First Cmty. Bank, N.A. v. First Tenn. Bank, N.A.
Decision Date | 14 December 2015 |
Docket Number | No. E2012-01422-SC-R11-CV.,E2012-01422-SC-R11-CV. |
Citation | 489 S.W.3d 369 |
Parties | First Community Bank, N.A. v. First Tennessee Bank, N.A., et al |
Court | Tennessee Supreme Court |
William J. Wyrick, Sewickley, Pennsylvania, and Lawrence F. Giordano and Shannon van Tol, Knoxville, Tennessee, for the appellant, First Community Bank, N.A.
W. Kyle Carpenter, Knoxville, Tennessee, and Floyd Abrams and Tammy L. Roy, New York, New York, for the appellee, The McGraw–Hill Companies, Inc.
Taylor A. Williams, Knoxville, Tennessee, and Joshua M. Rubins and James J. Coster, New York, New York, for the appellee, Moody's Investors Service, Inc.
C. Scott Taylor, Knoxville, Tennessee, and Martin Flumenbaum and Roberta A. Kaplan, New York, New York, for the appellee, Fitch, Inc.
OPINION
First Community Bank, N.A. (“Plaintiff”), brought suit against multiple defendants for fraud, constructive fraud, negligent misrepresentation, civil conspiracy, unjust enrichment, and violation of the Tennessee Securities Act, pursuant to Tennessee Code Annotated sections 48–1–101–126. Three non-resident defendants, The McGraw–Hill Companies, Inc., Moody's Investors Service, Inc., and Fitch, Inc. (“Ratings Agencies”), filed motions to dismiss based on lack of personal jurisdiction and failure to state a claim, which the trial court granted. The Court of Appeals affirmed the trial court's dismissal based on lack of personal jurisdiction as to the Ratings Agencies, and the Plaintiff requested permission to appeal. We granted review in this case to determine whether the trial court erred in determining that it lacked personal jurisdiction over the Ratings Agencies and thereby dismissing the Plaintiff's case as against the Ratings Agencies. Upon our thorough review of the record and the applicable law, we conclude that the Plaintiff has failed to establish a prima facie case of personal jurisdiction under a theory of general jurisdiction or specific jurisdiction. Therefore, we affirm the decisions of the trial court and the Court of Appeals on these issues. With regard to the Plaintiff's attempt to establish personal jurisdiction under a theory of conspiracy jurisdiction, we likewise conclude that the Plaintiff has failed to establish a prima facie case of conspiracy jurisdiction at this point. However, we vacate the dismissal of the Plaintiff's action against the Ratings Agencies on this theory and remand this case to the trial court to determine if the Plaintiff should be allowed to conduct jurisdictional discovery on the conspiracy theory of personal jurisdiction in a manner consistent with the guidelines set forth in this opinion.
The Plaintiff is a banking and financial services company that is incorporated in and has its principal place of business in Virginia. The Plaintiff operates more than fifty financial centers located in Virginia, West Virginia, North Carolina, and Tennessee. From 2003 to 2007, the Plaintiff purchased approximately $135,000,000 worth of asset-backed securities in the form of collateralized debt obligations (“CDOs”) and residential mortgage-backed securities (“RMBSs”). A CDO is a security that pools assets in the form of debt obligations—such as mortgages, bonds, and loans—into a structured investment product that is then divided and resold to investors on the secondary market. The pool of debt obligations underlying the CDO (“asset pool”) serves as collateral for the investors. CDOs are packaged by special purpose entities into “tranches” which are priority ranked, with senior tranches receiving priority over junior tranches on payments in the event of default. RMBSs function in generally the same way, with the principal difference being that the underlying pool of assets is composed entirely of residential debt, rather than other types of assets.
Between 2003 and 2007, the Plaintiff purchased notes in CDOs entitled Preferred Term Securities, Ltd. (“PreTSL CDOs”). The PreTSL CDOs were structured and sold by FTN Financial Securities Corporation (“FTN”) along with Keefe, Bruyette & Woods, Inc. (“KBW”). FTN is a Tennessee corporation and a wholly owned subsidiary of First Tennessee Bank (“FTB”), also a Tennessee corporation. KBW is an investment bank incorporated in New York. The Plaintiff purchased notes in seven of the PreTSL CDOs in various tranches. Communication regarding the sale of the PreTSL CDOs principally occurred between the Plaintiff's senior Vice President, John Spracher, and the Senior Vice President of FTB's Memphis office, Eddie Murphey.
In December 2006, the Plaintiff purchased notes in an RMBS called Residential Asset Securitization Trust 2006–A9CB (“RAST”). RAST was structured and sold by Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”). Merrill Lynch was a New York corporation that was purchased in 2008 by Bank of America Corporation (“BOA”). BOA is an investment bank incorporated in Delaware.
