Masada Inv. Corp. v. Allen

• Decision Date: 12 August 1985
• Citation: 697 S.W.2d 332
• Parties: MASADA INVESTMENT CORP., Milton A. Turner, Masada-Memphis Venture, a Tennessee limited partnership, and WTFF Associates, a Tennessee limited partnership, Third Party Plaintiffs-Appellants, v. Robert M. ALLEN, Third Party Defendant-Appellee.
• Court: Tennessee Supreme Court

Page 332

697 S.W.2d 332

MASADA INVESTMENT CORP., Milton A. Turner, Masada-Memphis

Venture, a Tennessee limited partnership, and WTFF

Associates, a Tennessee limited partnership, Third Party Plaintiffs-Appellants, v. Robert M. ALLEN, Third Party Defendant-Appellee.

Supreme Court of Tennessee,

at Jackson.

Aug. 12, 1985.

W. Rowlett Scott, Paul E. Prather, Memphis, for appellants; Armstrong Allen Braden Goodman McBride & Prewitt, of counsel.

Alan R. Strain, Memphis, for appellee; Wilson, McRae, Ivy, Seiver, McTyier & Strain, of counsel.

OPINION

COOPER, Chief Justice.

The sole issue for review is whether the third-party defendant, Robert M. Allen, a Texas attorney, had sufficient minimum contacts with Tennessee to confer in personam long-arm jurisdiction. The Court of Appeals affirmed the chancellor's holding that Allen had insufficient contacts with Tennessee to sustain jurisdiction. We reverse the Court of Appeals and hold that Allen had sufficient contacts with Tennessee to confer jurisdiction upon the courts of this state.

This suit arises out of a real estate transaction begun in 1981 when Richard J. Hockert, a Texas real estate broker and president of Richard J. Hockert & Company, learned that the United American Bank Building in Memphis was for sale. The UAB building was owned by WTFF Associates (WTFF), a Tennessee limited partnership, which had acquired it by warranty deed from Masada Investment Corporation, a Tennessee corporation, which held title to the property on behalf of and for the benefit of Masada-Memphis Venture, another Tennessee limited partnership. Milton Turner was a general partner in WTFF Associates and Masada-Memphis Venture, and was president of Masada Investment Corporation. Hockert planned to purchase the building from WTFF for $4,650,000 and then sell the building to the plaintiff, University Real Estate Investors-81 (University), a California partnership, for $4,850,000. At some point during negotiations Hockert called upon Allen, an experienced real estate attorney, to assist him. Allen had no financial interest in the sale itself and was compensated solely by Hockert.

Once the general terms of the sale were agreed to, Hockert requested that Allen prepare the warranty deed and the agreement of sale and purchase for the property. Wendell Thomas, an attorney for WTFF, sent Allen a preliminary title insurance binder which had attached to it the wrong legal description of the property to be sold. In addition to the UAB Building, the description included an adjacent lot. Allen was informed by Thomas of this discrepancy, and was told that a correct legal description would be forthcoming. At this time it was decided to restructure the transaction to decrease tax liability by eliminating Hockert as purchaser from WTFF and seller to University, having the sale made directly between WTFF and University, and paying Hockert a $200,000 consulting fee.

In August of 1981, Allen sent the warranty deed and the agreement of sale and purchase which he had drafted to Tennessee for execution by WTFF. The erroneous description was still attached to these documents. Allen, WTFF, and University were furnished the correct legal description a few days later, but the correct description was never substituted for the incorrect one. The documents were executed by WTFF in Knoxville and were returned to Allen to be held in trust until closing. For the convenience of the parties the closing was held in Allen's office on September 11, 1981.

A few weeks after closing it was discovered that WTFF had conveyed to University, by reason of the erroneous description, the lot adjacent to the UAB Building. It also was discovered that Masada Investment Corporation had granted UAB an option to purchase the lot which had mistakenly been conveyed to University.

