Duncan-Williams, Inc. v. Capstone Developent, LLC et al

Filing 60

ORDER ON DEFENDANTS' MOTIONS TO DISMISS FOR LACK OF PERSONAL JURISDICTION (4), (15) in case 2:09-cv-02098-SHM-tmp; (3), (5) in case 2:09-cv-02109-SHM-tmp. Signed by Judge Samuel H. Mays, Jr., on July 7, 2010. Associated Cases: 2:09-cv-02098-SHM-tmp, 2:09-cv-02109-SHM-tmp(Mays, Samuel)

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION DUNCAN-WILLIAMS, INC., Plaintiff, v. CAPSTONE DEVELOPMENT, LLC; EUGENE H. BORGOSZ; SELECTIVE SERVICES, INC. f/k/a SELECTIVE, INC.; UNIVERSITY CLUB GROUP, INC.; UC PROPERTIES, LLC; TANNER & GUIN, LLC; TRIANGLE CONSTRUCTION MANAGEMENT, LLC; NEXSON PRUET, LLC; HILBURN, CALHOON, HARPER, PRUNISKI & CALHOUN, LTD.; and CAPSTONE IMPROVEMENT DISTRICT, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case Nos. 09-2098 09-2109

ORDER ON DEFENDANTS' MOTIONS TO DISMISS FOR LACK OF PERSONAL JURISDICTION Before the Court are the separate February 25 and March 12, 2009, Motions to Dismiss for Lack of Personal Jurisdiction filed by Defendants Hilburn, Calhoon, Harper, Pruniski & Calhoun, Ltd. ("Hilburn"); Development, Construction Tanner LLC, & Guin, LLC ("Tanner"); and Capstone Triangle (the

Selective LLC,

Services, and Eugene

Inc., H.

Management,

Borgosz

"Borgosz entities").

See Fed. R. Civ. P. 12(b)(2); (Dkt. Nos.

3*, 4, 15.)1

Plaintiff Duncan-Williams, Inc. ("DWI") filed a (See Dkt. No. 35.)

response in opposition on April 13, 2009.

Defendants filed reply briefs on May 19, June 3, and June 5, 2009. (See Dkt. Nos. 26*, 46-47.) (See Dkt. No. 50.) DWI filed its sur-reply on For the following reasons,

June 26, 2009.

the Court GRANTS the Motion to Dismiss of Defendant Tanner but DENIES the Motions of the Borgosz entities and Hilburn. I. FACTUAL BACKGROUND A. Underlying Dispute Plaintiff Tennessee. Motions to DWI is a securities firm based in Memphis,

(Plaintiff's Response in Opposition to Defendants' Dismiss with the at 4.) ("Pl.'s DWI Resp.") acted, Pursuant along with to the

arrangements

Defendants,

South Carolina-based securities firm Southern Financial, Inc., as underwriter for a $13 million bond offering to fund the

construction of a 544-lot residential development in Brookwood, Alabama, known as the Capstone Development. Defendant Capstone Improvement District (the (Compl. ¶ 15.) "District"), a

political subdivision of the State of Alabama created by an act of that state's legislature, issued the bonds. (Id. ¶ 17.) The

developer for the real estate project was Defendant Capstone Development, LLC (the "Developer"), which is one of the Borgosz

1

All docket entries referenced with an asterisk (*) are filed in case number 09-2109.

2

entities.

(Id.

¶

15.)

DWI

and

Southern

Financial

each

purchased half of the bonds issued.

(Id. ¶ 23.)

After its

purchase of the bonds, DWI re-sold them to its customers as investments. (Id. ¶ 24.) Selective Services, Inc. ("Selective") and

Defendants

Triangle Construction Management, LLC ("Triangle Construction") were in charge of the construction of the Capstone Development. (Id. ¶¶ 45-46.) Defendant Eugene Borgosz owned, controlled, or (Id.

was an agent of both Selective and Triangle Construction. ¶¶ 4-5.) cost

In 2001, the Capstone Development "began to experience (Id. ¶ 43.) Selective and Triangle

overruns."

Construction eventually walked off the job, refusing to complete construction given the increasing costs. (Id. ¶ 45.) Despite a

bond guaranteeing completion of the Development, the Developer did not hire a replacement construction company, and the

Capstone Development was never completed.

(Id. ¶¶ 47, 49-50.)

