Enforceability of Choice of Law Provisions
A recent California Appeals case held that a out-of-state choice of law provision is not enforceable where California has a greater interest in the parties’ transaction. Since the California loans were made to California consumers, secured with collateral located in California, provided cash that was likely spent in the California, and deprived California competitors of the opportunity to make those loans, the Appeals court held that California had a greater interest in the parties’ transaction and, thus, the Nevada choice of law provision was unenforceable.
Omni Loan Company is a Nevada corporation, with its principal place of business also located in Nevada; it is in the business of providing consumer loans to members of the military. Omni opened loan offices in Oceanside and San Diego, California. Joshua Brack was a nonresident member of the military stationed at Camp Pendleton. Brack applied for a loan with Omni, and his loan agreement included the Nevada choice of law provision. Brack filed a class action suit against Omni, alleging that Omni’s practices violated the borrower’s rights under the California Finance Lenders Law. The trial court held that Nevada had a substantial relationship to the loan contracts because Omni incorporated in Nevada and the loans were approved in Nevada, entering judgment in favor of Omni. The California Appeals Court reversed. While California Courts will generally enforce a contractual choice of law if he state whose law was has an interest in the parties’ controversy, if California’s interests are materially greater than the interests of the state whose law was contractually chosen by the parties, California State law applies. Here, the Appeals Court found the Nevada choice of law provision unenforceable because the application of Nevada law conflicts with the fundamental policy set forth in the Finance Lenders Law and California has a greater interest in the parties’ transaction. Brack v. Omni Loan Company, CA Court of Appeal - 4th District, No. D049198, July 16, 2008.
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