From Casetext: Smarter Legal Research

In re Love

United States Bankruptcy Court, C.D. Illinois
Mar 9, 2001
No. 00-83615 (Bankr. C.D. Ill. Mar. 9, 2001)

Opinion

No. 00-83615

March 9, 2001.


OPINION


This matter is before the Court on a motion for relief from automatic stay filed by Outdoor Media Group, Inc. (OMG), the publisher of regional "Fish and Game Finder" magazines. OMG seeks to modify the stay to permit it to continue to litigate, among other things, the enforceability of a covenant not to compete in a lawsuit that was pending in the U.S. District Court for the Middle District of Florida ("Florida suit") at the time that the Debtor's Chapter 13 bankruptcy petition was filed. Specifically, OMG seeks to enjoin the Debtor, William R. Love (LOVE), from continuing his employment as an advertising salesperson for Heartland Outdoors, Inc., an Illinois corporation that publishes a hunting and fishing magazine known as "Heartland Outdoors." OMG also seeks stay modification in order to liquidate, in the Florida suit, its claim for damages against Mr. LOVE for breach of contract. Whether the automatic stay should be modified to permit such litigation to continue depends, in large part, upon whether Mr. LOVE'S obligation not to compete is a "claim" that may be discharged in a bankruptcy case.

Stay relief motions are intended to be summary proceedings that do not generally involve a full adjudication on the merits of claims, defenses or counterclaims. Matter of Vitreous Steel Products Co., 911 F.2d 1223, 1232 (7th Cir. 1990); Grella v. Salem Five Cent Savings Bank, 42 F.3d 26, 31 (1st Cir. 1994). After a preliminary hearing on OMG'S motion, the parties filed memoranda of law with accompanying affidavits and documentary exhibits. A subsequent hearing was held at which the Court heard argument and took the matter under advisement.

The Florida suit, filed on June 21, 1999, was pending for seventeen months prior to Mr. LOVE'S Chapter 13 bankruptcy filing on November 8, 2000, eight days before the district court was to conduct the hearing on OMG'S motion for entry of a preliminary injunction. The case was also on the district court's trial calendar for January 2, 2001. The enforceability of the covenant not to compete and damages to be awarded for breach of contract are issues of Florida law.

The covenant not to compete is contained in a written contract between Mr. LOVE and OMG'S predecessor, Fish Finder Industries (FFI), dated January 10, 1986 (the "Love Agreement"). FFI was in the business of franchising its trade name, trade ideas, and publishing services to franchisees like Mr. LOVE, who, in conjunction with FFI, produced periodic magazines targeted toward members of the public interested in fishing and hunting. The magazines are free to the public and are stocked at fishing and hunting supply stores and other retail establishments known to cater to fisher-persons and hunters. One of the franchisee's primary responsibilities is to secure advertise-ments from local or regional advertisers for publication in the magazine. Advertisers pay to place ads and the advertising dollars are split between FFI and the franchisee.

Mr. LOVE'S exclusive territory encompassed the States of Illinois and Iowa. The Love Agreement licensed use of FFI'S trade name "Fish and Game Finder" so, for example, the magazine that Mr. LOVE published for the State of Illinois was called "Illinois Fish and Game Finder." The Love Agreement contains the following covenant not to compete:

Dealer agrees that he will not engage in a similar business or one competitive to Publisher during the term of this Agreement or within 3 years after termination of this Agreement.

The Love Agreement does not contain a liquidated damages provision or any provision for a predetermined amount of damages to be paid either party upon the other's breach. The Love Agreement provides that Mr. LOVE may cancel the agreement upon thirty days notice and FFI may cancel upon Mr. LOVE'S default with ten days notice and failure to cure. Mr. LOVE never exercised his right to terminate the Love Agreement. OMG exercised its termination option in the form of a letter to Mr. LOVE'S attorney dated February 11, 2000, giving Mr. LOVE ten days to cure alleged defaults. Mr. LOVE did not cure the alleged defaults. Therefore, the effective date of the termination of the Love Agreement was February 22, 2000, and Mr. LOVE'S non-compete obligation extends for three years from this date or until February 22, 2003.

