Opinion
No. 1:03-cv-223
January 26, 2004
MEMORANDUM AND ORDER
In this breach of contract action, plaintiff SSM Industries, Inc. ("SSM") invokes the Court's diversity jurisdiction under 28 U.S.C. § 1332. Defendants move pursuant to FED. R. CIV. P. 12(b)(2) to dismiss the complaint of the ground of lack of personal jurisdiction. [Court File No. 5]. After reviewing the record, the Court concludes the motion is not well taken and it will be DENIED.
I. Standard of Review
Plaintiff SSM bears the burden of demonstrating that personal jurisdiction exists. Youn v. Track, Inc., 324 F.3d 409, 417 (6th Cir. 2003); Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir. 2002); Third National Bank v. WEDGE Group Inc., 882 F.2d 1087, 1089 (6th Cir. 1989). There is no need for an evidentiary hearing. The motion will be decided based upon the affidavits in the record.
In the absence of an evidentiary hearing, SSM need only demonstrate facts which support a finding of personal jurisdiction. SSM must make a prima facie showing that personal jurisdiction exists to defeat the Rule 12(b)(2) motion to dismiss. The burden on SSM is relatively slight. The Court considers the pleadings and affidavits in the light most favorable to SSM. Dismissal under Rule 12(b)(2) is proper only if the specific facts alleged by SSM, taken as a whole, fail to state a prima facie case for personal jurisdiction. Bridgeport Music, Inc. v. Still N The Water Pub., 327 F.3d 472, 478 (6th Cir. 2003); Neogen, 282 F.3d at 887; Calphalon Corp. v. Rowlette, 228 F.3d 718, 721 (6th Cir. 2000); Kerry Steel, Inc. v. Paragon Indus., 106 F.3d 147, 149 (6th Cir. 1997); Theunissen v. Matthews, 935 F.2d 1454, 1458-59 (6th Cir. 1991); Serras v. First Tennessee Bank Nat. Ass'n., 875 F.2d 1212, 1214-15 (6th Cir. 1989); American Greetings Corp. v. Cohn, 839 F.2d 1164, 1168-69 (6th Cir. 1988).
II. Facts
The Court focuses its attention on the defendants' contacts with SSM in Tennessee and whether the defendants purposefully availed themselves of the privilege of conducting business in Tennessee. SSM is a Tennessee corporation with its principal place of business in Rhea County, Tennessee. Scott Hilleary ("Hilleary") is the president and chief operating officer of SSM. SSM submits the affidavit of Hilleary [Court File No. 8] which the Court accepts as being true and correct for purposes of ruling on the defendants' Rule 12(b)(2) motion to dismiss.
Defendant Fairchild Apparel Group, Inc. ("Fairchild") is a California corporation with its principal place of business in Palm Springs, California. Fairchild is in the business of designing and manufacturing clothing products. The majority of Fairchild's products are distributed and sold on the West Coast of the United States. According to the defendants, Fairchild has never advertised or sold its products in Tennessee. Fairchild does not maintain an office or place of business in Tennessee.
Defendant Kelly Dagul a/k/a Kelly Angus ("Dagul") is the corporate president of Fairchild. Dagul is a citizen and resident of Palm Springs, California. In the complaint, SSM avers that Dagul is the principal owner of Fairchild. SSM contends that Dagul has disregarded the corporate form of Fairchild and she should be considered the alter ego of Fairchild. SSM seeks to hold Dagul personally liable for Fairchild's debts and the damages caused by Fairchild's breach of contract.
SSM produces special cloth and fabrics at its plant in Rhea County, Tennessee. For example, SSM produces fire-retardant cloth for military applications and NASCAR racing drivers. Because of its military contracts, SSM has an in-house certified testing laboratory where various fabric burn tests can be made in compliance with federal government specifications.
