New Opinions on PJ (No, not that kind…): NC Supreme Court Opinion on Personal Jurisdiction

 

Though challenges to Business Court designations, i.e. subject matter jurisdiction, are relatively common (see, e.g., Business Court Retains Case Even After ‘Jurisdictional Hook’ Claim is Dismissed), challenges to personal jurisdiction are less frequent.  So we noted with interest the North Carolina Supreme Court’s recent opinion on personal jurisdiction in Beem USA Limited-Liability Ltd. P’ship v. Grax Consulting, LLC, — N.C. — , 838 S.E.2d 158 (2020), a rare reversal of a Business Court ruling. We also noted the results in a trio of Business Court rulings on personal jurisdiction that followed.

The two-step, “minimum contacts” analysis hasn’t changed much for more than a decade. Personal jurisdiction must comport with: (1) North Carolina’s long-arm-statute and (2) due process. Relying on cases we read about in law school, these new opinions don’t really change the analysis, they explain which contacts are relevant and why. For example, seemingly tangential contacts with the forum itself are also important (e.g., submissions to the Secretary of State). And contracting with a foreign defendant may not be enough, especially if that contract requires performance outside North Carolina.

In a series of PJ posts, we’ll dig into these new opinions, and we’ll highlight what they add to the “minimum contacts” analysis. We begin today with the Supreme Court’s decision in Beem.

Cutting ties with NC post-breach doesn’t matter. For breach claims – contacts throughout performance are relevant (not just contacts during the breach).

Beem USA Limited-Liability Ltd. P’ship v. Grax Consulting, LLC, — N.C. — , 838 S.E.2d 158 (2020) reversed a Business Court ruling on personal jurisdiction, broadening the proper view of relevant contacts. When breach of duties are alleged, a court should consider contacts throughout performance, not simply contacts during the period of alleged malfeasance. This ruling gives important, practical meaning to contacts that “arise out of” or “relate to” claims. Here’s a brief discussion of the case.

The partnership.

The plaintiff, Beem USA, was a Nevada limited partnership with two partners: Stephen Stark (from Chapel Hill, a co-plaintiff) and Grax Consulting (from Rock Hill, SC, the defendant). Grax was Beem USA’s general partner, and Stark was the limited partner. Grax had regular contacts with Stark (in North Carolina) on partnership business, including frequent emails, calls, texts, and regular mail. Grax also set up a bank account at a North Carolina branch into which it made deposits and initiated wire transfers.

The partners got sideways.

After less than two years of operations, Grax was removed as general partner, and Stark tried to take over; but Grax refused to give up control. Beem USA and Stark filed suit against Grax alleging breach of the partnership agreement and fiduciary duties, demanding that Grax cede control.

Business Court: No PJ, because there were no NC contacts during period of malfeasance.

Grax failed to appear and was defaulted. Before final judgment was entered, the Business Court assessed the threshold question of whether it had personal jurisdiction over Grax – a South Carolina entity. After taking evidence from the plaintiff, the Business Court ruled that it lacked personal jurisdiction because Grax’s questionable conduct (refusing to give up control, etc.) necessarily occurred after Grax was removed as general partner, and plaintiff provided no evidence that Grax had any contacts with North Carolina after it was removed. The Business Court reasoned that Grax’s alleged malfeasance, therefore, did not involve conduct that was directed to North Carolina. Beem USA and Stark appealed to the North Carolina Supreme Court.

Supreme Court: Yes PJ, because there were ample contacts throughout period of performance.

The Supreme Court reversed.   It explained that the Business Court’s focus on contacts only during the period of alleged malfeasance, i.e. after Grax was removed as general partner, was too narrow. Instead, the court should have considered Grax’s contacts with North Carolina throughout the period of performance. Grax’s regular emails and calls, the bank account, etc.  were contacts with North Carolina made in Grax’s capacity as a partner in Beem USA, and the claims in the lawsuit all concerned Grax’s alleged breach of duties as a partner. “As a result, plaintiffs’ claims alleging breach of the partnership agreement and breach of fiduciary duty ‘arise out of’ or, at the very least, ‘relate to’ Grax’s contacts with North Carolina.” Beem, 838 S.E.2d at 164 (quoting Helicopteros).

Takeaway: Contacts throughout the period of performance are relevant – not just those during the breach.

This ruling gives practical meaning to contacts that “arise out of” or “relate to” claims in a lawsuit. In particular, it addresses when contacts with North Carolina are relevant.  If claims involve breach of duties, relevant contacts include those occurring throughout performance, not just those occurring during breach.

Within two weeks of Beem, Business Court Judges issued three more rulings (two opinions and an order of significance) deciding motions to dismiss for lack of personal jurisdiction. Those additional PJ rulings will be discussed in future posts.