After weighing the competing bankruptcy and arbitration policy considerations, a Florida bankruptcy court ordered arbitration of a development dispute because arbitration of the dispute would not inherently conflict with the underlying purposes of the Bankruptcy Code.

In In re Shores of Panama, Inc., No. 08-50066-LMK, 2008 WL 2156340 (Bankr. N.D. Fla. May 22, 2008), the Debtor developed the Shores of Panama condominium project and hired Jordan Residential (Jordan) as the general contractor. The parties' contract contained an agreement to arbitrate. A dispute arose between the Debtor and Jordan, and Jordan demanded arbitration. However, Jordan's claim was automatically stayed when the Debtor filed its voluntary Chapter 11 petition. In response, Jordan filed a motion seeking relief from the automatic stay.

The Court discussed the standard for enforcing an arbitration agreement in bankruptcy, and noted that the Eleventh Circuit concluded that bankruptcy courts should first distinguish between core and non-core proceedings. If the proceeding is non-core, the bankruptcy court has no discretion and must compel arbitration. If the proceeding is core, the court should go on to determine whether enforcing a valid arbitration agreement would inherently conflict with the underlying purposes of the Bankruptcy Code.

If the proceeding involves a right created by the federal bankruptcy law or is one that would arise only in bankruptcy, it is a core proceeding. A proceeding is not core if the proceeding does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy.

The Court noted that the action in this case was likely non-core, since it was a contract dispute governed entirely by state law, did not invoke a substantive right created by federal bankruptcy law and was a claim that exists outside of bankruptcy. Further, the Court noted that even if Jordan's action was core, enforcing the arbitration agreement would not inherently conflict with the underlying purposes of the Bankruptcy Code.

The Debtor argued that the bankruptcy policy of centralization inherently conflicted with the enforcement of the arbitration agreement. A centralized forum for the resolution of the debtor's disputes avoids uncoordinated, far-flung procedures in multiple fora, which is important to the efficiency of the reorganization process and the protection of all creditors.

However, in this case, enforcing the parties' arbitration agreement would not seriously jeopardize the Debtor's attempt to reorganize. Although arbitration may be inconsistent with the policy of centralization, such inconsistency did not rise to the level of an inherent conflict.

The Court determined that the policy of centralization alone does not trump an otherwise enforceable arbitration agreement. Because arbitration would not inherently conflict with the underlying purposes of the Bankruptcy Code, Jordan's motion to compel arbitration was granted.