In re Andrews - Case Brief PDF

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In re Andrews 4th circuit 1996

Facts: Andrews was part owner of AMAX, which sold its assets and customer list to Tarmac in exchange for money and a noncompete agreement. The noncompete agreements consideration was 1 million paid quarterly with annual interest. Andrews filed for bankruptcy in 1992 and sought to exclude the remaining 250 k + interest to be paid to him as per the noncompete agreement. Procedural History: Bankruptcy court found that the non-competition agreement was ancillary (connected to) to a pre-petition sale of assets, and thus payments under the agreement did not fall within 541(a)(6). DC agreed. Issue: Whether payments to a bankrupt debtor pursuant to a non-competition agreement constitute “earnings from services performed” under § 541(a)(6)? Holding: no. Reasoning: Using the language of the statute: services performed is still very ambiguous. Since ordinary meaning does not decisively answer, we look to the purpose of the statute. Bankruptcy law seeks to: 1) provide protection for the creditors of the insolvent debtor and 2) give the debtor a fresh start to rebuild his life. Drawing a bright line between pre and post-petition assets harmonizes these two purposes. In doing so, pre-petition assets like NCA payments are rooted in the debtor’s pre-petition activities, thus those assets belong to the creditor. Segal case. These NCA payments clearly fall on the “past” side of the bright line because it was an integral part of the asset purchase and but for the assets sale, there would have been no NCA or quarterly payments. Dissent: Since only Andrews can perform the noncompetition agreement, performance that only he can render, then the right to receive the payments is not the property of the trustee, for the payments themselves are excluded from property of the estate. They are “earnings form services performed by an individual debtor after the commencement of the case” under 541(a) (6)....