NC enjoys status as destination state, but not for business lawsuits

North Carolina’s highest court could decide in the months ahead whether registering to do business in this state automatically subjects an out-of-state company to the threat of lawsuits.

Without state Supreme Court action, critics warn that a lower court’s December ruling “fundamentally transforms” state business law.

The high court issued a Jan. 9 order temporarily blocking the disputed ruling. It remains to be seen whether justices will take further action.

The case PDII v. Sky Aircraft Maintenance stems from a 2024 aircraft runway accident in Arkansas. The incident injured two people and rendered the plane a “total loss,” according to court filings.

PDII, based in North Carolina, owned the plane. The company filed suit in this state against an aircraft maintenance company and one of its employees. The suit also targeted companies named Textron and Textron Aviation.

Rhode Island-based Textron filed a motion to be dismissed from the case. While registered to do business here, Textron “does not actually conduct business in North Carolina,” according to a Jan. 7 state Supreme Court filing.

Textron “has no physical presence in the state: it has no offices, facilities, bank accounts, or employees here,” the company’s lawyers wrote. “Unlike Textron Aviation, Textron doesn’t make or sell aircraft or components, so it did not make or sell the component that PDII complains about.”

“Textron and Textron Aviation do not share employees, offices, accounts, or business operations,” the filing added.

“Textron doesn’t market aircraft products or services in the state or to its residents,” company lawyers wrote. “Textron doesn’t have any contracts requiring performance in North Carolina.” Textron “didn’t have any interactions with” other defendants.

Yet a trial judge rejected Textron’s motion to be dropped from the North Carolina complaint. A unanimous three-judge North Carolina Appeals Court panel upheld the trial court’s ruling.

Judge Julee Flood cited North Carolina’s “Long Arm Statute” in determining that “a registered foreign corporation may sue or be sued to the same extent as a domestic corporation and is subject to personal jurisdiction.”

Any out-of-state company that obtains a “certificate of authority” in North Carolina “consents to general personal jurisdiction” in state courts, Flood added.

That decision “fundamentally transforms North Carolina’s law of personal jurisdiction,” Textron’s lawyers warned the state Supreme Court.

“For the first time, any corporation registered to do business in this state may be sued here by any plaintiff, on any claim, arising anywhere in the world,” Textron’s lawyers wrote. “A Virginia resident injured in Texas can sue in North Carolina. A California business dispute can be litigated in Wake County. The only prerequisite is that the defendant, perhaps decades ago, filed the routine paperwork required to lawfully conduct business here.”

“This is not an incremental development; it’s a sea change,” Textron claimed.

“North Carolina has never been home to Textron, a Delaware corporation headquartered in Rhode Island, and conducting no business in North Carolina,” company lawyers wrote. “Before the decision below, Textron could not have been sued here on claims arising from events in Arkansas, involving an aircraft that Textron did not manufacture.”

Textron accused the state Appeals Court of adopting a “consent-by-registration” theory of jurisdiction.

The US Supreme Court’s 2023 decision in Mallory v. Norfolk Southern Railway Company addressed similar issues. But that case dealt with Pennsylvania’s “unique statutory scheme, which expressly provides that registration constitutes consent to ‘general personal jurisdiction,’” according to Textron’s court filing. “No other state has such a statute, including North Carolina.”

The Appeals Court “extended Mallory to North Carolina — even while acknowledging that North Carolina’s statutes contain no express consent language,” Textron warned.

Only a “tiny handful of jurisdictions” have made the same choice, placing North Carolina “at odds with the overwhelming weight of authority from other states,” company lawyers argued.

“The stakes could hardly be higher,” affecting every out-of-state business registered in North Carolina, Textron warned. “It transforms North Carolina into a magnet for forum-shopping and burdens its courts with disputes that have nothing to do with this state or its citizens.”

The ruling “threatens North Carolina’s economic competitiveness with neighboring states that have rejected this theory,” Textron argued.

It should surprise no one that lawyers attempting to win a courtroom argument employed the language of “threats,” “high stakes,” and “fundamental transformation.” It’s not clear that the PDII case actually would turn North Carolina into a magnet for new business lawsuits against out-of-state firms.

Yet it’s an issue worthy of the North Carolina Supreme Court’s attention. A clear decision about the “consent-by-registration” theory would help businesses — and their lawyers — moving forward.

Mitch Kokai is senior political analyst for the John Locke Foundation.