SSM operates the only plant in the United States capable of manufacturing ammonia-cured, flame-resistant cotton knit fabric. There are only three other companies in the world that also produce these same products, one of them being in Australia. The manufacturing process is highly specialized. The basic fabric has to be knit, and then passed through a number of different chemical tanks and processes which leave a durable amount of flame-resistant phosphorous in the fabric. Cotton knit fabrics tend to have different physical characteristics, so standard testing of each treated sample must be performed before a large order can be produced. Ammonia-cured cotton knit fabric is a customized fabric which is only specially ordered on an occasional basis by SSM's customers, consequently, SSM does not keep regular production lines open at its plant to produce it.
In August 2002, a Fairchild employee named Kelly Angus ("Angus") contacted Hilleary by telephone at Hilleary's office at SSM in Tennessee. Angus initiated the telephone call to SSM from California. During the telephone call, Angus explained that Fairchild had a contract to produce loose fitting children's sleepwear (pajamas) to be sold at retail in the United States. Fairchild inquired whether SSM would be able to produce and supply Fairchild with the special flame-resistant knit cotton fabric necessary to make the children's sleepwear. For loose fitting children's sleepwear to be sold in the United States, federal law requires that it be made of flame-resistant or fire-retardant fabric in compliance with stringent federal safety standards.
Hilleary indicated that SSM was interested in the project. At this juncture, Fairchild and SSM discussed the possibility of entering into a contract. Based on the August 2002 telephone conversation, Fairchild sent a sample of the cotton knit fabric from California to SSM in Tennessee. SSM's research and development department carefully analyzed and tested the sample to determine if it could be successfully treated with chemicals and made sufficiently fire retardant to meet federal safety standards. SSM determined that it was capable of duplicating the cotton "interlock" fabric desired by Fairchild. SSM chemically treated fabric samples and tested them for weight, shrinkage, feel, and knit characteristics. Fabric used to manufacture fire-retardant children's sleepwear must undergo an arduous testing process. 16 C.F.R. § 1615.4. It takes a minimum often days to do a test because the cloth must pass a burn test after being washed and dried fifty times. The fabric samples were tested by SSM in its laboratory, and SSM also sent samples to outside laboratories for independent testing. The samples passed all of the preliminary tests.
SSM sent a reproduction sample of the treated fabric to Fairchild and Fairchild approved it. SSM's product would be white fabric that SSM would produce in Tennessee and ship to California. Fairchild intended to have the fabric dyed and printed with children's designs by a printer in California. In about late September 2002, the California printer sent a sample of the printed fabric to SSM for further testing. SSM found that the printed, dyed fabric failed the required federal burn safety tests due to the presence of silicone in the printing process. The printer altered its process and subsequent printed samples successfully passed the burn tests. SSM and Fairchild were then in a position to finalize their negotiations for a contract.
On October 6, 2002, Hilleary traveled from Tennessee to California to meet with representatives of Fairchild to discuss the anticipated contract. On October 17, 2002, Fairchild sent purchase orders to SSM in Tennessee for a total of 202, 850 yards of the fabric. The agreed price was $3.00 per yard for a total of $608,550.00. SSM accepted the purchase orders, and SSM and Fairchild entered into a contract. During the time period of November 2002 through February 2003, SSM shipped a total of 122,00 linear yards of the fabric to Fairchild in California. All shipments were made by SSM from its plant in Tennessee.
This was a very large contract for SSM. SSM normally employs approximately 35 production workers. To complete the contract with Fairchild, SSM hired an additional fifteen workers. Three work shifts per day were utilized by SSM for chemical application. With a few exceptions, SSM ran three work shifts per day with the additional production employees for a period of three months from late November 2002 through the end of February 2003. SSM chemically treated the large volume of fabric as fast as possible working at its maximum production capacity.
On November 26, 2002, SSM began shipping fabric to Fairchild's printer in California. The first shipment was 11,268 yards. Fairchild was in a great hurry to obtain the fabric and SSM shipped the product in lots as soon as it could be produced. At Fairchild's request, SSM divided the fabric into lots of about 2,500 yards, with each lot subdivided into 32 smaller rolls of about 75 yards each. SSM sent more shipments of fabric to Fairchild's printer on December 2 and December 6, 2002. SSM was in constant communication with Fairchild concerning the status of the shipments.
