In Re Salander O'Reilly Galleries
453 B.R. 106
| Bankr. S.D.N.Y. | 2011Background
- Kraken seeks relief from the automatic stay to arbitrate in Jersey under a pre-petition Jersey Law Clause to determine whether Botticelli is estate property.
- Trust asserts rights under Bankruptcy Code §544 as hypothetical lien creditor and as Bank assignee; Trust is not party to the consignment agreement.
- Artwork and Bank lien were central credits post-petition; plan transferred Bank’s lien to the Liquidation Trust, making the Trust a central party in a core §544 proceeding.
- The Jersey Law Clause would govern arbitration in Jersey; Kraken argues state-law (NY UCC) affects perfection and priority, impacting its claim.
- Court treats the dispute as a core matter under §157(b)(2) and §544 analysis; it must be resolved in bankruptcy court rather than by Jersey arbitration to preserve centralized reorganization.
- Bankruptcy Court denies Kraken’s lift-stay motion and declines to enforce arbitration, holding the Trust’s lien priority and estate interests must be resolved in the §544 action in bankruptcy court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration should decide if Botticelli is estate property. | Kraken: Jersey law governs. | Trust: Trust rights stem from Bankruptcy Code; not bound by Jersey clause. | No; core §544 issue to be decided by bankruptcy court. |
| Whether Jersey Law Clause survives NY UCC conflict rules to govern perfection/priority. | Kraken: Jersey law applies under 1-105(1) and 9-301/9-307. | Trust: 1-105(2) preempts; UCC perfection rules override Jersey clause. | No; Jersey clause pre-empted by UCC 1-105(2) analysis; arbitration not enforced. |
| Whether arbitration would disrupt core bankruptcy proceedings. | Kraken: arbitration would resolve its §544 rights in Jersey. | Trust: core bankruptcy functions require court resolution. | Arbitration not permitted; core proceeding stays in bankruptcy court. |
| Whether the case is properly characterized as core vs non-core for arbitration discretion. | Kraken: proceedings could be arbitrated as private rights. | Trust: §544 actions are core and arise under the Bankruptcy Code. | core proceeding; cannot be arbitrated. |
| Whether the Trust, as assignee of the Bank and as hypothetical lien creditor, is bound by the Jersey Law Clause. | Kraken: Trust bound via Bank assignment and liens. | Trust not party to consignment; rights arise from Bankruptcy Code. | Not bound; arbitration clause not enforceable against Trust. |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (constitutional limits on bankruptcy court finality for state-law counterclaims)
- United States Lines, Inc., 197 F.3d 631 (2d Cir. 1999) (core proceeding treatment of contract-related claims in bankruptcy)
- Marathon Pipe Line Co. v. Federal? Marathon, 458 U.S. 50 (U.S. 1982) (core vs non-core remediation of private rights in bankruptcy context)
- Koreag, Controle et Revision S.A., 961 F.2d 341 (2d Cir. 1992) (threshold determination of property interest before turnover in foreign insolvency)
- In re Valley Media, 279 B.R. 105 (Bankr. D. Del. 2002) (trustee avoidance powers; consigned goods and prioritization of liens)
- Hays and Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989) (trustee bound by pre-petition arbitration clauses for derivative claims? non-derivative law)
- MBNA America Bank, N.A. v. Hill, 436 F.3d 104 (2d Cir. 2006) (arbitration in bankruptcy—core vs non-core distinctions)