Court Opinion

ID: 4511531
Source: CourtListenerOpinion
Date Created: 2020-02-28 18:06:31.114038+00
Date Added: 2024-06-11T08:30:37.810821
License: Public Domain

IN THE SUPREME COURT OF NORTH CAROLINA

                                     No. 360A18

                               Filed 28 February 2020

BEEM USA LIMITED-LIABILITY LIMITED PARTNERSHIP and STEPHEN
STARK
              v.
GRAX CONSULTING LLC

      Appeal pursuant to N.C.G.S. § 7A-27(a)(2) from orders entered on 13 August

2018 and 4 September 2018, by Judge Michael L. Robinson, Special Superior Court

Judge for Complex Business Cases, in Superior Court, Orange County, after the case

was designated a mandatory complex business case by the Chief Justice pursuant to

N.C.G.S. § 7A-45.4(a). Heard in the Supreme Court on 27 August 2019.

      Williams Mullen, by Camden R. Webb and Lauren E. Fussell, for plaintiffs-
      appellants.

      No brief for defendant-appellee Grax Consulting, LLC.

      DAVIS, Justice.

      In this case, we consider the question of whether a nonresident company’s

contacts with North Carolina were sufficient to permit the exercise of personal

jurisdiction over it in the courts of our state. Because we conclude that the exercise

of personal jurisdiction over defendant does not trigger due process concerns, we

reverse the orders of the Business Court and remand for further proceedings.

                     Factual and Procedural Background

      The complaint in this action alleges the following facts: Grax Consulting LLC
   BEEM USA LIMITED-LIABILITY LIMITED PARTNERSHIP V. GRAX CONSULTING LLC

                                  Opinion of the Court

(Grax) is a limited liability company organized and existing under the laws of the

State of South Carolina with its principal place of business in Fort Mill, South

Carolina. Stephen Stark is a resident of Chapel Hill, North Carolina. On or about 22

February 2015, Grax and Stark signed an agreement to form Beem USA, Limited-

Liability Limited Partnership (Beem), an entity created under the laws of the State

of Nevada for the purpose of providing information technology services.

      On 1 January 2016, Stark and Grax executed a “First Amended and Restated

Limited-Liability Limited Partnership Agreement” (the partnership agreement) that

set forth the rights, duties, and obligations of the parties and established that the

partnership would terminate on 31 December 2016, unless terminated sooner

pursuant to the provisions of the partnership agreement.

      Grax, acting through its owner Mason Shane Boyd, was named the general

partner and an initial limited partner of Beem, possessing a ten percent ownership

interest in the partnership. Stark, individually, was named an initial limited partner

with a ninety percent ownership interest in Beem. Stark and Grax were the only

limited partners of Beem during its existence.

      The partnership agreement provided, in part, that in the event the general

partner took action, or failed to take action, so as to cause material, adverse

consequences to Beem and the act or omission was fraudulent, in bad faith, or in

breach of the general partner’s fiduciary duty, the limited partner or partners holding

a majority of the ownership interests in Beem could remove the general partner and

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                                  Opinion of the Court

elect a new one.

        Throughout the short lifespan of Beem, Grax and Stark would frequently

collaborate on matters relating to the partnership. Boyd traveled to North Carolina

on three separate occasions to meet with Stark to discuss the business of Beem and,

on at least one of those occasions, to meet with Beem’s banker. These meetings

occurred on 28 September 2015, 26 August 2016, 27 August 2016, and 9 November

2016.

        In addition, in February 2015, Boyd—acting on behalf of Grax—drove to

Charlotte to open a bank account for Beem at Bank of America. Using this account,

Grax would regularly deposit checks received by Beem and initiate wire transfers on

behalf of the partnership. Over the course of 2016, while living in North Carolina,

Stark received approximately fifteen e-mails, fifteen text messages, and seven phone

calls per month from Grax relating to the partnership. Grax also mailed Stark

financial records, tax documents, and other correspondence relating to Beem.

        On or about 5 December 2016, Stark removed Grax as the general partner of

Beem pursuant to the terms of the partnership agreement and assumed the role

himself. Grax was given notice of its removal as general partner by means of both

electronic communication and a letter sent to its principal place of business.

