Ever-Seal, Inc. v. DuraSeal, Inc.

IN THE UNITED STATES DISTRICT COURT FOR THE

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

EVER-SEAL, INC., )

)

Plaintiff, ) NO. 3:22-cv-00365

)

v. ) JUDGE RICHARDSON

)

DURASEAL, INC., )

)

Defendant. )

MEMORANDUM OPINION

Pending before the Court is Defendant DuraSeal, Inc.’s Motion to Dismiss for Lack of

Jurisdiction and, In the Alternative, to Transfer Venue (Doc. No. 41, “Motion”), filed with a

supporting memorandum (Doc. No. 42). Plaintiff responded. (Doc. No. 53). Defendant replied.

(Doc. No. 57). Via the Motion and supporting memorandum, Defendant asks the Court to “dismiss

this case for lack of jurisdiction or transfer this case to the U.S. Bankruptcy Court for the Eastern

District of North Carolina.” (Doc. No. 42 at 24).

BACKGROUND

A. Procedural background

On January 14, 2022, Stephen Bradley Halferty (“Halferty”) filed a voluntary petition

under Chapter 13 of the U.S. Bankruptcy Code in the Eastern District of North Carolina. On

February 8, 2022, Plaintiff Ever-Seal, Inc. (“Plaintiff” or “Ever-Seal”) sued Halferty in this Court

for breach of contract, breach of fiduciary duty, and intentional interference with business

relations. (Case No. 3:22-cv-00082). The Court granted a Temporary Restraining Order (“TRO”)

(Doc. No. 18) prohibiting Halferty from engaging in conduct that competes against Plaintiff in

alleged violation of a non-compete and confidentiality agreement Halferty signed while employed

by Plaintiff. The Court subsequently stayed that case pursuant to 11 U.S.C. § 362(a) due to the

pending bankruptcy proceedings. (Doc. No. 22 in Case No. 3:22-cv-00082).

Then, on May 18, 2022, Plaintiff brought the present case against Defendant DuraSeal, Inc.

(an S-corporation). (Doc. No. 1). The Court granted a TRO that ordered Defendant DuraSeal, Inc.

to cease “competing on projects directly with Ever-Seal,” “using marketing materials derived from

the ones used by Ever-Seal,” “using the same products and vendors as Ever-Seal, including but

not limited to Seal-It,” and “representing to prospective customers that DuraSeal is an authorized

distributor or authorized applicator of Seal-It, or that it has a 25-year manufacturer backed

warranty from Seal[-]It.” (Doc. No. 19). The Court then converted the TRO into a preliminary

injunction that prohibits Defendant from engaging in the same conduct prohibited by the TRO,

and additionally bars Defendant from “soliciting, hiring, contracting, or working with” or “using

the services of” any former Ever-Seal employees, independent contractors, or individuals trained

at Ever-Seal in the past two years. (Doc. No. 34).

Plaintiff filed an Amended Complaint. (Doc. No. 39). In the Amended Complaint, Plaintiff

brings three claims: 1) inducement of breach of contract as to former Ever-Seal employee Kevin

Goggins (“Goggins”), 2) inducement of breach of contract as to former Ever-Seal employee Tim

Lucero (“Lucero”), and 3) intentional interference with business relations (i.e., a claim that

DuraSeal, Inc. “maliciously and intentionally induced Ever-Seal’s prospective customers not to

enter into contracts with Ever-Seal” and did so “for DuraSeal[, Inc.]’s own benefit.”). (Doc. No.

39 at 27–28).

Additionally, upon motion of Plaintiff (Doc. No. 36), the Court then issued an order to

show cause regarding Defendant’s alleged violation of the TRO and preliminary injunction. (Doc.

No. 40). Since then, the present Motion has been filed, and briefing has been completed on the

show-cause order (Doc. Nos. 41, 45, 50, 56, 58).

B. Factual background1

In its May 26, 2022 Memorandum Opinion and Order granting the TRO (Doc. No. 15), the

Court set forth the full (alleged) factual background of this matter. Plaintiff is a Tennessee

corporation that “provides wood and concrete restoration and permanent sealing services to

individuals and businesses throughout the Southeastern United States” using a “one-time sealant

solution called ‘Seal-It.”’ (Doc. No. 39 at ¶¶ 14-15, 27). Only five companies in the United States

are authorized to offer and install Seal-It. (Id. at ¶ 28).

Halferty was employed by Plaintiff from approximately May 2020 to November 2021. (Id.

at ¶ 20). Halferty was initially hired as an estimator for Plaintiff. (Id. at ¶ 31). Plaintiff promoted

Halferty to the position of sales manager in 2020, when Halferty became responsible for “assisting

sales representatives in each Ever-Seal market area at the direction of Ever-Seal management and

per Ever-Seal standards, in addition to overseeing his assigned territory in Raleigh, North

Carolina[.]” (Id. at ¶¶ 39-40). Plaintiff terminated Halferty’s employment in November 2021. (Id.

at ¶ 57).

In conjunction with beginning his employment with Plaintiff, Halferty signed a

Confidentiality Agreement (Doc. No. 1-1) that included a so-called non-competition (“non-

compete”) clause prohibiting Halferty from competing against Plaintiff for two years following

his termination from the company. (Id. at ¶¶ 48-54). Plaintiff learned in approximately December

1 This “background section” describes both relevant facts and relevant factual disputes. The facts stated in

this section are taken from the Amended Complaint (Doc. No. 39) and any uncontroverted statements from

affidavits attached to the briefing on the Motion. These facts are accepted as true for purposes of the Motion.

The Court discusses in more detail below the basis for assuming the truth of these facts for purposes of the

Motion.

2021 or January 2022 that prior to his termination (specifically, in June 2021), Halferty formed a

company called DuraSeal that (just like Plaintiff) provides permanent sealing services for wood

and concrete in (at least) North Carolina and South Carolina and uses Seal-It. (Id. at ¶¶ 60-63).

Halferty kept DuraSeal’s creation and existence a secret from Plaintiff. (Id. at ¶ 113).

The parties dispute whether DuraSeal was operated as a sole proprietorship or as a

corporation. It is undisputed that in the summer of 2021, Halferty formed “DuraSeal, Inc.”—a

Delaware corporation with its principal place of business in North Carolina. However, Defendant

alleges that “DuraSeal, Inc.” never actually did any business. Defendant supports this allegation

with the declaration of Halferty (Doc. No. 43-1).2 Halferty therein states that all relevant business

was actually operated through Halferty’s sole proprietorship, “DuraSeal.” (Id. at ¶ 6). Halferty

states that “DuraSeal, Inc.” is nothing more than “an empty, corporate shell that has never

conducted any business.” (Id. at ¶ 7).

Plaintiff’s position is that “DuraSeal, Inc.” and “DuraSeal” are one and the same and that

Halferty operated its competing business (called “DuraSeal”) through DuraSeal, Inc. (the

corporation). (Doc. No. 53 at 10–13). In support of this position, Plaintiff cites evidence outside

of the Complaint. First, Plaintiff discusses Halferty’s bankruptcy filings. In the “Voluntary Petition

for Individuals Filing for Bankruptcy” (“Bankruptcy Petition”), signed by Halferty on January 14,

2022, Halferty answers “no” to the question, “Are you a sole proprietor of any full- or part-time

2 Plaintiff makes the argument that the Court should reject everything in Halferty’s declaration because it

is “self-serving and suspect.” (Doc. No. 53 at 11). The Court will not go that far. True, the Court cannot

weigh the controverting assertions of the party seeking dismissal for lack of jurisdiction, because “we want

to prevent non-resident defendants from regularly avoiding personal jurisdiction simply by filing an

affidavit denying all jurisdictional facts.” CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir.

