## Facts

- Rovine Corporation operated a Burger King restaurant under a franchise agreement with Burger King Corporation.
- The agreement contained a covenant not to compete for 18 months after termination within a five-mile radius of the franchise premises.
- Rovine filed a Chapter 11 petition on May 2, 1980, and remained debtor-in-possession.
- Burger King moved to compel assumption or rejection of the franchise agreement under 11 U.S.C. § 365(d).
- Rovine rejected the franchise agreement on July 18, 1980.
- Burger King sued to enforce the covenant not to compete and sought a temporary injunction.
- In an earlier ruling, the court held the noncompete executory, rejected with the franchise agreement, and unenforceable by injunction against the debtor’s estate.
- Burger King moved for a new trial or to amend the judgment to obtain injunctive enforcement of the noncompete.

## Issues

1. Whether the franchise agreement, including the covenant not to compete, was an executory contract subject to rejection under 11 U.S.C. § 365.
2. Whether rejection relieved the debtor and the estate of performance of the noncompete, or whether Burger King could still enforce it by injunction.
3. Whether the noncompete was severable or “fully executed,” or whether Burger King’s asserted equitable remedy fell outside the Bankruptcy Code’s definition of a “claim.”

## Decision

- The court denied Burger King’s motion for a new trial or to amend the judgment.
- The court reaffirmed that the franchise agreement was executory and properly rejected under § 365.
- The court reaffirmed that the covenant not to compete was executory, part of the rejected agreement, and rejected with it.
- The court again refused to issue a temporary injunction enforcing the noncompete against the debtor-in-possession.

## Legal Principles

- A franchise agreement is an executory contract under § 365 when both parties retain material, unperformed obligations.
- A covenant not to compete contained in an executory franchise agreement is treated as part of that agreement for § 365 purposes and is rejected upon rejection of the contract.
- Rejection under § 365 relieves the debtor and the estate from ongoing performance obligations under the rejected agreement, including post-termination restrictive covenants.
- A non-debtor cannot preserve injunctive enforcement of a rejected contractual covenant by characterizing the remedy as purely equitable, by asserting the covenant is severable or fully executed, or by recasting the franchise as a largely executed license.

## Conclusion

The bankruptcy court held that the debtor’s rejection of the Burger King franchise agreement under § 365 also rejected the agreement’s noncompete covenant, relieving the estate from compliance and barring Burger King from obtaining injunctive enforcement of the restriction in the Chapter 11 case.


In re Rovine Corp., 6 B.R. 661 (Bankr. W.D. Tenn. 1980)