WILLIAM C. KOCH, JR., J., delivered the opinion of the Court, in which JANICE M. HOLDER and CORNELIA A. CLARK, JJ., joined. GARY R. WADE, C.J. filed a dissenting opinion, in which SHARON G. LEE, J., joined.
This appeal concerns whether Tennessee courts may exercise personal jurisdiction over an Indonesian cigarette manufacturer whose cigarettes were sold in Tennessee through the marketing efforts of a Florida entrepreneur who purchased the cigarettes from an independent foreign distributor. From 2000 to 2002, over eleven million of the Indonesian manufacturer's cigarettes were sold in Tennessee. After the manufacturer withdrew its cigarettes from the United States market, the State of Tennessee filed suit against the manufacturer in the Chancery Court for Davidson County, alleging that the manufacturer had failed to pay into the Tobacco Manufacturers' Escrow Fund as required by Tenn.Code Ann. §§ 47-31-101 to -103 (2001 & Supp. 2012). The parties filed cross-motions for summary judgment, and the trial court dismissed the suit for lack of personal jurisdiction over the Indonesian manufacturer. The Court of Appeals reversed, granted the State's motion for summary judgment, and remanded the case to the trial court to determine the applicable fines. State ex rel. Cooper v. NV Sumatra Tobacco Trading Co., No. M2010-01955-COA-R3-CV, 2011 WL 2571851 (Tenn.Ct. App. June 28, 2011). We find that, under the Due Process Clause of the Fourteenth Amendment, Tennessee courts lack personal jurisdiction over the Indonesian manufacturer. We therefore reverse the decision of the Court of Appeals and dismiss the case for lack of personal jurisdiction pursuant to Tenn. R. Civ. P. 12.02(2).
This case takes place in the shadow of a nationwide settlement of litigation concerning the responsibility of the leading tobacco companies in the United States for the costs associated with the treatment of tobacco-related health conditions. Between
Between July 1997 and May 1998, the tobacco companies settled with four states and, in doing so, agreed to pay these states $36.8 billion in damages.
The MSA creates three types of tobacco companies. The first type includes the Original Participating Manufacturers ("OPMs") — the tobacco companies that originally entered into the MSA.
The NPMs have no financial obligations under the MSA. Accordingly, they were able to "enter the cigarette market and price cigarettes well below the average OPM's price without facing any consequences under the MSA." Traylor, 63 Vand. L.Rev. at 1105. To protect the OPMs from price competition from the NPMs, the MSA provides for a "Non-Participating Market Share Adjustment" ("NPM Adjustment"). MSA § IX(d)(2). This adjustment permits the OPMs to reduce their annual financial obligation to the states if they lose market share to an NPM.
The possible decrease in an OPM's annual payments could have serious financial consequences for the states. Traylor, 63 Vand. L.Rev. at 1106. Accordingly, the MSA provides that states can avoid the impact of the NPM Adjustment by adopting a "qualifying statute."
Tennessee was one of the 46 states that approved the MSA on November 23, 1998. In 1999, the Tennessee General Assembly enacted the "Tennessee Tobacco Manufacturers' Escrow Fund Act of 1999"
Pacific Coast Duty Free ("Pacific Coast"), a company located in California, purchased a large quantity of cigarettes from an Indonesian cigarette manufacturer named NV Sumatra Trading Company ("NV Sumatra"). The cigarettes were labeled United brand "American Blend" cigarettes. Pacific Coast was unsuccessful in marketing these cigarettes in the United States and decided to sell them in bulk to another distributor. In 1999, Pacific Coast sold its entire inventory of United brand cigarettes to a Florida entrepreneur named Basil Battah.
At one point, Mr. Battah owned and operated a car alarm company named American Automotive Security. In 1986, American Automotive Security started doing business as FTS Distributors ("FTS") and began importing cigarettes. Nobody else was marketing United brand "American Blend" cigarettes in the United States in 1999, when Mr. Battah purchased Pacific Coast's remaining inventory of United brand cigarettes. He took the cigarettes to tobacco industry trade shows and advertised them in trade magazines. Before long, he sold them all and decided to purchase more cigarettes from NV Sumatra. Mr. Battah also hoped that he would be able to generate enough sales to convince NV Sumatra to grant him the exclusive right to distribute and sell its cigarettes in the United States.
NV Sumatra had already made arrangements for the distribution of its cigarettes. It sold its United brand cigarettes to Unico Trading Pte., Ltd. ("Unico"), a distribution company based in Singapore. In turn, Unico sold the United brand cigarettes to Silmar Trading, Ltd. ("Silmar"), a tobacco distribution company based in the British Virgin Islands. Thus, when Mr. Battah contacted NV Sumatra about purchasing cigarettes to sell in the United States, he was referred to Nabil Hawe, a Silmar employee residing in the United Kingdom. Mr. Battah and Mr. Hawe made arrangements to enable Mr. Battah to import United brand cigarettes into the United States. Thus, on their way from NV Sumatra to Mr. Battah, the cigarettes passed through at least these two independent distribution companies.
Because tobacco is a highly regulated business, Mr. Battah was required to comply with a number of regulatory hurdles before importing United brand cigarettes into the United States. NV Sumatra had already obtained United States trademarks for its United brand cigarettes. Mr. Battah's lawyer made arrangements between NV Sumatra and the United States government to ensure that the United brand cigarettes complied with the FTC's requirements for rotating the warnings on cigarette packages. The attorney also took steps to file the required information regarding the cigarettes' ingredients with the Department of Health and Human Services. In a letter dated March 30, 1999, Mr. Battah's lawyer reminded him that he also had to "comply with all state and local laws regarding the sale and distribution of tobacco products," including "any state escrow laws that may be in force."
In May 2001, the United States Customs Service notified FTS that the packaging on the United brand cigarettes was confusing because the cigarettes' Indonesian origin was not conspicuous enough and because the wording on the "American Blend" package, which also featured red and white stripes and a drawing of a flying eagle, appeared to suggest that the cigarettes were made in the United States. Mr. Battah's lawyer was able to convince the Customs Service to grant a waiver for the packages in his inventory that had already been printed. However, the Customs Service insisted that no other United brand cigarettes could be sold in the United States until that packaging was changed.
Undaunted by this development, Mr. Battah sent a sales report to NV Sumatra documenting how many United brand cigarettes he had been selling and where they were being sold. He also included future sales projections and his marketing strategies and requested that NV Sumatra grant him an exclusive distribution agreement in the United States. NV Sumatra's response was not what he had hoped. In a rather impersonal letter dated July 9, 2001, Timin Bingei, NV Sumatra's executive director, stated:
When Mr. Battah was shown this letter during his first deposition, he explained it as follows:
Mr. Battah and FTS encountered another setback. On July 24, 2001, Mr. Hawe, Silmar's employee in the United Kingdom, sent Mr. Battah a copy of a facsimile he had received from NV Sumatra's International Trade, Sales, and Services Department. The facsimile read:
The facsimile also noted that these state attorneys general could initiate civil actions to compel compliance with the Escrow Fund Act and seek civil penalties. The facsimile also stated: "Since United cigarettes are imported and distributed in Florida, Miami which is not subject to the requirements of the Escrow Fund, but indirectly distributed to states which require an Escrow Fund, please request FTS to check with their lawyer" on how to respond to the notice.
In order for Mr. Battah to continue selling United brand cigarettes in the United States, he needed NV Sumatra to change the cigarette packages to satisfy the United States Customs Service, and he also needed NV Sumatra either to join the MSA or to open escrow accounts in all the MSA-compliant states in which United brand cigarettes were being sold.
During the meeting in Beijing, Mr. Battah presented information illustrating how many United brand cigarettes were being sold in each state. He also provided the participants with information about the MSA and the state escrow funds statutes. He insisted that the most advantageous path for NV Sumatra would be to begin paying into the various state escrow funds. Once these issues were resolved, Mr. Battah also hoped that NV Sumatra would grant him an exclusive contract to distribute its cigarettes in the United States.
Mr. Battah also recalled that one or two additional meetings were held in Miami. It is not clear from the record whether or when these meetings occurred. There is no independent corroboration of these meetings, and Mr. Battah's testimony about these meetings is inconsistent. In his first deposition, Mr. Battah stated that the meeting in Beijing was "the only time [he] met with anyone from NV Sumatra in person," and that no one from NV Sumatra ever came to the United States to meet with him. In an affidavit dated May 26, 2010, NV Sumatra's international sales manager stated that "[NV Sumatra's] corporate records do not reflect any trip to the United States by anyone from [NV Sumatra] during the time period 2001 through 2004." Similarly, Mr. Battah's attorney claimed in his May 26, 2010 affidavit that he possessed "no recollection" and no records of any meeting with representatives from NV Sumatra, Unico, or Silmar in Miami in 2001 or 2002.
Therefore, Mr. Battah's allegation (from his second deposition in February 2010) that NV Sumatra representatives met him in Miami is contradicted by Mr. Battah's own prior testimony, the testimony of his own attorney, and the testimony of NV Sumatra. Although we stated, in Gordon v. Greenview Hosp., Inc., 300 S.W.3d 635, 644 (Tenn.2009), that a trial court hearing a Rule 12.02(2) motion "must take as true all the allegations in the plaintiff's complaint and supporting papers, if any, and must resolve all factual disputes in the plaintiff's favor," we also stated that, "in addition to considering the complaint and the supporting or opposing affidavits, the trial court may, in particularly complex cases, allow limited discovery [or] hold an evidentiary hearing." Accordingly, we wish to clarify that a trial court is not obligated to accept as true factual allegations, such as Mr. Battah's illusive Miami meeting, that are controverted by more reliable evidence and plainly lack credibility.
Even if these meetings did take place, they did not work out well for Mr. Battah. In January or February 2002, Mr. Battah received a discouraging telephone call from an NV Sumatra representative. The caller informed Mr. Battah that NV Sumatra had decided not to change the packaging to the United brand cigarettes and that NV Sumatra did not intend to join the MSA or to establish state escrow funds. The caller also informed Mr. Battah that NV Sumatra was withdrawing from the cigarette market in the United States and, therefore, would not enter into an exclusive distribution contract with FTS.
Shortly after this telephone call, FTS sold the last of its inventory of United brand cigarettes. With this venture at an end, Mr. Battah started the American Cigarette Company, which manufactures its own cigarettes. All told, Mr. Battah sold United brand cigarettes in the United States from 1999 to 2002.
On June 5, 2003, the State of Tennessee filed suit against NV Sumatra in the Davidson County Chancery Court. The lawsuit alleged that NV Sumatra had failed to deposit funds into a qualified escrow account as required by Tenn.Code Ann. § 47-31-103. The original complaint concerned cigarette sales made in Tennessee in 2000 and 2001, but it was later amended to include sales made in 2002.
According to Tennessee's licensed tobacco distributor reports and the joint stipulation of the parties, a total of 11,592,800 United brand cigarettes were sold in Tennessee from 2000 to 2002. Based on these sales, the State alleged that NV Sumatra was obligated to deposit a total of $168,316.83 into a qualified escrow account. Additionally, the State claimed that NV Sumatra was subject to civil penalties of up to 300% of the unpaid escrow amounts and the State's costs and attorney's fees.
On October 26, 2004, NV Sumatra moved to dismiss the complaint for lack of personal jurisdiction under Tenn. R. Civ. P. 12.02(2). The trial court conducted a hearing, and on September 6, 2006, issued a memorandum opinion denying the motion. At that point, discovery commenced.
