Nicholstone Book Bindery, Inc. v. Chelsea House Publishers

Citation621 S.W.2d 560
PartiesNICHOLSTONE BOOK BINDERY, INC., Plaintiff-Appellant, v. CHELSEA HOUSE PUBLISHERS, et al., Defendants-Appellees.
Decision Date05 October 1981
CourtSupreme Court of Tennessee

James C. Hofstetter and O. B. Hofstetter, III, Nashville, for plaintiff-appellant.

James F. Sanders, Neal & Harwell, Nashville, for defendants-appellants.

OPINION

BROCK, Justice.

The principal question here is whether there are sufficient "minimum contacts" to confer in personam long-arm jurisdiction over the defendant foreign corporation which has conducted a single business transaction with the plaintiff, a Tennessee corporation.

Plaintiff, a Tennessee book binder, filed suit in Davidson County Chancery Court against Chelsea, a New York publishing house, alleging the defendant's failure to make payment for printing and binding done in Tennessee by plaintiff and shipped to defendant in New York. Defendant filed a Rule 12.02(2), T.R.C.P., motion to dismiss for lack of in personam jurisdiction. The Chancellor held a hearing on the motion, treated it as a Rule 56 motion for summary judgment, after considering affidavits presented by both parties, and sustained the motion for summary judgment. 1 The Court of Appeals affirmed, holding that the Tennessee Long-Arm Statute, T.C.A., § 20-235 (now T.C.A. § 20-2-214), 2 and the constitutional limitations of the Fourteenth Amendment's due process clause, would not permit jurisdiction under the facts presented.

The pleadings and affidavits show that plaintiff's and defendant's representatives were both present at a trade meeting in Atlanta in May, 1978. None of the affidavits makes it clear who initiated negotiations. After the meeting, plaintiff sent a representative to discuss the job with defendants in New York which led to plaintiff placing bids for certain printing work. Defendant then sent a purchase order to plaintiff's office in Tennessee, for the printing and binding of 5,000 copies of a 120-page document entitled the "Weekly Garden Planner," a 1979 calendar. Thereafter, negotiations by phone and mail resulted in plaintiff's acceptance of the order, and Morgan Guaranty Trust of New York issued a letter of credit for.$14,592.90 to guarantee the amount of the contract.

In order to fulfill its obligations under the agreement, plaintiff (1) ordered paper for the document from a Nashville firm; (2) had color plates made by a Goodlettsville, Tennessee, firm; (3) ordered specified cover stock from a Kingsport firm; (4) ordered stamping dies to be made by a Nashville firm; (5) purchased individual mailing cartons from a container firm in Franklin, Kentucky; (6) and purchased 5,000 vinyl pockets from a Nashville firm. While these steps were proceeding, the defendant itself contacted the Kingsport firm and changed the color of the cover stock.

On November 30, 1978, the merchandise was shipped to defendant in New York, but technicalities involving the letter of credit (irrelevant to the decision here) resulted in non-payment and, eventually, this lawsuit.

A significant decision dealing with the Tennessee "long arm" statute is Southern Machine Company, Inc. v. Mohasco Industries, Inc., 401 F.2d 374 (6th Cir. 1968), which involves a Tennessee corporation's suit against a foreign corporation. In Mohasco, the court recognized that the broadly-phrased Tennessee long-arm statute is limited only by due process considerations as established in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). International Shoe held that "traditional notions of fair play and substantial justice" can be protected only if the foreign defendant has certain "minimum contacts" with the forum state.

Mohasco attempted to synthesize the rules announced in International Shoe and the subsequent decisions, McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957) and Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958), into a "three-part test" to determine whether sufficient minimum contacts exist:

" ... (T)hree criteria emerge for determining the present outerlimits of in personam jurisdiction based on a single act. First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable." 401 F.2d at 381. 3

Though Mohasco was the first case to fully analyze Tennessee's long-arm statute, the first state case to do so was Darby v. Superior Supply Co., 458 S.W.2d 423 (Tenn.1970). That case involved the purchase of mahogany lumber by an Alabama individual, from the plaintiff, a Tennessee supply firm in Chattanooga. The order was placed by telephone and the plaintiff filled the order from available stock. A servant of the defendant took delivery of the lumber in Tennessee. Darby later refused to pay for the lumber and Superior sued for payment due. The Darby majority seemed to be impressed by the following factors in finding a failure of jurisdiction: (1) that the defendant, an individual, entered the forum state only through his servant, the driver of the truck which hauled the lumber away; (2) that the transaction was a retail purchase by an individual involving only the "modest amount" of $3,639.48; and (3) that filling defendant's order required "no special manufacturing operations in Tennessee." Id. at 426.

