IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
April 22, 2008 Session
EXEL TRANSPORTATION SERVICES, INC.
v.
INTER-EGO SYSTEMS, INC. d/b/a PINNACLE LOUDSPEAKERS
a/k/a PINNACLE SPEAKERS
Appeal from the Chancery Court for Shelby County
No. CH-06-0427-3 Kenny W. Armstrong, Chancellor
No. W2007-01902-COA-R3-CV - Filed December 18, 2008
This appeal involves a dismissal for lack of personal jurisdiction. The plaintiff transportation
company has its principal place of business in Tennessee. It provided transportation services and
financing to the defendant foreign corporation. The defendant eventually defaulted on payments due
to the plaintiff. After negotiations by telephone, fax, and email, the parties agreed to a payment plan
to bring the defendant’s account current. They executed a letter agreement confirming the
arrangement. Subsequently, the Tennessee plaintiff realized that a substantial amount of the
services it had rendered to the defendant foreign corporation were inadvertently not included in the
letter agreement. The Tennessee plaintiff filed a lawsuit in Tennessee against the foreign
corporation, seeking rescission or reformation of the agreement. The defendant foreign corporation
filed a motion to dismiss for lack of personal jurisdiction. The trial court granted the motion to
dismiss, finding that the defendant foreign corporation had not purposely availed itself of the
privilege of doing business in Tennessee and did not have sufficient contacts with Tennessee to be
subjected to jurisdiction in this state. We affirm, finding that the circumstances do not support the
exercise of either general or specific jurisdiction.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
HOLLY M. KIRBY , J., delivered the opinion of the Court, in which ALAN E. HIGHERS, P.J., W.S., and
WALTER C. KURTZ, SP. J., joined.
Allan B. Thorp, Memphis, Tennessee, for the Plaintiff/Appellant Exel Transportation Services, Inc.
Bruce M. Smith and Charmiane G. Claxton, Memphis, Tennessee, for the Defendant/Appellee Inter-
Ego Systems, Inc. d/b/a Pinnacle Loudspeakers a/k/a Pinnacle Speakers
OPINION
FACTS AND PROCEEDINGS BELOW
Plaintiff/Appellant Exel Transportation Services, Inc. (“Exel”) is a Delaware corporation
with its principal place of business in Memphis, Tennessee. Exel is a transportation broker; it
provides transportation services for its customers. Defendant/Appellee Inter-Ego Systems, Inc. d/b/a
Pinnacle Loudspeakers a/k/a Pinnacle Speakers (“Pinnacle”) is a New York corporation with its
principal place of business in Plainview, New York.
In approximately December 2002, Exel contacted Pinnacle in New York to offer Pinnacle
its services. In order to obtain Exel’s services, Pinnacle submitted a credit application to Exel’s
Memphis-based credit department. Pinnacle’s credit application was approved, and Exel began
providing Pinnacle freight forwarding services from companies in Asia that supplied components
to Pinnacle’s warehouses in California and New York, as well as related management services.
These services were provided out of Exel’s office in Totowa, New Jersey. This arrangement
continued until approximately January 2005.
In February 2005, Pinnacle defaulted under the terms of its credit arrangement with Exel.
On February 24, 2005, the accounting manager in Exel’s collections department in Memphis, Gale
McDonald (“McDonald”), called Pinnacle’s Plainview, New York office. She spoke with
Pinnacle’s vice president, Marc Rothenberg (“Rothenberg”). Rothenberg asked McDonald to send
him a list of invoices reflecting the services for which Pinnacle had not paid; McDonald complied
with the request. In a later telephone call in March 2005 between Rothenberg and McDonald,
Rothenberg proposed a schedule for Pinnacle to pay off the overdue amounts. McDonald did not
have authority to accept the proposal for Exel, so the message was conveyed to Exel’s chief financial
officer, Andrew Hadland (“Hadland”), in Exel’s Memphis office. Hadland rejected Rothenberg’s
initial offer. This was followed by further negotiation between Hadland and Rothenberg, via email
discussions, facsimiles, and telephone calls. Ultimately, they agreed that Pinnacle would pay Exel
the amounts owed over a twenty-four-month period.
