BUTLER v. WOJTKUN et al

Filing 119

Chief Judge Patti B. Saris: MEMORANDUM AND ORDER:"For the foregoing reasons, the Court AFFIRMS the bankruptcy court's order."(Lara, Miguel)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
)
)
)
)
Debtor.
)
)
)
JOSEPH G. BUTLER, CHAPTER 7
)
TRUSTEE OF PETER WOJTKUN
)
)
Appellant,
)
)
v.
)
)
)
PETER WOJTKUN,
)
)
Appellee.
)
___________________________________)

In re:
PETER WOJTKUN,

Chapter 7
No. 17-12719-MSH

Civil Action Nos.
18-12026-PBS,
18-12032-PBS,
15-10342-PBS

MEMORANDUM AND ORDER
February 15, 2019
Saris, C.J.
INTRODUCTION
Trustee Joseph Butler appeals from the bankruptcy court’s
refusal to issue an order barring Debtor Peter Wojtkun from
performing dental services for five years within fifteen miles
of his former dental practice. The Trustee seeks this order to
facilitate the sale of the practice, which is an asset of
Wojtkun’s Chapter 7 estate. Relying on Wojtkun’s duty to
cooperate with the Trustee, the bankruptcy court issued an order

1

requiring him to provide information about the practice to the
Trustee to assist with the sale and barring him from actively
soliciting the practice’s patients, but it declined to issue the
requested noncompetition order.
After hearing, the Court AFFIRMS the bankruptcy court’s
order.
FACTUAL AND PROCEDURAL BACKGROUND
Wojtkun filed a petition for Chapter 7 bankruptcy
protection in the Bankruptcy Court for the District of
Massachusetts on May 7, 2013. Joseph Butler was appointed as
trustee the following day. The court granted Wojtkun a discharge
on August 13, 2013. At the time he filed his petition, Wojtkun
was a practicing dentist and the sole shareholder of Peter
Wojtkun DMD P.C., a Massachusetts professional corporation. By
filing his petition, his shares in the professional corporation
transferred to the Trustee. See In re Wojtkun, No. 16-cv-10843,
2017 WL 888307, at *3 (D. Mass. Mar. 6, 2017) (affirming the
bankruptcy court’s order permitting the Trustee “to take certain
actions as the sole shareholder and director of the
corporation”). The professional corporation ceased operating in
November 2014.
Since filing for bankruptcy, Wojtkun has practiced
dentistry at the same location where his professional

2

corporation operated, using the same equipment and treating the
same patients.
Wojtkun and the Trustee have repeatedly clashed over the
administration of the bankruptcy estate. The Trustee seeks to
sell the professional corporation. He contends that he cannot do
so, however, because Wojtkun refuses to provide information
about the practice to allow for a proper valuation and is
operating a new dental practice in the same location, which
depresses the value of the professional corporation. On April
25, 2017, the Trustee initiated an adversary proceeding against
Wojtkun in the bankruptcy court seeking an injunction pursuant
to 11 U.S.C. § 105(a) and 11 U.S.C. § 521(a)(3) to bar him from
hindering or interfering with the Trustee’s sale of the dental
practice, require him to cooperate with the Trustee in the sale,
and restrict him from practicing dentistry within fifteen miles
of the practice for five years to avoid competition with the
purchaser of the professional corporation.
After Wojtkun moved for summary judgment, the bankruptcy
court (Hoffman, J.) issued its decision on August 23, 2018.
Because neither 11 U.S.C. § 105(a) nor 11 U.S.C. § 521(a)(3)
creates a private right of action, the court treated the
adversary proceeding complaint as a motion for an order
compelling Wojtkun to comply with his duties under 11 U.S.C.
§ 521. The court determined that Wojtkun’s duty to cooperate
3

with the Trustee in the sale of the professional corporation
required him to provide his business and patients records and
answer questions about the practice for prospective buyers. It
also decided that Wojtkun could not actively solicit patients of
the practice, though he could treat patients who sought him out
on their own. Wojtkun does not challenge either of these aspects
of the bankruptcy court’s order.
The court then addressed the Trustee’s request for a
noncompetition order. The court acknowledged that Massachusetts
law imposes on certain voluntary sellers of a business an
implied covenant not to compete with the buyers but determined
that this implied covenant did not attach to involuntary sales
in bankruptcy. The court recognized that the Seventh Circuit in
In re Uniservices, Inc., 517 F.2d 492, 497 (7th Cir. 1975),
affirmed a declaration prohibiting a former president and
shareholder of the debtor company from competing with the
company. The court found Uniservices inapposite, however,
because it was a reorganization case and unique equitable
factors, namely that the individual forced his employees to
enter into covenants not to compete, justified the
noncompetition order.
The court instead found this dispute comparable to In re
Glazer, 317 B.R. 488, 490 (Bankr. E.D. Mich. 2004), where a
bankruptcy court declined to impose a noncompetition order on a
4