Fairchild knew that federal regulations require certified burn testing be done on the treated fabric. SSM had agreed to perform the necessary burn tests at no additional charge. SSM and Fairchild agreed and understood that after Fairchild's printer in California had dyed and printed a lot, samples of the fabric were to be sent back to SSM for the certified testing. Fairchild could release the dyed, printed fabric to be cut and sewn into children's garments only after SSM certified that the burn tests were satisfactory and the fabric complied with federal safety regulations. SSM faxed and mailed these tests results to Fairchild.
SSM alleges that a problem arose when Fairchild unilaterally decided to release some lots of the dyed, printed fabric to Fairchild's plant for cutting, sewing, and producing the children's sleepwear without waiting for SSM to compete the necessary certified burn tests. The first 25,000 yards of fabric passed the burn tests. However, some lots of dyed, printed fabric made and shipped in mid-December, 2002, were found by SSM to have marginally failed the burn tests. SSM immediately notified Fairchild about the negative test results, and SSM requested that Fairchild send new samples from the affected lots for retesting. Federal regulations permit retesting with new samples from the affected lots. However, Fairchild never sent the new samples requested by SSM. Fairchild had been cutting and sewing the fabric into children's sleepwear without waiting for SSM's certification of the results from the burn tests.
In an effort to learn the reason why the mid-December lots had failed the burn tests, SSM undertook elaborate studies of its production methods. SSM never made a final determination whether the burn test failures on the dyed, printed fabric were due to SSM's manufacturing process, or the California printer's process, or some other cause. All subsequent fabrics made by SSM passed the certified burn tests. SSM does not believe that the mid-December lots that failed the burn tests were defective when shipped by SSM.
SSM asserts that had Fairchild not cut and sewn the affected lots of fabric, it is quite probable that most of the fabric in those mid-December lots would have passed the burn test on being either retested or retreated by SSM with chemicals. However, once Fairchild cut the fabric and sewed it into garments, it was impossible for SSM to retreat the fabric with chemicals and retesting the fabric would be uncertain. Under the terms of the contract, fabric which had been cut by Fairchild could not be returned to SSM for credit, even if it was defective.
Fairchild never sent SSM any notice of breach of contract. Instead, Fairchild continued to request that SSM ship fabric to Fairchild as fast as it could be produced by SSM. SSM continued to produce the fabric under the contract at its maximum production capacity and ship it to Fairchild throughout January and February 2003. SSM terminated further shipments once SSM determined that Fairchild was not going to make its agreed payment for the goods.
To date, Fairchild has only made payments of $61,054.80 for the goods. When production and shipment of the fabric by SSM ceased in or about March 2003, SSM had an additional 30,000 yards of treated fabric at its Tennessee plant ready to be shipped to Fairchild. Moreover, approximately 12,000 yards of treated fabric had been shipped by SSM to Fairchild's printer in California but it had not yet been printed. SSM was eventually able to sell these goods to other customers with Fairchild's consent to mitigate damages. As a result of the salvage receipts from SSM's other customers and the payments received from Fairchild, SSM calculates that the current balance owed by Fairchild on the shipped fabric is $275,328.58, without interest.
III. Analysis
Based on these facts and circumstances, the Court concludes that SSM has met its burden of making out a prima facie case that this Court may exercise personal jurisdiction over Fairchild and Dagul.
A. Due Process and the Tennessee-Long Arm Statute
In this diversity case, the Court may exercise personal jurisdiction if it is authorized by the law of the forum State (Tennessee) and otherwise consistent with the Due Process Clause of the Fourteenth Amendment to the United States Constitution. Youn, 324 F.3d at 417; Neogen, 282 F.3d at 888; Neal v. Janssen, 270 F.3d 328, 331 (6th Cir. 2001); Calphalon, 228 F.3d at 721; Kerry Steel, 106 F.3d at 148-49; Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir. 1994); Theunissen, 935 F.2d at 1459; WEDGE Group, 882 F.2d at 1089.
