449 B.R. 366
8th Cir. BAP2011Background
- DCS provides computer hardware, software, and support to Crossroads Ford under a contract dating to 1994 that includes an arbitration clause under AAA rules.
- Crossroads sought to buy out remaining obligations in 2005, stopped paying, and disputed the buyout terms.
- Crossroads filed for bankruptcy on June 19, 2010, shortly before the scheduled arbitration hearing, raising stay issues.
- DCS sought relief from the automatic stay to proceed with arbitration; Crossroads argued fraud in inducement and that arbitration should occur in a Texas class action context.
- Bankruptcy court granted relief from stay on September 1, 2010, concluding arbitration could proceed and Crossroads could intervene in related Texas arbitration if classcertified.
- On appeal, Crossroads contends the court erred by not ruling separately on fraud in the arbitration agreement and by not tailoring relief to a Texas class arbitration that did not involve Crossroads as a party.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fraud claim targets the arbitration clause. | Crossroads argues fraud in inducement to arbitration. | DCS contends fraud claims relate to the contract as a whole, not specifically the arbitration clause. | Arbitration panel has jurisdiction; fraud claim regarding whole contract not dispositive. |
| Whether relief from stay should be tailored to a pending Texas class arbitration. | Crossroads seeks to limit arbitration to the Texas class action context. | DCS requests relief independent of Crossroads' participation in the Texas class arbitration. | No tailoring required because no pending class action arbitration involving Crossroads at the time. |
Key Cases Cited
- Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772 (2010) (two-path FAA challenge: specific arbitration clause vs. contract as a whole)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (fraud in the inducement of a contract vs. arbitration clause analysis)
- Flynn v. Chater, 107 F.3d 617 (8th Cir. 1997) (preservation of arguments raised on appeal; avoid manifest injustice)
- Everest Software, Inc. v. Rothman Furniture Stores, Inc., 2010 WL 4319707 (E.D. Mo. 2010) (fraud-in-inducement to include arbitration clause distinguishing from contract fraud)