It is exceedingly rare these days to negotiate business contracts without a choice of law provision. Choice of law provisions allow parties to a contract to choose which state’s laws will apply should the parties litigate any contractual dispute. A recent Illinois appeals court case cast doubt on the power of contractual choice of law provisions to control the applicability of all Illinois laws. International Profit Associates, Inc. v. Linus Alarm Corp. __N.E.2d__, 2012 WL 236644 (Ill. App. 2012), held that contractual choice of law provisions to not control the applicability of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et. seq. (the “Fraud Act”).
In Linus, the parties formed a contract in the state of Florida and – when the defendant failed to pay under the contract – plaintiff sued defendant in Illinois for breach of contract. The defendant brought a counterclaim alleging that the plaintiff violated the Fraud Act by making false statements and misrepresentations to induce the defendant to enter into the contract. The plaintiff moved to dismiss the counterclaim. The court, relying heavily on the decision in Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill. 2d 100 (2005), stated that the Fraud Act was designed to establish a cause of action for fraudulent dealings occurring within Illinois. In order for an out of state litigant to rely on the Fraud Act he must demonstrate that “the circumstances that relate to the disputed transaction occur[red] primarily and substantially in Illinois.” Linus __N.E.2d__, 2012 WL 236644 at *3. In other words, contractual choice of law provisions do not automatically mandate the application of the Fraud Act. Id. at *8.
Businesses should be aware that contractual choice of law provisions do not exist in a vacuum. When it comes to applicability of the Fraud Act, the facts and circumstances surrounding a contractual dispute will control. The more facts surrounding a contractual dispute occur within Illinois, the more likely that the Fraud Act applies. Depending on the importance of availability of a statutory fraud count, businesses may want to consider choosing a state without such limits on its consumer protection statute.