465 B.R. 782
Bankr. N.D. Miss.2011Background
- Weathers, debtor, terminated employment with Dutch and started working for a competitor in a restricted area.
- Dutch sought to enforce a liquidated damages provision and a non-compete in the Employment Agreement.
- Weathers did not schedule Dutch as a creditor or as a party to the executory contract in the original bankruptcy schedules; Dutch was later identified in related filings by third parties.</n>
- Weathers received a Chapter 7 discharge, but post-discharge, she continued employment with Dutch for about 17 months and earned substantial income.
- Dutch reopened the bankruptcy and brought an adversary proceeding; Weathers amended Schedule G to list and reject the Employment Agreement, raising issues about whether rejection damages and the non-compete are pre-petition, post-petition, or discharged obligations.
- The court previously granted summary judgment for Dutch on liability related to the liquidated damages provision but later vacated that portion and reopened the issue for further proceedings; the non-compete issue was retained and determined to survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Liquidated damages: pre- or post-petition debt? | Dutch seeks enforcement as a contract claim not discharged by the Chapter 7 case. | Weathers argues discharge or post-petition status; liquidated damages may be dischargeable. | The court vacated the prior ruling on viability and reopened the issue. |
| Whether the liquidated damages portion can survive as a claim given discharge and scheduling gaps? | Liquidated damages should be enforceable as a pre-petition debt not discharged. | Discharge or lack of scheduling undermines enforceability. | Reopened for further proceedings; not finally decided. |
| Non-compete provision: is it discharged or enforceable post-bankruptcy? | Non-compete is akin to monetary damages and should be dischargeable if treated as pre-petition debt. | Non-compete is an equitable remedy, survives discharge and is enforceable. | Non-compete survives and is enforceable; not discharged. |
| Relation to cited authorities on non-compete treatment after rejection of an executory contract? | Precedents support treating non-compete as dischargeable. | Authorities support continued enforceability of non-compete as equitable remedy. | Court aligns with enforceability of non-compete; rejects treating it as discharged. |
| Effect of unscheduled creditor status on 365(d)(1) treatment and rejection timing? | Unscheduled contract could still create post-petition liabilities. | Lack of schedules undermines automatic rejection consequences; not pre-petition claim. | Court emphasizes non-dischargeable nature of the non-compete; rejects broad pre-petition treatment for the liquidated damages absent further findings. |
Key Cases Cited
- In re Zuniga, 287 B.R. 201 (Bankr.E.D.Mo.2001) (discusses when an executory contract is deemed rejected and its effect on claims)
- Sheerin v. Davis, 3 F.3d 113 (5th Cir.1993) (equitable remedies are not automatically reducible to monetary damages in bankruptcy)
- In re Steaks To Go, Inc., 226 B.R. 35 (Bankr.E.D.Mo.1998) (non-compete-like provisions may survive rejection as enforceable equitable remedies)
- In re Cooper (Carstens Health Industries v. Cooper), 47 B.R. 842 (Bankr.W.D.Mo.1985) (non-compete-like restrictions considered in bankruptcy context)
- In re Don & Lin Trucking Co., Inc., 110 B.R. 562 (Bankr.N.D.Ala.1990) (recognizes treatment of rejection and related remedies in bankruptcy)