821 F.3d 1146
9th Cir.2016Background
- Trustee Jason Rund (Chapter 7) sued debtor-affiliated attorney John Kirkland and the Bright Conscience Trust (Poshow Kirkland trustee) seeking disallowance and to avoid fraudulent transfers and related relief, alleging a Ponzi scheme and transfers to the trust.
- Kirkland moved to compel arbitration, relying on broad arbitration clauses in prepetition agreements he had with the debtors; Poshow joined.
- Bankruptcy court found the Trustee’s fraudulent transfer, subordination, and disallowance claims were statutorily core, applied In re Thorpe Insulation, and denied the motion as arbitration would conflict with Bankruptcy Code purposes.
- Kirkland answered after the denial, demanded a jury trial, and raised Stern/constitutional-judicial-article-III arguments; the bankruptcy court stayed matters pending appeal.
- District court affirmed, holding the Trustee was not bound by debtors’ arbitration clauses for creditor-standpoint claims (e.g., § 544) and that arbitration would conflict with centralized administration and risk piecemeal litigation.
- Ninth Circuit affirmed: bankruptcy court had discretion to deny arbitration for core matters and did not abuse that discretion; several defenses (arbitrability, enforceability) were waived or insufficient to compel arbitration.
Issues
| Issue | Plaintiff's Argument (Rund) | Defendant's Argument (Kirkland/Poshow) | Held |
|---|---|---|---|
| Whether bankruptcy court may refuse to enforce arbitration in core proceedings | Bankruptcy: arbitration clauses need not bind Trustee because his §544/creditor-derivative claims stand in creditors’ shoes | Kirkland: prepetition arbitration clauses cover Trustee’s claims and require arbitration | Held: Court has discretion for core matters; here discretion exists and was not abused — arbitration denied |
| Whether Trustee is bound by debtors’ arbitration agreements for fraudulent-transfer claims | Trustee: not bound because §544 actions are creditors’ claims; creditors didn’t sign arbitration clauses | Kirkland: agreements apply to these claims | Held: Trustee not bound for §544 and related state-law creditor-style claims; arbitration cannot be compelled for those claims |
| Whether Stern/constitutional right to jury removes bankruptcy court’s discretion to deny arbitration | Kirkland: answer + jury demand converts claims to constitutionally non-core so arbitration must be compelled | Trustee: statutory core status remains; Stern does not eliminate bankruptcy court’s discretion to weigh arbitration policy | Held: Stern does not strip the court of discretion here; statutory core label remains and Thorpe framework governs |
| Whether arbitrability question must be decided by arbitrator | Kirkland: some agreements delegate arbitrability to arbitrator | Trustee: did not consent to arbitration; issue not raised below | Held: Argument waived on appeal for failing to raise in bankruptcy court; not considered |
Key Cases Cited
- In re Thorpe Insulation Co., 671 F.3d 1011 (9th Cir. 2012) (bankruptcy court may decline to enforce arbitration that conflicts with Bankruptcy Code purposes)
- In re Eber, 687 F.3d 1123 (9th Cir. 2012) (deference to bankruptcy court’s discretion when arbitration would jeopardize core proceedings)
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy courts entering final judgments on some statutorily core claims)
- Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (2014) (bankruptcy court must determine core vs. non-core; some Stern issues affect final-judgment authority)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) (only parties to arbitration agreements are bound)
- In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012) (fraudulent-transfer claims are statutorily core for bankruptcy purposes)