BUILDER MART OF AMERICA v. First Union, 3484.

• Decision Date: 29 April 2002
• Docket Number: No. 3484.,3484.
• Citation: 349 S.C. 500,563 S.E.2d 352
• Court: South Carolina Court of Appeals
• Parties: BUILDER MART OF AMERICA, INC., Builder Mart of Albemarle, Inc. and William T. Huckabee, III, Appellants, v. FIRST UNION CORPORATION, Respondent.

349 S.C. 500

563 S.E.2d 352

BUILDER MART OF AMERICA, INC., Builder Mart of Albemarle, Inc. and William T. Huckabee, III, Appellants, v. FIRST UNION CORPORATION, Respondent.

No. 3484.

Court of Appeals of South Carolina.

Submitted October 1, 2001.

Decided April 29, 2002.

William A. Jordan and B. Allen Clardy, Jr., both of Jordan & Clardy, of Greenville, for appellants.

H. Sam Mabry, III, and J. Derrick Quattlebaum, both of Haynsworth, Sinkler & Boyd, of Greenville, for respondent. STILWELL, Judge:

Builder Mart of America (BMA), Builder Mart of Albemarle (Albemarle), and William Huckabee (collectively Appellants) brought this action against First Union Corporation (First Union) alleging multiple causes of action arising from a loan transaction. An order of default was entered against First Union. Upon receiving notice of a damages hearing, First Union moved to set aside the default and to dismiss the action based on lack of personal and subject matter jurisdiction. The trial court held that it lacked both, vacated the default judgment, and dismissed the action. We affirm.¹

FACTS/PROCEDURAL BACKGROUND

BMA is a South Carolina corporation with its principal place of business in Greenville. Albemarle, a franchisee of BMA, is a North Carolina corporation owned by Huckabee with its principal place of business in Stanley, North Carolina. First Union is a bank holding company organized under the laws of North Carolina with its principal and only place of business in Charlotte, North Carolina, and owns 100% of the stock of First Union National Bank of North Carolina (FUNB(NC)).

FUNB(NC) loaned Albemarle $500,000 pursuant to a secured promissory note. The note specifically identified the lender as FUNB(NC), and the funds advanced were transferred to either Albemarle or Huckabee in North Carolina. The collateral which secured the obligation was located in its entirety in North Carolina, and the security interests in the collateral were filed and perfected in North Carolina. The note provided that the terms of the agreement would be governed by and construed in accordance with North Carolina law.

Albemarle was indebted to BMA and, as part of the loan transaction, BMA agreed to subordinate its rights to collateral in favor of FUNB(NC). This subordination agreement was memorialized in a letter from BMA's president, Brian Mac-Kenzie, to John Robertson, vice president of FUNB(NC). The letter provided in part as follows:

BMA agrees to use its best efforts to assist [FUNB(NC) ] to maximize the liquidation value of inventory and accounts receivable at [Albemarle] in the event default occurs on the [FUNB(NC)] note .... [FUNB(NC)] agrees to notify BMA in advance of its intentions to exercise its options in the event of a default by [Albemarle] with respect to the [FUNB(NC) ] loans.

Albemarle defaulted on the note, and FUNB(NC) called the loan. MacKenzie advised Robertson that BMA had become aware of FUNB(NC)'s intent to call the loan and referred to the subordination agreement. MacKenzie stated, "we stand ready to assist you in the disposition of inventory assets at [Albemarle] so that both BMA and [FUNB(NC)] can recover the funds advanced." FUNB(NC)'s legal counsel informed MacKenzie that Albemarle was in default and FUNB(NC) had requested Albemarle to peacefully surrender collateral, but Albermarle had failed to do so. Counsel further advised BMA that FUNB(NC) intended to institute legal proceedings against Albemarle unless the loan was satisfied in full. FUNB(NC) subsequently filed an action against Albemarle and Huckabee. The parties entered into a liquidation agreement which provided that an auctioneer would conduct a going-out-of-business sale at Albemarle and the remaining uncollected accounts receivable would be sold at public sale in North Carolina. After liquidating the collateral, FUNB(NC) filed an action against Albemarle and Huckabee for the deficiency. The parties eventually settled, and FUNB(NC) filed a voluntary dismissal with prejudice. Appellants then commenced this action against First Union Corporation.

LAW/ANALYSIS

A. Specific Personal Jurisdiction

1. Registration in South Carolina

First Union is a North Carolina corporation with its principal place of business in Charlotte, North Carolina. First Union does not own any property, have any employees or agents, loan money, provide checking accounts, borrow money or transact banking activities in South Carolina. Appellants argue that South Carolina can validly exercise personal jurisdiction because First Union is registered as a bank holding corporation with the South Carolina Board of Financial Institutions and has designated an agent for service of process. We find no merit in this argument.