debtor as part of the sale of his chiropractic practice. The
court in Glazer declined to do so because the Bankruptcy Code’s
fresh start policies trumped the competing goal of maximizing
creditor recovery and because a noncompetition order would
effectively bring the debtor’s right to work in a certain area
into the estate (in violation of the Code’s exemption for postpetition earnings). The bankruptcy court recognized that Glazer
did not address a debtor’s obligation to cooperate with a
trustee under § 521(a)(3) but nevertheless declined to order
Wojtkun not to practice dentistry within fifteen miles of the
practice for five years.
The Trustee filed a notice of appeal with this Court on
September 24, 2018. He challenges the bankruptcy court’s
decision not to impose the noncompetition order on Wojtkun.
DISCUSSION
I.

Standard of Review
The district court reviews “the bankruptcy court’s findings

of fact for clear error, and its conclusions of law de novo.”
Irving Tanning Co. v. Kaplan, 876 F.3d 384, 389 (1st Cir. 2017).
“Discretionary rulings made pursuant to the Bankruptcy Code are
reviewable only for abuse of discretion.” In re Gonic Realty
Tr., 909 F.2d 624, 626 (1st Cir. 1990). A bankruptcy court
abuses its discretion when it “relies upon an improper factor,
neglects a factor entitled to substantial weight, or considers
5

the correct mix of factors but makes a clear error of judgment
in weighing them.” In re Mercado, 523 B.R. 755, 761 (B.A.P. 1st
Cir. 2015) (internal quotation omitted). The bankruptcy court
treated the Trustee’s complaint as a motion for an order to
enforce Wojtkun’s duty to cooperate under 11 U.S.C. § 105, which
grants the court discretionary powers to issue orders to enforce
the Bankruptcy Code. Because the bankruptcy court did not decide
that it could never impose a noncompetition order on a debtor
but instead exercised its discretion not to grant the requested
relief in this case, this Court reviews the bankruptcy court’s
decision for abuse of discretion.
II.

Standing
Before reaching the merits of the appeal, Wojtkun

challenges the Trustee’s standing to bring the underlying
adversary proceeding as a shareholder of the professional
corporation. The bankruptcy court treated the adversary
proceeding as a motion for an order compelling Wojtkun to comply
with his duty to cooperate with the Trustee. Neither party
challenges this decision. Accordingly, the Trustee was suing not
as the shareholder of the professional corporation but as the
trustee of the Chapter 7 estate. Wojtkun makes no argument that
the Trustee does not have standing to seek this order in his
capacity as trustee.

6

III. Noncompetition Order
The Trustee contends that the bankruptcy court abused its
discretion in declining to issue an order barring Wojtkun from
practicing dentistry within fifteen miles of the location of his
old practice for five years. The Trustee argues that the
bankruptcy court should have entered this order to enforce
Wojtkun’s duty to cooperate in liquidating the assets of the
estate. He also points out that the noncompetition order is
authorized under Massachusetts law, which recognizes an implied
covenant not to compete in certain sales of a business. See
Tobin v. Cody, 180 N.E.2d 652, 655-57 (Mass. 1962).
The bankruptcy court treated the adversary proceeding as a
motion requesting an order under 11 U.S.C. § 105. That provision
authorizes the bankruptcy court to “issue any order, process, or
judgment that is necessary or appropriate to carry out the
provisions of” the Bankruptcy Code. 11 U.S.C. § 105(a). While
broad, § 105(a) “does not give bankruptcy courts ‘a roving writ,
much less a free hand’ to provide equitable relief.” In re Oak
Knoll Assocs., L.P., 835 F.3d 24, 34 (1st Cir. 2016) (quoting In
re Jamo, 283 F.3d 392, 403 (1st Cir. 2002)). “Rather, this
statute ‘may be invoked only if, and to the extent that, the
equitable remedy dispensed by the court is necessary to preserve
an identifiable right conferred elsewhere in the Bankruptcy
Code.’” Id. (quoting In re Jamo, 283 F.3d at 403); see also In
7

