Opinion ID: 1354385
Heading Depth: 2
Heading Rank: 2

Heading: Application of the Conspiracy Theory to Chenault's Case

Text: Having adopted the conspiracy theory of personal jurisdiction, we must now decide whether Chenault's case, with the specific facts thus far in the record, may proceed under that theory. The Court of Appeals found that the allegations of the alleged misrepresentation by defendant Walker and defendant Bursey and the alleged admissions on the part of Moore, along with the intertwined relationship between the parties and both corporations are sufficient for conspiracy jurisdiction to be present. We agree. Before stating the reasons for our view, however, it is necessary to discuss the standards under which motions to dismiss for lack of personal jurisdiction should be decided. The issue may be stated as follows: With what certainty must the facts be established in the record for a judge to determine that personal jurisdiction exists over the defendants? The issue is framed this way because of the unique way in which personal jurisdiction differs from other grounds supporting a motion to dismiss. Under the Tennessee Rules of Civil Procedure a motion to dismiss may be based on one or more of eight grounds, including lack of personal jurisdiction and failure to state a claim on which relief can be granted. See Tenn. R. Civ. P. 12.02. A court either decides this motion based on the allegations contained in the pleadings or, if matters outside the pleadingssuch as affidavitsare presented, the court will treat the motion as one for summary judgment as provided in Tenn. R. Civ. P. 56. See Tenn. R. Civ. P. 12.03. As we have stated in the past, however, Rule 12.03 does not apply to a motion to dismiss for lack of personal jurisdiction, unless the evidence brought to the court is so conclusive that the motion may be fully and finally resolved on the merits. See Nicholstone Book Bindery, Inc. v. Chelsea House Publishers, 621 S.W.2d 560, 561 n. 1 (Tenn.1981) ([S]ummary judgment procedure does not properly apply to jurisdictional issues.) (quoting 6 Moore, Federal Practice (Part 2) § 56.17(36) at 913 (1980)). Often a complete resolution of the jurisdictional issue is not possible at the beginning of litigation because not enough evidence has been developed; indeed, discovery will not have yet begun. This gives rise to a dilemma. If a court seeks to develop more evidence, by ordering discovery or an evidentiary hearing, the burden on an out-of-state defendant may in some cases be nearly as great as if the court simply ruled from the start that jurisdiction was present and allowed the litigation to proceed. But allowing a court to decide whether jurisdiction exists based entirely on the pleadings, as a court may do when confronted with one of the other grounds to dismiss listed in Rule 12.02, is hardly a better solution. This is especially true if jurisdiction is sought based on a conspiracy theory. As one court has stated: The cases are unanimous that a bare allegation of a conspiracy between the defendant and a person within the personal jurisdiction of the court is not enough. Otherwise plaintiffs could drag defendants to remote forums for protracted proceedings even though there were grave reasons for questioning whether the defendant was actually suable in those forums. A defendant could always refuse to appear, and take his chances, but then it would be easy for the plaintiff, lacking an opponent, to prove that there really had been a conspiracy and obtain a default judgment that the defendant could not upset. Stauffacher, 969 F.2d at 460. Regardless of the theory on which personal jurisdiction is based, though, the necessity of adopting a middle-ground solutionbetween relying merely on the pleadings and postponing a decision on jurisdiction until discovery has been completedis apparent. Many federal courts have dealt with this issue, and there appears to be considerable agreement on several aspects of the procedure necessary to determine whether the evidence in favor of finding jurisdiction is sufficient to allow the case to proceed. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1351 (Supp.2000). It is clear that the plaintiff bears the ultimate burden of demonstrating that jurisdiction exists. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135, 1141 (1936); Massachusetts School of Law at Andover, Inc. v. American Bar Ass'n, 142 F.3d 26, 34 (1st Cir.1998). If the defendant challenges jurisdiction by filing affidavits, the plaintiff must establish a prima facie showing of jurisdiction by responding with its own affidavits and, if useful, other written evidence. [3] See Posner v. Essex Ins. Co. Ltd., 178 F.3d 1209, 1214 (11th Cir.1999); Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2nd Cir.1999); OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir.1998). A court will take as true the allegations of the nonmoving party and resolve all factual disputes in its favor, see Posner, 178 F.3d at 1215; IMO Industries, Inc. v. Kiekert AG, 155 F.3d 254, 257 (3rd Cir.1998), but it should not credit conclusory allegations or draw farfetched inferences, see Massachusetts School of Law, 142 F.3d at 34. We find that this procedure for evaluating a defendant's motion to dismiss under Tenn. R. Civ. P. 12.02(2) is sensible and not inconsistent with any rule or case in Tennessee of which we are aware, and we therefore adopt it. We must now decide whether the trial and appellate courts in this case correctly ruled that the defendants' motion should be denied and that the litigation should proceed under the conspiracy theory of jurisdiction. Chenault's complaint and several affidavits set forth precise allegations and specific facts supporting a prima facie showing of jurisdiction, i.e., that the defendants engaged in a civil conspiracy to defraud him. His case rests on neither conclusory allegations nor farfetched inferences. See Massachusetts School of Law 142 F.3d at 34. Of course, at this stage of the litigation, confronted with a motion to dismiss, we do not make any finding as to whether Chenault's version of events is, in fact, correct. That will be for a jury to decide if the case goes to trial. Following the standards set forth in many federal courts, however, we find that