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The Eleventh Circuit Court of Appeals held that the bankruptcy court erred by not ordering arbitration where the debtor's claim was not a core proceeding and arbitration of the claim would not inherently conflict with the underlying purposes of the Bankruptcy Code.
In In re Electric Machinery Enterprises, Inc., No. 06-13733, 2007 WL 548781 (11th Cir. Feb. 23, 2007), Whiting Turner subcontracted electrical work on a project to Electric Machinery Enterprises (EME).
EME later filed for bankruptcy and brought an adversary proceeding in bankruptcy court, alleging that Whiting Turner owed money under the subcontract. Whiting Turner moved to compel arbitration pursuant to the subcontract. The bankruptcy court denied the motion to compel on the ground that the claim against Whiting Turner was a "core" proceeding. The district court affirmed that ruling.
On appeal, the Court held that the claim against Whiting Turner was not a core proceeding, mainly because the claim was independent of bankruptcy law. Moreover, the Court found that the bankruptcy court should have ordered arbitration even if the claim were a "core" proceeding because there was no finding that arbitration of the claim would inherently conflict with the underlying purposes of the Bankruptcy Code. Accordingly, the Court remanded the case with instructions to order arbitration.
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