Because the Development was not completed and few lots were sold, no funds were available to pay interest and principal to the bondholders. (Id. ¶ 50.) There was also no collateral (Id.)

backing the bonds because the Development had failed. The bonds defaulted in August 2003. (Id. ¶ 51.)

Following default, two customers of DWI, Ruskin A. Vest, Jr., and Industrial Products Company, Inc. (the "Vest

Plaintiffs"), sued DWI in the Circuit Court for Maury County, 3

Tennessee. alleged breached common that its

(See Dkt. No. 1, Ex. 2 ("Vest Compl.").) DWI had violated duties, to Tennessee's and committed to Blue Sky

They Laws, and the

fiduciary by

negligence bondholders

law

fraud

failing

disclose

deteriorating financial position of the Capstone Development. (Vest Compl. ¶¶ 21-39.) in January 2008. The case went to trial in state court ¶ 63.) Before the trial had

(Compl.

concluded, the parties agreed to settle all claims. the Vest Plaintiffs $1.2 million, including

DWI paid court

interest,

costs, and attorneys' fees.

(Id. ¶ 64.)

On January 15, 2009, DWI filed the instant suit in the Chancery Court for Shelby County, Tennessee. (Id. at 1.) DWI

seeks indemnification from the Defendants for its $1.2 million settlement with the Vest Plaintiffs under the terms of the Bond Purchase Agreement and related contracts. also asserts for that the it is entitled under to (Id. ¶¶ 65-140.) contribution Tennessee from DWI the

Defendants

settlement

the

Securities

Act, Tenn. Code Ann. § 48-2-122(g), and the Uniform Contribution Among Tortfeasors Act, Tenn. Code Ann. §§ 29-11-101 et (Compl. ¶¶ 141-166.) seq.

But see Tenn. Code Ann. § 29-11-102(g)

("This chapter shall not apply to breaches of trust or of other fiduciary obligation."). Defendants removed Plaintiff's suit to (See Notice of Removal, Dkt.

this Court on February 20, 2009. No. 1.)

Defendants Tanner, Hilburn, and the Borgosz entities 4

then filed the present Motions challenging this Court's personal jurisdiction over them. B. Jurisdictional Facts The Court and takes the following facts without See from the parties' the v.

affidavits Defendants'

DWI's

Complaint

considering Theunissen

controverting

assertions.

Matthews, 935 F.2d 1454, 1459 (6th Cir. 1991). explore the possibility of serving as

DWI began to for the

underwriter

Capstone Development in "late February or early March 2000."2 (Jumper Aff., Dkt. No. 35, Ex. 1, ¶ 4.) investigation, DWI reviewed a draft As part of its initial preliminary offering

statement and explanation of the project prepared by Defendant Tanner. (Id. ¶ 3.) Tanner served as counsel to both the

Developer and the District. 20.)

(Guin Aff., Dkt. No. 3*, Ex. 2, ¶

Tanner has never had an office in the State of Tennessee. None of its attorneys has a license to practice in

(Id. ¶ 10.)

Tennessee; it does not market its services in Tennessee; and it has never represented DWI as its attorney. (Id. ¶¶ 11-12, 14.)

Tanner maintains its offices in Jefferson and Baldwin Counties in Alabama. (Id. ¶ 5.)

Tanner provided a preliminary statement that DWI circulated to
2

its

customers,

and

they

had

no

interest

in

the

Capstone

Southwest Securities, which had decided not to underwrite the Capstone Development's bond issuance, approached DWI about replacing it as one of the two underwriters. (Jumper Aff. ¶ 2.)

5

Development bond issuance as it was then structured. Aff. ¶ 6.)

(Jumper

When DWI notified Tanner and the Borgosz entities

that there was little investor enthusiasm for their proposed bond sale, those Defendants agreed "to restructure the

transaction so as to provide greater security" and enable a successful bond sale. (Id. ¶ 7.) Specifically, Tanner and the

Borgosz entities supplied DWI with information about possible alternative structures for the bond sale that might address the concerns of potential investors. They took these actions in an (Id. ¶ 8.)

effort "to keep DWI involved in the transaction."

Tanner provided DWI with "numerous drafts of bond documents" and other information that it submitted to DWI's Memphis office. (Id. ¶ 10.) These documents came from information submitted to (Id.)

Tanner by its clients, the District and the Developer.

Tanner hoped to replicate whatever form was used in the Capstone Development's bond sale in future transactions with similar

developments throughout Alabama.

(Id. ¶ 9.)

