Securities Litigation

The Tennessee Supreme Court released a December 14 decision reviewing personal jurisdiction over non-resident defendants. First Community Bank, NA v. First Tennessee Bank, NA, No. 2012-01422-SC-R110CV (Tenn. Dec. 14, 2015). The case involved a Virginia bank's securities claims against a host of defendants, among them a couple Tennessee-resident firms and three non-resident Ratings Agencies having rated various collateralized-debt-obligation securities - some of which had Tennessee securities as a small portion of their underlying portfolio assets. The trial and appellate courts had dismissed the Ratings Agencies for lack of personal jurisdiction. On motion and affidavits, the Court examines jurisdictional issues to determine if plaintiff has made a prima facie case for the exercise of jurisdiction. General jurisdiction requires the "essentially at home" analysis of Daimler: "[W]hether the corporation has continuous and systematic contacts with Tennessee so substantial as to render the corporation 'essentially at home' here in such a way which does not offend traditional notions of fair play and substantial justice." FCB, Slip Op. at 12. The Ratings Agencies' few tangential contacts with Tennessee were insufficient to confer general jurisdiction. Specific jurisdiction requires the Walden / Burger-King analysis: (1) purposeful-availment resulting in minimum-contacts, (2) from which the cause of action arose. FCB, Slip Op. at 15-19. But, "there is nothing in the record to show that any of the investment products had any kind of specific or substantial connection to Tennessee such that the Defendants' ratings of those products was sufficient to constitute the minimum contacts necessary to give rise to specific personal jurisdiction." FCB, Slip Op. at 19-20 (pretermitting 2^nd step, whether gave rise to cause of action). The Court recognized conspiracy jurisdiction as a theory under which

'an out-of-state defendant involved in a conspiracy who lacks sufficient "minimum contacts" with the forum state may nevertheless be subject to jurisdiction because of a co-conspirator's contacts with the forum.' Chenault [v. Walker], 36 S.W.3d [45,] at 51 [(Tenn. 2001)]. This Court adopted the theory of conspiracy personal jurisdiction in Chenault, defined as follows: Under [this] doctrine, when

1. two or more individuals conspire to do something,
2. that they could reasonably expect to lead to consequences in a particular forum, if
3. one co-conspirator commits overt acts in furtherance of the conspiracy, and
4. those acts are of a type which, if committed by a non-resident, would subject the non-resident to personal jurisdiction under the long-arm statute of the forum state,

then those overt acts are attributable to the other co-conspirators, who thus become subject to personal jurisdiction in the forum, even if they have no direct contacts with the forum."

FCB, Slip Op. at 23. FCB failed to establish a prima facie showing of any conspiratorial agreement, because its Amended Complaint rested on "the conclusory allegation that the Defendants 'agreed to act in concert to fraudulently market' the securities in this case," thus doing "little more than recit[ing]the existence of business relationship." FCB, Slip Op. at 31-32. Jurisdictional discovery, however, may be appropriate on a "colorable claim" - something less than a prima facie showing.

"If the threshold of a colorable claim is met, trial courts then should consider the following non-exclusive factors to determine whether to grant jurisdictional discovery: (1) whether the plaintiff has shown that there is a likelihood that discovery will yield facts that will influence the personal jurisdiction determination; (2) whether the plaintiff has laid out with particularity the evidence sought by discovery; (3) whether the evidence sought is the type which would normally be in the exclusive control of the defendant; (4) whether the case is particularly complex; and (5) whether the plaintiff's interest in discovery outweighs the policy concerns of subjecting a nonresident defendant to burdensome discovery at such an early stage and seeking to avoid allowing the plaintiff to conduct a "•fishing expedition."

FCB, Slip Op. at 39. The Court affirmed generally, but vacated and remanded to the Trial Court to determine whether, on balance under that 5-point test, it would exercise discretion to allow discovery in pursuit of the "colorable" conspiracy theory of jurisdiction over the Ratings Agencies. The Court admonished though: "[W]e emphasize that the trial court should consider whether it is possible to limit discovery solely to the conspiracy jurisdiction issues. If not, the discovery may be particularly burdensome to the Defendants under the balancing analysis we have laid out." FCB, Slip Op. at 41. The decision is First Community Bank, NA v. First Tennessee Bank, NA, No. 2012-01422-SC-R110CV (Tenn. Dec. 14, 2015), here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. He represents a Placement Agent Defendant in this case. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).