In April 2005, McDonald sent Rothenberg a letter setting out the terms of the proposed
agreement. McDonald’s letter was on Exel letterhead, and bore Exel’s Memphis address. It stated:
This letter confirms our agreement to satisfy the balance remaining due to Exel
Transportation Services, Inc. for freight charges, as follows:
1. According to our records the balance of the Account is
$179,794.56.
2. . . . Payments shall be in cash or certified checks or electronic
funds transfer, are to be received by Exel by the due date in care of
Exel at: Bank Of America, PO Box 844711, Dallas, TX 75284-4711.
If you overnight payment, the physical is: Bank Of America ATTN:
Remittance Processing, TX 1-099-05-03, 1401 Elm Street, Dallas,
TX 75202-2911.
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...
If these terms are acceptable, please sign and date below and return
this letter to me.
The letter was signed by McDonald.
In response, Rothenberg did not sign McDonald’s letter in the original form, but instead
proposed revisions to the letter agreement. The changes Rothenberg made to the letter are italicized:
1. According to our records the balance of the Account is $179,794.56 (the
“Receivable Amount”). The parties acknowledge and agree that the Receivable
Amount is the total amount due and owing from Pinnacle Loudspeakers to Exel
Transportation and that no other sums are due and owing.
The rest of the letter remained substantially the same. McDonald signed the letter as altered by
Rothenberg.
Subsequently, after executing the letter agreement on payment of Pinnacle’s outstanding debt
to Exel, McDonald learned that Pinnacle in fact owed Exel an additional $234,126.82 for
transportation services. At the time that McDonald was negotiating with Pinnacle on Exel’s behalf,
this amount had not yet appeared on Exel’s accounts receivables records. Pinnacle apparently
declined to add this amount to the overall indebtedness in the previously executed letter agreement.
Consequently, Exel filed a lawsuit against Pinnacle in the Chancery Court in Shelby County,
Tennessee, seeking rescission or reformation of the letter agreement. Exel’s complaint alleged that
Pinnacle was amenable to service of process under Tennessee’s “Long Arm Statutes,” Tennessee
Code Annotated § 20-2-201 et seq.
Pinnacle responded, pursuant to Rule 12.02(2) of the Tennessee Rules of Civil Procedure,
with a motion to dismiss for lack of personal jurisdiction. In the motion, Pinnacle argued that it had
insufficient contacts with Tennessee for the court to exercise general jurisdiction, and that it had not
purposely directed its activities toward citizens of Tennessee in such a manner that the court could
exercise specific jurisdiction.
In support of its motion to dismiss, Pinnacle filed a memorandum of law and the affidavit
of Marc Rothenberg. Rothenberg’s affidavit explained that Pinnacle acquires speakers and speaker
components from companies in China, Taiwan, and India. These items are then shipped to U.S.
ports in New York and California. The goods shipped to New York are stored at Pinnacle’s
warehouse in Plainview; the goods shipped to California go to Pinnacle’s warehouse in Oakland,
California. From the New York and California warehouses, Pinnacle’s speakers and components
are shipped, via common carriers that are selected and paid by Pinnacle, to independent distributors.
From the independent distributors, the goods go to authorized dealers located throughout the
country. In his affidavit, Rothenberg stated that none of the distributors were located in Tennessee.
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Rothenberg indicated in his affidavit that Pinnacle hired Exel to “handle the logistics of
transportation” from the Asian companies to the warehouses in California and New York, including
customs clearance and ground transportation from the port to the warehouse. Invoices from Exel
requested that payments be made to Dallas, Texas; Lake Hapacong, New Jersey; or Memphis. Of
nineteen payment checks made out to Exel, Pinnacle mailed thirteen to Memphis. Most of
Pinnacle’s communications with Exel occurred via Exel’s Wayne, New Jersey office. Rothenberg
asserted that Pinnacle had no employees or agents for service of process in Tennessee, and that
Pinnacle had not done business in Tennessee within the last fifteen years.
