This Article makes three contributions to the literature. First, using original interviews with in-house dealmakers, it provides the literature’s first account of how deals are made within companies. Both economists and legal scholars have tackled the puzzle of incomplete contracting, but leading explanations overlook the critical influence of companies’ internal deal-building process. Unlike individuals who enter into contracts, sophisticated business parties do not have monolithic intent. Instead, even before taking a seat at the negotiation table, business parties engage in a complex, internal bargaining process that requires many intra-corporate constituencies to weigh in and sign off on the deal. The result is that sophisticated business parties bring multiple agendas to the negotiation table, and those agendas are reflected in the contract. Second, collaboration complicates intent, especially for sophisticated parties. Rather than being the result of rational, considered contract design, contractual gaps may be mere byproducts of the contract-shepherding process within the firm. Finally, this Article offers practical guidance to courts and contract designers about the overlooked and rampant intra-corporate bargaining and pork-barreling process. It helps them account for collaborative intent in ex ante contract design and ex post contract enforcement.

Introduction

Four weeks before Halloween in 2018, a Delaware Chancery Court decision spooked the corporate world. In an unprecedented move, the court released German pharmaceutical giant Fresenius from its $4.75 billion contract to buy U.S. generic drug manufacturer Akorn based on a contract term called the material adverse change clause.¹ 1.Akorn, Inc. v. Fresenius Kabi AG, No. CV 2018-0300, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018).Show More The decision in Akorn, Inc. v. Fresenius Kabi AG was the first time Delaware courts had found that a company triggered a material adverse change clause, and it sparked a storm of anxiety and commentary.² 2.Many major firms issued client alerts, immediately digesting the landmark case for their clients. See, e.g., David Leinwand, James E. Langston & Mark E. McDonald, Akorn v. Fresenius: A MAC in Delaware, Cleary Gottlieb Steen & Hamilton LLP (Oct. 11, 2018), https://www.clearymawatch.com/2018/10/akorn-v-fresenius-mac-delaware [https://perma.cc​/43KW-C54E]; Chris Gorman & Lisa Richards, Akorn v. Fresenius: Important Practical Lessons from First-Ever Material Adverse Effect, Fenwick & West LLP (Oct. 24, 2018), https://www.fenwick.com/publications/pages/akorn-v-fresenius-important-practical-lessons-from-first-ever-material-adverse-effect.aspx [https://perma.cc/9KPX-75MZ]; Peter A. Atkins & Edward B. Micheletti, ‘Reasonable Efforts’ Clauses in Delaware: One Size Fits All, Unless . . ., Skadden, Arps, Slate, Meagher & Flom LLP (Nov. 1, 2018), https://www.​skadden.com/insights/publications/2018/10/reasonable-efforts-clauses-in-delaware [https://p​erma.cc/JR7Z-FYAP]; Grant J. Esposito, David J. Fioccola & Robert W. May, Delaware Court of Chancery Finds a Material Adverse Event and Excuses Buyer from Obligation to Close in Akorn v. Fresenius Kabi AG, Morrison & Foerster LLP (Oct. 9, 2018), https://www.mofo.com/resources/insights/181009-delaware-material-adverse-event.html [htt​ps://perma.cc/FE72-NR7Q].Show More

In every merger and acquisition (“M&A”) deal, there is a material adverse change provision: a long-winded, heavily negotiated provision choked with exceptions and caveats. Material adverse change provisions almost always say the same thing: that if something huge and unexpected happens between the contract’s signing and the deal’s closing, one or both parties can back out of the deal.³ 3.Albert Choi & George Triantis, Strategic Vagueness in Contract Design: The Case of Corporate Acquisitions, 119 Yale L.J. 848, 854 (2010) [hereinafter Choi & Triantis, Strategic Vagueness](defining a material adverse change clause in a contract as one that “permit[s] the buyer to avoid the closing of a deal if a material change has occurred in the financial condition, assets, liabilities, business, or operations of the target firm”).Show More And, perhaps most surprisingly, despite the long negotiations and dense legalese, material adverse change provisions are vague.⁴ 4.Id. at 853 (noting that material adverse change clauses are vague, but “among the most heavily negotiated nonprice terms”).Show More

Vague provisions like these are common but surprising. In M&A contracts, for example, parties routinely haggle over whether they will use “best efforts,” “commercially reasonable best efforts,” or “reasonable best efforts” to accomplish certain tasks—and each of these standards will be left unspecified and unquantified.⁵ 5.See Scot Baker & Albert Choi, Contract’s Role in Relational Contract, 101 Va. L. Rev. 559, 565 (2015) (describing the common “best efforts” provisions as “a fault-based and open-ended standard”); Anthony J. Casey & Anthony Niblett, Self-Driving Contracts, 43 J. Corp. L. 1, 8 (2017) (“[Parties can choose to] use a vague standard that also requires a court to fill in the details after the fact. This could be a clause that requires something like ‘reasonable efforts,’ ‘best efforts,’ or ‘commercially reasonable efforts.’”); Victor P. Goldberg, In Search of Best Efforts: Reinterpreting Bloor v. Falstaff, 44 St. Louis L. Rev. 1465, 1465 (2000) (“When contracting parties cannot quite define their obligations, they often resort to placeholder language, like ‘best efforts.’”); Robert E. Scott, Contract Design and the Shading Problem, 99 Marq. L. Rev. 1, 20 (2015) (“[I]n the past fifty years, parties have increasingly inserted vague terms such as ‘best efforts,’ reasonable best efforts,’ or ‘commercially reasonable best efforts’ as modifiers that are combined with specific of precise performance obligations under the contract.”). The contracts law case Bloor v. Falstaff, 601 F.2d 609 (2d Cir. 1979), is another famous case about best efforts clauses.Show More In debt contracts, borrowers promise to let lenders conduct “routine” inspections, without specifying what is routine.⁶ 6.In A. Gay Jenson Farms Co. v. Cargill, 309 N.W.2d 285 (Minn. 1981), the well-known agency law case, for example, large international conglomerate Cargill lent money to a small Minnesota grain elevator operator, in part on the condition that Cargill could conduct routine inspections of the grain elevator. The intrusive nature of the inspections became one of the reasons that the grain elevator operator’s other creditors later sued Cargill, arguing that the grain elevator operator was an agent of Cargill and that Cargill should be liable for the operator’s debts. Id. at 290–91.Show More In just about any corporate contract, parties promise “material” compliance or compliance that does not rise to a “material adverse effect,” again without specifying what those thresholds might mean.⁷ 7.Robert Malionek & Jon Weichselbaum, Five Keys to Analyzing a Material Adverse Effect, N.Y.L.J. (Mar. 6, 2019), https://www.lw.com/thoughtLeadership/five-keys-analyzing-materia​l-adverse-effect-ny-law-journal [https://perma.cc/TM95-FQKH] (noting that “[m]ateriality is both qualitative and quantitative” and that in M&A contracts, representations can be made “that reasonably would be expected to result in [a material adverse change]”).Show More In each of these circumstances, sophisticated parties, who have both the technical sophistication and financial means to draft specific, complete provisions, choose instead to embrace vague, incomplete ones.