When DWI agreed to become the co-underwriter for the bond issue, Defendant Hilburn was already representing Southern

Financial as underwriters' counsel. ¶¶ 6, 8.)

(Pruniski Aff., Dkt. No. 5,

Hilburn's attorney, Jack Pruniski, called DWI to

confirm that Hilburn could provide the same services to DWI; and DWI accepted Hilburn's representation as underwriters' counsel. (Jumper Aff. ¶ 10.) Hilburn maintains no office in the State of 6

Tennessee; and Pruniski, who has never held a Tennessee law license, performed all work as underwriters' counsel for both Southern Financial and DWI. (Pruniski Aff. ¶¶ 3, 5, 9.)

Hilburn has its primary office in North Little Rock, Arkansas. (Id. ¶ 2.) Tanner and Hilburn worked together for their respective

clients to draft the official statement that would accompany the restructured bond offering. (Jumper Aff. ¶ 10.) Throughout

this process, DWI had "numerous conversations" by telephone and "exchanged numerous written communications" with Tanner and

Hilburn about the documentation they had forwarded to DWI for review. (Id. ¶ 14.) Tanner and Hilburn initiated many of these (Id.) DWI's John Jumper

contacts with DWI's Memphis office.

also visited Alabama to conduct due diligence on the project. During that trip, Jumper met with the participants, "spent days in [Tanner's] office reviewing documents," and spoke with

Borgosz "several times."

(Id. ¶ 15.)

DWI also negotiated the

bond purchase agreement with the District in which the District agreed to sell the bonds to DWI and Southern Financial. 16.) (Id. ¶

As part of this process, Hilburn delivered an opinion

"addressed to DWI in Memphis, Tennessee . . . that the bonds were lawfully issued" and that the parties had disclosed all facts material to the transaction. (Id. ¶ 17.) At no time did

Tanner, the District's counsel, inform DWI that there were any 7

problems with any of the District's or the Borgosz entities' disclosures. (Id. ¶ 18.) Both Tanner and Hilburn were aware

that it was "essential" to DWI's marketing efforts that the bonds comply with federal tax and securities laws and the

securities laws of every state in which the bonds might be sold ­ particularly the laws of Tennessee and South Carolina, the home states of DWI and Southern Financial. million bond sale closed on April 19, 2000. (Id.) The $13

(Id. ¶ 16.)

After the bond closing, DWI continued to have contact with the Defendants. Borgosz, on behalf of himself and all the

Borgosz entities, visited the DWI offices in Memphis to continue to promote the Capstone Development and explain the ongoing

construction process to DWI's sales force to assist in marketing the Capstone bonds. (Id. ¶ 20.) Borgosz also "implore[d] DWI

to collaborate with him" on a separate bond issue related to the Capstone Development during his Tennessee visits. (Id.) In

addition to his trips to DWI's office, Borgosz spoke with Jumper "via telephone, literally, hundreds of times" and sent letters to Jumper at DWI's Memphis office. Pruniski closed also called DWI's Jumper advice after "about (Id. ¶ 19.) the how bond to Hilburn's had

transaction structure

seeking

future

improvement district bond issues."

(Id. ¶ 25.)

DWI continued

to rely on Hilburn for legal advice about post-issuance legal matters. Pruniski sent a letter to DWI on April 28, 2000, 8

detailing DWI's potential remedies if the District defaulted on its bond obligations. (Id. ¶ 28.) Hilburn also advised DWI on

the details of a potential restructuring of the bond issue and assisted with the Continuing Disclosure Agreement whereby the District and the Developer agreed to disclose any post-issuance material events to DWI and to assume the anti-fraud obligations SEC Rule 15c2-12 imposed. II. (Id.)

JURISDICTION, CHOICE OF LAW, AND STANDARD OF REVIEW removed this action under the diversity

Defendants

jurisdiction conferred by 28 U.S.C. § 1332(a)(1) and § 1441(a). (Notice of Removal at 1.) Plaintiff DWI is a Tennessee

corporation with its principal place of business in Memphis, Tennessee. (Compl. ¶ 1.) Defendants Capstone Development, LLC;

Triangle Construction; and Tanner are Alabama limited liability companies. corporation Alabama. (Id. with ¶¶ its 2, 8, 5.) place Selective of is an in Alabama Pelham,

principal

business

(Id. ¶ 4.) with (Id. its ¶ LLC

University Club Group, Inc. is a Delaware principal place of business Properties, limited in South and

corporation Carolina. Nexsen

6.) are

Defendants South

U.C.