The parties deposed Mr. Battah in Fort Lauderdale on October 16, 2008. Mr. Battah explained that he believed he had an oral agreement with NV Sumatra establishing FTS as NV Sumatra's exclusive distributor in the United States. Upon further questioning, however, it became abundantly clear that all of Mr. Battah's agreements were with Silmar or Unico and that NV Sumatra had fastidiously avoided dealing with Mr. Battah directly. NV Sumatra rebuffed Mr. Battah and consistently insisted that he deal with Unico and Silmar instead. Mr. Battah himself testified that
In a similar vein, the record contains an affidavit from NV Sumatra's international sales manager, dated October 25, 2004, stating that NV Sumatra "does not have any contractual relationships with FTS" or any other company that sells NV Sumatra's cigarettes in Tennessee.
At the close of discovery, the parties filed a joint stipulation and cross-motions for summary judgment. Before the hearing on the motions for summary judgment could be held, the State received new information from Mr. Battah. On February 1, 2010, the trial court ordered additional discovery, including a second deposition of Mr. Battah.
During his second deposition on February 23, 2010, Mr. Battah described how he tried to re-establish connections with NV Sumatra in 2004. He sent the company a draft exclusive distribution contract. NV Sumatra returned the draft contract, with Unico substituted as the contracting party. "[A]t this point," Mr. Battah said, "I probably just threw up my hands with these guys, that they just don't get it." Mr. Battah was "pretty upset" by NV Sumatra's "insistence to stick many companies in between" them. In Mr. Battah's mind, Mr. Hawe and Unico were merely brokers. He believed that "[t]he real relationship was between myself and NV Sumatra. They made [the cigarettes], I sold them." In Mr. Battah's opinion, "[e]verybody else in between was smoke screens and mirrors and were unnecessary."
The trial court also noted that its jurisdiction over NV Sumatra was limited by the Due Process Clause of the Fourteenth Amendment to the United States Constitution. After analyzing the substance of this Due Process restriction on its power, the court concluded:
The State perfected an appeal to the Court of Appeals. In an opinion handed down on June 28, 2011, the Court of Appeals reversed the trial court and remanded the case with directions to enter a summary judgment for the State. State ex rel. Cooper v. NV Sumatra Tobacco Trading Co., No. M2010-01955-COA-R3-CV, 2011 WL 2571851, at *32 (Tenn.Ct. App. June 28, 2011). Disagreeing with the trial court's assessment of NV Sumatra's contacts with Tennessee, the court found that "the manufacturer intentionally used a distribution system with the desired result of selling its product in all fifty states, including Tennessee, so as to support a finding that the manufacturer had minimum contacts with the State necessary to invoke the exercise of personal jurisdiction." State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *1. The court then made a policy argument that "[f]oreign
The day before the Court of Appeals released its decision, the United States Supreme Court published its first ruling on personal jurisdiction in twenty-four years. J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. ___, 131 S.Ct. 2780, 180 L.Ed.2d 765 (2011). In J. McIntyre Machinery, the Court found that New Jersey lacked personal jurisdiction over a British manufacturer that sold an allegedly defective scrap metal processing machine to a New Jersey company through an independent Ohio-based distributor. On July 8, 2011, NV Sumatra filed a petition seeking a rehearing of its case before the Court of Appeals. State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *32. NV Sumatra took issue with several of the appellate court's factual findings and argued that the court's decision was inconsistent with the United States Supreme Court's J. McIntyre Machinery decision.
On August 24, 2011, the Court of Appeals denied NV Sumatra's petition for a rehearing. The Court of Appeals distinguished J. McIntyre Machinery on its facts. The court noted that this case did not involve "an isolated defective product that found its way into the forum state through the stream of commerce." State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *33. Instead, the court emphasized that "the number of Sumatra's United brand cigarettes sold in Tennessee constitutes something more than an isolated event" and, "[NV] Sumatra's contacts with Tennessee were [therefore] neither isolated, nor incidental." State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *33. Accordingly, the court held that the sales of NV Sumatra's cigarettes arose from "the efforts of the manufacturer or distributor to serve directly or indirectly the market for its product in other States." Thus, NV Sumatra's "efforts to distribute its product throughout the United States" made it "not unreasonable" to subject NV Sumatra to suit in Tennessee. State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *34 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)). We granted NV Sumatra's application for permission to appeal.
Before addressing the substantive issues relating to the ability of Tennessee's courts to exercise personal jurisdiction over NV Sumatra under the facts of this case, we first attend to a procedural matter. NV Sumatra originally invoked Tenn. R. Civ. P. 12.02(2) when it requested the trial court to dismiss the State's complaint for lack of personal jurisdiction. The trial
Courts should give effect to the substance of motions rather than their form or title. See Brundage v. Cumberland Cnty., 357 S.W.3d 361, 371 (Tenn. 2011); Abshure v. Methodist Healthcare-Memphis Hosps., 325 S.W.3d 98, 104 (Tenn.2010); Norton v. Everhart, 895 S.W.2d 317, 319 (Tenn.1995). Accordingly, the trial court should have followed the procedures applicable to the hearing and disposition of Tenn. R. Civ. P. 12.02(2) motions challenging personal jurisdiction rather than the procedures commonly associated with motions for summary judgment.
In a recent case involving general personal jurisdiction over a non-resident defendant, we held that a defendant's "motion for summary judgment based on lack of personal jurisdiction" should have been decided as a Rule 12.02(2) motion to dismiss for lack of jurisdiction rather than a motion for summary judgment. Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 642. We explained that either challenging or opposing a Tenn. R. Civ. P. 12.02(2) motion using facts beyond the pleadings does not convert the motion into a motion for summary judgment as in the case of a Tenn. R. Civ. P. 12.02(6) motion. Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 643 (citing Chenault v. Walker, 36 S.W.3d 45, 55 (Tenn.2001); Tennessee Farmers Mut. Ins. Co. v. Farmer, 970 S.W.2d 453, 455 (Tenn.1998); Bemis Co. v. Hines, 585 S.W.2d 574, 576 (Tenn.1979); Tenn. R. Civ. P. 1 (reflecting a policy favoring the "just, speedy, and inexpensive determination of every action")).
A Tenn. R. Civ. P. 12.02(2) motion to dismiss for lack of personal jurisdiction, which challenges the trial court's authority to hear the case, is ideally addressed as a threshold issue. Thus, a defendant may file a Tenn. R. Civ. P. 12.02(2) motion prior to filing its answer or may include the defense in its answer. The defendant may, at its discretion, support the motion with affidavits or other evidentiary materials. The plaintiff then bears the burden of making a prima facie showing of personal jurisdiction, based on its own evidence. When weighing the evidence on a Tenn. R. Civ. P. 12.02(2) motion, the trial court must take all factual allegations in the plaintiff's complaint and supporting papers as true. The court must resolve all factual disputes in the plaintiff's favor. In complex cases, the court may allow limited discovery and hold an evidentiary hearing. The court may even hold the motion in abeyance until after a trial. Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 644.
In this case, the parties and the courts below focused on whether any "genuine issue as to any material fact" existed and whether either moving party was "entitled to judgment as a matter of law." State ex rel. Cooper v. NV Sumatra, 2011 WL 2571851, at *8-9, *28-29. Instead, under the rule expressed in Gordon v. Greenview Hosp., Inc., the proper question in this case is whether, taking the State's factual allegations as true and resolving all reasonably disputed facts in the State's favor, the State has shown, by a preponderance of the evidence, that Tennessee courts may properly exercise jurisdiction over NV Sumatra.
This case invokes two thorny issues regarding personal jurisdiction. The first issue is whether a foreign manufacturer may be subject to a state court's jurisdiction when that manufacturer's product arrives in the forum state through a series of independent intermediaries not under the manufacturer's control. The second issue is whether a foreign manufacturer who has targeted the United States market as a whole can be subject to personal jurisdiction in a state where the manufacturer's products have been sold, when the evidence fails to show that the manufacturer specifically targeted the forum state.
Issues regarding personal jurisdiction in cases such as this implicate the Due Process Clause of the Fourteenth Amendment. Accordingly, the decisions of the United States Supreme Court establish the boundary lines of personal jurisdiction. While the United States Supreme Court's two most recent decisions in this area have produced inconsistent rationales, we can glean from them the principles that enable us to construe and apply our long-arm statutes in a constitutional manner. Even though there may be cases in which it would be permissible to assert personal jurisdiction over a foreign manufacturer whose products reach Tennessee through a series of independent distributors, this is not one of those cases.
Our discussion will begin with Tennessee's long-arm statutes. Because these statutes derive their content from the United States Constitution, our analysis will include a consideration of the relevant precedents of the United States Supreme Court, particularly J. McIntyre Machinery. We will also consider the relevant Tennessee case law and then determine whether the decision in J. McIntyre Machinery signals a change in the law. Finally, we will address the facts of this case and render a decision.
In 1972, the Tennessee General Assembly amended the long-arm statute to expand its jurisdictional reach as far as constitutionally permissible.
Some in the legal community expressed concern that the precise wording of Tenn. Code Ann. § 20-2-214(a)(6) did not actually stretch Tennessee's jurisdictional arm quite as long as the General Assembly intended. See Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 645-46 (citing Robert Banks, Jr., The Future of General Jurisdiction in Tennessee, 27 U. Mem. L.Rev. 559, 581-82 (1997)). Accordingly, the General Assembly engrafted another
Both of Tennessee's long-arm statutes, then, derive their scope from the Tennessee and Federal Constitutions. In this context, we have interpreted the due process protections in the Constitution of Tennessee as being co-extensive with those of the United States Constitution. Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 646 (citing Gallaher v. Elam, 104 S.W.3d 455, 463 (Tenn.2003); Newton v. Cox, 878 S.W.2d 105, 110 (Tenn.1994)). Therefore, the reach of Tennessee's long-arm statutes cannot extend beyond the limits set by the Due Process Clause of the Fourteenth Amendment to the United States Constitution.
The United States Supreme Court's seminal modern personal jurisdiction case is International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). In International Shoe, the Court was tasked with deciding whether a Delaware shoe manufacturer could be sued in the State of Washington for unpaid contributions to that state's unemployment compensation fund. The company employed eleven to thirteen salespersons who lived and worked in Washington and these employees were under "direct supervision and control of sales managers located in St. Louis." The employees were provided sample inventory and occasionally rented permanent or temporary locations in Washington to showcase their wares. The shoe company itself had no office in the state and kept no stock of merchandise for sale there. International Shoe, 326 U.S. at 313-14, 66 S.Ct. 154.
The Washington Supreme Court held that the company's "regular and systematic solicitation of orders" through its salespersons, and the "continuous flow of [International Shoe's] product into the state" made the company amenable to suit in Washington's courts. International Shoe, 326 U.S. at 314, 66 S.Ct. 154. The United States Supreme Court agreed, and noted that, "[h]istorically the jurisdiction of courts to render judgment in personam is grounded on their de facto power over the defendant's person." Accordingly, the defendant's physical "presence within the territorial jurisdiction of [the] court" had previously been a prerequisite to the court's authority to bind the defendant. International Shoe, 326 U.S. at 316, 66 S.Ct. 154. However, in the wake of Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565 (1877), and other changes in civil procedure, the Court noted that a new rule had emerged:
International Shoe, 326 U.S. at 316, 66 S.Ct. 154 (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940)). This "minimum contacts" language has been the crux of personal jurisdiction
The Court explained that this "minimum contacts" language is actually a way of analogizing physical presence in cases that involve not a physical person, but an abstract entity like a corporation:
International Shoe, 326 U.S. at 316-17, 66 S.Ct. 154 (internal citations omitted). The Court explained that a corporation's "continuous and systematic" activities within a forum give rise to the corporation's legal or metaphorical "presence" in that state. However, a corporate agent's "casual presence" or "his conduct of single or isolated items of activities in a state in the corporation's behalf are not enough to subject it to suit on causes of action unconnected with the activities there." International Shoe, 326 U.S. at 317, 66 S.Ct. 154.
