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

Filing 68

MEMORANDUM AND ORDER DISMISSING CASE: 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"). Via the Motion and support ing memorandum (Doc. No. 42 ), 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). For the reason s set forth above, and in the Court's prior memorandum opinion (Doc. No. 62 ), the Court finds that transfer of this matter (in its entirety) to the United States Bankruptcy Court for the Eastern District of North Carolina is appropriate. The Clerk of this Court is directed to effectuate such transfer and close this file. Signed by District Judge Eli J. Richardson on 9/15/2022. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(mg)

IN THE UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION

EVER-SEAL, INC.,

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Plaintiff,
v.
DURASEAL, INC.,
Defendant.

NO. 3:22-cv-00365
JUDGE RICHARDSON

MEMORANDUM OPINION AND ORDER
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”). Via the Motion
and supporting memorandum (Doc. No. 42), 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). In a prior memorandum opinion (Doc. No. 62), this Court
addressed the Motion, setting forth the procedural history of this case as well as an analysis of
applicable issues, and concluded as follows:
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

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would retain jurisdiction to hold the show-cause hearing as to such violations even
after transferring the case to the transferee court.
(Doc. No. 62 at 28-29). Each party thereafter made a filing in response to the Court’s directive. In
its response, Plaintiff effectively addresses the second of the two specified issues issue by asserting
and requesting that the Court transfer the entire case, including matters related to the Court’s Order
to Show Cause. (Doc. No. 64 at 2-3). Plaintiff does not address the first of the two specified issues,
regrettably enough, perhaps because in its view this Court should not even be deciding the issue,
i.e., that the issue should be left to the transferee court. As for Defendant, it has effectively the
same view regarding the second issue, stating that “even if Defendant were indeed subject to
sanctions for the alleged violation of the Preliminary Injunction, this Court would not retain
jurisdiction to hold the show-cause hearing as to such violations after transferring the case to the
transferee court.” (Doc. No. 66 at 2). As for the first issue, Defendant effectively contends
(unsurprisingly) that no show-cause hearing should be held because sanctions are not legally
permissible here because the preliminary injunction allegedly violated was issued by a court (this
Court, obviously) that lacked the personal jurisdiction necessary to issue the preliminary injunction
against Defendant in the first place.
Consistent with the parties’ views that have been expressed, which strike the Court as
sound, the Court will not presume to retain jurisdiction over any show cause hearing that
conceivably could be appropriate despite the Court’s finding that it lacks personal jurisdiction over
Defendant. The Court instead will leave the decision whether to hold a show-cause hearing, and
leave the holding of any show-cause hearing that potentially could occur, to the transferee court.
Plaintiff used its response to the Court’s above-referenced memorandum opinion as an
opportunity to ask the Court to revisit its decision to transfer this case to the bankruptcy, as opposed
to the district court for the transferee district (the “Eastern District of North Carolina”). As

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background, on March 17, 2022, Plaintiff commenced an adversary proceeding against Defendant
in the Bankruptcy Court for the Eastern District of North Carolina, asserting solely post-petition
claims against Defendant for breach of the Confidentiality Agreement and intentional interference
with business relations. (See Doc. No. 64-1 at 50). In its response to this Court’s memorandum
opinion, Plaintiff asserts, in pertinent part:
On July 20, 2022, Plaintiff filed a motion to withdraw the reference of its adversary
claims against Halferty to the U.S. District Court in the Eastern District of North
Carolina pursuant to 28 U.S.C. § 157(d). As set forth therein, the case against
Halferty meets all the criteria for permissive withdrawal of the reference to
Bankruptcy Court: the contract action is “non-core”; and Plaintiff has demanded a
jury trial there (as it has here), which the Bankruptcy Court cannot conduct without
Plaintiff’s consent, which it has not provided. (Copy of Plaintiff’s Mem. In Support
of Mot. to Withdraw Reference attached hereto as Exhibit A). Halferty responded
on August 3, 2022, and the Bankruptcy Court transferred the motion to the District
Court for determination on August 4, 2022. The United States District Court for the
Eastern District of North Carolina opened its separate related case (No. 5:22-mc00014-FL) to decide whether the claims in the adversary proceeding should be
decided in the district court rather than the bankruptcy court. For these reasons,
Plaintiff respectfully urges this Court to transfer the case to the U.S. District Court
for the Eastern District of North Carolina, rather than the Bankruptcy Court.
(Doc. No. 64 at 3). Defendant responds, in pertinent part:
Defendant respectfully submits that the Court should deny Plaintiff’s
request in its brief asking this Court to transfer this case to the Eastern District of
North Carolina District Court instead of the Bankruptcy Court. (Doc. No. 64,
PageID# 969–70.) As of the date of this filing, Plaintiff’s motion to withdraw
reference to its adversary claims against Stephen Halferty individually remains
pending before the Eastern District of North Carolina. In that case, Mr. Halferty’s
bankruptcy counsel has filed an opposition to Plaintiff’s motion, arguing that Mr.
Halferty’s counterclaim is an estate asset, that the dispute is a core proceeding under
28 U.S.C. § 157(b)(2)(O), and that it would be “more efficient for th[e] adversary
proceeding to remain in the Bankruptcy Court because the issues raised may
intersect with and be impacted by confirmation of the plan.” See Stephen Bradley
Halferty’s Response to Plaintiff’s Motion to Withdraw Reference, attached hereto
as Exhibit A; see also 28 U.S.C. § 157(b)(2)(O) (“Core proceedings include . . .
other proceedings affecting the liquidation of the assets of the estate”). Defendant
is mindful of the fact that Plaintiff’s motion to withdraw reference is not before this
Court and that the Court did not ask the parties to brief the issues raised in that
motion. However, Defendant would note that Mr. Halferty’s opposition to the
motion to withdraw reference echoes this Court’s determinations in its August 23,

