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The conflict is resolved by applying the law of the state whose interest would be most impaired if its law were not applied. Under California's three steps governmental interest test, the relevant statute of frauds provisions in California and New York produced different results when applied to this transaction, each state has an interest in having its own law applied, and New York's interest would be most impaired if its policies were subordinated to California's policies.
This case arose out of the twelve-year relationship between the defendant, Jane Fonda, and the plaintiff, Richard Rosenthal, who was her former attorney and general business manager. The defendant was a California resident and retained the services of a New York law firm. She entered into an oral agreement with the firm that she would pay five percent of her earnings as compensation for the firm's services. Plaintiff, an attorney with the firm, assumed responsibility for a large share of the firm's activities on the defendant's behalf. The law firm dissolved and the plaintiff began to represent the defendant as an independent private practitioner. Plaintiff alleged that he and the defendant entered into an oral contract. Plaintiff then relocated to California at the defendant’s request to be closer to her and to represent her more efficiently. Plaintiff then brought suit against the defendant in California district court to recover commissions on projects that were initiated during his tenure and produced or continued to produce income after his termination. The district court granted the defendant's motion for partial summary judgment and held that New York's statute of fraud applied. Plaintiff appealed the district court's grant of summary judgment in favor of the defendant and four of her related corporations. The district court determined that New York law controlled this dispute and that New York's statute of fraud barred Rosenthal's claim against Fonda for breach of an oral contract. On appeal, the plaintiff contends that California, not New York law should control this action and that California's statute of fraud does not bar his oral contract claim. In addition, the plaintiff contends that even if New York law does properly control his contract with the defendant was not barred by New York's statute of fraud.
Will New York law, where the contract was formed, govern over the California law where both parties lived at the time the contract was terminated?
Yes. Under state law, the proper choice of laws required the application of New York law.
The court affirmed the decision which granted summary judgment to the defendant because under state law, the proper choice of laws required application of New York law and in New York, the oral contract between plaintiff and defendant was not enforceable after it had been terminated by the defendant because performance could extend beyond one year. The court held that in determining whether the law of the two states differed, the court found that California permitted claims based on oral contracts, if they were terminable at will, while New York law held that commission agreements, could be extended beyond one year, were covered by the statute of frauds. Under the comparative impairment analysis, the court found that New York had a strong interest in protecting out-of-state residents, in order to encourage the national use of state services. Because California did not have a strong interest in applying its policy against a domiciliary in order to protect the defendant, who was a resident of New York when the contract was formed and during most of the time of performance, the decision was affirmed.