The Court also explained that "the criteria by which we mark the boundary line between those activities which justify the subjection of a corporation to suit, and those which do not, cannot be simply mechanical or quantitative." International Shoe, 326 U.S. at 319, 66 S.Ct. 154. Instead, "[w]hether due process is satisfied must depend rather upon the quality and nature" of the corporation's activities. International Shoe, 326 U.S. at 319, 66 S.Ct. 154. The Due Process Clause "does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations." International Shoe, 326 U.S. at 319, 66 S.Ct. 154. However,
International Shoe, 326 U.S. at 319, 66 S.Ct. 154.
The United States Supreme Court later explained that the concept of minimum contacts performs two related functions. First, "[i]t protects the defendant against the burdens of litigating in a distant or inconvenient forum," and second, "it acts to ensure that the States through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291-92, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).
The minimum contacts inquiry is generally forum-specific and based on fairness to the defendant. In World-Wide Volkswagen, the United States Supreme Court noted that "[t]he limits imposed on state jurisdiction by the Due Process Clause, in its role as a guarantor against inconvenient litigation, have been substantially relaxed over the years." This trend, the Court said, "is largely attributable to a fundamental transformation in the American economy." World-Wide Volkswagen, 444 U.S. at 292-93, 100 S.Ct. 559. Although commerce has become an increasingly
In light of our nation's federalist structure and its commitment to procedural fairness, a state may not make binding judgments against a defendant that has "no contacts, ties or relations" with the state. World-Wide Volkswagen, 444 U.S. at 294, 100 S.Ct. 559 (citing International Shoe, 326 U.S. at 319, 66 S.Ct. 154). This is true, the Court said, "[e]ven if the defendant would suffer minimal or no inconvenience from being forced to litigate before the tribunals of another State[,] even if the forum State has a strong interest in applying its law to the controversy[,]" and "even if the forum State is the most convenient location for litigation." Even then, "the Due Process Clause, acting as an instrument of interstate federalism, may sometimes act to divest the State of its power to render a valid judgment." World-Wide Volkswagen, 444 U.S. at 294, 100 S.Ct. 559 (quoting Hanson v. Denckla, 357 U.S. 235, 251, 254, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)).
World-Wide Volkswagen involved a products liability suit in Oklahoma. The Robinson family bought a new Audi automobile in New York. They later moved to Arizona. On the way to Arizona, the Audi crashed in Oklahoma and burst into flames, severely burning the mother and two children. They filed a products liability suit in an Oklahoma state court. Among the defendants were the New York car dealership and Seaway, Audi's regional distributor for New York. The plaintiffs argued that, because of the inherent mobility of an automobile, it was "foreseeable" to the defendants that the Robinsons' Audi could cause injury in Oklahoma. World-Wide Volkswagen, 444 U.S. at 288, 295, 100 S.Ct. 559.
The United States Supreme Court declined to adopt this "foreseeability" rationale. "[F]oreseeability alone," the Court said, "has never been a sufficient benchmark for personal jurisdiction under the Due Process Clause." World-Wide Volkswagen, 444 U.S. at 295, 100 S.Ct. 559. If the Court adopted the plaintiff's theory, then "[e]very seller of chattels would in effect appoint the chattel his agent for service of process. His amenability to suit would travel with the chattel." World-Wide Volkswagen, 444 U.S. at 296, 100 S.Ct. 559. While foreseeabilty, the Court said, remained relevant to the analysis,
World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559.
According to the Court, the Due Process analysis functioned to provide "a degree of predictability to the legal system that allows potential defendants to structure their conduct with some minimum assurance as to where that conduct will and will not render them liable to suit." World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559. Thus,
World-Wide Volkswagen, 444 U.S. at 297-98, 100 S.Ct. 559 (emphasis added) (quoting Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct.1228).
The emphasized statements in the above quotation have sometimes been taken out-of-context and misapplied. The quotation above, taken as a whole, makes clear that the defendant corporation's relevant "expectation" arises from the company's purposeful availment of the forum state. The "expectation" is what arises from the company's "efforts" to serve the forum state's market. And these "efforts" involve "conduct and connection[s]" with the forum state. "Expectation" in the personal jurisdiction context is not mere foreseeability.
In World-Wide Volkswagen, because neither the distributor nor the dealership made "efforts" to serve the market in Oklahoma, they had no "expectation" that their cars would render them liable to suit there. Although it was literally foreseeable that the cars would eventually drive through Oklahoma and possibly crash, "the mere `unilateral activity'" of the consumer in bringing the product into Oklahoma could not be construed as a "contact" of the defendant with the forum state. World-Wide Volkswagen, 444 U.S. at 298, 100 S.Ct. 559 (quoting Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct. 1228).
One important development in the doctrine of personal jurisdiction has been the distinction between general and specific personal jurisdiction. The United States Supreme Court recognized this distinction in Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 & nn. 8, 9, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984), and this Court did the same in J.I. Case Corp. v. Williams, 832 S.W.2d 530, 532 (Tenn.1992), overruled in part by Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 649 n. 11. Specific jurisdiction exists when a defendant has minimum contacts with the forum state and the cause of action arises out of those contacts. General jurisdiction, on the other hand, may be proper even when the cause of action does not arise out of the defendant's activities in the forum state. A state's courts may assert general jurisdiction when the defendant is "essentially at home" in the state. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. ___, ___, 131 S.Ct. 2846, 2851, 180 L.Ed.2d 796 (2011). Being essentially at home means that a nonresident defendant's contacts with the forum state are "sufficiently continuous and systematic" such that it would be fair to subject the defendant to suit in the forum state, even when the cause of action arises elsewhere. Goodyear v. Brown, 131 S.Ct. at 2854; see also Helicopteros Nacionales, 466 U.S. at 414-16, 104 S.Ct. 1868; Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 648-49. Because the parties agree that the State's lawsuit against NV Sumatra implicates specific jurisdiction rather than general jurisdiction, our analysis will focus on specific jurisdiction.
Burger King, 471 U.S. at 475-76, 105 S.Ct. 2174 (internal citations omitted).
Two years after Burger King, the United States Supreme Court decided Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987), which complicated the specific personal jurisdiction analysis. Asahi involved a fatal motorcycle accident. The driver filed suit in a California state court, alleging that a defect in the motorcycle's rear tire caused the accident. Among the defendants was the Taiwanese company that had manufactured the tire's inner tube. The inner tube manufacturer sued Asahi Metal Industry Company, the Japanese manufacturer of the inner tube's valve stem, seeking indemnification. The parties eventually settled all claims except the Taiwanese company's indemnification claim against Asahi. Asahi, 480 U.S. at 105-06, 107 S.Ct. 1026.
The United States Supreme Court unanimously held that the California state courts could not assert personal jurisdiction over Asahi. However, the plurality opinion's minimum contacts analysis garnered only four votes; while three justices joined Justice Brennan in advocating a more expansive minimum contacts test. Justice Stevens would have avoided the minimum contacts analysis altogether because, in his view, the case could have been decided purely on fairness grounds.
The Court defined the controlling question as
Asahi, 480 U.S. at 105, 107 S.Ct. 1026 (quoting International Shoe, 326 U.S. at 316, 66 S.Ct. 154).
The California Superior Court found jurisdiction to be proper, stating that "Asahi obviously does business on an international scale. It is not unreasonable that they defend claims of defect in their product on an international scale." Asahi, 480 U.S. at 107, 107 S.Ct. 1026. The Supreme Court of California likewise held that Asahi's intentional act of placing its components into the stream of commerce together with the company's awareness that some of the components would eventually find their way into California satisfied due process requirements for jurisdiction under World-Wide Volkswagen. Asahi, 480 U.S. at 108, 107 S.Ct. 1026.
The United States Supreme Court disagreed. Justice O'Connor's plurality opinion cited "the oft-quoted reasoning" that
Asahi, 480 U.S. at 109, 107 S.Ct. 1026 (quoting Burger King, 471 U.S. at 475, 105 S.Ct. 2174).
After noting that minimum contacts must be based on an act of the defendant, the plurality opinion reiterated that the "concept of foreseeability" is "an insufficient basis for jurisdiction under the Due Process Clause." Asahi, 480 U.S. at 109, 107 S.Ct. 1026 (citing World-Wide Volkswagen, 444 U.S. at 295-96, 100 S.Ct. 559). To establish minimum contacts, there must be a "substantial connection" between the defendant and the forum state. And this connection "must come about by an action of the defendant purposefully directed toward the forum state." Asahi, 480 U.S. at 112, 107 S.Ct. 1026 (citing Burger King, 471 U.S. at 475-76, 105 S.Ct. 2174). Thus, Justice O'Connor's plurality opinion concluded that "[t]he placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum state." Asahi, 480 U.S. at 112, 107 S.Ct. 1026.
Justice O'Connor's mode of analysis in Asahi has come to be known as the "stream of commerce plus" doctrine.
Asahi, 480 U.S. at 112, 107 S.Ct. 1026 (emphasis added).
Justice Brennan, joined by three other justices, disagreed, stating:
Asahi, 480 U.S at 117, 107 S.Ct. 1026 (Brennan, J., concurring in part). In Justice Brennan's view, a manufacturer's awareness that the product would be sold in the forum state established minimum contacts.
The Court then fell silent on specific personal jurisdiction from 1987 to 2011. When the Court spoke again in J. McIntyre Machinery, Ltd. v. Nicastro, its opinion did little to resolve the lingering questions left by Asahi. The J. McIntyre Machinery plurality opinion, authored by Justice Kennedy and joined by three other justices, found that the New Jersey courts lacked jurisdiction over a British manufacturer of metal shearing machines. In a dissenting opinion, Justice Ginsburg, joined by two other justices, decided that jurisdiction was proper under a somewhat broader version of the stream of commerce theory. In a concurring opinion, Justice Breyer, joined by Justice Alito, agreed with the plurality's result but took issue with Justice Kennedy's reasoning and with Justice Ginsburg's characterization of the facts.
The facts of J. McIntyre Machinery are as follows. J. McIntyre Machinery, Ltd. ("McIntyre UK") manufactures metal shearing machines in Nottingham, England. McIntyre Machinery America, Ltd. ("McIntyre America"), located in Stow, Ohio, was its exclusive distributor in the United States. One of McIntyre UK's shearing machines was purchased by Curcio Scrap Metal in Saddle Brook, New Jersey.
In October 2011, Robert Nicastro, an employee of Curico Scrap Metal, seriously injured his hand while operating the metal shearing machine at his employer's place of business. He filed a products liability action against McIntyre UK and McIntyre America in the New Jersey courts. The trial court dismissed Mr. Nicastro's lawsuit against McIntyre UK for lack of personal jurisdiction. The Superior Court of New Jersey, Appellate Division, reversed, Nicastro v. McIntyre Mach. Am., Ltd., 399 N.J.Super. 539, 945 A.2d 92 (N.J.Super.Ct.App.Div.2008), and the New Jersey Supreme Court affirmed the Appellate Division's finding that exercising jurisdiction over the manufacturer comported with due process. Nicastro v. McIntyre Mach. Am., Ltd., 201 N.J. 48, 987 A.2d 575 (2010).
The facts before the New Jersey courts were that McIntyre UK and McIntyre America were independent companies. McIntyre UK held United States patents on its machines, and McIntyre America acted under the "direction and guidance" of McIntyre UK. McIntyre UK encouraged McIntyre America to sell its machines in the United States, and representatives of McIntyre UK attended annual trade conventions in the United States to promote their machines. Representatives
It was apparent from the facts that McIntyre UK had purposefully availed itself of the United States market. The key question before the United States Supreme Court was whether McIntyre UK's efforts to target the United States market triggered jurisdiction in New Jersey when only one machine — or possibly up to four machines — had been sold in that state.
