John McDonnell McPherson
In re: *
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John McDonnell McPherson, * Case No. 21-10205-MMH
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Debtor. * Chapter 11
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Camac Fund, L.P., *
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Movant, *
v. *
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John McDonnell McPherson, *
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Respondent.
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MEMORANDUM OPINION
The filing of a chapter 11 bankruptcy case generally stops all matters affecting the debtor’s financial affairs and consolidates the resolution of those matters in one forum, the bankruptcy court. That collective process is intended to, among other things, allow a debtor to catch its financial breath and develop a cohesive reorganization plan; provide consistency and certainty in the resolution of matters potentially affecting the debtor’s reorganization; and ensure fair and equal treatment of the debtor’s creditors. To that end, a bankruptcy court has original and exclusive jurisdiction over the bankruptcy case, original and non-exclusive jurisdiction over related civil proceedings, and exclusive jurisdiction over all the debtor’s property and property of the bankruptcy estate wherever located.
Courts recognize that the Federal Arbitration Act (“FAA”) creates a strong presumption in favor of arbitration.
The parties in this contested matter have very different views concerning a potential conflict between a pending prepetition arbitration proceeding and this chapter 11 case. From the debtor’s perspective, all of the issues overlap with his reorganization efforts and thus should be resolved by this Court. From the creditor’s perspective, the arbitrator could resolve most, if not all, issues between the parties, leaving just the treatment of any resulting claim for the chapter 11 case. Like many disputes, the Court fails to find an easy or bright line solution resolving the matter in accordance with either party’s position. The dispute requires careful consideration of the language of the arbitration agreement, the FAA, and the Code.
Having reviewed all of the materials, applicable law, and the parties’ arguments, the Court concludes that it must defer to the arbitration proceeding, but only as to the prepetition non-core claims asserted by the parties in that proceeding. It will, in turn, modify the automatic stay of section 362 of the Code for this limited purpose. All other issues and claims between the parties will remain subject to the automatic stay and resolution in connection with this chapter 11 case.
I. Relevant Background
John McDonnell McPherson, the above-captioned debtor and debtor in possession (the “Debtor”), filed this chapter 11 case on January 12, 2021. Prior to that filing, the Debtor and Camac Fund, L.P. (“Camac”) entered into a Litigation Funding Agreement (the “Funding Agreement”). Under the Funding Agreement, Camac was to extend financing to the Debtor in exchange for a percentage of the Debtor’s interest in certain whistleblower litigation cases. Disputes arose between the parties under the Funding Agreement, and Camac invoked its rights under the Funding Agreement’s arbitration clause. The Debtor filed a response disputing, among other things, the validity of the arbitration and asserting counterclaims against Camac. A hearing was scheduled in the arbitration proceeding, but was stayed by the filing of this chapter 11 case.
The parties have since filed various papers and commenced two adversary proceedings in this case. These actions include a Motion for Relief from Stay (the “Stay Motion”), filed by Camac; a complaint asserting six counts against Camac, filed by the Debtor (the “Debtor’s Complaint”); and a complaint seeking to determine certain debts nondischargeable, filed by Camac (“Camac’s Complaint”).2 The Court held a hearing on the Stay Motion and Camac’s motion asking this Court to abstain from or stay the adversary proceeding involving the Debtor’s Complaint (the “Abstention Motion”)3 on May 5, 2021 (the “Hearing”). The Court has considered the papers and the arguments of counsel, and these matters are now ripe for resolution.
II. Jurisdiction and Legal Standards
The Court has jurisdiction over this matter pursuant to
The Stay Motion seeks relief from the automatic stay of section 362(a) of the Code. That section generally enjoins the continuation of actions or proceedings against a debtor, property of the debtor, or property of the bankruptcy estate.
The Court considers Camac’s request for relief from the automatic stay under this standard and in light of the particular facts of this case and applicable precedent concerning the appropriate treatment of arbitration clauses in bankruptcy.