Mr. LOVE is presently employed as an advertising salesperson for Heartland Outdoors. His wife is the president, sole shareholder and sole director of Heartland Outdoors. Mr. LOVE alleges that he has nothing to do with publishing or printing the new magazine and that his employment merely as an advertising salesperson is not prohibited by the covenant not to compete contained in the Love Agreement. OMG disagrees.

In his Chapter 13 Plan, Mr. LOVE characterizes the Love Agreement as an executory contract that may be rejected pursuant to 11 U.S.C. § 365. Mr. LOVE claims that the effect of such rejection would be to void the contract and the covenant not to compete. OMG objected to confirmation of the proposed Plan asserting that the Love Agreement was terminated in February, 2000, nine months prior to the bankruptcy filing, so that it is not an executory contract that is subject to rejection. Even if it is an executory contract, OMG contends that rejection merely constitutes a breach and does not void the contract. OMG maintains that its right to enforce the covenant not to compete against Mr. LOVE is not a claim that is subject to discharge in a bankruptcy proceeding.

The Seventh Circuit Court of Appeals has addressed similar issues in Matter of Udell, 18 F.3d 403 (7th Cir. 1994). The Seventh Circuit laid out an analytical road map for a bankruptcy court to follow when deciding whether the automatic stay should be modified to permit litigation to proceed in a different forum concerning the enforceability of a covenant not to compete against the debtor. The bankruptcy court should first determine whether the creditor's right to enforce the covenant not to compete is a "claim" as defined in 11 U.S.C. § 101(5)(B). If not a claim, the bankruptcy court must then consider whether cause for stay relief exists and, as part of that consideration, should engage in the three part inquiry laid out in In re Pro Football Weekly, Inc., 60 B.R. 824, 826 (N.D.Ill. 1986), as applied in Matter of Fernstrom Storage and Van Co., 938 F.2d 731, 735 (7th Cir. 1991). The three factors are:

(1) Whether any great prejudice to the debtor or the bankruptcy estate will result from continuing the suit; (2) Whether the hardship to the creditor by maintaining the stay of the suit considerably outweighs the hardship to the debtor that would occur if the suit were permitted to continue; and (3) Whether the creditor has a probability of prevailing on the merits.

The burden of proof on a motion for relief from the automatic stay is a shifting one. The moving creditor must first make a prima facie case that cause exists to modify the stay. The burden then shifts to the debtor to show that cause does not exist. See 11 U.S.C. § 362(g). In re Sonnax Industries, Inc., 907 F.2d 1280, 1285 (2d Cir. 1990).

This Court will first consider whether OMG has demonstrated a prima facie claim to enforcement of the covenant not to compete against Mr. LOVE and that enforcement via injunction is an available remedy under Florida law. The parties agree that the following Florida statute is applicable:

(1) Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, otherwise than is provided by subsections (2) and (3) hereof, is to that extent void.

(2)(a) One who sells the goodwill of a business, or any shareholder of a corporation selling or otherwise disposing of all of his shares in said corporation, may agree with the buyer, and one who is employed as an agent, or employee may agree with his employer, to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a reasonably limited time and area, so long as the buyer or any person deriving title to the goodwill from him, and so long as such employer continues to carry on a like business therein. Said agreements may, in the discretion of a court of competent jurisdiction be enforced by injunction.

(b) The licensee, or any person deriving title from the licensee, of the use of a trademark identifiable business format or system may agree with the licensor to refrain from carrying on or engaging in a similar business and from soliciting old customers of such licensor within a reasonably limited time and area, so long as the licensor, or any person deriving title from the licensor, continues to carry on a like business therein. Said agreements may, in the discretion of a court of competent jurisdiction, be enforced by injunction.

(3) Partners may, upon or in anticipation of a dissolution of the partnership, agree that all or some of them will not carry on a similar business within a reasonably limited time and area.

