-1- By order of the Bank

ruptcy Appe llate Panel, the prec edential effec t of t his de c isi on is l im ite d to thec as e an d p ar tie s p ur su an t to 6th C i r
. B A P L B R 8 0 1 3 -1 (b). S

ee a l s o 6 th C i r
. B

A P L B R 8 0 1 0 -1 (c).
F ile Nam e: 08b0013n.06
BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT
I n re: B RUCE AND SHEREE GI L PI N, ) ) De bto rs
. ) __________________________________ ) ) MCS AC QUI SI TI ON CORP. d/b/a ) No. 07-8031 MOBI L E CONTAI

NER SERVI CE, ) ) Ap pe lla nt, )

) v. ) ) BRUCE GI L PI

N AND SHEREE GI L PI

N, ) ) Ap pe lle e s. ) __________________________________ )

Appea l from the United States B ankruptc y Court for the N orthern D istrict of Ohio, Easter n Division. No. 07-40471 Argued: May

13, 2008
Dec ided and F iled: J uly

17, 2008
B e fo re : F UL TO N, PAR SON S, a nd SCO TT , B ank

ru ptc y Ap pe llate Pane l Judg e s.

_____________________ CO UN SEL
ARG UED: J onathan P. Blakely , BERNL OHR WERTZ, L .L .P., Akron, Ohio, for Appellant. F rank X. Gre sley , L AW OFF I CE OF F RANK X. GRESL EY, Parma, O hio, for Appe llees. O N B RI E F: J onathan P. B lakely , BERNL OHR WERTZ, L .L .P., Akr o n , O h io , K e v in T

. Fog erty , L AW OFF I CES-2-

OF KEVI N T. F OGERTY, Allentown, Pennsylvania, for Appellant. Frank X . Gre sley , L AW OF F I CE O F F RA

NK X. GR ESL EY , Pa

rm a , O hio , f

or Ap pe lle e s.

____________________ OP IN ION

____________________

TH OM AS H . F UL TO N, B ank ru ptc y Ap pe llate Pane l Judg e . M CS A c qu isi tio n Co rp . d /b/ a Mobile Container Service (“MCS”) a ppeals the ba

nkruptcy cou r t’ s o r d e r d e ny in g it s motion for relief fr om t he a uto matic sta

y in t he ba nk ru ptc y c a se of B ru c e and She re e Gi lpi n. MCS sou g ht r e lie f t o enfor ce in Pennsylvania state c ourt a p re v i o usly issued injunction enjoining Mr. Gilpin from vio l a t i n g a n o n c o mp e t i t i o n a g r e e m e n t

. B e c a u s e w e c o n c l u d e t h a t t h e b an kr u p t c y c o u rt e r

r e d in concludingthat the equitable r ight to enf orce the noncompetition ag ree ment was a claim under 11 U.S.C. § 101(5)(B ) and in fa iling to g ive full faith and c redit to the state c ourt’s determination that the ag ree ment was re asonable , we r ever se and r emand.
I. ISS UES ON APP EAL The issues pre sented on a ppeal a re (1) whe ther the ba

nkruptcy court a bused its discretion wh e n it a dju dg e d th a t MC S’ s e qu ita ble ri g hts un de r the c ov e na nt not to co mpe te c on sti tut e d a c la im under 11 U .S.C. § 101(5)(B ); and (2) whether the bankruptc y court abused its discr etion in failing to give full faith and c redit to a prior state court order that adjudg ed the terms of the cove nant to be

rea sonable.

II. JU RI SDI CT ION AN D ST AN DA RD OF RE VI EW
The Bank r u p tc y A p p e ll a te Pa

n e l o f th e Si xth Ci r c u it ( “ B A P” ) h a s ju

r is d ic ti o nto h e ar

and decide this a

ppeal. 28 U.S.C. § 158(b)( 1). The United States District Court f or the Northe rn District of Oh io h a s a

uth or ize d a

pp e a ls t o the BA P , and nei the r p art y to t his a pp e a l ha s e le c te d to have it hear d by the district court. 28 U.S.C. §§ 158(b)( 6), (c )(1)

