852 F.3d 1175
9th Cir.2017Background
- In 2007 the Sterbas took a loan from National City Bank (junior lien) secured by California condo; promissory note stated it "shall be governed by ... the laws of Ohio ... without regard to conflict of law principles."
- The Sterbas defaulted; National City (later PNC) held an unpaid claim of about $42,000 and filed a claim in the Sterbas’ 2013 bankruptcy in the Northern District of California.
- The Sterbas objected that PNC’s claim was time-barred under California’s 4-year statute of limitations; PNC argued the Ohio choice-of-law clause incorporated Ohio’s 6-year limitations period.
- The bankruptcy court credited PNC (applied Ohio’s six-year period); the Bankruptcy Appellate Panel reversed. PNC appealed to the Ninth Circuit.
- The Ninth Circuit considered whether a general contractual choice-of-law clause covers the statute of limitations and, if not, which state’s limitations period a federal bankruptcy court should apply when parties did not expressly select one.
Issues
| Issue | Plaintiff's Argument (Sterbas) | Defendant's Argument (PNC) | Held |
|---|---|---|---|
| Whether a general contractual choice-of-law clause adopting Ohio law includes the statute of limitations | The clause is silent on limitations; parties must expressly select a limitations period for it to apply | The general choice-of-law adopting Ohio law (and saying "without regard to conflict of law principles") includes Ohio's statute of limitations | The court followed Des Brisay: general choice-of-law clauses are ordinarily silent on limitations, so the clause does not by itself necessarily select the limitations period |
| If no express selection, which limitations period governs in bankruptcy? (federal choice-of-law rule) | Apply forum (bankruptcy court) statute of limitations (California) | Apply Ohio's limitations because parties chose Ohio law and Ohio has a longer period | Federal choice-of-law principles govern; Restatement (Second) of Conflict of Laws § 142 applies to limitations issues in federal courts |
| Whether California’s shorter limitations period must be applied or an exception permits applying Ohio’s longer period | California's shorter forum limitation should bar the claim | Exceptional circumstances of bankruptcy (exclusive forum) make applying California's rule unreasonable and would effectively extinguish the claim | Under Restatement § 142 (1988) narrow "exceptional circumstances" exception applies: because bankruptcy compelled PNC to litigate only in the forum, applying California’s shorter period would be unjust; Ohio’s six-year period applies |
Key Cases Cited
- Des Brisay v. Goldfield Corp., 637 F.2d 680 (9th Cir. 1981) (general choice-of-law clauses generally do not include statute of limitations)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (rule that a federal cause of action without a limitations period uses the forum state's analogous limitations)
- In re Lindsay, 59 F.3d 942 (9th Cir. 1995) (bankruptcy uses federal choice-of-law rules)
- Liberty Tool & Mfg. (In re Vortex Fishing Sys.), 277 F.3d 1057 (9th Cir. 2001) (federal choice-of-law follows Restatement principles)
- Flores v. American Seafoods Co., 335 F.3d 904 (9th Cir. 2003) (discussing application of Restatement § 187 and choice-of-law principles)
- Huynh v. Chase Manhattan Bank, 465 F.3d 992 (9th Cir. 2006) (adopting the 1988 version of Restatement § 142 and acknowledging the "exceptional circumstances" carve-out)
- Wilson v. Garcia, 471 U.S. 261 (U.S. 1985) (forum state's analogous limitations apply to federal causes when no period provided)