University brought suit to quiet title and to recover damages in the Chancery Court of Shelby County. The named defendants were WTFF Associates, Masada-Memphis Venture, Masada Investment Corp., and Milton Turner. WTFF filed a counterclaim seeking reformation due to mutual mistake or fraud. The defendants then filed a third-party action against Hockert & Co., Richard J. Hockert, and Robert M. Allen, charging them with negligence and breach of trust in handling the closing by using the incorrect description of the property. The third-party defendants filed motions to dismiss on the grounds that the Tennessee court lacked in personam jurisdiction. This motion was denied as to Hockert, but was granted as to Allen. As noted, the Court of Appeals affirmed the chancellor and review was granted in this court.

In asserting their claim against Hockert and Allen, the third-party plaintiffs alleged that they were subject to service of process pursuant to T.C.A. § 20-2-214, the Tennessee long-arm statute. That statute states, in relevant part:

20-2-214. Jurisdiction of persons unavailable to personal service in state--Classes of actions to which applicable.--(a) Persons who are nonresidents of Tennessee ... 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;

* * *

* * *

(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.

In determining whether or not a state can assert long-arm jurisdiction, due process requires that a non-resident defendant be subjected to a judgment in personam only if he has minimum contacts with the forum such that "the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.;' " International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). However, the absence of physical contacts will not defeat in personam jurisdiction where a commercial actor purposefully directs his activities toward citizens of the forum State and litigation results from injuries arising out of or relating to those activities. Burger King Corp. v. Rudzewicz, --- U.S. ----, 105 S.Ct. 2174, 2182, 85 L.Ed.2d 528 (1985). In such a case, "the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

T.C.A. § 20-2-214 was considered a "single act" statute, one in which jurisdiction was assumed only over causes of action arising out of the defendant's activities in the state, until the addition of subsection (6) in 1972. A three-pronged test had been developed to determine the outer limits of personal jurisdiction based on a single act: the defendant must purposefully avail himself of the privilege of acting in or causing a consequence in the forum State; the cause of action must arise from the defendant's activities there; and defendant's acts or consequences must have a substantial connection with the forum to make the exercise of jurisdiction reasonable. Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 381 (6th Cir.1968). Subsection (6) changed the long-arm statute from a "single act" statute to a "minimum contacts" statute which expanded the jurisdiction of Tennessee courts to the full limit allowed by due process. Shelby Mutual Ins. Co. v. Moore, 645 S.W.2d 242, 245 (Tenn.App.1981). That decision, quoting extensively from Gullett v. Qantas Airways Ltd., 417 F.Supp. 490 (M.D.Tenn.1975), noted that the Mohasco test was now too restrictive. The Moore court noted that three primary factors are to be considered in determining whether the requisite minimum contacts were present: the quantity of the contacts, their nature and quality, and the source and connection of the cause of action with those contacts. Two lesser factors to be considered are the interest of the forum State and convenience. The Moore court concluded:

The phrase "fair play and substantial justice" must be viewed in terms of whether it is fair and substantially just to both parties to have the case tried in the state where the plaintiff has chosen to bring the action. In each case, the quality and nature of those activities in relation to the fair and orderly administration of the law must be weighed. As stated above in Qantas, this must involve some subjective value judgment by the courts.

645 S.W.2d at 246.

After applying these considerations to the facts of this case, we hold that Allen had sufficient minimum contacts with Tennessee to justify jurisdiction here. While Allen never entered Tennessee and had no direct financial interest in the sale of the UAB Building, his work was a vital component of that transaction. At his client's request, Allen prepared the legal documents controlling the transfer of ownership of the UAB Building. Allen did not merely record what Hockert instructed him to, but took independent action in fulfilling his obligations. This included conversing with WTFF's attorney in Knoxville on several occasions, drafting the documents to be in accord with Tennessee law, sending the completed documents into Tennessee for execution, and then holding these same documents until closing in his office. Allen knew that his legal work would control the sale of several million dollars of Tennessee realty which was being sold by a Tennessee limited partnership subject to the laws of Tennessee. These documents were to be recorded and given full legal effect in Tennessee. By wilfully and knowingly choosing to prepare legal documents which would be filed in Tennessee and be of great consequence here, Allen purposely availed himself of the privilege of doing business within this state. This litigation itself serves to highlight the importance of Allen's work product. While Allen had limited physical contact with this forum, he...