The persistence of vague provisions, incomplete contracts, and other such contractual oddities has long plagued both legal scholars and economists—and neither literature has a shortage of explanations. Economist and Nobel Prize laureate Oliver Hart famously notes that contracts are necessarily incomplete: there are no parties, no circumstances, where every contingency can be thought of and thought out ex ante.⁸ 8.See Oliver Hart, The Nobel Prize, https://www.nobelprize.org/prizes/economic-sciences/​2016/hart/facts/ [https://perma.cc/E6MG-HZY4] (last visited Nov. 10, 2021) (“In the mid-1980s, [Hart] contributed to the theory of incomplete contracts. . . . These analyses have been significant for, among other things, governance of companies and the design of laws and institutions.”); Oliver Hart & John Moore, Foundations of Incomplete Contracts, 66 Rev. Econ. Stud. 115 (1999) [hereinafter Hart & Moore, Foundations of Incomplete Contracts](developing a model for the idea that contracts are incomplete); Oliver D. Hart, Incomplete Contracts and the Theory of the Firm, 4 J.L. Econ. & Org. 119 (1988); Oliver Hart, Dep’t of Econ., Harvard Univ., Incomplete Contracts and Control, Nobel Prize Lecture 372–73 (Dec. 8. 2016), https://www.nobelprize.org/uploads/2018/06/hart-lecture.pdf [https://perma.cc/7TK​E-49TD] [hereinafter Hart, Incomplete Contracts & Control](noting that, although economists spent many decades working on questions involving complete contracts, “[a]ctual contracts are not like this, as lawyers have recognized for some time. They are poorly worded, ambiguous, and leave out important things. They are incomplete.”).Show More Many scholars have argued convincingly that vagueness in contracts—especially in contracts between sophisticated business parties—is intentional and rational: provisions that are rarely litigated but expensive to negotiate, such as material adverse effect provisions, are particularly well-suited to vagueness.⁹ 9.Choi & Triantis, Strategic Vagueness, supra note 3, at 852–53, 855 (arguing that parties can use vague contract provisions efficiently—for example, material adverse change clauses in acquisition agreements may remain vague because they are rarely litigated); Robert E. Scott & George G. Triantis, Anticipating Litigation in Contract Design, 115 Yale L.J. 814, 818–22 (2006) [hereinafter Scott & Triantis, Anticipating Litigation] (examining the efficiency of investment in the design and enforcement phases of the contracting process and arguing that parties can lower overall contracting costs by using vague contract terms ex ante and shifting investment to the ex post enforcement phase); Robert E. Scott & George G. Triantis, Incomplete Contracts and the Theory of Contract Design, 56 Case W. Res. L. Rev. 187, 195–96 (2005) (considering the role of litigation in motivating contract design).Show More Still others have argued that contracts do not need to be complete or specific. Community and industry norms can and do fill the gap where contracts are vague—and sometimes even when contracts do not even exist.¹⁰ 10.See Ronald J. Gilson, Charles Sabel & Robert E. Scott, Braiding: The Interaction of Formal and Informal Contracting in Theory, Practice, and Doctrine, 110 Colum. L. Rev. 1377, 1398–99 (2010) [hereinafter Gilson et al., Braiding] (discussing the “rivalry” between formal and informal enforcement for contracts and noting that the two can substitute for each other or complement each other); see also Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry, 21 J. Legal Stud. 115, 121–24 (1992) [hereinafter Bernstein, Opting Out] (describing trade association enforcement of contractual breaches); Lisa Bernstein, Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions, 99 Mich. L. Rev. 1724, 1725 (2001) (describing the cotton industry’s alternative system of enforcement to the typical legal system).Show More And, in those cases, it is the threat of informal sanctions, such as loss of reputation, that curbs bad behavior, even without a legally binding contract.¹¹ 11.Informal sanctions are particularly effective in small, tight-knit communities where parties have many points of contact. A robust literature has documented the role of norms and informal sanctions in a variety of interesting settings. See Robert C. Ellickson, Of Coase and Cattle: Dispute Resolution Among Neighbors in Shasta County, 38 Stan. L. Rev. 623, 628, 677 (1986) [hereinafter Ellickson, Of Coase and Cattle] (describing how rural cattle ranchers in Shasta County, California, abide by norms rather than rules and how animal trespass disputes are settled by self-help rather than formal legal enforcement mechanisms); Robert C. Ellickson, A Hypothesis of Wealth-Maximizing Norms: Evidence from the Whaling Industry, 5 J.L. Econ. & Org. 83, 84–85 (1989) (presenting evidence of informal enforcement—norms—overtaking formal enforcement in the whaling industry); Peter T. Leeson, An-arrgh-chy: The Law and Economics of Pirate Organization, 115 J. Pol. Econ. 1049, 1051 (2007) (describing the extralegal systems that pirates developed to provide checks on captain predation and to “create piratical law and order”); Bernstein, Opting Out, supra note 10, at 124 (describing how a diamond-merchant trade association in New York City helps to enforce contracts); Gillian K. Hadfield & Iva Bozovic, Scaffolding: Using Formal Contracts to Support Informal Relations in Support of Innovation, 2016 Wis. L. Rev. 981, 987, 1017 (describing the way in which commercial contracting parties across a variety of industries use a mix of formal and informal contracts to support their business relationships); Lisa Bernstein, Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts, 7 J. Legal Analysis 561, 562 (2015) (describing how original equipment manufacturers in the Midwest have used a mix of formal contracts, relational contracts, and other tools to build and support their business relationships); Jonathan M. Barnett, Hollywood Deals: Soft Contracts for Hard Markets, 64 Duke L.J. 605, 607 (2015) (discussing the use of non-binding agreements—or “soft contracts”—in modern Hollywood filmmaking).Show More

In many contexts, these explanations are convincing. Consider a simple apartment lease signed between one landlord and one tenant. Rather than spending a lot of time up-front discussing the specific condition in which the tenant needs to leave the apartment at move-out, the parties might simply decide to agree to the vague provision that the tenant needs to leave the apartment “clean.” The law and economics view explains this decision well: in most cases, the tenant leaves the place clean enough, and the parties will never have to haggle over the details upon move-out. Relational contracting theory also explains the vagueness well: the landlord doesn’t need to be too specific about cleanliness because the tenant relies on the landlord to give her a good reference for her next apartment rental.

But while existing explanations work well for simple, two-party contracts, and do some work in explaining sophisticated-party contracting, they fall short.¹² 12.In previous work, for example, I explored the puzzle of term sheets in M&A contracting. Term sheets—short, nonbinding precursors to a full-fledged M&A contract—are not contracts and are not legally binding or enforceable. Parties to term sheets do not operate in the tight-knit communities where informal sanctions are known to work. Nonetheless, once parties sign them, they behave as though bonded. Why do nonbinding term sheets have binding power? See Cathy Hwang, Deal Momentum, 65 UCLA L. Rev. 376, 380 (2018) (describing how deal lawyers use preliminary agreements in M&A deals); Cathy Hwang, Faux Contracts, 105 Va. L. Rev. 1025, 1056 (2019) [hereinafter, Hwang, Faux Contracts] (describing how M&A deals create small relational ecosystems in which both the contracting parties and their agents are incentivized to engage in consummate, rather than perfunctory, performance).Show More Certainly cost-benefit analysis and informal sanctions account for some contractual oddities—but not all. This Article offers a friendly addendum to those pathbreaking explanations: collaborative intent.

At its core, collaborative intent relies on a simple idea: businesses are not monoliths. They contain many divisions, departments, operational groups, and other constituencies. This idea is well-understood in the literature—even Ronald Coase’s seminal work on the boundary of the firm assumed that companies would contain multiple different groups within it.¹³ 13.Ronald H. Coase, The Nature of the Firm, 16 Economica 386, 390 (1937) (posing and discussing the “boundaries of the firm” question: When should individuals be expected to form firms, and when should they be expected to cooperate through contract?).Show More Collaborative intent takes this idea a step further: it explicitly recognizes that each module within a company has its own purpose and, correspondingly, its own incentives, goals, limitations, and preferences. Internal constituencies often have a chance to veto—or at least weigh in on—both the substance and form of a proposed deal. By the time a company brings its intent to the negotiating table, that intent reflects the result of a consensus-building process within the company—in other words, the company brings what this Article calls its collaborative intent.

That collaborative intent in turn helps to account for many contractual oddities. Contracts that result from this kind of institutional collaboration are not necessarily rational, intentional, or carefully considered. Instead, they are amalgamations of many preferences within each deal party and result from the consensus-building process of getting the deal through a bureaucracy.

This Article provides a layered account of collaborative intent and its impact on deals and contracts, and proceeds as follows. Part I sets the stage. It shows how current contract theory does not account for the dealmaking process within firms. Part II presents the theory and evidence of collaborative intent. It uses two dozen original interviews with in-house dealmakers to show how the process of building consensus for a deal within the firm impacts contractual form and structure. Interview participants brought experience from a variety of industries, ranging from technology to hospitality to gaming, and uniformly reported that dealmaking within the firm is a collaborative exercise: it requires vote-whipping, pork-barreling, and balancing the needs of various constituencies into a coherent but multifaceted “intent.” Part III turns to implications. Existing literature overlooks the institutional details that impact contract design. Collaborative intent injects important and overlooked nuance and helps to build out a nuanced account of dealmaking that can help shape contract theory, enforcement, and design.