1996). But Halferty’s affidavit does more than just deny jurisdictional facts; it presents a set of plausible

alternative facts. Thus while the Court cannot accept as true a statement in the declaration unless it is

uncontroverted, the Court will not reject everything in the affidavit simply on the grounds that it is “self-

serving and suspect.”

business?” (Doc. No. 46-3 at 4). In the Bankruptcy Petition, Halferty also denies having used

(himself) any trade names or “doing business as” names in the last eight years. (Id. at 3). Halferty’s

own responses here thus suggest that Halferty did not operate Duraseal as a sole proprietorship.

But elsewhere in the Bankruptcy Petition, Halferty seemingly contradicts this suggestion.

He answered yes to the question, “Within 4 years before you filed for bankruptcy, did you own a

business or have any of the following connections to any business? Then, via check marks, he

represented that he has been “connect[ed] to a[ ] business specifically in the sense of having been:

(1) “A sole proprietor or self-employed in a trade, profession, or other activity, either full-time or

part-time” and identifies two relevant businesses”; and (2) “[a]n owner of at least 5% of the voting

or equity securities of a corporation.” (Id. at 42-43). Then, when asked to “fill in the details . . .

for each business,” Halferty listed: 1) “Duraseal” (with the EIN 87-1600697 and “dates business

existed” as August 2021–present); and 2) First Aid Painting, Inc. (with the EIN 56-1966711 and

“dates business existed” as 1996–2020).

The Court has considered whether these various answers can be reconciled by a scenario

in which Halferty is no longer a sole proprietor (consistent with his first answer discussed above)

but was a sole proprietor at some point within the last four years (consistent with the remaining

answers discussed above). If that were so, however, the (now-former) sole proprietorship would

had to have been “Duraseal” and not First Aid Painting, Inc., which is specifically identified as a

corporation as opposed to a sole proprietorship. And this reality blows up the Court’s proposed

reconciling scenario because Halferty lists “Duraseal”’s dates of existence as “August 2021–

present”—meaning that the sole proprietorship (DuraSeal) was still in existence when Halferty

completed the Bankruptcy Petition. This conflicts with Halferty’s earlier representation in the

Bankruptcy Petition that he was not as of that time presently operating any sole proprietorship. So

upon minute examination, the answers actually cannot be reconciled, but instead give two

conflicting representations as to whether Halferty was operating a sole proprietorship at of the time

of the completion of the Bankruptcy Petition. Because, as discussed below, factual conflicts are

resolved in Plaintiff’s favor at this stage, the Bankruptcy Petition supports a finding that Halferty

was not operating a sole proprietorship when he completed the Bankruptcy Petition.

Lending further support to this position is Halferty’s testimony from the bankruptcy

hearing, at which the following exchange occurred:

Q: Is DuraSeal -- do you operate as a sole proprietor?

A: It is -- I believe it’s an [s-corp]. I’d have to find the filing.

(Doc. No. 51-1 at 3).3 This dialog does not explicitly establish that Halferty actually operated

DuraSeal through “DuraSeal Inc.” (rather than as a sole proprietorship); the actual question

pending when Halferty gave his answer is whether “you”—which is properly taken to mean

Halferty individually—operate as a sole proprietorship, and as stated, the question was not whether

“DuraSeal” operates as a sole proprietorship. Halferty did not answer the question asked. Instead,

he went back to provide information on the term (“DuraSeal”) used in the immediately preceding,

uncompleted question, and noted that “it” is an S-corp, (as opposed to a sole proprietorship). One

cannot with absolutely certainty take this answer to intend to convey that “DuraSeal” operated as

[s-corp] DuraSeal, Inc., rather than as Halferty’s sole proprietorship. But when this testimony is

viewed in Plaintiff’s favor as required, it suggests that (according to Halferty himself), he

conducted the business of “DuraSeal” through DuraSeal, Inc. (an s-corp).4

3 The official transcript shows the word in brackets as “escort.” In context, though, it is clear that the actual

term spoken was “s-corp.”

4 Plaintiff also states in its Response that “records produced in the bankruptcy case show that Halferty

ordered the Seal-It product using DuraSeal, Inc.’s EIN (87-1600697).” (Doc. 51-3). In those

Plaintiff also includes in its Response a link to the website that would have shown if

Halferty had registered as a “d/b/a” to operate legally in North Carolina, and that website does not

reveal any sole proprietorship under the name Duraseal. (Doc. No. 53 at 12–13 (“The North

Carolina Secretary of State shows no assumed business name is on file related to Halferty or

DuraSeal. See https://www.sosnc.gov/online_services/assumed_name/search/id. [. . .] North

Carolina law requires parties operating under an assumed name to file an Assumed Business Name

Certificate in the register of deeds of the county in which the person will engage in business before

engaging in business under an assumed business name. N.C. Gen. Stat. § 66-71.4.”)).5 So Plaintiff

has pointed to information suggesting strongly (indeed conclusively, but for the consideration that

perhaps the webpage somehow erroneously omitted a registration by Halferty), that Halferty has

not been lawfully conducting business as a sole proprietor under the trade name “DuraSeal.” And

if he is not doing so lawfully, it is inferable that he is not doing so at all.6

As the Court details in the Legal Standard section below, factual disputes are resolved in

the plaintiff’s favor on a 12(b)(2) motion if the plaintiff has submitted evidence to support its

version of the facts. Thus, for purposes of resolving the Motion, Halferty will be treated as not

communications with Seal-It manufacturer, Halferty used the email address sales@durasealit.com, which

is the same email address used with customers. (Doc. 51-4; Doc. 38-1). It is also associated with the

DuraSeal website name. (Doc. 38-3).” (Doc. No. 53 at 13). It is not clear from the cited documents that the

email address “sales@durasealit.com” belongs to DuraSeal, Inc. rather than DuraSeal (the alleged sole

proprietorship), or that EIN 87-1600697 belongs to DuraSeal Inc. rather than Duraseal. The website

attachment also does not include any indication that it relates to DuraSeal, Inc. Thus, the Court will not

consider these allegations.

5 The Court may consider this information at the motion-to-dismiss stage because it concerns public records

of official government action and thus is subject to judicial notice by the Court. See Roane Cty., Tennessee

v. Jacobs Eng’g Grp., Inc., No. 3:19-CV-206-TAV-HBG, 2020 WL 2025613, at *3 (E.D. Tenn. Apr. 27,

2020) (“the Court may take judicial notice of public records and government documents available from

reliable sources on the Internet.”).

6 It would seem that Halferty would have an incentive not to challenge the reasonableness of this inference,

unless he wishes to assert that it is not reasonable to at least presume that he would act only lawfully.

doing business in the name of “Duraseal” as a sole proprietorship.7 That being said, the Court

cannot collapse the distinction between these two entities for all intents and purposes. In particular,

the Court cannot consider the acts of “Duraseal” prior to the incorporation (i.e., the existence) of

DuraSeal, Inc. to be the acts of DuraSeal, Inc. For starters, it is axiomatic that generally, an agent

cannot act on behalf of a non-existent principal. And to state the obvious, DuraSeal, Inc. did not

exist prior to its incorporation. So anyone acting on behalf of “DuraSeal” prior to DuraSeal, Inc.’s

incorporation generally could not possibly have been acting as an agent of DuraSeal, Inc. At least

conceivably, there could be an applicable exception to this rule, such that the pre-incorporation

acts of “Duraseal” would be considered the acts of DuraSeal, Inc. for purposes of viewing

jurisdictional contacts. But if Plaintiff seeks the application of such an exception (which it does),

it must convince the Court, with evidence and argument,8 that such exception applies. Plaintiff has

failed to do so.

