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  1. #1
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    Jul 2018
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    Default How Does Choice of Law Work if a State is Split

    My question involves business law in the state of: California

    Aside from politics or the likelihood of the ballot measure passing, what would happen to the choice of law clause of existing contracts in the State of California? My business has many existing service contracts that specify California as the choice of law. If the state were to split, many of the parties with whom I contract would remain in "California" (i.e. Los Angeles), but my business would be in a newly created state, and most of the work under the contracts would be performed in the new state. As time goes on, the laws would likely become increasingly divergent, so long-term contracts could be problematic. Any thoughts on the need to address this issue now when entering into new contracts during this period of uncertainty?

    Maybe I'm worrying for nothing, but I cannot find an answer to this on the internet.

  2. #2
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    Feb 2008
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    Default Re: Choice of Law if California Were to Split

    I'd consider how other employers deal with all sorts of "multi-state" issues with business dealings in separate states. You will have to decide if "multi-state" is good for your business and dealing with the differences or not. I'd speak with local legal counsel on what to possibly do to prepare....

  3. #3
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    Jul 2018
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    Default Re: Choice of Law if California Were to Split

    A normal multi-state business relationship is generally anticipated at the time of contract negotiations. In this case, it's a big unknown.

  4. #4
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    Mar 2013
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    Default Re: Choice of Law if California Were to Split

    If one of the new states retains the name California then the choice of law remains California.

    If both of the new states change names, i.e; Southern California and Northern California you will, of course, have to change your new contracts going forward.

    As for existing contracts I doubt that contract law will diverge much in the ensuing years that will make any difference.

  5. #5
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    Default Re: How Does Choice of Law Work if a State is Split

    Quote Quoting cragen
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    Aside from politics or the likelihood of the ballot measure passing, what would happen to the choice of law clause of existing contracts in the State of California?
    Virtually nothing.


    Quote Quoting cragen
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    My business has many existing service contracts that specify California as the choice of law. If the state were to split, many of the parties with whom I contract would remain in "California" (i.e. Los Angeles), but my business would be in a newly created state, and most of the work under the contracts would be performed in the new state.
    Are you talking about that absurd ballot measure that calls for splitting California into multiple states? Even if it does pass, which it won't, there are numerous legal hurdles that would have to clear, which it won't. Even if, by some miracle, the state were to be divided, it is likely that existing California law at the time of the split would be legal precedent in each of the resulting states. To the extent any of the resulting states enact relevant laws that are different, then the court in the resulting state where the case is litigated will likely apply.


    Quote Quoting cragen
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    As time goes on, the laws would likely become increasingly divergent, so long-term contracts could be problematic.
    I think this is almost certainly untrue. Contract law is largely uniform among the 50 states because vastly "divergent" laws would inhibit interstate commerce.


    Quote Quoting cragen
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    I'm worrying for nothing
    I agree.

    By the way, the California Supreme Court ruled yesterday that the ballot measure in question will be removed from the November ballot.

  6. #6
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    May 2017
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    Default Re: How Does Choice of Law Work if a State is Split

    If your business is in a newly carved out state existing contract references to California should be interpreted to refer to the new state.

  7. #7
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    Default Re: How Does Choice of Law Work if a State is Split

    Quote Quoting lawzilla
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    If your business is in a newly carved out state existing contract references to California should be interpreted to refer to the new state.
    As this is not going to happen, it's hardly worth a debate; but that's not necessarily correct.

  8. #8
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    Default Re: How Does Choice of Law Work if a State is Split

    Quote Quoting lawzilla
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    If your business is in a newly carved out state existing contract references to California should be interpreted to refer to the new state.
    First of all, trying to predict what courts in an as of yet non-existent state might do is awfully foolhardy (aside from being a moot issue). It's not like this has ever happened before, so it's not like there's any precedent from other U.S. jurisdictions that could be used as a guide. Also, since the question was about choice of law, suggesting that a "reference[] to California" would be "interpreted to refer to the new state" makes no sense since, at the time of formation of this hypothetical new state, there would be no existing law of the new state.

    My guess is that, if a split of California were to occur, all resulting states would adopt California law to start and each would then repeal, add and amend laws and create its own new case authority. However, this is a little like guessing what law will apply on the moon if we ever colonize it.

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