512 B.R. 262
Bankr. D. Colo.2014Background
- Debtor (Jeff Hruby) and his company filed Chapter 7 on Feb 24, 2014; Midwest Motor Supply (Movant) had sued him prepetition in Ohio state court alleging breaches of an employment agreement containing a noncompete, no-solicitation, and confidentiality provisions.
- Movant sought relief from the automatic stay solely to continue prosecution of injunctive claims (not damages) in the Ohio litigation and asked to waive the 14-day Rule 4001(a)(3) stay.
- The employment agreement specified Ohio law and Franklin County venue; the parties’ performance, negotiation, and the employee’s territory were principally in Colorado.
- Movant produced unrefuted evidence that after employment ended the Debtor accessed Movant’s customer/confidential files and solicited former customers, quantifying ongoing sales losses.
- The Chapter 7 Trustee did not object to lifting the stay; the Trustee controls estate property and the Court found the state-court injunctions would not materially affect estate administration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Movant's requested injunctive relief constitutes a dischargeable claim | Injunctive relief is part of the contractual remedies and seeks enforcement of prepetition rights | Injunctive relief might be treated as a claim affecting the bankruptcy/discharge | Injunctive relief here is not a dischargeable claim because it cannot be satisfied by payment of money alone |
| Whether federal bankruptcy court has jurisdiction/"related to" jurisdiction to decide the state-law injunction claims | Movant sought stay relief so state court can proceed; bankruptcy court could retain control | Debtor argued stay should remain so federal court could adjudicate claims affecting estate | Court: claims do not arise under or in title 11 and are not "related to" administration of this Chapter 7 estate; state court is appropriate forum |
| Whether cause exists to lift stay to allow state-court injunctive proceedings (Curtis factors) | Movant: Curtis factors favor relief (no interference with estate, judicial economy, ongoing harm) | Debtor: lifting stay would impinge fresh-start and might prejudice estate/require merits analysis | Overall Curtis analysis favors lifting stay for no-solicitation and confidentiality claims but disfavors lifting as to the noncompete clause |
| Likelihood of success on the merits (Gindi) for each restrictive covenant | Movant: likely to win injunctions enforcing noncompete, no-solicit, and confidentiality provisions | Debtor: Choice-of-law and Colorado public policy likely void noncompete; factual defenses to solicitation/confidentiality | Applying conflicts analysis and Gindi: noncompete likely unenforceable (Colorado law applies); Movant likely to succeed on no-solicitation and confidentiality claims; stay granted only as to those two provisions |
| Waiver of Fed. R. Bankr. P. 4001(a)(3) 14-day stay | Movant: ongoing violations justify immediate relief | Debtor: (argues delay protects fresh start) | Court finds good cause and waives the 14-day stay |
Key Cases Cited
- Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493 (6th Cir. 2001) (equitable relief is a claim only if alternative to a right to payment or compliance requires payment)
- In re Udell, 18 F.3d 403 (7th Cir. 1994) (analysis on when equitable relief constitutes a claim)
- Chizzali v. Gindi (In re Gindi), 642 F.3d 865 (10th Cir. 2011) (movant seeking stay relief to pursue out-of-bankruptcy litigation must show likelihood of success in some circumstances)
- In re Gardner, 913 F.2d 1515 (10th Cir. 1990) ("related to" test: conceivable effect on estate administration)
- King v. PA Consulting Group, Inc., 485 F.3d 577 (10th Cir. 2007) (Colorado public policy disfavors noncompete agreements)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (formulation of the "related to" jurisdiction test)