428 F.3d 605 (6th Cir. 2005), 04-6081, Intera Corp. v. Henderson

Docket Nº04-6081.
Citation428 F.3d 605
Party NameINTERA CORPORATION, et al., Plaintiffs-Appellants, v. George HENDERSON III, et al., Defendants-Appellees.
Case DateNovember 10, 2005
CourtUnited States Courts of Appeals, Court of Appeals for the Sixth Circuit

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428 F.3d 605 (6th Cir. 2005)

INTERA CORPORATION, et al., Plaintiffs-Appellants,

v.

George HENDERSON III, et al., Defendants-Appellees.

No. 04-6081.

United States Court of Appeals, Sixth Circuit.
Nov. 10, 2005
Argued: July 28, 2005

Appeal from the United States District Court for the Middle District of Tennessee at Nashville, No. 03-00755—Robert L. Echols, Chief District Judge.

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COUNSEL

ARGUED:

William Kennerly Burger, BURGER, SISKIN, SCOTT & McFARLIN, Murfreesboro, Tennessee, for Appellants.

Barry Goheen, KING & SPALDING, Atlanta, Georgia, for Appellees.

ON BRIEF:

William Kennerly Burger, BURGER, SISKIN, SCOTT & McFARLIN, Murfreesboro, Tennessee, for Appellants.

Barry Goheen, KING & SPALDING, Atlanta, Georgia, Thor Y. Urness, BOULT, CUMMINGS, CONNERS & BERRY, Nashville, Tennessee, for Appellees.

Before: SILER and DAUGHTREY, Circuit Judges; MARBLEY, District Judge.[*]

OPINION

ALGENON L. MARBLEY, District Judge.

Plaintiffs-Appellants ("Plaintiffs") Intera Corporation and Intera Technologies (sometimes collectively referred to as "Intera") appeal the district court's dismissal of their lawsuit against Defendants-Appellees ("Defendants") George Henderson, III, John Englar, and Nano-Tex, Inc (hereinafter "Nano-Tex") for lack of personal jurisdiction with prejudice. Intera sued Henderson, Englar, and Nano-Tex for misappropriation of trade secrets, technology, and "know how," in violation of Tennessee's version of the Uniform Trade Secrets Act (codified as amended at Tenn. Code § 47-25-1701), in addition to raising claims of common law trade secret appropriation, breach of constructive trust, civil conspiracy, fraud, unjust enrichment, and tortious interference with business relations.

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The district court held that it lacked personal jurisdiction over Defendants, and thus, it dismissed the case. Jurisdiction is proper under 28 U.S.C. § 1291.1 For the reasons set forth below, we AFFIRM the district court's decision that it lacked personal jurisdiction over Defendants, but REVERSE the district court's decision to dismiss Plaintiffs' action for lack of personal jurisdiction "with prejudice."

BACKGROUND

Plaintiffs are Tennessee corporations engaged in the industry of textile development and promotion. Their business includes the development of trade secrets, technology, and specialized "know how." Henderson and Englar are not residents of Tennessee, and Nano-Tex is not a Tennessee corporation.

In 1992, Intera and Burlington Knitted Fabrics, Inc. ("Burlington Fabrics"), a division of Burlington Industries, Inc. ("Burlington Industries") entered into a written license agreement. The following year, Intera and Burlington Woven, another division of Burlington Industries, entered into a license agreement, which provided for the confidential use and application of Intera's specialized fabric treatment processes. The license agreement between Intera and Burlington Woven contained a choice-of-law provision, which provided that all disputes arising under the agreement would be decided by Tennessee law, in a Tennessee forum. Additionally, Burlington Industries' employees with access to Intera's technology were required to provide "confidentiality assurances" to protect Intera's know how from disclosure to competitors and other unauthorized persons. At the time Intera entered into the license agreements, Henderson served as Burlington Industries' chief operating officer, and Englar served as Burlington Industries' vice president, and thus, they were required to keep their knowledge of Intera's technology confidential.

In the late 1990s, Intera invited Burlington Industries to enter into a joint venture for the purpose of further developing Intera's technology. This was consistent with the terms of the existing license agreement that Intera had entered into with Burlington Woven. Thereafter, Intera disclosed a confidential business plan to Burlington Industries. According to Intera, at some point in the late 1990s, Henderson and Englar colluded to adopt and to expand the technology that Intera had confidentially licensed to Burlington Industries and its various divisions.

