Clay G. Plaisance

= ee

S/

SO ORDERED. RY HN

SIGNED July 13, 2020. Were Oy

AW: Koby—

W. KOLWE

U ED STATES BANKRUPTCY JUDGE

UNITED STATES BANKRUPTCY COURT

WESTERN DISTRICT OF LOUISIANA

LAFAYETTE DIVISION

In re: Case No. 19-51077

Clay G. Plaisance Chapter 11

Debtor

Judge John W. Kolwe

RULING ON OBJECTION TO CLAIM NO. 3

The Court held a hearing on the Debtor’s Objection to Proof of Claim of nThrive

Reimbursement Management (Claim No. 3) (ECF #62), at which both parties

presented evidence and testimony regarding both the validity of Claim No. 3 and the

amount of damages. The parties also filed post-hearing briefs. The Court is now

prepared to rule on the validity and amount of the claim.!

BACKGROUND AND ISSUES PRESENTED

The Debtor, Clay G. Plaisance, owned and ran a few companies that performed

a variety of services for hospitals, including collections and Medicaid eligibility

! The Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334, and this adversary proceeding

is a core proceeding under 28 U.S.C. § 157(b)(2).

screening of patients. The parent company was HCR Financial Group, L.L.C., which

controlled two subsidiaries, HCR HealthCare Resources, L.L.C. and Pinnacle

Healthcare Group of Louisiana, L.L.C. (collectively, “HCR”). By 2015, these

companies had been in business for years and had a number of clients, including

Willis Knighton Health System (“Willis Knighton”) and Baylor Scott & White Texas

Spine and Joint Hospital (“Texas Spine”). Early in 2015, HCR entered into an Asset

Purchase Agreement with nThrive Reimbursement Management, LLC, formerly

known as Advanced Reimbursement Management, LLC d/b/a Adreima (hereinafter

“Adreima”), as well as several related agreements, all pertaining to the Debtor’s sale

of the businesses to Adreima. Each agreement contains virtually identical covenants

not to compete, which would prevent the Debtor from competing with Adreima for up

to five years.

In 2017, approximately two years after the sale, Willis Knighton and Texas

Spine, either partially or fully terminated their services with Adreima because they

opted to switch to a new competitor of Adreima, Avail Revenue Solutions, LLC

(“Avail”), which had recently been founded by former employees of Adreima.

Believing Avail to be owned and operated by the Debtor, Adreima sued the Debtor

and a number of other entities in Delaware, alleging the Debtor breached the non-

compete agreements he executed in connection with the 2015 sale. Due to the high

cost of litigation and the potential damages at issue in the suit, the Debtor filed for

bankruptcy protection on September 11, 2019. Adreima timely filed a claim in the

bankruptcy case. The Debtor and a company 100% owned by him, CGP Management,

Inc. (“CGP”), objected to the claim. Because the parties’ positions have changed

substantially over the course of this dispute, the Court will summarize the parties’

positions set out in the filings leading up to the hearing on the Objection.

Adreima’s Claim

Adreima’s $11,271,196.00 Proof of Claim (“POC”) relies on a September 10,

2019 opinion letter by Richard Szekelyi of Phoenix Corporate Recovery (the “Phoenix

Letter”), which opines on potential damages in the Delaware federal court lawsuit

filed by Adreima against the Debtor, Kirby Plaisance (“Kirby”), and entities

owned/controlled by the Plaisances: TKC Works, LLC f/k/a HCR Healthcare

Resources, LLC, and TKC Plaisance, LLC f/k/a Pinnacle Healthcare Group of

Louisiana, LLC. The Phoenix Letter refers to documents that are not attached to the

POC, and both parties agree that because the relevant documents are not attached

to the POC, Adreima is required to prove the validity and amount of its claim in this

contested matter.2

The Phoenix Letter claims that the Debtor and Kirby, through their wholly

owned companies CGP Management, Inc. and KDP Management, Inc., were equity

holders of HCR, which Adreima acquired in 2015 pursuant to a February 10, 2015

Asset Purchase Agreement (Adreima Exh. #1). At the same time, the Debtor and

Kirby each entered into a five-year Restrictive Covenant Agreement (Adreima Exh.

#4) that included a non-compete provision, a non-solicitation of business associate

provision, a non-solicitation of customer provision, and a non-disparagement

provision (together, the “restrictive covenants”), as well as a February 10, 2015

Goodwill Purchase Agreement (Adreima Exh. #3) and a two-year Consulting

Agreement dated February 10, 2015 (Adreima Exh. #2) that contained similar

covenants.

For reference, the restrictive covenants set out in Sections 2.2 and 2.3 of the

Restrictive Covenant Agreement, which are similar to the covenants in the other two

agreements, read:

2.2 Non-Competition. During the Restricted Period

[defined in Section 4.1 to mean five years or the longest

allowable period under law, but this period is two years

under the Consulting Agreement and up to four years

under the Goodwill Purchase Agreement], each Restricted

Party will not, directly or indirectly, own, manage, operate,

join, control, finance or participate in, or participate in the

ownership, management, operation, control or financing of,

or be connected as an owner, investor, partner, joint

venturer, director, limited liability company manager,

officer, employee, independent contractor, consultant or

other agent of, any Person or enterprise (other than the

2 See In re Brunson, 486 B.R. 759, 759, 769 (Bankr. N.D. Tex. 2013).

Purchaser Group) that is engaged in any Competing

Business anywhere in or with respect to the Restricted

Territory [defined in Section 4.1 to mean the United States

of America]; provided, however, that nothing in this Section

2.2 will prohibit the Restricted Parties and their Affiliates

from owning, in the aggregate, less than 1.0% of any class

of securities of a publicly traded Person so long as none of

the Restricted Parties and their Affiliates participates in

any way in the management, operation or control of such

Person.

