630 B.R. 160
Bankr. D. Md.2021Background
- Debtor John McPherson filed Chapter 11 on Jan. 12, 2021 after entering a prepetition Litigation Funding Agreement with Camac Fund, L.P. that contained an arbitration clause.
- Camac invoked the arbitration clause prepetition; a hearing was set but stayed by the bankruptcy filing; both parties filed adversary proceedings in the bankruptcy (claims under §§ 502, 510, 523, 543, 544, 547, 553 and a nondischargeability complaint).
- Camac moved for relief from the automatic stay and for abstention/compel-arbitration; Debtor argued the disputes should be resolved in bankruptcy because they implicate core reorganization issues.
- The Court analyzed the interplay between the Federal Arbitration Act (FAA) and the Bankruptcy Code, focusing on whether particular claims are constitutionally core (Stern test) or non-core.
- Ruling: the Court bifurcated the disputes — permitting the prepetition arbitration to proceed only as to state-law/contract and other non-bankruptcy claims; retaining constitutionally core Bankruptcy Claims for resolution in the bankruptcy; it modified the automatic stay accordingly and entered a temporary stay of the Debtor’s Complaint to monitor proceedings.
Issues
| Issue | Debtor's Argument | Camac's Argument | Held |
|---|---|---|---|
| Whether the arbitration clause must be enforced to resolve the parties’ disputes | Disputes implicate reorganization and claims administration and thus belong in bankruptcy (core) | FAA presumption requires arbitration of disputes under the Funding Agreement | Court enforced arbitration only for Contract and other non-bankruptcy claims; Bankruptcy Claims retained in court |
| Are the Bankruptcy Claims arbitrable (core vs non-core)? | Bankruptcy Claims (§§ 502, 510, 523, 543, 544, 547, 553) are constitutionally core and cannot be sent to arbitration | Camac argued arbitration covers most claims | Court found Bankruptcy Claims are constitutionally core and not subject to arbitration |
| Whether the FDCPA and other non-bankruptcy federal/state claims must be litigated in bankruptcy | FDCPA may be part of reorganization but here functions mainly to augment estate and was brought prepetition in arbitration | Camac: FDCPA and state-law Contract Claims belong in arbitration | Court treated FDCPA and Contract Claims as non-core and left them to arbitration |
| Whether the court or arbitrator decides arbitrability under the clause | Debtor urged court adjudication given bankruptcy context | Camac relied on AAA rules and presumption that arbitrator decides arbitrability | Court declined to make a definitive ruling on delegating arbitrability; found resolution unnecessary to grant limited stay relief under §362(d) |
Key Cases Cited
- Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (rigorous enforcement of arbitration agreements)
- Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (FAA mandate may be overridden by contrary congressional command)
- Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (federal policy favoring arbitration)
- Moses v. CashCall, Inc., 781 F.3d 63 (4th Cir.) (distinguishes constitutionally core vs. non-core claims for arbitration in bankruptcy)
- In re White Mountain Mining Co., L.L.C., 403 F.3d 164 (4th Cir.) (arbitration can conflict with centralized bankruptcy adjudication)
- Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (arbitration agreements enforced despite competing statutory schemes)
- Belton v. GE Capital Retail Bank (In re Belton), 961 F.3d 612 (2d Cir.) (recent circuit treatment of FAA/Bankruptcy interplay)