Alliance Says MA ‘Choice of Law’ Bill “Would Put State’s Companies at Disadvantage in Contract Disputes”

April 1, 2003

In testimony before the Massachusetts Joint Committee on Commerce and Labor the Alliance of American Insurers indicated that a proposed revision to the Uniform Commercial Code being considered by the legislature “could place the computer systems of insurers and other financial service companies operating in the state in jeopardy.”

In testimony submitted to the committee, the Alliance opposed HB 91, a bill that would make amendments to the UCC. Specifically, the Alliance is concerned about the “choice of law” provisions in the bill. “This change could open the door for Massachusetts’ businesses to become subject to the laws of states that have adopted the onerous Uniform Computer Information Transactions Act (UCITA),” stated Frank O’Brien, vice president of the Alliance’s New England Region.

HB 91 essentially cedes Massachusetts’ control of laws affecting its citizens to other jurisdictions, according to O’Brien. Currently, the UCC requires that the law chosen to control a contract should have a ‘reasonable relationship’ to the transaction. For example, a contract dispute between a Massachusetts business and a Washington state business should be litigated in either of those two jurisdictions. However, under the changes in HB 91, one of the parties could arbitrarily choose to litigate the dispute in Virginia.

It is this arbitrariness that concerns the Alliance most. “The Alliance is concerned that states’ enactment of this amendment to the UCC would remove any legal obstacle to the application of UCITA in states that have never passed it,” O’Brien continued. “Consequently, Massachusetts’ residents or companies could be subject to contracts whose choice of law provision stipulates that the law of Virginia (a state that has enacted UCITA) governs the contract. Such a change to the UCC would open the door for one state’s law to supersede the other 49 states, destroying the relatively level playing field that currently exists.

“The Alliance believes there is no need for this particular modification to the UCC. To permit a contract between two entities in the same states to choose the law of a distant state, unrelated to the contracting parties, injures not only the party that did not have the ability to draft or negotiate the contract, but also the state in which both the parties reside.”

John Lobert, senior vice president of state government affairs for the Alliance commented: “Although benign in name, UCITA has a debilitating effect on companies’ ability to use computer technologies by shifting significant economic risks onto licensees. It gives computer software vendors an inordinate and unprecedented amount of control over the number of people using their products and creates uncertainty over the duration of a licensee’s right to use software, while relieving vendors of their obligation to deliver a working product.

“Worst of all, the act validates ‘shrink-wrapped’ licenses—agreements that are enclosed with the software product in cellophane. This would handcuff insurers when negotiating software agreements, enabling vendors to dictate terms and hold customers hostage to their unilaterally written sales contracts. This, in turn, would dramatically increase insurers’ cost of doing business, impacting employment, tax revenues and the competitiveness of products.”

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