“Location, Location, Location”—The Three Things that Matter the Most in Real Estate May Also Matter the Most in Ensuring the Proper Application of All of Your Contractually Chosen Law

It is said that, in real estate, location is everything.  Well, it turns out that the same is sometimes true with respect to the enforcement of contracts; it is just as important to choose the location for resolving a dispute as it is to choose the law that will govern the contract that may be the subject of that dispute.  Indeed, a recent decision of the English Court of Appeal upheld a legal malpractice judgment (at least with respect to some of the claimed damages) against a London law firm based upon the failure of that law firm to include a jurisdiction (or forum) selection clause in an employment agreement for a client slated to work for an Indian cricket club, partly in England and partly in India.[1]  The client had apparently assumed, wrongly, that the English choice-of-law clause would grant the English courts exclusive jurisdiction over any dispute arising from that agreement. 

But the reason the location of a dispute can literally be everything (i.e., outcome determinative) is not just because of concerns about the reliability of a forum court, located in a jurisdiction other than the jurisdiction whose law was chosen to govern the agreement, properly applying the selected governing law in a timely fashion (which appears to be the concerns at work in the English Court of Appeal case).  Rather, the reason properly selecting the location (or forum) for resolving a dispute can be everything, notwithstanding the inclusion of a standard choice-of-law clause choosing the law that will govern the substantive rights of the parties under the contract, is that, in the United States at least, the forum court may apply its own “procedural” rules in determining the remedy available to vindicate those rights.  And in many states, statutes of limitations (and, in some states, even statutes of repose) are considered procedural laws rather than substantive laws.  If the statutes of limitations have expired in the state whose laws govern the contract, but have not expired in the state where the claim is commenced, the substantive rights may still be enforceable in the forum court despite the fact that those rights would not be enforceable in the state whose law was selected to govern those substantive rights (at least in the absence of an applicable “borrowing statute,” which is a procedural law that looks back to the statute of limitations of the law governing the contract or of the law where the claim arose if that statute is shorter than the forum’s). 

This is not our first time to discuss these issues and urge vigilance not only with respect to careful consideration of the selected forum (and the inclusion of a broad forum selection clause), but also with respect to the scope of the choice-of-law clause (in making both tort and contract claims subject to the chosen law, in including statute of limitations in the chosen law regardless of their categorization as procedural, and in avoiding borrowing statutes causing statutes of limitations other than that of the chosen state’s law to apply).[2]  But a recent opinion from the Supreme Court of Connecticut took the procedural/substantive distinction to a new level, applying it to a Delaware limited partnership formed pursuant to the Delaware Limited Partnership Act.  In Reclaimant Corp. v. Deutch, SC 20133, 2019 WL 3483923 (Conn. Aug. 6, 2019), the Supreme Court of Connecticut held that Connecticut law (as the forum state) applied, rather than Delaware law, to the “timeliness of [plaintiff’s] unjust enrichment claims” arising from distributions made to limited partners from a Delaware limited partnership, notwithstanding the Delaware Limited Partnership Act’s clear mandate that “a limited partner who receives a distribution from a limited partnership shall have no liability under this chapter or other applicable law for the amount of the distribution after the expiration of 3 years from the date of the distribution.”[3]  The distributions were made in 2008 and the claims were filed in Connecticut, where the defendant limited partners were residents, in 2013.  And the Connecticut Supreme Court reached this decision notwithstanding its conclusion that Delaware’s 3-year liability bar respecting distributions made to limited partners was a statute of repose not merely a statute of limitations.

While the limited partnership agreement had a provision that made Delaware law the governing law (including with respect to “all rights and liabilities of the parties”), as well as typical statements confirming that the limited partnership had been formed under and pursuant to the Delaware Limited Partnership Act (which of course includes the forgoing mandate), the limited partnership agreement apparently did not include a forum selection provision mandating that disputes be resolved in the Delaware courts.  Had this claim been filed in Delaware it would have presumably been dismissed.  But despite the fact that the 3-year limitation period in the Delaware Limited Partnership Act is stated in terms of there being a bar on any “liability” for a limited partner, rather than a limitation on rights of action that can be commenced after the expiration of an applicable limitations period, and despite the fact that Connecticut specifically provides by statute that “the laws of the state under which a foreign limited partnership is organized governs its organization and internal affairs and the liability of its limited partners,[4] the Connecticut Supreme Court used the substantive/procedural distinction to effectively eviscerate Delaware’s 3-year limitation period regarding a limited partner’s liability for distributions they receive.  As a result, claims that presumably would have been extinguished in a Delaware court applying Delaware law to a Delaware limited partnership formed pursuant to the Delaware Limited Partnership Act and subject to a limited partnership agreement governed by Delaware law, were very much alive and kicking in a Connecticut court that applied Delaware’s substantive law to determine the validity of the plaintiff’s claim, but treated Delaware’s 3-year statutory bar on liability for limited partners’ receipt of distributions as a procedural rule subject to Connecticut, not Delaware, law.