LLC

Pruet,

Carolina

liability

companies.

(Id. ¶ 7; Notice of Removal ¶ 7.)

Hilburn is an

Arkansas corporation with its principal place of business in North Little Rock, H. Arkansas. Borgosz is 9 (Compl. a ¶ 9.) of the Individual State of

Defendant

Eugene

citizen

Alabama, and the Capstone Improvement District is a political subdivision of Alabama. liability companies has (Id. ¶¶ 3, 10.) None of the limited members. (See

Tennessee-domiciled

Defendant Nexsen Pruet, LLC's Supplementation of Petition for Removal, Dkt. Nos. 54-56; Notice by Capstone Development, LLC and Triangle Construction Management, LLC, Dkt. No. 57; Notice by Tanner & Guin, LLC, Dkt. No. 58.) Complete diversity is

therefore present, and the amount in controversy is greater than $75,000. (Compl. ¶¶ 64, 166.2.) A federal court sitting in diversity applies the

substantive law of the forum state and federal procedural law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

Plaintiff has filed suit under the common and statutory laws of the State of Tennessee. The Court, therefore, will apply

Tennessee law to the substantive issues in dispute.

Because

Plaintiff filed suit in a Tennessee court, the Court also must apply Tennessee's long-arm jurisdiction statute when considering Defendants' Motion. See Tenn. Code Ann. § 20-2-214; Kerry

Steel, Inc. v. Paragon Indus., 106 F.3d 147, 148 (6th Cir. 1997) ("A federal court sitting in diversity may exercise personal jurisdiction over an out-of-state defendant only to the extent that a court of the forum state could do so." (citation

omitted)).

10

When presented with a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure

12(b)(2), a federal court has three options:

decide the motion

based on the affidavits of the parties; allow the parties to conduct limited discovery on the jurisdictional issue; or hold an evidentiary hearing to resolve disputed questions of fact. Theunissen, 935 F.2d at 1458. an evidentiary arguments based hearing; by they None of the parties has requested have In chosen instead a to present 12(b)(2) the

their motion

affidavit. on

deciding the

Rule

solely

affidavits,

Plaintiff Id.

bears

burden of establishing that jurisdiction exists.

However, Bird

it "need only make a prima facie showing of jurisdiction." v. Parsons, 289 F.3d 865, 871 (6th Cir. 2002)

(citation

omitted).

The Court must view the jurisdictional facts in the Theunissen, 935 F.2d at

light most favorable to the Plaintiff. 1459.

It may "not consider facts proffered by the defendant Neogen

that conflict with those offered by the plaintiff."

Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir. 2002) (citation omitted). court to ignore This standard "does not require a factual representations of the

undisputed

defendant which are consistent with the representations of the plaintiff." Kerry Steel, 106 F.3d at 153 (citation omitted).

11

III.

ANALYSIS

A court may exercise personal jurisdiction over a defendant if the elements of either general or specific jurisdiction are present. Id. at 149. General jurisdiction exists over a

defendant when it "has continuous and systematic contacts with the forum state sufficient to justify the state's exercise of judicial power with respect to any and all claims the plaintiff may have against the defendant." Id. (citing Helicopteros

Nacionales de Colombia S.A. v. Hall, 466 U.S. 414-45 & nn.8-10 (1984)). DWI does not assert that this Court has general

jurisdiction over any of the Defendants. 16.) Instead, DWI argues that this

(See Pl.'s Resp. at Court has specific

jurisdiction over each of the objecting Defendants.

(Id.)

State law controls the breadth of the specific jurisdiction the Court may assert. Kerry Steel, 106 F.3d at 148.

Tennessee's long-arm statue provides that a court whose situs is in Tennessee may with assert the jurisdiction of § on "[a]ny basis or of not the

inconsistent United

constitution Code its Ann.

[Tennessee]

States." has

Tenn.

20-2-214(a)(6). reach to the

Thus, full

Tennessee

extended

jurisdictional

extent permitted by the Due Process Clause of the Constitution. See Masada Inv. Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn.