(4) This section does not apply to any litigation which may be pending, or to any cause of action which may have accrued, prior to May 27, 1953.

Fla. Stat. ch. 542.33 (1980).

In order to make its prima facie case, OMG must demonstrate compliance with the statutory requirements. The statute expressly provides that covenants not to compete that meet the requirements of the statute may be enforced by injunction. The two requirements that are in dispute are whether the covenant is reasonably limited as to time and area and whether OMG is continuing to carry on a like business within the area covered by the covenant.

The term of the covenant is for three years following termination of the Love Agreement. The covenant does not expressly contain a geographic limitation. OMG alleges that it is only seeking to enforce the covenant against Mr. LOVE in the States of Illinois and Iowa. OMG maintains that the district court may, after hearing evidence, determine a reasonable time and area for the covenant and enforce it by injunction as so determined. In support of its position, OMG cites Flammer v. Patton, 245 So.2d 854 (Fla. 1971) and Health Care Financial Enterprises, Inc. v. Levy, 715 So.2d 341 (Fla.Dist.Ct.App. 1998). This Court agrees with OMG that Florida law permits judicial revision of a covenant not to compete with respect to time and area. Because of substantial uncertainty about the application of the statutory requirement that OMG continue to carry on business in the subject area, discussed in detail below, this Court cannot say that OMG has not met the requirement. Accordingly, this Court finds that OMG has made a prima facie showing that the covenant not to compete is enforceable against Mr. LOVE through injunctive relief under the applicable Florida statute.

The Court will next apply the analysis laid out by the Seventh Circuit in Udell to determine whether the prospective non-compete obligation of Mr. LOVE is a claim that is dischargeable in bankruptcy. If it is, then this supports a denial of the motion. If it is not a claim, then this militates toward granting the motion to allow the district court in Florida to determine its enforceability and define its scope.

"Claim" is defined in 11 U.S.C. § 101(5)(B) to mean:

(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.

The Seventh Circuit in Udell stated that the proper inquiry under § 101(5)(B) is whether the creditor's right to an injunction "gives rise" to an alternative right to payment of damages with respect to the equitable remedy. If the right to payment is an "alternative" to the equitable remedy, or an available substitute for it, then the necessary relationship exists and the equitable remedy is a "claim." If, however, the obligor does not have the option to pay money in lieu of honoring the obligation, the right to an equitable remedy does not give rise to an alternative right to payment and the obligation is not a "claim" for bankruptcy purposes.

State law determines whether the right to an injunction gives rise to a right to payment. In Udell, the Seventh Circuit applied Indiana law to a covenant not to compete that provided for both injunctive relief and stipulated damages in the sum of $25,000. The Court found that Indiana law permits the award of an injunction in addition to liquidated damages, and that the remedies are cumulative unless intended by the parties to be a substitute for performance. 18 F.3d at 408-409. The Court found that the parties did not intend the "stipulated damages" to be a substitute for or alternative to Mr. Udell's obligation not to compete. The Court held that the former employer's right to an injunction did not give rise to a right to payment of damages and was therefore not a "claim" under § 101(5)(B).

The Love Agreement does not provide for liquidated damages. Therefore, the proper inquiry is whether Florida law makes a monetary remedy a substitute for compliance with a covenant not to compete, where the parties did not provide for such in their agreement. The applicable Florida statute does not address the issue of whether money damages are an alternative to injunctive relief.

OMG relies upon Bradley v. Health Coalition, Inc., 687 So.2d 329 (Fla.Dist.Ct.App. 1997), where a former employee argued that the existence of a liquidated damages clause precluded enforcement of a covenant not to compete by injunctive relief. The Florida appellate court rejected this argument and held that an injunction may be granted to enforce the covenant even though the agreement contains a liquidated damages provision for breach of the duty, unless the parties expressly provide that the liquidated damages may substitute for performance of the duty. Therefore, it appears under Florida common law that the right to monetary damages is not an alternative to injunctive relief unless so provided expressly by the parties. See, also, In re Peltz, 55 B.R. 336 (Bkrtcy. M.D. Fla. 1985).