the plaintiff has made a prima facie showing of civil conspiracy that is supported by his affidavits and not sufficiently refuted by Bursey's and Moore's affidavits. The Court of Appeals aptly referred to the intertwined relationship between the parties and both corporations as lending credence to Chenault's allegations. It is clear that Moore and Ocean worked with Bursey and Dimension on the Quality Inn and Comfort and Holiday Inns transactions. It is clear that Chenault dealt with Bursey and Dimension on these transactions, though they dispute Bursey's role in their discussions. The record appears to show that Chenault was prompted to invest in these deals by Walker's efforts. The dispute, therefore, concerns whether Walker was Moore's and Ocean's agent or representative, and what was the extent of Bursey's involvement in these events. As an initial matter, though, we hold that the fourth prong of the Cawley v. Bloch test, designed to meet the strictures of the minimum contacts test, is clearly satisfied here. [4] There is no dispute that Walker, a Tennessee resident, is subject to personal jurisdiction. The issue is whether his conduct may be attributed to the out-of-state defendants, which depends on whether Chenault's allegations and affidavits establish a prima facie case of civil conspiracy. Chenault has met his burden of establishing Walker's relationship with Moore and Ocean. According to Chenault, Walker and Moore, as business partners, needed $125,000 in additional funds to purchase the Quality Inn. Moore states in his affidavit that he never personally solicited funds from Chenault, yet he does not sufficiently deny that he and Walker were partners. Indeed, as he admits, when Moore first spoke with Chenault over the phone he was visiting Walker in Memphis. The two discussed business opportunities. Moore characterizes these conversations as general in nature, but Chenault claims that Moore told him he was welcome as an investor in Ocean and that he looked forward to working with him over the next few years. Chenault also alleges that Moore and Walker had solicited his investments on prior occasions for properties unrelated to this suit. As both the trial and appellate courts found, a strong inference can be made that Walker and Moore together sought Chenault's involvement in the Ocean transaction. Chenault also states that Walker claimed to be a representative of Ocean, indeed its vice president. While it is possible that Walker lied about his connection with Ocean, his actual corporate status is not of great importance. Instead, what matters at this stage of the litigation is whether Walker held himself out as Ocean's representative and, more important, whether Moore knew and approved of his doing so. On this point, the evidence shows that Walker not only told Chenault he worked for Ocean but that he signed a stock distribution agreement, which Bursey sent to Chenault, purportedly on behalf of Ocean. Moore never denies Walker's involvement with Ocean in his affidavit. Lending further support to the Walker/Moore connection, Chenault states that Moore admitted that he and Walker had misappropriated a portion of his initial $25,000 investment in Ocean. This factual record, while not entirely clear, reasonably suggests that Walker and Moore worked together in pursuing the Ocean transaction, that Walker made Chenault aware of this fact, and that Moore knew of and tacitly approved Walker's representations. Chenault has also met his burden of establishing Bursey's and Dimension's likely involvement in the alleged conspiracy. Bursey claims that she had a limited business relationship with Chenault. Regarding both transactionsOcean and the stock swapshe claims that he called her, not for investment advice but only to consummate the transaction. We do not know what was said in these conversations, but we do not have good reason to doubt Chenault's claim that he asked her for advice. Walker had represented to him that Bursey, through Dimension, was both the broker and the financial consultant on the deal. Chenault states that for both transactions he wished to get a second opinion before investing. Indeed, he claims that Walker told him to call Bursey, who would be able to persuade him to invest, and that when he did she spoke very positively about both business opportunities. Chenault also states that he repeatedly asked Bursey for information and documents relating to the deal but she ignored these requests. He further states that Bursey never disclosed to him the poor financial condition of the Comfort and Holiday Inns. These allegations are important because of Chenault's claim that, unbeknownst to him, Bursey was not only the broker and financial consultant but had become the majority shareholder in Ocean. Even if this fact does not by itself indicate any wrongdoing, it provides a link between Bursey/Dimension and Moore/Ocean that helps establish Chenault's prima facie case. Chenault also states in his affidavit that Bursey was aware of Walker's involvement in the alleged conspiracy. Chenault states that the stock distribution agreement Bursey faxed to him listed Walker as Ocean's representative. Bursey denies this claim in her affidavit. Chenault responds by pointing to a copy of the fax page with Walker's name listed on the bottom, which appears to indicate that it came from Dimension's office. This evidence provides a link between Bursey and Walker, lending support to Chenault's prima facie case. These allegations and affidavits indicate that Chenault has made out a prima facie case that the court has jurisdiction over Ocean, Bursey, and Dimension based on a conspiracy involving all the defendants. We therefore agree with the Court of Appeals that the case should proceed to the discovery stage. We also agree with that court's admonition that discovery and/or trial may dispel our perception, but Rule 11 of the Tennessee Rules of Civil Procedure can be utilized to provide some protection to the defendants. Even further, we emphasize that if the evidence established through the process of discovery reasonably casts doubt on the accuracy of Chenault's allegations or affidavits, nothing will preclude the defendants from renewing their motion to dismiss for lack of personal jurisdiction.