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2022 Memorandum Opinion that “Plaintiff’s claims do not involve rights created
by bankruptcy law and are not ‘core’ bankruptcy proceedings,’” that there is
“relatedness between this action and the bankruptcy proceeding,” that “[t]he
outcome of the instant litigation could affect Defendant’s liabilities as well as the
administration of the estate,” and “that judicial economy and efficiency are best
served by transferring this action to the court where the bankruptcy case is already
pending.”
Given that the Eastern District of North Carolina has neither granted nor
denied Plaintiff’s motion—which was filed in July 2022—Defendant disagrees
with Plaintiff’s assertion that “recent events” justify altering the Court’s August 23,
2022 Memorandum Opinion. (Plaintiff’s unsolicited eleventh-hour request for
transfer to the District Court instead of the Bankruptcy Court is yet another attempt
at forum shopping. Defendant respectfully submits that the Court should transfer
this case to the United States Bankruptcy Court for the Eastern District of North
Carolina as decided in its Memorandum Opinion, such that the Bankruptcy Court
may then decide how to handle Plaintiff’s request.
(Doc. No. 66 at 12-13) (some citations omitted).
The Court comes down on the side of Defendant. As Plaintiff notes, “[a] motion to
withdraw the reference to the bankruptcy court is governed by 28 U.S.C. § 157(d), which provides,
in relevant part, ‘[t]he district court may withdraw, in whole or in part, any case or proceeding
referred under this section, on its own motion or on timely motion of any party, for cause shown.’”
(Doc. No. 64-1 at 6) (quoting 28 U.S.C. § 157(d)). True, “[t]he withdrawal of a
reference transfers a dispute from the bankruptcy court to the district court.” Robert G. Furst &
Assocs., Ltd. Defined Ben. Pension Plan v. ML Manager LLC, No. CV-12-2304-PHX-FJM, 2013
WL 1866966, at *2 (D. Ariz. May 2, 2013). But a mere motion to withdraw the reference is another
matter; as the statute indicates, it is up to the district court to order the withdrawal, and this cannot
be said to have occurred merely because a motion for withdrawal has been filed. Here, the motion
to withdraw remains pending (as far as the record in this case and the electronic docket from the
Eastern District of North Carolina shows), and so there has not yet been—and may never be—a
withdrawal of the reference. So Plaintiff has not established the (current) existence of a valid basis

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for the Court to reconsider its decision to transfer this case specifically to the transferee district’s
bankruptcy court. The Court thus will adhere to its prior decision, and leave to the courts of the
transferee district the decision whether the case should ultimately be transferred to the district court
based on (perhaps among other things) any withdrawal the transferee district court subsequently
may order.
CONCLUSION
For the reasons set forth above, and in the Court’s prior memorandum opinion (Doc. No.
62), the Court finds that transfer of this matter (in its entirety) to the United States Bankruptcy
Court for the Eastern District of North Carolina is appropriate. The Clerk of this Court is directed
to effectuate such transfer and close this file.
IT IS SO ORDERED.
___________________________________
ELI RICHARDSON
UNITED STATES DISTRICT JUDGE

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