## Facts

- William T. Drennen III worked for ExxonMobil for more than 30 years and participated in executive incentive programs granting restricted ExxonMobil stock.
- The incentive plans contained (1) a New York choice-of-law clause and (2) “detrimental activity” provisions permitting cancellation of outstanding awards if the plan administrator determined the executive took a position competing with ExxonMobil.
- Drennen retired in 2007 with substantial benefits already received, but he still held 57,200 restricted (unvested) shares subject to plan conditions.
- After retiring, Drennen accepted a vice-president position at Hess Corporation, which ExxonMobil treated as a competitor.
- ExxonMobil determined Drennen’s new job constituted detrimental activity and canceled his 57,200 restricted shares.
- Drennen sued in Texas, seeking relief for breach of contract and a declaration that the forfeiture provisions were unenforceable.
- The trial court enforced the New York choice-of-law clause and entered judgment for ExxonMobil.
- The court of appeals reversed, refused to enforce the choice-of-law clause, applied Texas law, and treated the forfeiture provisions as unenforceable noncompete covenants.
- The Supreme Court of Texas granted review.

## Issues

1. Whether the plans’ New York choice-of-law provisions were enforceable under Texas conflict-of-laws rules.
2. If Texas law otherwise would apply, whether applying New York law would violate a fundamental Texas policy concerning restrictions on post-employment competition.

## Decision

- The Supreme Court of Texas reversed the court of appeals and rendered judgment for ExxonMobil.
- The court held the New York choice-of-law provisions were enforceable under Restatement (Second) of Conflict of Laws § 187 as applied in Texas.
- The court held New York had a substantial relationship and there was a reasonable basis for selecting New York law, including New York’s developed law on incentive plans and ExxonMobil’s interest in uniform plan administration.
- The court held applying New York law did not contravene a fundamental Texas policy because the provisions operated as a forfeiture of unvested benefits rather than a direct restraint on employment.
- Applying New York law, the court upheld the cancellation of Drennen’s unvested restricted shares based on his voluntary departure and competitive employment.

## Legal Principles

- Texas generally enforces contractual choice-of-law provisions under Restatement (Second) of Conflict of Laws § 187 unless (a) the chosen state lacks a substantial relationship and there is no reasonable basis for the choice, or (b) applying the chosen law would violate a fundamental policy of a state with a materially greater interest whose law would otherwise govern.
- A reasonable basis for choosing a state’s law may be shown by legitimate business reasons such as uniform governance of a nationwide or worldwide incentive program and reliance on a well-developed body of governing law.
- A forfeiture-for-competition condition tied to unvested incentive compensation may be treated differently from a covenant not to compete because it does not bar competitive employment; it conditions continued eligibility for additional benefits on post-employment conduct.
- Under New York’s employee-choice doctrine, an employee who voluntarily leaves and elects to compete may be required to forfeit certain unvested benefits conditioned on noncompetition.

## Conclusion

The Texas Supreme Court enforced the plans’ New York choice-of-law clause and upheld ExxonMobil’s cancellation of Drennen’s unvested restricted stock awards after he voluntarily retired and accepted employment with a competitor, concluding that applying New York law did not violate a fundamental Texas policy.


Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014)