The Tennessee long-arm statute, TENN. CODE ANN. § 20-2-214, extends personal jurisdiction to the full limit allowed by due process. TENN. CODE ANN. § 20-2-214(a)(1) provides in relevant part that nonresidents of Tennessee are subject to the jurisdiction of the Tennessee courts as to any action or claim for relief arising from the transaction of any business within Tennessee. Section 20-2-214(a)(6) further provides that nonresidents of Tennessee are subject to the jurisdiction of the Tennessee courts on any basis not inconsistent with the United States Constitution. The Tennessee long-arm statute is coterminous with the limits on personal jurisdiction imposed by the Fourteenth Amendment's Due Process Clause. Bridgeport Music, 327 F.3d at 477; Neal, 270 F.3d at 331; Payne v. Motorists' Mut. Ins. Companies, 4 F.3d 452, 455 (6th Cir. 1993); WEDGE Group, 882 F.2d at 1089; Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 376-77 (6th Cir. 1968); J.I. Case Corp. v. Williams, 832 S.W.2d 530, 531-32 (Tenn. 1992); Masada Investment Corp. v. Alien, 697 S.W.2d 332, 334 (Tenn. 1985). Because the limits of personal jurisdictional under Tennessee law and the limits of personal jurisdiction as a matter of constitutional due process are identical, the two inquiries are merged. Bridgeport Music, 327 F.3d at 477; Aristech Chemical Intern, v. Acrylic Fabricators, 138 F.3d 624, 627 (6th Cir. 1998).
The bedrock principle of personal jurisdiction due process analysis is that the non-resident defendant must have sufficient "minimum contacts" with the forum State such that the maintenance of the suit there does not offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945); Youn, 324 F.3d at 417; Neal, 270 F.3d at 331; WEDGE Group, 882 F.2d at 1089. Minimum contacts exist when a defendant's conduct and connection with the forum State are such that the defendant "should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); see also Youn, 324 F.3d at 417; Neal, 270 F.3d at 331; WEDGE Group, 882 F.2d at 1089.
The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which the individual has established no meaningful contacts, ties, or relations. Due process requires that individuals have "fair warning" that a particular activity may subject them to the forum's jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985). Where a forum seeks to assert specific personal jurisdiction over an out-of-state defendant who has not consented to suit there, the "fair warning" requirement is satisfied if the defendant purposefully directed its activities at a forum resident.
For there to be sufficient minimum contacts, the defendant must purposefully avail itself of the privilege of conducting business within the forum State, thereby invoking the benefits and protections of the forum State's laws. Burger King, 471 U.S. at 475; Youn, 324 F.3d at 417; Neogen, 282 F.3d at 889; Neal, 270 F.3d at 331; American Greetings, 839 F.2d at 1169. The minimum contacts requirement is satisfied if the defendant purposefully directs its activities at residents in the forum State, and the litigation results from alleged injuries that arise out of or relate to those activities. Burger King, 471 U.S. at 472; Neal, 270 F.3d at 331; J.I. Case, 832 S.W.2d at 532. Purposeful availment by the defendant of the privilege of acting in, or causing a consequence in, the forum State is the sine qua non for in personam jurisdiction. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1273 (6th Cir. 1998); Kerry Steel, 106 F.3d at 150; Market/Media Research v. Union Tribune Pub., 951 F.2d 102, 105 (6th Cir. 1991); Theunissen, 935 F.2d at 1460; Southern Machine, 401 F.2d at 381-82.
The purposeful availment test ensures that a defendant will not be unreasonably haled into a forum solely as a result of random, fortuitous, or attenuated contacts, or as a result of the unilateral activity of another party or a third person. Burger King, 471 U.S. at 415; Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774 (1984); Youn, 324 F.3d at 417; Neogen, 282 F.3d at 889; Calphalon, 228 F.3d at 721-22; WEDGE Group, 882 F.2d at 1090. Even a single act by a defendant deliberately directed toward a Tennessee resident that gives rise to cause of action can support a finding of purposeful availment and meet the due process requirement of minimum contacts. McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223 (1957); Youn, 324 F.3d at 419; Neal, 270 F.3d at 331.
