In this modern world of globalization, the Internet and emails, the Business Court made clear that determining who initiated the first contact in a business deal gone bad can ultimately determine whether North Carolina can properly exercise jurisdiction over a foreign defendant. Capitala Group, LLC v. Columbus Advisory Group, Ltd, 2018 NCBC 123. (J. Robinson).
Plaintiff, a North Carolina investment management company, hired defendants Columbus Advisory Group, a New York corporation based in New York, and NovaFund, a Delaware company based in Connecticut, to act as placement agents for a new private credit fund. The relationship began when Plaintiff telephoned NovaFund’s managing director to discuss NovaFund’s possible retention. Two subsequent in-person meetings were held, the first in New York and then another in Charlotte. After the Charlotte meeting, Plaintiff requested the defendants send a written contract proposal, which they did in the form of a term sheet. Over the course of the next two months, the parties negotiated the terms of the term sheet through emails and telephone calls, all of which were sent to and from Plaintiff’s North Carolina offices. Plaintiff ultimately signed the agreed-upon term sheet in North Carolina and sent the same to New York, where the defendants then signed the agreement.
The term sheet required the defendants to use their best efforts throughout the world to locate investors for the new fund, and potential North Carolina investors were specifically identified in the term sheet. The term sheet had no forum selection clause, no choice of law provision, and no personal jurisdiction clause. Although the defendants contacted and/or met with more than 500 investors, the defendants never contacted any North Carolina investors. The fund never materialized and Plaintiff sued defendants for breach of contract. Defendants moved to dismiss the complaint for lack of personal jurisdiction.
In its Opinion, the Court first recognized that in order for a North Carolina court to properly exercise personal jurisdiction over a foreign defendant, there must be evidence that the defendant “purposefully availed itself of conducting activities within the State.” (Opinion, ¶18). Finding the defendants had no regular, general contacts with the State of North Carolina, the Court then analyzed whether the signed term sheet and the negotiations surrounding it established the “substantial connection” with North Carolina that was necessary to exercise specific personal jurisdiction. (Id., ¶ 19). Notwithstanding the numerous phone calls and emails to and from North Carolina between the parties concerning the term sheet, the Court determined no substantial connection existed. (Id., ¶20). In doing so, the Court placed great emphasis on the fact that Plaintiff had initiated the contact with the defendants, noting that such fact was “critical” to the overall analysis. (Id., ¶¶21,25–27). The fact that the defendants continued to pursue the North Carolina-based Plaintiff after the initial contact (including sending the proposed term sheet to North Carolina) was of little import to the Court, since Plaintiff had initiated the contact. (Id., ¶26). The fact that the term sheet had identified potential North Carolina investors and permitted the defendants to meet with North Carolina investors was likewise immaterial to the Court since the undisputed evidenced showed the defendants had never actually contacted or traveled to North Carolina. The Court then granted the motion to dismiss.
For a North Carolina company to compete and do business in this age of globalization, numerous emails and telephone calls with a non-resident company may not be enough to maintain a lawsuit in North Carolina if things go badly. In light of Capitala, North Carolina companies would be well-served to ensure any and all contracts contain a forum selection clause, an acknowledgment of personal jurisdiction in North Carolina, or a choice-of-law provision invoking the Tar Heel State if you want your matter handled by a North Carolina court.
Categories: Key Business Court Decisions