Because the Love Agreement does not contain a liquidated damages provision, the parties did not provide a monetary remedy as an alternative to injunctive relief. Therefore, the Court finds, upon applying Florida law, that Mr. LOVE may not escape compliance with the covenant not to compete by paying money to OMG. OMG'S right to an injunction does not give rise to an alternative right to payment of monetary damages. OMG'S right to enforce the covenant against Mr. LOVE, on a prospective basis, is not a "claim" for bankruptcy purposes.

The burden of proof now shifts to Mr. LOVE to show why the motion for relief from stay should be denied, notwithstanding that OMG'S right to enforce the covenant is not a "claim" dischargeable in bankruptcy. Following the Udell analysis, the inquiry next proceeds to the application of the Pro Football Weekly factors. In this context, the Court will first address the defenses raised by Mr. LOVE. In his brief filed February 6, 2001, at pp. 31-39, Mr. LOVE asserts seven arguments why OMG'S motion should be denied.

The standard to be applied to a consideration of these "defenses" is nebulous at best. Mr. LOVE bears the burden of persuasion, but at what level? In deciding on the appropriate standard the Court must take into consideration the fact that lift stay proceedings are meant to be summary in character and do not usually involve a full adjudication on the merits of claims, defenses or counterclaims. This is particularly true where stay relief is sought to continue pending litigation requiring the application of a foreign state's law to relatively complex factual disputes.

Under these circumstances, this Court believes it appropriate to apply a standard akin to the standard for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. If Mr. LOVE shows that there is no genuine issue of material fact and that OMG'S claim for injunctive relief fails as a matter of law, then stay relief should be denied.

The first two defenses asserted by Mr. LOVE relate to the assignment of the Love Agreement from FFI to OMG. OMG submitted the affidavit of its President, Kevin Smyth. Mr. Smyth states that FFI sold and assigned the Love Agreement to OMG as part of an asset purchase in December, 1995. Mr. LOVE, in his affidavit, states that he never consented to assignment of the Love Agreement to OMG, and that OMG failed to obtain a written assignment from FFI. Mr. LOVE argues that the Love Agreement does not authorize it to be assigned by FFI and that the asset purchase agreement is only an agreement to assign not effective until a separate written assignment is executed and delivered. Therefore, argues Mr. LOVE, OMG has no standing to enforce the Love Agreement or the covenant not to compete. Mr. LOVE cites no authority in support of these arguments.

As OMG points out, Mr. LOVE was aware of the assignment to OMG and did not object. Nor did he exercise his right to terminate the Agreement. Rather, Mr. LOVE continued to work with OMG for several years after OMG took over from FFI. Mr. LOVE also claims, and OMG disputes, that the Agreement was substantially modified by oral agreement between Mr. LOVE and OMG representatives, to the extent that the parties were actually operating under an entirely new arrangement not evidenced by the Love Agreement.

Even if the Agreement was not properly assigned, there is an issue whether Mr. LOVE waived or is estopped from now objecting to the assignment to OMG that occurred in December, 1995. The alleged oral novation and cancellation of the Love Agreement is also materially disputed by OMG as a matter of fact and law. Under these circumstances, the Court cannot conclude that there is no genuine issue of material fact or that Mr. LOVE is entitled to prevail on his theory of lack of standing as a matter of Florida law.

Mr. LOVE also argues that the Love Agreement is a personal services contract not assignable without his consent. After reviewing the parties' briefs, this Court is of the opinion that the Love Agreement is almost certainly not a personal services contract under Florida law. Ordinarily, a personal services contract involves unique skills such as an artist or a master craftsman might provide. Mr. LOVE was one of many franchisees and his skills do not appear to rise to that level. Further, it is this Court's understanding that the prohibition against assignment of a personal services contract generally applies to an assignment by the service provider. Here, the assignment is by the recipient, FFI, of the alleged personal services of Mr. LOVE. Mr. LOVE has cited no authority that persuades this Court that the Love Agreement was a non-assignable personal services contract. The Court finds that Mr. LOVE has not carried his burden on this issue.

