Hall v. Goforth ( 1998 )

Opinion on Appeal

Hughes, District Judge.

1. Introduction.

A debtor appeals from a creditor’s recovery of the full amount of a judgment arising out of a group of transactions including an employment agreement. The bankruptcy code limits the liability of a debtor-employer on an employment contract to one year’s compensation; however, the code does not limit the liability of a debtor who agreed to employment as a contemporaneous part of a purchase of the controlling shares of the employer. See 11 U.S.C. § 502(b)(7). The creditor’s recovery will subsist.

2. Background.

Five years ago, Ernest J. Hall sold control of Teleometries International, Inc. to Jeffrey A. Goforth. The integrated agreement comprising the deal between Hall and Goforth required that, after the transfer of the shares, Teleometries would employ Hall under a specific five-year employment contract with Teleometries that was an attachment to the integrated agreement. Five months later, Teleometries fired Hall.

The integrated agreement required the parties to arbitrate their disputes. In an arbitration, Hall won $1,127,000 against both Teleometries and Goforth. A state court entered a judgment against both Teleometries and Goforth enforcing the arbitration award. After the judgment, both Teleometries and Goforth filed for reorganization. Hall then filed claims against each party for the $1,127,000 judgment.

In the proceeding with Teleometries, the bankruptcy court determined that Teleome-trics owed Hall only $192,000, because the bankruptcy code limits a debtor’s liability on an employment contract to one year’s compensation. Goforth argues that the same statute limits his liability to Hall.

3. Employment Contracts.

The bankruptcy code allows a creditor to collect up to one year’s compensation for claims based on employment contracts. See 11 U.S.C. § 502(b)(7). Logic requires that the statute implicitly protects employers alone, for employees receive employment contracts from their employers. Also, the statute does not limit the liability of guarantors of employment contracts. See In re Johnson, 117 B.R. 461 (Bankr.D.Minn.1990). Although Goforth did not specifically guarantee Hall’s employment contract with Teleo-metrics, Goforth served a similar role when he acquired control of Teleometries and agreed that it would employ Hall.

Finally, Goforth’s liability to Hall is beyond that of a guarantor; Goforth is hable on the integrated agreement as the purchaser of Teleometries stock, not based on Teleome-trics’ employment agreement with Hall. Part of the consideration for the transfer of control was Hall’s employment with Teleome-tries. The code applies only to claims arising from employment contracts — not to related contract claims. Goforth did not employ Hall; therefore, the code does not limit Go-forth’s liability to Hall.

4. State Court’s Decision.

In enforcing the arbitration, the state court found Teleometries and Goforth liable based on the entire transaction, not solely on the employment agreement. The bankruptcy court did not reexamine the whether Go-forth employed Hah; rather, the bankruptcy court simply applied the code to the record before it. The state court decision remains undisturbed.

5. Conclusion.

The code limits only the liability of Teleo-metrics. Goforth is responsible for the entire judgment against him. The court will affirm.

Final Judgment

The judgment of the bankruptcy court is affirmed, allowing Ernest Jay Hall’s claim against Jeffrey A. Goforth for $1,002,122.79, calculated to September 1,1998.