Hire An Out-Of-State Law Firm? You Might Not Be Able To Sue Them In NC
Where a business’ out-of-state law firm had no assets or property in North Carolina and its lawyers never visited North Carolina while providing Plaintiff legal advice for many years, the law firm and its lawyer lacked sufficient contacts with North Carolina. Diamond Candles, LLC v. Winter, et al., 2020 NCBC 17 (J.Gale). Without sufficient contacts to North Carolina, the Business Court could not properly exercise jurisdiction over the law firm or its lawyer, and they would both be dismissed from the lawsuit.
Plaintiff Diamond Candles, LLC (“Plaintiff”) is a business located in North Carolina that sold candles over the Internet. Defendant Winter was Plaintiff’s CEO and part owner from 2012 until 2016. In 2012, Winter was introduced to a venture capital group which expressed interest in purchasing Plaintiff. Winter hired Defendant Lee, a California lawyer with the Houston-based law firm of Baker Botts, LLP (“Baker Botts”), to represent Plaintiff in the deal. By the end of the year, the deal had fallen apart and Lee and Baker Botts terminated their representation of Plaintiff. The day after terminating his representation of Plaintiff, Lee allegedly began to represent Winter concerning a “Plan B” for the sale of Plaintiff. Plaintiff was unaware of Plan B, which called for Winter to acquire the controlling interest in Plaintiff at a reduced price and then re-sell it. Over the course of the next year, Winter allegedly received additional interest from other companies about purchasing Plaintiff but did not pass the offer on to Plaintiff’s owners, instead falsely telling the buyers Plaintiff was not interested. In October 2013, Plaintiff again hired Baker Botts and Lee to provide legal advice on corporate and intellectual property matters. While still representing Plaintiff, Lee discussed with Winter the potential to acquire another company where Lee would provide legal services to Winter in exchange for an equity interest in the new company. This relationship was never disclosed to Plaintiff. In April 2016, Baker Botts ended its second engagement with Plaintiff. Plaintiff subsequently learned of Lee and Winter’s actions. In December 2018, Plaintiff filed suit against Winter, Lee and Baker Botts alleging, inter alia, claims for breach of fiduciary duty, constructive fraud, and fraud. Lee and Baker Botts moved to dismiss the lawsuit, contending that they did not have sufficient minimum contacts with North Carolina to fairly require them to defend a lawsuit in North Carolina.
The Business Court agreed, finding that while Lee and Baker Botts’ actions inflicted a local injury on Plaintiff—and therefore satisfied North Carolina’s long arm jurisdictional statute—their lack of contacts with the State of North Carolina meant that any exercise of jurisdiction over them by a North Carolina court would contravene due process. The Business Court found that neither Lee nor Baker Botts had any assets, offices, employees or property in North Carolina, and that the law firm’s clients and revenues from North Carolina were approximately 1% each. (Opinion, ¶7). The Business Court held that neither Lee nor Baker Botts’ other lawyers who worked on Plaintiff’s matters had ever traveled to North Carolina on business for Plaintiff, but that all of communications had occurred over e-mail or via telephone. (Id., ¶55). Finally, the Business Court held the attorney-client relationship was no different than any other service contract for due process purposes, and held that it was significant that all of the work performed by Lee and Baker Botts’ other lawyers had been conducted outside the State of North Carolina. (Id., ¶51). Notwithstanding the fact that Lee and Baker Botts had represented Plaintiff on two separate occasions (with the second one lasting over two years) and had apparently provided legal advice throughout that time, the Business Court found it could not properly exercise jurisdiction because the law firm and its lawyer lacked sufficient contact with the State of North Carolina.
Based upon this decision, a business that retains an out-of-state law firm should understand that, should matters go awry and the business want to sue the law firm, the business may have to file suit in a state other than North Carolina.