1. Akorn, Inc. v. Fresenius Kabi AG, No. CV 2018-0300, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018). ↑
2. Many major firms issued client alerts, immediately digesting the landmark case for their clients. See, e.g., David Leinwand, James E. Langston & Mark E. McDonald, Akorn v. Fresenius: A MAC in Delaware, Cleary Gottlieb Steen & Hamilton LLP (Oct. 11, 2018), https://www.clearymawatch.com/2018/10/akorn-v-fresenius-mac-delaware [https://perma.cc​/43KW-C54E]; Chris Gorman & Lisa Richards, Akorn v. Fresenius: Important Practical Lessons from First-Ever Material Adverse Effect, Fenwick & West LLP (Oct. 24, 2018), https://www.fenwick.com/publications/pages/akorn-v-fresenius-important-practical-lessons-from-first-ever-material-adverse-effect.aspx [https://perma.cc/9KPX-75MZ]; Peter A. Atkins & Edward B. Micheletti, ‘Reasonable Efforts’ Clauses in Delaware: One Size Fits All, Unless . . ., Skadden, Arps, Slate, Meagher & Flom LLP (Nov. 1, 2018), https://www.​skadden.com/insights/publications/2018/10/reasonable-efforts-clauses-in-delaware [https://p​erma.cc/JR7Z-FYAP]; Grant J. Esposito, David J. Fioccola & Robert W. May, Delaware Court of Chancery Finds a Material Adverse Event and Excuses Buyer from Obligation to Close in Akorn v. Fresenius Kabi AG, Morrison & Foerster LLP (Oct. 9, 2018), https://www.mofo.com/resources/insights/181009-delaware-material-adverse-event.html [htt​ps://perma.cc/FE72-NR7Q]. ↑
3. Albert Choi & George Triantis, Strategic Vagueness in Contract Design: The Case of Corporate Acquisitions, 119 Yale L.J. 848, 854 (2010) [hereinafter Choi & Triantis, Strategic Vagueness] (defining a material adverse change clause in a contract as one that “permit[s] the buyer to avoid the closing of a deal if a material change has occurred in the financial condition, assets, liabilities, business, or operations of the target firm”). ↑
4. Id. at 853 (noting that material adverse change clauses are vague, but “among the most heavily negotiated nonprice terms”). ↑
5. See Scot Baker & Albert Choi, Contract’s Role in Relational Contract, 101 Va. L. Rev. 559, 565 (2015) (describing the common “best efforts” provisions as “a fault-based and open-ended standard”); Anthony J. Casey & Anthony Niblett, Self-Driving Contracts, 43 J. Corp. L. 1, 8 (2017) (“[Parties can choose to] use a vague standard that also requires a court to fill in the details after the fact. This could be a clause that requires something like ‘reasonable efforts,’ ‘best efforts,’ or ‘commercially reasonable efforts.’”); Victor P. Goldberg, In Search of Best Efforts: Reinterpreting Bloor v. Falstaff, 44 St. Louis L. Rev. 1465, 1465 (2000) (“When contracting parties cannot quite define their obligations, they often resort to placeholder language, like ‘best efforts.’”); Robert E. Scott, Contract Design and the Shading Problem, 99 Marq. L. Rev. 1, 20 (2015) (“[I]n the past fifty years, parties have increasingly inserted vague terms such as ‘best efforts,’ reasonable best efforts,’ or ‘commercially reasonable best efforts’ as modifiers that are combined with specific of precise performance obligations under the contract.”). The contracts law case Bloor v. Falstaff, 601 F.2d 609 (2d Cir. 1979), is another famous case about best efforts clauses. ↑
6. In A. Gay Jenson Farms Co. v. Cargill, 309 N.W.2d 285 (Minn. 1981), the well-known agency law case, for example, large international conglomerate Cargill lent money to a small Minnesota grain elevator operator, in part on the condition that Cargill could conduct routine inspections of the grain elevator. The intrusive nature of the inspections became one of the reasons that the grain elevator operator’s other creditors later sued Cargill, arguing that the grain elevator operator was an agent of Cargill and that Cargill should be liable for the operator’s debts. Id. at 290–91. ↑
7. Robert Malionek & Jon Weichselbaum, Five Keys to Analyzing a Material Adverse Effect, N.Y.L.J. (Mar. 6, 2019), https://www.lw.com/thoughtLeadership/five-keys-analyzing-materia​l-adverse-effect-ny-law-journal [https://perma.cc/TM95-FQKH] (noting that “[m]ateriality is both qualitative and quantitative” and that in M&A contracts, representations can be made “that reasonably would be expected to result in [a material adverse change]”). ↑
8. See Oliver Hart, The Nobel Prize, https://www.nobelprize.org/prizes/economic-sciences/​2016/hart/facts/ [https://perma.cc/E6MG-HZY4] (last visited Nov. 10, 2021) (“In the mid-1980s, [Hart] contributed to the theory of incomplete contracts. . . . These analyses have been significant for, among other things, governance of companies and the design of laws and institutions.”); Oliver Hart & John Moore, Foundations of Incomplete Contracts, 66 Rev. Econ. Stud. 115 (1999) [hereinafter Hart & Moore, Foundations of Incomplete Contracts] (developing a model for the idea that contracts are incomplete); Oliver D. Hart, Incomplete Contracts and the Theory of the Firm, 4 J.L. Econ. & Org. 119 (1988); Oliver Hart, Dep’t of Econ., Harvard Univ., Incomplete Contracts and Control, Nobel Prize Lecture 372–73 (Dec. 8. 2016), https://www.nobelprize.org/uploads/2018/06/hart-lecture.pdf [https://perma.cc/7TK​E-49TD] [hereinafter Hart, Incomplete Contracts & Control] (noting that, although economists spent many decades working on questions involving complete contracts, “[a]ctual contracts are not like this, as lawyers have recognized for some time. They are poorly worded, ambiguous, and leave out important things. They are incomplete.”). ↑
9. Choi & Triantis, Strategic Vagueness, supra note 3, at 852–53, 855 (arguing that parties can use vague contract provisions efficiently—for example, material adverse change clauses in acquisition agreements may remain vague because they are rarely litigated); Robert E. Scott & George G. Triantis, Anticipating Litigation in Contract Design, 115 Yale L.J. 814, 818–22 (2006) [hereinafter Scott & Triantis, Anticipating Litigation] (examining the efficiency of investment in the design and enforcement phases of the contracting process and arguing that parties can lower overall contracting costs by using vague contract terms ex ante and shifting investment to the ex post enforcement phase); Robert E. Scott & George G. Triantis, Incomplete Contracts and the Theory of Contract Design, 56 Case W. Res. L. Rev. 187, 195–96 (2005) (considering the role of litigation in motivating contract design). ↑
10. See Ronald J. Gilson, Charles Sabel & Robert E. Scott, Braiding: The Interaction of Formal and Informal Contracting in Theory, Practice, and Doctrine, 110 Colum. L. Rev. 1377, 1398–99 (2010) [hereinafter Gilson et al., Braiding] (discussing the “rivalry” between formal and informal enforcement for contracts and noting that the two can substitute for each other or complement each other); see also Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry, 21 J. Legal Stud. 115, 121–24 (1992) [hereinafter Bernstein, Opting Out] (describing trade association enforcement of contractual breaches); Lisa Bernstein, Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions, 99 Mich. L. Rev. 1724, 1725 (2001) (describing the cotton industry’s alternative system of enforcement to the typical legal system). ↑
11. Informal sanctions are particularly effective in small, tight-knit communities where parties have many points of contact. A robust literature has documented the role of norms and informal sanctions in a variety of interesting settings. See Robert C. Ellickson, Of Coase and Cattle: Dispute Resolution Among Neighbors in Shasta County, 38 Stan. L. Rev. 623, 628, 677 (1986) [hereinafter Ellickson, Of Coase and Cattle] (describing how rural cattle ranchers in Shasta County, California, abide by norms rather than rules and how animal trespass disputes are settled by self-help rather than formal legal enforcement mechanisms); Robert C. Ellickson, A Hypothesis of Wealth-Maximizing Norms: Evidence from the Whaling Industry, 5 J.L. Econ. & Org. 83, 84–85 (1989) (presenting evidence of informal enforcement—norms—overtaking formal enforcement in the whaling industry); Peter T. Leeson, An-arrgh-chy: The Law and Economics of Pirate Organization, 115 J. Pol. Econ. 1049, 1051 (2007) (describing the extralegal systems that pirates developed to provide checks on captain predation and to “create piratical law and order”); Bernstein, Opting Out, supra note 10, at 124 (describing how a diamond-merchant trade association in New York City helps to enforce contracts); Gillian K. Hadfield & Iva Bozovic, Scaffolding: Using Formal Contracts to Support Informal Relations in Support of Innovation, 2016 Wis. L. Rev. 981, 987, 1017 (describing the way in which commercial contracting parties across a variety of industries use a mix of formal and informal contracts to support their business relationships); Lisa Bernstein, Beyond Relational Contracts: Social Capital and Network Governance in Procurement Contracts, 7 J. Legal Analysis 561, 562 (2015) (describing how original equipment manufacturers in the Midwest have used a mix of formal contracts, relational contracts, and other tools to build and support their business relationships); Jonathan M. Barnett, Hollywood Deals: Soft Contracts for Hard Markets, 64 Duke L.J. 605, 607 (2015) (discussing the use of non-binding agreements—or “soft contracts”—in modern Hollywood filmmaking). ↑
12. In previous work, for example, I explored the puzzle of term sheets in M&A contracting. Term sheets—short, nonbinding precursors to a full-fledged M&A contract—are not contracts and are not legally binding or enforceable. Parties to term sheets do not operate in the tight-knit communities where informal sanctions are known to work. Nonetheless, once parties sign them, they behave as though bonded. Why do nonbinding term sheets have binding power? See Cathy Hwang, Deal Momentum, 65 UCLA L. Rev. 376, 380 (2018) (describing how deal lawyers use preliminary agreements in M&A deals); Cathy Hwang, Faux Contracts, 105 Va. L. Rev. 1025, 1056 (2019) [hereinafter, Hwang, Faux Contracts] (describing how M&A deals create small relational ecosystems in which both the contracting parties and their agents are incentivized to engage in consummate, rather than perfunctory, performance). ↑

13. Ronald H. Coase, The Nature of the Firm, 16 Economica 386, 390 (1937) (posing and discussing the “boundaries of the firm” question: When should individuals be expected to form firms, and when should they be expected to cooperate through contract?). ↑

The post Collaborative Intent first appeared on Virginia Law Review.

For this reason, this Article proposes that, rather than fall back on complicated public policy exceptions to contractual choice of law, courts should instead identify and refuse to apply choice-of-law clauses that are adopted for the purpose of making a separate contractual provision enforceable. This Article refers to such clauses as “substance-targeted.” Courts typically do not distinguish between targeted and non-targeted choice-of-law clauses. As a result, targeted clauses are often treated as if they represent an ordinary instance of allowing contracting parties the autonomy to choose the law applicable to their dispute. Yet they involve meaningfully different considerations, both because of the reasons that parties choose to include them and because of their ultimate effects. Unlike conventional choice-of-law clauses, substance-targeted clauses are neither aimed at achieving predictability nor likely to result in it. Their frequent use encourages litigation, disadvantages weaker parties, and fosters fear about results-oriented reasoning when their enforceability is tested. These pernicious effects call for a fundamentally different approach to choice-of-law analyses.