1985). extent

When a state has extended its jurisdiction to the full allowed by the Constitution, 12 the statutory and

constitutional inquiries merge; and the only question the Court must answer is whether would exercising violate due jurisdiction process. over Gomberg the v.

objecting

defendant

Shosid, No. 1:05-cv-356, 2006 U.S. Dist. LEXIS 45785, at *9 (E.D. Tenn. July 6, 2006). longstanding test The Sixth Circuit first stated its when a state's assertion of

governing

jurisdiction over a defendant is proper in Southern Machine Co. v. Mohasco Industries, 401 F.2d 374, 381 (6th Cir. 1968): 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. (footnote omitted); see also e.g., Calphalon Corp. v. Rowlette, 228 F.3d 718, 721 (6th Cir. 2000) (applying Mohasco). If a

Plaintiff fails to satisfy all three prongs of the Mohasco test, a court may not exercise personal jurisdiction over that

defendant.

LAK, Inc. v. Deer Creek Enters., 885 F.2d 1293, 1303

(6th Cir. 1989). A. The Court Has Jurisdiction over Defendant Hilburn Defendant Hilburn argues that its contacts with Tennessee are not sufficient for the Court to exercise personal

jurisdiction over it.

Hilburn asserts that Southern Financial

had selected it as underwriters' counsel before DWI agreed to 13

become a part of the bond transaction.

(Defendant Hilburn's

Memorandum in Support of Its Motion to Dismiss at 3.) ("Hilburn Memo") required Thus, legal the work. firm had already Memo completed at 3-4.) much of the also

(Hilburn

Hilburn

argues that, because none of its attorneys ever set foot in Tennessee and its only contact with DWI was via "phone calls, faxes, and e-mails between Pruniski and [DWI's] John Jumper," the Court lacks personal jurisdiction. (Id. at 4.)

Under the first prong of the Mohasco test, Hilburn must have "purposefully avail[ed itself] of the privilege of acting in the forum state." 401 F.2d at 381. Often referred to as the

"sine qua non" of the personal jurisdiction inquiry, id. at 38182, the "`purposeful availment' requirement ensures that a

defendant will not be haled into a jurisdiction solely as a result Burger of `random,' Corp. `fortuitous,' v. Rudzewicz, Courts or 471 to `attenuated' U.S. the 462, contacts." 475 (1985) of the

King

(citations

omitted).

look

quality

defendant's contacts with the forum state, rather than their number or duration. defendant's analysis. cannot purposeful Calphalon, 228 F.3d at 722. activity counts in the Only the

jurisdictional

Contacts made by a defendant's independent partners personal jurisdiction over the defendant.

establish

Burger King, 471 U.S. at 474.

As long as a defendant's actions

are purposefully directed toward the forum state, the fact that 14

the

defendant

has

never

physically

visited

the

forum

state

cannot defeat jurisdiction. The affidavits

Id. at 476. that an attorney-client (Jumper Aff. ¶ Capstone DWI to bond

demonstrate

relationship existed between DWI and Hilburn. 10.) Indeed, when DWI agreed to join the

offering,

Hilburn's

attorney

Pruniski

called

inquire

whether Hilburn could also serve as DWI's counsel ¶ 130.) Hilburn reviewed and helped to draft

(Id.; Compl. the official (Jumper

statement that was to accompany the bonds' issuance. Aff. ¶ 10.)

During this process, Hilburn exchanged numerous

telephone calls, faxes, and letters with DWI employees. (Id. ¶ 14.) Hilburn delivered all of its official opinions about the

propriety of the proposed prospectus to DWI's Memphis office. (Id. ¶ 17.) bonds to Hilburn understood that DWI's ability to resell the customers hinged on the official statement's

its

satisfying not only the requirements of federal law, but also Tennessee law. bonds, Hilburn and, (Id. ¶ 18.) continued to Following DWI's purchase of the provide sought legal DWI's advice advice about on how the it

transaction

importantly,

could structure similar bond transactions.

(Id. ¶¶ 25, 28.)

These facts satisfy the first prong of the Mohasco test. Far from being a random encounter to marked as by DWI's an "isolated and

transaction,"

Hilburn

agreed

serve

counsel

attempted to develop the relationship by discussing its other 15

clients who might wish to structure similar bond sales.

See

Burger King, 471 U.S. at 479 (prior contract negotiations and contemplated availment); future business 228 dealings at 728 result in purposeful out to a

Calphalon,

F.3d

(reaching

foreign state and creating a continuing relationship triggers personal jurisdiction); cf. Kerry Steel, 106 F.3d at 151 (onetime contract that marked only an "isolated transaction" cannot trigger personal jurisdiction in plaintiff's home state).

