Out of State Company's Failure to Obtain Tennessee Certificate of Authority Didn't Kill Lawsuit

In Tennessee, like many other states, a non-Tennessee company must obtain a Tennessee certificate of authority if it wishes to maintain lawsuits within the State of Tennessee. Curiously, the recent case of Sharper Impressions Painting, Co., et al. v. Dean Yoder interpreted this statute  as meaning that the non-authorized out of state company may file its lawsuit in Tennessee, however, once filed, it may not continue to prosecute the lawsuit. In other words, the Court didn't penalize the non-compliant company, which cured its omission mid-suit.

In Sharper Impressions Painting, Co., an Ohio company employed Dean Yoder who was fired for embezzlement. After termination, Mr. Yoder started his own competing painting business, which violated his Sharper Impressions non-compete agreement. Sharper Impressions sued Mr. Yoder in Tennessee where he was operating his business. Mr. Yoder filed a motion to dismiss arguing that the Ohio company could not sue him since it didn't have a Tennessee issued certificate of authority. The trial court agreed and dismissed the suit notwithstanding the fact that Sharper Impressions obtained the certificate during the pending litigation.

The Court of Appeals reversed, holding that T.C.A. ยง48-25-102's use of the word "maintain" merely meat that the non-authorized out of state company could not continue to prosecute the suit. It could however, commence the suit, and further, once the defect was cured, the Ohio company could then continue to litigate. Accordingly, the court reversed the dismissal.

Although this case essentially found "no harm, no foul", best practices for out of state companies doing business in Tennessee include obtaining the certificate of authority at the outset. Up front compliance is certainly a more prudent economic decision as it avoids not only the statutory imposed late filing penalties to obtain the certificate, but also obviates litigating ancillary issues.