B. Specific Personal Jurisdiction and the Southern Machine Test
The courts distinguish between general jurisdiction and specific jurisdiction, either one of which is an adequate basis for personal jurisdiction. Burger King, 472 U.S. at 472, 473 n. 15; Youn, 324 F.3d at 417-18; Kerry Steel, 106 F.3d at 149; WEDGE Group, 882 F.2d at 1089; J.I. Case, 832 S.W.2d at 532. In the instant case, we are only concerned with specific jurisdiction. Specific jurisdiction exists when a court exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's specific contacts with the forum State. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 n. 8 (1984); Youn, 324 F.3d at 418; WEDGE Group, 882 F.2d at 1089.
Consistent with constitutional due process, the Sixth Circuit has established a three-part test for determining whether a federal court may exercise specific personal jurisdiction: (1) the defendant must purposefully avail itself of the privilege of acting or causing a consequence in the forum State; (2) the plaintiff's cause of action must arise from the defendant's activities in the forum State; and (3) the defendant's acts or the 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. Youn, 324 F.3d at 418; Neal, 270 F.3d at 332; Calphalon, 228 F.3d at 721; Reynolds, 23 F.3d at 1116; WEDGE Group, 882 F.2d at 1090; Southern Machine, 401 F.2d at 381. This is commonly referred to as the Southern Machine test.
All three elements of the Southern Machine test are met here. Defendants Fairchild and Dagul have purposefully availed themselves of the privilege of acting or causing a consequence in the forum State of Tennessee. SSM's breach of contract claim arises from the defendants' activities in Tennessee. The defendants' acts and the consequences caused by their acts have a substantial enough connection with Tennessee to make this Court's exercise of personal jurisdiction over the defendants in the Eastern District of Tennessee fair and reasonable.
C. Minimum Contacts and Purposeful Availment
Defendants argue that they have not had sufficient minimum contacts with Tennessee, and they have not purposefully availed themselves of the privilege of acting or causing a consequence in Tennessee. Defendants say their contacts with SSM in Tennessee were limited to mail and telephone, except when SSM's representative, Hilleary, traveled from Tennessee to California on one occasion to meet in person with representatives of Fairchild. They cite Serras, 875 F.2d at 1217, for the proposition that a mere telephone call from a non-resident defendant to a plaintiff in the forum State seeking to solicit the plaintiff to engage in an out-of-state business transaction is insufficient to establish personal jurisdiction.
Furthermore, defendants contend they contacted SSM to purchase materials that were ultimately to be modified, assembled, and sold in California. It is argued by the defendants that they did not foresee causing a consequence in Tennessee since the fabric purchased from SSM was to be cut, assembled into garments, and sold in California, therefore, defendants did not reasonably anticipate having to defend against a breach of contract suit brought by SSM in Tennessee. Defendants assert that the breach of contract was caused by SSM's delivery of defective fabric in California. In other words, the defendants take the position that the breach of contract occurred in California and not Tennessee.
These arguments fail. The Court recognizes that the mere use of interstate telephone calls and mail to communicate is a secondary or ancillary factor, and cannot alone automatically provide the necessary minimum contacts required by due process. Kerry Steel, 106 F.3d at 151; Reynolds, 23 F.3d at 1119; Market/Media Research, 951 F.2d at 105; LAK, 885 F.2d at 1301; Serras, 875 F.2d at 1217; Scullen Steel Co. v. National Railway Utilization Corp., 676 F.2d 309, 314 (8th Cir. 1982). Moreover, the contract between SSM and Fairchild, standing alone, does not automatically establish that the defendants have sufficient minimum contacts with Tennessee. Burger King, 471 U.S. at 478; Calphalon, 228 F.3d at 722; Kerry Steel, 106 F.3d at 151; Reynolds, 23 F.3d at 1118.
