Non-Compete Provision Discharged Through Bankruptcy

A bankruptcy court in Texarkana, Texas held that breaches by two debtor-franchisees of a non-competition covenant in their franchise agreement with a print shop franchisor qualified for discharge through bankruptcy.  As the court noted, in addition to equitable remedies such as injunctive relief, Michigan law (under which the franchise agreement was governed) allowed for the award of monetary damages as compensation for violation of a non-competition agreement.  Because monetary damages were an available remedy, the court reasoned, the breach of the covenant qualified as a dischargeable “claim” in a bankruptcy scenario.

Allegra Network, LLC v. Ruth, No. 10-50184, Bankr. Ct., E.D. TX (January 10, 2013)

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