        The partnership agreement expressly stated that no limited partner, unless

also serving as general partner, was permitted to act on behalf of or bind Beem.

Nevertheless, despite its removal as general partner, Grax—through Boyd—

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                                  Opinion of the Court

continued to act on Beem’s behalf. Specifically, Grax (1) continued to bill and charge

Beem for services that Grax purportedly provided for Beem after its removal as

general partner; (2) changed the online bank account access information for Beem’s

Bank of America partnership account and prevented Stark, the new general partner,

from accessing the account; (3) acquired a cashier’s check for $3,500 from the Bank

of America account without Stark’s permission; and (4) filed tax documents with the

Internal Revenue Service on behalf of Beem. Furthermore, Grax repeatedly failed to

provide Stark with Beem’s financial, accounting, banking, tax, and other records,

despite requests from Stark for this information.

      Following the partnership’s dissolution on 31 December 2016, Stark attempted

to wind up the business affairs of Beem but was unable to do so due to Grax’s failure

to provide Stark with the partnership’s business records. Stark was also precluded

from filing accurate and complete tax documents on behalf of the partnership for 2016

because Grax withheld necessary information.

      On 28 December 2017, Stark, on behalf of himself and Beem (collectively,

plaintiffs), filed a complaint in Superior Court, Orange County, asserting claims

against Grax for breach of contract and breach of fiduciary duty. The breach of

contract claim was based on plaintiffs’ allegation that Grax acted on behalf of Beem

following its removal as general partner on 5 December 2016 despite lacking the

authority to do so and in violation of the partnership agreement. The breach of

fiduciary duty claim was premised on plaintiffs’ assertion that Grax engaged in

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                                   Opinion of the Court

misconduct as the general partner of Beem and breached its duty of care to the

partnership—namely, that Grax failed to adequately maintain financial statements

of the partnership from July 2016 until the date of Grax’s removal as general partner

and refused to relinquish to plaintiffs those statements that existed upon its removal

as general partner.

      In the complaint, plaintiffs sought an injunction, in part, directing Grax to turn

over the documents and information necessary for plaintiffs to wind up the affairs of

Beem and file tax documents on behalf of both Beem and Stark. The case was

designated a mandatory complex business case pursuant to N.C.G.S. § 7A-45.4(a) and

was assigned to the Honorable Michael L. Robinson, Special Superior Court Judge

for Complex Business Cases.

      After repeated failed attempts to personally serve Boyd, who was the

registered agent for Grax, service of process was eventually effected on 3 February

2018. Plaintiffs filed a motion for entry of default on 6 March 2018 based on Grax’s

failure to file a responsive pleading to plaintiffs’ complaint. On 23 April 2018, a

default was entered against Grax. Plaintiffs subsequently filed a motion for default

judgment on 10 May 2018.

      N.C.G.S. § 1-75.11 provides, in relevant part, that before a trial court can enter

a judgment against a defendant who fails to appear, it “shall require proof by affidavit

or other evidence . . . of the existence of any fact not shown by verified complaint

which is needed to establish grounds for personal jurisdiction over the defendant.”

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                                   Opinion of the Court

See N.C.G.S. § 1-75.11(1) (2017). In an effort to comply with the statute, plaintiffs

filed an affidavit from Stark on 10 August 2018 that listed Grax’s contacts with North

Carolina.

      On 13 August 2018, the Business Court issued an order denying plaintiffs’

motion for default judgment based on its finding that plaintiffs had failed to satisfy

their burden of proving that the court possessed personal jurisdiction over Grax. As

an initial matter, the court found that Stark’s affidavit was improper because it

lacked “any vow of truthfulness on penalty of perjury.” Moreover, the court further

determined that the information contained in the affidavit was insufficient to satisfy

N.C.G.S. § 1-75.11. In support of its ruling, the Business Court stated the following:

             Plaintiffs’ claims arise out of Grax’s conduct after he was
             removed as the general partner on December 5, 2016.
             Thus, Grax’s contacts with North Carolina prior to this
             date do not create a basis for exercising specific jurisdiction
             over Grax. . . . The record shows that the only contacts Grax
             had with North Carolina from which Plaintiffs’ claims arise
             are two letters from Grax addressed to Stark at his North
             Carolina address. These two letters do not amount to
             sufficient minimum contacts with North Carolina to
             support the exercise of personal jurisdiction over Grax.