. A party may appea l a bankruptc y

court’s fi na l ord e r as a matte r of ri g ht. 28 U. S.C. § 158 (a )( 1)

. An or de r d e nyingsta

y re lie f u nd e r 1 1 U .S. C.-3-

§ 362(d) is a f

inal order for pur poses of 28 U.S.C. § 158(a) (1). In re Sc ha ffrath , 214 B.R. 153, 154 (B .A.P. 6th Ci r. 1997).
Three standards of

revie w apply

in this case
. L eg al conclusions are revie wed de novo ; fac tual finding s are revie wed f

or cle ar e rror ; and the denia l of a motion for re lief fr om the automatic stay “for cause ” under

11 U.S

. C

. § 3 6 2 (d )(1) is an equitable de termination revie wed f or an a buse of dis c re tio n. F e d. R. B ank

r. P. 8 01 3; Am e riC

re dit Fi n. Se rv s. , I nc . v . Ni c ho ls (

In re Nic ho ls) , 440 F.3d 85 0, 85 6 ( 6th

Cir . 2 00 6) ; Spierer v. F

ederate d Dept. Stores, Inc . ( In re Fede rated Dept. Stores, Inc .) , 328 F.3d 829, 832, 836 (6th Cir. 2003)

. An abuse of discretion occur s when a bankrup t cy co urt “re lies on clea

rly err oneous finding s of fa ct , o r wh en it improperly applies the law

or uses a

n
er ro n eo u s l egal standard.” Lorain N AACP v. Lorain Bd. of Educ , 979 F.2d 1141, 1148 ( 6th Cir. 1992) (inter

nal quotations omitt ed).

III . F AC TS MCS p ur c ha se d M ob ile Con ta ine r S e rv ic e , Inc . ( “ Mo bil e ” ) a s an o ng oin g bu sin e ss fr om i ts

so le sh are ho lde r, Mic ha e l Sis se lbe rg e r ( “ Siss e lbe rg e r” ) o n M arc h 2 5, 20 02 . H e a dq ua rt e re d in Al le nto wn , Pe nn sylva

nia , M ob ile pr ov ide d s e rv ic e s ma int a ini ng , r e pa ir ing , a nd re fu rb ish ingwa ste

c on ta ine rs to cl ie nts in P e nn sylva nia , N e w Je rs e y , a

nd De lawa re , w ithmin or

bu sin e ss a c tiv iti e s in New Y ork and Ma

ryland. I n o rd er t o eff

ectuate the purc hase a s an ong oing ope ration, seve ral of Mo bil e ’s ke y

e mpl oy e e s, inc lud ingSiss e lbe rg e r a nd B ru c e Gi lp in (t he “ De bto r” ), we re to r e ma in employ ed by Mobile (under new owner ship) and sign noncompetition a g ree ments. The a g ree ment

s i gn edb y t h e D eb t o r s t at edi np er t i n en tp ar tt h e f o l l o wi n g: 2. NO NC OM PET I TI ONAN D N ON SOL I CI TA TI ON - I n c on sid e ratio n of [MCS’ s] e mpl oy me nt, [De bto r] a g re e s th a t: ( a ) F o r a p e r io d o f tw o ( 2 ) y e ar s a f

te r [th e D e b to r ] c e a s e s e mp lo y me n t w it h [M CS ], f o r w h a t e v e r r e a s o n , w h e t h e r

v o l u n t ar i l y o r

i n v o l u n t ar i l y: (i) [The D ebtor] w ill not, direc tly or indirectly , eng ag e or inves t i n , o wn, mana g e , o pe rate , f

ina nc e, con tr ol o r p art ic ipate in t he ow ne rs hip , ma

na g e me nt, operation, financingor control of , be employ ed by , associate d with or i n any manner c onne c te d w ith , o r r e nd e r s e rvice s o r a dv ic e or oth e r a id t o, any

pe rs on or e nti ty eng ag ed in or planningto become eng ag ed in the repa ir, ref urbishing, or maintena

nce of wa ste re fu se c on ta ine rs , a ny wh e re wi thi n a

10 0 mi le ra diu s o f b oth

Al le nto wn , PA-4-

or any wh e re else in P e nn sylva nia , D e lawa

re , o r N e w Je rs e y

wh e re [MCS] is re pa ir ing , r e fu

rb ish ing , a

nd ma int a ini ngwa ste re fu se c on ta ine rs
.

