State v. NV Sumatra Tobacco Trading Co.
| Decision Date | 28 March 2013 |
| Docket Number | No. M2010–01955–SC–R11–CV.,M2010–01955–SC–R11–CV. |
| Citation | 403 S.W.3d 726 |
| Parties | STATE of Tennessee v. NV SUMATRA TOBACCO TRADING COMPANY. |
| Court | Tennessee Supreme Court |
OPINION TEXT STARTS HERE
Steven C. Douse, Nashville, Tennessee; and Christopher L. Rissetto, Washington D.C., for the appellant, NV Sumatra Tobacco Trading Company.
Robert E. Cooper, Jr., Attorney General and Reporter; William E. Young, Solicitor General; John H. Sinclair, Jr., Deputy Attorney General; and Rebekah A. Baker, Assistant Attorney General, for the appellee, State of Tennessee.
GARY R. WADE, C.J. filed a dissenting opinion, in which SHARON G. LEE, J., joined.
This appeal concerns whether Tennessee courts may exercise personal jurisdiction over an Indonesian cigarette manufacturer whose cigarettes were sold in Tennessee through the marketing efforts of a Florida entrepreneur who purchased the cigarettes from an independent foreign distributor. From 2000 to 2002, over eleven million of the Indonesian manufacturer's cigarettes were sold in Tennessee. After the manufacturer withdrew its cigarettes from the United States market, the State of Tennessee filed suit against the manufacturer in the Chancery Court for Davidson County, alleging that the manufacturer had failed to pay into the Tobacco Manufacturers' Escrow Fund as required by Tenn.Code Ann. §§ 47–31–101 to –103 (2001 & Supp.2012). The parties filed cross-motions for summary judgment, and the trial court dismissed the suit for lack of personal jurisdiction over the Indonesian manufacturer. The Court of Appeals reversed, granted the State's motion for summary judgment, and remanded the case to the trial court to determine the applicable fines. State ex rel. Cooper v. NV Sumatra Tobacco Trading Co., No. M2010–01955–COA–R3–CV, 2011 WL 2571851 (Tenn.Ct.App. June 28, 2011). We find that, under the Due Process Clause of the Fourteenth Amendment, Tennessee courts lack personal jurisdiction over the Indonesian manufacturer. We therefore reverse the decision of the Court of Appeals and dismiss the case for lack of personal jurisdiction pursuant to Tenn. R. Civ. P. 12.02(2).
This case takes place in the shadow of a nationwide settlement of litigation concerning the responsibility of the leading tobacco companies in the United States for the costs associated with the treatment of tobacco-related health conditions. Between1993 and 1998, over 800 lawsuits, including 55 class actions and more than 600 individual claims, were filed against the tobacco companies seeking damages and other relief for the harmful effects of smoking.1 Included among these lawsuits were actions filed by 42 states.2
Between July 1997 and May 1998, the tobacco companies settled with four states and, in doing so, agreed to pay these states $36.8 billion in damages. 3 On November 23, 1998, following negotiations between representatives of the tobacco companies and a negotiating team of eight state attorneys general,4 the four largest domestic tobacco companies, controlling 98% of the cigarette market in the United States,5 settled with the remaining 46 states, the District of Columbia, and five territories of the United States.6 The terms of this settlement are contained in the Master Settlement Agreement (“MSA”).7
The MSA creates three types of tobacco companies. The first type includes the Original Participating Manufacturers (“OPMs”)—the tobacco companies that originally entered into the MSA.8 The second type includes the Subsequent Participating Manufacturers (“SPMs”)—the tobacco companies that joined the MSA but are not the OPMs.9 There are currently over 50 tobacco companies in the SPM category, and these companies represent most of the remaining 2% of the cigarette market.10 The third type includes the Non–Participating Manufacturers (“NPMs”)—the tobacco companies that are not part of the MSA.11
The settling states agreed to dismiss their pending lawsuits and to release their past and future claims against the OPMs and the SPMs. In return the OPMs agreed to make several regulatory concessions 12 and to make substantial monetary payments to the states.13
The NPMs have no financial obligations under the MSA. Accordingly, they were able to “enter the cigarette market and price cigarettes well below the average OPM's price without facing any consequences under the MSA.” Traylor, 63 Vand. L.Rev. at 1105. To protect the OPMs from price competition from the NPMs, the MSA provides for a “Non–Participating Market Share Adjustment” (“NPM Adjustment”). MSA § IX(d)(2). This adjustment permits the OPMs to reduce their annual financial obligation to the states if they lose market share to an NPM.
The possible decrease in an OPM's annual payments could have serious financial consequences for the states. Traylor, 63 Vand. L.Rev. at 1106. Accordingly, the MSA provides that states can avoid the impact of the NPM Adjustment by adopting a “qualifying statute.” 14 The purpose of this statute is to neutralize the NPMs' cost advantages by requiring them either to join the MSA or to establish an escrow or reserve account to secure damage awards for any successful cigarette-related claim the state might obtain from the NPM. The amount of these annual payments is based on the number of cigarettes sold by an NPM during a particular year. Muscogee (Creek) Nation v. Pruitt, 669 F.3d 1159, 1164 (10th Cir.2012). Any funds remaining in an NPM's escrow account are restored to the NPM 25 years after they have been placed in the account. Grand River Enter. Six Nations, Ltd. v. Pryor, 481 F.3d 60, 63 (2d Cir.2007).
