A Delaware choice of law clause is generally enforceable, and for commercial contracts worth at least $100,000 that also submit the parties to Delaware courts or arbitration, Delaware law makes the choice conclusive by statute. Outside that safe harbor, or when another state has a fundamental public policy that would be violated by applying Delaware law, courts can still refuse to honor the selection. Enforcement also depends heavily on how the clause is drafted: a standard “governed by Delaware law” sentence may not reach tort claims, and it almost never governs the statute of limitations.
The $100,000 Safe Harbor
The core enforcement engine is 6 Del. C. § 2708. It lets parties pick Delaware law to govern their rights, remedies, liabilities, and duties even if neither party has any connection to the state, and it declares that meeting the statute’s requirements “shall conclusively be presumed to be a significant, material and reasonable relationship” with Delaware. That conclusive presumption is what sets Delaware apart. No court evaluating a qualifying contract can second-guess whether the parties had enough of a tie to Delaware to justify the choice.1Justia. Delaware Code Title 6 – 2708 Choice of Law
Three conditions have to be satisfied:
- The agreement states in writing that Delaware law governs, in whole or in part.
- The parties are subject to the jurisdiction of Delaware courts or arbitration in Delaware, and are amenable to service of process.
- The contract involves at least $100,000.
The jurisdictional piece is the one people miss. Writing “this agreement shall be governed by Delaware law” is not enough on its own. Without a matching submission to Delaware courts or Delaware arbitration, the clause can still be valid, but it loses the conclusive presumption and gets evaluated under the full conflict of laws analysis instead.1Justia. Delaware Code Title 6 – 2708 Choice of Law
What Falls Outside the Safe Harbor
Contracts under $100,000 do not qualify. Section 2708 also defers to the Uniform Commercial Code by excluding contracts “to the extent provided to the contrary in § 1-301(c)” of Title 6, which limits choice of law for certain sales-of-goods and other UCC-governed transactions.2Delaware Code Online. Delaware Code Title 6 Commerce and Trade – Section 2708
Falling outside the safe harbor is not the same as losing the clause. Section 2708(e) expressly preserves the validity of other choice of law provisions.2Delaware Code Online. Delaware Code Title 6 Commerce and Trade – Section 2708 A contract below the threshold can still select Delaware law. It just has to earn enforcement under the standard conflict of laws framework rather than resting on the statute.
When a Court Will Refuse To Apply Delaware Law
Delaware courts evaluate challenges to a choice of law clause under Section 187 of the Restatement (Second) of Conflict of Laws. There are two independent grounds for overriding the parties’ choice.
The first asks whether Delaware has a substantial relationship to the parties or the transaction, or whether some other reasonable basis supports the choice. For contracts inside Section 2708’s safe harbor, this ground is effectively gone. The statute’s conclusive presumption forecloses any argument that Delaware lacks a sufficient connection. For contracts below $100,000 or otherwise outside the statute, the challenger can still raise it.1Justia. Delaware Code Title 6 – 2708 Choice of Law
The second ground is where most real fights happen. A court will refuse to apply Delaware law if doing so would violate a fundamental public policy of another state that has a materially greater interest in the dispute and whose law would have applied in the absence of the clause.3Delaware Courts. Ascension Insurance Holdings LLC v. Underwood The bar is high. The competing policy has to be fundamental, not just different, and the other state’s interest has to be materially greater, not merely present. When both are met, the other state’s law displaces Delaware law on the issue in question.
The override generally operates issue by issue. A court can apply Delaware law to most of a contract while applying another state’s law to a single provision that clashes with that state’s fundamental policy. The rest of the agreement keeps running on Delaware law.
Non-Competes Are the Clearest Example
The sharpest real-world failure pattern involves restrictive covenants in employment agreements. California bars non-competes almost entirely and treats that prohibition as fundamental public policy. Companies have tried to route around the rule by putting Delaware choice of law provisions into employment contracts with California-based workers. The Delaware Court of Chancery has repeatedly declined to go along.