The expiration of an applicable statute of limitations does not technically extinguish obligations or claims; instead it simply denies the aggrieved party access to the courts to enforce those claims or obligations.[5]  Hence the characterization of statutes of limitations as procedural rules, rather than substantive law.  On the other hand, “the running of a statute of repose will extinguish both the remedy and the right.”[6] Statutes of repose are typically associated with state legislation protecting builders and architects from stale claims by making the limitations period commence on the date the work is done rather than when an actual injury occurs or defects became known; and some states have treated statutes of repose as fundamentally different than statute of limitations and declared them substantive law rather than procedural law.[7]  The Connecticut Supreme Court rejected this distinction, even though it appeared to consider the 3-year liability bar for distributions as a statute of repose rather than a statute of limitations.  But regardless of this theoretical distinction, when a remedy is no longer available to vindicate a substantive right in the state whose substantive law was chosen to govern a contract, it seems downright bizarre that merely by filing your claim in another state with a longer statute of limitations, you could enforce the substantive right created in another state but which is not enforceable in that state.[8]  And “the emerging trend” on this issue is apparently to “abandon[] the procedural/substantive distinction” and not permit a claim to “be maintained if it is barred by the statute of limitations of the state which, with respect to the issue of limitations, is the state of most significant relationship to the occurrence and the parties.”[9] But the traditional rule that recognizes the procedural/substantive distinction has a long history,[10] and it is not clear which states are following this emerging trend (certainly not Connecticut). 

Although this author believes that Delaware’s statutory 3-year limitation period respecting a limited partner’s “liability” for distributions it receives is not a traditional statute of limitations (or statute of repose), but a substantive law defining the extent of a limited partner’s liability under the statutory limited partnership regime (and that therefore the procedural/substantive distinction should not have been invoked in favor of Connecticut’s statute of limitations), the Connecticut Supreme Court disagreed.  Had a forum selection clause been included in the limited partnership agreement mandating exclusive jurisdiction in Delaware courts, this issue presumably would have never arisen because even if Delaware were to have treated its 3-year liability exclusion provision respecting distributions as if it were a statute of limitations, the forum court should have been in Delaware, not Connecticut, and Delaware, as the forum, would have applied the law as a procedural rule.  

Thus, it is always best to match a choice-of-law clause to a choice-of-forum provision so that the court determining the remedies for the rights you created under a selected law will be a court in the selected jurisdiction—assuming of course you selected a governing law intending that the applicable statute of limitations of the selected jurisdiction would apply.  But added protection can be found in enhancing your choice-of-law clause to specifically incorporate statutes of limitations into the governing law (regardless of their classification as substantive or procedural).  Even the Connecticut Supreme Court suggested that an express statement incorporating Delaware’s statute of limitations into the governing law provision would have altered the outcome of this case.  And, although forum selection clause are liberally enforced in most states, a recent case decided by the Ninth Circuit Court of Appeals invalidated a forum selection clause based upon the public policy (based on a specific statute) of a state otherwise having jurisdiction over a dispute.[11]  So, having a back up to your choice of location is always a good plan.  An example of a choice-of-law clause that attempts to cover all the bases is set forth below:

Governing Law.  This Agreement, and all claims or causes of action (whether in contract, tort or statute) that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by, and enforced in accordance with, the internal laws of the State of [       ], including its statutes of limitations and repose, but without regard to any borrowing statute that would result in the application of the statute of limitations or repose of any other jurisdiction.

So, “location, location, location” may matter the most, but a bespoke choice-of-law clause is a good back up.



Endnotes    (↵ returns to text)
  1. Wright v. Lewis Silkin LLP, [2016] EWCA Civ 1308.
  2. Glenn West, Something Borrowed May Make You Blue—Re-Examining New York Choice of Law Clauses, Weil Insights, Weil’s Global Private Equity Watch, June 27, 2018; Glenn West, Not So Funny Things That Can Happen on the Way to Your Contractually Selected Forum, Weil Insights, Weil’s Global Private Equity Watch, February 13, 2018; Glenn West, Making Sure Your “Choice-of-Law” Clause Chooses all of the Laws of the Chosen Jurisdiction,Weil Insights, Weil’s Global Private Equity Watch, September 5, 2017; Glenn West, The Law You Choose to Govern Your Contract May Not Be the Law That Governs, Weil Insights, Weil’s Global Private Equity Watch, January 12, 2016.
  3. 8 Del. Code Ann. tit. 6, §17-607(c).
  4. Conn. Gen Stat. §34-38f(1).
  5. See e.g., In re Gouletas, 590 B.R. 494, 504 (Bkrtcy. N.D. Ill. 2018).
  6. Cheswold Vol. Fire Co. v. Lambertson Constr. Co., 489 A.2d 413, 421 (Del. 1985).
  7. See e.g., In re Century City Doctors Hosp., 466 B.R. 1, 12-13 (Bkrtcy. C.D. Cal. 2012).
  8. It is perhaps for this reason that a recent survey of practicing lawyers conducted by Professor John Coyle found that the vast majority of the lawyers surveyed believed (wrongly) that simply by choosing the law of a particular state to govern a contract, that “selection included that state’s statutes of limitations.” John F. Coyle, The Canons of Construction for Choice–of-Law Clauses, 92 Wash. L. Rev. 631, 690 (2017).
  9. Reclaimant Corp. v. Deutch, SC 20133, 2019 WL 3483923, at *7 n.9 (Conn. Aug. 6, 2019), quoting 1 Restatement (Second), Conflicts of Laws §142, comment (e) (Supp. 1989).
  10. See e.g., Comment, The Statute of Limitations and the Conflicts of Laws, 28 Yale L.J. 492 (1919).  While the rules that can require an application of the forum state’s statutes of limitations to claims otherwise governed by another state’s law appear to have originated in England (the U.S.’s common-law heritage at work again), England has apparently abrogated that rule through the Foreign Limitations Period Act 1984.
  11. Gemini Technologies, Inc. v. Smith & Wesson Corp., No 18-35510, 2019 WL 3311152 (9th Cir. July 24, 2019).