What is Jurisdiction?
Most people are either business employees or business-owning employers. Most people also, many times in their lifecycles, enter into contracts with other people. Regardless of whether you are an employee or employer or a party to a contract, you may, one day, be called into a court as a defendant party to a lawsuit; that is if, however, the court has jurisdiction over you.
Normally, a court must obtain jurisdiction over you in order to hold you legally responsible for what you are alleged to have done. If the court holding you responsible for something does not have personal jurisdiction over you, then it is violating the Due Process Clause of the Fourteenth Amendment of the United States Constitution and the pertinent state’s constitution as well. But, what is jurisdiction and how does a court get jurisdiction over you?
Black’s Law Dictionary defines jurisdiction as, “The power and authority [of] a court or judge … to award the remedies provided by law … against persons … who are brought … before the court in some manner sanctioned by law as proper and sufficient. Jurisdiction is also defined as the geographic area over which a court can exercise its power and authority.
In essence, a court gets jurisdiction over you by properly and sufficiently bringing you before the court or into the court’s jurisdiction. Normally, a court brings you into its jurisdiction by sending you a copy of a complaint that some plaintiff has filed against you along with an order, called a “summons,” telling you to appear before the court or file an answer to the complaint with the court within a certain deadline, usually thirty (30) days.
Minimum Contacts Jurisdiction
In order to bring you into a court’s jurisdiction, however, you must have some minimum contacts with the court or the town, city, state, or country in which that court is located. A defendant person can have many kinds of minimum contacts with a jurisdiction.
That person could live or work or sign or perform a contract or injure another person or be injured (by either tort or breach of contract) as a result of another person in that geographical jurisdiction. Any one or more of these types of minimum contacts can be used by a plaintiff or a court to bring you into a court’s jurisdiction. See, Maryland Code Annotated, Courts and Judicial Proceedings Article, § 6-103.
Long-Arm Jurisdiction
Most courts cannot usually summon into their courtrooms a person who is not present in the court’s geographical jurisdiction. When a person has sufficient minimum contacts within a court’s jurisdiction, however, the court can use something called “long-arm jurisdiction” to serve that person with a summons outside the court’s geographical jurisdiction by mail or in person across the state’s lines. The Maryland law that allows serving a summons on a person who has minimum contact with Maryland but can only be found outside the state of Maryland is Maryland Code Annotated, Courts and Judicial Proceedings Article, § 6-103, 6-304.
Closely-Related Jurisdiction
Until July 5, 2018, the minimum contacts required to be sufficient for a Maryland court to exercise long-arm jurisdiction had to be directly related to the cause of action being sued upon in Maryland. On that date, however, a panel of the Maryland Court of Special Appeals held, in the case of Charles A. Peterson, et al v. Evapco, Inc., et al, Case No. 06-C-14-067958, filed July 5, 2018, that being “closely related” to a contract being breached in Maryland was close enough for a defendant (who had never personally been present in Maryland or personally took any action violating the contract in Maryland) to become subject to Maryland’s long-arm jurisdiction.
The Facts in Peterson v. Evapco
So here is what happened. Mr. and Mrs. Peterson, who lived and worked in North Carolina, started, ran, grew, and eventually sold a successful cooling tower parts company, Tower Components, Inc. (TCI), that had the reputation of having the best, most efficient splash bar, called the “Opti-Bar,” in the cooling tower market. They sold it to EvapProducts, a division of Evapco, Inc., for $3.76 million. As part of the deal, Mr. Peterson, but not his wife, signed a Confidentiality Agreement, in which he assigned all his ownership of all of TCI’s intellectual property and never use any of that intellectual property in any way to compete with or compromise the interests of Evapco, Inc. Mr. Peterson also agreed to continue working for TCI as its sales manager.
While Mr. Peterson was working for TCI, however, he and his wife started a series of companies in North Carolina and Georgia with which they began competing with Evapco. When Evapco filed a lawsuit in Maryland sued Mrs. Peterson, who had not signed the Confidentiality Agreement, she contended the Maryland Court had no jurisdiction over her, because all of her acts occurred in North Carolina and the entities for which she did those acts were located in Georgia and North Carolina.
The Maryland circuit court ruled Mrs. Peterson was closely related to Mr. Peterson’s contractual relationship with Evapco, such that she had sufficient minimum contacts with Maryland to make her subject to a Maryland court’s jurisdiction. The Petersons appealed to the Maryland Court of Appeals, which affirmed the ruling that Mrs. Peterson had a close relationship with the Confidentiality Agreement signed by Mr. Peterson and its forum-selection clause. The Maryland Court of Appeals explained the close business relationship between Mr. Peterson, who signed the agreement that contained the forum selection clause, and Mrs. Peterson, who did not sign the agreement, was sufficient to exert jurisdiction over Mrs. Peterson.
The Maryland Court of Appeals adopted a three-part test used by the United States Court of Appeals for the Third Circuit and Delaware courts, specifically: “The touchstone illustrated by these cases is that a court may exercise personal jurisdiction over a defendant by enforcing a forum selection clause against it, even though it was not a signatory to the contract containing the clause, where it was closely related to the dispute such that it became foreseeable that the non-signatory would be bound, regardless of whether the non- signatory is a defendant or plaintiff in the subject litigation.”
The long story made short of this case, Peterson v. Evapco, is that if you think you can avoid a Maryland court trying to bring you into its jurisdiction to enforce a valid agreement signed by someone with whom you are closely related (by blood or contract) and your closeness is sufficient for you to foresee that you would be bound by that agreement, you will probably be sorely mistaken as you find yourself in that court trying to defend your actions.
Forewarned is forearmed. Act accordingly.
Call us LifeCycle lawyers if you need any help.