III. Analysis
The primary issue before the Court is the impact of the arbitration clause in the Funding Agreement and the prepetition arbitration proceeding on this chapter 11 case and the various disputes between the parties. This issue permeates the relief requested by Camac in the Stay Motion and the Abstention Motion. In sum, Camac asserts that this Court is required to enforce the arbitration clause and that such clause covers most of the parties’ claims and causes of action. The Debtor views matters quite differently, acknowledging the arbitration clause but arguing its application to this case inherently conflicts with key objectives of the Code. The Debtor posits that this Court could resolve all of the parties’ disputes within the context of the Debtor’s chapter 11 plan of reorganization and the related claims administration process.
The Court finds some merit to the Debtor’s position. The Code and chapter 11 more specifically are designed to facilitate a timely, cost-effective resolution of all claims asserted against a debtor. This process deters gamesmanship and competition among creditors. It also provides all parties affected by the bankruptcy with ready access to the same forum, applying applicable law in a consistent manner as to all such parties’ claims. Particularly in the context of a chapter 11 reorganization, consistency, certainty, and sometimes speed are critical to the debtor’s success, as well as the maximization of value for all creditors.
Absent the arbitration clause in the Funding Agreement, this Court would have several alternatives available to it to accomplish the procedural objectives of chapter 11. It could, for example, consolidate all issues between the Debtor and Camac, either in connection with the plan process or separately, and then schedule those matters in a manner that allowed this chapter 11 case to continue moving forward without delay. The presence of the arbitration clause requires this Court to pause, however, and determine the appropriate forum to resolve some or perhaps all of the parties’ respective claims. The Court considers these issues below, concluding that even if suboptimal for this case, applicable law requires some bifurcation of the parties’ claims between this bankruptcy case and the prepetition arbitration proceeding.
A. Arbitration Clauses and Bankruptcy
The FAA and the Code both are grounded in important policy considerations concerning
The Code, on the other hand, is not party- or contract-specific but seeks to balance the rights of many parties with many different contracts, rights, and interests involving a single debtor. As the Fourth Circuit has explained, “‘Congress intended to grant comprehensive jurisdiction to bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.’” Moses v. CashCall, Inc., 781 F.3d 63, 71 (4th Cir. 2015) (per curiam) (quoting Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995)). Although the objectives of the FAA and the Code may not always conflict, they frequently do diverge, presenting the bankruptcy court with competing considerations. See, e.g., In re White Mountain Mining Co., L.L.C., 403 F.3d 164, 169 (4th Cir. 2005) (“Arbitration is inconsistent with centralized decision-making because permitting an arbitrator to decide a core issue would make debtor-creditor rights ‘contingent upon an arbitrator’s ruling’ rather than the ruling of the bankruptcy judge assigned to hear the debtor’s case.”) (citations omitted).
To resolve any such conflict and assess the application of the FAA in a bankruptcy case, courts generally turn to the Supreme Court’s decision in McMahon. In that decision, the Supreme Court opined that, “[l]ike any statutory directive, the [FAA’s] mandate may be overridden by a contrary congressional command.” McMahon, 482 U.S. at 226. Although a few courts have questioned the ongoing force of McMahon given subsequent Supreme Court decisions, most courts have continued to follow its guidance.4 See, e.g., Belton v. GE Capital Retail Bank (In re Belton), 961 F.3d 612, 616–17 (2d Cir. 2020),
Some courts resolving disputes in accordance with McMahon’s guidance have developed a litmus test of sorts: the characterization of a claim as constitutionally core is indicative of Congressional intent to limit arbitration.6 As the Fourth Circuit has observed, “forcing [a debtor] to arbitrate her constitutionally core claim would inherently conflict with the purposes of the Bankruptcy Code.” CashCall, 781 F.3d at 73. Matters involving constitutionally core and other
claims (either statutorily core or non-core) present a more complicated analysis, requiring a careful balancing of the facts and applicable law in the particular case. See CashCall, 781 F.3d at 83 (Gregory, J., concurring) (“The core/non-core distinction, however, is not mechanically dispositive in deciding whether a bankruptcy judge may refuse to send a claim to arbitration.”).
