Business Court Holds North Carolina Arbitration and Choice-of-Law Provisions Insufficient to Exercise Personal Jurisdiction over England-Based Company

In Curvature, Inc. v. Cantel Computer Servs. Ltd., 2019 NCBC 47 (N.C. Super. Ct. Aug. 13, 2019), the Business Court considered whether it could exercise personal jurisdiction over the England-based defendant based on a contract that was neither executed in nor performed in North Carolina. The wrinkle was that the contract contained provisions requiring the dispute to be arbitrated in North Carolina and governed by North Carolina law. Another wrinkle was that the plaintiff had initially sought to arbitrate its claims, only to be turned away by the arbitrator. Judge Conrad held that the arbitration and choice-of-law provisions were not enough to exercise personal jurisdiction over the defendant in North Carolina, and accordingly granted the defendant’s motion to dismiss.

Take-Aways:

  • An agreement to arbitrate in North Carolina does not operate as a consent to personal jurisdiction in North Carolina.
  • An agreement to be bound by North Carolina law does not operate as a consent to personal jurisdiction in North Carolina.

Background

Whether the parties in Curvature, Inc. actually entered into a valid and enforceable contract was a matter up for debate. Id. ¶ 7. What was not up for debate, however, was that if there existed a valid contract between Curvature, a North Carolina-based company and Cantel, an England-based company, then that contract included (1) an arbitration provision providing that any dispute arising under the contract “shall be submitted exclusively to binding arbitration” in North Carolina; and (2) a choice-of-law provision providing that the contract was to be governed by North Carolina law. Id. ¶ 10.

It was probably no surprise, then, that when a dispute arose between the parties, Curvature sought to arbitrate its claims against Cantel in North Carolina pursuant to the arbitration provision. But that didn’t work. Indeed, “Cantel opposed the arbitration and persuaded the arbitrator to close the proceeding without rendering a decision on the merits.” Id. ¶ 11. (The arbitrator concluded, it appears, that it lacked authority to determine the threshold question of arbitrability, i.e., whether the claims could be arbitrated in the first place. Id. ¶ 1.)

Curvature then filed an action in North Carolina state court, asserting claims against Cantel for, among other things, misappropriation of trade secrets. Id. ¶¶ 1, 11. Cantel designated the matter as a mandatory complex business case based on the trade secrets claim, and the case was assigned to the Business Court. (ECF Nos. 2, 5.)

Once in the Business Court, Cantel moved to dismiss Curvature’s complaint on the grounds that Cantel was not subject to personal jurisdiction in North Carolina. Curvature, Inc., 2019 NCBC at ¶ 2. Cantel argued that the parties’ alleged contract was not enforceable, and that, even if it was, an agreement to arbitrate in North Carolina did not operate as a consent to personal jurisdiction in North Carolina. Id. ¶ 13.

Curvature, of course, disagreed. It argued that the parties had a valid contract and that, by agreeing to the North Carolina arbitration and choice-of-law provisions, Cantel had “consented to a North Carolina forum and waived its jurisdictional objections.” Id.

Analysis

Personal jurisdiction usually is a question of the defendant’s contacts with the forum state. Absent the requisite “minimum contacts,” the defendant cannot be “haled” into court in that state. It’s a question of notice and fairness, and it would be unfair to require a defendant to defend suit in a place where he could not reasonably have expected it. See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

But there are other routes to personal jurisdiction—for instance, where the defendant consents to jurisdiction in the forum state. In that situation, “there is no need to consider separately whether a defendant also has minimum contacts with the forum State.” Curvature, Inc., 2019 NCBC at ¶ 15.

In Curvature, Inc., it was obvious that the defendant (Cantel) lacked “minimum contacts” with North Carolina: Cantel was based in England, and the alleged contract was negotiated and performed entirely outside of North Carolina. Id. ¶¶ 8-9.

In fact, Cantel’s connection to North Carolina was limited (it appears based on the Court’s opinion) to two provisions in the parties’ contract: (i) a provision requiring that any dispute between the parties be arbitrated in Charlotte, North Carolina; and (ii) a provision requiring that any dispute between the parties be governed by North Carolina law. But were these two provisions sufficient to confer personal jurisdiction in North Carolina? Or stated differently, did Cantel consent to personal jurisdiction in North Carolina by agreeing to these two provisions?

The Court’s analysis was straightforward: the parties could be bound only to what they agreed—and nothing more. Thus, even assuming a contract existed, “any consent to arbitrate disputes arising under that agreement in North Carolina is not also consent to adjudicate those disputes in the State’s courts.” Id. ¶ 14. In other words, an agreement to arbitrate in North Carolina is not an agreement to litigate in North Carolina. And this holding was consistent, the Court noted, with North Carolina precedent, id. ¶ 18 (citing Taurus Textiles, Inc. v. John M. Fulmer Co., 91 N.C. App. 553, 558 (1988) (holding that North Carolina arbitration provision did “not provide a sufficient basis for asserting personal jurisdiction over defendant since plaintiff filed suit rather than pursuing arbitration”), as well as the “overwhelming weight of authority in other jurisdictions.” Id. (collecting cases).

The Court took a similar view of the choice-of-law provision. Curvature argued that under G.S. § 1G-4, a party to a business contract “consents to the personal jurisdiction of the courts of [North Carolina] if the contract includes a “provision where the parties agree to litigate a dispute arising from the business contract in [North Carolina].” Id. ¶ 22. But again, the parties here had not agreed to litigate their dispute in North Carolina; they had agreed only that their dispute should be governed by North Carolina law. And the parties to a contract “are bound only to the extent of their mutual assent.” Id. ¶ 20.

Finally, the Court rejected Curvature’s contention that this case was different because Curvature had sought to arbitrate before litigation. Id. ¶ 21. The cases cited by Curvature were “inapposite,” according to the Court, because they each involved (estoppel-like) situations where a party first opposed arbitration, and then, when sued, sought to send the matter back to arbitration. Id. That was not the situation here, where Cantel had asserted that the “claims [were] neither arbitrable nor subject to the jurisdiction of this Court. These positions [were] not inconsistent, and Cantel’s opposition to arbitration [did] not work a waiver of its opposition to personal jurisdiction.” Id.

Accordingly, the Court held the parties to the terms of the bargain they struck—which did not include litigating their dispute in North Carolina—and granted the motion to dismiss.

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Matt Krueger-Andes is a litigation associate in Fox Rothschild’s Charlotte office.  He regularly represents clients in the Business Court and advises on Business Court and other business litigation-related matters.  He is also a former law clerk to the Honorable Louis A. Bledsoe, III, Chief Judge of the North Carolina Business Court.