The United States District Court for the Northern District of Texas recently ruled that a debtor’s violation of a settlement agreement was not dischargeable in bankruptcy. The debtor, JBL Hose Service, breached two settlement agreements it had entered into with Pirtek USA, which contained non-disclosure and non-disparagement provisions. JSL breached the agreements by publicly accusing Pirtek of racism and sharing a copy of one of the agreements with a website dedicated to disparaging franchises, and Pirtek initiated an arbitration, which JSL stayed by filing for bankruptcy. The court applied a Fifth Circuit rule preventing discharge for knowing breaches of contract that are certain to cause injury, finding that JSL knew and intended to materially harm Pirtek’s reputation, and ruled that the violation would be non-dischargeable.
The Court concluded there was no doubt that non-dischargeability was required.
Source: Violation of Settlement Agreement Deemed Non-Dischargeable