Midwest Motor Supply Co. v. Hruby (In re Hruby)

512 B.R. 262
CourtUnited States Bankruptcy Court, D. Colorado
DecidedMay 19, 2014
DocketCase No. 14-11849 HRT
StatusPublished
Cited by5 cases

This text of 512 B.R. 262 (Midwest Motor Supply Co. v. Hruby (In re Hruby)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Midwest Motor Supply Co. v. Hruby (In re Hruby), 512 B.R. 262 (Colo. 2014).

Opinion

Chapter 7

ORDER ON MOTION FOR RELIEF FROM STAY

Howard R. Tallman, Chief Judge, United States Bankruptcy Court

This ease comes before the Court on the Motion by Midwest Motor Supply for (I) Relief from the Automatic Stay; and (II) Waiver of Stay (docket # 29) (the “Motion”).

The Movant seeks relief from stay in order to continue its prosecution of a civil action it filed against the Debtor and a related company captioned Midwest Motor Supply Company, Inc., d/b/a Kimball Midwest v. Jeff Hruby, et al., Case No. 13CV012440 (the “Litigation”). The Litigation was filed in the Court of Common Pleas, Franklin County, Ohio (the “State Court”). Movant requests relief from the automatic stay for the sole purpose of obtaining injunctive relief against the Debtor and not for the purpose of pursuing the damages claims it has asserted in the Litigation.

Under 11 U.S.C. § 362, in relevant part, On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this section, if—
(A) the debtor does' not have an equity in such property; and
(B) such property is not necessary to an effective reorganization;

11 U.S.C. §§ 362(d)(1) & (2).

The Court conducted a preliminary hearing on April 29, 2014, and heard offers of proof from counsel. At the conclusion of the preliminary hearing, the Court took the matter under advisement to determine whether or not there is a necessity for a final hearing.

Following a preliminary hearing on a motion for relief from stay, the Court must [266]*266grant the requested relief unless it is able to conclude that “there is a reasonable likelihood that the party opposing relief from such stay will prevail at the conclusion of [a] final hearing.” 11 U.S.C. § 362(e)(1). Because the Motion does not concern property1 and there is no issue of equity, see 11 U.S.C. § 362(g)(1), the Debt- or bears the burden of proof on all issues in this matter. 11 U.S.C. § 362(g)(2). Upon consideration of the parties’ offers of proof and exhibits offered at the preliminary hearing, the Court finds that it may rule based on the parties’ offers of proof and that a final hearing is unnecessary.

I.FACTUAL BACKGROUND

1. On February 24, 2014, the Debtor and his company, Industrial Supplies of the Rockies, LLC (Case No. 14-11851), filed voluntary petitions for relief under chapter 7 of the Bankruptcy Code.
2. Prepetition, from March 17, 2003, to November 11, 2013, Movant employed the Debtor as a sales representative pursuant to the an Employment Agreement (the “Agreement”).
3. Paragraphs 5, 6, and 7 of the Agreement contain restrictive covenants (the “Covenants”) and are set out in full in the Appendix attached hereto:
(a)Paragraph 5 is a Covenant Not to Compete. There, the Debtor agreed generally that, during his employment with the Movant and for two years thereafter, he would not work for a business that competes with the Movant or sells products that compete with Movant’s products.
(b) Paragraph 6 is a No Solicitation or Service provision. There, the Debtor agreed generally that, during his employment with the Movant and for two years thereafter, he would not solicit or divert Movant’s customers or employees in favor of a competing business.
(c) Paragraph 7 is a Confidentiality provision. There, the Debtor agreed generally that, during his employment, he would keep the Movant’s confidential information confidential and return such information to the Movant following his employment.
4. Paragraph 9 of the Agreement prescribes the remedies agreed to by the Debtor and the Movant in the event of a breach of the Covenants (the “Remedies”). The Remedies are set out in full in the Appendix attached hereto. The Remedies agreed to by the parties include both damages and injunc-tive relief.
5. Movant alleges that Debtor has breached the Covenants and the Mov-ant’s prepetition State Court Litigation pleads causes of action for both damages and injunctive relief with re[267]*267spect to Debtor’s alleged breach of the Covenants.
6. Paragraph 12, Subparagraph I, of the Agreement contains a choice of law provision wherein the Debtor agrees that the Agreement shall be construed under Ohio law and that any actions brought concerning the Agreement will be venued in Franklin County, Ohio.
7. The Debtor filed his petition under chapter 7 prior to the State Court taking any action on Movant’s request for preliminary injunction and prior to filing his answer in the State Court Litigation.

II. DISCUSSION

A. Do the Movant’s Claims for Injunc-tive Relief Constitute Dischargeable Debts?

The initial question is whether the Mov-ant’s rights under the Covenants constitute a claim under 11 U.S.C. § 101(5)(B) that is a dischargeable debt in the Debt- or’s bankruptcy proceeding. That question is not necessarily dispositive but, if Movant’s claims for injunctive relief in the State Court Litigation amount to dis-chargeable debts, its case for relief is hardly compelling.

The Court concurs with the analysis of that question that appears in Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493, 496-97 (6th Cir.2001) and In re Udell, 18 F.3d 403, 406-408 (7th Cir.1994). In Kennedy, the Court held that “The 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.” 267 F.3d at 497.

The Court has reviewed the Covenants and the Remedies agreed to by the parties in the Agreement. It finds that the Agreement provides for both damages and injunctive relief in the event of Debt- or’s breach of the Covenants. The Court finds that the damages and the injunctive relief are cumulative and not alternative remedies.

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Cite This Page — Counsel Stack

Bluebook (online)
512 B.R. 262, Counsel Stack Legal Research, https://law.counselstack.com/opinion/midwest-motor-supply-co-v-hruby-in-re-hruby-cob-2014.