      On 22 August 2018, plaintiffs filed a document captioned “Plaintiffs’ Motion

for Reconsideration and for Amended and Additional Findings of Fact” along with a

properly sworn version of Stark’s previously filed affidavit and a new affidavit that

provided additional information about Grax’s contacts with North Carolina. The

Business Court entered an order on 4 September 2018 containing additional findings

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                                  Opinion of the Court

but once again denying plaintiffs’ motion.

      The court ruled that plaintiffs’ breach of fiduciary duty claim did not “ar[ise]

out of Grax’s conduct in traveling to North Carolina to open Beem’s bank account or

depositing checks in or initiating wire transfers from North Carolina bank branches.”

Similarly, the court found that the “breach of fiduciary duty does not appear to have

arisen from Grax’s trips to North Carolina to discuss Beem’s business with Stark or

his phone calls, e-mails, and text messages to Stark in North Carolina.” The Business

Court concluded that “Plaintiffs’ breach of fiduciary duty claim is premised on Grax’s

failures to maintain proper records beginning in July 2016—and nothing in the record

reflects how such a breach arose out of any conduct directed at the forum state of

North Carolina.” Pursuant to N.C.G.S. § 7A-27(a)(2), plaintiffs gave notice of appeal

from the Business Court’s 13 August 2018 and 4 September 2018 orders.

                                      Analysis

      The sole question for review in this appeal is whether Grax had sufficient

minimum contacts with this state such that a North Carolina court could

constitutionally exercise personal jurisdiction over it. Based on our thorough review

of the record, we conclude that the orders of the Business Court must be reversed.

      In examining whether a nonresident defendant is subject to personal

jurisdiction in our courts, we engage in a two-step analysis. Skinner v. Preferred

Credit, 361 N.C. 114, 119, 638 S.E.2d 203, 208 (2006). First, jurisdiction over the

defendant must be authorized by N.C.G.S. § 1-75.4—North Carolina’s long-arm

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statute. Id. Second, “if the long-arm statute permits consideration of the action,

exercise of jurisdiction must not violate the Due Process Clause of the Fourteenth

Amendment to the U.S. Constitution.” Id.

I.     Long-Arm Statute

        North Carolina’s long-arm statute states, in pertinent part, that a court may

exercise jurisdiction over a party if it “[i]s engaged in substantial activity within this

State, whether such activity is wholly interstate, intrastate, or otherwise.” N.C.G.S.

§ 1-75.4(1)(d) (2017). This Court has held that this statute is “intended to make

available to the North Carolina courts the full jurisdictional powers permissible

under federal due process.” Dillon v. Numismatic Funding Corp., 291 N.C. 674, 676,

231 S.E.2d 629, 630 (1977) (citation omitted).

        Here, it is clear that Grax’s contacts with North Carolina are sufficient to

satisfy the long-arm statute. Thus, we must proceed to the second step of the analysis.

II.    Due Process

        “The Due Process Clause of the Fourteenth Amendment operates to limit the

power of a State to assert in personam jurisdiction over a nonresident defendant.”

Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413–14, 80 L. Ed. 2d

404, 410 (1984) (citing Pennoyer v. Neff, 95 U.S. 714, 24 L. Ed. 565 (1878)). The

primary concern of the Due Process Clause as it relates to a court’s jurisdiction over

a nonresident defendant is the protection of “an individual’s liberty interest in not

being subject to the binding judgments of a forum with which he has established no

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                                   Opinion of the Court

meaningful ‘contacts, ties, or relations.’ ” Burger King Corp. v. Rudzewicz, 471 U.S.

462, 471–72, 85 L. Ed. 2d 528, 540 (1985) (quoting Int’l Shoe Co. v. Washington, 326

U.S. 310, 319, 90 L. Ed. 95, 104 (1945)). The United States Supreme Court has made

clear that the Due Process Clause permits state courts to exercise personal

jurisdiction over an out-of-state defendant so long as the defendant has “certain

minimum contacts with [the forum state] such that the maintenance of the suit does

not offend ‘traditional notions of fair play and substantial justice.’ ” Int’l Shoe, 326

U.S. at 316, 90 L. Ed. at 102 (quoting Milliken v. Meyer, 311 U.S. 457, 463, 85 L. Ed.