2.3 Non-Solicitation. During the Restricted Period, each

Restricted Party will not, directly or indirectly:

(a) solicit or induce, or attempt to solicit or induce

(including by recruiting, interviewing or identifying or

targeting as a candidate for recruitment), any member of

the board of directors or similar governing body, officer,

employee or independent contractor of any Purchaser

Group entity who is acting in such capacity or acted in such

capacity at any time within the 12-month period

immediately preceding the date of such solicitation,

inducement or attempt (a “Business Associate”) to

terminate, restrict or hinder such Business Associate’s

association with any Purchaser Group entity or interfere in

any way with the relationship between such Business

Associate and any Purchaser Group entity; provided,

however, that general solicitations published in a journal,

newspaper or other publication or posted on an internet job

site and not specifically directed toward Business

Associates will not constitute a breach of the covenants in

this Section 2.3(a).

(b) hire or retain, or attempt to hire or otherwise

retain the services of, any Business Associate as an

employee, officer, director, independent contractor,

licensee, consultant, advisor, agent or in any other

capacity, or attempt or assist anyone else to do so, or

(c) interfere with the relationship between any

Purchaser Group entity and any Person who is a customer,

referral source, supplier, lessor, lessee, dealer, distributor,

licensor, licensee, equityholder, lender, joint venturer,

consultant, agent or any other Person having a business

relationship with any Purchaser Group entity.

Restrictive Covenant Agreement (Adreima Trial Exh. 4), p. 2 (ECF #115-4) (emphasis

in original).

Adreima claims, both in the Delaware lawsuit and the POC, that the Debtor

owns and controls Avail and that the Debtor, through Avail, breached the restrictive

covenants by taking two of Adreima’s customers, Willis Knighton and Texas Spine,

not long after the two-year consulting period terminated. Adreima also claims that

the Debtor breached the covenants by hiring two key Adreima employees, Merwyn

Landry and Sonia Hughes.

The Debtor’s Objection (ECF #62)

The Debtor and CGP jointly objected to Adreima’s claim, with the attorney for

each party electronically signing the Objection. (Adreima has raised an objection to

CGP’s standing to join in the Objection, which the Court will address below; for

purposes of this ruling, the Court will refer to the Objection as the Debtor’s.) The

Debtor claims that Adreima’s factual basis was incorrect and that in reality Avail is

not the Debtor’s company but rather was a company formed by Landry (who had been

fired by Adreima), and that it was Landry/Avail who solicited and hired Adreima

employees, not the Debtor. While the Debtor originally reserved the Avail name with

the Louisiana Secretary of State and forwarded an Avail logo to Landry, he claims

the name reservation expired on May 6, 2017, and Landry assumed the Avail name

on May 10, 2017 after Adreima fired him. The Debtor claims Adreima left all of that

information out of the Delaware complaint and misrepresented the facts to make it

appear as if the Debtor and Kirby did all of those things.

As to the Delaware lawsuit, it was originally filed in Delaware but was

transferred to the Western District of Louisiana in September 2017, where Adreima

filed a First Amended Complaint on October 11, 2017. Approximately one year later,

the case was transferred back to Delaware, where Adreima filed the Second Amended

Complaint on April 2, 2019. The Complaint, as amended, does not name Kirby as a

defendant, and the Debtor claims it misrepresents many facts.

The Debtor claims that all the actions Adreima asserts the Debtor and Kirby

took to breach the provisions of the various agreements were in fact done by former

Adreima employees, primarily Landry (the founder and 100% owner of Avail) and

Hughes, not the Debtor and Kirby. The Debtor also claims that Willis Knighton

decided to terminate its contract with Adreima primarily to reduce vendor expenses.

In addition, the Debtor asserts that Adreima generally botched its customer service

after it purchased the Debtor’s businesses, which led to problems for Adreima’s

customers and a reduced payout to the Debtor. In the end, the Debtor claims that

Adreima’s lawsuit is baseless and drove him into bankruptcy.

In addition to the Debtor’s factual challenges to Adreima’s claim, he also

asserts that the restrictive covenants, which the agreements purport to establish

under Delaware law, are void under Louisiana law, specifically La. R.S. § 23:921 and

the relevant choice-of-law statutes, La. Civ. Code arts. 3537 and 3540, because the

covenants contain terms that are too long (up to five years rather than the maximum

of two years allowed under Louisiana law) and include overly broad geographic

restrictions (the entire United States rather than specified locations, as required by

Louisiana law). The Debtor argues that the restrictive covenants must be nullified

rather than being reformed.3 This threshold question will be addressed below.

Adreima’s Response (ECF #89)

In its Response, Adreima first attacks CGP’s standing to file the Objection, an

issue the Court will address separately below. As to the merits, Adreima, for the first

time, asserts that the Debtor breached the covenants by financing a competitor.

Adreima points out that the Debtor reserved the Avail name and communicated with

Landry, then an Adreima employee who had previously worked for the Debtor’s

company (as well as a friend of the Debtor) regarding Avail’s logo. Landry has

admitted that he had discussions with the Debtor about forming a competitor to

Adreima before being fired by Adreima, and Landry reserved the Avail name shortly

after the Debtor’s reservation expired.

3 The Debtor also asserted that the Full Faith and Credit Clause precludes the parties from

applying Delaware law in contravention of Louisiana public policy, an argument the Court will not

address given the Debtor’s failure to cite any relevant case law applicable to this situation and the fact

that courts routinely apply the law of other states in appropriate circumstances.

Adreima also claims the Debtor provided Landry with an undocumented

$250,000 startup loan, with no interest and no repayment terms, after Landry told

the Debtor that he intended to form a competitor to Adreima.4 Adreima claims that

this loan, which was used to fund a competitor, violates the covenant against

financing a competitor. Furthermore, Adreima contends, the Debtor deposited funds

into Avail’s accounts “three to four times” during the period from June 2017 (when

Avail was officially formed) to February 2018 to help Avail make payroll. Adreima

claims these cash infusions were necessary to save Avail and therefore also violate

the covenant not to finance a competitor.