The Chancellor, Court of Appeals and defendant all rely heavily upon the Darby decision. But Darby, a 4-1 decision, has been criticized by legal commentators. In Comment, "Jurisdiction Over Foreign Corporations in Tennessee," 42 Tenn.L.Rev. 325 (1975), the author cites authority describing Darby as an "unduly restrictive interpretation of due process and federal decisions." Id. at 339. See also, William W. Bond, Jr. & A., Inc. v. Montego Bay Dev. Corp., 405 F.Supp. 256 (W.D.Tenn.1975), especially n.4 at 259. The Comment also points out that the Darby decision made reference to the fact that had Darby been a corporation rather than an individual, the result may have been different. See, Darby v. Superior Supply Co., supra at 425-26, discussing Olberling v. Illinois Central Railroad Co., 346 U.S. 338, 74 S.Ct. 83, 98 L.Ed. 39 (1953). Darby should not be deemed to be authority beyond the particular facts there considered. In our view, it did not sanction the assertion of jurisdiction under our "long arm" statute to the maximum extent permitted by the Fourteenth Amendment, which is the declared intent of our General Assembly.

To determine whether Chelsea purposefully availed itself of the privilege of transacting business in Tennessee, there are certain matters addressed which are immaterial to the outcome. Mohasco specifically held that the physical presence of the defendant or its agent in the forum state is "not necessary" for the transaction of business to serve as a minimum contact. See also Good Hope Industries v. Ryder Scott Co., Mass., 389 N.E.2d 76 (1979). Nor is it material that defendant did not solicit the business or that the contract was executed in the foreign state. 401 F.2d at 382. Similarly, the determination of which party initiated the business transaction is irrelevant. Representatives of both parties met at a Booksellers Convention in Atlanta where they first discussed the possibility of plaintiff Nicholstone doing some business with defendant Chelsea House. It is not clear from the record who solicited whom first. However, as noted in Pedi Bares, Inc. v. P & C Food Markets, Inc., 567 F.2d 933 (10th Cir. 1977) the determination as to who made the initial solicitation is not a decisive factor. The crucial factor is that the subsequent conduct of the defendant shows that it purposefully availed itself of the privilege of carrying on activities to secure goods from a manufacturer and seller located within the forum. Likewise, technicalities of the execution of the contract cannot change the business realities of the transaction.

As pointed out in Mohasco, citing and quoting from Shealy v. Challenger Manufacturing Co., 304 F.2d 102 (4th Cir. 1962), the significant point is that defendant did choose to do business with plaintiff, and it cannot diminish the purposefulness of that choice that defendant was fortunate enough to take advantage of plaintiff's low bid, even if accomplished without active solicitation. 401 F.2d at 382. It is clear, therefore, that the business transaction was beneficial to both parties, and that though plaintiff placed bids for the work and sent a salesman to discuss details with defendant in New York, the transaction began as a result of a purchase order having been sent by defendant to plaintiff in Tennessee.

The Supreme Court has dealt with the application of a state long arm statute and the corresponding exercise of in personam jurisdiction over a nonresident defendant in several recent decisions. In Kulko v. Superior Court of California, 436 U.S. 84, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978), in which the court denied personal jurisdiction over the non-resident defendant father in an action for child support, the court reiterated that an essential criterion in all such cases is whether the "quality and nature" of the defendant's activity is such that it is "reasonable" and "fair" to require him to conduct his defense in the forum state. The court held that a father who agrees in the interests of family harmony and his children's preferences, to allow them to spend more time in California than was required under a separation agreement can hardly be said to have "purposefully availed himself" of the "benefits and protections" of California's laws. Since the separation agreement had virtually no connection with the forum...

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