278, 283 (1940)).

      Personal jurisdiction cannot exist based upon a defendant’s “random,

fortuitous, or attenuated” contacts with the forum state, Walden v. Fiore, 571 U.S.

277, 286, 188 L. Ed. 2d 12, 21 (2014) (quoting Burger King, 471 U.S. at 475, 85 L. Ed.

2d at 543), but rather must be the result of “some act by which the defendant

purposefully avails itself of the privilege of conducting activities within the forum

State, thus invoking the benefits and protections of its laws,” Skinner, 361 N.C. at

133, 638 S.E.2d at 217 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 2 L. Ed. 2d

1283, 1298 (1958)). As such, a defendant’s contacts with the forum state must be such

that a defendant “should reasonably anticipate being haled into court there.” World-

Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 62 L. Ed. 2d 490, 501 (1980);

see also Skinner, 361 N.C. at 133, 638 S.E.2d at 217 (“A crucial factor is whether the

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defendant had reason to expect that he might be subjected to litigation in the forum

state.”).

       The United States Supreme Court has recognized two types of personal

jurisdiction that can exist with regard to a foreign defendant: general (or “all-

purpose”) jurisdiction and specific (or “case-based”) jurisdiction. See Daimler AG v.

Bauman, 571 U.S. 117, 126–27, 187 L. Ed. 2d 624, 633–34 (2014) (citing Helicopteros,

466 U.S. at 414 nn.8–9, 80 L. Ed. 2d at 411 nn.8–9). General jurisdiction is applicable

in cases where the defendant’s “affiliations with the State are so ‘continuous and

systematic’ as to render them essentially at home in the forum State.” Goodyear

Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919, 180 L. Ed. 2d 796, 803

(2011) (quoting Int’l Shoe, 326 U.S. at 317, 90 L. Ed. at 102). Specific jurisdiction,

conversely, encompasses cases “in which the suit ‘aris[es] out of or relate[s] to the

defendant’s contacts with the forum.’ ” Daimler, 571 U.S. at 127, 187 L. Ed. 2d at

633–34 (2014) (alteration in original) (quoting Helicopteros, 466 U.S. at 414 n.8, 80

L. Ed. 2d at 411 n.8).

       In the present case, plaintiffs do not assert that Grax is subject to suit in North

Carolina based upon a theory of general jurisdiction. We therefore confine our

analysis to whether personal jurisdiction exists in this case under the doctrine of

specific jurisdiction.

       Specific jurisdiction is, at its core, focused on the “relationship among the

defendant, the forum, and the litigation.” Daimler, 571 U.S. at 133, 187 L. Ed. 2d at

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637 (quoting Shaffer v. Heitner, 433 U.S. 186, 204, 53 L. Ed. 2d 683, 698 (1977)). Some

“affiliatio[n] between the forum and the underlying controversy” is required. Walden,

571 U.S. at 283 n.6, 188 L. Ed. 2d at 20 n.6 (alteration in original) (quoting Goodyear,

564 U.S. at 919, 180 L. Ed. 2d at 803). The United State Supreme Court has

emphasized that “specific jurisdiction is confined to adjudication of issues deriving

from, or connected with, the very controversy that establishes jurisdiction.” Bristol-

Myers Squibb Co. v. Sup. Ct. of Cal., San Francisco Cty., 137 S. Ct. 1773, 1780 (U.S.

2017) (quoting Goodyear, 564 U.S. at 919, 180 L. Ed. 2d at 803).

      This Court applied the doctrine of specific jurisdiction in Tom Togs, Inc. v. Ben

Elias Indus. Corp., 318 N.C. 361, 348 S.E.2d 782 (1986). In that case, the plaintiff, a

North Carolina clothing manufacturer, sued the defendant, a clothing distributor

based in New York and New Jersey, for breach of contract in Superior Court, Wake

County, due to defendant’s refusal to pay for repairs to shirts it had purchased and

subsequently returned to plaintiff. Id. at 362–63, 348 S.E.2d at 784–85. The

defendant moved to dismiss based on lack of personal jurisdiction. On appeal, this

Court held that the trial court could exercise specific jurisdiction over the defendant

based on its contacts with North Carolina. Id. at 368, 348 S.E.2d at 787. We observed

that “[a]lthough a contractual relationship between a North Carolina resident and an

out-of-state party alone does not automatically establish the necessary minimum

contacts” required for personal jurisdiction, “a single contract may be a sufficient

basis for the exercise of [specific] jurisdiction if it has a substantial connection with

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                                   Opinion of the Court

this State.” Id. at 367, 348 S.E.2d at 786 (emphasis omitted).

