Ever-Seal, Inc. v. Duraseal, Inc.

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EVER-SEAL, INC., Plaintiff, v. DURASEAL, INC., Defendant.

No. 3:22-cv-00365

United States District Court, M.D. Tennessee, Nashville Division

August 23, 2022

MEMORANDUM OPINION

ELI RICHARDSON UNITED STATES DISTRICT JUDGE

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 background^[1]

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 (“noncompete”) 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 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 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...