Adreima’s Response offers few facts suggesting that the Debtor himself

competed against Adreima, hired away Adreima’s employees, or otherwise violated

the typical provisions found in non-compete and non-solicitation agreements, which

was Adreima’s theory in both the Delaware suit and the POC prior to its Response to

the Debtor’s Claim Objection. For example, with respect to Willis Knighton and Texas

Spine terminating Adreima’s services and moving to Avail, Adreima concedes:

“Although there has not been evidence of the Debtor’s contacts with these customers

after he left Adreima, these customers ended up at Avail at or near the time that the

Debtor was still providing direct cash payments to keep Avail in operation. This is

the very essence of why non-competes exist.” (ECF #89, p. 9). Essentially, Adreima’s

response offers very little facts supporting its original theory that the Debtor directly

competed against Adreima or personally solicited Adreima customers, but it points to

facts strongly suggesting that the Debtor at least financed Avail, a competitor of

Adreima.

With respect to the Debtor’s argument that the non-compete and non-

solicitation covenants should be nullified under Louisiana law, Adreima argues that

these particular provisions, arising in connection with the sale of a business rather

than in an employment contract, are valid under Delaware law, and the parties were

4 The Debtor did not disclose this loan in his schedules. At the hearing, Landry said he repaid a

portion of the loan.

free to choose Delaware law under the circumstances. Thus, Adreima argues, the

covenants should be enforced.

Although the Debtor’s Objection did not focus on the amount of damages but

rather on whether Adreima had any basis for its claim, Adreima nonetheless briefly

addresses damages at the end of its Response, focusing on the lost business due to

the Debtor’s alleged violations of the non-compete agreements. Adreima’s expert in

the Delaware lawsuit, Richard Szekelyi, simply took the past annual profits of the

two defecting customers, Willis Knighton and Texas Spine, and he assumed that the

customers would have remained with Adreima in the future for as long as they had

been customers in the past but for Avail’s actions. Szekelyi opined that the loss of the

Willis Knighton business cost Adreima $7,571,842 in future lost profits, and the loss

of Texas Spine cost Adreima $2,642,697.

Adreima also claims the Debtor must return the $300,000 he received under

the Goodwill Purchase Agreement and the $148,000 he received from the Consulting

Agreement, on the ground that the Debtor violated the non-competition covenants in

them. Adreima also seeks unspecified “hundreds of thousands of dollars” in attorney’s

fees as allowed by a provision in the Consulting Agreement. Altogether, Adreima

claims its damages exceed $10 million. As noted above, Adreima bears the burden of

proving the validity of its claim, including the amount of damages, at a hearing.

The Debtor’s Reply (ECF #96)

In his Reply, the Debtor addresses some of the same arguments as before,

including the Louisiana choice-of-law. Most importantly, the Debtor addresses

Adreima’s apparently new theory that rather than directly compete with Adreima,

the Debtor had financed a competitor in violation of the restrictive covenants. The

Debtor argues that the loan he provided to Landry was not “financing a competitor”

but was instead consistent with a years-long pattern of providing personal loans to

Landry as a friend, and that the Debtor never took any interest in Landry’s business,

never received income from Avail, and otherwise did not get involved in Landry’s

business. Furthermore, the Debtor argues that his loans to Landry for Avail’s startup

occurred more than two years after the execution of the various sale-related

documents, beyond Louisiana’s maximum period for non-compete agreements. Thus,

if Louisiana law applies to either nullify the restrictive covenants or reform them to

the maximum limits of Louisiana law, the Debtor’s loans to Landry could not possibly

breach the agreements.

CGP’s Standing

As a preliminary matter, the Court will address the procedural issue of CGP’s

standing to file the Objection. Adreima argues in its Response that CGP lacks

standing to object to Adreima’s claim on the grounds that CGP is not a party in

interest under 11 U.S.C. § 1109, which defines “party in interest” (i.e., a party who

“may raise and may appear and be heard on any issue in a case under this chapter”)

to “include[] the debtor, the trustee, a creditors’ committee, an equity security holders’

committee, a creditor, an equity security holder, or any indenture trustee.” 11 U.S.C.

§ 1109(b).5 Adreima correctly summarizes the law in its brief as follows:

This list is not exclusive, but at a minimum, a party in

interest must have “a legally protected interest that could

be affected by the bankruptcy case.” In re Xenon Anesthesia

of Tex., P.L.L.C., No. 13-37697, 2016 Bankr. LEXIS 2747,

*4 (Bankr. S.D. Tex. Jul. 27, 2016). A party may object in a

bankruptcy proceeding “if that [party] can demonstrate

that the order diminishes the [party’s] property, increases

the [party’s] burdens, or impairs the [party’s] rights.” In re

Camp Arrowhead, Ltd., 451 B.R. 678, 693 (quoting In re

Ray, 597 F.3d 871, 874 (7th Cir. 2010)).

However, a party does not have standing “to assert . . .

objections that relate solely to others, or that go to issues

that do not directly and adversely affect them pecuniarily.”

In re Simplot, No. 06-00002, 2007 Bankr. LEXIS 2396,

*33–34 (Bankr. D. Idaho Aug. 28, 2007) (holding that a

company that a Debtor owned stock in lacked standing to

object to the confirmation of a plan when it was not also a

creditor). Similarly, in Khan v. Xenon Health, L.L.C. (In re

Xenon Anesthesia of Tex., P.L.L.C.), 793 F. App’x 793, 794

5 The estate could not hire CGP’s attorney under 11 U.S.C. § 327 because he has a claim against

the estate and therefore is not disinterested. There is no actual conflict of interest presented in this

case, however, because the interests of the Debtor, CGP, and CGP’s attorney are all aligned against

Adreima.

(5th Cir. 2017) (unpublished) (per curiam), the Fifth

Circuit held that a party lacked standing to object to a proof

of claim where the party had transferred all of its

ownership interest in the debtor prior to the hearing of [sic]

the objection.

Adreima’s Response, pp. 12-13 (ECF #89).

