Suppose your company contracts with another company for the supply of materials. The company you contracted with then contracts with an out of state company to add a “powder coating” to the materials you have just ordered. Then suppose this coating flakes off right after you use the materials. So, if letters, phone calls, emails and/or attempts at negotiations don’t work, looking for legal solutions might be an option. Looks like you have everything to file a law suit against the company who provided the “flakey coating”, right? Maybe…

The above scenario is exactly what happened in the NC Court of Appeals case, Smith Architectural Metals v. American Railing Systems. In this case, the Court of Appeals held that First Line, a Pennsylvania company that contracted with American Railing to provide a “powder coating” to materials sent to Smith, did not have sufficient minimum contacts to be hauled into North Carolina court.

The Court based its rationale on the fact that after discovering the flakey coating, First Line (powder coating company) contacted Smith via email and fax, as well as sent Smith checks to cover the damage. According to the Court, these actions marked First Line’s first contact into North Carolina—none of which indicated First Line purposely holding itself out to North Carolina to establishing personal jurisdiction. Instead, these activities signaled First Line’s attempt to resolve the situation early and avoid litigation in NC courts.

Some also say the Court reached this conclusion based in part on NC’s public policy in favor of settlement. The logic behind this policy is settlement saves both the parties and the courts time, energy, and economic resources.

Thus, the answer provided by the Court is that a company must hold itself out in some form or fashion to create sufficient personal jurisdiction before being sued.

If you have questions, please feel free to call us.