. . . . (b) In the event of a brea ch by [t he Debtor] of any covena nt set forth in Subsection 2(a) above, the term of such covenant wil l be ex tended by the per iod of the duration of such br eac h. . . . 3. Th is a g re e me nt s ha ll be go ve rn e d b y Pe nn sylva

nia law. I n c onne c tio n w ith enfor cing this Ag ree ment, [MC S] may seek injunctive or equitable r elief, in a ddition to d a ma g e s, and

[MCS] sh a ll b e enti tle d to re a so na ble a tto rn e y s’ fe e s sh ou ld i t preva il, either in part or

in whole. (J.A . a t 14 0. ) A ft e r t

he c los ing on

Ma rc h 2 5, 20 02 , th e De bto r r e ma ine d e mpl oy e d b y MCS unti l his resig nation on J une 6, 2003. Subsequently , MCS became a war e of business a ctivities it believed amounted to violations of the nonc ompetition agr eeme nts. Consequently , MCS sued t he Debtor and others in the C ourt of Com mo nP l e a s o f

L e h i g h C o u n t y , P e n n s y l v an i a ( “ S t a t e C o u rt ” ) , s e e k i n g d a m a g e s an d e qu i t a ble relief for the a lleg ed bre ach of the noncompetiti on ag ree ments. After a seve ral-da

y bench tr ial, the State Court issued a thirty -five pag e verdic t on Fe bruar y 24, 2006, detailing its finding s of fa ct and conclusions of law . The State Court found that the Debtor and the other defe ndants had violated the noncompetition ag ree ments by forming Professional Container Ser vices, Inc. (PCS), an entity that eng ag ed in the same business as M CS and within t he same g eographic are a prosc ribed by the

no nc omp e tit ion

a g re e me nt. Th e State Cou rt a lso fo un d that a ft e r P CS c e a se d d oin g bu sin e ss i n Aug ust or September 2004, the Debtor star ted another

company , Gilpin W elding and Repa ir, which

was e ssentially

a continuation of the business of PCS , operating within t h e s am e p ro h ibited are a. The State Court conc luded that the noncompe tition agr eeme nts were rea sonable, a nd that MCS had no adequate re medy

at law. ( J .A. at 100-01.)
On J uly 25, 2 0 0 6 , t he State Court enter ed judg ment ag ainst the Debtor, a war ding compensatory damag es, puni tive damag es and attorney s’ fees, and perma nently enjoining him and the oth e r d e fe nd ants fr om v iol a tin g the ir no nc omp e tit ion

a g re e me nts wi th M CS. T he jud g me nt a lso contained a

decla ratory judgme nt that the restric tive coven ants in the Debtor’ s noncompetition

a g re e me nt w e re e xten de d u p thro ug h a

nd inc lud ingMay

6, 20 07 . The De bto r d id n ot f ile any po st-5-

judgme nt motions or appe als, and the judg ment ag ainst him became final. See M CS Acquisition Corp. v. Mobile Container Serv., I nc. , No. 2003-E- 61 (Pa. Ct. C. P ., L ehig h County J ul. 25, 2006) (J.A. at 66-106.).
On Marc h 7, 2007, the Debtor and his wife, She re e Gilpin, filed a pe tition for bankruptcy

re lie f u nd e r c ha pte r 7. On

Ap ri l 13 , 2 00 7, MCS m ov e d f or re lie f f ro m th e a uto matic sta

y , 1 1 U .S. C. § 362(d)( 1), alleg ing that the Debtor ha d continued to violate the nonc ompetition a g ree ment and

s ee k i n g leave to reque st that the State Court enforc e its J uly 25, 2006 order

by extending the inj un c tio n a g a ins t th e De bto r fo r an add iti on a l tw o- y e ar p e ri od . M CS sp e c if ic a lly state d in its motion that it was not see king to e nforc e any provision of the judg ment relating to an a war d of damag es nor wa s it seeking further monetary relief

