554 B.R. 35
Bankr. D. Mass.2016Background
- Blue-Grace Franchise, LLC and debtor Carl S. Hurvitz executed a franchise agreement (Feb 2015) containing two-year post-termination noncompetition and nonsolicitation covenants.
- Blue-Grace terminated the franchise (Jan 2016) for nonpayment; it later sued Hurvitz in state court alleging he joined a competitor and solicited Blue‑Grace customers.
- The state court entered a temporary restraining order enjoining Hurvitz from working for the competitor and soliciting Blue‑Grace customers.
- Hurvitz filed Chapter 7 bankruptcy (May 2016) and opposed Blue‑Grace’s motion for relief from the automatic stay, arguing Blue‑Grace’s enforcement rights are "claims" subject to discharge.
- Blue‑Grace moved for stay relief to continue its state‑court action; the bankruptcy court analyzed whether equitable enforcement rights constitute bankruptcy "claims" and whether "cause" exists to lift the stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Blue‑Grace’s right to equitable enforcement of post‑termination restrictive covenants qualifies as a "claim" under 11 U.S.C. §101(5) | Blue‑Grace: enforcement is equitable relief, not a claim subject to discharge | Hurvitz: right to enforce is a claim because it arises from breach of contract and could implicate money relief | Court: Not a claim — injunctive relief is primary, no alternative right to payment exists under the contract or state law |
| Whether liquidated damages in agreement make equitable relief an alternative to money damages | Blue‑Grace: liquidated damages are cumulative and relate only to early termination, not a substitute for injunctive relief | Hurvitz: existence of any money remedy converts the enforcement right into a claim | Court: Liquidated damages are cumulative, not an alternative; they do not transform the equitable right into a claim |
| Whether state law provides an alternative damages remedy for covenant breaches that would create a dischargeable claim | Blue‑Grace: Massachusetts (and Florida) law treats injunction as normal/remedial, money damages often inadequate or speculative | Hurvitz: reliance on contractual stipulations cannot defeat dischargeability | Court: State law supports injunctive relief as the appropriate remedy when damages are inadequate; no alternative payment right exists |
| Whether cause exists to lift the automatic stay to allow state court enforcement | Blue‑Grace: stay relief needed; TRO and probability of success show substantial harm to Blue‑Grace | Hurvitz: lifting stay would impede debtor's fresh start and prejudice him | Court: Cause exists under §362(d)(1) — no great prejudice to estate; hardship to Blue‑Grace outweighs debtor; probability of success shown; lift stay granted |
Key Cases Cited
- Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493 (6th Cir. 2001) (equitable relief constitutes a claim only if it is alternative to a right to payment)
- Udell v. Donaldson, Lufkin & Jenrette Sec. Corp., 18 F.3d 403 (7th Cir. 1994) (test whether injunction gives rise to an alternative right to damages)
- In re Haines, 309 B.R. 668 (Bankr. D. Mass. 2004) (factors for cause to lift automatic stay to continue pending litigation)