Will Delaware honour a Delaware choice-of-law clause when the deal has little else to do with Delaware?
Yes, above a dollar threshold, and by statutory fiat rather than by the usual balancing. The parties to any contract, agreement or other undertaking may agree in writing that it shall be governed by or construed under the laws of Delaware, without regard to principles of conflict of laws, or that Delaware law shall govern in whole or in part any or all of their rights, remedies, liabilities, powers and duties, provided the parties are (1) subject to the jurisdiction of the courts of, or arbitration in, Delaware, and (2) may be served with legal process. Where those conditions are met, the choice 'shall conclusively be presumed to be a significant, material and reasonable relationship with this State and shall be enforced whether or not there are other relationships with this State.' A person may also maintain an action in a Delaware court where the action arises out of or relates to such a contract. But the section 'shall not apply to any contract, agreement or other undertaking: (1) To the extent provided to the contrary in § 1-301(c) of this title; or (2) Involving less than $100,000.' The first of those exclusions is a closed list, now read: § 1-301(c) names the Uniform Commercial Code provisions whose own choice-of-law rules govern, so that a contrary agreement is effective only as far as the law they specify permits: §§ 2-402, 2A-105 and 2A-106, 4-102, 4A-507, 5-116, 8-110, 9-301 through 9-307, and 12-107. A Delaware choice-of-law clause does not displace those. On how the section has actually been applied: the Court of Chancery has applied subsection (a) as written, treating a Delaware choice-of-law provision in a contract involving $100,000 or more as establishing the required significant, material and reasonable relationship with Delaware on its own, with no further inquiry into other Delaware contacts. That is a Delaware trial court, citable but not binding on the Delaware Supreme Court, which has not construed the section in any decision read for this rule; and nothing read says how the $100,000 is measured.
The trap
The threshold is the trap before the presumption is: a deal worth less than $100,000 gets none of this, so the boilerplate Delaware choice-of-law clause in a small services agreement or a modest settlement gets no statutory presumption; § 2708(e) preserves the clause's validity but supplies no rule, and this rule does not say what then governs, where the absence of any Delaware relationship is exactly the objection § 2708 was written to foreclose. Nothing in the section says how the $100,000 is measured (face value, amount in controversy, aggregate performance), and no Delaware decision read for this rule measures it either, so this rule supplies no answer. What Delaware case law does supply is the presumption in operation: the Court of Chancery has held that where a contract “governing a transaction involving $100,000 or more” selects Delaware law, “the Delaware-Law Provisions establish a significant, material, and reasonable relationship with Delaware that supports the selection of Delaware law.” That is a trial court, so it is citable Delaware authority and not binding on the Delaware Supreme Court, which has not construed the section in anything read for this rule. The same decision marks the limit of what the presumption buys: the relationship question is only the first step, and the court went on to hold that “California law applies notwithstanding the Delaware-Law Provision” because a California statute embodied a fundamental policy of the state with the materially greater interest. § 2708(a) forecloses the no-relationship objection; it does not decide the case. The second escape hatch is narrower but sharper: § 2708 yields to § 1-301(c), which is a closed list of eight paragraphs naming eleven Code sections (§§ 2-402, 2A-105 and 2A-106, 4-102, 4A-507, 5-116, 8-110, 9-301 through 9-307, and 12-107), whose own applicable-law rules the clause cannot override, reaching the rights of a seller's creditors against sold goods (§ 2-402), leases (and, in § 2A-106, a consumer lease's choice of law and forum), bank deposits and collections, funds transfers, letters of credit, investment securities, the perfection and priority rules of Article 9 and Article 12's controllable electronic records. A secured-party client choosing Delaware law does not thereby choose Delaware's perfection rules. The other word doing the work is CONCLUSIVELY. The ordinary conflicts objection (that the chosen state has no substantial relationship to the parties or the transaction) is not weighed here, it is foreclosed by statute, which is a large part of why commercial parties with no other Delaware nexus choose Delaware law. The conditions are the price: the clause must be in WRITING and the parties must be subject to Delaware jurisdiction or arbitration and amenable to service. Compare the Texas analogue in this same store, Tex. Bus. & Com. Code § 271.005, which, for a defined 'qualified transaction', enforces the choice even against a contrary fundamental public policy, but, unlike § 2708, still requires that the transaction bear a reasonable relation to the chosen jurisdiction, and is subject to §§ 271.007-271.011 and Chapter 272 (its text is quoted in the Texas rule tx-qualified-transaction-choice-of-law-overrides-policy).
5 authorities
The words that state the rule
(a) The parties to any contract, agreement or other undertaking, contingent or otherwise, may agree in writing that the contract, agreement or other undertaking shall be governed by or construed under the laws of this State, without regard to principles of conflict of laws, or that the laws of this State shall govern, in whole or in part, any or all of their rights, remedies, liabilities, powers and duties if the parties, either as provided by law or in the manner specified in such writing are: (1) Subject to the jurisdiction of the courts of, or arbitration in, Delaware; and (2) May be served with legal process. The foregoing shall conclusively be presumed to be a significant, material and reasonable relationship with this State and shall be enforced whether or not there are other relationships with this State. (b) Any person may maintain an action in a court of competent jurisdiction in this State where the action or proceeding arises out of or relates to any contract, agreement or other undertaking for which a choice of Delaware law has been made in whole or in part and which contains the provision permitted by subsection (a) of this section. (c) This section shall not apply to any contract, agreement or other undertaking: (1) To the extent provided to the contrary in § 1-301(c) of this title; or (2) Involving less than $100,000.
- statute6 Del. C. § 1-301enactment date not established
The words that state the rule
(c) If one of the following provisions of the Uniform Commercial Code specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified: (1) Section 2-402; (2) Sections 2A-105 and 2A-106; (3) Section 4-102; (4) Section 4A-507; (5) Section 5-116; (6) Section 8-110; (7) Sections 9-301 through 9-307; (8) Section 12-107.
- statute6 Del. C. § 2708enactment date not established
The words that state the rule
(e) This section shall not limit any jurisdiction otherwise existing in a court sitting in the State and shall not affect the validity of any other choice of law provisions in any contract, agreement or other undertaking.
- caseC.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020)Focus Financial Partners, LLC v. HolsoppleDel. Ch.decided 2020
The words that state the rule
In addition, as a matter of Delaware law, this court’s inquiry is constrained by statute. If a contract governing a transaction involving $100,000 or more states that it “shall be governed by or construed under the laws of this State, without regard to principles of conflict of laws,” then that provision standing alone “shall conclusively be presumed to be a significant, material and reasonable relationship with this State and shall be enforced whether or not there are other relationships with this State.” 6 Del. C. § 2708(a). Under Section 2708(a), the Delaware-Law Provisions establish a significant, material, and reasonable relationship with Delaware that supports the selection of Delaware law.
- caseC.A. No. 2020-0188-JTL (Del. Ch. Oct. 26, 2020)Focus Financial Partners, LLC v. HolsoppleDel. Ch.decided 2020
The words that state the rule
Therefore, California law applies notwithstanding the Delaware-Law Provision. Section 925 provides that choice-of-forum and choice-of-law provisions in a covered agreement are voidable at the employee’s request.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.