Determination of the law applicable to the issue of whether defendant is bound by the contract / internal USA Rules of conflicts of laws / closest connection of the contract

'Contending that New York law applies, X points first to section 13 of the contract, the arbitration clause, which provides in part that in the event that the parties are unable to agree respecting time, place, method or rules of the arbitration, then such arbitration shall be held in the City of New York before three arbitrators in accordance with the laws of the state of New York and the rules then obtaining of the International Chamber of Commerce.

X argues that this provision should be construed as a selection of the substantive law applicable to the dispute as well as of the law governing the conduct of the arbitration. In any event, X argues, New York had the greatest contact with this transaction and hence New York law should govern the issue of authority. Y, by contract, relies on California law, but asserts without explanation or citation that New York law is substantially the same on the issues it addresses.

As an initial matter, even were we to construe the reference to New York law in section 13 to encompass the substance of the dispute, we would not resort to a choice of law in the contract itself to determine in the first instance whether that contract binds Y, which contends that it is not a party to the contract.

Compare Restatement (Second) of Conflict of Laws 187, comment d (1971). Hence, we must look to the circumstances surrounding the transaction to determine where the predominant contacts lie. Restatement (Second) 188.

We conclude that given the locus of the transaction in New York, its law should govern on the issue whether Y is bound, although, as we explain below, we would reach the same result on that issue applying California law. See, e.g., Restatement (Second) 292.

If, as we conclude, the contract binds Y, then we may look to the parties' choice of New York as the place of arbitration and their choice of New York law to govern the conduct of the arbitration as additional indications of the appropriate law to resolve this controversy. Accordingly, we apply New York law, but note that the issue of contract formation is the only issue as to which Y contends that the application of California law might yield a different result than would that of New York.'