Introduction

On October 24, 2001, Christopher Ridgeway, a resident of Louisiana, accepted a job with Michigan-based Stryker Corporation selling medical supplies to Louisiana doctors and hospitals.¹ 1.See Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 386 (6th Cir. 2017).Show More The offer was conditional on Ridgeway’s signing several documents, among them a noncompete agreement that included Michigan choice-of-law and forum selection clauses.² 2.Ridgeway initially disputed the authenticity of the noncompete agreement, but evidence produced in discovery suggested that Ridgeway had received a form noncompete identical to 132 others Stryker had signed with its employees over a five-year period. Id. at 387–88. A jury later found that Ridgeway had signed the noncompete.Id.at 388.Show More Ridgeway went on to become a highly successful salesman for Stryker,³ 3.Id. at 386.Show More during which time, according to him, Stryker’s human resource director and other top management assured him on several occasions that no “[noncompete] agreement existed in his file.”⁴ 4.Id. Stryker unsurprisingly disputed Ridgeway’s view of these conversations, maintaining that they related instead to whether Ridgeway had signed a second noncompete that would enable him to receive stock options. Id. at 387.Show More Based on these assurances, Ridgeway maintains, he began in 2013 to explore employment with a competitor, Biomet.⁵ 5.Id. at 386.Show More Stryker learned of these discussions and immediately fired Ridgeway, who then began working for Biomet in Louisiana.⁶ 6.Id. at 387.Show More A few weeks later, Stryker filed suit against Ridgeway in federal court in Michigan.⁷ 7.Ridgeway was fired on September 10, 2013; Stryker filed suit on September 30, 2013. See Complaint for Injunctive and Other Relief at 4, 34, Stryker Corp. v. Ridgeway, No. 1:13-cv-01066 (W.D. Mich. Sept. 30, 2013), 2013 WL 5526657.Show More

Stryker’s claims—for breach of contract, breach of fiduciary duty, and misappropriation of trade secrets—all directly or indirectly involved the noncompete agreement Ridgeway had signed.⁸ 8.See Amended Complaint at 1–2, Stryker Corp. v. Ridgeway, No. 1:13-cv-01066 (W.D. Mich. Oct. 21, 2013), 2013 WL 11276336.Show More The enforceability of noncompetes is a point on which state law differs substantially; in this case, the court noted, “Michigan law favors non-competes and Louisiana law severely restricts them.”⁹ 9.See Stone Surgical, 858 F.3d at 391.Show More There is more consensus on contractual choice-of-law provisions, such as the one in Ridgeway’s contract. Choice-of-law provisions are generally enforced in the United States, with most states recognizing an exception when the chosen law would violate a “fundamental policy” of the state with both the “most significant relationship” to the dispute and a “materially greater interest” in the issue.¹⁰ 10.See Restatement (Second) of Conflict of Laws §§ 187(2), 188(1) (Am. Law Inst. 1971) [hereinafter Second Restatement].Show More Ridgeway argued that the exception should be applied, but both the district court and the Sixth Circuit disagreed. The Sixth Circuit, while finding both that Louisiana indeed had the most significant relationship to the dispute and that its anti-noncompete policy was “fundamental,” nonetheless concluded that Louisiana’s interest was not “materially greater” than Michigan’s.¹¹ 11.Stone Surgical, 858 F.3d at 391.Show More Therefore, Michigan law applied and the noncompete was valid.¹² 12.Id.Show More

The lawsuit ended badly for Ridgeway. The jury entered a verdict of $745,195 for Stryker.¹³ 13.Id. at 388. The jury also denied relief to Ridgeway in his counterclaims against Stryker, which he originally filed in a separate proceeding but were ultimately consolidated with Stryker’s action. Id.Show More Biomet, fearful of being drawn into the litigation, had terminated Ridgeway’s employment shortly after Stryker’s lawsuit was filed.¹⁴ 14.Id. at 387.Show More In March 2016, Ridgeway filed for bankruptcy.¹⁵ 15.See Voluntary Petition for Individuals Filing for Bankruptcy, In re Christopher Martin Ridgeway, No. 16-10643 (Bankr. E.D. La. Mar. 23, 2016).Show More

As Ridgeway was fighting his lengthy and ultimately unsuccessful legal battles, another employee in a dispute over noncompete enforceability was met with a very different result. In 2013, Nevada resident Landon Shores was hired as a sales trainee by Global Experience Specialists (GES), a Nevada company specializing in event marketing.¹⁶ 16.Freeman Expositions, Inc. v. Glob. Experience Specialists, Inc., No. SACV 17-00364, 2017 WL 1488269, at *1 (C.D. Cal. Apr. 24, 2017).Show More The large majority of Shores’s sales for GES related to events in Las Vegas.¹⁷ 17.See id. (“During Mr. Shores’ work at GES, eighty to ninety percent of his sales were for events in Las Vegas, Nevada, and the vast majority of his clients were primarily engaged in Las Vegas.” (internal quotation marks omitted)).Show More Three years later, Shores was promoted to sales manager, a position that required him to sign a noncompete agreement that included a Nevada choice-of-law clause.¹⁸ 18.Id.Show More

In 2017, Shores gave notice at GES and made plans to move to California to accept a job with one of the California offices of Freeman Expositions, a Texas corporation.¹⁹ 19.Id.Show More GES did not take the news well, and two GES employees made threatening calls to Shores.²⁰ 20.See id. at *2. One asked him “Do you really want to go down this road?” and explained that “[o]ne path is to remain with GES and the other path is to go with Freeman and get sued and go broke. It is a lot easier to get out of an offer letter than a non-compete agreement.” Id.Show More Undeterred, Shores began his job at Freeman, which shortly thereafter filed suit in federal court in California seeking a declaration that Shores’s noncompete clause was invalid.²¹ 21.See id.Show More

In contrast to Ridgeway’s experiences in court, Shores and Freeman encountered a friendly reception. Nominally applying precisely the same doctrinal framework the Sixth Circuit had in Ridgeway’s case, the California district court nonetheless concluded that the Nevada choice-of-law clause was invalid²² 22.See id. at *5.Show More—reaching this result despite connections between Shores’s employment and Nevada that were, one might conclude, objectively much stronger than Ridgeway’s with Michigan.²³ 23.Ridgeway, after all, had left a Louisiana-based sales job for another employer in Louisiana; his only contact with Michigan was that his former employer was headquartered there. See Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 386–87, 390 (6th Cir. 2017). By contrast, Shores had lived and worked in Nevada prior to beginning employment with Freeman. See Freeman Expositions, 2017 WL 1488269, at *1.Show More In Shores’s case, the court had little difficulty making the determination that California had a materially greater interest in having its well-established anti-noncompete policy applied.²⁴ 24.See Freeman Expositions, 2017 WL 1488269, at *5.Show More California had a stake, the court reasoned, in allowing an employer “to hire a California resident to work in California organizing and facilitating exhibitions to showcase California goods and services.”²⁵ 25.Id. at *5.Show More While Nevada, too, had a significant interest in protecting its employer, GES, “its interest pale[d] in comparison to California’s.”²⁶ 26.Id.Show More The court declined to stay proceedings in light of an ongoing Nevada court action and instead granted Freeman summary judgment on the noncompete issue.²⁷ 27.See id. at *1, *3. The court also declined to dismiss a claim by Freeman for interference with its contractual relationship with Shores. See id. at *8.Show More

These two recent cases highlight two persistent problems in United States litigation: the frequency with which parties attempt to use a choice-of-law clause to validate an otherwise unenforceable provision, and the disparate results courts have reached in such cases. These issues are not wholly new.²⁸ 28.As early as 1993, one commentator observed that the issue of choice-of-law enforcement in difficult cases “has generated a raft of judicial decisions marked by confusion, temerity, and vacillation.” Kirt O’Neill, Note, Contractual Choice of Law: The Case for a New Determination of Full Faith and Credit Limitations, 71 Tex. L. Rev. 1019, 1020 (1993).Show More In the realm of noncompetes in particular, employers have attached choice-of-law provisions for decades, despite the fact that the enforceability of such clauses (and thus the noncompete as a whole) is often in doubt.²⁹ 29.See Catherine L. Fisk, Reflections on The New Psychological Contract and the Ownership of Human Capital, 34 Conn. L. Rev. 765, 782–83 (2002).Show More Nonetheless, both these problems have recently become more persistent and widespread.³⁰ 30.See Larry E. Ribstein, From Efficiency to Politics in Contractual Choice of Law, 37 Ga. L. Rev. 363, 367 (2003) [hereinafter Ribstein, Efficiency] (noting that “the number of cases involving contractual choice is increasing significantly over time”).Show More This is true in part because, with the growing popularity of telecommuting and other sorts of long-distance employment, many disputes over noncompetes affect multiple jurisdictions and thus are likely to require a more extended and complex choice-of-law analysis.³¹ 31.See Norman D. Bishara & David Orozco, Using the Resource-Based Theory To Determine Covenant Not To Compete Legitimacy, 87 Ind. L.J. 979, 980, 984–85 (2012) (discussing the need to adapt the law governing noncompetes in a world where a “trend toward the greater use of noncompetes is occurring when . . . geographic boundaries are becoming less important to economic activity”); Gillian Lester & Elizabeth Ryan, Choice of Law and Employee Restrictive Covenants: An American Perspective, 31 Comp. Lab. L. & Pol’y J. 389, 389 (2010) (noting that more mobile employees and more geographically dispersed employers have contributed to a rise in noncompete litigation).Show More Further, noncompetes are spreading to industries that have not historically relied on them, with hair stylists,³² 32.See Steven Greenhouse, Noncompete Clauses Increasingly Pop Up in Array of Jobs, N.Y. Times (June 8, 2014), https://www.nytimes.com/2014/06/09/­business/­noncompete-clauses-increasingly-pop-up-in-array-of-jobs.html?r=0 [https://perma.cc/4KQY-H9PV].Show More camp counselors,³³ 33.See id.Show More dog walkers,³⁴ 34.See Matt O’Brien, Even Janitors Have Noncompetes Now. Nobody Is Safe., Wash. Post. (Oct. 18, 2018), https://www.washingtonpost.com/business/2018/10/­18/even-janitors-have-noncompetes-now-nobody-is-safe/?utm_term=.c316c5c­61­487 [https://perma.cc/W7FU-S6M6].Show More and janitors³⁵ 35.See id.Show More sometimes being required to sign them—and facing suit by their employer if they violate them.³⁶ 36.See id. (describing suit by employer against janitor that was dropped following media coverage).Show More Moreover, employers are increasingly relying on alternatives to noncompetes, such as clauses requiring employees to pay back a portion of their salary or other financial benefits upon quitting or being fired for cause.³⁷ 37.See Stuart Lichten & Eric M. Fink, “Just When I Thought I Was Out . . . .”: Post-Employment Repayment Obligations, 25 Wash. & Lee J. Civ. Rts. & Soc. Just. 51, 54 (2018) (describing growth of such provisions’ popularity). These arrangements have recently attracted national publicity for, among other things, the threat they may pose to journalistic independence. See id. at 54–55. Many Sinclair Broadcasting employees, for example, chose to read “politically charged” statements on air, despite their personal reservations, because of worries about triggering repayment clauses in their contracts. Id. The statements were described as “prepackaged reports reflecting conservative views.” Id. at 54 n.15 (internal quotation marks and citation omitted).Show More As one might expect, state law varies significantly on the enforceability of these provisions as well,³⁸ 38.See id. at 68–69, 77–78 (noting differences in particular between the law of California and of other states on the enforceability of post-employment repayment obligations).Show More and employers thus have incentives to couple them with choice-of-law clauses.³⁹ 39.It is difficult to assess exactly how common choice-of-law clauses are in such agreements because employment contracts are often between private parties. See Norman D. Bishara, Kenneth J. Martin & Randall S. Thomas, An Empirical Analysis of Noncompetition Clauses and Other Restrictive Postemployment Covenants, 68 Vand. L. Rev. 1, 7 (2015). However, it is reasonable to speculate that employers frequently include such provisions, given their popularity in the noncompete context and the uncertainty of the law in this area. For an example of one such case, see Willis Re Inc. v. Hearn, 200 F. Supp. 3d 540, 545–47 (E.D. Pa. 2016) (discussing contractual choice-of-law clause in dispute involving repayment of a retention bonus following employee’s departure for a competitor).Show More