Thus, in many cases, the analysis begins with section 157 of title 28 of the U.S. Code, which identifies certain proceedings within a bankruptcy case as core proceedings.7
If a claim is a constitutionally core proceeding, the bankruptcy court has the discretion to retain the proceeding and not enforce the terms of the parties’ arbitration agreement. See, e.g., Taylor, 420 F. Supp. 3d at 448 (“Arbitration of
concurring) (“A bankruptcy judge’s discretion to deny arbitration of non-core matters is thus necessarily narrow.”). Indeed, some circuit courts have concluded that a bankruptcy court generally has no discretion to “refuse to arbitrate a non-core claim.” Id. at 84 (citing relevant case law).
The Court evaluates the parties’ respective arguments against this backdrop. The Court is mindful that many courts confront these issues in the context of a motion to compel arbitration. Although not the precise relief requested in this matter, Camac’s requests that the Court lift the automatic stay to allow the prepetition arbitration proceeding to continue and to abstain from hearing the Debtor’s Complaint are substantively similar to those framed as motions to compel. The Court thus has undertaken a broad review of the case law addressing the interplay of the FAA and the Code. Based on that review and the general principles articulated in those cases, the Court concludes that it must allow Camac to arbitrate certain state law issues in this case, despite the potential attendant delay and adverse effects on the Debtor’s estate.
B. The Funding Agreement and this Chapter 11 Case
The Funding Agreement is the focal point of many of the parties’ disputes. It is a five-page agreement purporting to document the terms of the parties’ lending arrangement: Camac would provide the Debtor with certain funds and the Debtor would sell to Camac a portion of its interest in the proceeds of certain whistleblower lawsuits (the “Litigation Proceeds”). The Debtor also appears to have granted Camac a security interest in the Litigation Proceeds to secure repayment of the debt represented by the Funding Agreement. Each party alleges that, among other things, the other party breached the Funding Agreement.
The Funding Agreement contains the following arbitration clause:
If a dispute arises under this Agreement which the parties cannot resolve within 15 business days, the dispute may be referred by any party to a mutually acceptable and neutral mediator who will be jointly instructed and who will conduct a mediation between the Parties. If the parties fail to agree upon a neutral mediator within 30 business days after a Party notifies the other of the need for mediation, or if the Parties fail in mediation to resolve the dispute, the parties agree to submit such dispute to binding arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules (including the Optional Rules for Emergency Measures of Protection), and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
Funding Agreement, at 4. Camac asserts that, under this provision, it is entitled to have its claims against the Debtor resolved by an arbitrator. The Debtor disputes this conclusion.
Bankruptcy courts evaluating requests to compel arbitration generally take the following steps:
[F]irst, it must determine whether the parties agree to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.
In re MF Glob. Holdings Ltd., 571 B.R. 80, 89–90 (Bankr. S.D.N.Y. 2017); see also Uszak v. AT & T Mobility Services LLC, 658 Fed.Appx. 758, 761 (6th Cir. 2016) (citing Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000)). The Court refers to this four-factor test as the “arbitrability analysis.” The Court believes that the arbitrability analysis provides a useful framework for evaluating Camac’s Stay Motion and Abstention Motion. The Court considers each of these four factors below.
1. The Funding Agreement and the Scope of the Arbitration Clause
The starting point for the Court’s analysis is whether the parties agreed to arbitrate disputes and, if so, the scope of that arbitration agreement. Although the Debtor raises issues regarding the validity of the Funding Agreement, neither party has contested the existence of the arbitration clause in that agreement or has sought to invalidate the clause. Likewise, neither party disputes that the Funding Agreement is “a contract evidencing a transaction involving commerce” subject to the FAA.
The language of the Funding Agreement also is clear, providing that the parties have agreed to arbitrate disputes arising under the Funding Agreement. Although courts generally construe agreements to arbitrate broadly, they also give meaning to the words used, and not used, by the parties to describe the matters subject to arbitration.8 Here, the Funding Agreement uses the phrase “arises under”; it does not reference or include disputes “relating to” or “in connection with” the agreement or “any disputes” between the parties. As a result, the arbitration clause does not by its plain language suggest a broad application. See, e.g., Long v. Silver, 248 F.3d 309, 316 (4th Cir. 2001) (providing examples of language in an arbitration clause that might support a broad interpretation potentially covering “disputes that do not arise under the governing contract [but have] a ‘significant relationship’ [to] the asserted claims and the contract in which the arbitration clause is contained”).
