Peterson v. Evapco, Inc.

• Decision Date: 05 July 2018
• Docket Number: No. 778, Sept. Term, 2016,778, Sept. Term, 2016
• Parties: Charles A. PETERSON, et al. v. EVAPCO, INC., et al.
• Court: Court of Special Appeals of Maryland

238 Md.App. 1

188 A.3d 210

Charles A. PETERSON, et al.

v.EVAPCO, INC., et al.

No. 778, Sept. Term, 2016

Court of Special Appeals of Maryland.

July 5, 2018

Argued by: Jan I. Berlage (H. Mark Stichel, Gohn, Hankey, Stichel & Berlage, LLP on the brief) all of Baltimore, MD, for Appellant.

Argued by: Joshua Glikin (Cynthia L. Polasko, Bowie & Jensen, LLC on the brief) all of Towson, MD, for Appellee.

Panel: Meredith, Leahy, James P. Salmon (Senior Judge, Specially Assigned), JJ.

Leahy, J.

The central issue we must address in this appeal is whether, in a case arising out of a contract designating Maryland as the forum state, a Maryland court can exercise personal jurisdiction over a non-resident party who did not sign the contract but was "closely related" to the contractual relationship at issue. We adopt the relatively nascent "closely related" doctrine embraced by most federal and state jurisdictions that have considered applying it.

Featured in this case are North Carolina residents Charles A. Peterson and Carmen A. Peterson, who founded, owned, and operated Tower Components, Inc. ("TCI") in North Carolina from 1990 to 2005. They sold TCI in 2005 through a stock purchase agreement ("SPA") to a Maryland company, Evapco Products ("EvapProducts"). EvapProducts is a holding company that Evapco, Inc., another Maryland company, created to hold TCI's stock. At the time of the sale, Mr. Peterson—but not Mrs. Peterson—signed a separate "Confidentiality and Intellectual Property Agreement" (the "Confidentiality Agreement" or "Agreement") and continued to work for TCI.

The Confidentiality Agreement prohibited Mr. Peterson from using confidential information "in any way detrimental" to the interests of Evapco, Inc. or its subsidiary companies. The Agreement also included a non-compete clause and designated Maryland as the forum in which to resolve any disputes arising from it. Mr. Peterson continued to work for TCI as a sales manager until 2014 when TCI fired him for conducting business in direct competition with Evapco, Inc. and its subsidiaries via two LLCs that he and his wife wholly owned: American Cooling Tower Products, LLC ("ACTP") and Evergreen Composite Technology, LLC ("Evergreen").

Evapco, Inc. and its wholly-owned subsidiaries, EvapTech, Inc. ("EvapTech"), EvapProducts, and TCI (collectively, "Appellees," "Evapco," and plaintiffs below), filed suit in the Circuit Court for Carroll County for injunctive relief and damages against Mr. and Mrs. Peterson, ACTP and Evergreen (collectively, "Appellants" and defendants below). The plaintiffs alleged, mainly, that Mr. Peterson breached the Confidentiality Agreement and that the other defendants tortiously interfered with the Confidentiality Agreement and with Evapco's prospective advantage. The defendants moved to dismiss Mrs. Peterson, ACTP, and Evergreen for lack of personal jurisdiction, but the court denied the motion. The contentious litigation that ensued took a relatively unusual course after the court entered a default judgment against the defendants as a spoliation sanction and reserved only the issues of injunctive relief and damages to be tried before the court.

Appellants challenge the circuit court's exercise of personal jurisdiction over Mrs. Peterson, Evergreen, and ACTP. We hold that those parties consented to jurisdiction in Maryland because (1) the Confidentiality Agreement contained a valid forum-selection clause; (2) Evapco's claims arose out of the non-signatory Appellants' status in relation to the Confidentiality Agreement; and (3) Mrs. Peterson, Evergreen, and ACTP were closely related to the Confidentiality Agreement, thus making it foreseeable that the forum-selection clause would be enforced against them. The remaining issues that Appellants raise on appeal stem largely from the court's spoliation sanction and the procedural rulings that followed. Discerning no error or abuse of discretion, we affirm those rulings.

BACKGROUND

A. The Corporate Parties

Evapco, Inc. is a Maryland manufacturing company that was founded in 1976 and has its world headquarters in Taneytown, Maryland. The company provides service and products in the commercial HVAC, industrial process, power, and industrial refrigeration markets. Evapco, Inc. manufactures products at 19 locations throughout nine countries and supplies products via a sales network of more than 170 offices.

