Day on Torts
Under what circumstances can a Tennessee court insist that an out-of-state defendant submit to the jurisdiction of a Tennessee state court? The Tennessee Supreme Court is facing this issue in Crouch Railway Consulting, LLC v. LS Energy Fabrication, LLC.
The case arose when the plaintiff, a Tennessee civil engineering company, filed an action for breach of contract and unjust enrichment against a Texas energy company (referred to in the opinions as “Lonestar” in Williamson County Chancery Court, alleging that the Texas company breached its contract with the Tennessee company by failing to pay for engineering and planning services. Lonestar filed a Tenn. R. Civ. P. 12.02(2) motion to dismiss for lack of personal jurisdiction. The trial court granted the motion, determining that the minimum contacts test had not been satisfied because the Lonestar did not target Tennessee. Additionally, the trial court determined that it would be unfair and unreasonable to require the Lonestar to litigate the dispute in Tennessee.
Relying primarily on the Tennessee Supreme Court’s reasoning in Nicholstone Book Bindery, Inc.
v. Chelsea House Publishers, 621 S.W.2d 560 (Tenn. 1981), the Court of Appeals determined that the
Texas company purposefully directed its activity toward Tennessee by engaging a Tennessee engineering company to provide customized services, which were performed primarily in Tennessee. and that it was fair and reasonable to require the Texas company to litigate the dispute in Tennessee. Therefore, it reversed the trial court’s decision to dismiss for lack of personal jurisdiction and remanded the case for further proceedings. The Tennessee Supreme Court accepted discretionary review and heard oral arguments in the case on February 11, 2020.
This is the test Tennessee applies when determining whether it can exercise personal jurisdiction over an out-of-state defendant:
The plaintiff must show that the defendant’s contacts with the state support the
court’s exercise of jurisdiction. The first step requires the court to focus on
“the defendant, the forum, and the meaningful connections between them.”
Accordingly, our examination should address the quantity, nature, and quality of the
defendant’s contacts with Tennessee. The contacts between the defendant and the forum are sufficiently meaningful when they form a connection with the cause of action and demonstrate that the defendant has purposefully targeted the forum state in such a way that the defendant should reasonably anticipate having to litigate a dispute there. Once the plaintiff has made the requisite showing, the burden then shifts to the defendant to prove that the exercise of jurisdiction would be unfair or unreasonable.
Crouch Railway Consulting, LLC v. LS Energy Fabrication, LLC., No. M2017-02540-COA-R3-CV, at *6 (Tenn.Ct. App. Jan. 8, 2019) (citations omitted). The test is taken from Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 (1985).
The 17-page Court of Appeals opinion then takes the facts of the case and applies them to the test. For example, the Court noted that
the parties entered into a contract by which Crouch was to provide civil engineering services for the design of a railcar repair facility. The contract identified Crouch as a Tennessee company, and Lonestar concedes that it knew it was engaging a Tennessee company to provide preliminary consulting, planning, and engineering services for Lonestar’s construction project.
Although the facility was in Texas, the bulk of Crouch’s services were performed
from its offices in Brentwood, Tennessee, a fact that was known to Lonestar at all
relevant times. As Crouch set forth in affidavits in its response in opposition to the
motion to dismiss, Crouch’s professional staff “prepared a preliminary Planning and
Engineering Report out of its offices in Brentwood, Tennessee” and “performed nearly
all of the work under the Agreement at its office in Brentwood, Tennessee.”…
Additionally, Crouch contended that the only work Crouch performed under the
Agreement outside Tennessee consisted of “approximately four (4) on-site meetings
between Lonestar and Crouch representatives that took place in Texas,” and “[b]eyond
these meetings, no work for Lonestar was done outside Tennessee.”
Thus, on the first prong of the test, the Court of Appeals concluded
[c]onsidering the foregoing circumstances, it is difficult to fathom that Lonestar did
not foresee the possibility of having to litigate a contractual dispute in Tennessee when it
refused to pay for Crouch’s services. Accordingly, we have determined that Lonestar purposefully targeted Tennessee when it entered into a business transaction with a Tennessee company for a customized, specialized service to be performed in Tennessee. And, because the cause of action stems directly from Lonestar’s alleged breach of the contract—Lonestar’s failure to pay the contract price— Lonestar’s contacts with Tennessee are sufficient for specific personal jurisdiction in Tennessee.
(Citations omitted.)
The second prong of the test for assertion of personal jurisdiction is whether doing so would be unfair or unreasonable to the defendant. These are the relevant factors: “[1] the burden on the defendant, [2] the interests of the forum state, [3] the plaintiff’s interest in obtaining relief, [4] the judicial system’s interest in obtaining the most efficient resolution of controversies, and [5] the state’s interest in furthering substantive social policies.” The Court of Appeals applied these factors and determined it was not unreasonable or unfair to require defendant to appear in state court in Tennessee to defend the case.
It is interesting that the contract between plaintiff and defendant in this case did not contain a choice of law or forum provision.
The Tennessee Supreme Court can be expected to issue its opinion in this matter in the Fall of 2020.