Tennessee was one of the 46 states that approved the MSA on November 23, 1998. In 1999, the Tennessee General Assembly enacted the “Tennessee Tobacco Manufacturers' Escrow Fund Act of 1999” 15 in order to satisfy the requirements of MSA § IX(d)(2)(E). Tenn.Code Ann. § 47–31–103(a) requires “[a]ny tobacco product manufacturer selling cigarettes to consumers within the state of Tennessee” after May 26, 1999, either to become a participating manufacturer by joining the MSA or to begin making payments into a “qualified escrow fund.”
Pacific Coast Duty Free (“Pacific Coast”), a company located in California, purchased a large quantity of cigarettes from an Indonesian cigarette manufacturer named NV Sumatra Trading Company (“NV Sumatra”). The cigarettes were labeled United brand “American Blend” cigarettes. Pacific Coast was unsuccessful in marketing these cigarettes in the United States and decided to sell them in bulk to another distributor. In 1999, Pacific Coast sold its entire inventory of United brand cigarettes to a Florida entrepreneur named Basil Battah.
At one point, Mr. Battah owned and operated a car alarm company named American Automotive Security. In 1986, American Automotive Security started doing business as FTS Distributors (“FTS”) and began importing cigarettes. Nobody else was marketing United brand “American Blend” cigarettes in the United States in 1999, when Mr. Battah purchased Pacific Coast's remaining inventory of United brand cigarettes. He took the cigarettes to tobacco industry trade shows and advertised them in trade magazines. Before long, he sold them all and decided to purchase more cigarettes from NV Sumatra. Mr. Battah also hoped that he would be able to generate enough sales to convince NV Sumatra to grant him the exclusive right to distribute and sell its cigarettes in the United States.
NV Sumatra had already made arrangements for the distribution of its cigarettes. It sold its United brand cigarettes to Unico Trading Pte., Ltd. (“Unico”), a distribution company based in Singapore. In turn, Unico sold the United brand cigarettes to Silmar Trading, Ltd. (“Silmar”), a tobacco distribution company based in the British Virgin Islands. Thus, when Mr. Battah contacted NV Sumatra about purchasing cigarettes to sell in the United States, he was referred to Nabil Hawe, a Silmar employee residing in the United Kingdom. Mr. Battah and Mr. Hawe made arrangements to enable Mr. Battah to import United brand cigarettes into the United States. Thus, on their way from NV Sumatra to Mr. Battah, the cigarettes passed through at least these two independent distribution companies.16
Because tobacco is a highly regulated business, Mr. Battah was required to comply with a number of regulatory hurdles before importing United brand cigarettes into the United States. NV Sumatra had already obtained United States trademarks for its United brand cigarettes. Mr. Battah's lawyer made arrangements between NV Sumatra and the United States government to ensure that the United brand cigarettes complied with the FTC's requirements for rotating the warnings on cigarette packages. The attorney also took steps to file the required information regarding the cigarettes' ingredients with the Department of Health and Human Services. In a letter dated March 30, 1999, Mr. Battah's lawyer reminded him that he also had to “comply with all state and local laws regarding the sale and distribution of tobacco products,” including “any state escrow laws that may be in force.”
After taking the steps to ensure that United brand cigarettes could be legally imported into the United States, Mr. Battah began his efforts to cultivate a market for the cigarettes. His goal was to sell 1,000 master cases 17 of United brand cigarettes in each of the fifty states. He created magazine advertisements, assembled a booth with an illuminated United brand logo, and obtained some point-of-sale posters from NV Sumatra. Then he started attending annual tobacco distributor trade shows in Las Vegas where he marketed the cigarettes to smaller regional distributors.18 Three of the regional distributors that purchased United brand cigarettes from Mr. Battah sold cigarettes in Tennessee.19
In May 2001, the United States...
To continue reading
Request your trial
-
Crouch Ry. Consulting, LLC v. LS Energy Fabrication, LLC
...motion is not converted to one for summary judgment when the parties submit matters outside the pleadings. State v. NV Sumatra Tobacco Trading Co., 403 S.W.3d 726, 739 (Tenn. 2013) ; Gordon, 300 S.W.3d at 644. The plaintiff bears the burden—albeit not a heavy one—of establishing that the tr......
-
First Cmty. Bank, N.A. v. First Tenn. Bank, N.A.
...over a defendant presents a question of law, which we review de novo with no presumption of correctness. State v. NV Sumatra Tobacco Trading Co., 403 S.W.3d 726, 768 (Tenn.2013) ; Gordon v. Greenview Hosp., Inc., 300 S.W.3d 635, 645 (Tenn.2009) . When considering a defendant's 12.02(2) mot......
-
Johnson v. Chrysler Can. Inc.
...Dr. Rorschach's amorphous ink blots, Justice Breyer's opinion is susceptible to multiple interpretations.” State v. NV Sumatra Tobacco Trading Co., 403 S.W.3d 726, 759 (Tenn.2013).The Eleventh Circuit has not examined the stream of commerce theory since McIntyre. However, two circuit courts......
-
Susan McKnight, Inc. v. United Indus. Corp.
...Court finds Defendant's reliance on Tennessee authority unpersuasive. (See ECF No. 31 at PageID 554 (citing State v. NV Sumatra Tobacco Trading Co., 403 S.W.3d 726 (Tenn. 2013) )). Consequently, the Court's determination relies on federal authority. Trintec Indus., Inc. v. Pedre Promotional......