PNC Bank v. Sterba (In re Sterba)

Bankruptcy courts should use federal choice-of-law rules to determine which state’s law to  apply (such as, here, which statute of limitations is applicable).  In diversity cases, federal courts use the forum state’s conflict of law rules to determine which state’s law applies.  However, in bankruptcy cases, bankruptcy courts should use a federal choice of law rule to determine that issue.  The federal choice of law rule broadly validates contractual choice of law clauses, but in this case, the contract chose Ohio law but did not mention the statute of limitations expressly, so it is interpreted as being silent on that issue.  In choosing between California’s shorter limitations period and Ohio’s longer one, this decision holds that Ohio’s longer period ought to apply since PNC was forced to litigate in California only because Sterba filed bankruptcy there.  In the ordinary case, applying the forum’s limitations period leaves the plaintiff free to go to another forum with a more favorable limitations period, but not so when the defendant has commenced bankruptcy proceedings.  So it would be unfair the bankrupt’s creditors to enforce the forum state’s shorter limitations periods simply because the debtor chose to file bankruptcy there.

Ninth Circuit Court of Appeals (Korman, J., sitting by designation; Tashima, J., concurring); April 5, 2017; 2017 WL 1244894

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