The third argument raised by Mr. LOVE is that the covenant is unenforceable because it is not reasonable as to its term and area of coverage. The covenant runs for a term of three years after termination of the Love Agreement. It lacks a geographic limitation. The applicable Florida statute requires covenants to be "reasonably limited" as to time and area. As pointed out by OMG, Florida law does not mandate that a covenant that is unreasonably long or overbroad be declared void. Rather, Florida courts should reduce the time or area to something reasonable and enforce the reduced restriction. Health Care Financial Enterprises, Inc. v. Levy, 715 So.2d 341 (Fla.Dist.Ct.App. 1998).

OMG alleges that Mr. LOVE is presently violating the covenant by participating in the publication of a similar, competing magazine called "Heartland Outdoors" in the State of Illinois. If the covenant is found to be enforceable, it is likely that the district court would enforce it in the States of Illinois and Iowa, the territory formerly covered by Mr. LOVE for OMG. This Court has no basis to find that the three year term of the covenant is unreasonably long. Even if it is, the district court may enforce a shorter term. Accordingly, Mr. LOVE has failed to carry his burden on this issue.

Mr. LOVE'S fourth argument is that the covenant is unenforceable because one of the statutory requirements is not met, that OMG continue to do business in the subject territory, Illinois and Iowa. The statute provides that a covenant not to compete is enforceable within a reasonably limited area, only so long as the employer or licensor "continues to carry on a like business therein." OMG admits that it is not presently publishing a magazine in Illinois or Iowa. OMG'S position is that since Mr. LOVE is violating the non-compete clause, and has usurped the old advertisers to support his new magazine, OMG is effectively prevented by Mr. LOVE'S wrongful conduct from publishing in Illinois.

Mr. LOVE asserts that OMG could obtain a new franchisee in Illinois or Iowa but simply has chosen not to do so. He contends that since the applicable statute does not contain an exception to the "carry on a like business therein" requirement, that this Court should interpret it literally, without exception.

The Court notes that the applicable statute was amended by the Florida legislature in 1996 to now provide that a court may consider whether the failure to carry on business in the area is a result of the violation of the restriction. Fla. Stat., Section 542.335(1)(g)(2)(1996). Whether the amend-ment was intended to codify existing common law, to overrule contrary precedent, or to simply clarify an ambiguous provision is unclear.

Neither party cites any case authority in support of their position. Because Mr. LOVE has the burden of proof on this issue, this Court finds that he has failed to carry his burden. It is entirely plausible that the 1980 version of the Florida statute should be construed to permit the district court to consider whether Mr. LOVE'S violation of the restriction caused, and should therefore excuse, OMG'S failure to carry on business in the subject area.

In addition to this statutory uncertainty, this is also an issue that is inherently fact-based. For example, the length of time that has elapsed since the Love Agreement was terminated and the efforts made by OMG to start up a new franchise are material issues of fact. Since Mr. LOVE has not cited any authority on these points, it would be mere guesswork for this Court to predict how a Florida court would construe the statute.

The fifth defense raised by Mr. LOVE relates to his status with Heartland Outdoors. Mr. LOVE states that he is no longer engaged in publishing but is a mere employee of Heartland Outdoors. His wife is the sole shareholder, sole director, and president of Heartland Outdoors, Inc., the corporation that publishes the new magazine. Mr. LOVE is employed only as an advertising salesperson.

OMG states that the Debtor's title or formal status with Heartland Outdoors is not dispositive. OMG claims the Debtor is still integrally involved in producing substantially the same magazine as Illinois Fish Game Finder under the new name "Heartland Outdoors." It appears from the record before this Court that the new magazine "Heartland Outdoors" is substantially similar to "Illinois Fish Game Finder." It appears to be directed to the same target population and many, if not most, of the advertisers are the same.