Adreima claims that not only does CGP fail to meet the standard for being a

party in interest under § 1109, but also that the entire Objection should be stricken

because “[o]nly CGP’s attorney signed the Objection.” See Adreima’s Response, p. 13

(ECF #89). The Court will immediately reject the latter argument because the

Objection was electronically signed (with “s/” signatures) by both the Debtor’s

attorney and CGP’s attorney, and the Debtor maintains that the Objection was jointly

filed. Western District of Louisiana LR 5.7.08 provides, in relevant part:

Documents requiring signatures of more than one party

must be electronically filed either by: (1) submitting a

scanned document containing all necessary signatures; (2)

indicating the consent of the parties who did not

electronically file the document. Consent may be indicated

by the filer by including an “s/ and the name of the

consenting attorney(s)” on the document to be filed

electronically (e.g. “S/John Doe,” “s/Jane Smith,” etc.). By

using “s/ and another attorney’s name” the filing attorney

certifies that each of the other signatories has expressly

agreed to the form and substance of the document and that

the filing attorney has their actual authority to submit the

document electronically.

LR 5.7.08.

Because the Debtor’s attorney electronically signed the Objection (ECF #62),

the Reply (ECF #96), and the Post Trial Brief (ECF #99) in accordance with the local

rule and has affirmed his intent to file them on behalf of the Debtor, the Court must

conclude that all of these filings would be properly before the Court even if CGP’s

involvement were terminated on the ground that it is not a party in interest under

§ 1109. Thus, regardless of CGP’s standing to join in with the Debtor, all of the legal

and factual issues are properly before the Court.

The only practical effect that CGP’s involvement had on these proceedings is

the identity of the attorney questioning witnesses at the January 28, 2020 hearing.

The Debtor’s attorney largely handled the hearing prior to the questioning of

witnesses, including addressing Adreima’s standing argument. After hearing

argument from counsel for both Adreima and the Debtor regarding CGP’s standing,

the Court offered to take the issue under advisement and take up the merits at a

future date. Counsel for both Adreima and the Debtor instead wished to proceed with

the hearing on the merits. Thereafter, CGP’s counsel conducted the questioning of

witnesses.

If the Court were to conclude that CGP is not a party in interest, the remedy

would not be striking the Objection (which, again, is properly before the Court

because it was also signed by the Debtor’s attorney) but, at most, holding the same

hearing with the same witnesses and evidence, but requiring the questioning to be

conducted by the Debtor’s attorney. That remedy would seem to be a waste of time

and resources for the Court, the parties, and the witnesses. It likely would have no

effect on the outcome of this dispute but would impose additional costs on everyone,

including the estate and, ultimately, creditors. Regardless of whether CGP is, in fact,

a party in interest, the Court declines to essentially repeat the play with one role

recast when that cannot change the outcome.

Although it is not necessary to determine whether CGP is a party in interest

under the peculiar circumstances presented in this case, the Court is not convinced

that CGP is not one. As the Debtor’s attorney pointed out at the hearing, CGP is listed

on the Debtor’s schedules as an asset of the estate 100% owned by the Debtor.

Adreima’s asserted claim far exceeds the Debtor’s total assets, and if Adreima’s claim

is successful, it is conceivable that the Debtor will have to liquidate his assets,

including his interest in CGP. Because the outcome of Adreima’s claim could

potentially be fatal to CGP’s existence, the Court cannot say that the outcome of this

claim objection will not diminish CGP’s property, increase CGP’s burdens, or impair

CGP’s rights. See In re Camp Arrowhead, Ltd., 451 B.R. 678, 694 (Bankr. W. D. Tex.

2011) (quoting In re Ray, 597 F.3d 871, 874 (7th Cir. 2010)). Nevertheless, even if

CGP is not a party in interest, it would have no material difference on the outcome

under these circumstances.

CONCLUSIONS OF LAW: VIABILITY OF THE RESTRICTIVE COVENANTS

The Court must first decide whether the restrictive covenants are viable at all.

If, as the Debtor contends, the covenants are void under Louisiana law as against

public policy, then it would be impossible for the Debtor to have violated them, and

the Court must sustain the Debtor’s Objection and disallow Adreima’s claim. If, on

the other hand, the covenants are not nullified by Louisiana law and are viable under

Delaware law, then the Court must determine whether the Debtor in fact violated

any of the provisions and, if so, the amount of damages that Adreima sustained as a

result.

All of the relevant February 2015 agreements—the Asset Purchase Agreement

(ECF #115-1, Adreima Exhibit #1), Consulting Agreement dated (ECF #115-2,

Adreima Exhibit #2), and Goodwill Purchase Agreement (ECF #115-3, Adreima

Exhibit #3), contained similar restrictive covenants, including the prohibition against

financing a competitor, applicable for a term of up to four or five years and covering

the entire United States. All three agreements contained a choice-of-law clause

selecting Delaware law without regard to its conflicts of laws rules, as well as a choice-

of-forum clause selecting Delaware state or federal courts as the appropriate forum

(except for the Goodwill Purchase Agreement, which did not include the choice-of-

forum clause).

Louisiana generally allows parties to choose the applicable law unless that law

violates public policy:

All other issues of conventional obligations are governed by

the law expressly chosen or clearly relied upon by the

parties, except to the extent that law contravenes the

public policy of the state whose law would otherwise be

applicable under Article 3537.

La. Civ. Code art. 3540. Article 3537 provides Louisiana’s general conflicts of laws

rules:

Except as otherwise provided in this Title, an issue of

conventional obligations is governed by the law of the state

whose policies would be most seriously impaired if its law

were not applied to that issue.

That state is determined by evaluating the strength and

pertinence of the relevant policies of the involved states in

the light of: (1) the pertinent contacts of each state to the

parties and the transaction, including the place of

negotiation, formation, and performance of the contract,

the location of the object of the contract, and the place of

domicile, habitual residence, or business of the parties; (2)

the nature, type, and purpose of the contract; and (3) the

policies referred to in Article 3515, as well as the policies of

facilitating the orderly planning of transactions, of

promoting multistate commercial intercourse, and of

protecting one party from undue imposition by the other.

La. Civ. Code art. 3537. Article 3515 provides:

Except as otherwise provided in this Book, an issue in a

case having contacts with other states is governed by the

law of the state whose policies would be most seriously

impaired if its law were not applied to that issue.

