BG Creates Law That NDA Obligations Not Fulfilled In Bankruptcy

ByDonald L. Leech

Aug 10, 2022

LOS ANGELES, August 10, 2022 /PRNewswire/ — In the event of a first impression, without prior decision on the point in the country, BG persuaded the United States Bankruptcy Court for the Southern District of New York at to reign that the obligation not to disclose information, pursuant to the terms of a non-disclosure agreement (“NDA”) entered into before the bankruptcy, will not be waived in the event of bankruptcy.

Despite the prevalence of NDAs in a wide range of business and personal transactions, and recent high-profile litigation regarding their application, there have been no bankruptcy court decisions to date dealing squarely with the question of whether bonds NDA survive bankruptcy.

In this case, the Firm’s client entered into an NDA with the Debtor before the bankruptcy. The debtor argued that the NDA could be ignored and that the debtor could even publish facts and circumstances the disclosure of which was prohibited by the NDA, because, according to the debtor, the “fresh start” of the bankruptcy made the obligations of the NDA not applicable.

The bankruptcy court accepted BG’s analogy to non-competition cases and accepted the premise of our argument that non-disclosure obligations are not “debts” within the meaning of the bankruptcy code because they do not oblige the debtor to pay money.

The Court’s decision cited BG’s legal brief for the proposition that the NDA obligations “would not require the obligor to expend funds, take any action or do anything; it merely allows the creditor to enforce [NDA]which prohibits the debtor from affirmatively violating [Debtor’s] commitment….” (Decision at p. 14.)

The Court therefore agreed that NDA bonds were not “claims” and that only “claims” are liable to be discharged in bankruptcy, NDA bonds are not discharged in bankruptcy .

Accordingly, although the firm’s client is not entitled to seek damages for breach of the NDA, the client is free to obtain an injunction to enforce the NDA.

The Firm’s client was represented in this case by Steve Gubner and Jerry Bregman. “This is a great result and an important decision to clarify the law,” Bregman said.

The decision was made in In re Uchitel, Banker. SDNY Case No. 10-11585 (JLG) (August 4, 2022) [DOC # 70]

SOURCE BG Law