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A bankruptcy court must compel arbitration of debtor-derivative claims when the party opposing arbitration fails to show Congressional intent to create an exception to the policy of the Federal Arbitration Act favoring arbitration, a bankruptcy court in Delaware held.
In In re Olympus Healthcare Group, Inc., --- B.R. ---, 2006 WL 2854790 (Bankr. D. Del. Oct. 6, 2006), Olympus filed for Chapter 13 bankruptcy. After Olympus’s plan for organization was approved, it filed suit against Pacific Employers Insurance Co. to recover money held in a “Deductible Reimbursement Fund.”
The agreement between Olympus and Pacific contained an arbitration provision, and Pacific sought to compel arbitration of the dispute. After finding that the arbitration clause was not substantively or procedurally unconscionable, the Court addressed Olympus’s argument that the Court did not have discretion to enforce the arbitration clause.
Under In Re Mintze, 434 F.3d 222 (3d Cir. 2006), the Court must enforce arbitration agreements “unless the party opposing arbitration [can] show a Congressional intent to preclude the waiver of judicial remedies.”
Mintze requires the Court to first determine whether the claims are derivative of the debtor or created for the benefit of the creditors. Mintze, 434 F.3d at 230-31. The Court has discretion to deny arbitration if the claims are for the benefit of the creditor. In re Statewide Realty Co., 159 B.R. 719, 723 (Bankr.D.N.J. 1993).
If the claims are debtor-derivative, the Court must compel arbitration unless the party in opposition to arbitration establishes Congressional intent to create an exception to the policy of the Federal Arbitration Act (FAA) in favor of arbitration. Shearson/American Express, Inc., v. McMahon, 482 U.S. 220 (1987). Intent can be established through “(1) the statute’s text, (2) the statute’s legislative history, or (3) ‘an inherent conflict between arbitration and the statute’s underlying purpose.’” Mintze, 434 F.3d at 229.
The Court held that Olympus’s claims were debtor-derivative because they related to the agreement between Olympus and Pacific. Additionally, Olympus failed to present any persuasive arguments that Congress intended to preclude waiver of judicial remedies for the claims that Olympus brought because it did not establish that a sufficient conflict between the purposes of the bankruptcy code and FAA existed. Therefore, the Court compelled arbitration of Olympus’s claims.
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