In a recent Chapter 11 bankruptcy of a business, the debtor was challenged by a creditor who claimed that the debtor/company was illegally using their brand to do business. The debtor, who had purchased a franchise license, was sued after they allegedly violated a non-compete agreement. The creditor/ franchisor in this bankruptcy case claims that the debtor is doing irreparable harm to its business by continuing to use its image and brand even after a court ordered them not to. But the bankruptcy court ruled that if they debtor/company followed the non-compete agreement and stopped using their company brand name, it could do even more harm to the bankruptcy estate and creditors.
This Court also finds that the second factor weighs in favor of the Debtor.9 Although the Preliminary Order includes a finding by the District Court that the Debtor’s continued operation will cause the Movant irreparable harm, the District Court’s decision did not balance the harms to the Debtor’s estate that includes not just the Debtor’s interests but also the interests of its creditors, against the harms to the Movant. Because the harm to the Debtor’s estate was not considered by the District Court, this Court finds that the Movant has failed to meet its burden of proving the applicability of the findings of the Preliminary Injunction to the issues implicated by the Movant’s request for relief from the automatic stay. See, e.g, Greenway Center, Inc v. Essex Ins. Co., 475 F.3d 139, 147 (3d Cir. 2007) (acknowledging that for issue preclusion to apply Pennsylvania law requires an “identity of the issues”). As a result, this Court finds that the Preliminary Injunction is not determinative of the balance of harms between the Debtor’s estate and the Movant.
Further, if relief is granted, the Debtor will cease operations leaving little or no assets available to fund the Debtor’s estate. On the other hand, the Movant has failed to demonstrate what harm it will suffer if it is denied relief from the automatic stay.
The bankruptcy court also disagreed with the creditor’s assertion that it would suffer irreparable harm if the debtor continued to use its name. In this bankruptcy case, the bankruptcy court said that it had to weigh all of the ways that granting relief to the automatic stay could harm not only the debtor, but the other creditors in the bankruptcy. Its determination was that allowing the debtor to continue to do business was in the best interests of not only the movant but the debtor and the other creditors in the bankruptcy case.