Prospect Mktg. Grp., Inc. v. Chasnan, Inc.

2013 NCBC 47

• Court: North Carolina Business Court
• Decided: October 10, 2013
• Docket: 12-CVS-9573
• Status: Published

Opinion

Prospect Mktg. Grp., Inc. v. Chasnan, Inc., 2013 NCBC 47.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF WAKE 12 CVS 9573

PROSPECT MARKETING GROUP, INC., ) Plaintiff ) ) OPINION AND ORDER ON v. ) DEFENDANTS' MOTION TO DISMISS ) FOR LACK OF PERSONAL CHASNAN, INCORPORATED d/b/a ) JURISDICTION CASTLE ADVERTISING and DAVID ) CASTLE, ) Defendants )

THIS MATTER comes before the court upon Defendants Chasnan, Incorporated

d/b/a Castle Advertising and David Castle's Motion to Dismiss for Lack of Personal

Jurisdiction ("Motion") pursuant to Rule 12(b)(2) of the North Carolina Rules of Civil

Procedure ("Rules"); and

THE COURT, having reviewed the Motion, briefs in support and in opposition to

the Motion, arguments of counsel and other appropriate matters of record,

CONCLUDES that the Motion should be GRANTED.

Maginnis Law, PLLC, by Edward H. Maginnis, Esq., and T. Shawn Howard, Esq., for Plaintiff Prospect Marketing Group, Inc.

Robinson Bradshaw & Hinson, P.A., by Edward F. Hennessey, IV, Esq., and Kate E. Payerle, Esq., for Defendants Chasnan, Incorporated d/b/a Castle Advertising and David Castle.

Jolly, Judge.

PROCEDURAL HISTORY

[1] On July 10, 2012, Plaintiff filed a Complaint against Defendants Chasnan,

Incorporated d/b/a Castle Advertising ("Chasnan") and David Castle ("Castle")

(collectively, "Defendants"). [2] On October 19, 2012, Defendants filed the Motion. It has been fully

briefed and argued and is ripe for determination.

FACTUAL BACKGROUND

The Complaint alleges claims ("Claim(s)") for breach of contract ("Claim One"),

violation of N.C. Gen. Stat. § 75-1.1 ("Claim Two"), fraud ("Claim Three") and negligent

misrepresentation ("Claim Four"). It seeks temporary and permanent injunctive relief

("Claim Five") against both Defendants.

Among other things, the Complaint alleges the following:

[3] Plaintiff is a corporation existing under the laws of the State of Nevada,

with its principal place of business in New York.

[4] Defendant Chasnan is incorporated and has its principal place of business

in California.

[5] Defendant Castle is a citizen and resident of California.

[6] Defendant Castle is the principal officer and shareholder of Defendant

Chasnan.

[7] Plaintiff is a marketing company that publishes Business Leader

Magazine, a regional magazine that is published in nine markets, including the

Research Triangle, Triad and Charlotte areas of North Carolina.

[8] Defendant Chasnan is a marketing agency that provides lead generation

and other direct mail and internet marketing services. In its regular course of business,

Chasnan promotes its clients' interests through Internet postings as well as direct mail

flyers. [9] At times material and over a number of years, Chasnan, at the direction of

Castle, directed flyers to North Carolina on behalf of clients.1 Defendants made contact

with North Carolina residents more than one million times based upon a "1% conversion

rate from contact attempts to potential leads."2 Defendants earned "hundreds of

thousands of dollars" that is directly attributable to their work in North Carolina.3

[10] On or about December 31, 2011, Plaintiff and Defendants executed an

"Asset Purchase Agreement" ("Agreement") whereby Defendants transferred all rights,

title and interest in the assets of Defendant Chasnan to Plaintiff.

[11] Defendants "made a number of false representations" in the course of

negotiating the Agreement.4

[12] Defendants further breached the express terms of the Agreement by

collecting and failing to remit certain accounts receivable5 and breaching a covenant not

to compete included in the Agreement.6

1 Pl.’s Resp. in Opp'n to Defs.' Mot. Dismiss Pursuant to R. 12(b)(2) ("Response Brief") 1-4. 2 Id. at 3. Plaintiff also alleges that the conversion rate was included in promotional materials used by Defendants to advertise their services. Id. Defendants challenge Plaintiff's calculation on the grounds that the 1% return rate is only applicable for print mail pieces, and that Plaintiff applies the rate to internet advertisements developed and maintained by a third party. Defs.' Reply to Pls.' Resp. in Opp'n to Defs.' Mot. Dismiss Pursuant to R. 12(b)(2) ("Reply Brief") 3-4. 3 Response Brief at 2. 4 Compl. ¶ 8. 5 Id. ¶ 11. 6 Id. ¶¶ 13-15. DISCUSSION

[13] If a court lacks personal jurisdiction over a defendant, dismissal pursuant

to a motion under Rule 12(b)(2) is proper.

[14] Personal jurisdiction describes the power of a given court to require a

litigant to appear to defend a lawsuit. This requirement is grounded in the due process

guaranteed by the Fourteenth Amendment of the United States Constitution. Kulko v.