The parties did not focus much, if at all, on the arbitrability of the various claims at issue under the Funding Agreement. Camac referenced section 3 of the FAA in the Stay Motion,9 but did not address whether the parties agreed to submit questions of arbitrability to the court or to the arbitrator. In general, courts
Workers Int’l Union, 289 F.3d 297, 302 (4th Cir. 2002) (quoting Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938 (4th Cir. 1999)). The Fourth Circuit has since noted that this general rule may be overridden by parties incorporating certain arbitration rules into the arbitration agreement. See Simply Wireless, Inc. v. T-Mobile US, Inc., 877 F.3d 522, 527 (4th Cir. 2017) (abrogated on other grounds by Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S.Ct. 524 (2019)). The Funding Agreement does reference the American Arbitration Association’s Commercial Arbitration Rules, which may be adequate to allow the arbitrator to determine arbitrability if the court determines the agreement was executed by “sophisticated parties.”10
The Court observes that the arbitration clause in the Funding Agreement is arguably narrow in scope and may not encompass all of the claims asserted by the parties in either the prepetition arbitration proceeding or this chapter 11 case. Nevertheless, the Court finds it unnecessary to resolve this issue for at least two reasons. First, the Court does not have any evidence before it to determine the sophistication of the parties or their intent regarding who decides issues of arbitrability under the arbitration clause in the Funding Agreement. Second, regardless of arbitrability under the agreement, the Court would still need to evaluate the parties’ arguments on stay relief and abstention. Those arguments focus on the nature of the parties’ claims and whether Congress intended any of the claims to be nonarbitrable. The Court thus scrutinizes the third and fourth factors in the arbitrability analysis below, considering whether the federal statutory claims at issue are arbitrable and how to handle the requested relief if some but not all claims are appropriate for arbitration.
2. The Federal Claims at Issue and Their Arbitrability
The parties’ claims in the prepetition arbitration proceeding and in the pending adversary proceedings fall into three general categories: (i) claims concerning the parties’ performance under, and alleged breaches of, the Funding Agreement (the “Contract Claims”);11 (ii) claims under the Fair Debt Collection Practices Act (“FDCPA”) and state law allegedly governing the Funding Agreement (the “Non-Bankruptcy Claims”);12 and (iii) claims under
The Bankruptcy Claims invoke different sections of the Code, but all generally relate to Camac’s status as a creditor in this chapter 11 case or the impact of the Debtor’s alleged claims against Camac on that status. Each of the Bankruptcy Claims arises under federal law, specifically the Code, and most of these claims would not exist absent the pendency of this chapter 11 case. More specifically, unlike some rights in bankruptcy, the majority of the Debtor’s rights under sections 502, 510, 543, 547, and 553 of the Code are rights created by federal law to assist a debtor (or bankruptcy trustee) in meeting the dual objectives of the Code, namely rehabilitation of the debtor and maximization of value for creditors. The Debtor could not have asserted these claims
against Camac prior to the petition date. They do not arise under the Funding Agreement or state law. They further are integral to the Debtor’s reorganization efforts.
The Court acknowledges that the mere existence of a bankruptcy right or a claim relating to that right may not be adequate to refuse a request to arbitrate those claims. As noted above, courts carefully balance the competing policies of the FAA and the Code. The Court has closely reviewed each of the Bankruptcy Claims and considered their relation to this chapter 11 case. Admittedly, certain of the Bankruptcy Claims involve allegations relating to the Contract Claims and the parties’ rights and conduct under the Funding Agreement. The Court does not read applicable case law as requiring arbitration or a refusal to arbitrate solely because claims involve overlapping facts or issues. See, e.g., Moses v. CashCall, Inc., 781 F.3d 63, 85 (4th Cir. 2015) (Gregory, J., concurring) (stating that “the fact that the claims may share a question does not mean that arbitrating one of them will pose an inherent conflict with the efficient reorganization of a debtor’s estate”). Rather, the Court is guided by Congressional intent concerning the objectives of the Code and the optimal result for the Debtor and all his creditors.
a. The Bankruptcy Claims
Under Fourth Circuit precedent, the arbitrability of a claim in bankruptcy turns largely, but not exclusively, on the core versus non-core distinction. See, e.g., id. at 70–71 (per curiam). This determination requires the Court to evaluate whether the Bankruptcy Claims are constitutionally core claims. The Court notes that each such claim is a statutorily core claim under section 157(b) of title 28 of the U.S. Code.14
from the bankruptcy itself or would necessarily be resolved in the claims allowance process.” Stern, 564 U.S. at 499. The Court finds strong support for characterizing each of the Bankruptcy Claims as constitutionally core proceedings under this standard.