In June 2007, the Plaintiff purchased notes in two more CDOs: Soloso 2007–1 (“Soloso CDO”) and Trapeza CDO XIII (“Trapeza CDO”). The Trapeza CDO was structured and sold by J.P. Morgan Securities, LLC (“J.P. Morgan”) along with Morgan Keegan & Company, Inc. (“Morgan Keegan”). J.P. Morgan is incorporated in Delaware. Morgan Keegan is incorporated in Tennessee. Trapeza Capital Management (“TCM”) served as a collateral manager for the Trapeza CDO and assisted in the selection and management of the securities. TCM is a Delaware limited liability company. The Soloso CDO was structured and sold by Bear Stearns & Company, Inc. (“Bear Stearns”) and SunTrust Robinson Humphrey, Inc. (“STRH”). Bear Stearns was an investment bank incorporated in New York. Bear Stearns was purchased in 2008 by J.P. Morgan. STRH is an investment bank incorporated in Tennessee. The Plaintiff's purchases in the Soloso CDO were made in part through communication with an employee in Bear Stearns' Memphis office, Anna White.
For each of the asset-backed securities in which the Plaintiff invested, the investment bank or financial institution that structured, marketed, and sold the asset-backed securities to the Plaintiff acted as “placement agents” for the products: KBW and FTN for the PreTSL CDOs; Merrill Lynch for RAST; J.P. Morgan, Morgan Keegan, and TCM for the Trapeza CDO; and Bear Stearns and STRH for the Soloso CDO (collectively “the Placement Agents”). The Placement Agents brought the asset-backed securities to the secondary market and facilitated the transactions to investors. However, for each of the CDOs, special purpose entities also were created and designated as the “issuer” or “co-issuer” of that particular CDO. For the PreTSL CDO, the following entities were created: Preferred Term Securities X, Inc.; Preferred Term Securities X, Ltd.; Preferred Term Securities XII, Inc.; Preferred Term Securities XII, Ltd.; Preferred Term Securities XIV, Inc.; Preferred Term Securities XIV, Ltd.; Preferred Term Securities XVI, Inc.; Preferred Term Securities XVI, Ltd.; Preferred Term Securities XXII, Inc.; Preferred Term Securities XXII, Ltd.; Preferred Term Securities XXIII, Inc.; Preferred Term Securities XXIII, Ltd.; Preferred Term Securities XXVI, Inc.; Preferred Term Securities XXVI, Ltd. (collectively “PreTSL Entities”). For the Soloso CDO, Soloso CDO 2007–1, Inc., and Soloso CDO 2007–1, Ltd. were created (collectively “the Soloso Entities”). For the Trapeza CDO, Trapeza CDO XIII, Inc. and Trapeza CDO XIII, Ltd. were created (collectively “the Trapeza Entities”). The PreTSL entities, Trapeza Entities, and Soloso Entities (collectively “the Issuing Entities”) were legal entities created for the narrow purpose of purchasing and holding assets and issuing the securities to investors.
As a part of each transaction, the Plaintiff was provided with “offering circulars” which were packets of information used to market the notes. Those offering circulars set forth minimum rating levels for the various tranches by one of three designated ratings agencies: Moody's Investor Services, Inc. (“Moody's”); Fitch, Inc., doing business as Fitch Ratings (“Fitch”); and The McGraw–Hill Companies, Inc., doing business as Standard & Poor's Rating Services (“S & P”) (collectively “the Ratings Agencies”). The issuance of the notes was contingent upon the tranches achieving the designated minimum ratings. Therefore, the Plaintiff's purchases in part relied on the guarantee that the investment products would receive minimum investment grade credit ratings. After the Plaintiff's purchase, the Ratings Agencies found that all of the products purchased by the Plaintiff met their respective required minimum ratings. The initial credit ratings assigned to the products purchased by the Plaintiff were as follows:
Product
Tranche
Moody's
Fitch
S&P
Rating
Rating
Rating
PreTSL X
B-1 Mezzaiune
A2
A
N/A
PreTSL XII
B-1 Mezzanine
A2
A
N/A
PreTSL XTV
B-1 Mezzaiune
A2
A
N/A
PreTSL XVI
C Mezzanine
A2
A
N/A
PreTSL XXIII
C-1 Mezzaiune
A3
A
N/A
PreTSL XXII
C-1 Mezzaiune
A3
A-
N/A
PreTSL XXVI
C-1 Mezzaiune
A3
A-
N/A
Trapeza
D
N'A
A-
N'A
Soloso
A-3L
A2
A-
N/A
RAST
A-9
Aaa
N/A
According to the Plaintiff's complaint, “[t]he Issuing Entities paid the Ratings Agencies for their work.” The Plaintiff asserts that the Ratings Agencies not only provided the initial ratings for the tranches but also rated the underlying securities “where relevant.” According to the Plaintiff, the Ratings Agencies then “continued to monitor the product tranches and the underlying securities as a part of their services.” Specifically, the Plaintiff states that “Fitch charged a fee for this monitoring service and provided a ‘shadow rating’ known only to Fitch and the Issuing Entities.”
Beginning in late 2008, the Ratings Agencies began to significantly downgrade the ratings assigned to the products purchased by the Plaintiff. Between late 2008 to mid–2009,...
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