Opting Out of Federal Law I: State Choice-of-Law Clauses
September 16, 2025
Most provisions of federal law are mandatory. One cannot opt out of the tax code, the wire fraud statute, or civil rights laws. There are, however, a handful of federal laws that are not mandatory. These laws expressly state that they shall not apply if private actors write language into their contracts opting out.
A question that sometimes arises is whether a choice-of-law clause selecting the laws of a particular U.S. state is sufficient to opt out of these non-mandatory federal laws. The answer, as it turns out, depends on how the choice-of-law clause is drafted. A clause which merely states that the agreement shall be governed by the laws of the State of New York is insufficient. The court will, however, disregard a non-mandatory federal law and apply the law of the state selected by the parties if the clause contains some additional language suggesting that this was the parties’ intent.
The CISG
Whether a choice-of-law clause choosing the law of a U.S. state is enough to opt out frequently arises with respect to the United Nations Convention on Contracts for the International Sale of Goods (CISG). The CISG is a federal treaty that supplies the governing law in many cases where goods are bought and sold in international commerce. The CISG is, however, only a default rule. Contracting parties may exclude it from their agreements if they wish.
The courts have consistently held that a choice-of-law clause selecting the laws of a U.S. state is not enough to opt out of the CISG. They have reasoned that “even if a choice of law clause refers to the laws of a particular state, the state would be bound by the Supremacy Clause to the treaties of the United States” and that “under the Supremacy Clause, the law in every state is that the CISG is applicable to contracts where the contracting parties are from different countries that have adopted the CISG.” If parties want to avoid the CISG, they must do one of two things: (1) specifically state that the CISG shall not apply, or (2) state that the contract shall be governed by the Uniform Commercial Code (UCC). Since a court cannot apply the CISG and Article 2 of the UCC simultaneously, the reference to the UCC is sufficient to exclude the CISG as a source of law. A clause that merely selects the law of New York, however, will not get the job done.
The Federal Arbitration Act
The courts have addressed this same question in the cases involving the Federal Arbitration Act (FAA). In Roadway Package System, Inc. v. Kayser, for example, the Third Circuit considered whether contracting parties could opt out of the FAA’s default vacatur standards. It held that they could. The court stated that the parties could “agree that judicial review of an arbitrator’s decision will be conducted according to standards borrowed from state law.” The court then inquired whether a choice-of-law clause stating that the agreement “shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania” was sufficient to accomplish this goal. It held that it was not:
We decline to construe the choice-of-law clause in this case as evidencing a clear intent to incorporate Pennsylvania’s standards for judicial review into the [agreement]. As we explained above, choice-of-law clauses are generally intended to speak to an issue wholly distinct from the one with which we are currently faced. Moreover, because few (if any) federal statutes other than the FAA even permit parties to opt out of the standards contained in them, we are confident that this particular issue rarely occurs to contracting parties ex ante.
The Third Circuit went on to hold that “a generic choice-of-law clause, standing alone, is insufficient to support a finding that contracting parties intended to opt out of the FAA’s default standards.” If parties want to exclude these standards, the court held, they need to specifically reference to state arbitration laws. The court suggested the use of the following language: “Any controversy shall be settled by arbitration in accordance with the terms of the Pennsylvania Uniform Arbitration Act.”
The Carmack Amendment
The Carmack Amendment is a federal law that provides a uniform, nationwide standard for the liability of interstate motor carriers for loss, damage, or delay to cargo. Like the CISG and the FAA, elements of the Carmack Amendment are waivable. In a recent case, Schenker of Canada Limited. v. American Trans Expedite LLC, a federal court in New York had to decide whether a choice-of-law clause selecting the laws of New York, standing alone, was sufficient to effectuate a waiver. It held that it was not.
The plaintiff in Schenker was a freight forwarder seeking to transport laptop computers from Shanghai to Pennsylvania. It hired a company called Fusion to move the laptops via truck from Los Angeles to Pennsylvania. After some of these laptops disappeared, the plaintiff sued Fusion in federal court in New York alleging six common law causes of action. Fusion argued that these state claims were preempted by the Carmack Amendment. The plaintiff responded that the Carmack Amendment was inapplicable because the parties’ contract contained a New York choice-of-law clause and that this clause excluded the Carmack Amendment. The court disagreed:
It is certainly true that parties can contract around the Carmack Amendment . . . However, [plaintiff] misconstrues a choice of law/choice of forum clause in the contract as an express waiver of the Carmack Amendment . . . [Plaintiff] cites no case holding that a . . . choice of law clause — without ever mentioning the Carmack Amendment, the Interstate Commerce Act, or the word “waiver” — constitutes a waiver of the preemptive effect of the Carmack Amendment.
In rendering this decision, the court did not cite any cases where courts have addressed this same issue in the context of the CISG or the FAA. Nevertheless, it reached a decision that is in perfect accord with these cases.
Conclusion
A choice-of-law clause selecting the laws of a particular state, by itself, is not enough to opt out of a non-mandatory federal statute. To avoid that law, the clause must either reference the federal law that the parties are seeking to avoid (“The CISG shall not apply.” “The Carmack Amendment is hereby waived.”) or choose a specific body of state law whose terms are inconsistent with the relevant federal law (“This agreement shall be governed by the New York UCC.” “This agreement shall be governed by the Pennsylvania Arbitration Act.”).
When a federal law is mandatory, of course, all of this is irrelevant. One cannot opt out of mandatory federal laws via a choice-of-law clause selecting the law of a U.S. state. But what about foreign choice-of-law clauses? Can private actors utilize a choice-of-law clause selecting the laws of a foreign country to avoid mandatory federal laws? I plan to address this issue in a separate post next week.