Filed: July 5, 2018
Opinion by: Andrea M. Leahy
Holding: Pursuant to the “closely-related”
doctrine adopted from other federal and state jurisdictions, a forum-selection
clause in a Confidentiality Agreement may be used to assert personal
jurisdiction over non-resident, non-signatories where the clause itself was
valid; the claims arose out of the non-signatories’ status in relation to the
Agreement; and the non-signatories were so closely related to the contract such
that it was foreseeable for them to be haled into the forum court.
Facts: Appellees purchased a North Carolina cooling tower
products company (the “Company”) from two spouses who are non-residents of
Maryland (“Appellant Husband” and “Appellant Wife,” respectively). As part of
the stock purchase agreement, Appellant Husband signed a Confidentiality
Agreement that contained a non-compete clause and a forum-selection clause
designating Maryland. Appellant Husband remained an employee of the Company
until his termination for the conduct that forms the basis of the underlying
lawsuit.
Appellees claimed that Appellant
Husband had, individually and through two companies (the “Appellant Companies”)
sold cooling tower products to Appellees’ customers. Appellant Companies are
wholly owned by Appellants and were organized in North Carolina and Georgia,
respectively. Appellees sued for breach of the Confidentiality Agreement and
tortious interference of contractual relations, among other counts. Appellant
Wife and Appellant Companies filed a joint motion to dismiss for lack of
personal jurisdiction. The Circuit Court for Carroll County denied the motion.
Analysis: Appellant Wife argued that she did not consent to jurisdiction in Maryland and
did not execute the Confidentiality Agreement, and even if she had, it had
expired. Appellant Companies argued that they had no contact with Maryland.
Appellees initially argued that Appellant Wife transacted business in Maryland
by signing the stock purchase agreement, which was governed by Maryland law,
and that Appellant Wife and Appellant Companies are affiliates and alter egos
of Appellant Husband. On appeal, Appellees argued that no analysis under the
long-arm statute or due process was necessary.
On appeal, Appellees argued that the court could assert personal jurisdiction under the “closely-related” doctrine, which holds that a non-signatory to a contract may be bound by the forum-selection clause if the non-signatory is so closely related to a dispute that it would be foreseeable that it would be bound. The Court held that the doctrine applies to non-signatory, non-residents in the context of motions to dismiss for lack of personal jurisdiction, citing case law from various jurisdictions.
The Court adopted the three-prong
test articulated in Carlyle Inv. Mgmt. LLC v. Moonmouth Co. SA, 779 F.3d 214 (3d Cir. 2015). The Carlyle Court had analyzed the
application of the doctrine in the context of non-signatory defendants’ motions
to dismiss for lack of personal jurisdiction in several Delaware cases. Carlyle held that a defendant who had
not signed a subscription agreement was nonetheless bound by its forum
selection cause because several of the agreement’s provisions explicitly referenced
the close relationship among the various, inter-connected defendant entities. Likewise,
the various non-signatory entities on the plaintiff’s side could enforce the clause
because they were affiliates. Also, but for the original subscription agreement
that contained the forum selection clause, the disputes at issue—concerning, in
part, subsequent release agreements—would not have arisen.
Applying the Carlyle test, the Court held: (1) that the forum selection clause
was valid; (2) that Appellees’ claims arose out of Appellant Wife’s and
Appellant Companies’ status in relation to the Confidentiality Agreement; and
(3) that Appellant Wife and Appellant Company were closely related to the
contractual relationship so that it would be foreseeable that they would be
bound. To determine the third question, the Court examined the non-signatory’s
ownership of the signatory, its involvement in negotiations, the relationship
between them, and whether or not the non-signatory received a direct benefit
from the Confidentiality Agreement.
As for Appellant Wife, her
husband’s execution of the Confidentiality Agreement was consideration for the sale
of the Company, and the entire case is premised on his conduct—in concert with
her and the Appellant Companies—that purportedly violated the Confidentiality
Agreement. She was a signatory of the stock purchase agreement, which
explicitly referenced the Confidentiality Agreement. Also, through her
ownership of Appellant Companies, she directly, financially benefitted from her
husband’s conduct.
As for Appellant Companies, Appellant
Husband was a co-owner and an officer of both; he was the registered agent of
one; the principal places of business were the home address; he had signed checks
and tax forms on their behalf; and records confirmed that he had conducted
business on their behalf. Appellant Companies had derived a benefit, as they had
conducted business with Appellees’ suppliers and competitors. Appellant Husband
alone involved the Appellant Companies in the situation at issue. To ignore
this would allow Appellant Husband to evade the forum-selection clause and
undermine the Confidentiality Agreement. Thus, the Court affirmed.
The opinion is available in PDF
here.
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