Translation:Paul is going to visit a southeastern state of the United States.
My understanding is that the first letter of 'état' is capitalized when the noun refers to a political entity, such as an American state, and is not capitalized when it refers to a condition, such as 'the state of my kitchen'. If my understanding is correct, then Duo's answer - with no such capitalization - is incorrect.
Duo's algorithms have difficulty distinguishing a possessive apostrophe from a contraction when a noun is involved (rather than the usual pronoun, where the difficulty does not arise). It's best to avoid using contractions with nouns.
I'm a bit surprised that it screws up on a Proper Noun like a name, though.