In August 2000, John Maier, Burlington Industries' intellectual property counsel, informed Intera that Burlington Industries was considering the use of similar technology from Nano-Tex, one of Intera's competitors. Paragraph 2.2 of the license agreement between Intera and Burlington Woven requires Burlington Industries to provide Intera with ninety days' written notice sent via certified mail if the company "ever developed any interest in adopting or utilizing similar technology from any other source. . . ." Henderson and Englar created Nano-Tex, and at some point post-creation, Burlington Industries became the majority shareholder and parent company of Nano-Tex. Henderson and Englar remained corporate officers of Burlington Industries while at the same time serving as principal officers and stockholders of Nano-Tex, thus providing them with the opportunity to divert Intera's

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customers to Nano-Tex. Intera tested Nano-Tex's fabric and discovered that the fabric exhibited many properties of Intera's technological innovations and know-how. Accordingly, Intera alleges that Nano-Tex developed a directly competitive textile application, in which it used Intera's technology to benefit Henderson, Englar, and others.

On August 21, 2002, Plaintiffs filed suit against Defendants alleging misappropriation of trade secrets, technology, and know how "related to the testing of moisture-absorbing and/or moisture-transporting fabrics" under Tennessee's version of the Uniform Trade Secrets Act. In their suit, Plaintiffs also alleged several other state law claims against the following: common law claims of trade secret appropriation, breach of constructive trust, civil conspiracy, fraud, unjust enrichment, and tortious interference with business relations. Defendants moved to dismiss Plaintiffs' claims for lack of personal jurisdiction, pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. Defendants claimed that dismissal for lack of personal jurisdiction was proper as it pertains to Henderson and Englar because they are residents of North Carolina, both work in that state, and they have no contacts with Tennessee. Furthermore, Defendants argued that dismissal of Plaintiffs' claims against Nano-Tex was warranted because Nano-Tex is a California limited liability company, which has its principal place of business in Greensboro, North Carolina, it transacts no business in Tennessee, and it has no other connections with Tennessee. Alternatively, Defendants moved for dismissal of Plaintiffs' common law claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the basis that Tennessee's version of the Uniform Trade Secret Act preempts Plaintiffs' common law claims.

The district court noted that the parties disputed the court's personal jurisdiction over Defendants, but exercised subject matter jurisdiction based on diversity of citizenship pursuant to 28 U.S.C. § 1332. Intera Corp. v. Henderson, No. 3:03-0755, slip op. at 6 (M.D. Tenn. May 26, 2004). With respect to Henderson and Englar, the district court held that: (1) Plaintiffs failed to make a prima facie showing that Henderson and Englar "personally availed themselves of the privilege of acting in Tennessee or causing a consequence in Tennessee"; (2) Plaintiffs did not adduce facts tending to show that Henderson and Englar engaged in activities in Tennessee; and (3) the consequences of Henderson's and Englar's "business operations" did not bear a substantial enough connection with Tennessee to make the exercise of jurisdiction over those defendants reasonable. Id. at 16-17. With regard to Nano-Tex, the district court held it lacked personal jurisdiction over the company because: (1) Plaintiffs did not allege facts intimating that Nano-Tex has any "apparent" contacts with Tennessee; (2) Plaintiffs failed to establish that Nano-Tex is the alter-ego of Henderson and Englar such that the company has no personality separate from Henderson and Englar; (3) Plaintiffs failed to establish that Nano-Tex exercised any control over its parent company, Burlington Industries; and (4) Plaintiffs failed to establish that Nano-Tex and Burlington Industries are not separate entities. Id. at 19-21.

ANALYSIS

I. The Jurisdiction of this Court to Review the District Court's Dismissal of Plaintiffs' Case for Lack of Personal Jurisdiction

As a threshold matter, the Defendants challenge this Court's jurisdiction to review

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the district court's dismissal of the Plaintiffs' case for lack of personal jurisdiction on the grounds that Plaintiffs filed a defective Fed. R. Civ. P. 59(e) motion, which did not toll the thirty-day period for filing a timely appeal.

A. The Effect of a Defective Rule 59 Motion on the Tolling of the Thirty-Day Period for Filing a Timely Appeal

Rule 4 of the Federal Rules of Appellate Procedure requires that, in a civil case, in which the United States is not a party, an appeal "as of right" must be filed with the district court clerk within thirty days after the judgment or order from which a party appeals is entered. FED. R. App. P. 4(a)(1)(A). A party's compliance with the time strictures of Rule 4(a)(1)(A) is "mandatory and jurisdictional." Peake v. First Nat'l Bank & Trust, 717 F.2d 1016, 1018 (6th Cir. 1983) (citations omitted). Rule 4, however, also provides that a party's timely filed Rule 59 motion tolls the thirty-day time period for filing a notice of appeal. Fed. R. App. P. 4(a)(4)(A)(iv). In order for a Rule 59 motion to be deemed "timely," the motion must be served "no later than 10 days after entry of the judgment."2 FED. R. CIV. P. 59(e). The time for appeal does not begin to run again...

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