In March 2013, the Supreme Court of Tennessee held, in a 3-2 decision, that the State of Tennessee lacks personal jurisdiction over NV Sumatra Tobacco Trading Company, an Indonesian cigarette manufacturer.

A Florida entrepreneur purchased cigarettes manufactured by NV Sumatra and sold them in Tennessee.  Between 2000 and 2002, more than 11 million cigarettes manufactured by NV Sumatra were sold in Tennessee.  The Indonesian manufacturer subsequently withdrew its cigarettes from the United States market.  Thereafter, the State of Tennessee filed a complaint against NV Sumatra in state court for the collection of escrow, alleging that the Indonesian manufacturer failed to pay into the Escrow Fund as required by Tenn. Code Ann. §§ 47-31-101 to -103.  Both parties filed cross-motions for summary judgment.  The trial court found that the State lacked personal jurisdiction over the Indonesian manufacturer and dismissed the case.

The State appealed the trial court’s ruling to the Court of Appeals of Tennessee.  In a June 2011 opinion, the Court of Appeals reversed the trial court’s finding that it lacked personal jurisdiction over the foreign manufacturer.  In reversing the trial court, the Court of Appeals concluded that NV Sumatra intentionally used a distribution system with the intended result of selling its tobacco products throughout the United States, including Tennessee.  Such intentional contact satisfies the test for personal jurisdiction.  The Court of Appeals remanded the case to the trial court for a determination of the applicable fines and escrow payment.  NV Sumatra filed a petition for rehearing in the Court of Appeals, and its petition was denied.

The Supreme Court of Tennessee heard oral arguments in June 2012 and issued its opinion last month.  The Supreme Court recognized that Tennessee’s statute permitting Tennessee courts to assert personal jurisdiction over defendants is designed to allow courts to exercise personal jurisdiction to the full extent authorized by the Fourteenth Amendment of the United States Constitution.  If the defendant has minimum contacts with a state, then the court has personal jurisdiction over the defendant.  Minimum contacts require the defendant to engage in purposeful conduct and have a connection with the state such that the defendant avails itself of the state’s benefits and protections and reasonably anticipates being sued into that state’s court.

In assessing whether NV Sumatra had minimum contacts with Tennessee, the Supreme Court first addressed NV Sumatra’s contact with the United States.  In doing so, the Supreme Court focused on the lack of: (1) an aggressive advertising campaign in the United States; (2) sales representatives in the United States; and (3) Internet sales targeting the United States marketplace.  The Supreme Court then focused on NV Sumatra’s contact with Tennessee.  In doing so, it concluded that NV Sumatra had almost nothing to do with the sale of its cigarettes in Tennessee but that the arrival of the foreign-manufactured cigarettes in Tennessee was almost entirely attributable to Florida-based distribution company.  Consequently, the Supreme Court concluded that NV Sumatra did not have minimum contacts with Tennessee.  The Supreme Court reversed the judgment of the Court of Appeals and affirmed the trial court’s dismissal of the State’s complaint for lack of personal jurisdiction.

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.