The Supreme Court of New Jersey held that targeting the United States market was sufficient to trigger jurisdiction in any state in which McIntyre UK's products were sold. The court held that jurisdiction exists when the manufacturer "knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states." Because McIntyre UK "knew or reasonably should have known" that its products might reach New Jersey and took no "reasonable step to prevent the distribution of its products" in that state, jurisdiction was held to be proper. Nicastro v. McIntyre Mach. Am., Ltd., 987 A.2d at 592-93. Significantly, the Supreme Court of New Jersey did "not find that [McIntyre UK] had a presence or minimum contacts in this State — in any jurisprudential sense — that would justify a New Jersey court to exercise jurisdiction in this case." Rather, Mr. Nicastro's "claim that [McIntyre UK] may be sued in this State must sink or swim with the stream-of-commerce theory of jurisdiction." Nicastro v. McIntyre Mach. Am., Ltd., 987 A.2d at 582.
Justice Kennedy's four-justice plurality opinion expressed concern that the Supreme Court of New Jersey was too swept up in "the `stream of commerce' metaphor." Justice Kennedy reiterated that the "general rule" that "the exercise of judicial power is not lawful unless the defendant `purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws,'" was applicable to product liability suits like Mr. Nicastro's. J. McIntyre Mach., 131 S.Ct. at 2785 (quoting Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct. 1228).
Accordingly, Justice Kennedy framed the jurisdictional analysis in terms of how a defendant "submits" to the "power" of a "sovereign" through "contact with and activity directed at" that particular sovereign. J. McIntyre Mach., 131 S.Ct. at 2788. To establish specific personal jurisdiction, the defendant must "`seek to serve' a given state's market." J. McIntyre Mach., 131 S.Ct. at 2788 (quoting World-Wide Volkswagen, 444 U.S. at 295, 100 S.Ct. 559). Thus, "[t]he principal inquiry in cases of this sort is whether the defendant's activities manifest an intention to submit to the power of a sovereign." This happens when the defendant purposefully avails itself of the privilege of conducting activities within the sovereign's territory. A defendant can sometimes do this "by sending its goods rather than its agents." But the transmission of goods only triggers jurisdiction when the defendant has "targeted the forum." Generally, "it is not enough that the defendant might have predicted that its goods will reach the forum State." J. McIntyre Mach., 131 S.Ct. at 2788.
Justice Kennedy criticized Justice Brennan's concurring opinion in Asahi for "discard[ing]
J. McIntyre Mach., 131 S.Ct. at 2789.
Under the plurality opinion's framework, McIntyre UK's only relevant contacts were its "purposeful contacts with New Jersey, not with the United States." J. McIntyre Mach., 131 S.Ct. at 2790. According to Justice Kennedy, the minimum contacts analysis centered on three facts: "The distributor agreed to sell J. McIntyre's machines in the United States; J. McIntyre officials attended trade shows in several States but not in New Jersey; and up to four machines ended up in New Jersey." J. McIntyre Mach., 131 S.Ct. at 2790. "Indeed," he noted, "after discovery the trial court found that the `defendant does not have a single contact with New Jersey short of the machine in question ending up in this state.'" While these facts might have revealed an intent to serve the United States market, they did not show that McIntyre UK purposefully availed itself of the New Jersey market. J. McIntyre Mach., 131 S.Ct. at 2790. Under these facts, then, New Jersey was "without power to adjudge the rights and liabilities of J. McIntyre, and its exercise of jurisdiction would violate due process." J. McIntyre Mach., 131 S.Ct. at 2791.
Justice Breyer's concurring opinion took issue with the plurality opinion's approach. Justice Breyer noted that there have been "many recent changes in commerce and communication, many of which are not anticipated by our precedents." J. McIntyre Mach., 131 S.Ct. at 2791 (Breyer, J., concurring). However, Justice Breyer thought it "unwise" at that time "to announce a new rule of broad applicability." Justice Breyer preferred to delay formulating new rules in this case because its outcome could be determined with existing precedents. J. McIntyre Mach., 131 S.Ct. at 2791. Accordingly, he concluded that "[n]one of our precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient" to confer jurisdiction. J. McIntyre Mach., 131 S.Ct. at 2792 (Breyer, J., concurring).
In dissent, Justice Ginsburg chided the "splintered majority" for "turn[ing] the clock back to the days before modern long-arm statutes when a manufacturer, to avoid being haled into court where a user is injured, need only Pilate-like wash its hands of a product by having independent distributors market it." J. McIntyre Mach., 131 S.Ct. at 2795 (Ginsburg, J.,
Unlike the majority opinions, which condensed the record down to three essential facts, Justice Ginsburg exhaustively documented McIntyre UK's marketing efforts toward the United States, as well as its close working relationship with its American distributor. She determined that permitting New Jersey's courts to assert jurisdiction over McIntyre UK was fair and reasonable, especially in light of New Jersey's status as the largest market for scrap metal processing in the United States. Justice Ginsburg asked rhetorically, "[h]ow could McIntyre UK not have intended, by its actions targeting a national market, to sell products in [New Jersey,] the fourth largest destination for imports among all States in the United States and the largest scrap metal market?" J. McIntyre Mach., 131 S.Ct. at 2801 (Ginsburg, J., dissenting). Because McIntyre UK had "purposefully availed itself" of "the United States market nationwide," Justice Ginsburg concluded it "thereby availed itself of the market of all States in which its products were sold by its exclusive distributor." J. McIntyre Mach., 131 S.Ct. at 2801 (Ginsburg, J., dissenting).
The foregoing survey of United States Supreme Court's decisions reveals a pattern of key phrases and concepts that serve as guideposts marking the constitutional boundaries of specific personal jurisdiction. Although "the constitutional touchstone remains whether the defendant purposefully established `minimum contacts' in the forum State," Burger King, 471 U.S. at 474, 105 S.Ct. 2174, certain other phrases appear again and again. These include "meaningful contacts, ties, or relations," "actions by the defendant himself that create a substantial connection," "fair warning," "clear notice," "purposeful availment," "targeting" the forum, "not random, fortuitous, or attenuated contacts," not the "unilateral activity of another party or a third person," "predictability to the legal system that allows potential defendants to structure their primary conduct" to know where they will be liable to suit, and "foreseeability," meaning that the defendant "should reasonably anticipate being haled into court" in the forum state. Jurisdiction can be established by "purposefully direct[ing]" activities at residents of the forum, "deliver[ing] products into the stream of commerce with the expectation that they will be purchased by consumers in the forum state," "purposefully deriv[ing] benefit" from the forum state, "deliberately" engaging in "significant activities" within the forum state, creating "continuing obligations" with residents of the forum state, and invoking the "benefits
Personal jurisdiction cases in Tennessee have generally hewn closely to the United States Supreme Court's precedents. In Masada Inv. Corp. v. Allen, this Court observed that due process only permits personal jurisdiction over a non-resident when the defendant
Masada Inv. Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn.1985) (internal citations omitted) (finding jurisdiction proper over a defendant who "purposely availed himself of the privilege of doing business within this state" when he "purposefully directed his activities toward the citizens of this state and his negligent actions resulted in injury here"). We held that, in performing this "minimum contacts" analysis, there are three primary and two secondary factors to consider. The three primary factors are "the quantity of the contacts, their nature and quality, and the source and connection of the cause of action with those contacts." The two lesser factors are "the interest of the forum State and convenience." Masada Inv. Corp. v. Allen, 697 S.W.2d at 334 (citing Shelby Mut. Ins. Co. v. Moore, 645 S.W.2d 242, 245 (Tenn.Ct.App.1981)).
Although some Tennessee courts continue to use Masada's five-factor framework, this Court and several Court of Appeals panels soon began using the United States Supreme Court's two-part test described in Burger King, 471 U.S. 462, 476-77, 105 S.Ct. 2174 (1985). See Gordon v. Greenview Hosp., Inc., 300 S.W.3d 635, 646-47 (Tenn.2009); Franklin American Mortg. v. Dream House Mortg. Corp., No. M2009-01956-COA-R9-CV, 2010 WL 3895531, at *3 (Tenn.Ct.App. Oct. 5, 2010) (No Tenn. R.App. P. 11 application filed); Mullins v. Harley-Davidson Yamaha BMW of Memphis, Inc., 924 S.W.2d 907, 910 (Tenn.Ct. App.1996); Davis Kidd Booksellers, Inc. v. Day-Impex, Ltd., 832 S.W.2d 572, 575 (Tenn.Ct.App. 1992). Invoking the five-part Masada test is no longer necessary.
Tennessee's Court of Appeals first utilized the Burger King two-step personal jurisdiction test in Davis Kidd Booksellers:
Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 575 (citations omitted).
In Davis Kidd, the trial court and the parties viewed the case as an opportunity "to depart from the traditional `minimum contacts' analysis and to embrace some version of the `stream of commerce' analysis discussed but not adopted in Asahi." The Court of Appeals "decline[d] the invitation," because "[t]he United States Supreme Court itself cannot agree on a stream of commerce test" and the appeal could be decided under the traditional minimum contacts framework. Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 574.
The Court of Appeals held in Davis Kidd that Tennessee lacked personal jurisdiction over a British manufacturer of sprinkler bulbs and its Pennsylvania distributor. A bookstore's inventory was badly damaged due to a defective component part in its sprinkler system. That component part, a glass bulb, was manufactured in Great Britain by Day-Impex. Day-Impex sold its sprinkler bulbs to its exclusive U.S. distributor, a Pennsylvania company named Sprinkler Bulb. Sprinkler Bulb sold the defective bulb in question to another distributor, a Massachusetts company named Firematic. The bookstore sued all three companies, plus the Nashville contractor and subcontractor who installed the sprinkler system. Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 574.
The Court of Appeals found that Day-Impex and Sprinkler Bulb had not "purposely directed" their activities toward Tennessee and, therefore, had no contacts in this State. Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 575-76. Neither Day-Impex nor Sprinkler Bulb had ever sold glass bulbs to anyone in Tennessee. Neither company had "advertised, solicited orders, or maintained an office or employees in Tennessee." No employees from either company had traveled to Tennessee to solicit business. There was no proof of common ownership among the manufacturer or the distributors, and there was no evidence that Day-Impex or Sprinkler Bulb controlled any of Firematic's marketing activities or knew the identity of Firematic's customers. Accordingly, the Court of Appeals held that "[i]n the absence of any other conduct by Day-Impex or Sprinkler Bulb directed toward Tennessee, the nationwide distribution agreement is not evidence of a specific intent or purpose to serve the Tennessee market." Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 576.
This Court also approved the two-step Burger King minimum contacts analysis in Gordon v. Greenview Hospital, Inc. We explained that a plaintiff must first prove by a preponderance of the evidence that the defendant has minimum contacts such that it "should reasonably anticipate being haled into court [in Tennessee]." Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 647 (quoting Lindsey v. Trinity Commc'ns, Inc., 275 S.W.3d 411, 418 (Tenn.2009)). We also noted that "[i]f the plaintiff can make that showing, the defendant will have the burden of showing that the exercise of specific jurisdiction would be unfair."
Another significant specific personal jurisdiction case is Mullins v. Harley-Davidson Yamaha BMW of Memphis, Inc. This wrongful death suit involved an allegedly defective motorcycle helmet. The helmet had been manufactured in South Korea by the Hong Jin Crown Corporation ("HJC"), which sold the helmet to a Massachusetts distributor, which sold the helmet to the Tennessee retailer. The Court of Appeals reasoned that asserting jurisdiction over HJC was not proper because:
Mullins v. Harley-Davidson, 924 S.W.2d at 909.