      In support of our holding in Tom Togs that personal jurisdiction existed, this

Court noted that the contract was “made in North Carolina” and “substantially

performed” here. Id. at 367, 348 S.E.2d at 786–87. We also found relevant the fact

that the defendant was aware the shirts were to be cut in North Carolina and even

sent its personal labels to the plaintiff in North Carolina so that they could be

attached to the shirts. Id. at 367, 348 S.E.2d at 787. Furthermore, we observed that

the shirts were manufactured in, shipped from, and eventually returned to North

Carolina. Thus, we concluded that the defendant’s connections with North Carolina

relating to the contract satisfied the minimum contacts inquiry and established the

existence of specific jurisdiction. Id. at 368, 348 S.E.2d at 787.

      The United States Supreme Court has applied the doctrine of specific

jurisdiction in two recent cases. While these cases—like Tom Togs—involved very

different factual circumstances than the matter currently before us, they are

nonetheless instructive. In Bristol-Myers, the defendant, a company incorporated in

Delaware and headquartered in New York, contested personal jurisdiction in

California for tort claims related to pharmaceuticals manufactured by the defendant

that allegedly harmed plaintiffs, some of whom lived in states other than California.

137 S. Ct. at 1777–78. In analyzing whether the California court could exercise

specific jurisdiction over the defendant, the Supreme Court stated that a link was

required between the forum state and the nonresident plaintiffs’ underlying cause of

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action against the defendant—an “affiliation between the forum and the underlying

controversy, principally, [an] activity or an occurrence that takes place in the forum.”

Id. at 1780 (alteration in original) (quoting Goodyear, 564 U.S. at 919, 180 L. Ed. 2d

at 803). Because the Supreme Court determined that the claims of the non-California

plaintiffs were not affiliated with the forum state—the “nonresidents were not

prescribed [the drug] in California, did not purchase [the drug] in California, did not

ingest [the drug] in California, and were not injured by [the drug] in California”—it

held that California lacked the necessary connection with the cause of action to

establish personal jurisdiction over the defendant in that state under a theory of

specific jurisdiction. Id. at 1781.

       In Walden, the plaintiffs, Nevada residents, sued the defendant, a Georgia-

based Drug Enforcement Administration (DEA) agent, in a Nevada federal district

court for damages arising out of a seizure that plaintiffs alleged violated their Fourth

Amendment rights. Walden, 571 U.S. at 281, 188 L. Ed. 2d at 18. While returning to

Las Vegas from a gambling trip in Puerto Rico with nearly $100,000 in cash, the

plaintiffs’ flight was scheduled to make a layover in Atlanta, Georgia. Puerto Rico

authorities notified the defendant’s DEA task force at the Hartsfield-Jackson Atlanta

International Airport that the plaintiffs were traveling to Atlanta with large amounts

of cash. When the plaintiffs arrived in Atlanta, they were stopped by defendant and

another DEA agent, and their funds were seized by the defendant. The money was

ultimately returned to the plaintiffs approximately six months later. In response to

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the plaintiffs’ complaint, the defendant filed a motion to dismiss for lack of personal

jurisdiction, which was granted by the district court. Id. at 280–81, 188 L. Ed. 2d at

17–18.

       The Supreme Court held that the defendant lacked minimum contacts with

Nevada such that the Nevada court could not exercise personal jurisdiction over him.

Id. at 288, 188 L. Ed. 2d at 22. The Supreme Court observed that the defendant “never

traveled to, conducted activities within, contacted anyone in, or sent anything or

anyone to Nevada. In short, when viewed through the proper lens—whether the

defendant’s actions connect him to the forum—[he] formed no jurisdictionally

relevant contacts with Nevada.” Id. at 289, 188 L. Ed. 2d at 23. The Supreme Court

also recognized that although the injury to the plaintiffs—the lack of access to their

funds—was suffered in Nevada, this fact was irrelevant to the minimum contacts

analysis because it “is not the sort of effect that is tethered to Nevada in any

meaningful way.” Id. at 290, 188 L. Ed. 2d at 24.