Although the "literally[] hundreds" of telephone calls and other communications between Hilburn and DWI's Memphis office cannot establish purposeful availment by themselves, they are an

important secondary consideration that points to the existence of a more-than-fortuitous relationship. 1301 ("A numerical count of The the calls See LAK, 885 F.2d at and of the letters the has no as

talismanic

significance: purposeful

quality is

contacts

demonstrating

availment

issue."

(internal

quotation marks and citation omitted)); Gomberg, 2006 U.S. Dist. LEXIS 45785, at *13. Hilburn directed its attention, analysis,

and opinions toward its Tennessee client with the knowledge that its actions would have consequences for DWI and its Tennessee customers. Burger King, 471 U.S. at 473-74 (Where one

"purposefully derive[s] benefit" from interstate activities, it is unfair not to find jurisdiction.); id. at 476 (absence of physical contact with the forum state cannot defeat jurisdiction 16

if

defendant's

activity

purposefully

directed

toward

forum).

Through its representation of DWI and its efforts to foster a more substantial relationship with DWI, Hilburn purposefully

availed itself of the privileges of acting in Tennessee and causing a consequence in Tennessee. The second prong of the Mohasco plaintiff's cause of action "arise test requires that the from the defendant's This test is "Only when the related to the

activities" in the forum state.

401 F.2d at 381.

more lenient than that for purposeful availment: operative facts of the controversy are not

defendant's contact with the state can it be said that the cause of action does not arise from that" contact. (citations omitted). Id. at 384 n.29

The harm that DWI alleges ­ the damages it

had to pay the Vest Plaintiffs ­ arose directly from Hilburn's actions directed toward Tennessee. Because Hilburn is alleged

to have failed to vet the District's and the Borgosz entities' material disclosures properly, the information DWI provided to its customers was inadequate, requiring DWI to pay damages to the Vest Plaintiffs. favorable to DWI, (Compl. ¶ 144.) Hilburn Viewed in the light most interpreted Tennessee

had

properly

law, it would have advised DWI not to sell the Capstone bonds to its customers. The economic harm of which Plaintiff complains,

therefore, is directly related to the actions Hilburn directed

17

toward the forum state.

See Neogen Corp., 282 F.3d at 888.

DWI

has satisfied the requirements of the second prong. Mohasco's final prong asks whether the Court's exercise of jurisdiction over the defendant would be reasonable. at 381. 401 F.2d

Where the first two requirements are met, there is a

presumption that the requirements of the third prong are also satisfied. Intera Corp. v. Henderson, 428 F.3d 605, 618 (6th

Cir. 2005); Mohasco, 401 F.2d at 384 (finding that, where the first two factors are met, it is only the rare or "unusual" case that will fail to satisfy the third). Tennessee, the forum

state, has a more than de minimus interest in adjudicating the present dispute. The allegedly harmed party, DWI, is a

Tennessee resident. party is a resident

Mohasco, 401 F.2d at 385 (Where the harmed of the forum state, the forum state's

interest "cannot be doubted." (citations omitted)). faulty legal analysis allegedly also led

Hilburn's other

numerous

Tennessee residents, like the Vest Plaintiffs, to suffer harm by inducing them to purchase securities without all the material facts. It is thus reasonable that Hilburn should have to defend DWI has demonstrated that the Court has

itself in Tennessee.

prima facie jurisdiction over Hilburn; and the Court, therefore, DENIES Hilburn's Motion to Dismiss. 335 (holding that who personal See Masada, 697 S.W.2d at existed that over was a out-of"vital

jurisdiction legal 18 work

state

attorney

performed

component of th[e] transaction" when he drafted documents in accord with Tennessee law and conversed with Tennessee parties regularly about the transaction for the sale of property in Tennessee). B. The Court Does Not Have Jurisdiction over Defendant Tanner Defendant Tanner also asserts that Tennessee's long-arm

statute cannot support the Court's assumption of jurisdiction over it. to its Tanner argues that its contacts with DWI were limited role as counsel to the District and the Developer.

(Defendant Tanner & Guinn LLC's Memorandum in Support of Its Motion to Dismiss at 4.) Tanner notes that the mere fortuity of

the District's and the Developer's choosing it as their counsel brought Tanner into contact with DWI. not purposefully initiate any (Id.) with Thus, Tanner did Plaintiff. It

contacts

responded on behalf of its clients to DWI's and Hilburn's due diligence requests. (Id. at 4-5.)

