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Court Of Chancery Rejects Application Of Delaware Law

Ascension Insurance Holdings LLC v. Underwood, C.A. 9897-VCG (January 28, 2015) This is an important decision on choice of law. The Court held that the parties' choice of Delaware law to govern the terms of a noncompete agreement was unenforceable in the face of contrary public policy of California that limited such agreements. This result is arguably at odds with a Third Circuit decision that upheld the choice of Delaware law in a noncompete agreement despite the policy of Louisiana that limits such agreements - Coface Collections North America Inc. v Newton, 430 Fed. Appx. 162 (3rd Circ. June 6, 2011).  As the decision points out, limitations on former employees' right to work for a competitor are subject to a wide variety of state laws. Hence, the drafter of such agreements will now need to carefully consider what law to choose to apply to the agreement and cannot just adopt Delaware as binding in every case. Share

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