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A federal bankruptcy court in Alabama has ruled that a debtor's claim under the Truth in Lending Act (TILA) was subject to arbitration – even if the claim constituted a "core proceeding" – because arbitration of the claim would not "inherently conflict with the underlying purposes of the Bankruptcy Code."
In re Dawsey, No. 07-1011-DHW, 2007 WL 1140358 (Bankr. M.D. Ala. Apr.16, 2007) concerned a dispute between the Dawseys, who financed a new car purchase through defendant Citifinancial Auto Corp. (CAC) and later declared bankruptcy.
Following final court approval of a Chapter 13 repayment plan, the Dawseys filed suit against CAC, claiming TILA violations. CAC attempted to enforce an arbitration agreement, which the Dawseys claimed should not be enforced as their TILA action was a "core proceeding."
Citing In re Electric Machinery Enterprises, Inc., 479 F.3d 791 (2007), a recent Eleventh Circuit decision concerning the intersection of arbitration and bankruptcy law, the Court noted that "[i]n general, bankruptcy courts do not have the discretion to decline to enforce an arbitration agreement relating to a non-core proceeding." Moreover, even if it involves a "core proceeding," the Court still must analyze whether enforcing a valid arbitration agreement would "inherently conflict with the underlying purposes of the Bankruptcy Code."
Though Dawsey and CAC disagreed over whether or not the TILA action was a "core" proceeding, the Court did not need to resolve that issue since arbitration would not "inherently conflict" with the purposes of the Bankruptcy Code.
Specifically, the Court found that there was no "inherent conflict" because (1) the TILA claim was based on a different set of facts and law, (2) raised issues solely of non-bankruptcy federal law, and (3) resolution of the action through arbitration would "not interfere with … [the Dawseys'] repayment plan" and thus would not have a "material impact" on any creditors save CAC. Accordingly, the Court ruled that the TILA claim should be resolved through arbitration.
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