In support of the application of an exception, Plaintiff does nothing more than cite a 1973

case from the District of Delaware and argue that “[i]t is well-settled law that certain pre-

corporation conduct, done for the benefit of the future corporation and to which the established

7 The Court makes clear that in so concluding, it does not rely on any unsupported (bare) allegations in the

Complaint regarding the facts in dispute. Additionally, the Court notes that it does not even reach the

question herein of whether DuraSeal, Inc. is an alter ego for Halferty (because that is not the question before

the Court). And even if the Court were to reach a conclusion on that issue, it would not change the fact that

at this stage, factual disputes are resolved in Plaintiff’s favor if Plaintiff submits evidence to support its

view of disputed facts.

8 When discussing the applicability of pre-incorporation acts to the personal jurisdiction analysis, Plaintiff

states, “at this stage of the proceeding, Ever-Seal is not required to prove the merits of its case to simply

defend its basis for personal jurisdiction.” (Doc. No. 53 at 16 n.10). While it is true that when ruling on a

motion to dismiss, factual disputes are resolved in the plaintiff’s favor and the pleadings and affidavits are

considered in a light most favorable to the plaintiff, the plaintiff still may not rest on the bare allegations of

the complaint [except to the extent that those allegations clearly are undisputed]. Ramsey v. Greenbush

Logistics, Inc., 263 F. Supp. 3d 672, 676 (M.D. Tenn. 2017). Similarly, Plaintiff cannot rely on a bare claim

that pre-incorporation acts (of Halferty or anyone else acting in the name of “DuraSeal”) should be imputed

to DuraSeal, Inc.

corporation receives the benefit from, may be considered acts of the corporation.” (Doc. No. 53 at

15–16). But this District of Delaware case cited by Plaintiff does not involve a question of personal

jurisdiction, and is otherwise unhelpful to resolving the present Motion. Plaintiff has not presented

any other evidence or argument that suggests that the Sixth Circuit even recognizes such an

exception, let alone that it is “well-settled law” or that any exception, if it did exist, would even

apply to the particular facts of this case.9

Thus, the Court herein will hold Plaintiff to its choice to sue DuraSeal, Inc. as a distinct

entity separate and apart from Halferty (including and especially Halferty in his capacity as a sole

proprietor doing business as Duraseal). After all, given the automatic stay preventing any lawsuit

against Halferty, Plaintiff’s choice of suing DuraSeal, Inc. is lawful only to the extent that

DuraSeal, Inc. is distinguishable from Halferty. Having made this choice, Plaintiff cannot “have it

both ways”—i.e., have this Court consider DuraSeal, Inc. and Duraseal to be the same for purposes

of the personal jurisdiction analysis, yet separate for purposes of bringing this lawsuit against

DuraSeal, Inc. as a separate entity. In other words, if Plaintiff can bring this separate lawsuit despite

the automatic stay because DuraSeal, Inc. is distinguishable from Halferty d/b/a Duraseal, then

9 True, some courts have recognized that certain pre-incorporation actions can be considered when assessing

jurisdictional contacts. As one court explained, “[w]hile the caselaw is ‘sparse’ on the effect of pre-

incorporation promoter contacts on personal jurisdiction of a corporation, the cases that have addressed the

question ‘stand for the proposition that pre-incorporation activities of promoters that are later ratified by

the corporation may be considered in evaluating personal jurisdiction.’” Dev. Design Grp., Inc. v. Deller,

2012 WL 1098603, at *18 (D. Md. Mar. 30, 2012) (citing Burlington Indus., Inc. v. Yanoor Corp., 178

F.Supp.2d 562, 568 (M.D.N.C. 2001) and adopting the definition of promoter as “those who undertake to

form a corporation and to procure for it the rights, instrumentalities and capital by which it is to carry out

the purposes set forth in its charter” (citation omitted)). But these cases do not help Plaintiff here. First, the

Court is not aware of any Sixth Circuit case law that discusses this principle or renders it applicable in this

Court. Second, even if it were applicable, Plaintiff has not argued that Halferty acted as a “promoter” such

that this exception would be applicable (or that there is some other similar exception that exists for the acts

of persons who do not qualify as a “promoter”). And third, even if Plaintiff had made such a showing,

Plaintiff has not demonstrated that DuraSeal, Inc. (i.e., the corporation that Plaintiff, seeking to get around

the automatic stay, insists has an existence separate from Halferty’s) “ratified” the pre-incorporation acts

of Halferty d/b/a Duraseal. Thus, the Court declines to apply this exception when ruling on the Motion.

Plaintiff must demonstrate why the Court should disregard this distinction when applying any legal

principles (such as this alleged pre-incorporation acts exception) when conducting the personal

jurisdiction analysis. Because Plaintiff has failed to do so, as described above, the Court will not

consider any acts taken by Halferty d/b/a Duraseal prior to DuraSeal, Inc.’s incorporation to be the

acts of DuraSeal, Inc. for purposes of resolving the Motion.

Halferty applied for incorporation in June or July 2021, and incorporation was complete

“on or around” August 31, 2021.10 (Doc. No. 51-2 at 4–5, Doc. No. 43-1 at ¶ 2). Plaintiff does not

dispute August 31, 2021 as being the date DuraSeal, Inc. was incorporated. (Doc. No. 53 at 16

(referring to this date as the time of “Defendant’s alleged completed incorporation”)). Thus, three

facts/events relied on by Plaintiff occurred prior to DuraSeal, Inc.’s incorporation: 1) Halferty

purchasing chemicals from a supplier (the same supplier from which Plaintiff purchases its

chemicals) in Nashville, Tennessee on August 16, 2021 for Duraseal’s business use (Doc. No. 43-

1 at ¶ 42; Doc. No. 53 at 16); 2) Halferty recruiting and hiring former Tennessee-based Ever-Seal

employee Goggins in May 2021 (Doc. No. 39 at ¶¶ 78–79); and 3) Halferty receiving training from

Plaintiff in Tennessee, including a week of appointments in Nashville.11 (Doc. No. 39 at ¶ 23).

10 The deposition testimony indicates that DuraSeal, Inc. was incorporated in June or July 2020, but the

parties appear to agree that these events actually occurred in 2021. (Doc. No. 53 at 16, Doc. No. 42 at 5,

12).

11 Defendant denies that Halferty ever attended any training in Tennessee (Doc. No. 57 at 2), but even if

this factual dispute is resolved in Plaintiff’s favor, it cannot be considered by the Court. Plaintiff does not

allege a particular set of dates when this training occurred, and it certainly could have occurred prior to

DuraSeal, Inc.’s incorporation. As Defendant notes, “Plaintiff offers no specific facts concerning the

substance or date of the alleged training, which could have predated Defendant’s incorporation by a year.”

(Id.).

In October 2021, following DuraSeal, Inc.’s incorporation, Halferty recruited and hired

former Kentucky-based Ever-Seal employee Lucero.12 (Doc. No. 39 at ¶¶ 96–98). Both Lucero

and Goggins signed a Confidentiality Agreement containing a non-competition clause and a

Tennessee forum selection clause at the commencement of their employment with Plaintiff. (Doc.

No. 39 at 49–53, 74–75, 93–94).

LEGAL STANDARD

A. Standard of Review: Personal Jurisdiction

Defendant (meaning, again, DuraSeal, Inc.) filed its motion pursuant to Fed. R. Civ. P.

