Our clients expect settlement agreements to be enforceable. Such agreements often contain activity restrictions, like noncompete agreements and confidentiality provisions. U.S. Bankruptcy Court Judge Michelle Jerson of the Northern District of Texas had the opportunity to consider the consequences of a flagrant breach of a settlement agreement in the case of Pirtek USA v. James Bradley Lager, (Bankr. N.D. Texas, 2023). Jerson carefully marshalled the facts in this very interesting opinion addressing important issues of contract law, franchise law and dischargeability in bankruptcy.

The defendants, James Bradley Lager (the debtor) and his company JBL Hose Service LLC d/b/a Texas Hose Pro (JBL), had signed two successive and confidential settlement agreements with its franchisor, Pirtek USA, LLC (Pirtek) in order to resolve nonrenewal by Pirtek of two franchise agreements. In the first settlement, debtor and JBL agreed to pay unpaid amounts to the franchisor, observe the noncompete provisions and maintain confidentiality. Within months of entering into the first settlement agreement, counsel to the debtor and JBL demanded $9 million from Pirtek and rescission of the first settlement agreement. The parties renegotiated the first settlement agreement.