The defendant in Eubanks v. Procraft, Inc. was a Canadian "liquid siding" manufacturer named Kryton International, which sold products to Kryton-Barbados in the West Indies, which shipped products to another company, Kryton Marketing Division, in Tennessee. Eubanks v. Procraft, Inc., No. E2003-02602-COA-R9-CV, 2004 WL 1732315, at *1 (Tenn.Ct.App. Aug. 3, 2004) perm. app. denied (Tenn. Nov. 29, 2004). The Court of Appeals found that these shipments were "not evidence" that Kryton International "intended to serve the Tennessee market.... [M]erely shipping a product to Tennessee at the direction of Kryton-Barbados is not `transacting business' within the state of Tennessee." Eubanks v. Procraft, Inc., 2004 WL 1732315, at *2 (citing Gibbons v. Schwartz-Nobel, 928 S.W.2d 922, 925 (Tenn.Ct.App.1996)). According to the Eubanks court, "[Asahi, Davis Kidd, and Mullins] establish that simply placing a manufactured item into the `stream of commerce' does not suffice to establish
Attea v. Eristoff contains a detailed and accurate statement of the law:
Attea v. Eristoff, No. M2005-02834-COA-R3-CV, 2007 WL 1462206, at *2-3 (Tenn. Ct.App. May 18, 2007) (No Tenn. R.App. P. 11 application filed) (internal citations omitted). See also Franklin American Mortgage v. Dream House Mortgage Corp., No. M2009-01956-COA-R9-CV, 2010 WL 3895531, at *9 (Tenn.Ct.App. Oct. 5, 2010) (No Tenn. R.App. P. 11 application filed) ("[A]lthough [the out-of-state defendant] can be charged with knowledge that its product would enter the stream of commerce, it did nothing to direct its activity toward Tennessee, nor did [the defendant corporation] purposely avail itself of the privilege of doing business in Tennessee.... [The defendant's] contacts with Tennessee are simply too tenuous to satisfy the due process requirements").
In Precision Castings of Tenn., Inc. v. H & H Mfg., our Court of Appeals found that minimum contacts existed where a defendant Pennsylvania corporation solicited a Tennessee company to manufacture some custom parts and entered into a contract governed by Tennessee law. The fact that no one from the out-of-state corporation "physically visited" Tennessee was "not dispositive" when the defendant "purposefully directed" its activities toward a Tennessee corporation and a breach of contract suit arose from injuries related to those activities. Precision Castings of Tenn., Inc. v. H & H Mfg., No. M2012-00334-COA-R3-CV, 2012 WL 3608668, at *3 (Tenn.Ct.App. Aug. 22, 2012) (No Tenn. R.App. P. 11 application filed).
Our survey of Tennessee's leading specific personal jurisdiction cases reveals that Tennessee's appellate courts typically apply the minimum contacts test of International Shoe, as elaborated by World-Wide
Before we proceed to the particular facts of the case at bar, we will address what effect, if any, J. McIntyre Machinery, Ltd. v. Nicastro might have had on Tennessee law. We have already established that our interpretation of Tennessee's long-arm statute cannot extend the jurisdiction of Tennessee courts beyond what the Supreme Court of the United States would allow. The relevant question now is whether J. McIntyre Machinery altered the Supreme Court's jurisprudence on this subject or overruled some aspect of this Court's traditional approach.
Justice Kennedy's plurality opinion, which adopted a forum-specific analytical framework, is consistent with Tennessee's traditional approach to personal jurisdiction. Justice Kennedy held that targeting the national market provides an insufficient basis for jurisdiction in particular states. Tennessee courts have also indicated that the jurisdictional analysis must be forum-specific. In Davis Kidd, for example, the Court of Appeals held that "[a] nationwide distribution agreement is not evidence of a specific intent or purpose to serve the Tennessee market." Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 576. In Mullins, the actions of a distributor that was "free to sell to any dealer ... anywhere in the United States" did not confer jurisdiction in Tennessee. Mullins v. Harley-Davidson, 924 S.W.2d at 909. In Eubanks, merely shipping goods to Tennessee at the request of a national distributor, with presumed knowledge that the goods would arrive in Tennessee, did not confer jurisdiction. Eubanks v. Procraft, Inc., 2004 WL 1732315, at *2-3. These precedents comport with the principle identified by Justice Kennedy in J. McIntyre Machinery that "personal jurisdiction requires a forum-by-forum, or sovereign-by-sovereign, analysis.... [A] defendant may in principle be subject to the jurisdiction of the courts of the United States but not of any particular State." J. McIntyre Mach., 131 S.Ct. at 2789.
However, in contrast to Justice Kennedy's focus on power and submission, our minimum contacts analysis has always been grounded in fairness and liberty. We have not been asking whether nonresident corporations have submitted themselves to the authority of Tennessee's courts, but whether it would be fair to expect them to defend lawsuits in our State. As the United States Supreme Court has previously stated, "[t]he personal jurisdiction requirement recognizes and protects an individual liberty interest." It is this "liberty interest" that is "preserved by the Due Process Clause," and which "represents a restriction on judicial power not as a matter of sovereignty, but as a matter of individual liberty." Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). Cf. Attea v. Eristoff, 2007 WL 1462206, at *2 ("The Due Process Clause
However, Justice Kennedy's plurality opinion is not the controlling opinion in J. McIntyre Machinery. That role goes to the concurring opinion of Justice Breyer, joined by Justice Alito, under the rule of Marks v. United States, 430 U.S. 188, 97 S.Ct. 990, 51 L.Ed.2d 260 (1977). In its Marks opinion, the United States Supreme Court held that "[w]hen a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, `the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.'" Marks v. United States, 430 U.S. at 193, 97 S.Ct. 990 (quoting Gregg v. Georgia, 428 U.S. 153, 169 n. 15, 96 S.Ct. 2909, 49 L.Ed.2d 859 (1976) (opinion of Stewart, Powell, and Stevens, JJ.)).
Most courts that have applied the Marks rule to J. McIntyre Machinery have determined that Justice Breyer's opinion was the judgment that concurred "on the narrowest grounds."
Nevertheless, while Justice Breyer's opinion may be controlling, it fails to resolve
Justice Breyer's analysis in J. McIntyre Machinery can be described as a patchwork version of Asahi.
Justice Breyer's concurring opinion also featured an austere formulation of the factual record. Justice Breyer based his opinion solely on the "three primary facts" that the New Jersey courts identified as "constitutionally sufficient `contacts'" with the state: (1) on one occasion McIntyre America sold and shipped one machine to a New Jersey customer; (2) McIntyre UK "permitted, indeed wanted, its independent American Distributor to sell its machines to anyone in America willing to buy them;" and (3) representatives of McIntyre UK attended trade shows several U.S. cities outside New Jersey. J. McIntyre Mach., 131 S.Ct. at 2791-92 (Breyer, J., concurring). When he placed his Asahi quilt next to this condensed version of the factual record, Justice Breyer found that the "single isolated sale" was insufficient to confer jurisdiction.
While the New Jersey Supreme Court clearly followed Justice Brennan's broad version of the stream of commerce theory, it is not clear that even Justice Ginsburg's dissent endorsed Justice Brennan's approach. One commentator has described Justice Ginsburg's analysis in J. McIntyre Machinery as "grounded in purposeful
The facts which Justice Ginsburg emphasized in her dissenting opinion suggest that "Justice O'Connor's something-more standard" was "satisfied" in J. McIntyre Machinery. Ides, 45 Loy. L.A. L.Rev. at 385-86. As Justice Ginsburg explained, J. McIntyre UK set up its own exclusive independent U.S. distributor and assisted that distributor in selling its machines in New Jersey, the state with America's largest scrap metal market. Justice Ginsburg's analysis thus established purposeful availment and articulated how McIntyre UK possessed something more than mere awareness that its products would enter New Jersey. It is not clear that Justice Breyer and Justice Ginsburg agree on the stream of commerce theory. Nor is it clear that either Justice endorses Justice Brennan's theory.
Accordingly, we do not read Justice Breyer's opinion as creating a Supreme Court majority that favors Justice Brennan's version of the stream-of-commerce test from Asahi. Instead, J. McIntyre Machinery merely preserves the doctrinal status quo. Few courts have felt compelled to alter their approach to personal jurisdiction in response to J. McIntyre Machinery. See, e.g., Ainsworth v. Cargotec USA, Inc., 2011 WL 6291812, at *4 ("McIntyre has little to no precedential value."); In re Chinese Manufactured Drywall Prods. Liab. Litig., 894 F.Supp.2d 819, 848 (E.D.La.2012) ("Justice Breyer's concurrence provides a clear directive to the Court to apply existing Supreme Court precedent...."); Sieg v. Sears Roebuck & Co., 855 F.Supp.2d 320, 327 (M.D.Pa.2012) (adhering to Third Circuit precedent in light of the J. McIntyre majority's failure "to adopt clearly one of the two Asahi standards"); Original Creations, Inc. v. Ready Am., Inc., 836 F.Supp.2d 711, 716 (N.D.Ill.2011) (noting that J. McIntyre Machinery neither overturned Supreme Court precedent on personal jurisdiction nor disturbed Federal Circuit precedent on the subject); Lindsey v. Cargotec USA, Inc., No. 4:09-CV-00071-JHM, 2011 WL 4587583, at *7 (W.D.Ky. Sept. 30, 2011) (adhering to preexisting precedent post-J. McIntyre Machinery). According to one commentator, Justice Breyer's opinion "has done little beyond turning back the clock to precisely where it was after World-Wide Volkswagen." Effron, 16 Lewis & Clark L.Rev. at 885. Another commentator has noted that "Justice Breyer's concurrence... gives no hint as to whether it favors the Brennan or the O'Connor view of the stream of commerce, leaving lower courts marooned as before." Patrick J. Borchers, J. McIntyre Machinery, Goodyear, and the Incoherence of the Minimum Contacts Test, 44 Creighton L.Rev. 1245, 1265 (2011).
On the other hand, some courts and commentators have read the majority opinion in J. McIntyre Machinery as repudiating Justice Brennan's broad stream-of-commerce theory from Asahi. One federal court has said that "McIntyre clearly rejects foreseeability as the standard for personal jurisdiction," and observed that Justice Kennedy's and Justice Breyer's opinions "both firmly embrace the continuing significance of individual state sovereignty and ... hold that specific jurisdiction must arise from a defendant's deliberate connection with the forum state." "Beyond this," the court said, "McIntyre merely affirms the status quo."
Like one of Dr. Rorschach's amorphous ink blots, Justice Breyer's opinion is susceptible to multiple interpretations. Thus, J. McIntyre Machinery fails to signal a change in the law. Like the court in Davis Kidd, we "decline the invitation" to adopt a broader approach to personal jurisdiction. Davis Kidd Booksellers v. Day-Impex, 832 S.W.2d at 574.
Having fully analyzed the relevant legal background, we now return to the facts of the case at bar. We will first reiterate the law of specific personal jurisdiction, as it applies in Tennessee. The following summary is derived from Burger King, 471 U.S. at 471-78, 105 S.Ct. 2174; World-Wide Volkswagen, 444 U.S. at 291-94, 100 S.Ct. 559; International Shoe, 326 U.S. at 316-19, 66 S.Ct. 154; Gordon v. Greenview Hosp., Inc., 300 S.W.3d at 645-49; and Lindsey v. Trinity Commc'ns, Inc., 275 S.W.3d at 417-18.
Tennessee's long-arm statutes are designed to permit its courts to assert personal jurisdiction to the fullest extent authorized by the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Due process permits a state to enforce its judgments against a defendant only when the defendant has sufficient minimum contacts with the state that jurisdiction does not offend traditional notions of fair play and substantial justice. Minimum contacts are present when the defendant's purposeful conduct and connection with the forum state are such that the defendant avails itself of the benefits and protections of the state's laws and should, therefore, reasonably anticipate being haled into that state's courts.
