Court Declines To Decide Issue Of Whether Federal Or State Choice-Of-Law Principles Apply In Bankruptcy
JAFARI v. WYNN LAS VEGAS, LLC (June 17, 2009)
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Robert Jafari, a Wisconsin resident, liked to gamble. In September, 2005, Wynn Las Vegas and Caesar’s Palace extended him credit in the total amount of $1,250,000. Each of the credit agreements contained a Nevada choice-of-law provision. After Jafari failed to repay the credit advance and his bank denied payment, Wynn and Caesar’s sued Jafari. Jafari later filed an individual bankruptcy proceeding in Wisconsin. Wynn and Caesar’s filed proofs of claim. Jafari and the bankruptcy trustee objected to the claims on the grounds that gambling debts are unenforceable in Wisconsin. The bankruptcy court applied Wisconsin choice-of-law rules, which led it to apply Wisconsin substantive law, which led it to conclude that the gambling claims were unenforceable under Wisconsin law. On appeal to the district court, the court concluded that both federal and Wisconsin choice-of-law rules would require the application of Nevada substantive law. On remand, the bankruptcy court applied Nevada substantive law and upheld the claims. Jafari and the trustee appeal.
In their opinion, Judges Flaum, Evans and Williams affirmed. The Court noted a tension surrounding whether a bankruptcy court should apply the choice-of-law principles from federal law or from the forum state. Since neither the Supreme Court nor the Seventh Circuit has decided the issue, the Court asked itself whether the question mattered. The parties agreed both that federal common law would apply Nevada substantive law and that Nevada would allow the claims. Therefore, the Court undertook an analysis of Wisconsin choice-of-law principles to see if it would end up elsewhere. Wisconsin courts apply a "grouping of contacts" rule in contract cases. Under that rule, the law of the forum state is applied unless contacts with a non-forum state are greater. Here, the Court concluded that the relevant contacts (place of negotiation, place of contracting, place of performance, location of the subject matter, domiciles of the parties) are undoubtedly greater for Nevada than they are for Wisconsin. Therefore, Wisconsin would apply the substantive law of Nevada and also uphold the claims. The Court rejected Jafari’s argument that notwithstanding the "grouping of contacts" rule, a Wisconsin court would apply its own law if applying the law of another state would contravene Wisconsin public policy. Having decided that an application of either federal common law or Wisconsin choice-of-law principles would lead to the same conclusion, the Court declined to resolve the choice-of-law issue.
