Supreme Court Rules That Tennessee Courts Can’t Consider Lawsuit Against Foreign Cigarette Manufacturer

March 28, 2013

The Tennessee Supreme Court today upheld a trial court’s decision that it lacked jurisdiction over a lawsuit filed by the State of Tennessee against an Indonesian cigarette manufacturer to collect payments allegedly owed under the Tennessee Tobacco Manufacturers’ Escrow Fund Act.

In 1998, Tennessee and many other states entered into a multi-billion-dollar settlement of lawsuits against the four largest domestic tobacco companies in the United States. These lawsuits sought damages and other relief for the harmful effects of smoking. In 1999, as part of this settlement, Tennessee enacted a statute that requires cigarette manufacturers that have not joined in the settlement to make annual payments into a fund that can be used to pay damages for any successful cigarette-related claims brought against them.

Cigarettes manufactured by NV Sumatra Tobacco Trading Company, an Indonesian cigarette manufacturer, were sold in Tennessee from 2000 until 2002, when NV Sumatra stopped selling cigarettes in the United States. In 2003, the State of Tennessee sued NV Sumatra in the Chancery Court for Davidson County to recover $168,316 in payments to the fund, as well as additional civil penalties.

NV Sumatra responded that the State’s lawsuit should be dismissed because the company did not have sufficient contacts with Tennessee to permit the company to be sued in Tennessee courts. In 2010, the trial court agreed with NV Sumatra and dismissed the State’s lawsuit. The State appealed, and in 2011 the Court of Appeals reversed the trial court and held that NV Sumatra could be sued in Tennessee.

Today, in a divided opinion, the Supreme Court reversed the Court of Appeals and upheld the trial court’s decision that it would not be fair to permit Tennessee courts to assert jurisdiction over NV Sumatra. The Court noted that the United States Constitution does not permit state courts to assert jurisdiction over a foreign company unless the company has enough contacts with the state that the company should reasonably anticipate that it could be sued in that state’s courts.

While there was no dispute that NV Sumatra’s cigarettes had been sold in Tennessee, the evidence showed that these cigarettes had been sold and resold by independent companies in Singapore, the British Virgin Islands, and Florida before they reached Tennessee.

The evidence also showed that the arrival of NV Sumatra’s cigarettes in Tennessee was almost wholly attributable to the actions of a Florida-based distributor over whom NV Sumatra exercised no control. Based on these facts, the Court decided that NV Sumatra lacked sufficient connections with Tennessee, even though it was aware that its cigarettes were being sold in Tennessee and sixteen other states.

Chief Justice Gary R. Wade, joined by Justice Sharon G. Lee, disagreed, pointing out that NV Sumatra distributed over 11.5 million United brand cigarettes for sale in Tennessee over a three-year period and stopped distribution to this state only after learning that it, like all cigarette manufacturers in the United States, had to comply with the Tobacco Manufacturers’ Escrow Fund Act.

Acknowledging that South Carolina had exercised jurisdiction over NV Sumatra under similar circumstances, Chief Justice Wade and Justice Lee would have upheld the decision of the Court of Appeals and found that NV Sumatra had sufficient connections with Tennessee because the company was aware of the “regular flow” of its products into the state and because the company provided assistance to the Florida-based distributor who had targeted the Tennessee market. The holding by the majority, the dissent wrote, disturbs what should be a “level playing field” for American cigarette manufacturers.

To read the State of Tennessee v. NV Sumatra Tobacco Trading Company Opinion, authored by Justice William C. Koch, Jr., and the dissenting Opinion, authored by Chief Justice Gary R. Wade, visit the Opinions section of TNCourts. gov.