By Jeff MacHarg and Sarah Traynor
A few months after successfully settling its lawsuit and obtaining a consent judgment against JUUL, the State of North Carolina doubled down, suing five of JUUL’s officers and directors for unfair or deceptive trade practices. The complaint in North Carolina ex rel. Stein v. Bowen, 2022 NCBC 64, is long and detailed; but the gist is simple: according to the State, these corporate execs supervised and directed wrongful conduct including marketing to kids and deceiving customers about the nicotine potency and the usefulness of e-cigarettes as an FDA-approved smoking-cessation device.
Each of the defendants sought dismissal under Rule 12(b)(2) for lack of personal jurisdiction. They also sought dismissal under Rule 12(b)(6). Judge Conrad did not reach the 12(b)(6) motion since he granted the motions to dismiss for lack of personal jurisdiction.
In many ways, this opinion provides guidance on WHAT NOT TO DO when it comes to trying to establish personal jurisdiction over a nonresident defendant.
JUUL is California-based, none of these defendants were North Carolina residents, and several have never even been to North Carolina. Their motions to dismiss for lack of personal jurisdiction, therefore, should have come as no surprise. Following the typical practice, the defendants supported their PJ motions with actual evidence – affidavits demonstrating their lack of personal and relevant jurisdictional contacts with North Carolina.
In response, the State made three critical mistakes: First, the State apparently thought there would be more discovery and future evidentiary determinations on the defendants’ contacts. Not so. As Judge Conrad explained, the State (as the plaintiff) had the burden to demonstrate personal jurisdiction, and the time to meet that burden was now – i.e., in response to the motion. If the State needed jurisdictional discovery, a well-supported motion seeking that relief should have been filed early on. Instead, the State sought jurisdictional discovery for the first time via single-sentence footnotes in each of its response briefs. Not surprisingly, Judge Conrad denied these requests.
Second, much of the State’s “evidence” wasn’t really evidence. Instead of submitting counter-affidavits or pointing to documents and proof of individual contacts, “all too often” the State relied on the unverified allegations in its complaint. As Judge Conrad explained, when a defendant submits evidence to counter allegations in a complaint, the complaint allegations are no longer taken as true. Instead, only uncontradicted allegations are accepted as true and controlling. When presented with affidavits denying contacts with North Carolina, the State should have done more than refer to unverified complaint allegations.
Third, the State failed to contextualize, identify, and explain the hundreds of pages of evidence that it did submit. The State generically referenced its exhibits, with no citation to any individual document(s), “much less a specific passage or page number.” As Judge Conrad succinctly explained, the State’s evidence–consisting of over 200 pages of testimony, e-mails, and documents obtained from the earlier lawsuit against JUUL–did not speak for itself. The failure to specifically cite relevant portions of these exhibits not only violates BCR 7.5 (which requires pin cites whenever possible), it is also “an abdication of the State’s burden” to demonstrate personal jurisdiction by a preponderance of the evidence.
But wait, there is more. These were just the primary reasons PJ was lacking. Judge Conrad went on to explain that even if he took the allegations in the complaint as true, in many instances, the State lumped the defendants together as a group rather than identify individual contacts or conduct. Citing reems of precedent from the U.S. Supreme Court on down, Judge Conrad explained that due process requires that allegations of forum-related conduct be individualized. That’s because jurisdiction over one defendant cannot be based on another’s conduct. Similarly, jurisdiction over a corporation’s officers and directors cannot be predicated merely on jurisdiction over the corporation.
Lumping aside, in those instances where individual conduct was alleged, the State also failed to allege, argue, or explain how that conduct was connected to North Carolina. Take for example a particular defendant’s alleged supervision and direction of national advertising campaign targeting underage consumers. These allegations (if true – defendants denied them) still needed to be tied to North Carolina.
The State argued that it didn’t have to show conduct targeting North Carolina. According to the State, it was enough that the defendants (allegedly) approved the nationwide conduct knowing that the wrongful conduct would reach North Carolina shores. Although the State never cited the case, Judge Conrad assessed their arguments under the Calder “effects test.” Under this test, a non-resident defendant may be subject to PJ based on (1) intentional action (2) expressly aimed at the forum (3) with knowledge that the brunt of the injury would be felt there. See Calder v. Jones, 465 U.S. 783, 790 (1984). But even under the “effects test,” the litigation must arise out of contacts the “defendant himself” created with the forum, as distinguished from contacts created by the corporation they work for. This distinction is critical since, again, due process requires that each defendant have its own minimum contacts with the forum state.
Applying the “effects test,” Judge Conrad held that the State did not establish that any of the defendants expressly aimed any relevant conduct at North Carolina. And as to the very few allegations that specifically mention North Carolina, Judge Conrad concluded that the allegations were not individualized, were rebutted by affidavit, or were too attenuated to establish jurisdiction.
No lumping. Personal jurisdiction is an individualized inquiry implicating due process rights and protections rooted in the State and U.S. Constitutions; so be careful when lumping defendants together, particularly regarding jurisdictional allegations. If challenged, you must demonstrate each defendants’ individual contacts with the forum.
Not all contacts are created equal. A defendant’s contacts with the forum state that are unrelated to your claims are irrelevant. Similarly, a corporation’s contacts are not imputed to their officers and directors. Focus on contacts with or directed at the forum that give rise to the claims.
Mind your proof and meet evidence with evidence. If challenged, unverified complaint allegations will not do. You need to counter evidence with evidence.
If you need jurisdictional discovery, request it early. Make sure your request for jurisdictional discovery is narrow and explain why you need it. Late, unjustified, and overbroad requests will be denied. Remember, subjecting a defendant to jurisdictional discovery implicates due process too.