In Pirtek USA, LLC v. James Bradley Lager, et al., United States Bankruptcy Judge Michelle Larson ruled that Mr. Lager’s conduct in breaching a confidential settlement agreement led to claims that are non-dischargeable in his bankruptcy. The Bankruptcy Court further ruled, notwithstanding an earlier rejection of the settlement agreement in the proceeding, that defendants would be permanently enjoined from further violating the non-disparagement and confidentiality provisions of the settlement agreement.
The defendants, Mr. Lager and his company, JBL Hose Service LLC, signed two successive and confidential settlement agreements with their former franchisor, Pirtek, in order to resolve JBL’s exit from two franchise agreements. Under the second settlement agreement, defendants agreed to very robust non-disclosure and non-disparagement provisions. Almost immediately after signing the second settlement agreement, Mr. Lager went on a campaign to publicly malign Pirtek, including making outrageous and unfounded allegations in an effort to harm Pirtek.
On the eve of the final hearing in arbitration, Mr. Lager filed for Chapter 11 protection, and his entity, JBL, filed for Chapter 11 a month later. Pirtek then filed an adversary proceeding in the Bankruptcy Court for a determination that its claims against Mr. Lager for breach of the settlement agreement were non-dischargeable, and further for a permanent injunction against any further violations of the non-disparagement and confidentiality provisions of the settlement agreement. Earlier in the litigation, the defendants moved to dismiss the complaint in part because the settlement agreement was rejected in bankruptcy and therefore they were no longer bound by the restrictive covenants. The Bankruptcy Court denied that relief, holding the non-disparagement and confidentiality provisions survived rejection of the agreement. Defendants then counterclaimed, alleging violations of the Florida Unfair and Deceptive Trade Practices Act and a variety of other business torts. Pirtek moved for summary judgment on all claims and counterclaims, which was granted on substantially all issues.
In particular, the Bankruptcy Court ruled that Mr. Lager’s pattern of conduct in breaching the settlement agreement, including baselessly accusing Pirtek of racially discriminatory practices, were designed to harm his former franchisor and rose to the level of “willful and malicious injury” as required by 11 U.S.C. § 523(a)(6). Therefore, Pirtek’s claims against Mr. Lager will not be discharged by his bankruptcy case. The Court further found that Pirtek satisfied all elements for injunctive relief, and that defendants would be permanently enjoined from any further violations of the non-disparagement and confidentiality provisions of the settlement agreement.