Under the terms of the covenant, Mr. LOVE is prohibited from engaging in a similar business. The relationships with advertisers might be the most valuable asset that OMG seeks to protect through the covenant. The Court cannot conclude as a matter of Florida law that Mr. LOVE is not engaging in a competing business by working as an advertising salesperson for Heartland Outdoors. Mr. LOVE has not carried his burden on the fifth defense.

The sixth defense raised by Mr. LOVE is that he has been excused from honoring the covenant not to compete because of OMG'S material breaches of its obligations under the Love Agreement. The alleged breaches by OMG relate to the poor quality of the magazine published by OMG and the wrongful termination of the Love Agreement by OMG in February, 2000. OMG denies that it breached the Agreement. Whether OMG breached the Love Agreement and, if so, whether the breach rose to a level sufficient to excuse future performance by Mr. LOVE are inherently fact-specific issues that should be decided at trial. The Debtor's burden on the sixth defense is not satisfied.

The Debtor's seventh and final defense to stay relief is that OMG has not demonstrated a probability that it will prevail on the merits of the Florida suit. The Debtor prefaces his argument on this point by positing that Udell supports the proposition that a party seeking to enforce a covenant not to compete may reasonably do so after the bankruptcy case is over, unless the movant demonstrates a probability of prevailing on the merits. While Mr. LOVE correctly recites the third factor of the three-part test set forth in Pro Football Weekly, this Court disagrees with the suggestion that enforcement after bankruptcy of a covenant not to compete is an acceptable alternative for the movant. It is not necessary to look to Florida law to recognize that the utility of a covenant not to compete decreases in direct proportion to the time elapsed during which prohibited competition occurs.

The Debtor's Chapter 13 Plan, if confirmed, and the accompanying automatic stay, could last for up to five years. The relationship between OMG and customers, advertisers and distributors sought to be protected by the covenant, would be ancient history, relatively speaking, at the conclusion of a Chapter 13 Plan. This Court is cognizant that the right to enforce a covenant not to compete, to be meaningful, must be exercised promptly, usually through an injunction action such as provided for under Florida law. Since the Debtor's seventh defense goes to the third Pro Football Weekly factor, the Court will address it after addressing the first two factors.

The first factor is whether any great prejudice to the Debtor or the estate will result from continuing the Florida suit. Continuation of the suit will almost certainly require Mr. LOVE to pay additional attorney fees. More significantly, if Mr. LOVE is enjoined from continuing his current employment with Heartland Outdoors, his Chapter 13 case will almost certainly be dismissed or converted, resulting in great prejudice to his Chapter 13 bankruptcy estate which includes post-petition earnings to the extent necessary to fund the Plan. On the other hand, if the Debtor prevails in the Florida suit and the covenant is held unenforceable, the estate and the Debtor will realize a substantial benefit.

The second factor is whether the hardship to OMG, by continuing the stay of the Florida suit, considerably outweighs the hardship to the Debtor if the suit is allowed to continue. For the reasons stated earlier, the value of the covenant, if enforceable, will be eviscerated if the Florida suit is not continued presently. The Court finds the loss of the value of the covenant to OMG by staying the Florida suit for three to five years considerably outweighs the hardship to the Debtor by allowing the suit to continue.

The third factor is whether OMG has a probability of prevailing on the merits of the Florida litigation. In his seventh defense, the Debtor suggests that the Court should weigh the evidence using a preponderance standard and deny OMG'S motion if the Court finds that the Debtor has demonstrated a probability of prevailing on any of his first six defenses. This Court disagrees. The Pro Football Weekly factors are not independent elements of a three-part test, each of which must be satisfied in order for the movant to prevail. Rather, the three factors are guideposts that a bankruptcy court should follow and apply in light of all of the facts and circumstances surrounding the motion. If one or even two of the factors militate against stay relief, the Court could still grant relief in light of all of the facts and circumstances.