Exel filed a response, arguing that the Tennessee court had personal jurisdiction over
Pinnacle. Exel submitted to the trial court the affidavit of Gale McDonald. McDonald asserted in
the affidavit that Pinnacle in fact had several authorized dealers in Tennessee. The affidavit noted
that Pinnacle maintained a toll-free phone number and a website, both of which could be accessed
by anyone in Tennessee. McDonald claimed that she spoke with an authorized Pinnacle dealer in
Tennessee who sent her a brochure on Pinnacle products. Exhibits were attached to McDonald’s
affidavit to corroborate her assertions. McDonald further alleged that, when the parties began doing
business, Pinnacle sent its credit application to Exel’s credit department in Memphis.
In reply to Exel’s response, Pinnacle filed a second affidavit from Rothenberg in which he
provided additional information about the parties’ relationship and disputed some of McDonald’s
claims. As additional information, Rothenberg asserted that an Exel representative initiated the
relationship between the parties when this representative contacted Pinnacle to offer transportation
services. He explained that Pinnacle’s designation of Tennessee dealers as “authorized dealers”
created no legal relationship between Pinnacle and the dealer because the independent distributers,
not Pinnacle, made such designations. Rothenberg also disputed some of McDonald’s assertions.
First, he claimed that Pinnacle’s credit application was faxed to Exel’s New Jersey office, not its
Memphis office. Second, he stated that Pinnacle had no record of any sales of its speakers in
Tennessee.
In an order dated August 16, 2007, the trial court granted Pinnacle’s motion to dismiss. The
trial court stated:
This cause came to be heard upon the Motion of the Defendant [Pinnacle], Response
of the Plaintiff [Exel], Defendant’s Reply to Plaintiff’s Response, Plaintiff’s Sur
Reply, briefs of the attorneys, and exhibits filed herein, the case authorities cited and
the entire record, from all of which it appears to the Court that the Defendant did not
purposefully avail itself of the privilege of conducting business in this state. The
Court further finds that the quality, nature and extent of the Defendant’s contacts
with this state are not sufficient to subject the Defendant to in personam jurisdiction
in this state.
The trial court therefore dismissed Exel’s lawsuit against Pinnacle, and assessed costs against Exel.
Exel filed a timely notice of appeal.
ISSUES ON APPEAL AND STANDARD OF REVIEW
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On appeal, Exel argues that the Tennessee trial court had general and specific jurisdiction to
adjudicate its lawsuit against Pinnacle, and that it erred in granting Pinnacle’s motion to dismiss.
Exel maintains that the facts support a finding of jurisdiction in that (1) Pinnacle sought the letter
agreement with Exel, located in Tennessee; (2) Pinnacle negotiated the letter agreement with Exel
in Tennessee; (3) Pinnacle changed the letter agreement to add the mistaken term; and (4) Pinnacle
sent the changed letter to be signed by Exel in Tennessee.
Although both parties filed affidavits in connection with the motion to dismiss, we do not
treat the motion as one for summary judgment. Chenault v. Walker, 36 S.W.3d 45, 55 (Tenn. 2001)
(citing Nicholstone Book Bindery, Inc. v. Chelsea House Publishers, 621 S.W.2d 560, 561 n.1
(Tenn. 1981)); but see Tenn. R. Civ. P. 12.03. When a defendant raises a jurisdictional challenge
under Rule 12.02(2) and files accompanying affidavits, “the plaintiff must establish a prima facie
showing of jurisdiction by responding with its own affidavits and, if useful, other written evidence.”
Chenault, 36 S.W.3d at 56 (citations omitted). The court will “take as true the allegations of the
nonmoving party and resolve all factual disputes in its favor.” Id. (citations omitted). The court
should not, however, “credit conclusory allegations or draw farfetched inferences.” Id. (citation
omitted). Legal issues are resolved by de novo review of the record with no presumption that the
lower court’s decision was correct. Tenn. R. App. P. 13(d); Campbell v. Fla. Steel Corp., 919
S.W.2d 26, 35 (Tenn. 1996).
ANALYSIS
For a court to exercise personal jurisdiction over a defendant, the assertion of jurisdiction
under the facts of the case must have a statutory basis and must be permissible under the state and
federal constitutions. See, e.g., Nat’l Oil & Gas Co. of Fla. v. Teel, 493 So. 2d 772, 776 (La. Ct.