Assessing minimum contacts involves a two-part test. The first step is the fact-gathering exercise of identifying the relevant contacts. The plaintiff is required to establish that minimum contacts exist by a preponderance of the evidence. The court should consider the quantity of
If the court finds sufficient minimum contacts, then the inquiry should proceed to the second step. At step two, the defendant bears the burden of showing that, despite the existence of minimum contacts, exercising jurisdiction would be unreasonable or unfair. The court, at this stage, should consider such factors as the burden on the defendant, the interests of the forum state, the plaintiff's interest in obtaining relief, the judicial system's interest in obtaining the most efficient resolution of controversies, and the state's interest in furthering substantive social policies.
We will now apply this minimum contacts test to the facts of the case at hand.
The record establishes that NV Sumatra was aware by July 9, 2001, at the latest, that its cigarettes were being sold in Tennessee. In a letter bearing that date, NV Sumatra's executive director refers to the sales of United brand cigarettes in Tennessee and expresses concern over Tennessee's Escrow Fund Act. But, as the United States Supreme Court has instructed us, awareness alone is insufficient for establishing minimum contacts. In J. McIntyre Machinery, the plurality and concurring opinions both cited Justice O'Connor's discussion in Asahi, where she asserted that "something more" is necessary beyond the mere awareness that the stream of commerce "may or will sweep the product into the forum State." See J. McIntyre Mach., 131 S.Ct. at 2789-90 (plurality opinion); 131 S.Ct. at 2792 (Breyer, J., concurring) (quoting Asahi, 480 U.S. at 111-12, 107 S.Ct. 1026). The record also shows that NV Sumatra stopped shipping cigarettes to FTS around the same time it sent this letter.
Because the record does not reveal that any agent of NV Sumatra has ever entered the State of Tennessee, the State's case is mainly premised on the sales of NV Sumatra's cigarettes here. The State summarizes these contacts as follows:
In addition to these sales, the State also asks us to consider what the State describes as "NV Sumatra's contacts at the national level." First, NV Sumatra hired counsel in the United States to assist the company in filing three trademark applications
First, we turn our attention to NV Sumatra's "contacts at the national level." Under existing United States Supreme Court precedent, we cannot find that such contacts are completely irrelevant to the minimum contacts analysis. It is clear, however, that such national contacts alone cannot justify jurisdiction in an individual state.
When we consider the quantity, nature, and quality of NV Sumatra's national contacts, they do not add up to much. Filing a trademark application, submitting an ingredients list, and conforming the packages to federal standards are the minimal things a cigarette manufacturer must do to enable its products to be sold in the United States.
This paucity of national contacts slips into sharper focus when we consider what the record does not reveal. The record does not reveal, for example, an aggressive advertising campaign aimed at the United States. NV Sumatra itself sent no representatives to trade shows in the United States. Nor is there even evidence of Internet sales targeting United States markets. Even if we assume that agents of NV Sumatra met with Mr. Battah in Florida once or twice, that minimal physical contact with the United States is not the type or quality of contact that would suggest jurisdiction is proper in Tennessee. This is especially true when NV Sumatra took steps to stop the sale of its cigarettes in the United States shortly thereafter. Mr. Battah practically begged NV Sumatra to assist him in targeting the U.S. market for United brand cigarettes, but NV Sumatra declined his invitation. NV Sumatra established only token contacts with the United States, and the connection
Accordingly, the outcome of this jurisdictional issue hinges on the sales of 11.5 million United brand cigarettes in Tennessee. Sales can count as contacts. However, the sales in this case are so attenuated they do not establish meaningful contacts between the Indonesian manufacturer and the State of Tennessee.
Quantity of sales is a relevant factor in our minimum contacts analysis, and the quantity of sales here is nothing to sneeze at. The parties have various views concerning how these cigarettes should be measured. The Escrow Fund Act taxes manufacturers by the cigarette, and the record indicates that 11,592,800 United brand cigarettes were sold in Tennessee. Consumers, however, buy the cigarettes by the package or by the carton. Each package contains twenty cigarettes, and each carton contains ten packages. This means that 579,640 packages, or 57,964 cartons of United brand cigarettes were sold in Tennessee. The cigarettes are shipped in cases, and each case contains 50 cartons. This suit therefore involves 1,159 cases of cigarettes being shipped to Tennessee. None of these quantities is insignificant.
But quantity alone is not dispositive. We must also consider the nature and quality of these sales and their connection to the cause of action. In this case, the connection of the cigarette sales to the cause of action could not be greater. The State's lawsuit alleges that the cigarettes were sold in violation of the Tennessee Tobacco Manufacturers' Escrow Fund Act of 1999. Instead, the jurisdictional problem here revolves around the quality and nature of these sales.
The fundamental issue with the sales of United brand cigarettes in Tennessee is that NV Sumatra had almost nothing to do with them. This is a classic case of a company placing its items into the international stream of commerce without anything "more" to demonstrate a specific interest in Tennessee. The record reveals that the arrival of NV Sumatra's cigarettes in Tennessee was almost wholly attributable to the initiative of Mr. Battah and FTS, his tobacco distribution company.
In his depositions, Mr. Battah insinuated that FTS and NV Sumatra cooperated directly in bringing the United brand cigarettes to the United States. He suggested that the intervening distribution companies, Unico and Silmar, were unnecessary "smoke screens and mirrors" that acted as "filters" between NV Sumatra and FTS. However, the documentary evidence repudiates the implication that NV Sumatra exerted any control over the destination of the cigarettes it sold to Unico. Mr. Battah ordered the United brand cigarettes from Mr. Hawe of Silmar, whom Mr. Battah "assumed" to be an employee of NV Sumatra, This assumption was shown to be incorrect. NV Sumatra shipped United brand cigarettes, through Unico, to whatever destination Silmar requested. The record contains numerous receipts, bills of lading, and other documents that chart how the ownership and control over the United brand cigarettes passed from company to company on their way to Miami (and from there to Tennessee).
Additionally, as the trial court noted in its August 18, 2010 order, the State did not dispute that (1) NV Sumatra "does not own or have any interest in" Unico or Silmar, or vice-versa; (2) NV Sumatra does not have any contractual relationship with Silmar "permitting or authorizing the sale of United brand cigarettes in Tennessee;" (3) NV Sumatra has no ownership interest in FTS, and vice-versa; and (4) "FTS had complete ownership" of the United brand cigarettes it purchased from Silmar. We cannot, as Mr. Battah did, conflate three legally and managerially independent companies — headquartered in three different countries — in order to exert jurisdiction over a manufacturer that remained mostly aloof from the international marketing and distribution of its cigarettes. Mr. Battah's unsubstantiated legal conclusions, such as that NV Sumatra, Unico, and Silmar are interchangeable, are not the sort of factual evidence that courts must accept as true when ruling on a motion to dismiss for lack of personal jurisdiction.
NV Sumatra had no hand in setting up FTS. NV Sumatra exercised no control over FTS. NV Sumatra did not even seek out FTS to distribute its cigarettes. When Mr. Battah solicited NV Sumatra's cooperation in targeting the Tennessee market,
One key principle underlying the minimum contacts test is that foreign companies should have notice of where they will be susceptible to suit so they can structure their business to know where they might face liability. As the United States Supreme Court explained in World-Wide Volkswagen, when a corporation "purposefully avails itself of the privilege of conducting activities within the forum State," it has "clear notice that it is subject to suit there," and can act to alleviate the risk of litigation by, among other things, "severing its connection with the State." World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559 (quoting Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct. 1228). The present case illustrates this principle precisely. Once NV Sumatra became aware that it could be sued in states that had adopted the Tobacco Manufacturers' Escrow Fund Act, the company withdrew its products from the United States market. NV Sumatra deliberately chose not to avail itself of the privilege of conducting business in Tennessee.
This case, therefore, illustrates World-Wide Volkswagen's foreseeability principle. Because NV Sumatra made no "effort" to "serve directly or indirectly" the Tennessee market, the company had no effort-based "expectation" that its products would arrive here and subject the company to legal liability.
Although this is not a product liability case, NV Sumatra's relationship to Tennessee can be compared with that of the defendant in Davis Kidd. The British manufacturer in Davis Kidd had an exclusive national distribution agreement with an American company, Sprinkler Bulb. The Court of Appeals held that this agreement,
In terms of relevant personal contacts, NV Sumatra is situated similarly to the South Korean motorcycle helmet manufacturer in Mullins. Like that company, NV Sumatra "maintains no offices or places of business in the United States." It sells its products to independent distributors, which are "free to sell to any dealer of their choosing anywhere in the United States." NV Sumatra "transacts no business" in Tennessee and has no agents and owns no property within the State. Like the South Korean manufacturer in Mullins and unlike McIntyre UK, NV Sumatra "did not create or control the distribution system" that brought its products into the State. NV Sumatra does not advertise, solicit business, or personally promote its products here. Until Mr. Battah sent his unsolicited sales reports to NV Sumatra, it appears that the company "was never aware to whom its [cigarettes] were ultimately sold or to whom they were sent" in the United States. Mullins v. Harley-Davidson, 924 S.W.2d at 909. Even then, like the Canadian "liquid siding" manufacturer in Eubanks v. Procraft, Inc., 2004 WL 1732315, at *2-3, NV Sumatra's "presumed knowledge" that its products were sold in Tennessee does not confer jurisdiction.
This record reveals that NV Sumatra had no meaningful contacts with Tennessee. Beyond the act of placing its United brand cigarettes in the international stream of commerce, NV Sumatra's targeted behavior at the United States was minimal at most. It had no specific interest in Tennessee. The company's awareness — largely after the fact — that its cigarettes were being sold in Tennessee fails to evidence purposeful availment of the Tennessee market. Based on the attenuated nature and quality of the sales of NV Sumatra's cigarettes in Tennessee, we do not find that these sales amounted to minimum contacts sufficient for NV Sumatra to reasonably expect being haled into court in Tennessee. The International Shoe does not fit; NV Sumatra cannot wear it. We therefore have no need to proceed to the second step of the minimum contacts analysis.
In personal jurisdiction cases, the law requires us to follow the United States Supreme Court's lead. The Court declined to substantively alter the traditional minimum contacts inquiry in Asahi and J. McIntyre Machinery. We certainly will not do so here. If New Jersey lacked jurisdiction over J. McIntyre Machinery, which vigorously and directly targeted American markets, including New Jersey, then Tennessee surely lacks jurisdiction over NV Sumatra.
The courts of Tennessee lack personal jurisdiction over NV Sumatra because the State of Tennessee has failed to establish, by a preponderance of the evidence, that NV Sumatra purposely availed itself of the privilege of doing business in Tennessee. Accordingly, the judgment of the Court of Appeals is reversed and the trial court's dismissal of the State's complaint for lack of personal jurisdiction under Tenn. R. Civ. P. 12.02(2) is affirmed. The costs of
GARY R. WADE, C.J. filed a dissenting opinion, in which SHARON G. LEE, J., joined.
GARY R. WADE, C.J., dissenting.
