When Can a Case Filed in Tennessee Be Dismissed Because the Plaintiff Failed to Register to Do Business in Tennessee?
Under Tennessee law (T.C.A. §48-25-102), a foreign business entity that is transacting, or has transacted, business in Tennessee without obtaining a certificate of authority from the Secretary of State of Tennessee cannot maintain an action in a Tennessee court.
This rule applies to lawsuits filed in Tennessee state courts, as well as to those filed in federal district courts located in Tennessee. See, e.g., In Re Meyer & Judd, 1 F. 2d 513, 526 (W.D. Tenn. 1924); G.M.L., Inc. v. Mayhew, 188 F. Supp. 2d 891, 893-94 (M.D. Tenn. 2002).
The process of obtaining a certificate of authority is also referred to as registering to do business in Tennessee. When a business entity registers to do business in Tennessee, it may be referred to as having been “domesticated” in Tennessee.
Any action filed in a Tennessee state court or a federal court located in Tennessee by a business entity transacting business in Tennessee without registering to do business in the state is subject to dismissal. Importantly, it is never too late to register to do business in Tennessee, and Tennessee law expressly allows an entity to register to do business and, thereafter, to continue its lawsuit. However, registering, after having failed to register for a number of years, can become expensive.
What does it mean to “transact business” in Tennessee, such that a business must register to do business in Tennessee? The general rule is that a foreign business entity is transacting business in Tennessee when it transacts some substantial part of its ordinary business in Tennessee and its operations in Tennessee do not consist of mere casual or occasional transactions.
There is a Tennessee statute (T.C.A. §48-25-101) that delineates a number of things that do not constitute the transaction of business in Tennessee. Perhaps a few of the most relevant are:
Holding meetings related to internal governance
Owning real estate
Maintaining bank accounts
Selling through independent contractors
Soliciting orders by mail that require acceptance outside of Tennessee
Creating or acquiring loans, security interests, and deeds of trust
Conducting isolated transactions that are completed in one month
Transacting business in interstate commerce
The statute states that the above list is not meant to be exhaustive.
Below are summaries of three cases that give a pretty good overview of how Tennessee courts analyze and decide whether a foreign business entity has transacted business in Tennessee.
Alison Group, Inc. v. Ericson (Tenn. Ct. App. 2005):
Alison Group, Inc. (“Alison”) never registered to do business in Tennessee
It contracted with Ericson to solicit orders for its products in Tennessee
Ericson did solicit orders from Tennessee customers, and Alison sold products to Tennessee customers
Ericson, who was paid on a commission basis, was never an employee of Alison and represented other manufacturers besides Alison.
The court held that Alison was not required to register to do business because of the independent contractor exception in the statute.
Shoenterprise Corp. v. Butler (Tenn. Ct. App. 1959):
The plaintiff was lending money to retail shoe operations in Tennessee
Its principal place of business was in Missouri
Its loans were payable in Missouri
It had no offices or employees located in Tennessee
The court held that the plaintiff was not transacting business in Tennessee.
United Artists Corp. v. Bd. of Censors of City of Memphis (Tenn. 1949):
Plaintiffs owned and distributed films
They shipped films to Memphis where they would be shown
Plaintiffs received a share of the profits from whoever they contracted with to show the film
After a film was shown, it was shipped back out of Tennessee into the possession of the plaintiffs
The Supreme Court of Tennessee held that the plaintiffs were required to register to do business in Tennessee and could not rely on the interstate business exception. It explained:
“Where the property has reached its final destination, and is held for local business purposes, the consignor and consignee sharing in the profits of the business, it loses its interstate character and must be adjudged to be intrastate business.”
For Tennessee commercial litigation lawyers, analyzing whether a plaintiff, which is a foreign business entity, has transacted business in Tennessee such that it should have registered to do business in this state, is one of the first steps that should be taken.
This post was written by attorney J. Ross Pepper.