The U.S. District Court for the Western District of Pennsylvania recently ruled that a forum-selection clause in a former employee’s non-compete agreement may bind their new employer for purposes of establishing personal jurisdiction.
Matthews International Corporation (“Matthews”), a manufacturer of cremation furnaces, filed an action in the Western District of Pennsylvania against former employees and two competitors, Implant Recycling, LLC (“Implant”) and IR Environmental Solutions, Inc. (“IR Environmental”), alleging misappropriation of trade secrets and unfair competition. According to Matthews’s complaint, its former employees saved confidential company information and trade secrets on their personal USB drives and emailed company files to themselves before leaving Matthews to join Implant or IR Environmental. These former employees were subject to non-competition agreements that required them to submit to personal jurisdiction in the Allegheny County Court of Common Pleas or the Western District of Pennsylvania.
Implant and IR Environmental, both headquartered in Michigan, moved to dismiss Matthews’s complaint for lack of personal jurisdiction. Implant and IR Environmental allegedly have a history of hiring former Matthews employees, and Matthews informed them on multiple occasions that these employees were subject to non-competition agreements. In one instance, Matthews’s outside counsel allegedly sent a copy of one of these agreements to Implant and IR Environmental, which included the same forum selection clause at issue in this case.
The court denied Implant and IR Environmental’s motion to dismiss. While noting that general jurisdiction was lacking, the court held that “[w]here, as here, a former employee is bound by a restrictive covenant with a forum-selection clause, the clause may apply to the new employer who can foresee the forum-selection clause being an issue, but still moves forward with hiring.”
They key determination as to whether Implant and IR Environmental could be subject to personal jurisdiction was whether “application of the forum selection clause was reasonably foreseeable.” Implant and IR Environmental argued that they did not know about the individual defendants specifically were subject to non-competition agreements before hiring them, and thus, it was not foreseeable that they could be haled to defend suit in the Western District of Pennsylvania. Nonetheless, the court found that “[e]ven if Implant and IR Environmental were not 100% certain that [the individual defendants] had non-competition agreements with Matthews, it was foreseeable that they would have such agreements.” The court noted that Implant and IR Environmental were aware that other former Matthews employees they previously hired were subject to non-competition agreements, and found that this was a sufficient evidentiary basis to conclude that “it was foreseeable to Implant and IR Environmental that they would be bound by the forum-selection clauses.”
The case is Matthews International Corporation v. Lombardi, et al., Case No. 2:20-cv-00089-NR in the U.S. District Court for the Western District of Pennsylvania.