concerned about how that would affect the standing of New York as a commercial and financial center ( see Sponsor's Mem., Bill Jacket, L 1984, ch 421). The Sponsor's Memorandum states, “In order to encourage the parties of significant commercial, mercantile or financial contracts to choose New York law, it is important ... that the parties be certain that their choice of law will not be rejected by a New York Court” ( id. at 8). The Legislature desired for parties with multi-jurisdictional contacts to avail themselves of New York law if they so designate in their choice-of-law provisions, in order to eliminate uncertainty and to permit the parties to choose New York's “well-developed system of commercial jurisprudence” ( id. at 7).
General Obligations Law § 5–1402(1) further provides:
“any person may maintain an action or proceeding against a foreign corporation, non-resident, or foreign state where the action or proceeding arises out of or relates to...
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