12(b)(2), which provides for dismissal of a claim for “lack of personal jurisdiction.” A plaintiff

bears the burden of establishing personal jurisdiction. Elcan v. FP Assocs. LTD, Case No. 3:19-

cv-01146, 2020 WL 2769993, at *3 (M.D. Tenn. May 28, 2020). On a 12(b)(2) motion to dismiss,

district courts have discretion to either decide the motion on affidavits alone, permit discovery on

the issue, or conduct an evidentiary hearing.13 Id. (citing Theunissen v. Matthews, 935 F.2d 1454,

1458 (6th Cir. 1991)). Where, as here, the court rules without conducting an evidentiary hearing,

14 the plaintiff’s burden of proof is “relatively slight.” Id. (citing MAG IAS Holdings, Inc. v.

Schmückle, 854 F.3d 894, 899 (6th Cir. 2017)).

Nevertheless, ““[i]n response to a motion to dismiss, the plaintiff may not stand on his

pleadings, but must show the specific facts demonstrating that the court has jurisdiction.” Ramsey

12 Though Defendant discusses Lucero in the Motion, Plaintiff does not appear to base its argument for

personal jurisdiction on the recruitment and hiring of Lucero (as opposed to Goggins, and only Goggins).

(See Doc. No. 53 at 15–19 (discussing only Goggins when arguing that Defendant purposefully availed

itself of doing business in Tennessee)).

13 Experience shows that courts sometimes do two of these three things, namely, permit discovery on the

issue and then either decide the motion on written submissions alone or conduct an evidentiary hearing.

14 The parties request that the Court rule on the Motion without an evidentiary hearing. (Doc. No. 53 at 8).

v. Greenbush Logistics, Inc., 263 F. Supp. 3d 672, 676 (M.D. Tenn. 2017) (quoting Miller v. AXA

Winterthur Ins. Co., 694 F.3d 675, 678 (6th Cir. 2012)). “In other words, a ‘plaintiff may not

simply rest on the bare allegations of the complaint. But uncontroverted allegations must be taken

as true, and conflicts between parties over statements contained in affidavits must be resolved in

the plaintiff's favor.’” Johansen v. HomeAdvisor, Inc., 218 F. Supp. 3d 577, 583 (S.D. Ohio 2016)

(quoting Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015)).

Moreover, when a district court rules on a motion to dismiss under Rule 12(b)(2) without

conducting an evidentiary hearing, the court must consider the pleadings and affidavits in a light

most favorable to the plaintiff. Elcan, 2020 WL 2769993, at *3. The Sixth Circuit has held that a

court disposing of a Rule 12(b)(2) motion without an evidentiary hearing should not weigh the

controverting assertions of the party seeking dismissal, because “we want to prevent non-resident

defendants from regularly avoiding personal jurisdiction simply by filing an affidavit denying all

jurisdictional facts.” CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996) (citation

and quotation marks omitted), cited in Elcan, 2020 WL 2769993, at *3. “Dismissal in this

procedural posture is proper only if all the specific facts which the plaintiff . . . alleges collectively

fail to state a prima facie case for jurisdiction.” Id. “In this procedural posture [without an

evidentiary hearing], the court does not weigh the facts disputed by the parties but may consider

the defendant’s undisputed factual assertions.” Camps v. Gore Capital, LLC, No. 3:17-cv-1039,

2019 WL 2763902, at *4 (M.D. Tenn. July 2, 2019).

It is not necessarily easy to reconcile all of the above-referenced rules with one another,

because, at least superficially, they could be understood to say different things about the extent to

which the district court must accept as true the allegations of the complaint. But the Court believes

that they can be reconciled. And the upshot seems to be this: in opposing a motion to dismiss for

lack of personal jurisdiction, a plaintiff cannot rely on mere allegations in the complaint, unless

they are uncontroverted by the defendant-movant—in which case they can be accepted as true, as

can the averments in the plaintiff’s declarations or attachments thereto (even if contradicted) and

the defendant’s undisputed factual assertions.

Because, in the Court’s discretion, there has been no evidentiary hearing with regard to

Defendant’s Motion, the Court will determine whether Plaintiff has demonstrated this Court’s

personal jurisdiction over Defendant under a prima facie standard, rather than the heavier

preponderance of the evidence standard. Camps, 2019 WL 2763902, at **4-5. “‘A prima facie

showing means that the plaintiff has produced admissible evidence, which if believed, is sufficient

to establish the existence of personal jurisdiction.’” Reyes v. Freedom Smokes, Inc., No. 5:19-CV-

2695, 2020 WL 1677480, at *2 (N.D. Ohio Apr. 6, 2020) (quoting Death v. Mabry, No. C18-5444

RBL, 2018 WL 6571148, at *2 (W.D. Wash. Dec. 13, 2018)).

In a diversity case such as this one, a plaintiff must satisfy the state-law requirements for

personal jurisdiction. Camps, 2019 WL 2763902, at *5; Bulso v. O’Shea, No. 3-16-0040, 2017

WL 563940, at *1 (M.D. Tenn. Feb. 13, 2017) (“Federal courts ordinarily follow state law in

determining the bounds of their jurisdiction over persons.”), aff’d sub nom. Bulso v. O’Shea, 730

F. App’x 347 (6th Cir. 2018). Tennessee law (its so-called “long-arm” statute) authorizes its courts

to exercise jurisdiction over persons on “any basis not inconsistent with the constitution of this

state or of the United States.” Bulso, 2017 WL 563940, at *1(citing Tenn. Code Ann. § 20-2-

214(a)(6)). Therefore, the Court must decide whether the exercise of jurisdiction comports with

the limits imposed by federal due process, without having to decide separately whether Tennessee

law authorizes the exercise of jurisdiction. Id.; see also Camps, 2019 WL 2763902, at *5 (“In other

words, the jurisdictional limits of Tennessee law and federal constitutional due process are

identical, and the two inquiries are merged.”).

B. Specific Jurisdiction

Personal jurisdiction comes in two forms: general and specific. Tailgate Beer, LLC v.

Boulevard Brewing Co., No. 3:18-cv-00563, 2019 WL 2366948, at *2 (M.D. Tenn. June 5, 2019).

Plaintiff does not assert that the Court has general jurisdiction15 over Defendant. (Doc. No. 32).16

Rather, Plaintiff alleges that the Court has specific jurisdiction over Defendant.

Specific jurisdiction must arise out of or relate to the defendant’s contacts with the forum—

principally an activity or occurrence that takes place in the forum state. Tailgate Beer, 2019 WL

2366948, at *2. For a State to exercise jurisdiction consistent with due process, the defendant’s

suit-related conduct must create a substantial connection with the forum. EnhanceWorks, Inc. v.

Dropbox, Inc., No. M2018-01227-COA-R3-CV, 2019 WL 1220903, at *6 (Tenn. Ct. App. Mar.

14, 2019) (citing Walden v. Fiore, 571 U.S. 277, 294 (2014)). “Specific jurisdiction requires us to

focus on the ‘affiliation between the forum and the underlying controversy.’” Power Invs., LLC v.

SL EC, LLC, 927 F.3d 914, 917 (6th Cir. 2019) (quoting Goodyear Dunlop Tires Operations, S.A.

v. Brown, 564 U.S. 915, 919 (2011)). The question is whether “the defendant’s actions connect

15 “General jurisdiction” requires that a plaintiff have continuous and systematic contacts with the state.

Tailgate Beer, 2019 WL 2366948, at *2. In its Response Plaintiff makes clear that it does not claim that

general jurisdiction is present. (Doc. No. 53 at 13 (“In this case, Ever-Seal does not allege general personal

jurisdiction or that Defendant’s contacts with Tennessee are so continuous or systematic that Defendant

could be considered ‘at home’ in Tennessee.”)).