Employment contracts, however, are just the start. Contracting parties in many other areas have similarly attempted to rely on choice-of-law clauses to secure a validating law, and courts have also met those efforts with varying responses. For example, while the use of choice-of-law clauses to sidestep usury laws initially met with increasingly widespread judicial acceptance in most jurisdictions,⁴⁰ 40.See Erin Ann O’Hara, Opting Out of Regulation: A Public Choice Analysis of Contractual Choice of Law, 53 Vand. L. Rev. 1551, 1563–64 (2000) [hereinafter O’Hara, Opting] (noting that, in contrast to the approach of the First Restatement, courts have transitioned to “almost uniformly enforc[ing] choice-of-law provisions that enable the parties to evade state usury laws”). The Second Restatement likely played a role in this acceptance by including a fairly liberal usury provision that operates even in the absence of a choice-of-law clause, providing that a given interest rate will not be invalidated on usury grounds if it is “permissible in a state to which the contract has a substantial relationship” and “not greatly in excess of the rate permitted by the general usury law of the state of the otherwise applicable law.” Second Restatement § 203. The “substantial relationship” requirement is fairly easily satisfied—if, for example, the applicable rate is that of the lender’s place of business or the place where the loan is to be repaid. See Robert Allen Sedler, The Contracts Provisions of the Restatement (Second): An Analysis and a Critique, 72 Colum. L. Rev. 279, 315–18 (1972).Show More courts in some recent cases have declined to enforce such provisions in usury cases where the state of the chosen law lacks the most significant relationship to the dispute.⁴¹ 41.See Fleetwood Servs., LLC v. Complete Bus. Sols. Grp., 374 F. Supp. 3d 361, 372 (E.D. Pa. 2019) (finding that, despite parties’ choice of Pennsylvania law, Texas law applied because Texas had the most significant relationship to the dispute and “applying Pennsylvania law would violate a fundamental public policy of Texas, namely its antipathy to high interest rates” (internal quotation marks omitted)); Am. Equities Grp. v. Ahava Dairy Prods. Corp., No. 01 Civ.5207, 2004 WL 870260, at *7–9 (S.D.N.Y. Apr. 23, 2004) (declining to enforce a choice of New Jersey law in a case involving a usury defense on the same grounds); Am. Express Travel Related Servs. Co. v. Assih, 893 N.Y.S.2d 438, 445–46 (N.Y. Civ. Ct. 2009) (declining to enforce a choice of Utah law in action to collect credit card payments based on New York’s materially greater interest and “strong public policy against interest rates which are excessive”); see also TriBar Op. Comm., Supp. Report: Opinions on Chosen-Law Provisions Under the Restatement of Conflict of Laws, 68 Bus. Law. 1161, 1161–62, 1162 n.2 (2013) (discussing analysis of this issue in New York courts and noting that it deviates somewhat from the orthodox Second Restatement approach).Show More Courts have frequently refused to enforce choice-of-law provisions in various contexts involving consumer contracts⁴² 42.See William J. Moon, Contracting Out of Public Law, 55 Harv. J. on Legis. 323, 347 (2018) (“[C]ourts have consistently refused to enforce choice-of-law clauses in the context of . . . consumer contracts.”). In some cases, this refusal has been based on concerns about the substantive content of the chosen law. See, e.g., Masters v. DirecTV, Inc., Nos. 08-55825 & 08–55830, 2009 WL 4885132, at *1 (9th Cir. Nov. 19, 2009) (holding that California law, rather than the parties’ chosen law, applied to consumer class action waivers because such waivers were contrary to a fundamental policy in California); see also William J. Woodward Jr., Legal Uncertainty and Aberrant Contracts: The Choice of Law Clause, 89 Chi.-Kent L. Rev. 197, 207–09 (2014) [hereinafter Woodward, Aberrant] (discussing case law on enforcement of choice-of-law clauses in questions regarding the applicability of state statutes that convert one-way attorney’s-fee-shifting provisions into two-way provisions). Procedural concerns about information asymmetry and bargaining power disparities in form consumer contracts may also weigh in favor of non-enforcement. See generally Giesela Rühl, Consumer Protection in Choice of Law, 44 Cornell Int’l L.J. 569 (2011) (considering these issues and advocating for European-style limits on choice of law in consumer contracts).Show More and have also often opted for non-enforcement of provisions intended to evade state franchise law protections, such as laws prohibiting waiver of a franchisee’s right to sue under certain circumstances.⁴³ 43.See Andrew Elmore, Franchise Regulation for the Fissured Economy, 86 Geo. Wash. L. Rev. 907, 954 n.229 (2018) (“States prohibit choice of law provisions and waivers in franchise agreements to contract around state franchise law obligations, which will foreclose evasions of a liability through waiver.”). For example, in Wright-Moore Corp. v. Ricoh Corp., the court found that Indiana law applied, rather than the parties’ chosen law of New York, because Indiana had a materially greater interest in the dispute and waiver of a franchisee’s rights was against Indiana’s fundamental policy. 908 F.2d 128, 132–33 (7th Cir. 1990).Show More Recently, emerging issues such as the protection of privacy rights in biometric data⁴⁴ 44.See, e.g., In re Facebook Biometric Info. Privacy Litig., 185 F. Supp. 3d 1155, 1169–70 (N.D. Cal. 2016) (concluding that a California choice-of-law provision could not be enforced where “California has not legislatively recognized a right to privacy in personal biometric data and has not implemented any specific protections for that right” and biometric data protection was a fundamental policy in Illinois, the state of the most significant relationship).Show More and the practice of telemedicine⁴⁵ 45.See J. Kelly Barnes, Telemedicine: A Conflict of Laws Problem Waiting To Happen—How Will Interstate and International Claims Be Decided?, 28 Hous. J. Int’l L. 491, 526–28 (2006) (discussing potential enforceability of choice-of-law clauses in the context of telemedicine).Show More have also raised issues about choice-of-law clause enforceability.

The issue has arisen, too, in the area of marriage and family law. Many courts, for example, allow choice-of-law provisions to validate antenuptial agreements.⁴⁶ 46.See O’Hara, Opting, supra note 40, at 1564–65 (“Antenuptial agreements are also incorporating choice-of-law provisions with mounting, albeit tentative, judicial support.”); see also John F. Coyle, A Short History of the Choice-of-Law Clause, 91 Colo. L. Rev. 1147, 1162–63, 1162 n.42 (2020) (noting that an example of such a clause exists as far back as 1874).Show More But according to one commentator, “[t]he paucity of court decisions” in areas where potentially applicable law differs significantly continues to “create[] uncertainty for all migratory couples who sign such an agreement.”⁴⁷ 47.See Linda J. Ravdin, Premarital Agreements and the Migratory Same-Sex Couple, 48 Fam. L.Q. 397, 406 (2014).Show More Choice-of-law clauses present distinct but related issues in other areas where states are sharply divided, such as the circumstances (if any) under which gestational surrogacy contracts are enforceable.⁴⁸ 48.See, e.g., Hodas v. Morin, 814 N.E.2d 320, 325–26 (Mass. 2004) (applying Section 187 of the Second Restatement to determine that a surrogacy agreement was valid and finding that no state other than the state of the chosen law, Massachusetts, clearly had the “materially greater” relationship to the dispute). Martha A. Field summarizes the manifold approaches states take toward surrogacy contracts, including fairly broad enforcement, enforcement provided certain requirements are met, toleration without explicitly regulating the subject, and criminalizing paid surrogacy. See Martha A. Field, Compensated Surrogacy, 89 Wash. L. Rev. 1155, 1161–65 (2014). Parties to such contracts have sometimes selected the law of a state hospitable to surrogacy, clauses that courts have enforced in some cases “notwithstanding manipulated contacts with the selected state and strong anti-surrogacy policies in the gestational carrier’s domicile.” Susan Frelich Appleton, Leaving Home? Domicile, Family, and Gender, 47 U.C. Davis L. Rev. 1453, 1512 (2014). Parties, however, cannot count on such a result, meaning that “the safest approach [for parties to a surrogacy contract] is to do something substantial in connection with the surrogacy arrangement in that state beyond just choosing its law.” See Joseph F. Morrissey, Surrogacy: The Process, the Law, and the Contracts, 51 Willamette L. Rev. 459, 509 (2015) (also noting that “courts may not honor the choice-of-law provision” in the absence of a substantial contact such as “using a clinic in [the] state [of the chosen law], or using an agency, surrogate or egg donor from that state”).Show More

Yet despite the proliferation of situations in which the validity of choice-of-law clauses is sharply contested, courts have not grown more consistent in their approach to them. In fact, the opposite is true; as the opening examples suggest,⁴⁹ 49.See supra note 23 and accompanying text.Show More courts increasingly reach disparate results on highly similar facts.⁵⁰ 50.See Woodward, Aberrant, supra note 42, at 208–09 (discussing the uncertainty created by the “fact-based and hopelessly uncertain” analysis under Section 187).Show More In one sense, this is surprising, given that jurisdictions in the United States have widely embraced the same authority—Section 187(2) of the Second Restatement of Conflict of Laws—to guide their approach to contractual choice of law.⁵¹ 51.See infra notes 89–94 and accompanying text.Show More Notwithstanding this rare consensus on choice-of-law methodology, however, courts interpret Section 187(2) in ever-diverging, often wholly contradictory ways.⁵² 52.See infraSubsection II.B.3.Show More This means that the enforceability of choice-of-law clauses involving controversial issues is driven by judicial reasoning that takes highly variegated approaches to seemingly similar facts and is, as a result, often impossible to predict at the time of contracting.