In Ascension Insurance Holdings v. Underwood, the court applied the Section 187 framework and found that California’s interest in protecting its workers from non-compete restrictions was materially greater than Delaware’s general interest in enforcing freedom of contract. The employee lived and worked in California, the contract was negotiated and performed there, and the employer was California-based despite being a Delaware LLC. The non-compete was voided under California law notwithstanding the Delaware choice.3Delaware Courts. Ascension Insurance Holdings LLC v. Underwood
The reasoning extends beyond California. Courts look at where the employee actually works, where the employment relationship is centered, and whether the competing state has a strong statutory policy against non-competes. A Delaware clause will usually hold for the commercial terms of the agreement, but the restrictive covenant can be carved out when another state’s policy is strong enough and its connection to the dispute direct enough.
Even when Delaware law does apply to a non-compete, the restriction has to be reasonable in scope. Geographic limits must match the actual business footprint, prohibited activities must be narrowly defined, and duration must be proportionate. Delaware courts are also reluctant to “blue pencil” an overbroad covenant into a reasonable one. They tend to strike the entire restriction rather than rewrite it, which puts the drafting burden on the party seeking enforcement.
Drafting the Clause To Cover Tort Claims
A choice of law clause that sounds comprehensive can turn out to cover only contract claims. The traditional sentence, “this agreement shall be governed by and construed in accordance with the laws of Delaware,” has produced inconsistent results across jurisdictions. Some courts read it to reach every dispute between the parties. Others limit it to questions of contract interpretation and leave tort claims like fraud or negligent misrepresentation to be sorted out by a separate conflict of laws analysis.
Delaware courts have historically taken the broader view, treating a standard clause as sufficient to reach related tort claims. That liberal reading is not guaranteed in other courts, and broader language reduces the risk of litigation over scope even in Delaware. The usual practice is to draft clauses that govern “all claims arising out of or relating to” the agreement, whether sounding in contract, tort, or statute. Adding “without regard to its conflict of laws provisions” (anti-renvoi language) prevents an argument that a court should apply Delaware’s own conflict of laws rules and be redirected to yet another state’s substantive law.
A well-drafted clause keeps the whole dispute under one state’s law. A poorly drafted one can fragment a single disagreement into pieces governed by different states’ rules, which drives up costs and makes outcomes harder to predict.
Statutes of Limitations Do Not Come Along for the Ride
A Delaware choice of law clause does not automatically govern the statute of limitations for claims under the contract. Delaware treats limitations as procedural rather than substantive, so the filing deadline follows the law of the forum state unless the contract expressly says otherwise.
That creates a gap people often don’t see until it matters. If a lawsuit is filed in Delaware but the cause of action arose in another state, Delaware’s borrowing statute adds a further twist: the applicable deadline is whichever is shorter, Delaware’s period or that of the state where the cause of action arose. An exception preserves Delaware’s own period for claims that originally accrued in favor of a Delaware resident.4Justia. Delaware Code Title 10 – 8121 Cause of Action Arising Outside State
The fix is simple but easy to overlook. If you want Delaware’s limitation periods to apply, the contract has to say so expressly. A general choice of law clause will not do the job.
Federal Court Changes the Analysis
When a dispute involving a Delaware choice of law clause ends up in federal court through diversity jurisdiction, the Klaxon doctrine controls. A federal court sitting in diversity applies the choice of law rules of the state in which it sits. A federal court in Delaware applies Delaware’s choice of law rules. A federal court in New York applies New York’s.
That matters because state approaches diverge. Delaware follows the Restatement (Second), including the Section 187 framework. A federal court in a state that uses a different approach may evaluate the same clause differently than a Delaware state court would. Klaxon prevents forum shopping between state and federal courthouses in the same state, but it also means a case heard in federal court outside Delaware will not necessarily get the benefit of Delaware’s relatively contract-friendly analysis.5Delaware Courts. Laugelle v. Bell Helicopter Textron Inc.
Who Is Bound and Who Can Benefit
A choice of law clause binds the signatories, but disputes routinely draw in people who never signed. Delaware courts allow a non-signatory to enforce a choice of law or forum selection clause when that person is closely related to one of the signatories and their involvement was foreseeable from the relationship between the parties. Officers and directors who were directly involved in negotiating the agreement are the most common beneficiaries.
The reverse also holds. A non-signatory can be bound under similar reasoning when an affiliate or agent was closely enough connected to the transaction. The test is foreseeability at the time of contracting: could the parties reasonably have expected this person to be involved in disputes arising from the deal? If yes, the clause can reach them.