Choice-of-law provisions can be simple, single-sentence contract clauses that provide some certainty to disputes that may arise out of a contractual relationship. One such way that these clauses enhance the predictability of disputes is by limiting the remedies available to the parties to the contract to those available under the chosen law. This can be particularly useful when the work contemplated by a contract may occur in multiple states or on the waters adjacent to multiple states. A recent decision by the Eastern District of Louisiana in Cheramie Marine, LLC v. Freedom Well Services, LLC, 2015 WL 7306438 (E.D. La. 11/19/15) highlights the simplicity and usefulness of choice-of-law provisions in resolving disputes, and limiting exposure to damages.
The facts before the court in Cheramie Marine were all too common in our current energy climate: Cheramie Marine had provided a vessel under charter to Freedom Well who became unable to pay for the services of the vessel. After unsuccessfully attempting to recover the amounts owed through negotiations, Cheramie filed suit. But, in its suit Cheramie Marine sought recovery of not only the principal sum, but also attorneys’ fees under Louisiana’s Open Account Statute and civil penalties under Louisiana’s Misapplication of Payments Statute. Under the Louisiana Open Account Statute, a party is entitled to recover reasonable attorneys’ fees incurred in pursuit of a debt, and under the Misapplication of Payments Statute, civil penalties in an amount up to the amount of the underlying debt can be awarded against the debtor party. And while Freedom Well did not dispute that it owed Cheramie Marine for the services of its vessel, Cheramie Marine’s additional claims – if legally available – could have easily doubled the amount of any judgment rendered against Freedom Well. Accordingly, Freedom Well disputed Cheramie Marine’s ability to recover these additional items of damages.
Freedom Well’s primary argument relied on a simple choice-of-law provision in the charter agreement executed by Cheramie Marine and Freedom Well: “The Agreement shall be governed by and interpreted in accordance with General Maritime Law . . . .” And because these additional damages sought by Cheramie Marine were provided for by Louisiana statutory law, they could not be recovered in an action governed by General Maritime Law. The Court found that the choice-of-law provision was valid, and therefore, Cheramie Marine’s suit was governed by general maritime law. On this foundation, the Court was then able to rely on precedent from the Fifth Circuit denying the recovery of attorneys’ fees under state statutes in actions governed by general maritime law. In considering Cheramie Marine’s claim for civil penalties, the Court stated that Cheramie Marine had provided it with “no case in which a court allowed for the recovery of civil penalties under Louisiana’s Misapplication of Payments Statute for failure to pay pursuant to a maritime contract governed by the general maritime law.” Accordingly, the Court denied Cheramie Marine’s request for civil penalties as well.
While the case of Cheramie Marine, LLC v. Freedom Well Services, LLC represents a very simple application of a choice-of-law provision, it is important to note that the simplicity, and swift resolution of the case is partly a result of the existence of the choice-of-law provision. While a similar result may still have been achieved at a later date, the cost to get to that result would have been much greater for both parties. Furthermore, should the Court have found that the dispute was governed by some law other than general maritime law, Freedom Well may have been subject to substantial fees and penalties that it did not bargain for when it entered into the charter agreement. Cheramie Marine, LLC v. Freedom Well Services, LLC therefore stands as an effective demonstration of the predictability that can be added to the resolution of contractual disputes by the inclusion of a simple choice-of-law provision.