. The De btor filed an obje ction to MCS ’ motion f or relief , and a he aringon the motion was conducte d on May

17, 2007. At the hea

ring , counsel for

the Debtor

argued that the injunction was a d i s ch ar geab l e c l ai m u n d er 1 1 U. S

. C

. § 1 0 1 (5 ) t h at h adex p i re d t wo we ek s p ri o r t o t h e h ea ri n g. Counsel also argued that substantial leg al fe es had be en incur red in the State Court a

n d t h at t he Debtor had suffe red unduly under the “stra ng lehold of some unre asonable noncompete a g ree ment which wa s . . . ext ended w ell past wher e it should have be en extended.” ( J .A. at 176.) On May 21, 2007, the bank ru p t cy co u rt enter ed an or der de nying MCS’s motion for stay relief . The c ourt’s orde r did not set forth the ba sis of its decision, but the s t atements made by the

c ourt a t th e c on c lus ion

of the May 17 , 2 00 7 h e ari ngind ic a te the c ourt ’s le g a l c on c lus ion s: Ig uess I ’m very

conce rned a

bout what MCS Acquisiti on Corp. is attempting to do here

. I t does appea

r t hat i t has a claim. I f t here has been a breac h of the judg ment that it o btained in Pennsy lvania, it seems like it can be quantified in some sort of monetary damag es. Th e inj un c tio n h a s e xpir e d, the e xten sio n o f t he jud g me nt, and

the purp os e o f a noncompe te ag ree ment is not to deprive the other party of the a bility to ear n a living, but is to protect the pa rties, such a s y our client, fr om unfair c ompetition. This sal e o c c u r

r e d in 2 0 0 2 o r 2 0 0 3

. I t is n o w 2 0 0 7

. I f th e r e h a v e been dama g e s fr om the br e a c h of that no nc omp e te , the y have a lr e a dy oc c ur re d. Oh io w ill on ly e nf or c e a no nc omp e te a g re e me nt if it is re a so na ble in dura

tio n and in g e og ra

ph icSubsequently , MCS di d file an adver sary proce eding ag ainst the Debtor on J une 15, 2007, 1 seekinga dete rmination of nondischar g eability of the damag es owe d to MCS by the Debtor under 11 U.S.C. § 523(a)(6) (willful and malicious injury ). -6- are a, and MCS appea

rs to want to ha

ve an injunction that g oes on indefinitely as long as it c an prove any violation at a ll of the orig inal noncompete, a nd Ihappen to a g ree with the debtor in this case , that this claim can be reduc ed to money damag es. I

think that the debtors will incur e x penses in trying to de fend the mselves. Your c omment that it failed to appea r or they failed t o ap p ear

in other hear ings r eally

only indicates that they may not ha ve been able to a ffor d to do so, and that puts them at a ver

y bad disadva

ntag e, that either the y

conce de that the injunction will be extended for a

nother two y ear s, if t h at ’s wh at y our client a sks for, or the y incur c osts. I t is not a z ero sum g ain her e. So, the re do e sn ’t

a pp e ar t o b e c a

us e to p ro vid e MCS A c qu isi tio n Co rp . w ith relief from stay . To the extent that y our client believes that there are rea sons, and I ’m not sure if this is stil l within the ap p l i ca ble statutory period, but y our client c an alway s file an a dversa

ry proce eding with respec t to the di s ch arge ability of its own debt, or the discha

rg e of the debtors in g ener al, which is what I ’m ac tually hear ing y ou argue with re spect to the hone st debtor. [1] S o i t i s n o t r e a l l y a t a d i s a dv an t a g e i f i t h a s g r o u n d s t o d o s o an d i ti s t i m e l y, and I hav e no t lo ok ed to se e wh e the r i t is sti ll t ime ly . T his is a n ‘ 07 c a se , s o it

is likely to be, but Idon’t know. So I ’m g oin g to d e ny

the mot ion , a

nd I ’m g oin g to a sk

de bto rs ’ c ouns e l to submit an order. This appea l timely

followed the c ourt’s ruling

.

