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Beem USA Limited-Liability Partnership and Stephen Stark v. Grax Consulting LLC (No. 360A18, N.C. Feb. 28, 2020): Clarity from the Supreme Court in Analyzing Specific Personal Jurisdiction over Out-of-state Defendants

Last week, the North Carolina Supreme Court clarified the framework under which due process should be considered when of applying North Carolina’s long-arm statute to assess specific personal jurisdiction. Its conclusion was that courts should take a holistic view of the defendant’s contacts with North Carolina related to the plaintiff’s claims and not zero in only on the specific actions giving rise to those claims. 

Here, a North Carolina resident (Stark) entered into an agreement with a South Carolina LLC (Grax) to form a limited partnership in Nevada (Beem). Grax was named the general partner and an initial limited partner of Beem, with Stark being the only other limited partner. The claims alleged in the complaint are breach of the partnership agreement and breach of fiduciary duties after Grax was removed as the general partner, but the Supreme Court focused only on personal jurisdiction. 

The Supreme Court quickly held that Grax’s contacts with North Carolina satisfy North Carolina’s long-arm statute (N.C.G.S. § 1-75.4(1)(d) (2017)) and moved on to consider the due process implications of exercising personal jurisdiction over Grax. The Supreme Court discussed recent jurisprudence on personal jurisdiction from the United States Supreme Court, which has been trending towards greater protection for out-of-state defendants. For personal jurisdiction to be proper, the defendant’s contacts with the forum state must be the basis for the exercise of jurisdiction and it is insufficient that the injury be suffered in the state. See generally BristolMyers Squibb Co. v. Sup. Ct. of Cal., San Francisco Cty., 137 S. Ct. 1773 (2017); Walden v. Fiore, 571 U.S. 277 (2014). 

The contacts Grax, through its owner, had with North Carolina included the following: traveling to discuss the business with Stark in North Carolina; traveling to open a bank account for Beem in North Carolina; depositing checks into and initiating transfers out of that bank account; sending phone calls, emails, and text messages into North Carolina; and mailing financial records and tax documents into North Carolina. The Business Court considered these contacts and concluded they were insufficient to confer specific personal jurisdiction over Grax. 

The Business Court drew a temporal line where Grax was removed as the general partner of the limited partnership since plaintiffs’ are based on actions after that event. Based on that demarcation, the Business Court refused to consider Grax’s contacts with North Carolina predating its removal as general partner. As Grax had no contacts with North Carolina after its removal as general partner, the Business Court had granted the motion to dismiss for lack of personal jurisdiction. 

The Supreme Court reversed, rejecting the temporal line drawn by the Business Court. The phrase used by the Supreme Court was that the Business Court’s order demonstrated the danger of missing the forest for the trees. The Supreme Court framed the litigation with a wider lens, focusing on the broader context of the partnership agreement and its implementation. Since the claims all arose from the defendant’s conduct pursuant to the partnership agreement, the Supreme Court felt it unnecessary to limit its jurisdictional analysis to contacts from any particular period while the agreement was operable. 

There are two lessons from this opinion. The first is that when considering whether North Carolina state courts can exercise specific personal jurisdiction over an out-of-state defendant, a holistic view of the defendant’s contacts with the state will be analyzed. If the claims are predicated upon a contractual breach, this means that the defendant’s contacts arising out of the entire contractual relationship will be considered and not merely the specific actions which form the basis of the plaintiff’s complaint. There is a footnote in the Court’s opinion that could portend a more limited analysis in some cases (“Consideration of the entirety of Grax’s contacts with North Carolina relating to Beem is particularly appropriate here given the relatively brief period of time in which Beem existed as a legal entity.”), but such an argument is unlikely to prevail absent a meaningful gap in a defendant’s contacts with North Carolina. 

The second lesson is that it is always a good idea to file a brief and present your views to the court. Grax did not file a brief before the Supreme Court, meaning Grax did not take the opportunity to defend the Business Court’s order. While it is unlikely that the outcome of this case would have been affected as there was no dissent filed, Grax would have stood a much better chance if plaintiffs’ arguments had been answered—this was, after all, an appeal decided solely on the basis of establishing the proper framework for considering jurisdictional contacts. When the case is about the lens through which a case should be viewed, the input of counsel in arguing why the case should be decided based on the issues as your side frames them is frequently dispositive. Ceding the ground of framing the issues in a case to your opponent is almost always the first step towards defeat. 

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