To determine whether there are sufficient minimum contacts with Tennessee and whether the defendants have purposefully availed themselves of the privilege of acting or causing a consequence in Tennessee, we evaluate the prior negotiations and contemplated future consequences, along with the contract terms and the parties' actual course of dealing. Burger King, 471 U.S. at 479; Reynolds, 23 F.3d at 1118; Advanced Polymer Sciences v. Phillips Indus. Serv., 34 F. Supp.2d 597, 601 (N.D. Ohio 1999). It is the quality of contacts, not the quantity of contacts, that is important. Neal, 270 F.3d at 332; Calphalon, 228 F.3d at 722-23; Reynolds, 23 F.3d at 1119; LAK, 885 F.2d at 1301.
The Court finds that the defendants have had sufficient minimum contacts with Tennessee to satisfy due process and establish personal jurisdiction in the Eastern District of Tennessee. Defendants purposefully availed themselves of the privilege of acting or causing a consequence in Tennessee by entering into a contract to purchase customized goods to be produced by SSM in Tennessee and the goods were shipped from Tennessee. Defendants accepted delivery of the fabric when it arrived from Tennessee. Defendants also accepted the invoices requiring that SSM be paid in Tennessee. Aristech Chemical, 138 F.3d at 628; Nicholstone Book Bindery, Inc., v. Chelsea House Pub., 621 S.W.2d 560 (Tenn. 1981); Advanced Polymer, 34 F. Supp.2d at 600-01; see also Chase Cavett Services, Inc. v. Brandon Apparel Group, Inc., 1998 WL 846708 (Tenn.Ct.App. Dec. 7, 1998); A.R.C. Management Corp. v. Suffolk Health Continuum, Inc., 1992 WL 156037 (Tenn.Ct.App. July 8, 1992).
The business transaction began when the defendants initiated contact with SSM in Tennessee, and the defendants transmitted purchase orders to SSM in Tennessee. Defendants had numerous contacts with SSM in Tennessee by telephone, mail, and facsimile transmissions. Defendants knew that the fire-resistant fabric would be specially treated and produced by SSM in Tennessee. SSM's production and manufacture of the special fabric called for the application of unique expertise and ability on the part of SSM. The customized fabric was not the type of product which the defendants could have contracted with other companies within the United States to produce. Defendants consciously selected SSM for this particular purpose. It was reasonably foreseeable to defendants that substantial economic consequences in Tennessee would directly result and flow from their breach of contract by failing to pay SSM.
With regard to interstate contractual obligations, parties such as Fairchild and Dagul who deliberately reach out beyond their residence in California to create contractual relationships and obligations with citizens of Tennessee are subject to regulation and sanctions in Tennessee for the consequences of their activities. Burger King, 471 U.S. at 473; Travelers Health Assn. v. Virginia, 339 U.S. 643, 647 (1950); J.I. Case, 832 S.W.2d at 532. A defendant residing in California who initiates a contract and does business in Tennessee should reasonably anticipate being haled into a Tennessee court when the defendant breaches the contract by failing to pay for goods manufactured in and shipped from Tennessee. Nicholstone, 621 S.W.2d at 564; Chase Cavett Services, 1998 WL 846708, at *6; cf. A.R.C. Management, 1992 WL 156037.
The defendants' contacts with Tennessee and their contractual relationship with SSM in Tennessee can in no sense be viewed as random, fortuitous, or attenuated. Defendants Fairchild and Dagul deliberately reached out beyond California and initiated contact with SSM in Tennessee for the express purpose of creating a contract with SSM for customized products to be manufactured in Tennessee. Cole v. Mileti, 135 F.3d 433, 436 (6th Cir. 1998) (when nonresident defendant chose to transact business by negotiating and executing a contract via telephone calls and mail to an Ohio resident, defendant purposefully availed himself of the Ohio forum by creating a continuing contractual obligation in Ohio); Advanced Polymer, 34 F. Supp.2d at 600-02.
