Legal Update: TN Supreme Court Revisits Specific Personal Jurisdiction in Crouch Railway

LEGAL UPDATE By: Adam R. Duggan

Breeding Olinzock Carter Crippen, P.C.

TENNESSEE SUPREME COURT REVISITS SPECIFIC PERSONAL JURISDICTION IN CROUCH RAILWAY

Nonresident defendants have been on a decade’s long winning streak, limiting courts’ exercise of personal jurisdiction over nonresident defendants. The Tennessee Supreme Court has seen enough. In Crouch Railway Consulting, LLC v. LS Energy Fabrication, LLC, issued on October 6, 20201, the Tennessee Supreme Court revisited the scope of specific personal jurisdiction in Tennessee and held that a Tennessee plaintiff established a prima facie case for the exercise of personal jurisdiction where a Texas defendant contracted with a Tennessee resident. Let us take a brief dive into the facts of Crouch Railway, understand its ruling, and compare it with recent U.S. Supreme Court opinions. Defendant’s Tennessee Connections

Crouch, the plaintiff, was a Tennessee limited liability company with its principal place of business in Tennessee. Lonestar, the defendant, was a Texas limited liability company with its principal place of business in Texas. Pursuant to the parties’ contract, Crouch was to perform planning and design work for the construction of Lonestar’s railway repair facility in Texas. Lonestar signed the contract in Texas and never visited Tennessee in relation to the contract. Other than signing a contract—one that did not contain a forum selection clause or choice of law provision—with a Tennessee resident, Lonestar’s only connections with Tennessee were mailing a partial payment to Tennessee and virtually communicating with Crouch representatives located in Tennessee. All other Tennessee connections arose from Crouch: Crouch prepared the proposal in Tennessee, signed the contract in Tennessee, performed most of the work in Tennessee, conducted meetings with Lonestar while located in Tennessee, and communicated with Lonestar while located in Tennessee. The Crouch Railway Decision

In holding that specifical personal jurisdiction was appropriate,2 the Tennessee Supreme Court made clear that Tennessee law is co-extensive with the U.S. constitution. Thus, a nonresident defendant may be subject to suit in the forum if it has “certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.”3 The court characterized this as a two-part test.

Under part one of this test, the minimum contacts prong, the court explained that Lonestar must have purposefully availed itself of Tennessee such that Lonestar could expect to be haled into court in Tennessee. Lonestar purposefully availed itself of Tennessee: Lonestar entered into a contract with a Tennessee resident, knew Crouch would primarily conduct its activities in Tennessee, communicated with Crouch while Crouch was located in Tennessee, and sent partial payment to Crouch in Tennessee. It was of no moment that Crouch was the party who initiated the relationship, that Crouch physically visited Texas, and that this was a single contract relationship; these were but non-determinative factors. Ultimately, “Lonestar voluntarily chose to take advantage of a business opportunity in Tennessee.”4

Under part two of the test, the fairness prong, the Tennessee Supreme Court looked at five factors: “(1) the burden on the defendant; (2) the interests of the forum state; (3) the plaintiff’s interest in obtaining relief; (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several states in furthering fundamental substantive social policies.”5 The court dealt with this prong swiftly. Tennessee has a significant interest in redressing injuries inflicted on Tennessee residents by nonresident defendants. This interest is not outweighed by the burden on Lonestar to litigate in Tennessee. “[A]dvancements in transportation and communications” make it easy for nonresident litigants to defend in foreign forums. U.S. Supreme Court

The Tennessee Supreme Court primarily relied on the U.S. Supreme Court’s 1985 Burger King opinion, in which the U.S. Supreme Court held that Wisconsin residents who entered into a 20-year contract with Florida residents that contained a Florida choice of law provision could be sued in Florida.6 Burger King was the last significant U.S. Supreme Court decision involving personal jurisdiction in a contract dispute. In the intervening four decades, however, the U.S. Supreme Court has significantly limited general personal jurisdiction and specific personal jurisdiction in non-contract cases.

Additionally, the U.S. Supreme Court will soon be releasing an opinion addressing the relatedness prong in a tort case, i.e., when do a defendant’s contacts with a forum give rise or relate to the claim?7 One might expect this opinion to have no effect on the Crouch Railway opinion. The primary contact in Crouch Railway was entering into a contract with a Tennessee resident. That contract gave rise to the litigation. On the other hand, the Tennessee Supreme Court conflated the relatedness prong, a prong deriving from Burger King, with foreseeability. The Burger King defendants’ actions toward the forum were arguably more intentional, extensive, and long-lasting, and there was a clearer showing of relatedness. This fact, weighed against the near universal tightening of personal jurisdiction, makes it reasonable to question the longevity of Crouch Railway. Conclusion

That Crouch Railway was a contract dispute is paramount—if a nonresident defendant enters into a contract with a Tennessee resident, it should reasonably expect to be haled to court in Tennessee. The Tennessee Supreme Court disregarded the fact that most of the Tennessee specific connections were not created by the nonresident defendant. This approach—i.e., looking at the connections with the forum sate regardless of whether created by the plaintiff or defendant— will be at the heart of the U.S. Supreme Court’s opinion in Ford Motor Company. In the meantime, Tennessee courts may exercise personal jurisdiction over nonresident defendants who enter into a contract with a Tennessee resident.

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6 No. M2017-02540-SC-R11-CV (Oct. 6, 2020). Crouch Railway was a case of specific personal jurisdiction. The U.S. Supreme Court has effectively limited general personal jurisdiction to the place where a defendant is incorporated and maintains its principal place of business. See Adam R. Duggan, Home Isn’t Necessarily Where the Plaintiff Is: Daimler AG v. Bauman and Its Effect on General Jurisdiction, DICTA (Nov. 2016). Quoting Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945). Crouch, Slip Op. at 20. Crouch, Slip Op. at 28-29 (citing State v. Sumatra Tobacco Trading Co., 403 S.W.3d 726, 752 (Tenn. 2013). Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). Ford Motor Company v. Montana Eighth Judicial District Court, Docket No. 19-368.