In re Gacharna

480 B.R. 909, 2012 Bankr. LEXIS 5040, 2012 WL 5267004
CourtUnited States Bankruptcy Court, N.D. Illinois
DecidedOctober 19, 2012
DocketNo. 12-08807
StatusPublished
Cited by3 cases

This text of 480 B.R. 909 (In re Gacharna) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Gacharna, 480 B.R. 909, 2012 Bankr. LEXIS 5040, 2012 WL 5267004 (Ill. 2012).

Opinion

ORDER ON OBJECTION TO CONFIRMATION

(Dkt. No. 34)

JACQUELINE P. COX, Bankruptcy Judge.

I. Facts and Background

The Debtors Andres Gacharna (“Gac-harna”) and Catherine E. Lindsay (“Debtors”) filed a petition for relief under Chapter 13 of the Bankruptcy Code on March 6, 2012. Creditors United Promotions, Inc. (“UPI”) and Fernando Figueredo (collectively “the Creditors”) objected to the Debtors’ May 15, 2012 Modified Plan.

The Debtors and a related entity, the Lindsay Corporation, were sued by UPI for various claims, including trade secret misappropriation. Co-debtor Catherine Lindsay was not a party in that matter; however, she is a signatory to and is bound by the Settlement Agreement (“Agreement”) that resolved it. UPI is a specialty chemical company which focuses on the development of biocides and antimicrobial agents. Gacharna was employed by UPI for five months in 1999.

After Gacharna left its employment, UPI suspected that he had taken with him and subsequently used its confidential information. The parties resolved the matter by entering a Settlement Agreement which required the Debtors to (1) pay UPI $350,000; (2) not use UPI’s trade secrets; (3) not use UPI’s exclusive distributors and suppliers to sell biocides and (4) cease conducting any business that is potentially competitive with the business of UPI. The Debtors were also required to provide UPI with Lindsay Corp.’s registration documents and other unredacted documents showing its distributors, suppliers and customers so that UPI could pursue litigation against those parties.

The Settlement Agreement included language whereby the parties agreed that the nonmonetary provisions of Articles 3 and 4 were the essence of the agreement. The agreement also included a provision wherein the parties agreed that should the Debtors fail to perform the duties prescribed in Articles 3 and 4, the Creditors would be irreparably harmed and that in-[911]*911junctive relief would be appropriate to require the Debtors to perform the duties described in Articles 3 and 4. The agreement required the Debtors to submit a signed consent injunction that could be filed with the court upon breach. It also provided that the Creditors’ releases would be rendered null and void if the Debtors failed to perform the duties required of them. The agreement allowed a prevailing party to recover attorneys’ fees in an action for breach. The Creditors also assert that the Settlement Agreement does not substitute an attorneys’ fee award for injunctive relief.

Breaches followed. Attorneys fees were awarded to the Creditors.

II. Are the Debtors’ Non-Monetary Obligations Dischargeable?

The Creditors argue that the Debtors’ non-monetary obligations are not dis-chargeable. This Court agrees.

Creditor UPI is scheduled twice on the Debtors’ Amended Schedule F of Unsecured Creditors Holding Nonpriority Claims. Line 6 therein lists a $12,500 debt for a remaining payment on the Settlement Agreement. Line 8 therein lists a $97,266 debt for a court judgment in federal district court or arbitration award arising out of an alleged breach of the Settlement Agreement.

The Debtors argue that the covenant not to compete is unenforceable as a naked restraint on competition because it is unlimited in scope, in terms of time and geography. Inconsistently, however, the Debtors also argue that Gacharna’s obligations under the agreement expired in March of 2012. The Debtors ask this Court to find that the covenant not to compete is unenforceable under Florida law.

Article 3 of the agreement states: [a]r-ticle 3: Second Parties To Leave The Bio-cide Business. The Debtors agreed that they, their companies and privies, and all other entities acting in concert with them or any of them, immediately upon execution of the Terms Sheet and forever cease to conduct any business that is potentially competitive with the business of UPI. Articles 3.1 through 3.5 prohibit the Debtors from registering products by cancelling, withdrawing and revoking any product registrations; required the Debtors to cancel trademarks and patents generally; to remove from all channels of commerce any advertisements and promotional information and an acknowledgment by the Debtors that UPI’s supply and distribution network is a valuable asset. Those obligations are noted to be continuing, without a termination date noted in the Settlement Agreement.

III. Discussion

The Court declines to rule that the covenants are broad and unenforceable. The Debtors have not shown that conditions in the industry have changed warranting vacation of the terms that they have agreed to. Generally, an application to modify or dissolve a permanent injunction may be initiated by petition to the court which granted the injunction with supporting affidavits that show the changes in conditions upon which the moving party relies. The movant has to show that existing conditions differ so substantially from those which precipitated the injunction as to warrant judicial adjustment. Hodge v. Department of Housing and Urban Development, 862 F.2d 859 (11th Cir.1989).

However, the Court finds that the Debtors’ obligations under the Settlement [912]*912Agreement are non-monetary and for that reason are not dischargeable herein.

Under Bankruptcy Code section 101(5) the term claim means:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) 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.

11 U.S.C. § 101(5).

The Settlement Agreement does not provide for monetary compensation for breach of its terms, except for attorneys fees. It provides that the parties may seek arbitration of disputes of any kind through binding arbitration with Mark A. Buckstein in his sole and absolute discretion. The attorneys fee provision is separate from the terms that prohibit the Debtors from engaging in conduct that encroaches on the Creditors’ trade secrets.1

In In re Udell, 18 F.3d 403, 406-09 (7th Cir.1994) an employer and its former employee entered into an agreement that included a covenant not to compete. For three years after leaving, the employee could not engage in any business similar to the employer’s within 50 miles. The Seventh Circuit held that for bankruptcy purposes a debt is a liability on a claim but that where a creditor has no option to accept payment in lieu of performance, the debtor’s obligation is not a claim and that a right to an equitable remedy for breach of performance is a “claim” if the same breach also gives rise to a payment “with respect to” the equitable remedy.

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Cite This Page — Counsel Stack

Bluebook (online)
480 B.R. 909, 2012 Bankr. LEXIS 5040, 2012 WL 5267004, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-gacharna-ilnb-2012.