Delaware Business Litigation Report

District Court Follows Reasoning Of Recent Court of Chancery Opinion On Whether Choice-of-Law Provision Governs Related Tort Claim

Millett v. Truelink, Inc., C.A. No. 05-599, 2006 WL 2583100 (D. Del. Sept. 7, 2006). The plaintiffs in this case were several individuals who brought suit for breach of contract and violations of the Delaware Consumer Fraud Act ("DCFA") and Credit Reporting Agencies Act ("CRAA"), among other claims, after purchasing credit-monitoring services from defendant Truelink. Truelink filed a motion to dismiss the DCFA and CRAA claims under 12(b)(6). And plaintiffs brought a motion to amend their complaint to substitute a claim under the California Consumer Legal Remedies Act ("CCLRA"). The District Court denied Truelink's motion to dismiss and plaintiffs' motion to amend the complaint to add a CCLRA claim, but did grant plaintiffs leave to amend their complaint to add a claim under the Kansas Consumer Protection Act.

What is most interesting about this opinion is how the Court dealt with the choice-of-law issue. In determining whether to dismiss plaintiffs' DCFA claim or to grant them leave to amend, the District Court first had to determine which state's law governed the statutory consumer fraud claim. Plaintiffs argued that such a claim sounded in tort and thus was not covered by the relatively narrow choice-of-law provision in the contract. The Court, however, rejected this argument and followed the reasoning of Abry Partners V, L.P. v. F&W Acquisition, LLC, 891 A.2d 1032, 1047 (Del. Ch. 2006) (applying § 201 of the Restatement (Second) of Conflict of Laws), by holding that the choice-of-law provision would be honored and would govern the consumer fraud claim, despite the provision's narrow construction, unless (1) Delaware lacks a substantial relationship to the parties or the transaction or (2) the application of Delaware law would offend the public policy of the state whose law would apply but for the choice-of-law provision. (Ultimately, the Court found that Kansas law would apply because application of Delaware law under the circumstances would offend Kansas' public policy.) Thus, the Court did not parse the language of the choice-of-law provision to determine whether it was broad enough to cover the related tort claim, like in VGS, Inc. v. Castiel, 2003 WL 723285, at *7 n.29 (Del. Ch. Feb. 28, 2003), and Gloucester Holding Corp. v. U.S. Tape and Sticky Products, LLC, 832 A.2d 116, 123-24 (Del. Ch. 2003). After this case and Abry Partners, then, it is not entirely clear whether the more language-specific approach in VGS and Gloucester still applies, when the tort claim in question is one of those outlined in § 201 of the Restatement (Second) of Conflict of Laws. These torts may now be governed by choice-of-law provisions as a matter of law and policy, instead of contractual interpretation.

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