"A corporation can be qualified to do business in South Carolina and have appointed an agent for service of process but still not be conducting sufficient activities in South Carolina to be subject to suit here." S.C.Code Ann. § 33-15-101, Reporter's Comments § 2 (Rev.1990). "We think the application to do business and the appointment of an agent for service to fulfill a state law requirement is of no special weight.... Applying for the privilege of doing business is one thing, but the actual exercise of that privilege is quite another." Ratliff v. Cooper Labs., Inc., 444 F.2d 745, 748 (4th Cir.1971) (citation omitted). See also White v. Stephens, 300 S.C. 241, 387 S.E.2d 260 (1990)

(Power of attorney executed and recorded in South Carolina was insufficient to support jurisdiction where the power was never exercised in this State.).

2. First Union's Involvement in the Loan

Appellants contend First Union was involved in the negotiations resulting in the subordination agreement between FUNB(NC) and BMA, which they allege was breached. We disagree.

South Carolina's long-arm statute confers jurisdiction on state courts over "persons," including corporations, "who act[] directly or by an agent as to a cause of action arising from the person's (a) transacting any business in this State; ... or (g) [entering] into a contract to be performed in whole or in part by either party in this State...." S.C.Code Ann. § 36-1-201(28), (30) (1976); S.C.Code Ann. § 36-2-803(1)(a),(g) (1976). Since South Carolina's long-arm statute extends to the full reach of jurisdiction permitted by the Due Process Clause, we limit our inquiry to the issue of whether due process has been satisfied. Atlantic Soft Drink Co. v. S.C. Nat'l Bank, 287 S.C. 228, 231, 336 S.E.2d 876, 878 (1985).

Personal jurisdiction under the long-arm statute is subject to a two-step analysis: (1) the power prong and (2) the fairness prong. Southern Plastics Co. v. Southern Commerce Bank, 310 S.C. 256, 423 S.E.2d 128 (1992); Aviation Assocs. & Consultants, Inc. v. Jet Time, Inc., 303 S.C. 502, 402 S.E.2d 177 (1991). The court must determine whether the defendant's minimum contacts with the forum state are sufficient to satisfy due process in applying the long-arm statute. The focus must center on the contacts generated by the defendant, not the unilateral actions or letters of the complaining party. Aviation Assocs. at 507-08, 402 S.E.2d at 180. The contacts must be sufficient that the defendant would reasonably anticipate being haled into court or has purposefully availed itself of activities within the forum state. Id.

The subordination agreement was negotiated between FUNB(NC) and BMA, as evidenced in the letter addressed to the vice president of FUNB(NC) in Albemarle which stated BMA would assist FUNB(NC) in the liquidation in the event of default. FUNB(NC)'s senior vice president who handled the liquidation, the vice president of FUNB(NC)'s Albemarle branch, a FUNB(NC) employee in the special assets division who handled the Albemarle account, and the account manager involved in the transaction all provided affidavits stating they had no authority to enter into contracts on behalf of First Union. The FUNB(NC) employees also stated FUNB(NC) is a separate legal entity from First Union, and First Union was not involved in the transactions with Appellants. We agree with the trial court that any alleged breach of the subordination agreement resulted from FUNB(NC)'s actions rather than First Union's. There is no evidence First Union had any involvement with the transactions, and the individuals involved were not acting as its employees or agents.

Even assuming for the sake of argument that the courts of South Carolina could exercise jurisdiction over FUNB(NC) because of its actions, that fact alone would not be sufficient to extend jurisdiction over First Union. Although FUNB(NC) is a subsidiary of First Union, the companies are separate legal entities operating under separate boards of directors with separate employees, assets, and places of business. "`As a general rule, a parent or holding corporation is not liable on the contracts of its subsidiary. The mere fact of the ownership of a majority of all the stock of its subsidiary does not render the parent corporation liable on the contracts of the subsidiary.'" Carroll v. Smith-Henry, Inc., 281 S.C. 104, 105-106, 313 S.E.2d 649, 650 (Ct.App.1984) (quoting jury charge taken from 19 Am.Jur.2d Corporations § 716 (1965)). Furthermore, "[t]he mere acquisition and control of a domestic subsidiary's capital stock does not subject the foreign parent to the jurisdiction of that State's courts." Yarborough & Co. v. Schoolfield Furniture Indus., Inc., 275 S.C. 151, 153, 268 S.E.2d 42, 44 (1980).

3. Contract Requiring Performance in South Carolina

Appellants argue First Union's involvement confers personal jurisdiction because the subordination agreement was a contract made in and requiring performance in South Carolina. Appellants argue that BMA's offer to assist FUNB(NC) with liquidation of the collateral would necessitate performance of the contract in South Carolina at their outlets. However, the loan documents make no mention of any specific method or manner...