App. 1986); accord J.I. Case Corp. v. Williams, 832 S.W.2d 530, 531 (Tenn. 1992). In Tennessee,
the exercise of such jurisdiction is governed by Tennessee’s long-arm statute, Tennessee Code
Annotated § 20-2-214(6).1 Tennessee’s long-arm statute has been interpreted to have “expanded the
1
Section 20-2-214 states:
(a) Persons who are nonresidents of Tennessee and residents of Tennessee who are outside the state
and cannot be personally served with process within the state are subject to the jurisdiction of the
courts of this state as to any action or claim for relief arising from:
(1) The transaction of any business within the state;
(2) Any tortious act or omission within this state;
(3) The ownership or possession of any interest in property located within this
state;
(4) Entering into any contract of insurance, indemnity, or guaranty covering any
person, property, or risk located within this state at the time of contracting;
(5) Entering into a contract for services to be rendered or for materials to be
furnished in this state;
(6) Any basis not inconsistent with the constitution of this state or of the United
States;
...
(b) “Person,” as used herein, includes corporations and all other entities which would be subject to
(continued...)
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jurisdiction of Tennessee courts to the full limit allowed by due process.” Masada Inv. Corp. v.
Allen, 697 S.W.2d 332, 334 (Tenn. 1985) (citing Shelby Mut. Ins. Co. v. Moore, 645 S.W.2d 242,
245 (Tenn. Ct. App. 1981)). In this context, due process under the Tennessee Constitution “is
synonymous with the due process clause of the Fourteenth Amendment to the United States
Constitution.” Riggs v. Burson, 941 S.W.2d 44, 51 (Tenn. 1997) (quoting Newton v. Cox, 878
S.W.2d 105, 110 (Tenn. 1994)). Consequently, our analysis of whether the lower court had
jurisdiction to adjudicate the rights of Pinnacle is primarily an analysis of due process under the
federal Constitution.
“The Due Process Clause protects an individual’s liberty interest in not being subject to the
binding judgments of a forum with which he has established no meaningful ‘contacts, ties, or
relations.’ ” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471–72 (1985) (quoting Int’l Shoe Co.
v. Washington, 326 U.S. 310, 319 (1945)). Exercising personal jurisdiction within the bounds of
due process requires that, if the defendant is not present within the forum, “he have certain minimum
contacts with it such that the maintenance of the suit does not offend ‘traditional notions of fair play
and substantial justice.’ ” Int’l Shoe, 326 U.S. at 316 (citations omitted). In International Shoe,
the Supreme Court provided a framework for analyzing a corporate defendant’s contacts with the
forum state. First, a defendant can be considered present in a state, and therefore subject to personal,
or in personam, jurisdiction if its activities “have not only been continuous and systematic,” but also
gave rise to the cause of action. Id. at 317. Second, the exercise of jurisdiction is not proper if the
corporate defendant has had only a casual presence and isolated activities in the state, provided the
cause of action is not connected to such activities. Id. Third, the exercise of jurisdiction is proper
if the defendant’s continuous activities in the state have been “so substantial and of such a nature as
to justify suit against it on causes of action arising from dealings entirely distinct from those
activities.” Id. at 318. Finally, the Court recognized that jurisdiction may exist based on “some
single or occasional acts of the corporate agent in a state sufficient to impose an obligation or
liability on the corporation,” because “their nature and quality and the circumstances of their
commission, may be deemed sufficient to render the corporation liable to suit.” Id.
In the subsequent cases of Perkins v. Benguet Consol. Mining Co., 324 U.S. 437 (1952) and
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984), the Supreme Court
explained the principle that “when the cause of action does not arise out of or relate to the foreign
corporation’s activities in the forum State, due process is not offended by a State’s subjecting the
corporation to its in personam jurisdiction when there are sufficient contacts between the State and
the foreign corporation.” Helicopteros, 466 U.S. at 414 (citing Perkins, 342 U.S. 437). This subset
1
(...continued)
service of process if present in this state.
T.C.A. § 20-2-214(a), (b) (1994). Despite the cumbersome manner in which subpart (a)(6) was added to the long-arm
statute, our courts have repeatedly stated that the amendment converted the statute “from a ‘single act’ statute to a
‘minimum contacts’ statute.” Masada Inv. Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn. 1985); see also W.B. Dunavant
& Co. v. Perkins, 498 S.W.2d 905, 909 (Tenn. 1973); United Agric. Servs., Inc. v. Scherer, 17 S.W.3d 252, 256 (Tenn.