IV . D ISC USS ION
A. Inj unc ti on a s “ Cl aim ” unde r 11 U. S.C . § 10 1( 5) (B ) Th e inj un c tio n is su e d b y the State Court

ha d n ot e xpir e d w he n th e Deb to r fi led h is ba nk ru ptc y pe tit ion , o r w he n M CS f ile d it s mo tio n f

or re lie f. Ac c or din g ly , f

or purp os e s o f t

his analy sis, the injunction order extending the terms of the noncompetiti on ag ree ment is deemed not to h a ve te rm inate d. 11 U. S.C. § 1 08 (c ); see also Y oung v. United States , 53 5 U. S. 43 , 49 , 12 2 S. Ct

. 10 36 , 1 04 0 ( 20 02 ) ( “ I t is ho rn bo ok law that lim itatio ns pe ri od s are c us tom a ri ly su bje c t to e qu ita

ble tolling, unless tolling would be inc onsistent with the tex t of the re lev an t statute.”) ( internal qu otatio ns omi tte d) ; c

f. Oh io Fa rm e rs In s. Co. v . Le e t ( In re Le e t) , 274 B .R. 69 5, 70 0 ( B .A .P. 6th-7-

Cir. 2002) (distinguishing jurisdictional time lim itations, which are “immutable and not affec ted by equitable de fense s or consider ations”). MCS filed its moti on for r elief pr ior to the ex piration of the injunction, a

nd, but f or the a utomatic stay , MCS could have re turned to the State Court and soug ht

ano the r e xten sio n o f t

he te rm s o f t

he inj un c tio n b e fo re it e xpir e d b y its ow n te rm s. Section 101(12) of

title 11 of t he Bankruptc y Code define s “debt” as “liability on a cla im.” Th e B ank ru ptc y Cod e de fi ne s a

“ c la im” a s f

oll ow s: (5 ) T he te rm

“ c la im” me ans

— (A) r ight to pay

ment, whether

or not such right i s reduc ed to judg ment, liquidated, un liq uid a te d, fi xed , c on tin g e nt, matu red , unmatur e d, dis pu te d, un dis pu te d, le g a l, equitable, se cure d, or unsec ured; or (B ) rig ht to an equitable r emedy for br eac h of per formanc e if s uc h b re ac h g iv es ri se to a right to payme nt , w he the r o r n ot s uc h r ig ht t o a n e qu ita ble re me dy

is r e du c e d to judgme nt, fix ed, contingent, matur ed, unmature d, disputed, undisputed, secure d, or unsecur ed. 11 U.S.C. § 101(5) (empha sis added). T h e co n s en sus among the var ious circuits for the United State s C ourt s o f A

pp e a ls i s th a t a

ri g ht t o a

n e qu ita ble re me dy

do e s n ot g ive ri se to a

ri g ht t o pay ment under § 101( 5)(B ) whe n the rig ht to e quitable re lief is an alternative to a ri g ht t o p ay

me nt. See, e .g. , In re Ud

e ll , 18 F.3d 403, 409- 10 (7th Cir. 1994); In re Torwico Electronics, Inc

. , 8 F.3d 146, 1 5 0 (3d Cir. 1993) (holding that state cle anup orde r is not a dischar g eable claim under 11 U. S

. C

. § 1 0 1 ( 5 ) ( B ) b e c a u s e n e i t h e r t h e s t a tu t e n o r t h e c o u rt o r d e r a t i s s u e p r o v i d e d a ri g ht t o pay ment); United States v. LTV Corp. (I n re Chateaugay Corp.) , 944 F.2d 997, 1008 ( 2d Cir. 1991) (d ist inguis hin g be tw e e n in jun c tio n r e qu ir ingc le anu p f or pa st po ll ut io n, wh ic h ma y g ive ri se to alternative rig ht to pay

ment under CERC L A, and one enjoining f uture pollution, which provides no

“ op tio n to a c c e pt p ay

me nt i n li e u o f c on tin

ue d p oll uti on ” ); se e ge ne ra lly Ma ids In t’ l, I nc . v . W ar d ( In re W ard) , 194 B.R. 703 (B ankr. D. Mass. 1996) (setting forth the var ying a naly tical appr oache s
a mon g ba nk ru ptc y c ourt s to the dis c ha

rg e a bil ity of a de bto r’ s ob lig a tio ns un de r a c ov e na nt no t to compete)