California Superior Court, 436 U.S. 84, 91 (1978). Personal jurisdiction comes in two

varieties: general jurisdiction and specific jurisdiction. Tom Togs, Inc. v. Ben Elias

Indus. Corp., 318 N.C. 361, 366 (1986).

[15] A state court can exercise general personal jurisdiction over individuals

domiciled in the state, regardless of where the events giving rise to the action occurred.

A corporation is subject to general personal jurisdiction in the state of its incorporation,

in the state of its principal place of business, or "nerve center," Hertz Corp. v. Friend,

130 S. Ct. 1181, 1187 (2010), or in any jurisdiction where the corporation is

constructively "at home" as a result of continuous and systematic contacts with the

forum state, Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851

(2011).

[16] Specific jurisdiction requires that the cause of action arise directly from the

defendant's purposeful contacts with the forum. World-Wide Volkswagen v. Woodson,

444 U.S. 286 (1989). Accord Steag Energy Services GMBH v. Ebinger, 2012 NCBC 2,

¶ 38 (January 6, 2012) (noting that "[w]hen specific jurisdiction exists, a defendant has

'fair warning' that he may be sued in a state for injuries arising from activities that he

'purposefully directed' toward that state's residents") (citations omitted). Here, Plaintiff has not alleged that the cause of action arises out of Defendants' contacts with North

Carolina, but instead arises out of contractual obligation under the Agreement, which

itself has no relation to any of Defendants' alleged contacts with the forum. Accordingly,

this court is not able to exercise specific jurisdiction over Plaintiff's Claims.

[17] A state may modify or amend its procedure for exercising personal

jurisdiction by statute, but can extend personal jurisdiction no further than provided by

the Fourteenth Amendment. Tom Togs, Inc. v. Ben Elias Industries Corp., 318 N.C. at

364. The North Carolina Supreme Court has acknowledged that North Carolina's long-

arm statute, N.C. Gen. Stat. § 1-75.4 (hereinafter, references to the North Carolina

General Statutes will be to "G.S."), was intended to and did in fact "make available to

the North Carolina courts the full jurisdictional powers permissible under federal due

process." Dillon v. Numismatic Funding Corporation, 291 N.C. 674, 676 (1977).

North Carolina Long-Arm Statute

[18] The analysis of whether a North Carolina court may exercise personal

jurisdiction is two-fold. First, there must be statutory authorization for the exercise of

jurisdiction in the long-arm statute, and, second, the jurisdiction must be exercised in a

manner consistent with the due process clause. Dillon, 291 N.C. at 676.

[19] North Carolina's long-arm statute provides jurisdiction over claims arising

outside the State against a party who, at the time of service, "is engaged in substantial

activity within this State." G.S. § 1-75.4(1)(d). The statute plainly requires that the

defendant be engaged in such substantial activity at the time of service. Here, the

Complaint alleges that all the potential contacts with North Carolina made by

Defendants predated the Agreement. As a result, Defendants were not engaged in substantial activity following closing of the sale transaction. Plaintiff's Complaint was

not filed contemporaneously with the close of the Agreement and, therefore, at the time

of filing and service of the Complaint, the alleged activity on behalf of Defendants had

ceased. As a result, based on the plain language of G.S. 1-75.4(1)(d), the exercise of

jurisdiction is improper.

[20] As Plaintiff notes, G.S. 1-75.4(1)(d) was intended to extend personal

jurisdiction to the greatest extent due process would allow. Dillon, supra. However, the

North Carolina Supreme Court has never ignored the literal language of the statute in

favor of such a broad interpretation. In Skinner v. Preferred Credit, the court refused to

allow the exercise of personal jurisdiction under G.S. 1-75.4(1)(d) based on the plain

language of that statute. 361 N.C. 114, 119 (2006).

General Jurisdiction [21] Were this court to find and conclude that the circumstances presented

here warrant an exception from the plain language of G.S. 1-75.4(1)(d), personal

jurisdiction still would not be proper under a traditional general jurisdiction analysis.

[22] The crux of whether a North Carolina court will be able to exercise general

personal jurisdiction is whether a defendant maintained such continuous and systematic

contacts "as to render [it] essentially at home in the forum State." Goodyear, 131 S. Ct.

at 2851. The link between the defendant and the forum must be such that the

defendant "should reasonably anticipate being haled into court there." Tom Togs, Inc.,

318 N.C. at 365. "The threshold level of minimum contacts sufficient to confer general

jurisdiction is significantly higher than for specific jurisdiction." Cambridge Homes of

NC, L.P., v. Hyundai Constr., Inc., 194 N.C.App. 407, 412 (2008) (citations omitted). In

determining whether sufficient contacts exist, courts employ a multi-factor analysis considering (a) the quantity of the contacts, (b) the nature and quality of the contacts,

(c) the source and connection of the claim to the contacts, (d) the interests of the forum

state and (e) convenience to the parties. Rosetto USA, Inc. v. Greensky Fin. LLC, 191

N.C. App. 196, 200 (2008). No one factor in the analysis is determinative.