16 Notably, based on a discernible trend in the law over the last few decades, “it is clear that [a defendant]’s

designation of an agent for service of process, standing alone, does not constitute consent to the general

jurisdiction of this state[.]” W. Express, Inc. v. Villanueva, No. 3:17-CV-01006, 2017 WL 4785831, at *7

(M.D. Tenn. Oct. 24, 2017).

him to the forum,” and thus the analytical focus should not be on the plaintiff’s contacts with the

defendant and forum. Walden, 571 U.S. at 289.

The Court has specific jurisdiction over Defendant if Plaintiff shows that: (1) Defendant

purposefully availed itself of the privilege of acting in Tennessee or causing a consequence in

Tennessee; (2) the causes of action herein arise from or relate to Defendant’s activities in

Tennessee; and (3) Defendant’s action in Tennessee or the consequences caused by its actions

directed towards Tennessee are substantial enough to make the exercise of personal jurisdiction

over it reasonable. Tailgate Beer, 2019 WL 2366948, at *2; Winston v. Zaehringer, No. 1:19-CV-

216, 2020 WL 3259531, at *6 (E.D. Tenn. June 16, 2020).

1. Purposeful availment

Purposeful availment is the “constitutional touchstone”17 of personal jurisdiction. Winston,

2020 WL 3259531, at *6 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)).

Purposeful availment is present where the defendant’s contacts with the forum state proximately

result from actions by the defendant himself that create a substantial connection with the forum.

Tailgate Beer, 2019 WL 2366948, at *4. The purposeful availment prong of the test asks whether

the defendant acted or caused a consequence in Tennessee such that it “invoked the benefits and

protections” of Tennessee law and, thus, could have reasonably anticipated being brought into

court there. Elcan, 2020 WL 2769993, at *4. A defendant should not be brought to court in a

particular forum solely as a result of random, fortuitous, or attenuated contacts with that forum. Id.

A court can have jurisdiction over a defendant even if the defendant has few contacts with

the forum, but the defendant must have done something to create a contact with the forum.

17 The Court realizes that this metaphor is too vague to be very instructive; all the Court really can derive

from it is that it means that “purposeful availment” is very important to personal jurisdiction—a truism

already apparent from the above-stated fact that a defendant’s “purposeful availment” is required for that

defendant to be subject to personal jurisdiction.

Winston, 2020 WL 3259531, at *7. A plaintiff cannot rely on his or her own contacts with the

forum to justify jurisdiction over the defendant. Id. Thus, the defendant’s relationship with the

forum state must arise out of contacts that the defendant himself created; the unilateral activity of

the plaintiff or a third-party cannot be the basis of exercising personal jurisdiction over a defendant.

Camps, 2019 WL 2763902, at *6.

2. Arise out of or relate to

“If a defendant’s contacts with the forum state are related to the operative facts of the

controversy, then an action will be deemed to have arisen from those contacts.” Tailgate Beer,

2019 WL 2366948, at *5. In a recent Supreme Court opinion, the Supreme Court reiterated that

specific jurisdiction attaches when a defendant cultivates a market for a product in the forum State

and the product subsequently malfunctions there. Ford Motor Co. v. Montana Eighth Jud. Dist.

Ct., 141 S. Ct. 1017, 1027 (2021). The Court found that the defendant was subject to specific

jurisdiction because it had systematically targeted the forum states (Montana and Minnesota) for

marketing the vehicles (through advertising, selling, and servicing those models in the states for

many years) that injured the plaintiffs, though the particular vehicles involved in the case were not

designed, manufactured, or sold in the forum states. Id. at 1028. The Court rejected the defendant-

appellant’s focus on causation and stated that the disjunctive nature of the “arise out of or relate

to” test indicates that causation between the defendant’s contacts with the forum and the cause(s)

of action does not necessarily have to be present. Id. at 1026. In his concurrence, Justice Alito

agreed with the majority declining to adopt the defendant’s but-for characterization of the specific

jurisdiction test, but he expressed concern that the majority was “recogniz[ing] a new category of

cases in which personal jurisdiction is permitted: those in which the claims do not ‘arise out of’

(i.e., are not caused by) the defendant’s contacts but nevertheless sufficiently ‘relate to’ those

contacts in some undefined way.” Id. at 1033. The scope of this new gloss on this prong of the test

for specific jurisdiction is unclear. But in any event, this case does not require the Court to

determine whether this is an instance where the claim “relates to,” despite not “arising out of,”

Defendant’s conduct in the forum state, as Plaintiff has not asserted this argument (or any

argument) regarding this prong (“arise out of or relate to”) of the test for specific jurisdiction.

3. Reasonableness

If a court finds that the plaintiff has established the first two prongs of the specific-

jurisdiction inquiry, the burden shifts to the defendant to present a compelling case that the

presence of some other considerations would render jurisdiction unreasonable. Tailgate Beer, 2019

WL 2366948, at *6. The burden on the defendant to meet this prong is high. Id. The Sixth Circuit

has stated that “[i]n determining reasonableness, we examine three factors: (1) the burden on the

defendant; (2) the forum state’s interest; and (3) the plaintiff’s interest in obtaining relief.” Bulso,

730 F. App’x at 351.18

ANALYSIS

A. Motion to dismiss

In the Motion, Defendant argues that it does not possess sufficient minimum contacts with

Tennessee to warrant the Court’s exercise of specific personal jurisdiction over it. (Doc. No. 42 at

18 Other courts have found five factors to be relevant in determining the reasonableness of exercising

personal jurisdiction: (1) the burden on the defendant; (2) the forum state’s interest in adjudicating the

dispute; (3) the plaintiff’s interest in obtaining convenient and effective relief; (4) the interstate judicial

system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of

the several states in furthering fundamental substantive social policies. Tailgate Beer, 2019 WL 2366948,

at *6 (citing Susan McKnight, Inc. v. United Indus. Corp., 273 F. Supp. 3d 874, 888 (W.D. Tenn. 2017)).

The undersigned questions why the constitutionality of personal jurisdiction—an issue that is at bottom

about due process for defendants—should turn at all upon the last two concerns, which strike the

undersigned as having little relationship to due process. In any event, following the Sixth Circuit’s lead as

noted above, the Court will not apply those two factors.

7). After disregarding any pre-incorporation actions relied on by Plaintiff, as discussed above,

Plaintiff’s sole alleged factual predicate for personal jurisdiction is that DuraSeal, Inc. is currently

allegedly unlawfully competing with a business that is located in Tennessee (Plaintiff), including

by continuing to employ an individual (Goggins) who allegedly violated a non-compete agreement

with Plaintiff.19 (Doc. No. 39 at ¶ 23). Plaintiff argues, “[e]ven if Goggins began working for

Defendant before its incorporation, Defendant has continued to employ Goggins and receive the

benefits of his employment since incorporation.” (Doc. No. 53 at 18).

The fact that Defendant currently employs Goggins and allegedly currently unlawfully

competes with Plaintiff does not constitute “purposeful availment” sufficient for Plaintiff to

establish a prima facie case of personal jurisdiction. Plaintiff has not convinced the Court that the

mere fact that the alleged victim business (Plaintiff) is located in Tennessee is enough to confer

personal jurisdiction over the allegedly unlawfully competing business there. Nor did Plaintiff cite

any law suggesting that Defendant’s employment of Goggins, a former Tennessee Ever-Seal

employee, would constitute “purposeful availment” of the privilege of acting or causing a

consequence in Tennessee. Plaintiff argues only that “Defendant directed communication into

Tennessee for the purpose of recruiting Goggins and inducing him to breach his agreement.” (Doc.

No. 53 at 19). Plaintiff did not provide any support for its allegation that Defendant directed

communication into Tennessee for this purpose, and in any event any such communications would

19 If Plaintiff intended to also allege that the Court has personal jurisdiction over Defendant because

DuraSeal, Inc. operates (i.e., does business or has customers) in Tennessee, it was not clear in doing so.

