658 B.R. 879
Bankr. E.D. La.2024Background:
- Westbank Holdings, LLC and several affiliates (the "Debtors") owned multifamily apartments in Louisiana, providing low-income housing, and entered Chapter 11 bankruptcy in 2022.
- The Court appointed a trustee to manage the Debtors’ estates; the properties were sold, and proceeds as well as all retained causes of action, including insurance claims, went into a Liquidating Trust.
- Westbank Holdings, via the Liquidating Trust, pursued insurance claims (related to Hurricane Ida damage) against various insurers, including both U.S. (Domestic) and U.K. (Foreign) entities, under a policy containing an arbitration clause.
- A state court action was filed, later removed to federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and then referred to the bankruptcy court.
- Insurers moved to compel arbitration and stay or dismiss, while the Trust opposed, arguing these are core bankruptcy claims and should be decided by the bankruptcy court.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court should compel arbitration of insurance claims | Claims are "core" bankruptcy matters and central to administration/distribution; bankruptcy court should decide. | Claims are "non-core" state-law insurance issues, not arising under bankruptcy law; must enforce arbitration clause under the Convention and FAA. | Claims are non-core; arbitration clause enforced; all claims to arbitration; adversary stayed. |
| Whether arbitration can be compelled for both foreign and domestic insurers together | Arbitration clause applies only to Foreign Insurers under the Convention; Domestic Insurers should litigate in court; bifurcation is proper. | Claims against all insurers arise from the same instrument and facts; equitable estoppel allows compelling arbitration against all. | Claims are inextricably tied; equitable estoppel applies; all claims must be arbitrated together. |
| Impact of Louisiana law prohibiting insurance arbitration clauses | Louisiana law bars insurance arbitration clauses, so they cannot be enforced. | The Convention (federal law) supersedes Louisiana’s prohibition against arbitration clauses in insurance policies. | Federal law preempts state law; arbitration clause enforceable despite Louisiana statute. |
| Appropriate disposition of adversary proceeding pending arbitration | Proceedings should continue in bankruptcy court for domestic insurer claims. | Entire adversary proceeding should be stayed pending arbitration. | Adversary proceeding stayed; parties to notify court after arbitration. |
Key Cases Cited
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (Supreme Court recognizes strong federal policy in favor of arbitration)
- Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (sets out presumption in favor of enforcing arbitration agreements unless overridden by statute)
- Wood v. Wood (In re Wood), 825 F.2d 90 (defines "core" versus "non-core" bankruptcy proceedings)
- Gandy v. Gandy (In re Gandy), 299 F.3d 489 (bankruptcy courts may refuse arbitration if proceeding derives exclusively from bankruptcy code)
- Grigson v. Creative Artists Agency LLC, 210 F.3d 524 (equitable estoppel can require arbitration with nonsignatories where claims are intertwined)
- Safety Nat'l Cas. Corp. v. Certain Underwriters at Lloyd’s, London, 587 F.3d 714 (the Convention supersedes state anti-arbitration statutes)