EvapTech is also a Maryland company, but its principal place of business is in Lenexa, Kansas. Founded in 2005, EvapTech conducts research and development in the industrial refrigeration and HVAC evaporative cooling tower markets. It also designs, constructs, rebuilds, and repairs large field-erected cooling towers and conducts aftermarket purchases and sales.

EvapProducts, another Maryland corporation, is principally located in Maryland and serves as the holding company for TCI's stock. The Petersons founded TCI as a North Carolina corporation in or around 1990. TCI manufactures and sells components for cooling towers and heat exchangers, including Opti–Bar and Opti–Grid. TCI not only sells these products to third-party purchasers, but also supplies them to Evapco to be incorporated into the cooling towers that Evapco manufactures and sells, and to EvapTech for its field-erected cooling towers.

After they sold TCI to EvapProducts, Mr. and Mrs. Peterson formed ACTP, a North Carolina LLC, in October of 2012. They maintained its principal place of business at their home in North Carolina until they dissolved the company on June 20, 2015, after the underlying complaint was filed. ACTP was in the business of buying and selling cooling tower parts. Although Mr. Peterson claimed in his answers to interrogatories that he "had no involvement with the business," the record reveals that he was ACTP's registered agent and manager and that he signed checks and tax forms on ACTP's behalf.

Evergreen was a Georgia LLC that the Petersons formed in 2007 and dissolved on May 9, 2015, roughly six weeks before they dissolved ACTP. The ownership and business of Evergreen was contested throughout the underlying proceedings,¹ but Appellees agree with Mrs. Peterson's most recent testimony that she owned 51% and her husband owned 49%. Although Mrs. Peterson described Evergreen in her affidavit as a company that "was in the business of manufacturing composite decking materials," a credit application that Mr. Peterson signed described Evergreen's business as the "[r]esale of cooling tower parts." The circuit court ultimately found that both ACTP and Evergreen operated in competition with Evapco.²

B. The Sale of TCI

In 2005, EvapProducts purchased all of TCI's stock from the Petersons for roughly $3.76 million. According to Evapco, Inc. President and CEO, William Bartley, TCI was targeted for acquisition, in part, because it produced a product called "Opti–Bar, which ha[s] [ ] kind of an industry reputation as the best, most efficient splash bar in the [cooling tower] market." In consideration for the purchase of TCI stock, the parties entered into the Confidentiality Agreement, without which Evapco "would not have entered into and consummated" the SPA. Mr. Peterson, but not his wife, signed the Confidentiality Agreement. The Confidentiality Agreement contained an assignment clause that provided in relevant part:

I [Mr. Peterson] acknowledge and agree that all work product, designs, specifications, drafts, memorand[a], ideas, know how, trade secrets, inventions, improvements, modifications, enhancements and any other work product previously produced, currently produced, or produced in the future by me, solely or jointly with others while employed at [Evapco] (collectively, the "Work Product") was, is, and shall be work for hire and created to be owned by Evapco and, to the extent that any such Work Product was or is not work made for hire, for no additional consideration, I hereby assign over to Evapco all of my right, title and interest in and to such Work Product[.]

The Confidentiality Agreement required Mr. Peterson to keep accurate records, which would remain Evapco's property, and to surrender those records to Evapco in the event of his termination. It imposed a duty on Mr. Peterson to keep confidential all information Evapco communicated to him during his tenure with TCI. Additionally, the Agreement contained a restrictive covenant that prohibited Mr. Peterson, "at all times during [his] employment with Evapco" from "engag[ing] in any activity, directly or indirectly, that competes with Evapco or otherwise compromises its interests." By signing the Confidentiality Agreement, Mr. Peterson agreed "not to compete with Evapco for two (2) years from the later of the date of th[e] Agreement or the date my employment with Evapco ends[,]" and further acknowledged that

I shall be competing with Evapco if I participate, or engage in, or carry on directly or indirectly, within the continental United States or any foreign country within which Evapco has operations or representative sales offices at the time of my termination from employment with Evapco, for myself or on behalf of any person, partnership, corporation or other entity, any business that designs, manufactures, licenses, leases or sells goods or services that are, as of the date of termination of my employment with Evapco: (i) also offered by Evapco; (ii) under development by Evapco to bring to market in the future; or (iii) subject to plans by Evapco to bring to market in the future by means of either a business acquisition or the hiring of persons with expertise to develop such goods or services.

The Confidentiality Agreement was governed by Maryland law and specified that "[a]ll claims hereunder shall be tried solely and exclusively in the Circuit Court for Carroll County (or if subject matter jurisdiction exists, in the United States District Court for the District of Maryland, Northern Division), and the parties consent to the sole and exclusive jurisdiction and venue of such court,...