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Note: The Espinosa Group (Subcontractor/Applicant) was a subcontractor for Tutor Perini Building Corp. (Contractor/Beneficiary), the general contractor for a construction project in Philadelphia, Pennsylvania, USA. CapitalPlus Equity, LLC (Issuer), is a Nevada LLC with its principal place of business in Tennessee, USA. Issuer specializes in lending funds to construction companies and had previously contracted with Subcontractor/Applicant to provide funds for its construction projects. In connection with the Pennsylvania construction project, Contractor/Beneficiary informed Subcontractor/Applicant and Issuer that it required a standby letter of credit before it would pay Subcontractor/Applicant incrementally for its work.

After extensive negotiations, Issuer contracted with Subcontractor/Applicant and Contractor/Beneficiary to provide the required standby. A condition of the agreement was that Contractor/Beneficiary required that non-bank Issuer deposit USD 500,000 in escrow with Zions First National Bank to be available to cover a drawing on the standby. In addition, Issuer conditioned its issuance of the standby on receipt of a letter of compliance from Contractor/Beneficiary certifying that Subcontractor/Applicant was in compliance with the terms of its subcontract.

At the time of issuance, Contractor/Beneficiary submitted the letter of compliance and Issuer issued the standby and posted USD 500,000 into the associated escrow account at Zions First National Bank for Contractor/Beneficiary. The standby stated that any demand for the funds would be “governed by and construed in accordance with the laws of the State of Tennessee” and must be presented to Issuer’s Tennessee office.

After it received the standby, Contractor/Beneficiary sent another letter to Issuer stating that Subcontractor/Applicant was in material breach of its contract. In the letter, it also demanded a “disbursement of $500,000 from the escrow account because of [Subcontractor/Applicant’s] alleged default on the subcontract”.

Upon receiving their letter, Issuer sued Contractor/Beneficiary for breach of contract, misrepresentation, and fraud. Contractor/Beneficiary moved to dismiss the suit for lack of personal jurisdiction in Tennessee or, alternatively, to transfer venue to Pennsylvania. The United States District Court for the Eastern District of Tennessee, Reeves, J., denied Contractor/Beneficiary’s motions to dismiss or transfer venue.

Issuer alleged that Contractor/Beneficiary knew Subcontractor/Applicant was not in compliance at the time it provided the letter of compliance in order to receive the standby. The Judge ruled that the court had personal jurisdiction over Contractor/Beneficiary because (1) Contractor/Beneficiary’s communication with the Issuer regarding the issuance of the standby. This communication with Issuer’s Tennessee office meant they availed themselves to the privilege of acting in Tennessee; (2) the alleged breach of the contract was a direct cause of action of Contractor/Beneficiary’s actions in Tennessee; and (3) it can be reasonably inferred from Contractor/Beneficiary’s actions that there is a substantial connection between Contractor/Beneficiary and Tennessee. The Judge also determined that the venue was appropriate.

The stay on the case is lifted and the parties are allowed to proceed with trial preparation.

[JFS]

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