A North Carolina bankruptcy court has held that a debtor's demand for property is not an arbitrable dispute because the matter is considered a "core proceeding" under the Bankruptcy Code.

In In re Blanchard Transportation Services, Inc., No. 07-01830-8-JRL, 2008 WL 619379 (Bankr. E.D.N.C. Feb. 29, 2008), Blanchard performed certain trucking services for Paschall. Blanchard alleged that it was not paid in full for its services.

After Blanchard filed for Chapter 11 bankruptcy, it petitioned the Court for an order directing Paschall to turn over property – the alleged unpaid debt – to Blanchard's estate. Paschall opposed, asking the Court to instead compel arbitration of the dispute in accordance with the original service contract between the parties.

The Court stated that the arbitration agreement should only be enforced if the matter to be arbitrated is not a "core proceeding" as defined in 28 U.S.C. § 157(b). See White Mountain Mining Co., LLC v. Congelton, LLC, 403 F.3d 164, 168-170 (4th Cir. 2005).

The Court agreed with Blanchard that the matter was a core proceeding because it was an action to turn over estate property, involved the allowance or disallowance of claims against the estate, and it concerned the administration of an estate – three instances explicitly designated as core proceedings within the statute.

The Court rejected Paschall's contention that that the Court could not deny the motion to compel without finding an inherent conflict between the Bankruptcy Code and the Federal Arbitration Act (FAA) within these particular proceedings. It instead opined that arbitration was inconsistent with the centralization of disputes necessary for an efficient reorganization under Chapter 11.