Applying the first prong of the Mohasco test, Tanner has not purposefully availed itself of the protections of Tennessee law. Unlike Defendant Hilburn, Tanner did not form an attorney(Guin Aff. ¶ 20; Jumper Aff. ¶

client relationship with DWI. 9.)

Instead, the District and the Developer selected Tanner as (Guin Aff. ¶ 20.) DWI to serve as DWI an

their counsel for the bond offering. does not assert that Tanner

solicited

19

underwriter.

(See

Jumper

Aff.

¶

2

(noting

that

Southwest

Securities first approached DWI about taking Southwest's place as an underwriter).) Tanner did respond to DWI's requests for

information from the District and the Developer to assist DWI in deciding whether to purchase the Capstone bonds. 10.) However, the location of the (Jumper Aff. ¶ firms was

securities

irrelevant to Tanner: conduit regardless See

Tanner would have served as its clients' of where DWI 228 chose F.3d at to 723 locate (finding home its no

headquarters. personal although because

Calphalon, in a

jurisdiction defendant defendant in

plaintiff sales have

corporation's for the as

state,

was

agent

corporation, [plaintiff's]

"would the

served

representative

designated

states,

regardless

of

[plaintiff's] base of operation.")

Although DWI argues that

Tanner wanted to replicate the Capstone bond structure for its other Alabama clients, DWI does not assert that Tanner sought to form a continuing relationship with DWI to accomplish that task. (See Jumper Aff. ¶ 9.) No Tanner attorney met with DWI to

solicit future business or to seek DWI's advice about how DWI could assist Tanner's other clients. (Cf. id. ¶ 25 (noting

that, by contrast, Hilburn did seek such advice from DWI).) Finally, the post-bond-sale contractual reporting requirements obligated Tanner's clients to provide information, not Tanner itself. See Hanson v. Denckla, 357 U.S. 235, 253 (1958) ("The 20

unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State.") Tanner was not a party to the

Continuing Disclosure Agreement.

(See Compl. ¶ 28.)

Tanner's interaction with DWI was a one-time transaction resulting from the double fortuities of Tanner's selection by the District and the Developer as their counsel and DWI's Kerry

replacement of Southwest Securities as an underwriter.

Steel, 106 F.3d at 151 (isolated transactions do not create specific personal jurisdiction). The parties contemplated no See Burger of creating to the

continuing relationship, contractual or otherwise. King, 471 U.S. at 476 (noting in the the importance forum

"continuing

obligations"

state

jurisdictional analysis).

DWI has failed to demonstrate the purposeful availament.

"sine qua non" of personal jurisdiction: Mohasco, 401 F.2d 381-82.

The Court, therefore, GRANTS Tanner's

Motion to Dismiss for Lack of Personal Jurisdiction.3 C. The Borgosz Entities Are Subject to the Court's Jurisdiction Capstone Development, LLC; Selective; Triangle

Construction; and Borgosz ­ the Borgosz entities ­ contest the
3

Although DWI's failure to demonstrate that Tanner satisfies the first prong of the Mohasco test is sufficient to thwart personal jurisdiction, LAK, 885 F.2d at 1303, DWI has also failed to demonstrate that the actions it complains of arose in Tennessee. Mohasco, 401 F.2d at 381. DWI's allegations essentially concern the adequacy of Tanner's representation of its clients, which took place solely in Alabama and concerned an Alabama real estate project. (See Compl. ¶ 150.)

21

Court's

personal

jurisdiction.

Because

the

Borgosz

entities

filed a joint Motion to Dismiss, do not make individualized arguments about each entity, and are controlled by Borgosz or have him as their principal agent, they must be considered

together to determine jurisdiction.

(See Memorandum of Borgosz

and the Borgosz Entities in Support of Their Motion to Dismiss at 11-18.) ("Borgosz Memo") The Borgosz entities argue that a

Tennessee court has no personal jurisdiction to adjudicate a dispute centered on a failed Alabama real-estate development. (Borgosz Memo at 11-14.) It is undisputed that the Borgosz entities do not maintain an office, mailing address, or telephone listing in Tennessee. (Borgosz Aff., Dkt. No. 15, ¶ 10.) Their officers, employees, (Id. ¶ 9.) However, the

or members do not reside in Tennessee.

affidavits demonstrate that the Borgosz entities' interactions with DWI were more than a one-time encounter. to serve as an underwriter sought for the Before DWI agreed bond how sale, they the