Ct. App. 1999); Shelby M ut. Ins. Co. v. Moore, 645 S.W.2d 242, 246 (Tenn. Ct. App. 1981). Although the statement
from the Masada court was obiter dictum, the principle behind the statement has been widely accepted.
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of personal jurisdiction has come to be known as “general jurisdiction.” Id. at 415 n.9 (citations
omitted); see also United Agric. Servs., Inc. v. Scherer, 17 S.W.3d 252, 256 (Tenn. Ct. App. 1999).
It harkens back to the language in the third part of the International Shoe framework. See Int’l
Shoe, 326 U.S. at 318 (the defendant’s activities have been “so substantial and of such a nature as
to justify suit against it . . . arising from dealings entirely distinct from those activities.”).
In contrast, “specific jurisdiction” is exercised when “a State exercises personal jurisdiction
over a defendant in a suit arising out of or related to the defendant’s contacts with the forum.”
Helicopteros, 466 U.S. at 414 n.8; see also United Agric. Servs., 17 S.W.3d at 256. If a forum seeks
to exercise specific jurisdiction over a foreign corporate defendant, the requirement that the
defendant have “fair warning” that its activities may subject it to suit in that forum is satisfied “if
the defendant has ‘purposefully directed’ his activities at residents of the forum, and the litigation
results from alleged injuries that ‘arise out of or relate to’ those activities.” Burger King, 471 U.S.
at 472 (citing Helicopteros, 466 U.S. at 414) (internal citation omitted). The defendant’s contacts
in the forum State must be sufficiently extensive that the defendant “should reasonably anticipate
being haled into court there.” Masada, 697 S.W.2d at 334 (quoting World-Wide Volkswagen Corp.
v. Woodson, 444 U.S. 286, 297 (1980)).
In the case at bar, Exel asserts that the facts are sufficient to justify the exercise of general
jurisdiction and, in the alternative, specific jurisdiction. We first examine whether Pinnacle’s
contacts with Tennessee were sufficient to support the exercise of general jurisdiction.2
We consider Pinnacle’s general business dealings, focusing on contacts with Tennessee
before execution of the letter agreement. In reviewing the affidavits submitted by the parties, we
resolve any factual disputes in favor of Exel as the nonmoving party. Chenault, 36 S.W.3d at 56.
Therefore, we take as true the allegations in McDonald’s affidavit that Pinnacle’s credit application
was sent to Exel’s Memphis credit department and that Pinnacle speakers are available for purchase
through “authorized dealers” in Tennessee.
Overall, from our review of the affidavits, we must conclude that Pinnacle’s contacts with
Exel’s Memphis office prior to the negotiations leading up to the letter agreement at issue, were
neither continuous nor systematic. Therefore, it would be improper to exercise general jurisdiction
over Pinnacle to adjudicate a cause of action that did not arise out of these attenuated contacts.
We next address whether the facts are sufficient to permit the lower court to exercise specific
jurisdiction over Pinnacle. To determine whether the circumstances warrant the exercise of specific
jurisdiction, the Tennessee Supreme Court has directed courts to consider: “(1) the quantity of the
contacts, (2) their nature and quality, and (3) the source and connection of the cause of action with
those contacts.” J.I. Case Corp. v. Williams, 832 S.W.2d 530, 532 (Tenn. 1992) (citing Masada,
697 S.W.2d at 332). “[L]esser factors” to consider include “the interest of the forum state and
convenience.” Id.
2
Exel cites no authority for its assertion that Tennessee Code Annotated § 20-2-214(6) permits a Tennessee
court, ceteris paribus, to exercise general jurisdiction over a foreign corporation with no registered agent in this State.
See Robert Banks, Jr., The Future of General Jurisdiction in Tennessee, 27 U. M EM . L. R EV . 559, 585–86 (1997).