For example, courts consistently hold that an objection to discharge or the dischargeability of a claim in a bankruptcy case under section 523 is a constitutionally core proceeding. See, e.g., In re Bauer, No. AP 20-80012-DD, 2020 WL 3637902, at *6 (Bankr. D.S.C. June 8, 2020) (“A determination regarding a violation of a discharge injunction is a core bankruptcy matter pursuant to
for turnover stem “from the bankruptcy itself.’ In re Khan, 2014 WL 10474969, at *6 (E.D.N.Y. Dec. 24, 2014).”).15
The Court recognizes that a debtor may be able to plead an action in a way that transforms a pure state law claim into a claims objection under section 502 or a turnover action under section 542 or 543 of the Code. See, e.g., In re Porter-Hayden Co., 304 B.R. 725, 732 (Bankr. D. Md. 2004) (“The characterization of a lawsuit as a proceeding to compel turnover, therefore, is not dispositive of whether the action constitutes a core proceeding; rather, this court must look behind the characterization to determine that in fact a turnover proceeding is warranted.”). The Court generally agrees with those courts that have discouraged this practice, which largely places form over substance. But the Court does not find those concerns warranted in this case given the nature of the affirmative relief sought by the Debtor in the Debtor’s Complaint and the Fourth Circuit’s decision in CashCall. Moses v. CashCall, Inc., 781 F.3d 63, 66 (4th Cir. 2015) (per curiam).
In CashCall, the debtor filed an adversary proceeding in her chapter 13 case seeking to declare a prepetition loan invalid and seeking damages under the North Carolina Debt Collection Act. The creditor responded, in part, by withdrawing its proof of claim and asking the bankruptcy court to compel arbitration under an arbitration clause in the parties’ prepetition loan agreement. The Fourth Circuit affirmed the lower courts’ treatment of the declaratory relief as a
constitutionally core claim that should be resolved by the bankruptcy court but reversed the district court’s decision to refuse arbitration on the state law claim. Id.
The Fourth Circuit in CashCall recognized the key policies underlying the Code and the potential tension between those policies and the FAA. CashCall, 781 F.3d at 72. Focusing on the core versus non-core distinction, the Fourth Circuit determined that the debtor’s declaratory relief was a constitutionally core claim “because the validity of the Loan Agreement would ‘necessarily be resolved’ in adjudicating Cash Call’s proof of claim and Moses’ objections thereto.” Id. at 70. Like that declaratory relief, the Debtor’s Bankruptcy Claims against Camac do not seek solely to augment the estate; the potential assets available to the estate if the Debtor is successful on those claims is collateral to the primary objective. Indeed, the key allegations by the Debtor challenge Camac’s ability to assert an allowed claim against the Debtor and his estate. See, e.g., id. at 72 (“[i]t is ... apparent that resolution of [Debtor’s] claim that the Loan Agreement she entered into with [creditor] was illegal could directly impact claims against her estate and her plan for financial reorganization, notwithstanding the fact that the plan [has already been confirmed].”). Courts consistently recognize the critical nature of the claims administration process to a debtor’s bankruptcy case. See, e.g., id. at 70 (citing relevant case law).