                                          ***

       Having reviewed these principles, we must now apply them to the facts

presently before us. In so doing, it is clear that Grax’s contacts with North Carolina—

which all relate to its status as a partner in Beem—are sufficient to permit North

Carolina courts to exercise specific jurisdiction over it, given that this litigation is

concerned exclusively with the acts and omissions of Grax in connection with Beem’s

affairs.

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                                   Opinion of the Court

       It is undisputed that Grax purposefully availed itself of the benefits of North

Carolina law for the specific purpose of carrying out the business of Beem. Grax’s sole

representative came to North Carolina to open a bank account on behalf the

partnership that Grax subsequently used for Beem’s business activities, and he also

traveled to this state on three separate occasions to discuss Beem’s affairs with Stark.

By virtue of its representative engaging in such conduct, Grax established an ongoing

relationship with persons and entities located within this state such that it could

reasonably anticipate being called into court here. See Burger King, 471 U.S. at 475–

76, 85 L. Ed 2d at 543 (“Thus where the defendant . . . has created ‘continuing

obligations’ between himself and residents of the forum he manifestly has availed

himself of the privilege of conducting business there, and because his activities are

shielded by ‘the benefits and protections’ of the forum’s laws it is presumptively not

unreasonable to require him to submit to the burdens of litigation in that forum as

well.” (citations omitted)).

       Additionally, Grax contacted Stark—who lived in North Carolina—numerous

times each month for approximately a year in order to discuss Beem’s affairs and sent

mail related to Beem to Stark in Chapel Hill, North Carolina. See Walden, 571 U.S.

at 285, 188 L. Ed. 2d at 21 (“[A]lthough physical presence in the forum is not a

prerequisite to jurisdiction, physical entry into the State—either by the defendant in

person or through an agent, goods, mail, or some other means—is certainly a relevant

contact.” (citations omitted)).

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       The record makes abundantly clear the existence of numerous contacts by Grax

with North Carolina that it made in its capacity as a partner of Beem, which goes to

the heart of the present case. As a result, plaintiffs’ claims alleging breach of the

partnership agreement and breach of fiduciary duty “arise out of” or, at the very least,

“relate to” Grax’s contacts with North Carolina such that the doctrine of specific

jurisdiction applies here. Helicopteros, 466 U.S. at 414, 80 L. Ed. 2d at 411.

       Although the Business Court acknowledged Grax’s contacts with North

Carolina, it engaged in an exceedingly narrow analysis of the sufficiency of those

contacts that finds no support in the caselaw of either the United States Supreme

Court or this Court. The Business Court’s inquiry required too strict a temporal

connection between Grax’s contacts with North Carolina and the specific claims

asserted by plaintiffs in this case.1 While the Business Court correctly recognized the

need to examine Grax’s contacts with North Carolina to ensure that they related to

plaintiffs’ claims against defendant, its orders aptly demonstrate the danger of

missing the forest for the trees. Given that (1) Grax’s contacts with North Carolina

all related to Beem’s partnership agreement and the implementation thereof, and (2)

this case is wholly concerned with the conduct of Grax pursuant to that agreement,

it simply cannot be said that subjecting Grax to suit in North Carolina would trigger

       1 Consideration of the entirety of Grax’s contacts with North Carolina relating to Beem
is particularly appropriate here given the relatively brief period of time in which Beem
existed as a legal entity.

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due process concerns.

      Our holding today that personal jurisdiction exists in this case pursuant to the

doctrine of specific jurisdiction is faithful to the United States Supreme Court’s

characterization of specific jurisdiction as being based on “case-linked” contacts. See

Bristol-Myers, 137 S. Ct. at 1785–86. As discussed above, each of Grax’s contacts with

North Carolina concerned its status as a partner of Beem, which is the subject of the

specific claims asserted by plaintiffs in this case.

                                      Conclusion

      For the reasons set out above, we hereby reverse the 13 August 2018 and 4

September 2018 orders of the Business Court and remand this case for further

proceedings consistent with this opinion.

      REVERSED AND REMANDED.

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