In November of 1998, a number of American tobacco manufacturers and a majority of the states and territories of the United States, including Tennessee, reached a settlement in litigation over tobacco-related healthcare costs. The terms of the settlement permit the tobacco manufacturers that were involved in the litigation to withhold a portion of their liability under the settlement terms based upon loss of market share in a participating state, unless the state enacts a "qualifying statute" requiring manufacturers not party to the litigation to either participate in the settlement or pay an amount into a designated escrow fund based upon annual cigarette sales. The underlying purpose of requiring nonparticipating manufacturers to either join in the settlement or pay into the escrow fund is to assure "a level playing field" for all manufacturers selling cigarettes in the participating states and territories. In consequence, Tennessee adopted a qualifying statute, the Tennessee Tobacco Manufacturers' Escrow Fund Act of 1999 ("Escrow Fund Act"), Tenn. Code Ann. §§ 47-31-101 to -103 (2001 & Supp.2012), which requires "[a]ny tobacco product manufacturer selling cigarettes to consumers within the state of Tennessee" after May 26, 1999, to either become a party to the existing settlement agreement or make specified payments into a "qualified escrow fund." Id. § 47-31-103(a).
In this instance, the State of Tennessee (the "State") filed suit to force NV Sumatra Tobacco Trading Company ("NV Sumatra"), a foreign manufacturer, to conform to the statutory requirements by making a payment into the escrow fund. NV Sumatra filed a motion to dismiss, alleging lack of personal jurisdiction, which the trial court denied. After discovery between the parties, NV Sumatra filed a motion for summary judgment on the personal jurisdiction issue, which the trial court granted, holding that our courts could not exercise jurisdiction over foreign manufacturers with such limited contacts in Tennessee. The trial court dismissed the complaint without addressing a motion the State had filed for summary judgment on its claim that NV Sumatra, as a non-participating manufacturer, owes the State payments under the Escrow Fund Act. The trial court did not, of course, conduct a trial on the merits or reserve at the conclusion of the proof a final assessment as to whether the State had established personal jurisdiction by a preponderance of the evidence. On first-tier review, the Court of Appeals reversed the trial court's ruling as to personal jurisdiction and granted the State's motion for summary judgment as to the merits of the case.
Now before this Court, NV Sumatra continues to assert that Tennessee courts may not exercise specific personal jurisdiction over it. I disagree and would affirm the judgment of the Court of Appeals on the jurisdiction issue. Although I believe the majority opinion by this Court generally sets out the appropriate standard for personal jurisdiction and correctly finds that a motion to dismiss under Tennessee Rule of Civil Procedure 12.02(2) — rather than a motion for summary judgment — is the appropriate vehicle for the disposition of the jurisdiction issue, I must dissent because, in my opinion, the statements contained in the affidavits and depositions filed in support of the respective motions for summary judgment warrant a different result.
While I would further observe that the result reached by the majority is not necessarily in conflict with the fragmented, limited ruling in McIntyre, which produced three separate opinions but none qualifying as a majority ruling, I do not agree that the essential components of McIntyre compel this Court to refrain from exercising personal jurisdiction over NV Sumatra. Because NV Sumatra has failed to demonstrate that the exercise of jurisdiction in Tennessee would be unreasonable or unfair, I believe that, based upon the sworn statements appearing in the record, the State has made a showing that justifies personal jurisdiction.
As stated by the majority and in this dissent, the trial court should have treated NV Sumatra's motion for summary judgment based upon a lack of personal jurisdiction as a supplemental motion to dismiss. See Tenn. R. Civ. P. 12.02(2). This is of no real consequence, however, because both the State and NV Sumatra chose to rely upon facts beyond the pleadings to support their arguments. The standard for adjudicating a Rule 12.02(2) motion was most recently set forth in Gordon v. Greenview Hospital, Inc., 300 S.W.3d 635, 643-45 (Tenn.2009), which is quoted at length by the majority. The crux of the rule is that upon the filing of a motion to dismiss for lack of personal jurisdiction, "[a] trial court must take as true all the allegations in the plaintiff's complaint and supporting papers, if any, and must resolve all factual disputes in the plaintiff's favor." Gordon, 300 S.W.3d at 644; see also Chenault v. Walker, 36 S.W.3d 45, 56 (Tenn.2001) (stating that when adjudicating Rule 12.02(2) motions, trial courts "should not credit conclusory allegations or draw farfetched inferences").
This is not an easy case. I concede that some facts recited in this record by both affidavit and deposition support the conclusion reached by the majority, but there are compelling facts, marginally greater, that support the exercise of personal jurisdiction over NV Sumatra. As indicated, my belief is that the majority has placed too much emphasis on the sworn statements favoring a dismissal at the expense of those facts that support the opposite result.
As a general guideline, I would subscribe to the proposition that each contact that a foreign defendant has with this state should be considered in the aggregate rather than in isolation, as I believe the majority has done. In considering whether the exercise of personal jurisdiction over an out-of-state defendant comports with due process, our courts must consider the nature, quality, and quantity of all of the defendant's contacts together. See Gordon, 300 S.W.3d at 644 ("Dismissal is proper only if all the specific facts alleged by the plaintiff collectively fail to establish a prima facie case for personal jurisdiction." (emphasis added)); see also id. at 649 (holding that the defendant hospital's contacts with Tennessee, "taken alone or together," did not justify the exercise of personal jurisdiction). As explained below, I would classify the collective contacts of NV Sumatra with Tennessee as sufficient to establish personal jurisdiction.
Because a decision regarding the exercise of personal jurisdiction over a defendant involves a question of law, the standard of review of a trial court's decision to grant or deny a Rule 12.02(2) motion is de novo with no presumption of correctness. Id. at 645. A threshold issue in the due process analysis is the determination of which party bears the burden of proof of personal jurisdiction and precisely what that burden entails. The majority concludes that when the defendant supports its Rule 12.02(2) motion "with affidavits or other evidentiary materials," the path NV Sumatra has chosen here, "[t]he plaintiff then bears the burden of making a prima facie showing of personal jurisdiction, based on its own evidence." Elsewhere, however, the majority observes that "[t]he plaintiff is required to establish that minimum
It is important to note, however, that the manner in which the trial court chooses to proceed will affect the standard of review for the motion to dismiss. If the trial court determines that it is appropriate to decide the motion without an evidentiary hearing, then "[d]ismissal is proper only if all the specific facts alleged by the plaintiff collectively fail to establish a prima facie case for personal jurisdiction." Id. If the trial court conducts an evidentiary hearing, then it may assess the credibility of any witnesses that testify to determine if the plaintiff has established personal jurisdiction under a preponderance of the evidence standard. Id.; see also Chenault, 36 S.W.3d at 56.
Federal Rule of Civil Procedure 12(b)(2), the federal counterpart to Tennessee's Rule 12.02(2), has been interpreted in this same way:
5B Charles A. Wright et al., Federal Practice and Procedure § 1351 (3d ed.2005) (emphasis added). The Sixth Circuit Court of Appeals has specifically addressed how a plaintiff makes out a prima facie case:
CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir.1996) (citations omitted) (emphasis added) (quoting Theunissen v. Matthews, 935 F.2d 1454, 1459 (6th Cir.1991)). I believe this is the proper approach, as it avoids a premature weighing of the evidence.
In this instance, the trial court decided the personal jurisdiction issue without an evidentiary hearing, and, in this appeal, neither party has challenged the procedure used. The State's burden, therefore, was limited to establishing a prima facie case for personal jurisdiction. As explained below, the State has met this burden.
The first step in the due process analysis is to determine whether the defendant
As the majority observes, "Justice Breyer's concurrence ... is susceptible to multiple interpretations." Clearly, Justice Breyer was content to decide McIntyre on its facts and had no interest in participating in any attempt to establish a new jurisdictional standard-either that set out in the plurality opinion by Justice Kennedy or that adopted by the New Jersey Supreme Court, see Nicastro v. McIntyre Mach. Am., Ltd., 201 N.J. 48, 987 A.2d 575 (2010).
In McIntyre, four fingers of Nicastro's right hand were severed while he was operating a metal-shearing machine that
McIntyre, 131 S.Ct. at 2791 (Breyer, J., concurring). After comparing these three pertinent facts in McIntyre with the sworn statements and deposition testimony in this record, I have concluded that NV Sumatra's contacts with Tennessee were measurably greater-not only sufficient to survive a motion to dismiss, but also, in consideration of the sworn statements as a substitute for an evidentiary hearing, sufficient to establish personal jurisdiction, even under the preponderance of the evidence standard referenced by the majority.
In concluding that McIntyre UK had insufficient contacts with New Jersey, Justice Breyer relied heavily upon the fact that there was only a single sale of a single product in New Jersey.
McIntyre, 131 S.Ct. at 2792 (Breyer, J., concurring) (third alteration in original) (emphasis added).
A recent decision by the Oregon Supreme Court is instructive. A Taiwanese manufacturer of battery chargers supplied its products for installation in motorized wheelchairs built by an Ohio corporation, which then sold the wheelchairs throughout the United States, including in Oregon. Willemsen v. Invacare Corp., 352 Or. 191, 282 P.3d 867, 869 (2012).
I agree with the interpretation of Justice Breyer's concurring opinion set forth by the Oregon Supreme Court. In my view, Justice Breyer's opinion authorizes a finding of minimum contacts if there is either a "`regular ... flow' or `regular course' of sales" in a forum state or "`something more,' such as special state-related design, advertising, advice, marketing, or anything else." McIntyre, 131 S.Ct. at 2792 (Breyer, J., concurring). The sale of over 11.5 million products over the course of roughly three years clearly constitutes a "regular flow" or "regular course" of sales for that period. This regular course of sales in Tennessee is reason alone to hold that the State has made out a prima facie case for the exercise of personal jurisdiction over NV Sumatra. Furthermore, the State carried its burden even under a preponderance of the evidence standard because the "something more," as stated by Justice Breyer as an alternative method of proving personal jurisdiction, has also been established by the sworn statements in the record, which the parties deemed to constitute all of the proof necessary on the subject.
The second pertinent fact in McIntyre, as set forth in Justice Breyer's concurrence, is that McIntyre UK "permitted, indeed wanted," McIntyre America "to sell its machines to anyone in America willing to buy them." McIntyre, 131 S.Ct. at 2791 (Breyer, J., concurring). Justice Ginsburg describes the relationship between McIntyre
The State's primary source of information regarding the sale of NV Sumatra's United brand cigarettes in Tennessee and a number of other states is the sworn affidavit and deposition testimony of Basil Battah, the president of FTS. FTS was an importer and distributor of cigarettes based out of the Miami Free Zone — the foreign trade zone in Miami, Florida — and was the only distributor of United brand cigarettes in the United States during the relevant period. Battah testified that the first United brand cigarettes that FTS bought were from a California company called Pacific Coast Duty Free in late 1999 or 2000. The transaction was initiated by Pacific Coast Duty Free; subsequently, according to Battah, "the representative of NV Sumatra asked us to be the importer of the product." After FTS sold all of the cigarettes it had initially purchased, it "wanted more" and began to place orders by telephone and facsimile for United brand cigarettes to three separate entities simultaneously: NV Sumatra; Unico Trading, a distributor based in Singapore; and Nabil Hawe, an individual based out of London who became a primary point of contact for FTS. Battah testified that, at least initially, he had assumed that Hawe worked for NV Sumatra, when, in fact, Hawe worked for a third entity, Silmar Trading, which was based in the British Virgin Islands. Battah testified that he would often place a direct call to NV Sumatra in Indonesia to follow up on orders. The shipments originated in Indonesia but usually came through Singapore, London, or both, en route to FTS in Miami. The certificates of origin and bills of lading in this record indicate that, whatever the stops along the way, the United brand cigarettes left NV Sumatra in Indonesia identifying their final destination as the United States (specifically, Miami).
Despite the involvement of Unico Trading and Silmar Trading as possible intermediaries, Battah's testimony indicates that he had a direct relationship with NV Sumatra. When asked whether FTS had "enter[ed] into a written or oral contract with anyone from NV Sumatra about distributing their cigarettes," Battah answered definitively: "We had an oral agreement that I was their exclusive distributor. We wanted to put it in writing but we never got that far because they just stopped selling us cigarettes completely."