That state is determined by evaluating the strength and

pertinence of the relevant policies of all involved states in

the light of: (1) the relationship of each state to the parties

and the dispute; and (2) the policies and needs of the

interstate and international systems, including the policies

of upholding the justified expectations of parties and of

minimizing the adverse consequences that might follow

from subjecting a party to the law of more than one state.

La. Civ. Code art. 3515.

The Debtor argues that Louisiana law has the most significant contacts with

this dispute, because except for the fact that Adreima was incorporated in Delaware,

all of the other entities involved, and the work to be performed, were located in

Louisiana. Additionally, the Debtor points out that the Louisiana legislature has

expressed a strong public policy regarding non-compete and non-solicitation

agreements in La. R.S. § 23:921. Specifically, § 921 contains the following provisions:

Every contract or agreement, or provision thereof, by which

anyone is restrained from exercising a lawful profession,

trade, or business of any kind, except as provided in this

Section, shall be null and void. However, every contract or

agreement, or provision thereof, which meets the

exceptions as provided in this Section, shall be enforceable.

La. R.S. § 23:921(A)(1).

Any person, including a corporation and the individual

shareholders of such corporation, who sells the goodwill of

a business may agree with the buyer that the seller or other

interested party in the transaction, will refrain from

carrying on or engaging in a business similar to the

business being sold or from soliciting customers of the

business being sold within a specified parish or

parishes, or municipality or municipalities, or parts

thereof, so long as the buyer, or any person deriving title

to the goodwill from him, carries on a like business therein,

not to exceed a period of two years from the date of

sale.

La. R.S. § 23:921(B) (emphasis added).

Section 921(A) is a long-standing statutory provision governing the general

rule for restrictive covenants, but § 921(B), governing restrictive covenants in the

context of the sale of a business (the situation presented in this case) was added

through a 1990 statutory amendment. Prior to the amendment, a number of courts

had ruled that the general rules for restrictive covenants did not apply in the sale of

a business.6 The Debtor argues that the 1990 amendment changed the law and

essentially showed that the Louisiana legislature had now expressed a strong public

policy against restrictive covenants even in the context of the sale of a business, such

that parties are not free to contract around § 921(B) by choosing to apply another

state’s law. Because the restrictive covenants at issue here exceed two years in length

and apply to the entire United States rather than “a specified parish or parishes, or

6 See, e.g., Marshall Brown Ins. Agency, Inc. v. Toledano, 292 So. 2d 266, 268 (La. Ct. App. 1974)

(citing Hirsh v. Miller, 167 So. 2d 539, 542 (La. Ct. App. 1964); accord Gold & Suckle, Inc. v. Suckle,

335 So. 2d 713, 715 (La. Ct. App. 1976) and Target Rental Towel, Inc. v. Byrd, 341 So. 2d 600, 603 (La.

Ct. App. 1977), all cited in the Debtor’s Objection (ECF #62, pp. 45-46).

municipality or municipalities, or parts thereof,” the Debtor contends that they are

void as against Louisiana’s public policy regarding restrictive covenants in connection

with the sale of a business and therefore must be nullified, precluding any claim by

Adreima for violating them.

There are a few problems with the Debtor’s argument. First, the main case the

Debtor cites, SWAT 24 Shreveport Bossier, Inc. v. Bond, 808 So. 2d 294 (La. 2001),

addressed a restrictive covenant in a Louisiana employment contract, not in

connection with the sale of a business, with the Supreme Court noting that

“Louisiana has long had a strong public policy disfavoring noncompetition

agreements between employers and employees,” id. at 298 (emphasis added)).7

Although the Debtor cites a few cases from both before and after SWAT 24 which he

claims demonstrates that this strong public policy would also apply in the context of

the sale of a business, these cases do not involve a choice-of-law clause purporting to

select the substantive law of another state, so they also do not address the question

at issue in this case. See Millett v. Crump, 687 So. 2d 132 (La. Ct. App. 1997)

(addressing a restrictive covenant in Louisiana contract to sell a business; no

discussion of choice-of-law provision); Chiasson v New Orleans Pub. Group, Inc., 761

So. 2d 89 (La. Ct. App. 2000) (same); Aon Risk Services of Louisiana, Inc. v. Ryan, 807

So. 2d 1058 (La. Ct. App. 2002) (same); Herff Jones, Inc. v. Girouard, 966 So. 2d 1127

(La. Ct. App. 2007) (same).

More problematic for the Debtor is the fact that at least two federal courts,

including this Court, have addressed the issue presented here after the 1990

amendment to § 921(B) and have concluded that parties remain free to select the law

of another state for restrictive covenants in connection with the sale of a business. In

MedX, Inc. of Florida v. Ranger, 780 F. Supp. 398 (E.D. La. 1991), the district court

concluded that the 1990 amendment adding § 921(B) “is a codification of

jurisprudence that favors enforcement of noncompete covenants that are made in

7 A later federal district court case cited by the Debtor, Lobrano v. C.H. Robinson Worldwide, Inc.,

2011 WL 52602 (W.D. La. Jan. 7, 2011), also concerned an employment agreement, not the sale of a

business.

connection with the sale of a business.” Id. at 400 (citing Target Rental Towel, Inc. v.

Byrd, 341 So. 2d 600, 603 (La. Ct. App. 1977); Hirsh v. Miller, 167 So. 2d 539, 541

(La. Ct. App. 1964)). The MedX court declined to invalidate a restrictive covenant

made in connection with the sale of a business even though it potentially exceeded

the two-year statutory maximum under § 921(B), stating:

Louisiana law gives effect to contractual choice of law

clauses as a matter of course unless doing so would violate

a strong public policy of the state. Because Louisiana law

generally validates the category of noncompete covenant at

issue here, it cannot be maintained that Louisiana law is

gravely offended by the enforcement of such a covenant.

Any argument to that effect would have the odd implication

that a noncompete covenant of two years or less from the

date of sale is entirely innocuous, while one of any greater

duration violates a strong public policy. Accordingly, this

Court finds that the exception for the sale of a business

applies in this case.

Id. at 401. (The restrictive agreement was included in an employment agreement, but

the MedX court concluded it was “an incident of and was ancillary to the sale,” id., so

it was actually made in connection with the sale of a business.)