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Overall, we must look at whether Pinnacle directed its activities with respect to the letter
agreement at Tennessee such that it “should reasonably anticipate being haled into court” in this
State. See Masada, 697 S.W.2d at 334. The U.S. Supreme Court in Burger King noted a division
among lower courts “respecting whether and to what extent a contract can constitute a ‘contact’ for
purposes of due process analysis.” Burger King, 471 U.S. at 478. The Burger King court
acknowledged its past rejection of “mechanical tests” and “conceptualistic . . . theories” based on
the place of contracting or performance. Id. (quoting Hoopeston Canning Co. v. Cullen, 318 U.S.
313, 316 (1943)). Instead, circumstances to be considered include the negotiations leading up to the
contract, contemplated future consequences, the terms of the contract, and the parties’ course of
dealing, in order to determine whether “the defendant purposefully established minimum contacts
with the forum.” Id. at 479. Therefore, we look to these factors in evaluating the contacts connected
with the letter agreement.
In this case, the negotiations leading up to the letter agreement were held via email,
telephone, and facsimile. Because Pinnacle had fallen behind on its payments, Exel initiated the
negotiations. The agreement itself indicates that Pinnacle was to send its payments to Exel’s bank
in Dallas, Texas. The letter agreement does not contain either a forum selection clause or a clause
indicating that the agreement was reached in a particular forum. It provides only that, in the event
of Pinnacle’s default on any scheduled payments, Exel could accelerate the balance due and pursue
“any and all legal methods to collect the balance due.” Thus, the negotiations were initiated by Exel,
and the only aspect of them that took place in Tennessee occurred on Exel’s end. Moreover, on its
face, the letter agreement appears to contemplate few, if any, intended consequences in Tennessee.
In support of its argument, Exel cites William W. Bond, Jr. & Assocs., Inc. v. Montego Bay
Dev. Corp., 405 F. Supp. 256 (W.D. Tenn. 1975). In Bond, the plaintiff, a Tennessee corporation,
and the defendants, all in Maryland, entered into a contract in which the plaintiff agreed to prepare
building plans for a hotel that was to be built in Maryland. Id. at 257. The Maryland defendant
initially solicited the Tennessee plaintiff’s services by telephone. Id. at 259. As set forth in the
opinion, the contract between the parties was mailed to the Maryland defendants in the form of a
letter. It stated:
This agreement has been negotiated and executed in the State of Tennessee and shall
be construed and interpreted in accordance with the laws of that State. If this
agreement is acceptable to you, please indicate your acceptance by executing below
in the appropriate space.
Id. at 258. The defendants signed the letter in Maryland. Id. at 259. When the plaintiff did not
receive payment for its services, it filed a lawsuit against the Maryland defendants in a Tennessee
court. The Tennessee court ultimately held that the exercise of jurisdiction over the Maryland
defendants would comport with due process. Id. at 260.
The facts in Bond are distinguishable from the facts in the present case in at least two
important respects. First, the Maryland defendants in Bond solicited the Tennessee plaintiff’s
services. In the instant case, the initial contact between Pinnacle and Exel, as well as the
negotiations leading up to the letter agreement at issue, were initiated by Exel. The plaintiff’s
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unilateral action, which creates a relationship with the nonresident defendant, “cannot satisfy the
requirement of contact with the forum State.” Helicopteros, 466 U.S. at 417 (quoting Hanson v.
Denckla, 357 U.S. 235, 253 (1958)). Second, the contract in Bond stated clearly that it was
negotiated in Tennessee, and that it was to be construed in accordance with Tennessee law. The
letter agreement in this case contains no such provisions, and evinces no intent to use Tennessee
courts for the adjudication of any controversy. Under these circumstances, we must conclude that
the facts in Bond are substantially different from the facts in this case.
From the affidavits submitted by the parties, we cannot say that, in negotiating and executing
the letter agreement, Pinnacle directed its activities at Tennessee such that it should reasonably
anticipate being “haled into court” in Tennessee. Masada, 697 S.W.2d at 334. Under these
circumstances, we find no error in the trial court’s decision to decline to exercise jurisdiction over
Pinnacle.
The decision of the trial court is affirmed. The costs of this appeal are taxed to the appellant,
Exel Transportation Services, Inc., and its surety, for which execution may issue if necessary.
___________________________________
HOLLY M. KIRBY, JUDGE
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