Personal jurisdiction cannot be avoided merely because Fairchild and Dagul did not physically enter Tennessee. Southern Machine, 401 F.2d at 382; Floratine Products Group, Inc. v. Brawley, 282 F. Supp.2d 798, 800 (W.D. Tenn. 2003); Nicholstone, 621 S.W.2d at 563. "Physical presence" in the forum State "is not the touchstone of personal jurisdiction." Neal, 270 F.3d at 333. It is "an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted." Burger King, 471 U.S. at 476. So long as the defendants' actions and efforts are purposefully directed toward Tennessee resident SSM, the absence of the defendants' physical presence in Tennessee cannot defeat personal jurisdiction in this forum. Id.; Keeton, 465 U.S. at 774-75; Neal, 270 F.3d at 333. The first element of the Southern Machine test is met here. D. plaintiff's Claim Arises From Defendants' Activities In Tennessee
SSM's cause of action for breach of contract arises from the defendant's business activities in Tennessee. The consequences of the defendants' alleged breach of contract are substantially connected to Tennessee. The breach of contract claim would not have arisen if SSM had not manufactured the customized products in Tennessee based upon the defendants' purchase orders. Nicholstone, 621 S.W.2d at 564.
The second part of the Southern Machine test is satisfied because many of the operative facts of this lawsuit arise from the contract and from SSM's performance under the contract in Tennessee. SSM's cause of action for breach of contract naturally arises from the defendants' business activities in Tennessee. Cole, 133 F.3d at 436. When the defendants entered into the contract establishing SSM's contractual obligations, they set in motion SSM's performance under the contract in Tennessee. Southern Machine, 401 F.2d at 384; Southern Systems, Inc. v. Torrid Oven Ltd., 58 F. Supp.2d 843, 850 (W.D. Tenn. 1999); Nicholstone, 621 S.W.2d at 564. The "arising from" requirement in the second prong of the Southern Machine test is satisfied because SSM's breach of contract claim is directly related to and connected with the defendants' contacts with Tennessee. Youn, 324 F.3d at 419; WEDGE, 882 F.2d at 1091 n. 2. The defendants' alleged breach of contract has caused substantial economic injury to SSM in Tennessee. Cf. Neogen, 282 F.3d at 892.
E. Fairness
When the first two elements of the Southern Machine test are met, an inference arises that the third element, fairness, is also present. Compuserve, 89 F.3d at 1268; WEDGE, 882 F.2d at 1092; American Greetings, 839 F.2d at 1170; First National Bank v. J. W. Brewer Tire Co., 680 F.2d 1123, 1126 (6th Cir. 1982); Southern Machine, 401 F.2d at 384; Southern Systems, 58 F. Supp.2d at 851. Where the first two criteria are satisfied, "only the unusual case will not meet this third criterion." Aristech, 138 F.3d at 628 (quoting Theunissen, 935 F.2d at 1461); Southern Machine, 401 F.2d at 384.
Defendants must present a "compelling case" that the presence of some other considerations would render personal jurisdiction unfair or unreasonable. Burger King, 471 U.S. at 477; American Greetings, 839 F.2d at 1170; Steelcase, Inc. v. Mar-Mol Co., Inc., 210 F. Supp.2d 920, 935 (W.D. Mich. 2002). The Court finds that the defendants have not met their burden of making out a compelling case that the exercise of personal jurisdiction over them in the Eastern District of Tennessee would be unfair or unreasonable.
To determine whether the exercise of personal jurisdiction over the defendants is fair and reasonable, the Court balances four factors: (1) the burden on the defendants; (2) the interests of the forum State (Tennessee); (3) plaintiff SSM's interest in obtaining relief; and (4) the interests of other States in securing the most efficient resolution of the controversy. Asahi Metal Indus. Co., Ltd. v. Superior Court, 480 U.S. 102, 113 (1987); Youn, 324 F.3d at 419; Compuserve, 89 F.3d at 1268; Theunissen, 935 F.2d at 1461; American Greetings, 839 F.2d at 1169-70.