re Nosek, 544 F.3d 34, 43 (1st Cir. 2008) (noting that a
bankruptcy court may only use its § 105 authority to enforce a
specific code provision).
Under 11 U.S.C. § 521(a)(3), a debtor shall “cooperate with
the trustee as necessary to enable the trustee to perform the
trustee’s duties.” One duty of a Chapter 7 trustee is to
“collect and reduce to money the property of the estate.” Id. §
704(a)(1). The Trustee argues that the requested noncompetition
order is necessary to enforce Wojtkun’s duty to cooperate in the
liquidation of the estate.
The duty to cooperate requires that, “whenever the trustee
calls upon the debtor for assistance in the performance of his
duties, the debtor is required to respond, at least if the
request is not unreasonable.” Collier on Bankruptcy ¶ 521.15[5]
(Richard Levin & Henry J. Sommer eds., 16th ed. 2018); see also
In re Morey, 416 B.R. 364, 366 (Bankr. D. Mass. 2009) (adopting
this standard). Accordingly, the debtor must convey estate
property to the trustee, see, e.g., In re Olsen, 36 F.3d 71, 73
(9th Cir. 1994); Turshen v. Chapman, 823 F.2d 836, 838-39 (4th
Cir. 1987), and provide the trustee with information necessary
to collect and liquidate the estate’s assets, see, e.g., In re
Auld, 561 B.R. 512, 521 (B.A.P. 10th Cir. 2017). The duty to
cooperate does not require the debtor to take affirmative steps
to increase the value of the estate. See In re McCourt, 12 B.R.
8

587, 591 (Bankr. S.D.N.Y. 1981) (declining to require the debtor
to execute a right of election that would entitle him to onethird of the estate of his deceased wife).
In determining what actions the duty to cooperate requires
a debtor to take, courts must maintain the balance that
bankruptcy law aims to strike between creditors’ rights to
repayment and the debtor’s right to a fresh start. See In re
Carvalho, 335 F.3d 45, 51 (1st Cir. 2003). The debtor’s duty to
cooperate ensures that a trustee can “maximize the return to
creditors through orderly liquidation of the assets” of the
estate. In re Stinson, 269 B.R. 172, 176 (Bankr. S.D. Ohio
2001). But the debtor “acts primarily for his own benefit” to
seek a fresh start. In re Waldvogel, 125 B.R. 13, 15 (Bankr.
E.D. Wis. 1991). To facilitate this fresh start, 11 U.S.C.
§ 541(a)(6) excludes post-petition earnings from the estate. See
In re Andrews, 80 F.3d 906, 910-11 (4th Cir. 1996).
To justify the noncompetition order, the Trustee relies
heavily on In re Uniservices, a reorganization case in which the
Seventh Circuit upheld a bankruptcy court’s order barring a
former president and shareholder of a debtor corporation from
competing with the debtor for a reasonable time. 517 F.2d at
494, 497. The Seventh Circuit upheld the order because equity
required that the president of the debtor be subject to a
noncompetition order after forcing his employees to sign
9

covenants not to compete. See id. at 497. In re Uniservices did
not consider whether the noncompetition order served to enforce
the debtor’s duty to cooperate.
It is true that the goodwill of the dental practice is
property of the bankruptcy estate and that Wojtkun’s decision to
compete with the practice undermines the value of this goodwill.
See Matter of Prince, 85 F.3d 314, 3224 (7th Cir. 1996) (holding
that the goodwill of a Chapter 11 debtor’s professional
corporation was an asset of the estate). In some circumstances,
a noncompetition order to maintain the value of the professional
corporation’s goodwill may be appropriate to enforce a debtor’s
duty to cooperate. Here, the record is troubling in that Wojtkun
does seem to be undermining the Trustee’s sale of the
professional corporation by taking advantage of Chapter Seven.
Getting him to cooperate with the Trustee was apparently like
pulling teeth. Immediately after declaring bankruptcy, Wojtkun
began providing dental services as a sole proprietor in the same
office with the same equipment he used when he operating as a
professional corporation before the bankruptcy. Because
operating in the same location allows Wojtkun to easily poach
patients from the professional corporation, it would have been
within the bankruptcy court’s discretion to order Wojtkun not to
practice dentistry in that location.

10

However, other factors weigh against the issuance of the
noncompetition order. The noncompetition agreement had a broad
geographic scope over a long time period. Moreover, Wojtkun had
already been practicing for four years when the Trustee sought
the order. As such, issuing a noncompetition order would
effectively give the corporation the goodwill he had generated
after the discharge in bankruptcy. See In re Glazer, 317 B.R. at
489-90 (declining to issue a two-year noncompetition order
covering three counties on the debtor to facilitate sale of his
chiropractic practice for this reason). Accordingly, in these
circumstances, the bankruptcy court did not abuse its discretion
in refusing to issue the broad noncompetition order the Trustee
did request because doing so would tip the balance between
Wojtkun and his creditors too far in the creditors’ favor.
ORDER
For the foregoing reasons, the Court AFFIRMS the bankruptcy
court’s order.
SO ORDERED.

/s/ PATTI B. SARIS
Patti B. Saris
Chief United States District Judge

11