## Facts

- Barry Stuart Udell, a former vice president/general manager of Standard Carpetland USA, Inc. in Fort Wayne, Indiana, signed an employment agreement with a three-year covenant not to compete within 50 miles of Fort Wayne.
- The agreement’s remedial provision stated that upon Udell’s actual or threatened breach, Carpetland would be entitled to (1) an injunction, (2) reasonable attorney’s fees to obtain the injunction, and (3) stipulated damages of $25,000.
- After leaving Carpetland, Udell bought and operated a local carpet store in the same market.
- Udell sued Carpetland in Indiana state court for compensation allegedly owed; Carpetland counterclaimed for injunctive relief and damages for breach of the noncompete.
- The state trial court issued a preliminary injunction enforcing the noncompete.
- Days later, Udell filed a Chapter 13 petition; Carpetland sought relief from the automatic stay to enforce the injunction, arguing its injunctive right was not a dischargeable “claim.”

## Issues

1. Whether a creditor’s right to enforce a noncompetition covenant by injunction is a “claim” under 11 U.S.C. § 101(5)(B) when the same breach also triggers contractual liquidated damages and attorney’s fees.
2. Whether, as a result, enforcement of the injunction is subject to the automatic stay and the creditor’s rights may be treated as dischargeable in Chapter 13.

## Decision

- The Seventh Circuit affirmed the district court’s reversal of the bankruptcy court.
- The court held that Carpetland’s rights under the noncompete—including the right to injunctive enforcement—constituted a “claim” under § 101(5)(B).
- Because breach of the covenant gave rise to a contractual right to payment (liquidated damages and fees), Carpetland was not entitled to treat the injunction as a free-standing, non-dischargeable equitable obligation outside the bankruptcy process.
- The matter was to proceed with Carpetland’s interest treated as a claim within the Chapter 13 case rather than as a basis for stay relief grounded on non-dischargeability.

## Legal Principles

- “Claim” under 11 U.S.C. § 101(5) is broad and includes equitable remedies for breach of performance when the breach gives rise to a right to payment (§ 101(5)(B)).
- The § 101(5)(B) inquiry is functional: if the breach of the obligation also creates a monetary entitlement (by contract or applicable law), the associated equitable remedy is a “claim.”
- Contract provisions providing both injunctive relief and liquidated damages/fee-shifting show that the same breach gives rise to a right to payment, bringing the equitable remedy within § 101(5)(B).
- State-law standards for issuing injunctions (such as requirements that damages be inadequate) do not control whether an equitable remedy is a bankruptcy “claim”; the focus is whether the breach, in legal effect, yields a payment right.

## Conclusion

The court treated enforcement of a noncompete injunction as a bankruptcy “claim” where the contract tied breach to stipulated damages and attorney’s fees, making the creditor’s rights subject to the automatic stay and to treatment within the debtor’s Chapter 13 case.


In re Udell, 18 F.3d 403 (7th Cir. 1994)