Defendants make a vague, conclusory assertion that requiring Dagul to travel to Tennessee to litigate the case "would be very costly to the business." [Court File No. 6, p. 5]. Defendants have not submitted any facts or proof to demonstrate that requiring Fairchild and Dagul to litigate this garden variety breach of contract action in Tennessee would be unduly expensive or cause a crisis in the operation of Fairchild's business. The only time that Dagul and some of Fairchild's employees/witnesses would have to actually travel to Tennessee would be for trial. The Court anticipates that a trial in this case would only last two or three days at most. For discovery purposes, Dagul and Fairchild's employees can be deposed in California. Furthermore, depositions may be taken "for proof and introduced into evidence at trial which would make it unnecessary for many of the defendants' witnesses to have to travel from California to Tennessee at all. If the defendants so choose, they could have Dagul give her videotaped deposition "for proof in California which could make unnecessary for Dagul to ever have to bear the relatively minor inconvenience and expense of traveling to Tennessee for a few days.
In Burger King, 471 U.S. at 473-74, the Supreme Court explains there are several reasons why a forum State may legitimately exercise personal jurisdiction over a nonresident defendant who has purposefully directed its activities toward the forum's residents. A State generally has a manifest interest in providing its residents with a convenient judicial forum to obtain redress for injuries caused by nonresidents or out-of-state actors. Where individuals purposefully derive economic benefit from their interstate activities, it may be unfair to allow them to escape having to account in other States for consequences which are proximately caused by such activities. "[T]he Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed." Burger King, 471 U.S. at 474; see also Youn, 324 F.3d at 419-20.
Modern transportation and communications make it much less burdensome today for nonresident defendants to litigate and defend themselves in Tennessee where the defendants have purposefully engaged in business or economic activity in Tennessee. It will usually be fair to subject a nonresident defendant to the burdens and inconvenience of litigating in the other forum for disputes relating to such business or economic activity. In the instant case, defendants Fairchild and Dagul, deliberately initiated a business transaction and entered into a contract with SSM in Tennessee from which the defendants planned to profit financially. The Court is not persuaded that adjudicating this case in the Eastern District of Tennessee would be unfair, unreasonable, or unduly burdensome to defendants Fairchild and Dagul. Nicholstone, 621 S.W.2d at 565.
When a contract is made with a Tennessee resident, the State of Tennessee has a strong interest in providing a judicial forum to resolve a suit based on a breach of the contract. Tennessee has a strong interest in adjudicating this controversy involving customized goods manufactured in and shipped from Tennessee by SSM, a Tennessee resident. Aristech, 138 F.3d at 629; In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 232 (6th Cir. 1972); Southern Machine, 401 F.2d at 385; Floratine, 282 F. Supp.2d at 801; Steelcase, 210 F. Supp.2d at 935; Norcold, Inc. v. Greg Lund Products, Ltd., 109 F. Supp.2d 819, 827 (S.D. Ohio 2000); Southern Systems, 58 F. Supp.2d at 851-52; Advanced Polymer, 34 F. Supp.2d at 602; J.I. Case, 832 S.W.2d at 533; Nicholstone, 621 S.W.2d at 564-65; A.R.C. Management, 1992 WL 156037; see also S S Screw Machine Co. v. Cosa Corp., 647 F. Supp. 600, 611 (M.D. Tenn. 1986) (Tennessee has an interest in seeing that its residents involved in interstate commercial transactions receive the benefit of their bargains).
As for SSM, it undoubtedly has an interest in receiving payment for the fabric it produced and shipped to the defendants. Aristech, 138 F.3d at 629. The interests of the interstate judicial system do not appear to be implicated by permitting in personam jurisdiction in Tennessee. Defendants have not demonstrated that the State of California would be a more efficient forum, or that California has a greater interest in this case than Tennessee. This Court in the Eastern District of Tennessee is capable of achieving the most efficient resolution of SSM's breach of contract claim.
IV. Conclusion
Accordingly, the defendants' motion pursuant to FED. R. CIV. P. 12(b)(2) to dismiss the plaintiff's complaint of the ground of lack of personal jurisdiction [Court File No. 5] is DENIED.
SO ORDERED.