Bankruptcy Filing May Not Prevent Enforcement of Non-Compete Against Franchisee

This issue ' whether a non-competition covenant violation by a bankrupt franchisee can be remedied by a “claim” for money damages, or whether it can be addressed only through an equitable remedy such as an injunction ' has arisen frequently in bankruptcy cases and is important for a number of reasons. First, the characterization of a franchisor's cause of action will often determine the forum in which it is heard. Second, timing can be affected by the characterization of the claim. A claim for money damages addressed as part of the bankruptcy claims process may take a year or more to resolve, while an action for an equitable remedy usually can proceed immediately in the outside forum. Third, the franchisor's recovery on a claim for money damages resolved in the bankruptcy claims process typically may be heavily discounted to “cents on the dollar,” depending on case specifics. An equitable remedy, on the other hand, typically will be fully enforceable outside the bankruptcy process.