Out of state GCs keep asking us to consent to have their (out of CA) laws be binding. Is this allowed?
2 replies
Feb 13, 2020
No.
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Feb 13, 2020
Under CCP § 410.42 a contractor may not require a subcontractor with principal offices in California to agree to litigate, arbitrate, or otherwise resolve a dispute over contract work performed within California in another state.
A choice of law clause, without a venue requirement outside of California, may be enforceable under certain circumstances, most likely only in the context of arbitration. California courts will only consider enforcing a choice of law clause if "(1)...the chosen state has a substantial relationship to the parties or their transaction, or (2) ... there is any other reasonable basis for the parties' choice of law." Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 466. And even then the court will not enforce the choice of law provision if "the chosen state's law is contrary to a fundamental policy of California [and] California has a 'materially greater interest than the chosen state in the determination of the particular issue....'" Id. This would likely to be true with respect to many laws pertaining to construction and has been found true with respect to "pay-if-paid" provisions. Vita Planning and Landscape Architecture, Inc. v. HKS Architects, Inc., 240 Cal.App.4th 763 (2015).
So in summary, if the provision is only a choice of law provision and not a venue provision, the provision may not be defacto void. But there is a strong chance that ultimately they would not be able to enforce the choice of law provision. However, they would have a better shot in arbitration than in court. So if the contract also contains an arbitration provision, you should keep that in mind.