The Court also noted that the public policy in the context of the sale of a

business, where parties typically negotiate at arm’s length without coercion or

adhesion, is different from the public policy in the employer/employee context, where

“‘the disparity in bargaining power, under which an employee, fearful of losing his

means of livelihood, cannot readily refuse to sign an agreement which, if enforceable,

amounts to his contracting away this liberty to earn his livelihood except by

continuing in the employment of his present employer.’” Id. (quoting Fine v. Property

Damage Appraisers, Inc., 393 F. Supp. 1304, 1310 (E.D. La. 1975)). The MedX court

held that Louisiana public policy, as expressed in § 921(B), did not apply to invalidate

the parties’ choice of Florida law with respect to interpretation of the restrictive

covenant, and it also upheld the restrictive covenant under Florida law.

In In re Gulf Fleet Holdings, Inc., 2011 WL 1313901 (Bankr. W.D. La. Mar. 31,

2011), this Court reached the same conclusion. In Gulf Fleet, the parties included a

Delaware choice-of-law clause in a purchase agreement, as well as a non-competition

provision that the movant, Hillman, alleged violated § 921(B). (Hillman did not assert

that the provision violated Delaware law, however.) This Court, relying on MedX and

the cases cited therein, held that Louisiana public policy did not bar parties from

selecting another state’s law to apply to restrictive covenants in the context of the

sale of a business, either as a matter of law or logic, because the parties to such an

agreement typically negotiate at arm’s length:

The flaw in Hillman’s public policy argument is that,

unlike the National Motor Club or Bell cases, the choice-of-

law clause and the non-competition provisions in the

Purchase Agreement were executed in connection with the

sale of a business for cash and other consideration

exceeding $60 million. The long-standing policy concerns at

play with respect to non-competition restrictions in

employment contracts—unequal bargaining position and

loss of livelihood—are not necessarily at play when the

agreement at issue involves the sale of a business, even if,

as here, the selling party later enters into a separate

employment agreement. [citing and discussing MedX]

* * *

Here, like MedX, [the parties’] non-competition agreement

was negotiated and executed in connection [with] the sale

of a business and, accordingly, does not invoke the strong

public policy interests that arise in cases involving solely

an employee-employer relationship. Like MedX, absent

strong public policy to the contrary, the Delaware choice-

of-law clause governing the Purchase Agreement and the

parties’ non-competition agreement is enforceable under

Louisiana Civil Code article 3540. See also Sentilles, 652

So.2d 79 (La.App. 4th Cir.1995) (enforcing choice-of-law

provision in franchise agreement on the grounds that the

franchisee’s relationship with the franchiser was not an

employee-employer relationship, thus making Louisiana’s

public policy against non-competition agreements

inapplicable).

Id. at *6. The Court further noted that a 1999 amendment to § 921, adding

§ 921(A)(2), nullifies choice-of-law and choice-of-forum clauses only with respect to

employment agreements (except in specific situations), but the restriction does not

apply to agreements made in connection with the sale of a business, further

demonstrating that Louisiana’s strong public policy concerns employment contracts,

not the sale of a business. Id. at *7.

The Court continues to hold the view expressed in Gulf Fleet, especially in the

absence of any clear Louisiana state court opinion to the contrary. In this case, the

Debtor and Adreima negotiated the sale of the business at arm’s length, for valuable

consideration, and without any allegation of coercion or adhesion. They were free to

choose not only the terms of their agreement but the law applicable to it. They chose

to include relatively broad restrictive covenants and to apply the law of Delaware,

and the Court finds that these agreements, in the context of the sale of a business, do

not violate the public policy of Louisiana. Accordingly, the Court will apply Delaware

law, not Louisiana law, to the interpretation of the restrictive covenants, and will not

nullify the restrictive covenants under Louisiana law.

Nowhere does the Debtor argue that the restrictive covenants are invalid

under Delaware law, the law chosen by the parties, and the Court cannot find any

reason to invalidate them under that law. The Court must now determine, as a matter

of fact, whether the Debtor breached the valid restrictive covenants, which was the

focus of the hearing on the Debtor’s Objection.

THE HEARING AND THE COURT’S FINDINGS OF FACT

Following the parties’ legal arguments on the applicable law and CGP’s

standing, the hearing’s focus turned to the factual questions of whether the Debtor

had violated the restrictive covenants, and if so, the damages for such violation. The

Court heard testimony by the Debtor, Landry, Hughes, and Ryan McCabe, Adreima’s

Vice President of Financial Planning and Analysis. The corporate depositions of

Willis Knighton and Texas Spine were also admitted into evidence. The Court has

carefully considered all the evidence and will summarize its findings on the

remaining issues below.

Validity of the Claim

Based on the testimony and record evidence, the Court makes the following

findings regarding the Debtor’s breach of the restrictive covenants:

• The Court finds that there is no credible evidence that the Debtor

violated the restrictive covenants by directly competing with Adreima,

soliciting Adreima’s customers, or soliciting Adreima’s employees to

leave.

• The Court finds credible Landry’s and Hughes’ testimony that the

Debtor played no role in Landry and Hughes leaving Adreima and no

role in signing up Willis Knighton and Texas Spine for Avail.

• The Court further finds, based on the testimony of Landry and Hughes

and the evidence admitted at the hearing, including transcripts from

corporate depositions of Willis Knighton and Texas Spine,8 that both

Willis Knighton and Texas Spine were unhappy with Adreima’s service

and pricing following Adreima’s purchase of the businesses. Both

companies had been contracting with Adreima for one-year terms and

therefore were free to terminate their relationship with Adreima on

relatively short notice.

• The Court finds that the Debtor was not involved with Avail except for

providing the $250,000 loan to Landry that enabled Landry to start

Avail and later providing additional cash to help with Avail’s operations.

The Debtor had no role in the management or operation of Avail, no role

in soliciting customers for Avail, and no equity or other interest in Avail.

