Defendant in “Sham Technology” Case Wins Jurisdiction Argument on Lack of Service, but Waives it by Appearing Post-Judgment in Attempt to Protect Assets
In the Land of Technology Oz a yellow brick road apparently leads to “breakthrough” software technology so breathtaking that prospective investors need not see it, but merely wire funds and click their heels together three times to reap lavish gains. At least that’s what the defendants in Slattery v. APPYCITY, LLC, 2022 NCBC 8, allegedly suggested, secured $500,000 of plaintiff’s cash upon, and fled with on an out-bound balloon from a storefront Emerald City.
The Business Court was left with less picturesque tasks: power washing the yellow paint off the sidewalks and seeing who was still around to speak for the remnants of an alleged “sham technology company.” Id. ¶ 3.
Plaintiff John Slattery alleged that he was induced to invest in defendant APPYCITY (and The Education App) on the premise that defendant Timothy Fields had developed “breakthrough” software application technology. Slattery alleged he was told the technology was valuable “and that he did not need to do any additional diligence relative to the matter.” Slattery, who worked in the mortgage business, apparently accepted the invitation to “pay no attention to the man behind the curtain” and invested on the faith of representations from Fields and his partner, defendant Melissa Crete.
Yet, the Amended Complaint alleged there actually were no “applications,” but merely “human-operated technology” that was performed “in a backroom.” Where’s that curtain-tugging Toto when you need him?
Judge Robinson had before him motions to set aside a default, vacate a summary judgment order, and stay enforcement proceedings against defendant Daisy Fowler Barber. The Amended Complaint alleged that Barber assisted Fields and Crete by creating crypto currency accounts used to funnel money from APPYCITY in an effort to artificially decrease the profits and assets of the company.
Barber did not respond to the complaint or oppose plaintiff’s summary judgment motion. She first surfaced in response to Slattery’s judgment being recorded when she filed a motion to exempt certain real and personal property from execution. Id. ¶ 8.
In support of removing her default Barber claimed – with what the Business Court noted was “substantial evidence” – that she had not been properly served. Id. ¶ 19. A “signature required” service via FedEx that featured a misaddressed package, a delivery pit stop at a drug store, and purported but unconfirmed notice of where the package was left for her, led Judge Robinson to conclude plaintiff “has come forward with no admissible evidence proving that Defendant Barber, or another with her authority, actually received the suit papers package.” Id. ¶¶ 21-22.
Yet, the bedrock principle “that a defendant is entitled to notice and an opportunity to defend herself in civil proceedings in the state courts” was almost just about enough to carry the day. Id. ¶ 23. See Red Valve, Inc. v. Titan Valve, Inc., 2019 NCBC 56, 2019 WL 4182521 (N.C. Super. Ct. Sept. 3, 2019).
What doomed this defendant’s effort to undo a default in a case for which she was not properly served was making a post-judgment filing to protect assets from execution by a plaintiff that had not properly hailed her into court.
Certainly, a defendant in North Carolina can waive deficient service by making a “general appearance” in a matter. N.C.G.S. § 1-75.7. But as Judge Robinson noted, the Court of Appeals has a complicated history on whether a “general appearance” after a court enters final judgment against a defendant waives any objection to the exercise of personal jurisdiction.
In 1991 the Court of Appeals said it does. See Faucette v. Dickerson, 103 N.C. App. 620, 623-24 (1991). In 2004, without any mention of Faucette, the same court said it did not. See Barnes v. Wells, 165 N.C. App. 575, 579-80 (2004). The Business Court held it was bound to follow Faucette on the well-settled premise that one appeals panel cannot overrule a prior panel “unless it has been overturned by a higher court.” ¶ 34 (quoting In re Civil Penalty, 324 N.C. 373, 384 (1989)).
- Absent North Carolina Supreme Court clarification, a post-judgment appearance is likely enough to waive objections to personal jurisdiction even if a defendant was never served.
- Pay attention to the entrepreneur behind the curtain, particularly when he tells you not to.
Brad Risinger is a partner in the Raleigh office of Fox Rothschild LLP.