. Wit h respe ct to the discharg eability of an injunction imposed ag ainst a debtor by a state c ourt order , the Six th Circuit Court of Appeals has a dopted the majority rule. “The rig ht to equitable re lief

c on sti tut e s a

c la im o nly

if it i s an a lte rn a tiv e to a ri g ht to pa y me nt or if c omp lia

nc e wi th t he e qu ita ble-8-

order wi l l i t s elf require the pay ment of money .” Ke nn e dy v . M e dic ap Ph ar

ma c ie s, In c . ( In re Kennedy ) , 267 F.3d 493, 497 ( 6th Cir. 2001).
The fa cts of Kennedy are si m i l ar t o t hose in the ca se sub judice . I n Kennedy , the debtors

wer e subject to a covena nt not to c ompete that arose from a fra nchise ag ree m en t wi t h M edicap Pharmac ies (“Me dicap” ). Medica p filed suit in an I owa state court see king a n injunction ag ainst the debtors to enf

orce the terms of the noncompetition ag ree ment. Be fore the state c ourt issued a fina l ruling on the injunction, the debtors filed a bankruptc y petition in a bankruptcy court in the Western District of Ke ntucky

. In re Kenne dy , 267 F.3d at 495.
Medica p then filed a

n adver sary

proce eding objecting to discharg e of th e in ju nctive re lief and seekingrelief

from the a

utom at i c stay

on the g round that the de btors’ oblig ations under the injunction were nondis ch ar gea b l e. The bankruptc y court g rante d summary

judgme nt in favor of Medica p and ter minated the automatic sta y so that Medicap cou l d continue its suit for injunctive relief ag ainst the debtors in state c ourt. In re Kenne dy , 267 F.3d at 495. The Six th Circuit Court of Appea ls affirme d, rea soning that beca use complianc e wi t h t h e injunction would not require the expenditure of money , rathe r it require d only that the debtors cease violating the te rms of the

covena nt not to compete go ing

for war d , Medica p’s rig ht to injunctive relief did not “e quate to being a cla im.” Id. at 497-98.
As in Kennedy , MCS i s not seeking damag es as a result of the D ebtor’s a lleg ed viol ati ons of the State Court i njunction. Rather, MCS seeks relief from the automatic stay so that it can re turn to the S tate Court and e nforc e the ter ms of the noncompetition ag ree ment by obtaining a

n extension of the injunction. Under

the noncompetition ag ree ment, “the ter ms of [any

covena nt brea ched by the Debtor ] wil l be extended by the period of the duration of such brea ch.” T he State Court enf orce d this provision once alre ady , extending the pr oscriptions of the Debtor’ s noncompetition ag ree ment to May 6, 2007. I f MC S’s alleg ations are true that the Debtor consistently violated the ter ms of the noncompetition ag ree ment betwee n Aug ust 15, 2005 , and Mar ch 6, 2007, then the te rms of the noncompetition ag ree ment that would otherwise h av e ex pired in May 2007 could pre sumably

be extended an additional ninetee n months.For th e r e a s o n s s tate d in th is o p in io n , a s w e ll a s th e c h o ic e o f la w p r o v is ions in the 2 employ ment and noncompe tition contra cts at issue, Ohio law is inapplica ble to any inquiry as to the enfor cea bility of the nonc ompetition agr eeme nts a s well as the question of collater al estoppel. See ge ne ra lly 28 U. S.C. § 1 73 8; SchulkeRadio Prods., Ltd. v. Midwestern Broad. Co. , 453 N.E.2d 683, 685-86 (Ohio 1983) ; Restatement (Sec ond) of Conflict of L aws §§ 187-88 ( 2008). -9- Th e fa c t th a t th e De bto r w ill ne e d to pa y fo r le g a l ser

vic e s to def

e nd his a c tio ns in t

he State Court does not equate to the expenditure of money in connec tion with the injunction. L eg al fe es ar e not the ty pe of e x penditure to whic h the Six th Circuit Court of Appeals wa s ref err ing in Kennedy

