A targeted effort by a New York company and its president to recruit Chinese investors for a marina and hotel project in Wilmington, North Carolina brought an international spin to one of the Business Court’s regular inquiries: its personal jurisdiction over alleged wrongdoers. In Chi v. N. Riverfront Marina & Hotel LLLP, 2022 NCBC 45, a Cape Fear riverfront project was created to attract foreign investors through the Fifth Preference Visa Program (EB-5) that allowed qualifying investors to seek conditional permanent resident status in exchange for equity investments exceeding $500,000 in targeted geographies.

Pac Rim Venture Ltd. (“PRV”), through its president, Gongzhan Wu, operated an office in China and was alleged to have “conducted seminars, crafted and distributed informational and advertising materials for the Project” and contracted with a Chinese immigration agency to intermediate between potential investors and the North Carolina-based project. The complaint alleged that PRV was held out as “primarily responsible for the marketing of the Project and solicitation of investments” and participated in seminars and distribution of marketing materials in over ten cities in China. Plaintiffs, 17 Chinese citizens, claimed some of these personal and written representations were false. Id. ¶¶ 14-19.

Plaintiffs’ concerns about the project have had plenty of litigation company. In a Georgia federal court, a developer and operator of hotels has sued Northern Riverfront and its founder for $5.2 million for breach of a licensing agreement tied to continued delays in construction of the project’s hotel.  Holiday Hospitality Franchising, LLC v. N. Riverfront Marina and Hotel, LLLP, No. 1:21-CV-2584 (N.D. Ga.). In an earlier round of Business Court litigation, two restaurant developers who contracted to open restaurants associated with the Wilmington project sued over allegations of failed funding, asset diversion and interference with their operations. LLG-MRMH, LLC v. N. Riverfront Marina & Hotel, LLLP, No. 18-CVS-4522 (N.C. Super.) And the contractor who was hired to build the restaurants won an $860,000 award for overdue bills and interest against Northern Riverfront.

The jurisdictional fight in Chi was over the Court’s specific jurisdiction – whether “the cause of action arises from or is related to defendant’s contacts with” North Carolina.  While the Court reminded that “the nature and quantity of the required contacts will vary depending on the facts,” an essential requirement is that they should be “such that [the defendant] should reasonably anticipate being haled into court there.” Id. ¶ 30 (quoting Bruggeman v. Meditrust Acquisition Co., 138 N.C. App. 612, 617 (2000)).

PRV and Wu contended they fell well short of availing themselves of doing business in North Carolina because they didn’t have any contacts with the forum. Instead, they argued the complaint merely alleged “that they engaged in conduct in China directed to Chinese citizens.” The disgruntled investors claimed PRV and Wu marketed and solicited investments specifically for the Wilmington project and helped arrange a visit to the project site by some of the concerned investors. Id. ¶¶ 32-33.

The Court observed that while PRV and Wu may have been working in tandem with other defendants that did have sufficient North Carolina contacts to be sued here, such contacts could not be imputed to them. Judge Earp held conduct in China designed to secure investment for a project in North Carolina did not demonstrate the defendants’ “purposeful availment” of the privilege of doing business in the forum (Id. ¶ 35):

“Moving Defendants’ activities preparing and distributing marketing materials and answering prospective investors’ questions in China about a real estate development project in North Carolina[] do not provide the requisite contacts for due process purposes.”

Plaintiffs argued on brief, but not in their complaint, that PRV and Wu had a contract with other North Carolina-based defendants regarding their solicitation of investors for the project. But without a hook in the complaint, or factual recitations about the nature and terms of such a contract, the Court was left with little more than the suggestion of “performance under a contract [] intended to be performed outside of the forum in question” in circumstances where “courts have been reluctant to assert personal jurisdiction over non-resident defendants.” Id. ¶ 36 (quoting WLC, LLC v. Watkins, 454 F. Supp. 2d 426, 438 (M.D.N.C. 2006).

Takeaways

• Under Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S.Ct. 1017, 592 U.S. __ (2021), plaintiffs likely did not have to show that North Carolina contacts by PRV and Wu directly caused their injuries to secure specific jurisdiction, but could have shown the defendants’ contacts with North Carolina simply related to their cause of action. As Judge Earp noted, though, “without more” in the way of setting forth such contacts, there was a due process shortfall that even the more permissive Ford standard would not have cured.
• Plaintiffs lost more than their claims against PRV and Wu. A follow-on ruling, 2022 NCBC 46, denied their effort to dismiss a counterclaim alleging they had breached confidentiality provisions by attaching parts of the Offering Circular to their complaint. The Court held there was no litigation privilege to violate such an agreement and noted that BCR 5 provided avenues to seek filing under seal.

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