• However, the Court finds that even if the Debtor’s extending a loan and

giving cash for operations to Landry was motivated by a purely personal

desire to help his friend, the funds the Debtor provided unquestionably

constitute “financing a competitor,” especially considering the Debtor

knew Landry intended to use the $250,000 loan to start Avail to compete

8 See Plaisance Exhibits 5 (Willis Knighton deposition) and 6 (Texas Spine deposition) (ECF #116).

with Adreima. That is just as true for the funds the Debtor provided to

assist Avail’s operations once it was already in business as a competitor

of Adreima.

Based on all the above findings, the Court finds and concludes that the Debtor

violated the restrictive covenants not to finance a competitor, which the Court has

already concluded are not nullified by Louisiana law and are viable under Delaware

law. The Debtor did not violate the other restrictive covenants, however, because he

did not directly compete with Adreima or solicit customers or employees of Adreima.

Having determined that the Debtor breached the restrictive covenants in this

way, the Court must address two remaining issues: whether the Debtor’s breach is

excused by Adreima’s alleged prior breach of the sale agreements, and, if not, what

the proper measure of damages is for the Debtor’s breach.

The Debtor argued in its post-hearing brief (ECF #99) that if the restrictive

covenants are not invalidated by Louisiana law, the Court should still refuse to

enforce them under Delaware law on the ground that Adreima materially breached

the business sale agreements before the Debtor breached the restrictive covenants.

Specifically, the Debtor argues that in the negotiations prior to the sale, Adreima

agreed to maintain the current staffing to service clients at the same level and to

maintain certain financing arrangements. After the sale, the Debtor contends,

Adreima went back on its word, causing business problems and leading the Debtor to

lose the opportunity for a $1 million payout, which constitute a material breach of the

agreements.

The Court rejects the Debtor’s argument on two grounds. First, as Adreima

correctly pointed out in its post-hearing brief (ECF #113), the Debtor’s argument does

not concern Adreima’s breach of any written agreement but rather the alleged breach

of statements made during negotiations. (ECF #113, p. 9-10). The problem for the

Debtor is that § 10.4 of the Asset Purchase Agreement specifically states: “This

Agreement, together with other Transaction Documents, constitutes the complete

agreement and understanding among the Parties regarding the subject matter of this

Agreement and supersedes any prior understandings, agreement or representations

(including that certain letter of intent dated November 21, 2014) regarding the

subject matter of this Agreement.”9 The Debtor cannot rely on statements made

during negotiations, and he has failed to point to any contractual provision that

Adreima materially breached.

Second, Adreima did not raise this argument until its post-hearing brief, which

could be construed as a waiver. The table of contents to Adreima’s Objection (ECF

#62) lists a section titled “If Delaware law applies, Adreima’s entering into the

contract in bad faith [p]recludes any enforcement of a non-compete agreement,” but

there is no such section in the text. At the hearing, although the parties certainly

addressed facts concerning Adreima’s customer service, the issue of whether Adreima

materially breached any contract provision was not squarely presented. In short, the

Debtor has failed to point to any contractual provision that Adreima is alleged to have

breached, but even if he had, he failed to develop facts tending to show that Adreima

materially breached them so as to excuse his own breach of the restrictive covenants.

Damages

This leaves the Court with only one task: determining the amount of Adreima’s

claim by assessing damages for the breach of the restrictive covenants.10 Just as it

did with respect to establishing the validity of its claim, Adreima has the burden of

proving the amount of its claim. See In re Tran, 369 B.R. 312 (Bankr. S.D. Tex. 2007)

(citing Matter of O’Connor, 153 F.3d 258, 260-61 (5th Cir. 1998)). As Adreima

correctly notes,11 the Court has broad discretion to determine damages. See Neal v.

Saga Shipping Co., 407 F.2d 481, 489 (5th Cir. 1969) (“There is no requirement that

9 (ECF #115-1, Adreima Exh. 1).

10 Prior to the hearing, the Court was under the impression that the focus would be on the validity

of Adreima’s claim rather than damages, as the vast majority of the briefing by both parties focused

on whether the Debtor had breached the restrictive covenants by either directly competing with

Adreima or by financing a competitor. Moreover, the witness and exhibit lists by both parties did not

list expert testimony or otherwise indicate that the parties would address damages. However, on the

day of the hearing, it became clear that Adreima intended to put on a damages case as well. During

an in-chambers status conference, the Court raised the possibility of deferring the hearing on damages

to a later date, but both parties chose to move forward and complete the hearing on both the validity

of the claim and potential damages.

11 See Adreima Post-Trial Brief, p. 2 (ECF #113).

. . . a trial court, sitting as trier of fact, itemize the components that enter into an

award of damages. . . . Another trier of fact might properly have used a method

slightly different from the one the trial court did. He might well have fixed the

damages at more or less than the amount that served as a basis for the award here.

Neither judge nor jury is expected to be infallible in such matters. The standards by

which damages are determined leave room for the play of judgment and discretion of

the type properly exercised by the trial court.”); In re Trendsetter HR L.L.C., 949 F.3d

905, 914 (5th Cir. 2020) (reviewing a damages award for clear error).

Adreima’s POC is in the amount of $11,271,196. This amount is based solely

on inadmissible hearsay evidence—the Phoenix Letter prepared by Richard Szekelyi.

Adreima did not call Szekelyi as a witness but instead tendered McCabe as an expert

in mathematics and financial prediction/forecasting despite the fact he had not

written the Phoenix Letter (though he had supplied some information used in it) and

was not familiar with many of the issues necessary to prove valuation. The Court did

not accept McCabe as an expert and did not give credence to any expert opinions he

may have stated or repeated from the Szekelyi letter. However, the Court did accept

his testimony as that of a lay witness knowledgeable about his job with Adreima in

the field of financial planning and analysis who had helped prepare information for

Szekelyi. McCabe had worked for Adreima and its related companies since at least

2013, and he certainly had personal knowledge of the company’s finances, including

the history of revenues and profits from Adreima’s relationships with Willis Knighton

and Texas Spine.12 The Debtor had no expert or other such witness ready to directly

12 The Debtor maintains in his post-hearing brief that McCabe, as a lay witness, was not qualified

under Fed. R. Evid. 701 to testify as to damages. The Court agrees that McCabe was not qualified to

testify as to a speculative damages model, which would require expert testimony. However, he was

qualified to testify as to Adreima’s past business, including past revenues and profits, based on

Adreima’s business records, which the evidence shows he prepared, and the Court’s Ruling is based

only on facts as to which McCabe was qualified to testify. In other words, the Court is not evaluating

any of McCabe’s testimony as that of an expert under Fed. R. Evid. 701. Rather, the Court is evaluating

his testimony under Fed. R. Evid. 602 (“A witness may testify to a matter only if evidence is introduced

sufficient to support a finding that the witness has personal knowledge of the matter. Evidence to

prove personal knowledge may consist of the witness’s own testimony. . . .”).

address damages, though some of the testimony by the Debtor, Landry and Hughes

rebutted Adreima’s damages evidence.

