Signing a contract

A global insurance company is bound by a contract between its new hire and a Philadelphia-based direct competitor for which she used to work, a federal judge has ruled.

In so holding, the U.S. District Court for the Eastern District of Pennsylvania ruled it had personal jurisdiction over most parties in the case, rejecting the company’s argument that the suit against it should be dismissed on jurisdictional grounds.

Two divisions of Arch Capital Group, which recently entered the U.S. mortgage insurance market, are tied closely enough to the contractual relationship between its new hire, Rhiannon Bolen, and her former employer, Radian Guaranty, to be held to it, U.S. District Judge Anita B. Brody ruled.

Radian, in its complaint, identified Arch Capital as a Bermuda public limited liability company with U.S. executive offices in New York.

Radian brought the breach-of-contract suit against Bolen and Arch last fall, alleging that Bolen, a salesperson, had violated the noncompete clause in her contract when she went to the competing company after emailing confidential customer information from Radian to her personal email account.

When “the Arch defendants approached and interviewed Bolen, they were aware that Bolen was a Radian employee with intimate knowledge of Radian’s trade secrets and confidential information,” according to the opinion.

“The Arch defendants also knew that employing Bolen would violate the terms of the stock grant agreement and nonetheless pursued Bolen and induced her to engage in actions that breached her noncompetition agreement and confidentiality obligations,” according to the opinion. “Since joining the Arch defendants, Bolen has approached Radian’s customers and attempted to solicit business from those customers for herself and the Arch defendants.”

Arch had argued that all of its four divisions named as defendants should be dismissed for lack of personal jurisdiction.

Under the first standard applied by the court, the Calder effects test, that was true. Named for the U.S. Supreme Court’s 1984 opinion in Calder v. Jones, the test requires a showing that the tortious conduct was aimed at the forum, in this case, the Eastern District of Pennsylvania.

The employment relationship between Arch and Bolen isn’t enough to establish that critical element of the test, Brody held. She noted that Bolen worked exclusively from Texas for both Arch and Radian, which is a Pennsylvania company.

“As explained in the case law, the allegations that the Arch defendants knew that Radian’s headquarters were in Pennsylvania and that the forum selection clause identified Pennsylvania courts as the venue for resolving disputes are insufficient to meet the ‘expressly aimed’ standard,” Brody said.

However, the judge was persuaded by Radian’s argument that Arch could be held to Bolen’s contract by virtue of its close relationship to the contract. Radian had cited to a recent decision from the Eastern District of Pennsylvania, issued in 2012, captioned Synthes v. Emerge Medical.

“The Synthes court found several facts persuasive in reaching its conclusion that the forum selection clauses applied to the nonsignatory third party,” Brody said.

“First, the COO worked closely with the sales representatives to develop Emerge while the sales representatives were still employed at Synthes. Second, the COO had extensive knowledge of the sales representatives’ noncompetition agreements and worked to structure Emerge’s initial business in a way that would avoid the appearance of a breach of those agreements. Third, the COO and the sales representatives recognized the risk of legal action to enforce the noncompetition agreements and warned prospective investors of said risk,” Brody said.

The judge also noted that several other courts have found similarly in cases with parallel facts.

Quoting from the Synthes opinion itself, Brody said, “‘These cases share the common thread that the close business relationships between the signatories and nonsignatories to the pertinent agreements, together with the fact that the dispute among the parties centered on the interpretation of the agreements, provided a sufficient basis on which to apply the forum selection clauses to the nonsignatory.’”

“The facts of this case follow the same pattern,” Brody said.

Bolen was one of the first people hired to lead the sales team for Arch’s newly formed mortgage insurance branch and she was in close contact with the executive vice president of sales for Arch U.S. MI Services and Arch U.S. MI Holdings, who knew about her noncompete agreement, before being hired, according to the opinion.

In fact, Arch’s privilege log indicates that the company consulted with an attorney about Bolen’s noncompete agreement, Brody said.

Those two divisions of Arch are sufficiently close to the contract to be bound by its terms, thereby conferring personal jurisdiction to her court, Brody said.

However, that personal jurisdiction doesn’t extend to the parent entities, Arch Capital Group and Arch Capital Group US, Brody said.

Radian failed to make the case for an alter-ego theory of jurisdiction, the judge said.

“Radian has not presented any evidence that Arch Group and Arch Group US share officers or directors, employees, sales systems, or managerial personnel with Arch MI Services or Arch MI Holdings,” Brody said, finding that she lacks jurisdiction over those two divisions of Arch.

The judge also denied the motion from Arch and Bolen to transfer the case to the Eastern District of Texas for convenience of the parties because they are both bound by the forum selection clause in the contract that requires litigation to stay in Philadelphia.

None of the lawyers—Larry Turner of Morgan, Lewis & Bockius, for Radian; David McComb of Zarwin Baum DeVito Kaplan Schaer Toddy, for Bolen; or Robert Goldstein of Epstein, Becker & Green, for Arch—could be reached for comment.

Saranac Hale Spencer can be contacted at 215-557-2449 or Follow her on Twitter @SSpencerTLI.

(Copies of the 24-page opinion in Radian v. Bolen, PICS No. 14-0680, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)