Contract analysis

I. Issue Presented You have asked us to analyze whether a California court will enforce the New York choice-of-law clause contained in Section 14.3 of the Employment Agreement between Aurelius Media Americas Inc. ("AMA") and Gavin Aldrich ("Aldrich"), and, if not, the implications of that determination for the enforceability of the restrictive covenant provisions set forth in Section 9 of the Agreement.

Section 14.3 of the Employment Agreement between AMA and Aldrich (dated September 5, 2017, as amended by the First Amendment dated August 1, 2020) provides, in its entirety: "This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles." The central question presented is whether a California court — specifically, the Superior

II. Summary of Restrictive Covenant Provisions at Issue

Section 9 of the Employment Agreement contains four distinct restrictive covenant provisions, each of which presents a separate enforceability question under California law. These provisions are summarized in the table below: The enforceability of each of these provisions under California law is addressed in detail in the companion memorandum dated December 20, 2022, entitled Enforceability of Restrictive Covenants U

III. Factual Background Relevant to Choice-of-Law Analysis The following factual background is drawn from the Employment Agreement, the First Amendment, publicly available corporate filings, discovery materials produced to date, and information provided by the client. The facts are presented here to the extent relevant to the choice-of-law analysis under the Restatement (Second) of Conflict of Laws. A. Aurelius Globa

IV. Applicable Legal Framework A. California's Approach to Contractual Choice-of-Law Clauses California courts apply the analytical framework set forth in the Restatement (Second) of Conflict of Laws § 187 to determine whether to honor a contractual choice-of-law provision that selects the law of another state. See Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464–66; Washington Mutual Bank, FA v. Super

Section 187(1) provides that, if the particular issue is one that the parties could have resolved by an explicit provision in the agreement directed to that issue, the law of the state chosen by the parties to govern their contractual rights and duties will be applied. In other words, where the parties are free to determine the issue by agreement — such as the measure of damages, the manner of performance, or the int

Section 187(2) provides a more searching analysis for issues that the parties could not have resolved by an explicit provision in the agreement — that is, issues that implicate regulatory policies or third-party interests beyond the private contractual relationship. Even where there is a substantial relationship between the chosen state and the parties or the transaction, the law of the chosen state will not be appli

V. Analysis A. Does New York Have a Substantial Relationship to the Parties or Transaction? The first question under § 187(2) is whether the chosen state — here, New York — has a "substantial relationship to the parties or the transaction," or whether there is some "other reasonable basis for the parties' choice." Restatement (Second) of Conflict of Laws § 187(2)(a). The connections between the Employment Agreement a

1. AGMG (the parent entity, not the employer) maintains a small corporate office in New York, which serves as a hub for investor relations and financial operations. This office is not involved in AGMG's or AMA's content production, licensing, or distribution activities and is not the location at which any decision relating to Aldrich's employment was made.

2. The Employment Agreement was drafted by Whitfield & Crane LLP, AGMG's New York-based outside employment counsel. The fact that the drafter of the Agreement was located in New York does not, in and of itself, establish a meaningful connection between the substantive terms of the Employment Agreement and the State of New York. The choice to retain New York counsel appears to have been driven by AGMG's pre-existing r

3. AMA is incorporated in Delaware, not New York. AGMG itself is incorporated in England and Wales. Neither the employer nor the parent entity is a New York corporation or maintains its principal place of business in New York.

4. AGMG's external auditor, Graystone & Parr LLP, is headquartered in New York. This connection has no relevance to the employment relationship between AMA and Aldrich. These connections to New York are, by any measure, tenuous. AMA — the actual employer and party to the Employment Agreement — has no New York office, no New York employees, no New York production facilities, and no New York incorporation. AGMG's small

Section 16600 has been part of California law since the enactment of the Civil Code of 1872. Its roots trace to an even earlier California statute, the Act Concerning Monopolies (1850). It represents one of the most deeply embedded and long-standing legislative policies in California jurisprudence. The California Supreme Court has repeatedly confirmed that Section 16600 embodies a "strong public policy" of the State

Section 188 identifies five contacts to be considered in determining the state with the most significant relationship to the transaction and the parties: (a) The place of contracting. The Employment Agreement was executed in California. Both Aldrich and AMA's signatory executed the Agreement in California. The First Amendment was likewise executed in California. This contact points to California. (b) The place of neg

1. Fundamental policy. California's prohibition of non-competition agreements, as set forth in Business and Professions Code Section 16600 and confirmed by the California Supreme Court in Edwards v. Kraft Quill CPAs LLP and the Court of Appeal in Application Group, Inc. v. Hunter Group, Inc., constitutes a "fundamental policy" of the State of California.

