482 B.R. 344
Bankr. D.N.M.2012Background
- Deermans filed a Chapter 11 petition; pre-petition Cody Farms sued in arbitration against Deermans and others.
- Arbitration occurred in Arizona under a Stipulated Order staying the adversary case and compelling arbitration; an Interim and Final Arbitration Award were issued.
- Plaintiffs seek non-dischargeability under 11 U.S.C. § 523(a)(2)(A), (4), and (6) based on collateral estoppel from the Arbitration Award.
- Defendants contend the Motion violates the automatic stay and the Stipulated Order, and argue they may contest the arbitration award.
- The Court concludes the stay was not violated, collateral estoppel applies, and the Arbitration Award should be confirmed for purposes of non-dischargeability unless certain damages allocations are resolved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Motion violates the automatic stay or Stipulated Order | Plaintiffs complied with the Stay and arbitration; motion is proper to determine non-dischargeability. | Motion violated § 362 stay and the Stipulated Order. | No, neither the stay nor the Stipulated Order was violated. |
| Whether Deermans can contest the Arbitration Award | Arbitration findings are final; collateral estoppel applies to establish non-dischargeability. | Defendant may challenge the Award under FAA sections 9-12 and under NM law. | Deermans are barred from contesting the Arbitration Award; confirmation can proceed. |
| Whether to give collateral estoppel effect to the Arbitration Award for non-dischargeability | Arizona collateral estoppel applies; findings establish elements of 523(a)(2)(A), (4), (6). | Collateral estoppel should not apply or is limited. | Collateral estoppel applies; the Arbitrator's facts support non-dischargeability. |
| Derivative standing to assert 523(a)(4) and (6) on behalf of Falcon Farms | Cody Farms, as Falcon Farms member, has derivative standing; Deermans’ adverse interests do not bar suit. | Standing and statutory requirements may bar derivative claims. | Cody Farms has derivative standing; derivative embezzlement claims are viable. |
| Damages and non-dischargeable amount under 523(a)(2)(A),(4),(6) | Arbitration Award of $254,289.67 plus prejudgment interest; some amounts attributable to other parties or non-derivative claims. | Damages must be precisely allocated; some amounts do not belong to Plaintiffs. | Partial judgment granted; specific non-dischargeable amounts allocated; further evidence needed for full allocation of the $901,000 component. |
Key Cases Cited
- Foster v. Turley, 808 F.2d 38 (10th Cir.1986) (narrow review of arbitration; policy favoring arbitration)
- Dominion Video Satellite, Inc. v. EchoStar Satellite, L.L.C., 430 F.3d 1269 (10th Cir.2005) (limited judicial review of arbitration awards)
- Chauffeurs, Teamsters, Warehousemen and Helpers Local Union No. 86b v. Rúan Transport Corp., 473 F. Supp. 298 (N.D. Ind.1979) (§ 12 limitations; defenses to confirmation)
- Photopaint Technologies, LLC v. Smartlens Corp., 335 F.3d 152 (2d Cir.2003) (§ 9 FAA; limitations on confirmation)
- Ron Pair Enters., Inc. v. United States, 489 U.S. 235 (Sup. Ct.1989) (statutory interpretation; plain meaning governs)