[23] Plaintiff contends here that Defendant Chasnan, at the direction of

Defendant Castle, maintained a number of contacts with North Carolina. These contacts

were largely in the form of direct mail sent by Chasnan "on behalf of its clients into North

Carolina."7 In its Response Brief, Plaintiff further contends that these contacts

numbered in excess of one million, based upon "a 1% conversion rate from contact

attempts to potential leads."8 Plaintiff alleges that Defendants earned "hundreds of

thousands of dollars" as a result of their work in North Carolina.9 Plaintiff does not

allege that Defendant Chasnan has or ever had a registered agent or employees in

North Carolina, any office in North Carolina or otherwise maintains a physical presence

anywhere outside San Diego, California.

[24] Applying the factors set forth in Rosetto USA, and even assuming the

number of pieces of direct mail sent by Defendant Chasnan on behalf of its clients is as

high as Plaintiff contends,10 these contacts do not support the exercise of general

jurisdiction over Defendants.

[25] The commercial nature of the contacts alleged by Plaintiff tends to weigh

more heavily in favor of exercising jurisdiction. See, e.g., Hankins v. Somers, 39 N.C.

7 Compl. ¶ 6. 8 Response Brief at 3. 9 Id. at 2. 10 There is significant dispute between the parties through pleadings and affidavits over the number of potential contacts present. Defendants contend that Plaintiff misuses the 1% conversion rate provided by Defendant Chasnan in marketing materials by including internet postings made by Defendants. See id., Reply Brief at 3-4. App. 617 (1979) (dismissing for lack of personal jurisdiction a defendant whose contacts

were not commercial in nature but denying the motion with regard to defendant who

was engaged in ongoing commercial activity within the State). However, the U.S.

Supreme Court held in Helicopteros Nacionales v. Hall, 466 U.S. 408, 418 (1984), that

"[m]ere purchases, even if occurring at regular intervals, are not enough to warrant a

state's assertion of in personam jurisdiction over a nonresident corporation in a cause of

action not related to those purchase transactions." Here, Plaintiff's cause of action

arises out of the negotiation, execution and subsequent breach of a contract. None of

these events are alleged to have occurred in North Carolina, and therefore Plaintiff has

not alleged any connection between the alleged contacts and their cause of action.

[26] Plaintiff has not alleged that North Carolina has any meaningful interest in

hearing this civil action in this state.

[27] Further, as the pleadings indicate, all parties are either domiciled or

maintain a physical presence in California. All relevant witnesses to the agreement and

guardians of relevant documents are in California.11 As a result, maintaining the action

in North Carolina is a tremendous inconvenience.

[28] In addressing the level of inconvenience and the forum's interest, Plaintiff

places significant reliance in its Response Brief on the existence of a North Carolina

choice of law provision in the Agreement.12 However, such clauses are not

determinative of the issue of personal jurisdiction. See Cherry Bekaert & Holland v.

Brown, 99 N.C.App. 626, 635 (1990) (noting that a choice of law provision which states

that the forum State's laws will apply in any breach of contract action is "a factor in

11 Affidavit of David Castle, ¶¶ 21-22. 12 Response Brief at 8. determining" fairness of litigating in the state, but reaching its holding in favor of

exercising jurisdiction by relying heavily on other factors). Accord Burger King v.

Rudzewicz, 471 U.S. 462, 482 (1985) (holding that choice of law provisions are not

determinative, but may be considered).

[29] Cases that rely heavily on choice of law provisions as a determining factor

in a personal jurisdiction analysis typically involve one resident and one nonresident

contracting party. See id. (noting that the choice of law provision was sufficient to

establish personal jurisdiction only when coupled with the "20 year interdependent

relationship" between the nonresident defendant and the forum state). In that context,

the choice of law provision may outweigh the inconvenience to the nonresident party in

litigating in the forum because the choice of law provision put the party on notice to the

possibility of litigating in the forum. However, in the instant case, neither party is a

resident of North Carolina and there is scant evidence to show that such a relationship

existed. As a result, the choice of law provision in this action is insufficient to tip the

scales in favor of exercising personal jurisdiction.

[30] All that Plaintiff has alleged is that at some point or points in time,13

Defendant Chasnan sent or caused to be sent an unspecified number of pieces of direct

mail into North Carolina. Plaintiff has not established when these contacts occurred or

with what frequency. Ultimately, this Court finds and concludes that the quantity and

quality of the contacts alleged are insufficient to establish general jurisdiction over

Defendants.

NOW THEREFORE, based on the foregoing, it is hereby ORDERED that:

13 The only reference as to the timing of the alleged contacts appears in the affidavit of Eran Salu in which the contacts are contended to all have occurred "Prior to 12/31/2011," without any specificity. Affidavit of Eran Salu, ¶¶ 10-20. [31] Defendants' Motion to Dismiss For Lack of Personal Jurisdiction is

GRANTED.

[32] Plaintiff's Claims alleged against Defendants Chasnan, Incorporated d/b/a

Castle Advertising and David Castle are DISMISSED.

[33] Taxable costs are charged to Plaintiff.

This the 10th day of October, 2013.