Josh Glikin and firm associate, Cynthia Polasko, recently secured a major victory in a Maryland appellate court that created a new Maryland law that helps plaintiffs who have been wronged by a group of individuals who live outside of Maryland. The case involved a client’s former employee from North Carolina accused of stealing customers and trade secrets, in violation of his employment agreement. The employee’s agreement permitted the employer to sue him in Maryland. But the employee’s wife and two North Carolina companies who helped him had not agreed to be sued in Maryland, and had no contacts in this state. The legal question was, could they be sued here? As Ms. Polasko explains, no Maryland court had ever answered that question, but the Maryland appellate court agreed with Mr. Glikin that the answer should be “yes”.
Maryland’s Appellate Court Widens the Personal Jurisdiction Net: Part 1
By: Cynthia L. Polasko
One of the first steps in a lawsuit is making sure the court where the lawsuit is filed has personal jurisdiction over the parties. If a court does not have personal jurisdiction over a party, then it does not have the power to make a decision regarding that party. These days, the issue of personal jurisdiction is often addressed by contract. Many contracts contain “forum-selection clauses,” in which the parties to the contract agree to the jurisdiction of a particular court in the event a dispute arises.
But what about persons or entities that did not sign the contract, but that are closely related to a party that did? Can those non-signatories also be bound by a contractual forum-selection clause and, as a result, be sued in a state where they would otherwise not be subject to personal jurisdiction? The Court of Special Appeals of Maryland recently decided that the answer is “yes.”
Bowie & Jensen, LLC represented Evapco, Inc. and several of its subsidiary companies in a lawsuit against a former employee, his wife, and two corporations that the husband and wife formed together. In the course of that representation, Joshua A. Glikin successfully argued that the Circuit Court for Carroll County had personal jurisdiction over all defendants, and Evapco, Inc. ultimately prevailed at trial. When the defendants appealed, Bowie & Jensen attorneys, led by Mr. Glikin, presented argument to the Court of Special Appeals of Maryland that the trial court’s exercise of personal jurisdiction over all defendants had been proper. He urged the court to adopt this new principle of personal jurisdiction that Maryland courts had never considered before. Maryland’s appellate court agreed with the firm’s arguments and adopted the “closely related” doctrine, already embraced by a number of state and federal courts, and held that a North Carolina resident and two North Carolina companies that had not signed a contract containing a forum-selection clause could nevertheless be sued in Maryland.
North Carolina residents Charles Peterson and his wife, Carmen, founded a company in North Carolina called Tower Components, Inc., which manufactured and sold components for cooling towers. In 2005, the Petersons sold Tower Components, Inc. to a Maryland company, Evapco Products, which was in turn a subsidiary of a Maryland corporation, Evapco, Inc. As a part of the sale, both Petersons signed a stock purchase agreement. Also as part of the sale, Mr. Peterson—but not Mrs. Peterson—signed a confidentiality agreement that specified that “[a]ll claims hereunder shall be tried solely and exclusively in the Circuit Court for Carroll County … and the parties consent to the sole and exclusive jurisdiction and venue of such court, regardless of where I [Mr. Peterson] am residing at the time[.]” Mr. Peterson remained employed by Tower Components, Inc. after it was sold to Evapco Products.
Several years later, while Mr. Peterson was still working for Tower Components, Inc. he and his wife formed two North Carolina companies that also bought and sold cooling tower parts. Mr. and Mrs. Peterson were the officers and managers of these North Carolina businesses, and they used them to make bids and sales that directly competed with Evapco, Inc. Because such competitive business activities were prohibited by the confidentiality agreement between Mr. Peterson and Evapco, Inc., Evapco, Inc. fired Mr. Peterson.
Evapco, Inc. later sued Mr. Peterson for breaching his confidentiality agreement, and sued Mrs. Peterson and the two North Carolina companies for assisting Mr. Peterson with his unlawful competitive activities. Mrs. Peterson and the North Carolina companies moved to dismiss the claims against them because, they asserted, the Maryland court did not have personal jurisdiction over them. They insisted that, while Mr. Peterson had agreed to the jurisdiction of the Maryland court when he signed the confidentiality agreement, Mrs. Peterson and the North Carolina companies had not signed the agreement and had not agreed to personal jurisdiction in Maryland.
The Court of Special Appeals joined other courts from across the country in holding that a non-signatory to a contract may nonetheless be bound by that contract’s forum-selection clause if the non-signatory is so “closely related” to the dispute such that it becomes “foreseeable” that it will be bound. The applicable test is to ask: (1) is the forum-selection clause valid, (2) is the non-signatory a third-party beneficiary of the agreement or closely related to the agreement, and (3) does the claim at hand arise from the non-signatory’s status related to the agreement? If the answer to all three questions is yes, then a non-signatory may be bound.
For more information on non-signatories cases, confidentiality agreements and the legality of similar cases, please contact Cynthia L. Polasko for more information. Be sure to visit Bowie & Jensen’s news page soon to read part 2 of this article and for more insight from the region’s top attorneys.