By statute, Delaware has affirmed the ability of parties to agree to have their rights, remedies, liabilities, powers and duties governed by the law of Delaware. Title 6, Section 2708 of the Delaware Code recognizes that the parties’ contractual choice-of-law provision is itself a “significant material and reasonable relationship with this state and shall be enforced whether or not there are other relationships with this state.” A recent decision of the Delaware Court of Chancery reveals that important limitations remain, however, on the ability of parties to enforce Delaware choice-of-law provisions.
In Ascension Insurance Holdings LLC v. Underwood, C.A. No. 9897 VCG (Del. Ch. filed Jan. 28, 2015), Vice Chancellor Sam Glasscock III denied a preliminary injunction application seeking to enforce a non-compete covenant contained in an employee investment agreement (EIA) in which the parties also expressly agreed to Delaware choice of law and venue. Recognizing that Delaware law permits and enforces reasonable non-compete covenants, the defendants argued that the covenant nevertheless was unenforceable because the statutory law and public policy of California, the state where the contract was executed, did not permit the non-compete in question. With the parties having agreed that issuance of an injunction turned on the enforceability of the choice-of-law provision, the court analyzed it under the standard of Section 187 of the Restatement (Second) of Conflict of Laws (1971).
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