A document dated July 9, 2001, executed by Timin Bingei, the Executive Director of NV Sumatra, indicates that, at least as of that date, NV Sumatra did not have a direct relationship with FTS with regard to the United brand cigarettes. The document provides that NV Sumatra had "appointed Unico Trading ... as [its] sole agent for sale and marketing cigarettes bearing the name `United.'" It also states that NV Sumatra consented "to allow Unico... to appoint Silmar Trading ... to be its exclusive-buyer to distribute `United' cigarettes for sale in the United States of America." Battah, who had been working directly with Hawe of Silmar Trading to market and build the United brand throughout the United States, conceded that this document "made it very clear" that NV Sumatra did not want to have an agreement directly with FTS.
On July 25, 2001, two weeks after executing this document, NV Sumatra sent a facsimile
(Emphasis added.) This, of course, suggests that NV Sumatra was well aware "some time" prior to July 25, 2001 that FTS was importing and distributing its United brand cigarettes throughout the United States, including in Tennessee. This information is consistent with escrow fund notices in the record from the Tennessee Attorney General's Office to NV Sumatra in Indonesia, which are dated March 21 and May 7, 2001. The notices describe the potential liability of tobacco products manufacturers under the Escrow Fund Act and request NV Sumatra to return a completed "Certificate of Compliance with the Act" and deposit funds if necessary.
Battah testified that he had numerous meetings with representatives of NV Sumatra, with Hawe from Silmar Trading, and with representatives of Unico Trading. The purposes of these meetings were to formalize the American distribution arrangement for United brand cigarettes and to obtain assurances that NV Sumatra would change the packaging of its cigarettes to alleviate concerns of the United States Customs Service.
Based upon the contents of the record evidencing the relationship between NV Sumatra and its distributors, including
This is not an entirely unreasonable inference from the allegations in the record. However, when viewed in the light most favorable to the State, those same allegations are subject to a more plausible alternative interpretation. That is, NV Sumatra had an obvious interest in engaging the United States market because a California distributor, Pacific Coast Duty Free, already had a large inventory of its United brand cigarettes on hand. When Pacific Coast Duty Free could not or would not sell NV Sumatra's cigarettes, it sought out another distributor, FTS, to purchase the inventory. NV Sumatra made informal assurances to Battah, who proceeded under the assumption that he was dealing directly with the manufacturer of the United brand cigarettes. This mutually beneficial relationship flourished until NV Sumatra received escrow fund notices from the Tennessee Attorney General's Office in March and May of 2001. In July of 2001, NV Sumatra made efforts to clarify the steps in the supply chain and seek counsel regarding the legal ramifications of its sales of millions of cigarettes in Tennessee and the other states subject to the escrow fund. NV Sumatra called a meeting in Beijing in November of 2001 to gather information about the volume of sales that were being made on its behalf in the United States by FTS, as well as the regulatory implications of continuing to cultivate that market. Finally, in February of 2002, nearly one year after first having been notified of its potential liability under the Escrow Fund Act and seven months after confirming this potential liability via a facsimile to its distributors, NV Sumatra decided to pull out of the United States market entirely. Of course, it kept the profits it had accumulated from targeting American consumers and did so without paying a cent into the escrow funds of Tennessee and the other participating states, thereby "unleveling" the playing field among cigarette manufacturers. When sued by the states, NV Sumatra used the layers of its distribution chain to distance itself from FTS and claimed that it had never purposefully availed itself of the United States market.
My primary purpose in developing this alternative narrative is, in part, to demonstrate the fallibility of attempting to assess witness credibility based upon allegations in a complaint, the contents of an affidavit, or the words in a transcript of a deposition. See Sampson v. Wellmont Health Sys., 228 S.W.3d 124, 135 (Tenn.Ct.App. 2007) (concluding that when a proceeding is "strictly `on the papers,'" such as a matter decided on affidavits and deposition transcripts, "testimony cannot be disregarded on the basis of a lack of credibility" (citing Byrd v. Hall, 847 S.W.2d 208, 216 (Tenn.1993))). At this stage of the proceedings, the duty of the trial court was to construe the sworn statements in the light most favorable to the State without weighing the credibility of the affiants or the reliability of their assertions. In my view,
The third and final pertinent fact mentioned by Justice Breyer is that representatives of McIntyre UK had attended trade shows in various locations in the United States, including Chicago, Las Vegas, New Orleans, Orlando, San Diego, and San Francisco. McIntyre, 131 S.Ct. at 2791 (Breyer, J., concurring). These actions were representative of the British manufacturer's efforts to target the United States market as a whole. The majority contrasts these actions with those of NV Sumatra and concludes that there is a "paucity of national contacts." The majority appears to believe that the most important facts are those that "the record does not reveal," including NV Sumatra's failure to create "an aggressive advertising campaign aimed at the United States," to send "representatives to trade shows in the United States," or to engage in "Internet sales targeting United States markets." This assessment fails to take into account the numerous activities in which NV Sumatra clearly engaged, both directly and through its distributors, that did target the United States and Tennessee markets.
This case raises the question of whether a foreign corporation is subject to personal jurisdiction in a particular forum state where it purposefully avails itself of the United States market and, as a result of this targeting, its products end up in the forum state and subject it to liability there. Justice Kennedy's plurality opinion in McIntyre supports the view that the targeting of a national market can never give rise to personal jurisdiction in a particular state, and proposes that the foreign defendant must also have purposeful and significant contacts with the forum state itself. See McIntyre, 131 S.Ct. at 2790 (plurality opinion) ("These facts may reveal an intent to serve the U.S. market, but they do not show that J. McIntyre purposefully availed itself of the New Jersey market."). Justice Ginsburg, in dissent, emphatically asserted that a foreign manufacturer targeting the entire United States market should be subject to personal jurisdiction anywhere its products cause injury. Id. at 2801 (Ginsburg, J., dissenting) ("McIntyre UK, by engaging McIntyre America to promote and sell its machines in the United States, `purposefully availed itself' of the United States market nationwide, not a market in a single State or a discrete collection of States. McIntyre UK thereby availed itself of the market of all States in which its products were sold by its exclusive distributor."). By explicitly rejecting the plurality's "seemingly strict no-jurisdiction rule," id. at 2793 (Breyer, J., concurring), Justice Breyer's concurrence is more equivocal but leaves for another day the answer to the question of whether marketing and sales activities targeting the United States as a whole may subject a foreign entity to personal jurisdiction in a particular state.
In the case before us, the record indicates that FTS took the lead in marketing and distributing NV Sumatra's United brand cigarettes to the United States market. In so doing, however, FTS built upon the foundation already laid by NV Sumatra and worked in concert with Silmar Trading, another approved entity in the
First, it appears that NV Sumatra took several affirmative steps to weave its way through the web of federal regulations required to sell cigarettes in the United States. In 1995, years prior to the formation of FTS, NV Sumatra applied for, and received, a United States trademark for the United brand cigarettes.
Second, NV Sumatra, both directly and through its other distributors, worked with FTS to distribute, market, and sell cigarettes in a variety of ways. After NV Sumatra approved Unico Trading to appoint Silmar Trading as its exclusive distributor to the United States market in July of 2001, Hawe "came to Miami several times" to discuss "marketing strategy and building the brand and making [United cigarettes] a nationwide brand." The mutual goal of Battah and Hawe "was to sell a thousand master cases per state." To further the goal of selling 1000 master cases — the equivalent of 500,000 packs or 10,000,000 cigarettes — in Tennessee and every other state, Battah asked for, and NV Sumatra provided, promotional materials for the United brand cigarettes to be placed in retail stores. Specifically, NV Sumatra provided "eight-by-eleven posters that said `The Spirit of United,' and they had the health warning on them."
In summary, the record shows that the three pertinent facts deemed inadequate in McIntyre for New Jersey courts to exercise jurisdiction support the opposite conclusion here. First, there was a "regular
The finding that the State has set forth a prima facie case of minimum contacts crosses the threshold for the personal jurisdiction analysis. There is a second step in the due process analysis in which the burden shifts to NV Sumatra to show that the exercise of personal jurisdiction by Tennessee would be unfair or unreasonable.
480 U.S. at 113, 107 S.Ct. 1026 (plurality opinion) (emphasis added) (quoting World-Wide Volkswagen, 444 U.S. at 292, 100 S.Ct. 559).
NV Sumatra has based its personal jurisdiction arguments on the minimum contacts prong of the analysis, but has offered no proof, much less carried its burden of proof, on the issue of reasonableness. In any event, I concur with the reasonableness analysis by our Court of Appeals and that of the South Carolina Supreme Court in a case involving the same analysis and nearly identical facts. See State v. NV Sumatra Tobacco Trading Co., 379 S.C. 81, 666 S.E.2d 218, 223 (2008).
NV Sumatra Tobacco Trading Co., 666 S.E.2d at 223.
In my view, it is neither unfair nor unreasonable, under these circumstances, for Tennessee to exercise jurisdiction over NV Sumatra, and there is no denial of the right to due process. The words of Hillel the Elder, a legendary Jewish leader in the time of King Herod, apply to this jurisdictional issue in the context of the integrity of the historic tobacco settlement: "If not us, who? If not now, when?"
For the reasons set forth in this opinion, I believe that the State has not only made a prima facie showing of minimum contacts, as is required, but has exceeded that threshold, and that NV Sumatra has failed to demonstrate that it would be unreasonable for Tennessee courts to exercise personal jurisdiction. In consequence, I would hold that NV Sumatra is not entitled to a dismissal based upon lack of personal jurisdiction; unlike the Court of Appeals, however, instead of granting the motion for summary judgment by the State, I would remand the case to the trial court for consideration of that summary judgment motion and any defenses that the trial court did not consider after granting NV Sumatra's competing motion.
I am authorized to state that Justice Lee, who has made substantial contributions to this analysis, joins in this dissenting opinion.
KT & G Corp. v. Attorney Gen. of Okla., 535 F.3d 1114, 1119 (10th Cir.2008).
Energy Automation Sys., Inc. v. Saxton, 618 F.Supp.2d 807, 812 (M.D.Tenn.2009) (quoting Southern Mach. Co. v. Mohasco, 401 F.2d 374, 381 (6th Cir.1968)). In the Sixth Circuit, the "purposeful availment factor" is the "sine qua non" of personal jurisdiction. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1273 (6th Cir.1998). Accord Baxter Bailey Inv., LLC v. Harrison Poultry, Inc., No. 11-3116, 2012 WL 4062771, at *6 (W.D.Tenn. Sept. 14, 2012).
In reaching its conclusion, this Court cited two reasons provided by the Washington Supreme Court in McCurry v. Chevy Chase Bank, FSB, 169 Wn.2d 96, 233 P.3d 861 (2010), as well as four additional reasons based on both Tennessee-specific concerns and scholarly commentary: (1) Twombly and Iqbal mark "a substantial departure" from, and have resulted in "a loss of clarity, stability, and predictability in[,] federal pleading practice"; (2) the new federal standard "incorporates an elevation and determination of likelihood of success on the merits ... at the earliest stage of the proceedings," a procedure that "conflicts with the strong preference embodied in the Tennessee Rules of Civil Procedure that cases stating a valid legal claim brought by Tennessee citizens be decided on their merits"; (3) the plausibility standard is unworkable because "the distinction between whether an allegation is a `fact' or a `conclusion' is fine, blurry, and hard to detect"; and (4) the federal standard is likely to result in an "information asymmetry" problem, under which certain types of cases (e.g., civil rights, employment discrimination, antitrust, conspiracy) are more likely to be dismissed because it is difficult to plead factual sufficiency in such cases without some limited discovery. Webb, 346 S.W.3d at 430-35.