Courts’ inconsistent resolutions of this category of cases have created several problems. To begin with, the disparate results courts have reached on similar facts have undermined faith in the judiciary’s ability to deal with many contested areas of law in a reasoned, unbiased manner.⁵³ 53.See David A. Linehan, Due Process Denied: The Forgotten Constitutional Limits on Choice of Law in the Enforcement of Employee Covenants Not To Compete, 2012 Utah L. Rev. 209, 213 (positing that courts, rather than respecting relevant constitutional constraints, “expansively apply their own restrictive rules against noncompetes to virtually any dispute tried within their borders”).Show More Different commentators have argued in parallel, for example, that decisions refusing to honor contractual choice-of-law provisions in noncompete agreements⁵⁴ 54.See Timothy P. Glynn, Interjurisdictional Competition in Enforcing Non-competition Agreements: Regulatory Risk Management and the Race to the Bottom, 65 Wash. & Lee L. Rev. 1381, 1386–87 (2008) (describing and positing the likely future growth of a phenomenon whereby states seek to export their employer-friendly policies extraterritorially by broadly enforcing both noncompetes and choice-of-law clauses).Show More and those insisting on enforcement⁵⁵ 55.See Linehan, supra note 53, at 212 (arguing that courts have applied their choice-of-law principles in noncompete cases in a way that “fail[s] to respect due process constraints on their power to prefer their own laws to those of sister states”).Show More are driven by forum-law preference or other forms of state favoritism.

Moreover, even assuming that judges are applying Section 187 scrupulously and in good faith, the sheer unpredictability of results creates a host of issues in itself.⁵⁶ 56.See id. at 211.Show More Contracting parties are less able to negotiate effectively if the validity of a choice-of-law provision is in doubt,⁵⁷ 57.See, e.g., Lawrence J. La Sala, Note, Partner Bankruptcy and Partnership Dissolution: Protecting the Terms of the Contract and Ensuring Predictability, 59 Fordham L. Rev. 619, 643 n.135 (1991) (“Because parties normally will not enter into a contract if they are unable to foresee accurately their rights and liabilities under the contract, predictability is a prime objective of contract law.”).Show More and disputes are more likely to end in litigation.⁵⁸ 58.See Glynn, supra note 54, at 1385 (calling attention to “the rise of interjurisdictional disputes involving [noncompete] enforcement”).Show More Further, where parties have unequal bargaining power, legal uncertainty about choice-of-law provisions often unfairly disadvantages the weaker party, who might be able to successfully challenge the clause in court but may lack the resources to try.⁵⁹ 59.See, e.g., Woodward, Aberrant, supra note 42, at 212 (noting that “many rational clients will forego using a lawyer in a small claim or defense if they risk paying their lawyer more (probably far more) than the claim or defense is worth”).Show More Finally, the potential to achieve different results in different courts creates an incentive not merely for forum shopping but also for a race to judgment in which parties pursue parallel litigation in hand-picked forums that each hopes will be the first to deliver a final result.⁶⁰ 60.See O’Hara, Opting, supra note 40, at 1566 (“Unfortunately, however, enforcement of these clauses often turns on an ex post race to judgment.”); see also Viva R. Moffat, Making Non-Competes Unenforceable, 54 Ariz. L. Rev. 939, 959 (2012) (noting that disparities in enforcement of both choice-of-law clauses and noncompetes lead to a situation in which both parties “race to the courthouse in an effort to have the jurisdiction with the more favorable law hear the case”). A widely invoked example of this situation is the litigation underlying Advanced Bionics Corp. v. Medtronic, Inc., in which parallel proceedings in Minnesota and California considered the same noncompete but arrived at different outcomes. 59 P.3d 231 (Cal. 2002) (analyzing both Minnesota and California court proceedings). The two courts each ultimately issued contradictory injunctions forbidding the parties from proceeding in the other court, a standoff only resolved when the California Supreme Court ultimately gave way and dissolved the Californian lower court’s injunction. See id. at 237–38; see also Moffat, supranote 60, at 960–63 (describing the case’s procedural history in detail).Show More

A more fundamental objection, however, is that the practice of using a choice-of-law clause to validate a specific provision not only tends to foster judicial confusion, but is out of keeping with the fundamental goals of contractual choice-of-law enforcement. At first glance, this second point might seem counterintuitive: isn’t the whole point of contractual choice-of-law provisions to allow parties to specify the law that will govern their contract? Yet, as this Article will discuss in detail, most advocates of choice-of-law enforcement have assumed that parties will generally choose a particular jurisdiction’s law for reasons other than the content of specific substantive rules—reasons such as, for example, a jurisdiction’s general expertise in a particular area, the desire to choose a law with which both parties are familiar, or the wish to avoid uncertainty.⁶¹ 61.See infra notes 130–34 and accompanying text.Show More Indeed, conflicts scholars have fairly consistently agreed that contractual choice-of-law clauses should not be used to evade a jurisdiction’s public policy, particularly when it is a strongly defined one.⁶² 62.See infra notes 155–58 and accompanying text.Show More The current approach, however, allows parties to do so in many circumstances, limiting them only through a narrow, difficult-to-apply exception to the general policy of enforcement.⁶³ 63.SeeSecond Restatement § 187(2) (delineating a three-pronged exception to the general policy of enforcement).Show More

In response to this situation, this Article argues for a new way of conceptualizing the issue. Rather than fall back on complicated public policy exceptions to contractual choice of law, courts should instead recognize, and generally refuse to enforce, a particularly problematic category of choice-of-law clauses—those that are adopted specifically in the hope of validating a separate contractual provision. This Article refers to such clauses as “substance-targeted.” A provision is substance-targeted, for example, when it reflects an employer’s wish to substitute more favorable Michigan law for the less noncompete-friendly law that would otherwise apply to its Louisiana employee.

Courts typically do not distinguish between targeted and non-targeted choice-of-law clauses. As a result, targeted clauses are often treated as if they represent an ordinary instance of allowing contracting parties to have autonomy to choose the law applicable to their dispute.⁶⁴ 64.See, e.g., Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 391 (6th Cir. 2017) (finding “no reason to disturb the parties’ choice of Michigan law” with respect to a noncompete where no state had a materially greater interest than Michigan).Show More Yet they involve meaningfully different considerations, both because of the reasons that parties choose to include them and because of their ultimate effects. Unlike conventional choice-of-law clauses, substance-targeted clauses are neither aimed at achieving predictability nor likely to result in it. Their frequent use encourages litigation, disadvantages weaker parties, and fosters fears about results-oriented reasoning when their enforceability is tested.⁶⁵ 65.See infra Subsection II.B.3.Show More More broadly, scholars have raised concerns about the possibility that choice-of-law clauses adopted to gain the benefit of substantive rules will “undermine the enforcement of public regulatory statutes designed to safeguard a particular vision of the market.”⁶⁶ 66.See Moon, supra note 42, at 325.Show More These pernicious effects—unlike the normally positive consequences of enforcing non-targeted clauses—call for a fundamentally different approach to choice-of-law analyses.

While other authors have advocated reforms in the courts’ approach to choice-of-law clauses,⁶⁷ 67.Notably, Larry Ribstein has argued that courts should “enforce express written choice-of-law clauses notwithstanding common law or statutory restrictions on enforcement, except when the clause is explicitly prohibited by a state where a contracting party resides and no party resides in the designated state.” Ribstein, Efficiency, supra note 30, at 368. Elsewhere, Erin A. O’Hara and Ribstein advocate for a somewhat similar approach under which “choice-maximizing rules proposed in this Article operate as default rules that legislatures can overrule by explicit statutes where necessary to preserve their power to legislate effectively.” Erin A. O’Hara & Larry E. Ribstein, From Politics to Efficiency in Choice of Law, 67 U. Chi. L. Rev.1151, 1153 (2000). In contrast to O’Hara and Ribstein, this Article’s central focus in reforming contractual choice of law is not on legislative involvement, although it does argue that a legislative role in defining areas of significant policy is desirable. See infra notes 269–70 and accompanying text. Rather, this Article argues that targeted and non-targeted choice-of-law clauses are fundamentally different and require distinct treatment.Show More this Article is the first to identify and propose a solution to the problem of substance targeting. The Article argues that it is feasible for courts to identify substance-targeted clauses⁶⁸ 68.See infra Section III.A.Show More and that, once so categorized, such provisions—because they fail to serve the goals of contractual choice of law more generally—should typically not be enforced.⁶⁹ 69.See infra Section III.B.Show More

This Article proceeds in three Parts. The first Part describes the typical framework applied to the enforceability of choice-of-law clauses in the United States. The second argues that substance-targeted choice-of-law clauses should represent a distinct category of conflicts analysis and discusses the reasons why current doctrine fails to adequately address the issues such conflicts present. Finally, the Article sets forth a proposal for reform, arguing that targeted choice-of-law clauses implicating questions of policy should be unenforceable in most cases.