The Debtor’s fraudulent transfer claim against Camac under section 544 of the Code also requires a more thorough analysis. Fraudulent transfer claims may be available to a creditor under state law or to a debtor or bankruptcy trustee (independently or standing in the shoes of a creditor) under bankruptcy law. Since the Supreme Court’s decision in Stern, courts have disagreed concerning the characterization of fraudulent transfer claims as constitutionally core claims. See, e.g., Kemp v. Nelson, No. 16-CV-1546-JPS, 2016 WL 7177508, at *2 (E.D. Wis. Dec. 9, 2016) (“Courts are split [regarding constitutionally core designation], and the Seventh Circuit has offered no clear guidance, as to whether fraudulent transfer claims fall into this category.”) (collecting case law). Here, the Debtor would not be able to bring a state law fraudulent transfer claim against Camac absent sections 544 and 1107 of the Code.16 Camac also has
motion to withdraw reference); Erwin, 2018 WL 1614160, at *8 (fraudulent transfer claim under section 548 of Code not subject to arbitration).
b. The FDCPA Claim
The Debtor’s FDCPA claim is different in nature from the Bankruptcy Claims. That claim arises under federal law, but at least in this particular case, is framed more as a vehicle for damages rather than as a defense to Camac’s claim against the bankruptcy estate. The FDCPA claim is part of the Debtor’s claims filed in the prepetition arbitration proceeding and is not included in the Debtor’s Complaint. Thus, at least from the Debtor’s perspective, that claim is arbitrable and may best be resolved in the context of the arbitration proceeding.
Moreover, unlike the Bankruptcy Claims, the Debtor’s FDCPA claim seeks primarily to augment the Debtor’s estate and, in that regard, is akin to the CashCall debtor’s state law debt collection claims. The Fourth Circuit concluded that such claims were non-core proceedings. Under that precedent, the FDCPA claim, standing
c. The Contract Claims
Finally, although not federal in nature, the Court observes for completeness that the Contract Claims are grounded in state law and are likely non-core proceedings. Those claims further appear to fall within the arbitration clause of the Funding Agreement. Absent this chapter 11 case, the Contract Claims would be determined under state law by either the arbitrator or an appropriate non-bankruptcy court. Nonetheless, as explained above, certain of those claims intersect with several of the Debtor’s Bankruptcy Claims, raising the specter of inconsistent results and potential conflicts between this chapter 11 case and the prepetition arbitration proceeding. The Court considers these potential issues below by balancing the core and non-core claims in this matter and determining the appropriate path forward for this chapter 11 case.
3. The Appropriate Role for Arbitration in this Chapter 11 Case
A hybrid case such as this matter, involving constitutionally core and non-core proceedings, presents challenging issues for the Court. On the one hand, the Bankruptcy Claims and the collective nature of a chapter 11 case support resolving all claims between the parties in the bankruptcy case. That approach promotes efficiency and continuity in the claims administration process and fairness among creditors in the overall reorganization. On the other hand, the Contract Claims and arguably the Non-Bankruptcy Claims are subject to a prepetition arbitration clause that falls within the mandates of the FAA. Those claims also arguably can be separated from the Bankruptcy Claims, even if that may not be the most procedurally efficient approach for this case.
In CashCall, the Fourth Circuit required a bifurcation of the constitutionally core and the non-core claims. CashCall, 781 F.3d at 66, 88 (Gregory, J., concurring, as to second pincite). Judge Niemeyer, dissenting from this portion of the decision, expressed concern regarding such bifurcation and its potentially adverse effect on the bankruptcy case and the objectives of the Code. As Judge Niemeyer explained, “[e]ven though non-core claims are ancillary to reorganization, it is apparent that they can nonetheless affect a debtor’s efforts to reorganize and that sending non-core claims to arbitration can, in given circumstances, interfere with the debtor’s chance to complete a fair and efficient … reorganization.” Id. at 73–74 (Niemeyer, J., dissenting). Although this
Having reviewed the record, balanced the competing factors, and studied the applicable case law, the Court finds that it must bifurcate the disputes in this matter, with the Bankruptcy Claims staying in the bankruptcy case and the Contract and Non-Bankruptcy Claims remaining subject to arbitration. Were the Court writing on a clean slate, or if Judge Niemeyer’s position in CashCall had been that of the circuit, the Court likely would reach a very different conclusion. Indeed, consolidating all disputes between the parties in the context of the chapter 11 case and collective claims administration process appears not only most efficient and fair to all potentially affected parties, but also most consistent with the objectives of the Code. The Court cannot, however, ignore precedent.
