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California Court Applies California Law To Officer Of Delaware Corporation

Not quite three years ago, I penned the following lines:

"My guess is that most attorneys would say that the duty of an officer to the corporation are governed by the law of the state of incorporation under the "internal affairs doctrine".  As explained by the U.S. Supreme Court, the "internal affairs doctrine" is a conflict of laws principle that "recognizes that only one State should have the authority to regulate a corporation's internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands." Edgar v. MITE Corp. 457 U.S. 624, 645 (1982), quoted with approval in Havlicek v. Coast-to-Coast Analytical Services, Inc.  39 Cal. App. 4th 1844, 1854 (1995)."

In the balance of the post, I discussed why the internal affairs doctrine doesn't necessarily dictate the state law applicable to officers.  The post ended with the following observation:

"Finally, the officer and the corporation may have entered into an employment agreement that includes an explicit choice of law."

Now we have a precedential decision of the Court of Appeal addressing this very circumstance.  In Colaco v. Cavotec SA, 2018 Cal. App. LEXIS 705, the Court of Appeal rejected a former officer's argument that the internal affairs doctrine trumped the choice of law provision in his employment agreement.  The Court of Appeal explained that California has a "strong public policy" in favor of contractual choice of law provisions; that the employment had a substantial relationship to California; and the erstwhile officer had failed to identify any fundamental Delaware policy regarding these issues.

If the name of this case sounds familiar, it should be.  I wrote about it last month when it was first issued as an unpublished decision.  Last Friday, the Court of Appeal granted the appellants' request that the opinion be certified for publication.

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Choice of Law/Conflict of Law

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