This Court has already found that none of the first six defenses raised by Mr. LOVE enables the Court to conclude that he must prevail as a matter of law. This is not to suggest that he won't prevail on one or more of the defenses in the district court at trial. Rather, the Court's finding is the result of the summary judgment-like standard that must be applied to OMG'S motion for relief from the automatic stay and the Debtor's defenses.

The bottom line on application of the third factor is that this Court is simply not in a position to predict which party is more probable than not to prevail in the Florida suit. That determination will only be possible in hindsight when a judgment is returned after a trial on the merits. It is sufficient for purposes of OMG'S motion however, for this Court to find that OMG has survived "summary judgment."

Since OMG has made its prima facie case for enforceability of the covenant and has fended off the defenses raised by the Debtor, this Court finds that "cause" exists to grant OMG'S motion in order to allow the Florida suit to proceed. While the Debtor will experience some hardship from having to return to Florida and pay counsel to represent him, this hardship is considerably outweighed by the effective loss to OMG of the benefit of the covenant if the stay continues. And while the Court cannot say that OMG has a "probability" of winning the Florida suit, it has met its burden of establishing a prima facie case for the enforceability of the covenant and the Debtor has not met his burden of proving a viable defense as a matter of law.

In deciding to modify the stay, the Court has also placed weight upon the fact that the issues in the Florida suit must be determined under Florida law, that the Florida suit was on the verge of a Preliminary Injunction hearing when the bankruptcy was filed, and that the enforceability of a covenant not to compete is not an issue routinely heard by bankruptcy courts.

For these reasons the automatic stay should be modified to permit OMG to continue the Florida suit to determine whether the covenant is enforceable against Mr. LOVE and, if so, its scope. If an injunction is entered by the district court, the stay should be further modified to permit OMG to seek to enforce it.

OMG also seeks relief from the stay in order to liquidate its damages claim against the Debtor in the Florida suit without taking any collection action. The Debtor also has a counterclaim pending for damages against OMG. Contract damages are an issue of Florida law. The evidence that will be presented on the injunction claim and Mr. LOVE'S defenses thereto, will also likely be relevant to the issue of damages. Therefore, in the interest of judicial economy and economy of resources for the parties, the automatic stay should also be modified to permit OMG'S damages claims to be adjudicated and, if allowed, to be liquidated and reduced to judgment, with collection stayed.

This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

ORDER

For the reasons stated in an OPINION filed this day, IT IS HEREBY ORDERED:

1. The motion by Outdoor Media Group, Inc. (OMG) for relief from the Automatic Stay is GRANTED.

2. The Automatic Stay provided by 11 U.S.C. § 362 is hereby modified to allow OMG to litigate against the DEBTOR, in the United States District Court for the Middle District of Florida in Civil Action No. 99-CV-754, its claim for enforcement of the covenant not to compete through injunctive relief.

3. The Automatic Stay is further modified to permit OMG to assert and liquidate in the same lawsuit its claim for damages against the DEBTOR; however, the Automatic Stay remains in effect as to any action to collect any damages awarded.

4. The Automatic Stay is further modified to permit OMG to defend against any counterclaims asserted by the DEBTOR in the lawsuit.

5. Upon issuance of a decision by the United States District Court for the Middle District of Florida on OMG'S Motion for Preliminary Injunction, the prevailing party shall file a copy of that decision with this Court.


Summaries of

In re Love

United States Bankruptcy Court, C.D. Illinois
Mar 9, 2001
No. 00-83615 (Bankr. C.D. Ill. Mar. 9, 2001)
Case details for

In re Love

Case Details

Full title:IN RE: WILLIAM R. LOVE, Debtor. OUTDOOR MEDIA GROUP, INC., Movant, v…

Court:United States Bankruptcy Court, C.D. Illinois

Date published: Mar 9, 2001

Citations

No. 00-83615 (Bankr. C.D. Ill. Mar. 9, 2001)

Citing Cases

Aire Serv LLC v. Roberts (In re Roberts)

The Udell standard remains, to this day, the standard for considering whether a covenant not to compete is a…