1. * Martin Luther King, Jr. Professor of Law, University of California, Davis, School of Law; visiting scholar, Freie Universität, Berlin, Germany, 2018–19. I wish to thank Afra Afsharipour and Kevin Johnson for financial support; John Coyle, David Horton, John Patrick Hunt, Lisa Ikemoto, and Courtney Joslin for insightful comments; and Niharika Sachdeva for helpful research assistance. I also thank my hosts at the Freie Universität: Dr. Andreas Fijal, Dr. Felix Hartmann, and Ms. Grit Rother. ↑
2. See Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 386 (6th Cir. 2017). ↑
3. Ridgeway initially disputed the authenticity of the noncompete agreement, but evidence produced in discovery suggested that Ridgeway had received a form noncompete identical to 132 others Stryker had signed with its employees over a five-year period. Id. at 387–88. A jury later found that Ridgeway had signed the noncompete. Id. at 388. ↑
4. Id. at 386. ↑
5. Id. Stryker unsurprisingly disputed Ridgeway’s view of these conversations, maintaining that they related instead to whether Ridgeway had signed a second noncompete that would enable him to receive stock options. Id. at 387. ↑
6. Id. at 386. ↑
7. Id. at 387. ↑
8. Ridgeway was fired on September 10, 2013; Stryker filed suit on September 30, 2013. See Complaint for Injunctive and Other Relief at 4, 34, Stryker Corp. v. Ridgeway, No. 1:13-cv-01066 (W.D. Mich. Sept. 30, 2013), 2013 WL 5526657. ↑
9. See Amended Complaint at 1–2, Stryker Corp. v. Ridgeway, No. 1:13-cv-01066 (W.D. Mich. Oct. 21, 2013), 2013 WL 11276336. ↑
10. See Stone Surgical, 858 F.3d at 391. ↑
11. See Restatement (Second) of Conflict of Laws §§ 187(2), 188(1) (Am. Law Inst. 1971) [hereinafter Second Restatement]. ↑
12. Stone Surgical, 858 F.3d at 391. ↑
13. Id. ↑
14. Id. at 388. The jury also denied relief to Ridgeway in his counterclaims against Stryker, which he originally filed in a separate proceeding but were ultimately consolidated with Stryker’s action. Id. ↑
15. Id. at 387. ↑
16. See Voluntary Petition for Individuals Filing for Bankruptcy, In re Christopher Martin Ridgeway, No. 16-10643 (Bankr. E.D. La. Mar. 23, 2016). ↑
17. Freeman Expositions, Inc. v. Glob. Experience Specialists, Inc., No. SACV 17-00364, 2017 WL 1488269, at *1 (C.D. Cal. Apr. 24, 2017). ↑
18. See id. (“During Mr. Shores’ work at GES, eighty to ninety percent of his sales were for events in Las Vegas, Nevada, and the vast majority of his clients were primarily engaged in Las Vegas.” (internal quotation marks omitted)). ↑
19. Id. ↑
20. Id. ↑
21. See id. at *2. One asked him “Do you really want to go down this road?” and explained that “[o]ne path is to remain with GES and the other path is to go with Freeman and get sued and go broke. It is a lot easier to get out of an offer letter than a non-compete agreement.” Id. ↑
22. See id. ↑
23. See id. at *5. ↑
24. Ridgeway, after all, had left a Louisiana-based sales job for another employer in Louisiana; his only contact with Michigan was that his former employer was headquartered there. See Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 386–87, 390 (6th Cir. 2017). By contrast, Shores had lived and worked in Nevada prior to beginning employment with Freeman. See Freeman Expositions, 2017 WL 1488269, at *1. ↑
25. See Freeman Expositions, 2017 WL 1488269, at *5. ↑
26. Id. at *5. ↑
27. Id. ↑
28. See id. at *1, *3. The court also declined to dismiss a claim by Freeman for interference with its contractual relationship with Shores. See id. at *8. ↑
29. As early as 1993, one commentator observed that the issue of choice-of-law enforcement in difficult cases “has generated a raft of judicial decisions marked by confusion, temerity, and vacillation.” Kirt O’Neill, Note, Contractual Choice of Law: The Case for a New Determination of Full Faith and Credit Limitations, 71 Tex. L. Rev. 1019, 1020 (1993). ↑
30. See Catherine L. Fisk, Reflections on The New Psychological Contract and the Ownership of Human Capital, 34 Conn. L. Rev
    

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    765, 782–83 (2002). ↑

31. See Larry E. Ribstein, From Efficiency to Politics in Contractual Choice of Law, 37 Ga. L. Rev. 363, 367 (2003) [hereinafter Ribstein, Efficiency] (noting that “the number of cases involving contractual choice is increasing significantly over time”). ↑
32. See Norman D. Bishara & David Orozco, Using the Resource-Based Theory To Determine Covenant Not To Compete Legitimacy, 87 Ind. L.J. 979, 980, 984–85 (2012) (discussing the need to adapt the law governing noncompetes in a world where a “trend toward the greater use of noncompetes is occurring when . . . geographic boundaries are becoming less important to economic activity”); Gillian Lester & Elizabeth Ryan, Choice of Law and Employee Restrictive Covenants: An American Perspective, 31 Comp. Lab. L. & Pol’y J. 389, 389 (2010) (noting that more mobile employees and more geographically dispersed employers have contributed to a rise in noncompete litigation). ↑
33.  See Steven Greenhouse, Noncompete Clauses Increasingly Pop Up in
    Array of Jobs, N.Y. Times (June 8, 2014), https://www.nytimes.com/2014/06/09/­business/­noncompete-clauses-increasingly-pop-up-in-array-of-jobs.html?r=0 [https://perma.cc/4KQY-H9PV]. ↑
34. See id. ↑
35. See Matt O’Brien, Even Janitors Have Noncompetes Now. Nobody Is Safe., Wash. Post. (Oct. 18, 2018), https://www.washingtonpost.com/business/2018/10/­18/even-janitors-have-noncompetes-now-nobody-is-safe/?utm_term=.c316c5c­61­487 [https://perma.cc/W7FU-S6M6]. ↑
36. See id. ↑
37. See id. (describing suit by employer against janitor that was dropped following media coverage). ↑
38. See Stuart Lichten & Eric M. Fink, “Just When I Thought I Was Out . . . .”: Post-Employment Repayment Obligations, 25 Wash. & Lee J. Civ. Rts. & Soc.
    Just. 51, 54 (2018) (describing growth of such provisions’ popularity). These arrangements have recently attracted national publicity for, among other things, the threat they may pose to journalistic independence. See id. at 54–55. Many Sinclair Broadcasting employees, for example, chose to read “politically charged” statements on air, despite their personal reservations, because of worries about triggering repayment clauses in their contracts. Id. The statements were described as “prepackaged reports reflecting conservative views.” Id. at 54 n.15 (internal quotation marks and citation omitted). ↑
39. See id. at 68–69, 77–78 (noting differences in particular between the law of California and of other states on the enforceability of post-employment repayment obligations). ↑
40. It is difficult to assess exactly how common choice-of-law clauses are in such agreements because employment contracts are often between private parties. See Norman D. Bishara, Kenneth J. Martin & Randall S. Thomas, An Empirical Analysis of Noncompetition Clauses and Other Restrictive Postemployment Covenants, 68 Vand. L. Rev. 1, 7 (2015). However, it is reasonable to speculate that employers frequently include such provisions, given their popularity in the noncompete context and the uncertainty of the law in this area. For an example of one such case, see Willis Re Inc. v. Hearn, 200 F. Supp. 3d 540, 545–47 (E.D. Pa. 2016) (discussing contractual choice-of-law clause in dispute involving repayment of a retention bonus following employee’s departure for a competitor). ↑
41. See Erin Ann O’Hara, Opting Out of Regulation: A Public Choice Analysis of Contractual Choice of Law, 53 Vand. L. Rev. 1551, 1563–64 (2000) [hereinafter O’Hara, Opting] (noting that, in contrast to the approach of the First Restatement, courts have transitioned to “almost uniformly enforc[ing] choice-of-law provisions that enable the parties to evade state usury laws”). The Second Restatement likely played a role in this acceptance by including a fairly liberal usury provision that operates even in the absence of a choice-of-law clause, providing that a given interest rate will not be invalidated on usury grounds if it is “permissible in a state to which the contract has a substantial relationship” and “not greatly in excess of the rate permitted by the general usury law of the state of the otherwise applicable law.” Second Restatement § 203. The “substantial relationship” requirement is fairly easily satisfied—if, for example, the applicable rate is that of the lender’s place of business or the place where the loan is to be repaid. See Robert Allen Sedler, The Contracts Provisions of the Restatement (Second): An Analysis and a Critique, 72 Colum. L. Rev. 279, 315–18 (1972). ↑
42. See Fleetwood Servs., LLC v. Complete Bus. Sols. Grp., 374 F. Supp. 3d 361, 372 (E.D. Pa. 2019) (finding that, despite parties’ choice of Pennsylvania law, Texas law applied because Texas had the most significant relationship to the dispute and “applying Pennsylvania law would violate a fundamental public policy of Texas, namely its antipathy to high interest rates” (internal quotation marks omitted)); Am. Equities Grp. v. Ahava Dairy Prods. Corp., No. 01 Civ.5207, 2004 WL 870260, at *7–9 (S.D.N.Y. Apr. 23, 2004) (declining to enforce a choice of New Jersey law in a case involving a usury defense on the same grounds); Am. Express Travel Related Servs. Co. v. Assih, 893 N.Y.S.2d 438, 445–46 (N.Y. Civ. Ct. 2009) (declining to enforce a choice of Utah law in action to collect credit card payments based on New York’s materially greater interest and “strong public policy against interest rates which are excessive”); see also TriBar Op. Comm., Supp. Report: Opinions on Chosen-Law Provisions Under the Restatement of Conflict of Laws, 68 Bus. Law. 1161, 1161–62, 1162 n.2 (2013) (discussing analysis of this issue in New York courts and noting that it deviates somewhat from the orthodox Second Restatement approach). ↑
43. See William J. Moon, Contracting Out of Public Law, 55 Harv. J. on Legis
    