Capstone about

Borgosz

entities

DWI's

advice

might

restructure the bond transaction to appeal to and placate the concerns of investors. (Jumper Aff. ¶ 7.) They provided DWI

with information about the Capstone Development to assist in restructuring the bond sale. (Id. ¶ 8.) They directed these (Id.) on After DWI and 19, 2000,

communications to DWI's office in Memphis. Southern Financial purchased the 22 bonds

April

Borgosz, acting on behalf of the Borgosz entities, traveled to DWI's headquarters "to promote and explain" the Capstone

Development. employees to

(Id. ¶ 20.) remain

Borgosz' explanations allowed DWI on the project's progress, (Id.) update He DWI

up-to-date

assisting them in selling the bonds to their clients. made a second, post-sale trip to Tennessee to

officials on the construction of the Capstone Development and to solicit more capital from DWI to complete an element of the Capstone Development unfunded by the initial bond sale. (Id.)

The Developer, a Borgosz entity, was a party to the Continuing Disclosure material Agreement, change in obligating circumstances it to that inform would DWI of any the

imperil

District's ability to make timely payment on the bonds. 28.)

(Id. ¶

Throughout the entire transaction, DWI's Jumper spoke with

Borgosz via telephone "hundreds of times" and received extensive written correspondence from Borgosz. (Id. ¶ 19.)

The Borgoz entities, thus, sought a continuing relationship with DWI. A contract bound them to make continued disclosures,

and they had hopes of convincing DWI to finance related realestate ventures. single contract Cf. Kerry Steel, 106 F.3d at 151 (more than a covering a single transaction required to

establish jurisdiction).

Borgosz came to Tennessee to assist His travel and

DWI in its efforts to sell the Capstone bonds.

his attempts to secure more funding for other projects were 23

purposeful acts taken to build a business relationship with DWI. See Burger King, 471 U.S. at 474. The Borgosz entities derived

substantial benefit from Borgosz' actions; namely, the continued effort of DWI's sales force to promote and re-sell the Capstone bonds. See id. at 473-74 (When one "purposefully derive[s]

benefit" from interstate activities, it may be unfair to fail to find jurisdiction.). In making these representations to DWI

employees in Tennessee, Borgosz knew that DWI would repeat his assurances to its skeptical Tennessee customers. 20.) This activity, specifically directed (Jumper Aff. ¶ Tennessee,

toward

establishes that DWI has met the purposeful-availment prong of the Mohasco test. DWI has also established the second prong ­ that the

present action arose out of the Borgosz entities' contacts with Tennessee. Mohasco, 401 F.2d at 381. DWI's Complaint alleges

that the Borgosz entities misled it about the solvency of the Capstone Development those made and that those misrepresentations, trips to Tennessee,

particularly

during

Borgosz'

forced it to settle the Vest Plaintiffs' suit.

The economic

harm DWI suffered arose out of the Borgosz entities' actions in Tennessee. See Neogen Corp., 282 F.3d at 888. DWI has

satisfied the requirements of the second prong. Requiring the Borgosz entities to defend their actions in a Tennessee court is reasonable. 24 See Mohasco, 401 F.2d at 381.

"A State generally has a `manifest interest' in providing its residents with a convenient forum for redressing injuries

inflicted by out-of-state actors." (citations omitted). That

Burger King, 471 U.S. at 473 is heightened where the

interest

alleged misrepresentations, some of which occurred in Tennessee, injured a Tennessee company whose sale of bonds then injured other Tennessee residents. Cf. Mohasco, 401 F.2d at 385 (Where

the harmed party is a resident of the forum state, the forum state's interest "cannot be doubted." (citations omitted)). DWI

has demonstrated that the Court has prima facie jurisdiction over the Borgosz entities, and the Court, therefore, DENIES

their Motion to Dismiss. IV. CONCLUSION

For the foregoing reasons, the Court finds that it has personal jurisdiction over Defendants Hilburn and the Borgosz entities and consequently DENIES their Motions to Dismiss. The

Court does not have personal jurisdiction over Defendant Tanner. Tanner's Motion to Dismiss is GRANTED. Because the Court has

now ruled on all pending jurisdictional objections, the stay entered on July 2, 2009, prohibiting the parties from moving forward with any non-jurisdictional matters is LIFTED. Order on Motion to Stay, Dkt. No. 52, at 2.) So ordered this 7th day of July, 2010. (See

25

s/ Samuel H. Mays, Jr. SAMUEL H. MAYS, JR. UNITED STATES DISTRICT JUDGE

26