Benchnotes Apr 2001
Benchnotes Apr 2001
Franchise Agreement Rejection Does Not End Debtor's Obligation
In Sir Speedy Inc. v. Morse, 256 B.R. 657 (D. Mass. 2000), District Judge Gorton addressed an issue raised by a franchisor seeking relief from the automatic stay in order to enforce its rights under a non-compete clause in a franchise agreement with the chapter 7 debtor. It was uncontested that the franchise agreement had been rejected as a result of the debtor's failure to assume. However, the court held that rejection of the franchise agreement did not terminate the debtor's obligation under the non-compete clause, noting that the very purpose of the covenant is to govern the relationship between the parties after the demise of the underlying contract. Further, the court held the right to enforce that the non-competition provision is not a "claim" under §105(5)(b).
Recoupment Against Fraudulent Transfer Not Applicable
In In re Rand Energy Co., 256 B.R. 712 (Bankr. N.D. Tex. 2000), Bankruptcy Judge Steven A. Felsenthal addressed a complaint brought to recover a pre-petition overpayment. The debtor had originally brought a motion to compel turnover of the overpayment and belatedly asserted a fraudulent transfer claim. The court, having reviewed the standards of the Fifth Circuit for amendment, allowed the fraudulent transfer claim to be prosecuted. The court found that it was uncontested that the defendant had overpaid two invoices for services in connection with the drilling of the Dyess Well. Apparently, it was also uncontested that after the bankruptcy filing, the defendant discovered the overpayment and, rather than returning funds to the debtor, applied the overpayment to pre-petition and post-petition services on the Williamson Well. The defendant tried to argue that the transfer should be treated like a retainer or a deposit. Unfortunately, under these facts, neither party realized the overpayment was made and, therefore, neither party intended to treat it as a deposit on services related to a different well or as a retainer against generalized future services. Accordingly, the court found there was no general issue of material fact of value and that the debtor did not receive any value for the transfer of funds as a result of the overpayment. The defendant moved for set-off. Relying on Mack v. Newton, 737 F.2d 1343 (5th Cir. 1984) and In re J.R. McConnell Jr., 934 F.2d 662 (5th Cir. 1991), which support the proposition that a creditor cannot set-off the value of property deemed transferred as a fraudulent conveyance against its pre-petition claim, the court deemed the relief requested. However, those cases do recognize the right to recoup against a fraudulent transfer. However, in this case, the defendant had not alleged a recoupment, and there were separate contracts for the two wells. Thus, recoupment would not be applicable. Finally, the court did rule in favor of the defendant, finding that the administrative claim for the post-petition well services would not be subject to disallowance under §502(d).
Miscellaneous
- In re Kitty Hawk Inc., 255 B.R. 428 (Bankr. N.D. Tex. 2000) (claims under Worker Adjustment and Retraining Notification Act (WARN) for failure to provide allegedly requisite 60-day notice prior to laying employees off one or two days before chapter 11 filing arose pre-petition and are not entitled to priority under §507(a)(3));
- In re Seddon, 255 B.R. 815 (Bankr. W.D.N.C. 2000) (Civil Service Retirement System (CSRS) benefits are excluded from the bankruptcy estate of the federal employee/plan participant, and such exclusion also applies to benefits payable to a plan participant's ex-spouse pursuant to a marital property settlement);
- In re Kayes, 255 B.R. 819 (Bankr. E.D. Va. 2000) (as ERISA-qualified plans do not become part of the bankruptcy estate, the Internal Revenue Service cannot claim to be secured because it has an alleged lien on such property);
- In re Petrucci, 256 B.R. 704 (Bankr. D. N.J. 2001) (non-dischargeable complaint constituted "informal proof of claim" as being in the nature of a written demand on estate that was filed with the bankruptcy court and expressed intent to hold debtor liable); and
- In re Southern Cinemas Inc., 256 B.R. 520 (Bankr. M.D. Fla. 2000) (statutory cap on claim of lessor for damages resulting from termination of lease applies to claims against debtors/lessors and against debtors/ guarantors).