A Contest of Wills, or Deference Due? Arbitration and Bankruptcy

• Published in: American Bankruptcy Institute journal Vol. 43; no. 8; pp. 30 - 60
• Main Authors: Berkoff, Leslie A, Kline, Candice L, Merchant, Simran
• Format: Journal Article
• Language: English
• Published: Alexandria American Bankruptcy Institute 01.08.2024
• Subjects: Agreements; Ambiguity; Arbitration; Bankruptcy; Bankruptcy laws; Confidentiality; Consent; Court hearings & proceedings; Disputes; Employment; Enforcement; Federal court decisions; Federal Rules of Bankruptcy Procedure; Independent contractors; Judges & magistrates; Multiemployer pension plans; Wagner Act 1935-US; United States > US; California
• ISSN: 1931-7522

[...]in Epic Systems v. Lewis, the Supreme Court upheld the binding nature of arbitration agreements in a labor dispute and rejected an attempt to draw a conflict between the FAA and other federal labor statutes.8 In that decision, the Court concluded that the FAA's mandate to enforce arbitration agreements for individualized proceedings trumped the National Labor Relations Act (NLRA).9 Although not a bankruptcy case, Epic Systems demonstrates the challenges that courts face when two federal statutes are at odds with each other. The legislative history for these statutes is equally supportive of the construct of arbitration.18 Consistent with these principles, the Third Circuit in Mintze stated that "a bankruptcy court lacks the authority and discretion to deny [an arbitration clause's] enforcement unless the party opposing arbitration can establish congressional intent, under the McMahon standard, to preclude waiver of judicial remedies for the statutory rights at issue. Celsius Court Enforces an Agreement to Arbitrate - Broadly In Celsius, the district court reversed the bankruptcy court's order and held that it should have compelled arbitration to determine whether the claims at issue were arbitrable.22 The bankruptcy court had assessed whether the parties agreed to arbitrate, the scope of the agreement, whether any federal statutory claims were nonarbitrable and whether the court could balance the proceedings pending arbitration.23 The district court concluded that such an approach was too narrow.24 By way of background, the debtor brought noncore claims against Mawson Infrastructure Group and its affiliates under three agreements, but only one had an arbitration clause.25 In the adversary proceeding, Mawson moved to compel arbitration.26 The bankruptcy court found that although the parties agreed to arbitrate, only claims arising under the main co-location agreement were arbitrable.27 Since the related promissory note and security agreement lacked arbitration, the court reasoned that the clauses and claims arising from those documents were not arbitrable.28 Finding "no special bankruptcy concerns," the bankruptcy court ordered arbitration of all claims that clearly arose from the co-location agreement only.29 On appeal, Hon. Colleen McMahon of the U.S. District Court for the Southern District of New York viewed the arbitration clause as "exceptionally broad. "30 The clause, in block capital letters, provided that the parties would irrevocably and unconditionally submit any dispute to arbitration.31 Given the foregoing, she concluded that the bankruptcy court erred by limiting arbitration only to claims "arising under" one agreement and not under all three agreements.32 Because "arising under" appeared "nowhere" in the arbitration clause and was not a test for arbitrability, Judge McMahon disagreed with the bankruptcy court.33 She also found the boldface language significant, particularly the phrase "of any nature" to suggest that the parties intended to arbitrate any dispute between themselves.34 She vacated the order denying arbitration on the six other claims based on the other agreements.35 A presumption for arbitrability exists when more than mere reference to AAA rules shows a "clear and convincing" intent to arbitrate.36 Judge McMahon found that the parties "clearly and unmistakably" agreed to arbitrate anything related "in any way" to the main agreement because there was "much" more than a mere reference to AAA rules.37 In responding to a question of who should decide arbitrability, Judge McMahon relied on Henry Schein Inc. v. Archer & White Sale Inc.38 and ruled that arbitrators have the exclusive right to determine whether a dispute is within the scope of an arbitration agreement when the agreement so states "clearly and unmistakably.