New York Court of Appeals Will Address Important Conflicts-Of-Law Issue

The Appellate Division, Second Department in Welsbach Elec. Corp. v. MasTec N. Am. Inc., 23 A.D.3d 639 (2d Dep't 2005), recently granted MasTec's motion for leave to appeal to the Court of Appeals regarding a contract and conflicts-of-law question. The open issue involves the applicability of a "pay-if-paid" provision in a subcontract that is controlled by Florida law. A "pay-if-paid" or "pay-when-paid" provision generally involves a contract provision in which the general contractor's obligation to pay the subcontractor is contingent on and subject to the general contractor's receipt of payment from the owner of the project.

Welsbach involved a subcontract controlled by Florida law between the plaintiff and defendant, and that subcontract had a provision making the defendant's payment contingent and subject to its receipt of payment regarding the primary contract with nonparty Telergy Metro LLC. In sharp contrast to the Appellate Division, First Department's recent decision in Hugh O'Kane Elec. Co., LLC v. MasTec N. Am. Inc., 19 A.D.3d 126 (1st Dep't 2005) on an extremely similar issue, the Second Department held that under New York's contract conflicts-of-law rules it could not enforce the foreign contract containing the pay-if-paid provision because it violated a public policy of New York. Because the Second Department failed to expressly state whether the enforcement would violate a "fundamental" public policy of this State, the correct standard under this State's conflict-of-law rules, the Court of Appeals will likely address that exact issue and resolve the conflict between the Appellate Division Departments.

You might be sitting there scratching your head and saying to yourself, "Matt, what's the deal with this arcane contract issue and doesn't the General Obligations Law render this issue academic."  If you are thinking that, I recommend reading the Second Department decision carefully and paying close attention to the omission of the word "fundamental" in the Court's choice-of-law analysis.  In my view, this matter involves important issues concerning the Court's application of New York's contract choice-of-law rules.

Disclaimer:  Because I wrote the motion for leave to appeal to the Court of Appeals and will help write the appeal to the Court, this post will the only one until after the matter is resolved.

Comments

[Michael Hutter]

Interesting case. Any possibility of posting the moving and opposition papers?

[Matt]

I am going to contact my adversary and see if he is okay with posting the motion papers. If so, I think the motion papers will illuminate the really interesting conflict-of-law issue.