In re Ward
|16 April 1996
|Bankruptcy No. 95-45186. Adversary No. 96-4037.
|194 BR 703
|In re Michael E. and Angela L. WARD, Debtors. The MAIDS INTERNATIONAL, INC., Plaintiff, v. Michael E. and Angela L. WARD, Defendants.
|U.S. Bankruptcy Court — District of Massachusetts
COPYRIGHT MATERIAL OMITTED
Peter Knox, Shirley, MA, for Maids International Inc.
Andrew G. Lizotte, Hanify & King, Boston, MA, for Michael E. Ward, Angela L. Ward.
Seeking to enforce a noncompetition clause in its franchise agreement, The Maids International, Inc. ("Maids") has brought this complaint to enjoin Michael E. Ward and Angela L. Ward (the "Debtors") from owning or operating a maintenance and cleaning service within a fifty mile radius of the franchised territory. Maids contends neither the Debtors' bankruptcy filing nor rejection of their covenant not to compete affects its right to an injunction against the Debtors' competition. I am thus faced with the question of whether Maids' right to injunctive relief is a "claim" within the meaning of the Bankruptcy Code and hence subject to being discharged. At the hearing on Maids' motion for a temporary restraining order, I ruled its right to an injunction is a claim. I therefore dismissed the complaint and ordered Maids to file a proof of claim, reserving jurisdiction to issue the present opinion. Set forth here are my findings of fact and conclusions of law in support of the order of dismissal.
The facts are not in dispute. Maids has developed a system for establishing and operating a household maintenance and cleaning service. Having a principal office in Omaha, Nebraska, Maids franchises its rights in the system to numerous parties throughout the United States.
On April 10, 1989, Maids signed a franchise agreement with a corporation owned and operated by the Debtors named Award Services, Inc. ("Award"). In addition to signing on behalf of Award, the Debtors signed the agreement personally as guarantors of Award's performance thereunder. The agreement also includes the Debtors within the meaning of the term "Franchise", thereby making them jointly responsible with Award. Under the agreement, Maids gave Award the exclusive right to use its system and the name "Maids" in Concord, Massachusetts and in several nearby towns. In return, Award paid Maids $15,900 and obligated itself (and the Debtors) to pay Maids a royalty based on a percentage of its gross sales at rates which range from 4.5% to 7%, depending upon the amount of weekly gross sales. The agreement was for an initial term of five years.
The following provisions of the franchise agreement are of relevance to the present proceeding:
The franchisee agreement expired on April 9, 1994, the end of its five year term. Thereafter, the Debtors commenced operation of a cleaning service within the franchised territory. They operate the business under the name "Mops" and do not hold themselves out as operating a franchise of Maids.
Maids responded to this competition with a series of legal actions. It first commenced an arbitration proceeding in Omaha with the American Arbitration Association. This was uncontested by the Debtors. On March 31, 1995, the arbitrator awarded Maids damages (including interest) of $29,232. He also ordered the Debtors to cease and desist the ownership or operation of a maintenance and cleaning service until April 9, 1996, within a radius of fifty miles from the franchised area or within a radius of fifty miles from any Maids franchise existing on April 9, 1994. Maids then brought suit in the District Court of Douglas County, Nebraska. On July 20, 1995, that court entered a default judgment against the Debtors in the sum of $61,056. Apparently this was in part a confirmation of the arbitration award. At no time has any court entered an injunction against the Debtors competing, in confirmation of the arbitration award or otherwise. Maids next brought its attack closer to home. On November 1, 1995, it filed suit on the judgment in the District Court of Concord, Massachusetts. That court authorized attachments of the Debtors' residence and bank accounts.
Shortly thereafter, on November 13, 1995, the Debtors filed a petition with this court requesting entry of an order for relief under chapter 7 of the Bankruptcy Code. Undeterred, Maids on January 25, 1996 filed its complaint commencing the present adversary proceeding. In its complaint Maids requested an injunction against the Debtors owning or operating a maintenance and cleaning establishment within a fifty mile radius of the franchised territory. At the same time, Maids filed a motion for a temporary restraining order and asked for an emergency hearing. At the hearing on February 5, 1996, I denied the motion, dismissed the complaint and ordered Maids to file a proof of claim. Maids thereafter filed a proof of claim within the permissible filing period.
The franchise agreement states it shall be "interpreted and construed" under the law of Nebraska, which the agreement says is where Maids accepted it.1 Contracting parties may stipulate as to the jurisdiction whose law shall govern their contract, particularly when one of them has a place of business in the named jurisdiction or the contract was executed there.2 In any event, for our purposes the laws of Nebraska, Massachusetts, and elsewhere are essentially the same as to the validity and enforceability of the Debtors' covenant not to compete.
Covenants not to compete are often made by sellers of...
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