. The pa y ment of money t o which the Six th Circuit refe rs is to c om ply with the injunction. In re Kennedy , 267 F.3d at 497. Compl iance with th e re l i ef soug ht by MCS would not require the pay ment of money by

the Debtor . Rather, the D ebtor would be require d only to cea se his alleg ed violation of the noncompetition ag ree ment and the injunction g rante d in connec tion therewith.
MCS’ s r ig ht t o e nf

or c e its no nc omp e tit ion

a g re e me nt b y

e qu ita ble re lie f d oe s n ot c on sti tut e a cla im under 11 U.S.C. § 101(5)(B ). The ba nkruptcy court’s r uling to the contrary

was e rrone ous and, ther efor e, an a

buse of discr etion. B. Collateral Estoppel The ba nkruptcy court he ld that the noncompetition ag ree ment signe d by the Debtor

was
unrea sonable a

nd thus unenforc eable under O hio law because of its duration and g eog raphic scope. 2 Beca use the State Court had a lrea dy adjudicate d the re asonable ness and e nforc eability of the

noncom p et i t i o nagr ee m en twi t h re s p ec tt o t h e D eb t o r, t h e b an krup t cy co u rt wa s co l l at er al ly

estopped from re visiti ng this determination.

Pr op e rt y int e re sts are c re a te d a

nd de fi ne d b y

state law e ve n w he n a

n in te re ste d p art y

is involved in a bankruptcy proce eding , unless some fede ral intere st require s a diffe rent re sult. Butner v. United States , 440 U.S. 48, 55, 99 S. Ct. 914, 918 (1979). Although a debtor ’s obligation under

a no nc omp e tit ion

a g re e me nt mig ht be dis c ha rg e a ble in bank

ru ptc y , a pro pe rt

y int e re st that r e su lts from a noncompetition a g ree ment—entitlement to e quitable relief , in this case—does not c onflict with bankruptcy

law and is g overne d by

state law. See, e .g. , In re Kenne dy , 267 F .3 d at 49 3; In re-10-

Hawes , 7 3 B .R. 58 4, 58 7 ( B ank r. E. D. Wis. 19 87 ); In re Cox , 53 B.R. 829, 832 (B ankr. M.D. F la. 19 85 ); In re Cooper , 47 B.R. 842, 845 (B ankr. W.D. Mo. 1985).

I n the ca se sub judice , the noncompetiti on ag ree ment betwee n the Debtor and MCS provided that Pennsy lvania law g overne d the contract. I n its J uly 25, 2006 opinion, the State Court adjudge d the terms of the noncompetition ag ree ment signe d by the Debtor to be re asonable in temporal and g eog raphic scope, a

nd rea sonably

nece ssary

to protect MCS’s g oodwill. (J .A. at 100.) Notwithstanding this prior de termination, the bankr uptcy court stated d u ring the May 17, 2007 hear ing: “ Ohio will only enfor ce a noncompete a g ree ment if it is reasonable in duration and in ge og raphic are a, and MCS appea rs to want to have an injunction that g oes on i ndefinitely as long as it can pr ove any

violation of the orig inal noncompete . . . .” (J

. A. at 1 7 9.) Howe ver, unde r 28 U. S.C. § 173 8, a feder a l c ourt mus t g ive fu ll f

a itha nd c re dit to t he or de r o f a

pr ior state c ourt

if

ano the r c ourt

in t he state fr om which th e jud g me nt o ri g inate d w ou ld g ive it p re c lus ive e ff e c t. M a r r es e v
. A m
. A c a d

. o f O r th o p a e dic Surgeons , 4 7 0 U.S. 373, 380, 105 S. C t. 1327, 1331-32 (1985); B a

y A r ea F a ct o r s v. C a l ve r t (In r e C a lve r t ), 105 F.3d 315, 317 (6th Cir. 1997). A fe dera l court should look to the prec lusion law of the state in which the orig inal judgme nt was re ndere d for the proper s tandar d to apply

