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The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would be the state of the applicable law in the absence of an effective choice of law by the parties.
This case involving a noncompetition agreement between an employer and employee presents three principal issues: first, whether the law of the state chosen by the parties to govern their agreement should be applied; second, whether the noncompetition agreement is enforceable; third, if the agreement is not enforceable, whether damages for its attempted enforcement are recoverable under the Texas Free Enterprise and Antitrust Act of 1983 or for wrongful injunction, fraud, or tortious interference with contract. The trial court applied the law of the state of Florida, chosen by the parties to govern the noncompetition agreement, to hold the agreement valid but overly broad as to the geographical territory in which competition was restricted. Based upon a jury finding that the employee breached the agreement, the trial court enjoined any further violation of the agreement within a smaller territory, and denied the employee's claims for damages. The court of appeals affirmed.
Did the trial court err applying the law of the state of Florida to govern the noncompetition agreement?
The court determined that Texas law should govern the agreement, rather than the parties' choice of Florida law. Texas had a materially greater interest in deciding whether the agreement should be enforced. The law governing enforcement of noncompetition agreements was fundamental policy in Texas and required Texas to answer such questions when they related to Texas. The agreement was unenforceable because respondent failed to show the agreement was necessary to protect a legitimate business interest. Respondent failed to show that its customer lists were so confidential that they deserved special protection from the agreement. However, petitioner was not entitled to recover for wrongful injunction because there was merit in respondent's suit for noncompetition. Petitioner's antitrust, tortious interference, and fraudulent inducement claims against respondent were either waived or without merit.