Despite Multiple State Connections, Court Found Costly Defects Claims Not Subject to Tennessee Jurisdiction
In Baskin v. Pierce & Allred Constr., Inc., 676 S.W.3d 554 (Tenn. Sept. 28, 2023), a Tennessee resident discovered that even when an out-of-state contractor gets licensed in Tennessee, registers to do business there, and advertises on their website that they’re “licensed in Alabama and Tennessee,” it does not guarantee that you can sue them in Tennessee courts.
This Tennessee Supreme Court case involves a dispute between a Tennessee resident, Roger Baskin (“Baskin”), and an Alabama-based company, Pierce & Allred Construction (“Allred”). Baskin hired Allred to build a custom lake house on his property in Alabama. Baskin and Allred executed an agreement establishing that Baskin would pay Allred on a “cost plus basis.” Baskin was to pay for all labor and materials, plus Allred’s 12% fee. The contract was signed in Alabama and all construction took place there.
At the time of the agreement, the project was expected to take fifteen months and cost Baskin just over $1 million. However, the project spiraled into what Baskin described as a “grossly mismanaged” project which ultimately cost Baskin $1.7 million, a great deviation from the initial expected cost. Baskin claimed that he was left with a home “riddled with construction defects that affect every major system of the home.” Baskin eventually hired a replacement to make repairs on the alleged defects.
On September 3, 2020, Baskin sued Allred in Davidson County, Tennessee for breach of contract and breach of warranty. Specifically, Baskin argued that Allred (1) failed to comply with the plans and construct the home in a “workmanlike manner”; (2) failed to complete the project on time and within budget; (3) charged for materials and services that were never provided; and (4) was negligent by allowing expensive equipment on the job site to be misappropriated.
In response, Allred argued that they did not have “sufficient ties” to Tennessee which would enable them to be sued there. The construction contract between Baskin and Allred did not contain a provision that stated where lawsuits could be brought. Where a contract is silent on where the parties can sue and both parties are not residents of the same state, the law requires a claim to “arise out of or relate to” the defendant’s contacts with the state where the claim is brought. While Allred had some connections with Tennessee, the court ultimately found that they were too minor and unconnected to Baskin’s claim to allow them to be sued there.
“[E]ven when a defendant has meaningful ties to a forum, if they do not connect sufficiently to the plaintiff’s claim, they cannot sustain the power of the courts of the forum state to hear that claim.”
Baskin had provided architectural plans and materials from Tennessee, but Allred had no role in selecting or transporting them. Communication between the parties occurred electronically, with Baskin in Tennessee and Allred in Alabama. Allred also sent invoices to Baskin in Tennessee, which he paid from a Tennessee bank account.
Further, Allred was registered to perform work in Tennessee and even advertised that they were licensed in Alabama and Tennessee on their website. Allred had also worked on two unrelated projects in Tennessee, which Baskin argued were similar in nature to his claim and lucrative enough to subject them to lawsuits in Tennessee. However, because the projects were independent from their work for Baskin, they did not “relate to” the present claim and could not be used to justify this lawsuit being heard in Tennessee.
“Defendant obtained a Tennessee contractor’s license, registered with the Tennessee Secretary of State to do business in Tennessee, and stated on its website that it was licensed in Alabama and Tennessee.”
Although Baskin may have had a rational argument supporting his common sense belief that he could sue Allred in Tennessee, the law required more. Because Baskin and Allred were from different states and there was not a provision in the construction contract specifying where issues should be litigated, Baskin had to show that his claim arose out of or related to an incident that occurred in Tennessee. In the end, Baskin was unable to do so. Since the claim arose out of work that was done in Alabama and Allred was an Alabama company, Alabama courts would have been the appropriate place for Baskin to sue Allred. The Tennessee Supreme Court reversed the Court of Appeals’ holding and found that Allred’s work for Baskin did not have sufficient connections to Tennessee, justifying the dismissal of Baskin’s claim by the Trial Court.
What’s the Takeaway?
The homeowner unfortunately learned the hard way that hiring an out-of-state contractor doesn’t guarantee you can sue them in your home state when things go wrong. Both contractors and clients should consider jurisdictional issues when entering into construction agreements. While it may be reasonable to assume that you can sue a company in states where they are registered to do business, this is not always the case.
One way this problem can be avoided is by establishing the state(s) where lawsuits can be brought in the construction contract through a forum selection clause. This option prevents confusion and costly litigation down the road when issues arise. Forum selection clauses also allow parties to prioritize convenience, as it is often much easier and less expensive to pursue or defend a claim in your home state. If Baskin had negotiated for such a provision in the construction contract, this case could have had a completely different result.
This case serves as a reminder that you should always consult your attorney before entering any construction contracts to avoid jurisdictional issues, especially when the project involves out-of-state parties.