C. The Automatic Stay and the Arbitration Proceeding
The decision to bifurcate the parties’ claims does not end this Court’s inquiry. It must decide the best course forward for these disputes and this chapter 11 case while resolving Camac’s request for relief. As noted above and by the Fourth Circuit in CashCall, a bifurcated matter presents opportunities for overlap in facts, duplication in effort, and conflicting results. Id. at 63. Although those potential consequences do not necessarily mandate the resolution of all matters in the same forum, they do counsel in favor of procedural mechanisms to protect the parties. They also, in this Court’s view, weigh in favor of relief from stay under the particular facts of this case.
Section 362(d) of the Code allows a party in interest to request relief from the automatic stay for cause.
The parties’ disputes, like many in bankruptcy cases, arose prepetition. Unlike some bankruptcy cases in which arbitration is requested, however, the arbitration proceeding in this matter was pending on the petition date; this is not a request
With respect to the Robbins factors, the arbitration proceeding does involve primarily state law claims and claims that need to be resolved at some point during this chapter 11 case. The Court recognizes the overlap between the claims at issue in the arbitration proceeding and the Bankruptcy Claims at issue in this chapter 11 case. Nevertheless, on balance, the Court feels compelled to defer to the arbitrator, but solely on the resolution of the state law and non-bankruptcy claims subject to arbitration under the Funding Agreement. Had this bankruptcy case been filed prior to either party invoking the arbitration clause, the Court might reach a different conclusion and delay any
requested arbitration pending resolution of the Bankruptcy Claims. Nonetheless, under the facts presented to the Court, notions of fairness to the parties, and particularly the strong presumption in favor of arbitration, the Court will modify the automatic stay of section 362(a) of the Code to allow the prepetition arbitration proceeding to continue.21
In reaching this conclusion, the Court notes that none of the Bankruptcy Claims are, or should be, subject to the arbitration proceeding. Moreover, the parties may not seek to enforce any decision of the arbitrator outside of this Court; rather, all enforcement and collection actions must proceed in this Court in the context of the chapter 11 case.
The Court acknowledges that, if the arbitrator resolves the Contract Claims or
IV. Conclusion
The Debtor invoked chapter 11 of the Code to reorganize his financial affairs and resolve his disputes with Camac. No party has challenged the existence of the arbitration clause in the
Funding Agreement or the need to resolve the parties’ disputes under that agreement. The only question is whether this Court or the arbitrator resolves the claims subject to the arbitration clause. Given the need to balance the competing objectives of the FAA and the Code, the Court determines that the arbitration proceeding should continue but only as to the Contract Claims and the Non-Bankruptcy Claims subject to arbitration under the Funding Agreement. The Bankruptcy Claims are constitutionally core proceedings and properly before this Court. The Court will enter a separate order consistent with this Memorandum Opinion.
cc: Debtor
Debtor’s Counsel
Camac
Camac’s Counsel
United States Trustee
END OF MEMORANDUM OPINION
Notes
(A) matters concerning the administration of the estate;
(B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11;
…From nearly the emergence of fraudulent transfer law, existing creditors of the transferor had standing to pursue recovery of fraudulently transferred assets. As the law of fraudulent conveyances developed, subsequent creditors, meaning parties to whom the transferor later became indebted, also sought relief. Recovery was permitted where such subsequent creditors were able to show that the challenged transfer was made with intent to hinder, delay, or defraud future creditors such as themselves. Id. at 475-76 (citing mostly 19th Century decisions in the United States). To prove such a case, a subsequent creditor was required to show a connection between the transferor’s intent and the harm to the subsequent creditor. Id. at 476 (citations omitted). In other words, the standing of a subsequent creditor to seek avoidance of a transfer depended in part on its ability to show a causal connection between the transfer and nonpayment of the debt owing to the subsequent creditor.
In re Palm Beach Fin. Partners, L.P., 598 B.R. 885, 891 (Bankr. S.D. Fla. 2019), aff’d sub nom. Mukamal v. Nat’l Christian Charitable Found., Inc., 616 B.R. 189 (S.D. Fla. 2020); see also, e.g., RRR, Inc. v. Toggas, 98 F. Supp. 3d 12, 19 (D.D.C. 2015) (noting that courts “have held unequivocally that the remedial nature of the UFTA means any fraudulent transfer action cannot exist independent of a third party debt” in context of expired judgments).(d) Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title.