Michigan Bankruptcy Blog

Action for Injunctive Relief is Not "Claim" Subject to Discharge For Purposes of Obtaining Relief From the Automatic Stay

In re Hillenbrand, Bankr. E.D. Mich., Feb. 4, 2010 (Case No. 09-75574, Hon. Steven Rhodes).

Although the commencement of a bankruptcy case usually stays a pending state court action against the debtor, a recent decision of the Bankruptcy Court for the Eastern District of Michigan concluded that the stay does not preclude an action seeking an injunction.

Before filing bankruptcy, the debtor sold his chiropractic business and entered into a covenant not to compete with the purchaser. The purchaser filed an action in state court to enforce the covenant after the debtor allegedly began soliciting and treating patients of the chiropractic business.

After the debtor filed bankruptcy, the purchaser sought relief from the automatic stay to enforce the covenant not to compete. The purchaser argued that it was not seeking to enforce a "claim" because it was not requesting money damages – only injunctive relief. The debtor opposed the motion, arguing that because damages were available under state law for breaching the covenant not to compete, the purchaser was pursuing a "claim" that was subject to discharge, and relief from the automatic stay was not proper.

The bankruptcy court relied on the Sixth Circuit's decision in Kennedy v. Medicap Pharmacies, Inc., 267 F.3d 493 (6th Cir. 2001), which held that the right to injunctive relief does not equate to a "claim" unless "compliance with the equitable order will itself require the payment of money." Id. at 497. Here, the purchaser was seeking only an injunction, not monetary damages, and thus the court held that the purchaser was entitled to relief from the automatic stay. 

Categories: 6th Circuit Court of Appeals, Chapter 7, Western District of Michigan