Explore the Peterson v. Evapco, Inc. case where a Maryland court enforced a forum selection clause in an M&A legal battle. Understand the implications of forum selection clauses in confidentiality agreements and their impact on non-signatories involved in business transactions.
M&A Stories
September 26, 2018
In a recent M&A legal battle, a Maryland court enforced a forum selection clause in a confidentiality and noncompetition agreement. The case involves a buyer, a group of Maryland companies specializing in commercial HVAC, industrial process, power, and industrial refrigeration markets, and a seller who founded a North Carolina corporation (the target), in 1990.
The buyer, having purchased the target in 2005 for $3.76 million, discovered in 2014 that the seller was allegedly engaging in activities competing with the buyer. These activities included selling products from competitors, manufacturing replica products, and diverting a project bid through a related company.
The seller’s employment with the buyer included a confidentiality agreement, assigning all work product to the buyer and prohibiting competition for two years. The agreement, governed by Maryland law, specified Maryland as the venue for dispute resolution.
After being terminated, the seller, his spouse and related companies faced legal action in a Maryland state court. The spouse and related companies moved to dismiss for lack of personal jurisdiction, claiming no connection to Maryland beyond the 2005 sale. However, the court, expanding Maryland law, held that the forum selection clause applied to the seller’s spouse and related companies due to their close relationship with the contractual arrangement between the buyer and the seller.
The appellate court upheld the decision, emphasizing that the claims against the spouse and related companies were closely tied to the confidentiality agreement. This case, Peterson v. Evapco, Inc., highlights the practical advantages of selecting a nearby court in M&A agreements, demonstrating that forum selection clauses can extend to non-signatories involved in alleged schemes to circumvent agreement provisions.
In conclusion, this legal development underscores the importance of carefully considering forum selection clauses, as they can impact not only the signatories but also closely related parties involved in the business transaction.
Case Reference:
Peterson v. Evapco, Inc., No. 778, September Term, 2016, Court of Special Appeals of Maryland (Filed: July 5, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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