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Court of Special Appeals expands civil procedure principle

Forum clauses apply to "closely related" non-signers, court says

The Courts of Special Appeals building. (Maximilian Franz/The Daily Record)

The Courts of Special Appeals building.
(Maximilian Franz/The Daily Record)

Contractual provisions stating that all related disputes will be resolved in Maryland courts apply not only to those who signed the contract but to individuals “closely related” to the business relationship formed under the accord, Maryland’s second-highest court ruled Thursday.

With its reported 3-0 decision, the Court of Special Appeals became the latest federal or state tribunal to adopt a growing trend in civil procedure that binds not only signatories but related beneficiaries to the forum-selection clauses in business contracts.

Under this trend, non-signatories can be held to the contract’s forum-selection clause if it is foreseeable that it would apply to them based on their relationship to a party to the contract, the contractual negotiations and whether they directly benefited from the contract, the Court of Special Appeals said, citing decisions from federal trial and state courts in Delaware, Illinois and Pennsylvania and U.S. appeals courts based in Chicago and New York.

“Courts throughout the United States have held 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,” Judge Andrea M. Leahy wrote for the Court of Special Appeals.

In its decision, the court affirmed that the wife of a North Carolina man who breached a confidentiality agreement related to the sale of the couple’s business can be hauled into a Maryland court under the forum-selection clause – even though she did not sign the contract.

At the very least, Carmen Peterson knew of the confidentiality accord – if not the forum-selection provision – her husband, Charles Peterson, had signed with Taneytown-based Evapco Inc. when the couple sold Tower Components Inc. under a stock purchase agreement, the court added.

That agreement barred Charles Peterson from using information gleaned from the sale in any way detrimental to Evapco and barred him from competing with the Maryland company. Disputes arising from a breach of the agreement would be heard by a Maryland court.

Evapco later sued Peterson in Carroll County Circuit Court for allegedly competing with the company through two companies he owned with his wife. Carmen Peterson challenged the Maryland court’s jurisdiction over her, saying she had not signed the confidentiality agreement.

The circuit court rejected that argument, found for Evapco and awarded the company nearly $3.2 million in damages.

Carmen Peterson challenged the jurisdictional ruling in the Court of Special Appeals, which concluded she was “closely related to the contractual relationship between Mr. Peterson and Evapco” and thus bound by the forum-selection clause.

“Even if Mrs. Peterson did not know of the confidentiality agreement’s specific provisions or its choice of Maryland as the forum for disputes, she was, at a minimum, aware that the SPA required Mr. Peterson to sign a non-compete agreement,” Leahy wrote.

“Regardless of whether Mrs. Peterson signed a non-compete of her own, she knowingly returned to the cooling tower parts industry with her husband as her business partner while he … was bound by the confidentiality agreement’s non-compete,” Leahy added. “Through her ownership of two companies that benefited financially from Evapco’s confidential information, Mrs. Peterson herself derived a direct benefit from Mr. Peterson’s breach of the confidentiality agreement.”

Carmen Peterson’s attorney, Jan I. Berlage, declined to comment Thursday on the decision or any plans to seek review by the Court of Appeals. Berlage is with Gohn Hankey & Berlage LLP in Baltimore.

Evapco’s attorney, Joshua A. Glikin of Bowie and Jensen LLC in Towson, could not be reached for comment Thursday.

Leahy was joined in the opinion by Judges Timothy E. Meredith and James P. Salmon, a retired jurist sitting by special assignment.

The Court of Special Appeals rendered its decision in Charles A. Peterson et al. v. Evapco Inc. et al., No. 778 September Term 2016.

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