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    323, 347 (2018) (“[C]ourts have consistently refused to enforce choice-of-law clauses in the context of . . . consumer contracts.”). In some cases, this refusal has been based on concerns about the substantive content of the chosen law. See, e.g., Masters v. DirecTV, Inc., Nos. 08-55825 & 08–55830, 2009 WL 4885132, at *1 (9th Cir. Nov. 19, 2009) (holding that California law, rather than the parties’ chosen law, applied to consumer class action waivers because such waivers were contrary to a fundamental policy in California); see also William J. Woodward Jr., Legal Uncertainty and Aberrant Contracts: The Choice of Law Clause, 89 Chi.-Kent L. Rev. 197, 207–09 (2014) [hereinafter Woodward, Aberrant] (discussing case law on enforcement of choice-of-law clauses in questions regarding the applicability of state statutes that convert one-way attorney’s-fee-shifting provisions into two-way provisions). Procedural concerns about information asymmetry and bargaining power disparities in form consumer contracts may also weigh in favor of non-enforcement. See generally Giesela Rühl, Consumer Protection in Choice of Law, 44 Cornell Int’l L.J. 569 (2011) (considering these issues and advocating for European-style limits on choice of law in consumer contracts). ↑

44. See Andrew Elmore, Franchise Regulation for the Fissured Economy, 86 Geo. Wash. L. Rev. 907, 954 n.229 (2018) (“States prohibit choice of law provisions and waivers in franchise agreements to contract around state franchise law obligations, which will foreclose evasions of a liability through waiver.”). For example, in Wright-Moore Corp. v. Ricoh Corp., the court found that Indiana law applied, rather than the parties’ chosen law of New York, because Indiana had a materially greater interest in the dispute and waiver of a franchisee’s rights was against Indiana’s fundamental policy. 908 F.2d 128, 132–33 (7th Cir. 1990). ↑
45. See, e.g., In re Facebook Biometric Info. Privacy Litig., 185 F. Supp. 3d 1155, 1169–70 (N.D. Cal. 2016) (concluding that a California choice-of-law provision could not be enforced where “California has not legislatively recognized a right to privacy in personal biometric data and has not implemented any specific protections for that right” and biometric data protection was a fundamental policy in Illinois, the state of the most significant relationship). ↑
46. See J. Kelly Barnes, Telemedicine: A Conflict of Laws Problem Waiting To Happen—How Will Interstate and International Claims Be Decided?, 28 Hous. J. Int’l L. 491, 526–28 (2006) (discussing potential enforceability of choice-of-law clauses in the context of telemedicine). ↑
47. See O’Hara, Opting, supra note 40, at 1564–65 (“Antenuptial agreements are also incorporating choice-of-law provisions with mounting, albeit tentative, judicial support.”); see also John F. Coyle, A Short History of the Choice-of-Law Clause, 91 Colo. L. Rev. 1147, 1162–63, 1162 n.42 (2020) (noting that an example of such a clause exists as far back as 1874). ↑
48. See Linda J. Ravdin, Premarital Agreements and the Migratory Same-Sex Couple, 48 Fam. L.Q. 397, 406 (2014). ↑
49. See, e.g., Hodas v. Morin, 814 N.E.2d 320, 325–26 (Mass. 2004) (applying Section 187 of the Second Restatement to determine that a surrogacy agreement was valid and finding that no state other than the state of the chosen law, Massachusetts, clearly had the “materially greater” relationship to the dispute). Martha A. Field summarizes the manifold approaches states take toward surrogacy contracts, including fairly broad enforcement, enforcement provided certain requirements are met, toleration without explicitly regulating the subject, and criminalizing paid surrogacy. See Martha A. Field, Compensated Surrogacy, 89 Wash. L. Rev. 1155, 1161–65 (2014). Parties to such contracts have sometimes selected the law of a state hospitable to surrogacy, clauses that courts have enforced in some cases “notwithstanding manipulated contacts with the selected state and strong anti-surrogacy policies in the gestational carrier’s domicile.” Susan Frelich Appleton, Leaving Home? Domicile, Family, and Gender, 47 U.C. Davis L. Rev. 1453, 1512 (2014). Parties, however, cannot count on such a result, meaning that “the safest approach [for parties to a surrogacy contract] is to do something substantial in connection with the surrogacy arrangement in that state beyond just choosing its law.” See Joseph F. Morrissey, Surrogacy: The Process, the Law, and the Contracts, 51 Willamette L. Rev. 459, 509 (2015) (also noting that “courts may not honor the choice-of-law provision” in the absence of a substantial contact such as “using a clinic in [the] state [of the chosen law], or using an agency, surrogate or egg donor from that state”). ↑
50. See supra note 23 and accompanying text. ↑
51. See Woodward, Aberrant, supra note 42, at 208–09 (discussing the uncertainty created by the “fact-based and hopelessly uncertain” analysis under Section 187). ↑
52. See infra notes 89–94 and accompanying text. ↑
53. See infra Subsection II.B.3. ↑
54.  See David A. Linehan, Due Process Denied: The Forgotten Constitutional Limits on Choice of Law in the Enforcement of Employee Covenants Not To Compete, 2012 Utah L. Rev. 209, 213 (positing that courts, rather than respecting relevant constitutional constraints, “expansively apply their own restrictive rules against noncompetes to virtually any dispute tried within their borders”). ↑
55.  See Timothy P. Glynn, Interjurisdictional Competition in Enforcing Non-competition Agreements: Regulatory Risk Management and the Race to the Bottom, 65 Wash. & Lee L. Rev. 1381, 1386–87 (2008) (describing and positing the likely future growth of a phenomenon whereby states seek to export their employer-friendly policies extraterritorially by broadly enforcing both noncompetes and choice-of-law clauses). ↑
56. See Linehan, supra note 53, at 212 (arguing that courts have applied their choice-of-law principles in noncompete cases in a way that “fail[s] to respect due process constraints on their power to prefer their own laws to those of sister states”). ↑
57. See id. at 211. ↑
58.  See, e.g., Lawrence J. La Sala, Note, Partner Bankruptcy and Partnership Dissolution: Protecting the Terms of the Contract and Ensuring Predictability, 59 Fordham L. Rev. 619, 643 n.135 (1991) (“Because parties normally will not enter into a contract if they are unable to foresee accurately their rights and liabilities under the contract, predictability is a prime objective of contract law.”). ↑
59.  See Glynn, supra note 54, at 1385 (calling attention to “the rise of interjurisdictional disputes involving [noncompete] enforcement”). ↑
60.  See, e.g., Woodward, Aberrant, supra note 42, at 212 (noting that “many rational clients will forego using a lawyer in a small claim or defense if they risk paying their lawyer more (probably far more) than the claim or defense is worth”). ↑
61.  See O’Hara, Opting, supra note 40, at 1566 (“Unfortunately, however, enforcement of these clauses often turns on an ex post race to judgment.”); see also Viva R. Moffat, Making Non-Competes Unenforceable, 54 Ariz. L. Rev
    

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    939, 959 (2012) (noting that disparities in enforcement of both choice-of-law clauses and noncompetes lead to a situation in which both parties “race to the courthouse in an effort to have the jurisdiction with the more favorable law hear the case”). A widely invoked example of this situation is the litigation underlying Advanced Bionics Corp. v. Medtronic, Inc., in which parallel proceedings in Minnesota and California considered the same noncompete but arrived at different outcomes. 59 P.3d 231 (Cal. 2002) (analyzing both Minnesota and California court proceedings). The two courts each ultimately issued contradictory injunctions forbidding the parties from proceeding in the other court, a standoff only resolved when the California Supreme Court ultimately gave way and dissolved the Californian lower court’s injunction. See id. at 237–38; see also Moffat, supra note 60, at 960–63 (describing the case’s procedural history in detail). ↑

62. See infra notes 130–34 and accompanying text. ↑
63. See infra notes 155–58 and accompanying text. ↑
64. See Second Restatement § 187(2) (delineating a three-pronged exception to the general policy of enforcement). ↑
65. See, e.g., Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 391 (6th Cir. 2017) (finding “no reason to disturb the parties’ choice of Michigan law” with respect to a noncompete where no state had a materially greater interest than Michigan). ↑
66. See infra Subsection II.B.3. ↑
67. See Moon, supra note 42, at 325. ↑
68. Notably, Larry Ribstein has argued that courts should “enforce express written choice-of-law clauses notwithstanding common law or statutory restrictions on enforcement, except when the clause is explicitly prohibited by a state where a contracting party resides and no party resides in the designated state.” Ribstein, Efficiency, supra note 30, at 368. Elsewhere, Erin A. O’Hara and Ribstein advocate for a somewhat similar approach under which “choice-maximizing rules proposed in this Article operate as default rules that legislatures can overrule by explicit statutes where necessary to preserve their power to legislate effectively.” Erin A. O’Hara & Larry E. Ribstein, From Politics to Efficiency in Choice of Law, 67 U. Chi. L. Rev.
    

     

    1151, 1153 (2000). In contrast to O’Hara and Ribstein, this Article’s central focus in reforming contractual choice of law is not on legislative involvement, although it does argue that a legislative role in defining areas of significant policy is desirable. See infra notes 269–70 and accompanying text. Rather, this Article argues that targeted and non-targeted choice-of-law clauses are fundamentally different and require distinct treatment. ↑

69. See infra Section III.A. ↑
70. See infra Section III.B. ↑

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