And even if it does allege such a theory, it would fail because Plaintiff itself conceded that it lacked

knowledge that Defendant does any business in Tennessee and only that Defendant “may be planning” to

expand operations to Tennessee. (Doc. No. 53 at 18–19 n.12 (“Ever-Seal has no direct knowledge of

Defendant’s provision of services to customers in Tennessee; however, these marketing materials certainly

speak to the fact that Defendant may be planning to expand its operation to Tennessee or further unfairly

compete with Ever-Seal providing services in Tennessee.”)).

have occurred prior to Defendant’s incorporation (inasmuch as Goggins left Ever-Seal in May

2021 (Doc. No. 39 at ¶¶ 78–79)) and thus are not attributable to Defendant.

Finally, in the absence of Plaintiff providing any case law showing otherwise, the Court

notes that the mere allegation of an intentional tort that has allegedly injured the resident of a

certain forum does not itself necessarily establish personal jurisdiction over the alleged tortfeasor

there. In Far W. Cap., Inc. v. Towne, the Tenth Circuit provided an overview of the law across

circuits (including the Sixth Circuit) in this regard, and concluded:

Our review of these post-Calder decisions indicates that the mere allegation that an

out-of-state defendant has tortiously interfered with contractual rights or has

committed other business torts that have allegedly injured a forum resident does

not necessarily establish that the defendant possesses the constitutionally required

minimum contacts. Instead, in order to resolve the jurisdictional question, a court

must undertake a particularized inquiry as to the extent to which the defendant has

purposefully availed itself of the benefits of the forum's laws.

46 F.3d 1071, 1079 (10th Cir. 1995). Here, a particularized inquiry reveals no allegations of suit-

related activities of DuraSeal, Inc. purposefully directed at Plaintiff or any other resident of

Tennessee. See Scotts Co. v. Aventis S.A., 145 F. App'x 109, 114 (6th Cir. 2005) (“Although this

Circuit has long held that the minimum contacts test can be satisfied either by acting or the causing

of a consequence in the forum state, see Southern Mach., 401 F.2d at 380, we have not held that

merely causing a consequence always satisfies the minimum contacts test. . . . Rather, we have

applied Calder narrowly by evaluating whether a defendant's contacts with the forum may be

enhanced if the defendant expressly aimed its tortious conduct at the forum and plaintiff's forum

state was the focus of the activities of the defendant out of which the suit arises.”). As noted, the

Court appropriately treats DuraSeal Inc. as distinguishable from Halferty d/b/a DuraSeal. The

Amended Complaint complains about Goggins being hired away from Plaintiff in May 2021. But

this could only have been the act of Halferty d/b/a DuraSeal, not DuraSeal Inc., because DuraSeal,

Inc. did not yet exist. So “reaching into” Tennessee to hire Goggins away from Plaintiff is not an

act attributable to DuraSeal, Inc.

Additionally, in Calphalon Corp. v. Rowlette, 228 F.3d 718, 723 (6th Cir. 2000), the Sixth

Circuit held that “fortuitous” contacts with a forum are not enough to create “continuous and

substantial” consequences with the forum such that the purposeful availment requirement is met.

Id. at 723. In particular, the Sixth Circuit discussed a scenario where a contract existed between

the plaintiff, who was located in the forum state, and the defendant. Id. The Court found that

because the defendant’s contacts with the forum were merely the result of the plaintiff’s choice to

be reside there, rather than defendant choosing to further its business there, the defendant had only

“random, fortuitous, and attenuated contacts” with the state (which are the type of contacts “that

the purposeful availment requirement is meant to prevent from causing jurisdiction.”). Id. See also

Int'l Techs. Consultants, Inc. v. Euroglas S.A., 107 F.3d 386, 395 (6th Cir. 1997) (“[I]t was purely

fortuitous that International Technologies happened to have a Michigan address.”). The Court

concludes that the lessons of Calphalon apply beyond the particular (i.e., contractual) context in

which Calphalon was decided. And here, DuraSeal, Inc.’s contacts with Tennessee are the type

described by the Sixth Circuit in Calphalon. Defendant’s “contacts” with Tennessee, in the form

of allegedly harming a business that happens to be located in that state, are not the result of

Defendant choosing to do business in the state or creating “continuous and substantial”

consequences there. Id. Thus, Defendant has not “purposefully avail[ed]” itself of acting in or

causing a consequence in Tennessee. Tailgate Beer, 2019 WL 2366948, at *2.

For all of the aforementioned reasons, the Court finds that Plaintiff has failed to

demonstrate a prima facie case of personal jurisdiction under Tennessee’s long-arm statute.

B. Motion to transfer venue

Defendant moves, in the alternative, to transfer venue to the United States Bankruptcy

Court for the Eastern District of North Carolina pursuant to 28 U.S.C. § 1406(a). As the Supreme

Court said about this statute a half-century ago, since which time it has remained unchanged:

“Nothing in that language indicates that the operation of the section was intended to be limited to

actions in which the transferring court has personal jurisdiction over the defendants. And we

cannot agree that such a restrictive interpretation can be supported by its legislative history . . . .”

Goldlawr, Inc. v. Heiman, 369 U.S. 463, 465 (1962).

So a court may transfer venue under § 1406(a) even if it lacks personal jurisdiction over a

defendant. Martin v. Stokes, 623 F.2d 469, 474 (6th Cir. 1980) (“The law in this Circuit, therefore,

is that s 1406(a) provides the basis for any transfer made for the purpose of avoiding an obstacle

to adjudication on the merits in the district court where the action was originally brought. That

defect may be either improper venue or lack of personal jurisdiction.”); see also 28 U.S.C. § 1631

(“Whenever a civil action is filed in a [federal district] court . . . and that court finds that there is a

want of jurisdiction, the court shall, if it is in the interest of justice, transfer such action or appeal

to any other such court in which the action . . . could have been brought[.]”). Additionally, as this

Court has explained,

The Sixth Circuit appears to read Goldlawr and § 1631 “as creating a presumption

in favor of transfer, especially when the [plaintiff] had ‘some arguable basis for

thinking that it appealed to the proper court.’” Wesley Corp. v. Zoom T.V. Prods.,

749 F. App'x 449, 450 (6th Cir. 2019) (citing Stanifer v. Brannan, 564 F.3d 455,

460 (6th Cir. 2009)). Where, however, the plaintiff has no “arguable basis for

thinking that the action was properly brought in the district in which it was

originally filed,” dismissal rather than transfer is well within

the court's discretion. Stanifer, 564 F.3d at 460.

Moore v. Shanahan Eng'g, Inc., 2020 WL 5039443, at *8 (M.D. Tenn. Aug. 25, 2020).

28 U.S.C. § 1406(a) provides that “[t]he district court of a district in which is filed a case

laying venue in the wrong division or district shall dismiss, or if it be in the interest of

justice, transfer such case to any district or division in which it could have been brought.” Thus,

in determining whether to transfer a case under § 1406(a), the court must first determine whether

venue was “wrong” as selected by the plaintiff, and then determine whether the claim “could have

been brought” in the transferee district. 28 U.S.C. § 1406(a); see also JPW Indus., Inc. v. Olympia

Tools Int'l, Inc., 2017 WL 4512501, at *2 (M.D. Tenn. Oct. 10, 2017).

“[A] trial court without jurisdiction lacks ‘all authority to hear a case.’” United States v.

Millenium Lab'ys, Inc., 923 F.3d 240, 249 (1st Cir. 2019) (quoting United States v. Kwai Fun

Wong, ––– U.S. ––––, 135 S.Ct. 1625, 1631(2015)). Because the Court does not have jurisdiction

over Defendant, it “lacks all authority” to hear this case. It would logically follow, then, that venue

cannot be proper in this district. However, out of an abundance of caution, the Court undertakes

the venue analysis, which also reveals that this district is an improper venue.

