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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Chancery Applies California Law Despite a Delaware Choice-of-Law Provision and Dismisses a Claim for Breach of a Non-Solicitation Provision in an Employment Agreement as Unenforceable under California Law
When a contract, executed by parties in a foreign jurisdiction, designates Delaware law as controlling, Delaware courts must first determine whether the choice-of-law provision is enforceable. In such cases, Delaware follows the Restatement (Second) of Conflict of Laws for the conflict-of-laws analysis. Under that analysis, Delaware courts will defer to the laws of the foreign jurisdiction if that jurisdiction’s laws (1) would apply absent the Delaware choice of law provision, (2) enforcement of Delaware law over the contractual provisions at issue would conflict with fundamental policy of the foreign jurisdiction, and (3) the foreign jurisdiction has a materially greater interest in enforcement (or non-enforcement) of the provision at issue than Delaware. In NuVasive, the Court ruled that California law would apply but for the contractual choice of law provision. In an earlier bench ruling, the Court found that California had a materially greater interest on the issue of whether a post-employment non-compete in the employment agreement was enforceable, and it voided the non-compete as violating fundamental California public policy. In this decision, the Court determined that a one year post-employment restriction on solicitation of customers and employees also violated the fundamental public policy of California as reflected in case law interpreting its business statutes. The Court then held that California had a materially greater interest in precluding non-solicitation covenants as part of its interest in “overseeing conditions of employment relationships” than Delaware had in enforcing its “fundamental but general interest” in freedom of contract. Accordingly, the Court granted the defendant’s motion for summary judgment to the extent the plaintiff’s claims were grounded on enforcement of non-solicitation covenants in the defendant’s employment agreement.