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Friday, February 6, 2015

R. Francis Underwood Defeats Delaware Corporation's Non-Compete Agreement in Delaware Court of Chancery

So notes this alert from Wilson Sosini Goodrich & Rosati. From the beginning of the alert:

In non-competition agreement disputes involving California employees, it is common to encounter an agreement stating that the law of another state governs the non-compete. Since non-competes in California are generally unenforceable under California law, non-compete disputes involving California employees typically involve employees moving to California from another state, those working in California for a company with its principal operations in another state, or California-based employees that have signed a non-compete as part of an M&A transaction. Common to each of these situations (although not always the case) is the use of a non-compete agreement providing that its interpretation is governed by the law of a state other than California. 
In Ascension Insurance Holdings, LLC v. Underwood et al. (January 28, 2015), the Delaware Court of Chancery addressed whether a non-compete agreement entered into in connection with an acquisition, and governed by Delaware law, could be enforced against a California-based employee competing against his employer in California. The court, concluding that California law (and not Delaware law) must be applied despite a Delaware choice-of-law provision, refused to enforce the non-compete agreement, and denied the former employer's request for an injunction prohibiting the employee from competing.
The full text of the opinion can be found here. California's policy against non-compete agreements is notably strong, as I have written here. Since the employee, Underwood, negotiated and signed the contract in California and was expected to abide by the non-compete restriction within California, I think that the Delaware Court of Chancery made the right decision to refuse to recognize the choice of law provision in the contract.

While my interest in non-compete agreements and conflict of law issues drove me to post about this case, I also took note of the case due to the defendant's last name - Underwood. Readers of this blog should know that I am a fan of House of Cards and that I often look out for any intersections between the show and the world of law. The strategy of challenging a Delaware corporation's choice of law provision in a Delaware court seems bold. It struck me as something that Francis Underwood (the central character in House of Cards) would pursue were he to find himself in the defendant's circumstances.

While the defendant's full name as stated in the court's opinion -- "Roberts F. Underwood" -- initially dispelled my suspicion that the defendant was channeling the legendary politician, I decided to investigate further. Some Google searching led me to a Utah insurance agent registration profile for "Roberts Francis Underwood," who is employed at Alliant Insurance. Most notably, that page revealed that Underwood had previously been associated with Ascension Insurance before becoming associated with Alliant.

This suggests that the defendant's full name is, in fact, Roberts Francis Underwood. This may explain why the Delaware Court of Chancery may have felt pressured into bending to Underwood's will (although the strong legal arguments on Underwood's side probably deserve some of the credit).

1 comment:

  1. Art mirrors reality. Since the birth of language, storytelling has been the driver of change in society. I do not believe that it was mere happenstance that the "Hero" of the Netflix House of Cards trilogy shares the same name as the "Hero" in this article. Thanks to fine storytelling, House of Cards is now helping change our political paradigm, and thus change society, by enlightening people that were formerly in the dark about the political system we are now languishing in. The person that told the story of this article, everyone that contributes to the House of Cards, and my friend that shared this article with me (who also shares the Underwood name), have my deepest gratitude.. For another great story, watch "Zeitgeist, Moving Forward"; also on Netflix.