2. Materially greater interest. California — as the state of Aldrich's residence, the state in which Aldrich performed all of his services, the state in which AMA maintains its principal office, and the state whose labor market would be directly affected by enforcement of the non-compete — has a "materially greater interest" than New York in the determination of whether Aldrich may be restricted from pursuing his pro

3. Applicable law absent choice-of-law clause. Under the "most significant relationship" test of Restatement § 188, California would be the state of the applicable law in the absence of the choice-of-law clause. All five § 188 contacts point to California (or are neutral), and none points to New York. Because all three requirements are met, a California court will decline to enforce the New York choice-of-law clause

VI. Treatment of Other Restrictive Covenant Provisions While the foregoing analysis focuses primarily on the non-competition clause in Section 9.1, the Employment Agreement contains three additional restrictive covenant provisions (Sections 9.2, 9.3, and 9.4) that require separate consideration. The choice-of-law analysis may apply differently to each provision, depending on whether California has a "fundamental poli

Section 9.1 (Non-Competition). As set forth above, this provision directly implicates California Business and Professions Code Section 16600 and the fundamental policy analysis under § 187(2)(b). A California court will apply California law, and Section 9.1 is void. The enforceability analysis under California law is set forth in detail in the Companion Memorandum.

Section 9.2 (Non-Solicitation of Employees). California's public policy regarding employee non-solicitation clauses is less settled than its policy regarding non-competition agreements. While some California courts have invalidated broad employee non-solicitation clauses on the ground that they function as de facto non-competes or restrain employees from engaging in their lawful business, others have upheld narrowly

Section 9.3 (Non-Solicitation of Business Relationships). A similar analysis applies to Section 9.3. California law will likely govern, and the enforceability of the provision will depend on whether the court concludes that it functions as a de facto non-competition clause or is instead a permissible restraint narrowly targeted at the protection of customer relationships and trade secrets. The analysis is set forth i

Section 9.4 (Confidentiality). The choice-of-law question is effectively moot with respect to the confidentiality provision. There is no material conflict between New York law and California law regarding the enforceability of reasonable confidentiality obligations. Confidentiality agreements that protect trade secrets, proprietary information, and confidential business data are enforceable under both New York law an

VII. Counterarguments and Risk Assessment A. AMA Could Argue New York Law Governs In the interest of completeness, we identify the principal arguments that AMA could advance in support of applying New York law to the restrictive covenant provisions, together with our assessment of their likelihood of success. First, AMA could argue that AGMG's New York corporate office, combined with the fact that the Employment Agre

VIII. Implications for Litigation and Settlement Strategy Based on the foregoing analysis, we make the following recommendations with respect to AMA's litigation and settlement strategy:

1. Do not rely on the New York choice-of-law clause to save the non-compete. The argument that New York law governs the enforceability of the restrictive covenants has a very low probability of success — we estimate approximately 10–15% — and could be perceived by the court as an attempt to circumvent settled California law. Asserting this argument aggressively in the cross-complaint or in motion practice risks under

2. In the cross-complaint (to be filed no later than January 20, 2023), focus on claims that do not depend on the enforceability of the non-compete. Specifically, AMA should lead with claims based on the confidentiality provision (Section 9.4) and claims under the California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 et seq. ("CUTSA"). These claims are strong regardless of the choice-of-law determination, as co

3. In settlement negotiations, be prepared to concede that Section 9.1 is unenforceable. Making this concession early and credibly will build AMA's credibility as a reasonable negotiating partner and will allow AMA to focus the negotiation on obtaining meaningful protections through the confidentiality provision (Section 9.4) and the non-solicitation provisions (Sections 9.2 and 9.3). A structured settlement that inc

4. For future employment agreements with California-based executives, eliminate non-competition clauses entirely. AMA should not include non-competition provisions in employment agreements with California-based employees, as such provisions are void under California law and serve only to create litigation exposure and undermine the enforceability of other, potentially valid provisions in the agreement (under the theo

5. Coordinate with the Companion Memorandum. The analysis in this memorandum should be read in conjunction with the Companion Memorandum dated December 20, 2022 (Enforceability of Restrictive Covenants Under Cal. Bus. & Prof. Code § 16600), which addresses the enforceability of each of the four restrictive covenant provisions under California law. Together, these two memoranda provide a unified analysis of the choice

IX. Conclusion For the reasons set forth above, we conclude as follows: A California court will almost certainly decline to enforce the New York choice-of-law clause contained in Section 14.3 of the Employment Agreement as applied to the restrictive covenant provisions in Section 9 of the Employment Agreement. The court will instead apply California law, pursuant to the framework set forth in Restatement (Second) of

§ 9.1 | Non-Competition | 18 months post-termination | Prohibits employment with or provision of services to any "Competing Enterprise," defined as any entity deriving ≥ 25% of revenue from the production, licensing, or distribution of unscripted/reality television content in North America

§ 9.2 | Non-Solicitation of Employees | 24 months post-termination | Prohibits direct or indirect solicitation of any AMA employee with whom Aldrich worked or had regular contact within the 12 months preceding termination

§ 9.3 | Non-Solicitation of Business Relationships | 24 months post-termination | Prohibits direct or indirect solicitation of any network, platform, or advertiser client of AMA with whom Aldrich had "material contact" during the 24 months preceding termination

§ 9.4 | Confidentiality | Indefinite (survives termination without limitation) | Covers proprietary content, show formats, production methodologies, revenue data, talent agreements, financial projections, strategic plans, and all other information designated as confidential by AMA or AGMG