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Is a Creditor’s right to enforce a Covenant Not to Compete a “claim” that is dischargeable in a Bankruptcy proceeding?

In Texas, a Bankruptcy Court held that a creditor’s right to equitable relief to enforce a covenant not to compete against the debtor was a “claim” under Code § 101(5) because, under § 101(5)(B), the term “claim” includes the “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.”

Further, the Court looked to governing Michigan law, monetary damages are clearly available as an alternative remedy as compensation for the violation of a valid non-compete agreement. See generally In re Davis, 3 F.3d 113 (5th Cir. 1993) (a court should analyze “whether the applicable law viewed the payment of money as an available alternative”);In re Ben Franklin Hotel Associates, 186 F.3d 301 (3d Cir. 1999) (finding that “an equitable remedy will give rise to a right of payment, and therefore be deemed a ‘claim,’ when the payment of monetary damages is an alternative to the equitable remedy”); andKennedy v. Medicap Pharmacies, Inc., 267 F.3d 493 (6th Cir.2001) [“[t]he right to equitable relief constitutes a claim only if it is an alternative to a right to payment or if compliance with the equitable order will itself require the payment of money”]. State law generally controls the issue of whether a “right to payment” exists as an available alternative to an equitable remedy. Accordingly, since the covenant arose from a prepetition contract, the claim was dischargeable in the debtor’s bankruptcy case.

In re Ruth, 2013 WL 139265 (Bankr. E.D. Tex., Jan. 10, 2013)