State of Tennessee v. NV Sumatra Tobacco Trading Company
403 S.W.3d 726, 2013 WL 1248285, 2013 Tenn. LEXIS 335 (2013)
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Rule of Law:
A state court cannot exercise specific personal jurisdiction over a foreign manufacturer that places products into the stream of commerce without additional conduct indicating an intent to serve the market in the forum state. Mere awareness that its products may be sold in the forum state through the efforts of independent, third-party distributors is insufficient to establish the minimum contacts required by the Due Process Clause.
Facts:
- NV Sumatra, an Indonesian company, manufactured 'United' brand cigarettes.
- NV Sumatra sold its cigarettes to Unico, a distributor in Singapore, which in turn sold them to Silmar Trading, a distributor in the British Virgin Islands.
- A Florida entrepreneur, Basil Battah, through his company FTS Distributors, purchased the United brand cigarettes from Silmar to import and sell in the United States.
- Battah marketed the cigarettes nationwide by attending trade shows and advertising in trade magazines, with the goal of selling them in all fifty states.
- FTS sold the cigarettes to regional distributors, and through this chain, over 11.5 million United brand cigarettes were sold in Tennessee between 2000 and 2002.
- NV Sumatra became aware that its cigarettes were being sold in states, including Tennessee, that had escrow fund laws imposing financial obligations on tobacco manufacturers.
- Battah met with NV Sumatra representatives to discuss U.S. regulatory compliance, including the state escrow laws, and to request an exclusive distribution contract.
- Following these discussions, NV Sumatra declined to establish state escrow funds, refused to grant Battah an exclusive contract, and decided to withdraw its products from the U.S. market.
Procedural Posture:
- The State of Tennessee filed suit against NV Sumatra in the Chancery Court for Davidson County, a state trial court.
- NV Sumatra moved for summary judgment, arguing the court lacked personal jurisdiction.
- The trial court granted NV Sumatra's motion for summary judgment and dismissed the State's complaint.
- The State of Tennessee, as appellant, appealed to the Tennessee Court of Appeals, an intermediate appellate court.
- The Court of Appeals reversed the trial court's decision, found that personal jurisdiction existed, granted summary judgment to the State, and remanded the case.
- NV Sumatra, as appellant, was granted permission to appeal to the Supreme Court of Tennessee, the state's highest court.
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Issue:
Does the Due Process Clause of the Fourteenth Amendment permit a Tennessee court to exercise specific personal jurisdiction over a foreign manufacturer whose products were sold in the state through a series of independent intermediaries, when the manufacturer itself did not specifically target Tennessee for sales or distribution?
Opinions:
Majority - William C. Koch, Jr., J.
No, the Due Process Clause does not permit a Tennessee court to exercise personal jurisdiction over NV Sumatra. Exercising jurisdiction requires that the defendant has purposefully availed itself of the privilege of conducting activities within the forum state, thereby invoking the benefits and protections of its laws. The court found that placing a product into the stream of commerce, without 'something more,' is not an act purposefully directed toward the forum state. Here, the cigarettes arrived in Tennessee due to the 'unilateral activity' of a third party, Basil Battah, not through any action by NV Sumatra purposefully directed at Tennessee. NV Sumatra's national-level contacts, such as obtaining a U.S. trademark and complying with federal labeling laws, were minimal and did not establish contacts with Tennessee specifically. The company's awareness that its products were sold in Tennessee was insufficient, and its subsequent decision to withdraw from the U.S. market upon learning of potential liability demonstrated a deliberate choice not to avail itself of the Tennessee market. Therefore, the attenuated connection between NV Sumatra and Tennessee does not satisfy the minimum contacts requirement.
Dissenting - Gary R. Wade, C.J.
Yes, the Due Process Clause permits the exercise of personal jurisdiction over NV Sumatra. The dissent argues that the majority failed to view the evidence in the light most favorable to the State and ignored significant contacts. The sale of over 11.5 million cigarettes in Tennessee over three years constitutes a 'regular flow' of commerce sufficient to establish minimum contacts under the standard from J. McIntyre Machinery. Furthermore, there was 'something more' than just placing products into the stream of commerce; NV Sumatra was aware of the sales in Tennessee, worked with its distributors to create a nationwide brand, provided promotional materials, and took steps to comply with U.S. regulations to facilitate sales. Given this purposeful availment of the U.S. market, which included Tennessee, and the State's strong interest in enforcing its public health laws, it is not unreasonable or unfair to subject NV Sumatra to suit in Tennessee.
Analysis:
This decision solidifies Tennessee's adoption of the restrictive 'stream-of-commerce plus' theory of personal jurisdiction, following the fractured holdings in Asahi and J. McIntyre. It establishes a significant precedent that protects foreign manufacturers who utilize multi-layered, independent distribution chains from being sued in states where they lack direct, purposeful contact. The ruling emphasizes that targeting the U.S. market as a whole is insufficient to establish specific jurisdiction in every state where a product lands. This creates a higher bar for plaintiffs in regulatory enforcement and products liability cases, requiring them to show specific actions by the foreign defendant aimed at the forum state, rather than just a large volume of sales within it.