Based on the testimony and the record in this matter, the Court finds that it

is appropriate to award some degree of damages for the Debtor’s breach, but Adreima

has grossly overstated its claim. Adreima’s damages calculation is based on allegedly

much more egregious behavior by the Defendant (direct solicitation of Adreima

customers and employees, founding a competing business, and the like) which the

evidence and testimony established to be false. The Debtor breached only the

provision prohibiting the financing of a competitor of Adreima, not by directly

competing with Adreima, hiring away Adreima employees, or enticing customers

away from Adreima.

Moreover, with respect to the primary component of Adreima’s damages, the

loss of future profits, Adreima’s damages model rests on the assumption that but for

the Debtor financing Avail, Willis Knighton and Texas Spine would have remained

Adreima customers for at least as long as they had already been customers: 15 years

of projected future profits for Willis Knight and eight years of projected future profits

for Texas Spine. The Court finds that assumption to be unreasonable and not

supported by the testimony or record evidence. Adreima’s assumption as to potential

lost years of profits appears particularly questionable since the restrictive covenants

were set to expire approximately two years after Willis Knighton and Texas Spine

began using Avail’s services.

Finally, both Willis Knighton and Texas Spine had only recurring one-year

contracts with Adreima at the time they left, allowing either one to terminate

Adreima’s services on relatively short notice. Based on credible testimony at the

hearing and record evidence, including transcripts of their corporate depositions, the

Court finds that Willis Knighton and Texas Spine were unhappy with Adreima’s

pricing and/or customer service, and those customers may well have left Adreima for

another competitor at any time. There is no evidence that Avail offered any special

enticement for Willis Knighton and Texas Spine to leave Adreima other than better

pricing and customer service, and no evidence that the Debtor was involved at all in

luring the customers away from Adreima. The Court finds that both Willis Knighton

and Texas Spine could have and may have terminated Adreima’s services at any time

even if Avail did not exist. The Court therefore concludes that Adreima is not entitled

to damages for the entire anticipated future loss of income from those customers

based on an assumption that they would have remained customers of Adreima for at

least as long as they had already been customers of Adreima (and the companies

previously operated by the Debtor).

On the other hand, the Debtor unquestionably breached the restrictive

covenants by financing Avail, and the customers in question left Adreima for Avail.

They could not have defected to Avail at that time if the Debtor had not helped Avail

with startup financing and some later financial assistance.

Under the circumstances, particularly the lack of both credible evidence that

Willis Knighton and Texas Spine would have remained clients of Adreima indefinitely

and credible projections of lost profits over an extended time period, the Court will

award one year of lost profits for the loss of Willis Knighton’s and Texas Spine’s

business. Adreima’s witness, McCabe, testified that for the business that Adreima

lost to Avail, in the year prior to that defection, Adreima had invoiced Willis Knighton

approximately $1,200,000 and Texas Spine $405,000. He also testified that

Adreima’s profits on these revenues were $640,000 and $220,000 respectively. Thus,

the Court finds Adreima’s damages for the Debtor’s breach of the agreement to be

$860,000, the lost profits for one year.

Adreima also seeks $300,000 in damages for breach of the Goodwill Purchase

Agreement and $148,000 for breach of the Consulting Agreement. Adreima fails to

explain why it should get all its money back for these agreements despite getting

damages for the actual loss of business. The evidence shows that the Debtor did

nothing other than finance a competitor. There is no evidence that he disparaged

Adreima to competitors, solicited employees, directly competed, or otherwise violated

the spirit of the Goodwill Purchase Agreement—other than by financing a competitor

in violation of the letter of the restrictive covenants. The Court finds that the

requested remedy of getting back the entire $300,000 paid for the Goodwill Purchase

Agreement is unreasonable, and that the award of damages for the future lost profits

is sufficient. The restrictive covenants were the same in all three contracts, and the

Court finds that a single damages award tied to the conduct at issue is most

reasonable. Similarly, there is no suggestion that the Debtor failed to perform the

consulting services called for by the Consulting Agreement, and imposing damages

beyond the award of future lost profits would go beyond remediation and into the

realm of punitive damages. Adreima has proved damages for the loss of future profits,

but no more.

The Court also declines to award damages for the loss of employees to Avail.

Testimony at the hearing, which the Court finds to be credible, established that many

of Adreima’s employees were unhappy there. Whether they left of their own accord or

were fired, there is no evidence showing those employees left solely due to the Debtor

financing Avail, and they likely would have left anyway. Thus, the Court finds that

Adreima did not prove damages for the loss of those employees, and it is Adreima’s

burden to do so. Finally, although Adreima refers to other potential categories of

damages in its brief, the Court finds that those were not sufficiently supported by

record evidence.

In sum, based on all of the above, the Court concludes that the only reasonable

damages to which Adreima is entitled, and for which it provided sufficient evidence

at the hearing, are those relating to the loss of one year of future profits for Willis

Knighton’s and Texas Spine’s business, in the total amount of $860,000.

CONCLUSION

The Court concludes that the Debtor’s Objection should be granted in part and

denied in part, and that Adreima’s claim shall be allowed in the amount of $860,000

for the Debtor’s violation of the restrictive covenants by financing a competitor. The

Debtor shall submit to the Court an Order in accordance with this ruling within ten

(10) days from its entry.