. Ma rre se , 4 70 U. S. at 38 0; In re Cal v e rt, 10 5 F .3 d at 31 7; c

f. M on sa nto Co. v

. Trantham (I

n re Trantham) , 304 B.R. 298, 305 (B .A.P. 6th Cir. 2004) (“Fe dera l common law g overns the c laim-prec lusive eff ect of all fede ral c ourt judg ments.”).
Under Pennsy lvania law: The doc trine of c ollater al estoppel precludes r elitigation of an issue deter mined in a

previous ac tion if: (1) the issue dec ided in the prior c ase is identica l to the one pre sented in the late r ac tion; (2) there was a final a djudication on the me ri ts; (3 ) t

he pa rt y a g a ins t w ho m th e ple a is a sse rt e d w a s a pa rt y or in p ri vit y wi th a par ty in the prior ca se; (4) the party or per son privy

to the party

ag ainst whom the doctrine is asse rted ha d a full and f air opportunity

to liti g ate the iss u e i n the prior proce eding ; and (5) the dete rm i n at i o n in the prior proc eedingwas e ssential to the jud g me nt. Offi ce of Disciplinary Counsel v. Kiesewetter , 8 8 9 A. 2 d 4 7 , 5 0 -5 1 (P a. 2 0 0 5 ) ( ci t i n g Office of Di sc ipl ina ry

Cou ns e l v . D uff

ie ld , 644 A.2d 1186, 1189 (Pa. 1994))

.-11-

Apply ing the fac tors mandate d

b y P en n s yl v an i a’ s l aw o nco l l at er al es t o p p el , t h e S t at e C ourt’s fi na l or de r e nf

or c ingthe no nc omp e tit ion a g re e me nt b e tw e e n th e De bto r a nd MCS was e nti tle d to full faith and c redit by

the bankr uptcy court. The State Court decided the prec ise issue revisited by the bankr uptcy court, v iz. , whether

the noncompetition ag ree ment at issue was r easonable and

e nf or c e a ble . T he pr ior

tr ia l re a c he d a fin a l adj ud ic a tio n on the me ri ts. Th e De bto r wa s a par ty in the pre vious lit igation, and there is no sugg estion that the Debtor w as depr ived of a “full and f

air” opportunity

to litigate the issue in the State Court action. Fina lly , the deter mination reg ardingthe

rea sonablene ss and enf

orce ability

o f the noncompetition ag ree ment was e ssential to resolution of the previous litigation. Be cause these conclusions are entitled to f ull f aith and cre dit , t h e b an k ru ptcy court wa s collatera lly

estopped fr om enteringa ruling to the contra ry
. See 28 U. S.C. § 1 73 8; In re Cal v e rt, 105 F.3d at 317.
V. CO NC LU SION
Th e de nia l of

a mot ion fo r relie f f

ro m th e a

uto matic sta

y “ fo r c a us e ” un de r 1 1 U .S. C. § 362(d)( 1) is an equitable deter mination reviewe d for a

n abuse of discretion. An a

buse of discr etion

oc c ur s w he n a

ba nk ru ptc y c ourt “ re lie s on

c le arl y e rr on e ou s f

ind ing s o f f

a c t, o r whe n it

imp ro pe rl y applies the lawor uses an err oneous leg al standar d.” Lorain N AACP v. Lorain Bd. of Educ , 979 F.2d at 1148 (interna l quotations omi tted). I n this case , the bankruptcy court im proper ly applied the law in c on c lud ing that MCS’ s ri g ht to e qu ita ble re lie f u

nd e r t he no nc omp e tit ion

a g re e me nt a

nd the State Court ’s inj un c tio n c on sti tut e d a “ c la im” un de r 1 1 U .S. C. § 10 1( 5) (B ). Th e ba nk ru ptc y c ourt a lso improperly

applied the law in evaluating the enfor cea bility of t he noncompetition agr eeme nt under Ohio law since it wa s collater ally estopped from doing so. Acc ording ly , the bankr uptcy court a bused its discretion in denying MCS’s motion for re lief fr om the automatic stay

. The ba nkruptcy court’s

o rd er i s R E VE R S E D a n d

t h i s ca s e i s R E M AN DE D t o t h e b an krup t cy co u rt fo r f

u rt h er p ro ce ed i n gs consistent with this opi nion.