The Tennessee Supreme Court issued an opinion today addressing when out-of-state businesses may be brought into court in Tennessee. First Community Bank sued several in-state and out-of-state financial service providers after the bank lost millions of dollars in investments involving the financial service providers. In its ruling today, the court concluded that First Community had failed to establish that Tennessee courts have jurisdiction over certain of the out-of-state financial service providers. The case, however, will go back to the trial court for consideration of one issue.
From 2003 to 2007, First Community purchased $135 million worth of asset-backed and residential mortgage securities that were structured and facilitated by investment banks and financial institutions that acted as placement agents. The purchases were made by First Community from separate entities that were created by the banks and institutions for the particular purpose of issuing the investments.
As part of the offering, First Community received packets of information marketing the notes. This information included minimum rating levels for the investments by ratings agencies Moody’s Investor Services, Fitch Ratings, and Standard & Poor’s Rating Services. Prior to First Community’s purchases, the ratings agencies found that all the products met their required minimum ratings. However, shortly after all the purchases were completed, the agencies began to downgrade significantly the rating assigned to each investment. In the end, First Community claims that it lost over $100 million on the investments.
In 2011, First Community filed suit against all the parties involved in the structuring, issuing, and rating of the investments, including allegations of violations of the Tennessee Securities Act, fraud, and negligent representation. The out-of-state ratings agencies filed motions to dismiss the suit, claiming lack of personal jurisdiction, which means they were challenging the right of the Tennessee court to exercise authority over them in this particular case. For a court to establish personal jurisdiction over business parties in a case, the parties must have met certain levels of business activity within the state. First Community also added claims of conspiracy jurisdiction. Under this theory of jurisdiction, the plaintiff maintains that an in-state defendant conspired to act together with an out-of-state defendant in such a way that would subject the out-of-state defendant to jurisdiction in the state.
The trial court granted the ratings agencies’ motions to dismiss. First Community appealed, and the Court of Appeals upheld the trial court’s decision. The Tennessee Supreme Court agreed to hear the case and determine whether the trial court had jurisdiction over the ratings agencies and whether First Community should be allowed to seek more information from the defendants regarding their theories of personal jurisdiction.
The Supreme Court determined that First Community was unable to establish that Tennessee had personal jurisdiction over the ratings agencies in this case under any theory of personal jurisdiction. However, the Court also determined that while First Community, at the time the motions to dismiss were filed, was unable to prove a case of conspiracy jurisdiction, there was enough of a question to send the case back to the trial court to determine if First Community should be allowed to conduct additional discovery on the issue of conspiracy jurisdiction under new guidelines adopted by the court in this opinion.
Read the unanimous opinion in First Community Bank v. First Tennessee Bank, authored by Justice Jeffrey S. Bivins.