In the Complaint, Plaintiff alleges that venue in this district is proper “pursuant to 28 §

U.S.C. 1391 because a substantial part of the events or omissions giving rise to these causes of

action occurred in the Middle District of Tennessee . . . and Ever-Seal resides in the Middle District

of Tennessee.” (Doc. No. 39 at ¶ 24). Plaintiff makes clear in its Response that it asserts venue

under 28 § U.S.C. 1391(b)(2). (Doc. No. 53 at 21).

Venue under 28 § U.S.C. 1391(b)(2) is proper in “any forum with a substantial connection

to the plaintiff's claim.” First of Mich. Corp. v. Bramlet, 141 F.3d 260, 263 (6th Cir. 1998). “This

interpretation of § 1391(b)(2) is nonetheless limited by the section's substantiality requirement—

only those acts or omissions with substantial, rather than tangential, connections to a plaintiff's

claims can establish venue.” Reilly v. Meffe, 6 F. Supp. 3d 760, 765–66 (S.D. Ohio 2014). “District

courts in the Sixth Circuit have . . . considered both the plaintiff's and defendant's activities in

analyzing whether venue is proper under § 1391(b)(2).” Reilly, 6 F. Supp. 3d at 767. See, e.g.,

Waste Mgmt., Inc. of Tennessee v. Mock, No. 3:09-00409, 2009 WL 2038144, at *2 (M.D. Tenn.

July 9, 2009) (considering the location of the plaintiff’s business equipment and offices when

determining that the plaintiff’s claims had a substantial connection to the relevant district).

For the same reasons discussed by the Court above, the Court will consider only the post-

incorporation acts of Halferty d/b/a Duraseal to be the acts of DuraSeal, Inc. for purposes of venue.

However, unlike the personal jurisdiction analysis, the Court will look to the activities of both

Plaintiff and Defendant to determine whether a substantial part of the events underlying Plaintiff’s

claims arose in the Middle District of Tennessee. United States ex rel. Rudick v. Laird, 412 F.2d

16, 20 (2d Cir. 1969) (“The concepts of personal jurisdiction and venue are closely related but

nonetheless distinct.”). With these principles in mind, the Court still finds that venue is not proper

under § 1391(b)(2).

In support of venue, Plaintiff argues:

Here, venue is proper in this district because substantial activities giving rise to the

claims occurred in this district. Defendant purchased product in Nashville to kick-

start its unlawful competition. Defendant purposefully directed communications

into Tennessee to recruit Goggins, a Nashville-based contractor, and induce a

breach of his agreement with Ever-Seal. Defendants [sic] is unlawfully using the

information gleaned from Halferty’s training in Tennessee. And, in general, this

lawsuit seeks to recover for Defendant interfering with contracts entered into with

a Nashville based company, improperly benefitting from that company’s

confidential and inside information stored on servers in Nashville, and attempting

to harm a Nashville-based company.

(Doc. No. 53 at 22). Defendant’s purchase of chemicals and communications with Goggins

occurred pre-incorporation and cannot be considered for present purposes, as previously discussed.

And any information Halferty gained through alleged trainings in Tennessee is being used not in

Tennessee, but in the states in which DuraSeal, Inc. operates (of which Tennessee is not one).

Similarly, Plaintiff does not allege that any activities conducted by DuraSeal, Inc. that allegedly

interfere with Plaintiff’s business actually took place in Tennessee. Plaintiff cites no law

demonstrating that just because Plaintiff resides and operates its business in this district and has

suffered alleged harms while residing in this district, that a “substantial part of the events or

omissions giving rise to the claim” occurred here for purposes of § 1391(b)(2). Thus, venue is not

proper in the Middle District of Tennessee pursuant to 28 § U.S.C. 1391(b)(2).

Next, the Court must determine whether Plaintiff’s claims could have been brought in the

proposed transferee court. The Court finds that they could. Defendant requests transfer to the

Eastern District of North Carolina. That district is proper because the undisputed facts show that

DuraSeal, Inc.’s primary place of business is North Carolina. Defendant specifically requests

transfer to the United States Bankruptcy Court for the Eastern District of North Carolina. In

Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., No. A-07-CA-421 LY, 2007 WL

3256210 (W.D. Tex. Nov. 2, 2007), another district court described the relevant considerations for

this issue:

The difficulty with the bankruptcy court is that it would not have jurisdiction over

the claims in Plaintiffs' First Amended Complaint. Bankruptcy courts are courts of

limited jurisdiction and their jurisdiction is “wholly ‘grounded in and limited by

statute.’” See Bass v. Denney (In re Bass), 171 F.3d 1016,1022 (5th Cir. 1999)

(quoting Celotex Corp. v. Edwards, 514 U.S. 300, 307 (1995)). Congress intended

to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal

efficiently and expeditiously with all matters connected to the bankruptcy

estate. Celotex Corp., 514 U.S. at 307. The bankruptcy court's jurisdiction is

divided into “core” and “non-core” proceedings. In re Spillman Development

Group, LTD, 2007 WL 1812802, at * 3 (Bankr. W.D. Tex. June 19, 2007). Core

proceedings arise under title 11 or arise in a case under title 11. Id. (citing 28 U.S.C.

§ 157(b)). “If the proceeding involves a right created by the federal bankruptcy law,

it is a core proceeding; for example, an action by the trustee to avoid a preference.

If the proceeding is one that would arise only in bankruptcy, it is also a core

proceeding; for example, the filing of a proof of claim or an objection to the

discharge of a particular debt.” In re Wood, 825 F.2d 90, 97 (5th Cir. 1987). Non-

core proceedings are those proceedings that are otherwise related to a case under

title 11. Spillman, 2007 WL 1812802, at * 3 (citing 28 U.S.C. § 157(c)(1)). To

determine whether a particular matter falls within this general bankruptcy

jurisdiction, a court must determine whether the outcome of that proceeding could

have any conceivable effect on the estate being administered in the bankruptcy

proceeding. In re Wood, 825 F.2d at 93. . . .

Plaintiffs' lawsuit alleges breach of contract, breach of duty to disclose, breach of

fiduciary duty, unjust enrichment, fraud, negligent misrepresentation, conversion,

and breach of duty of good faith and fair dealing. None of the claims are made

against a debtor in any bankruptcy proceeding pending in the Southern District of

New York. Plaintiffs' claims could not be considered “core” bankruptcy

proceedings because they do not involve rights created by bankruptcy law, but

instead involve rights created by state law. See In re Wood, 825 F.2d at 97 (“If the

proceeding does not invoke a substantive right created by the federal bankruptcy

law and is one that could exist outside of bankruptcy it is not a core proceeding.”).

Thus, this lawsuit could only be heard by the Bankruptcy Court if Plaintiff's claims

are otherwise “related to” the bankruptcy case.

Id. at *5–6 (W.D. Tex. Nov. 2, 2007). Here, Plaintiff brings claims of inducement of breach of

contract and intentional interference with business relations. Thus, Plaintiff’s claims do not involve

rights created by bankruptcy law and are not “core” bankruptcy proceedings. Plaintiff brings these

claims against DuraSeal, Inc., not Halferty d/b/a Duraseal, and therefore the claims are not brought

against a debtor in any currently-pending bankruptcy proceedings in the Eastern District of North

Carolina. Thus, only if this case is otherwise “related to” the bankruptcy case can it be transferred

to the transferee court (the United States Bankruptcy Court for the Eastern District of North

Carolina).

