Commerzbank AG v. U.S. Bank, N.A.

Every day, billions of securities are traded in the U.S. alone, typically through trade tickets with no choice-oflaw provision. When contractual disputes arise, state and federal courts universally determine which law governs using the “most significant relationship” analysis of the Restatement (Second) of Conflict of Laws. Courts apply the Restatement test to the particular issue in a manner that effectuates contracting parties’ justified expectations. In the decision below, the Second Circuit deviated from that approach. In all jurisdictions but one, claims incurred by owners are retained when securities are sold, unless expressly transferred. The sole exception, New York law, provides the opposite. Instead of following the Restatement analysis as it has always been applied, the Second Circuit effectively imposed New York law on trades for the entire securities industry, in disregard of expectations, based on a non-party’s post-trade ministerial activities. The Second Circuit also disregarded settled law that when a trustee’s fiduciary obligations require it to file suit on behalf of its beneficiary, the beneficiary’s claim for the trustee’s failure to do so accrues only once the trustee refuses to file suit or allows the beneficiary’s claim to expire. This law is rooted in centuries-old principles, including that beneficiaries are entitled to rely on their trustees’ good faith and expertise. Instead, the Second Circuit imposed on beneficiaries an unprecedented obligation to monitor their fiduciaries and to sue them preemptively, before the trustee’s time to act has expired. The questions presented are: 1. Whether the Restatement’s choice-of-law analysis for contract claims is properly determined by the actions