Choice-of-Law Provisions and the Role of Business Relationships to Other Jurisdictions with Respect to Detrimental-Activity Clauses in Executive Compensation Plans

In Exxon Mobil Corp. v. Drennan, the Supreme Court of Texas reversed the court of appeals’ judgment in favor of a former executive, William Drennan, III, (“Drennan”) and rendered a judgment for Exxon Mobil (“Exxon”). The dispute between the parties arose from an executive compensation plan, which included a contractual choice-of-law provision designating that New York law would apply as well as a provision for forfeiture of the executive’s bonus awards in the event he engaged in “detrimental activity.” The Court concluded that Exxon’s basis for choosing New York law, the goal of uniformity, was logical and reasonable, both Texas and New York bear some relationship to the parties and the transaction, the forfeiture provision was not a covenant not to compete, and that, under Texas law, application of New York law would not contravene Texas policy; thus, the Court was bound to enforce the contractual choice-of-law provision and apply New York Law. New York permits enforcement of similar detrimental-activity provisions to employment contracts, so the provision would be enforced without regard to whether Texas law would permit such