The Sixth Circuit has adopted the “Pacor test” for determining whether a civil proceeding

is “related to” a bankruptcy proceeding:

An action is “related to bankruptcy if the outcome could alter the debtor's rights,

liabilities, options, or freedom of action (either positively or negatively) and which

in any way impacts upon the handling and administration of the bankrupt estate.”

Id. A proceeding “need not necessarily be against the debtor or against the debtor's

property” to satisfy the requirements for “related to” jurisdiction. Id. However, “the

mere fact that there may be common issues of fact between a civil proceeding and

a controversy involving the bankruptcy estate does not bring the matter within the

scope of section [1334(b) ].” Id. (stating also that “[j]udicial economy itself does

not justify federal jurisdiction”). Instead, “there must be some nexus between the

‘related’ civil proceeding and the title 11 case.” Id.

In re Dow Corning Corp., 86 F.3d 482, 489 (6th Cir. 1996), as amended on denial of reh'g and

reh'g en banc (June 3, 1996).

Though Defendant does not address relatedness in this particular context, it does argue

(when discussing the “first-to-file” doctrine, which the Court need not reach here, as it finds

transfer appropriate on other grounds) that “the issues and claims at stake between this case and

the Adversary Proceeding are nearly identical.” (Doc. No. 42 at 22). Defendant argues:

As Mr. Halferty is the sole shareholder and officer of Defendant, Mr. Halferty

controls all of Defendant’s shares and owns Defendant outright as an S-corporation.

Plaintiff has already sued Mr. Halferty multiple times trying to obtain substantially

similar relief in the form of injunctions and monetary damages. The Plaintiff is the

same between the instant suit and the Adversary Proceeding in the E.D. North

Carolina Bankruptcy Court, and the defendants in this case and in the Adversary

Proceeding are substantially similar and inextricably intertwined. As this Court

observed in its March 26, 2022, Memorandum Opinion and Order on Plaintiff’s

Motion for Temporary Restraining Order, “to the extent that Plaintiff represents to

this Court that DuraSeal[, Inc.] had ‘inten[tions]’ that were anything other than

Halferty’s own intentions, or that DuraSeal[, Inc.] ‘caused’ anything not caused by

Halferty’s own (causal) conduct, the record to date suggests that Plaintiff is being

less than straight with the Court.” (ECF No. 15.) As such, there simply is no

colorable argument that the parties are not similar.

(Id.). Defendant also quotes Bankruptcy Judge Warren’s discussion of the relatedness between the

bankruptcy proceeding and the proceeding in this Court against Halferty d/b/a Duraseal (Case No.

3:22-cv-00082). Defendant acknowledges that this action is separate from the other proceeding in

this Court, but emphasizes their relatedness, stating, “Here, Plaintiff seeks injunctive relief and

monetary damages against Defendant DuraSeal, Inc., just as it has sought against Mr. Halferty

doing business as ‘DuraSeal.’ Plaintiff’s claims and requested relief are substantially similar across

its lawsuits against Defendant and Mr. Halferty doing business as ‘DuraSeal.’” (Id. at 23).

Plaintiff briefly addresses the issue of the relatedness of this action to the bankruptcy

action, stating, “while the claims in the adversary proceeding and this case are somewhat factually

related, the claims are different and the relief is much different. In the adversary case, Plaintiff

seeks only to recover for Halferty’s post-petition conduct. The relief here is not so limited.” (Doc.

No. 53 at 23). The Court finds that these distinctions are not enough to overcome the facts

demonstrating the relatedness between this action and the bankruptcy proceeding. Most

importantly, despite this action being brought against DuraSeal, Inc. rather than Halferty, the

outcome of the present action “could alter [Halferty’s] rights, liabilities, options, or freedom of

action.” In re Dow Corning Corp., 86 F.3d at 489.

The Court’s research suggests that there is no administrative or other technical impediment

to transferring this case directly to the Bankruptcy Court for the Eastern District of North Carolina,

rather than to the District Court for the Eastern District of North Carolina (with, perhaps, a

suggestion that the district court in turn transfer it the bankruptcy court). It appears that inter-

district transfers from a district court to a bankruptcy court do occur, where jurisdiction and venue

appear appropriate in that bankruptcy court.20 Defendant and its parent company's assets are

currently being administered in ongoing proceedings in the Eastern District of North Carolina. As

20 For example, one district court in this circuit explained:

Defendant and its parent company's assets are currently being administered in ongoing

proceedings in the Southern District of Georgia. As potential creditors of Defendant due to

the nature of claims asserted, Plaintiffs' cause of action relates to the bankruptcy

proceedings. The outcome of the instant litigation could affect Defendant's liabilities as

well as the administration of the estate. It follows that judicial economy and efficiency are

best served by transferring this action to the court where the bankruptcy case is already

pending. Accordingly, the Court concludes a transfer to the United States Bankruptcy

Court for the Southern District of Georgia is in the interest of justice and will therefore

grant Defendant's motion.

Dwight v. Titlemax of Tennessee, Inc., No. 1:09-CV-267, 2010 WL 330339, at *3 (E.D. Tenn. Jan. 21,

2010). And in Ellington Credit Fund, although deciding to transfer out-of-district to the district court rather

than the bankruptcy court because the case to be transferred was not a “core” bankruptcy proceeding or

otherwise “related to” the bankruptcy case, the transferring district court never doubted the authority to

transfer out-of-district to a bankruptcy court otherwise appropriate to hear the case.

potential creditors of Defendant due to the nature of claims asserted, Plaintiff's cause of action

relates to the bankruptcy proceedings. The outcome of the instant litigation could affect

Defendant's liabilities as well as the administration of the estate. It follows that judicial economy

and efficiency are best served by transferring this action to the court where the bankruptcy case is

already pending.

Further, Plaintiff had an arguable basis for thinking that venue was proper here, as Plaintiff

operates its business in this district and Goggins signed his employment contract (which forms the

basis for at least one of Plaintiff’s claims) here, thus creating a presumption in favor of transfer.

Wesley Corp., 749 F. App'x at 450. And as this Court has explained, “[t]here is a strong

presumption that the proper venue for a case related to a bankruptcy proceeding is the district in

which the bankruptcy proceeding is pending.” Mello v. Hare, Wynn, Newell & Newton, 2012 WL

2601945, at *4 (M.D. Tenn. July 5, 2012) (citations omitted). Thus, the Court finds that transfer

to the United States Bankruptcy Court for the Eastern District of North Carolina is appropriate.

CONCLUSION

For the foregoing reasons, Defendant’s Motion will be granted, and this action will be

transferred to the United States Bankruptcy Court for the Eastern District of North Carolina. Before

the Court enters an order granting the Motion and transferring this action, the Court orders the

parties to provide additional briefing on two matters related to the outstanding Order to Show

Cause (Doc. No. 40), on which briefing is now complete. (Doc. Nos. 45, 50, 56). Specifically,

within two weeks of the entry of this memorandum opinion, each party shall submit a filing not to

exceed fifteen (15) pages in length that addresses the issues of (1) whether the Court’s forthcoming

order finding that this Court lacks personal jurisdiction over Defendant means—because the

Preliminary Injunction is void ab initio or for some other reason—that Defendant is not subject

sanctions for the alleged violation of the Preliminary Injunction (Doc. No. 34), such that the

Court’s Order to Show Cause (Doc. No. 40) should be vacated; and (2) if Defendant indeed is

subject to sanctions for the alleged violation of the Preliminary Injunction, whether this Court

would retain jurisdiction to hold the show-cause hearing as to such violations even after

transferring the case to the transferee court.

IT IS SO ORDERED.

Chi Richardson

che Rect

UNITED STATES DISTRICT JUDGE