Insurance Co. of North America v. NGC Settlement Trust & Asbestos Claims Management Corp. , 118 F.3d 1056 ( 1997 )

REVISED
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
___________________
No. 96-11140
In the Matter of: NATIONAL
GYPSUM COMPANY, a Delaware
Corporation; AANCOR HOLDINGS, INC.,
a Delaware Corporation,
Debtors
-----------------------
INSURANCE COMPANY OF NORTH AMERICA,
Appellant,
versus
NGC SETTLEMENT TRUST & ASBESTOS CLAIMS
MANAGEMENT CORPORATION,
Appellee.
________________________________________________
Appeal from the United States District Court for the
Northern District of Texas
________________________________________________
July 24, 1997
Before GARWOOD, BENAVIDES and STEWART, Circuit Judges.
GARWOOD, Circuit Judge:
Appellees Asbestos Claims Management Corporation (ACMC) and
the NGC Settlement Trust (Trust), successors to National Gypsum
Company, a Chapter 11 debtor, brought this declaratory judgment
adversary proceeding in the bankruptcy court seeking a declaration
that collection efforts by National Gypsum’s liability insurance
carrier, appellant Insurance Company of North America (INA),
seeking to recover certain pre-confirmation debts were violative of
the Chapter 11 discharge injunction or otherwise precluded by the
terms of the Chapter 11 confirmed reorganization plan. INA filed
a motion to stay ACMC and the Trust’s adversary proceeding in favor
of arbitration pursuant to the terms of a contractual arbitration
clause. The Bankruptcy Court, holding that it had discretion to
refuse to order the arbitration of core bankruptcy matters, denied
the motion to stay. INA appealed. The district court affirmed.
INA now appeals to this Court. We affirm.
Facts and Proceedings Below
As this appeal involves the application of an arbitration
provision in a contract assumed by National Gypsum Company pursuant
to its confirmed plan of reorganization, a brief synopsis of
National Gypsum’s journey through the bankruptcy process is
appropriate.
National Gypsum, a Delaware corporation with its principal
place of business in Garland, Texas, was a manufacturer and
supplier of products and services for the building, construction,
and shelter markets. Through its various divisions, National
Gypsum manufactured, sold, and distributed products serving the
residential, commercial, industrial, and repair and remodeling
markets. National Gypsum also performed engineering and
construction services. Historically, some of the products
manufactured by National Gypsum contained asbestos.
Beginning in the 1970s, National Gypsum, as well as many other
2
producers of asbestos-containing products, were named as defendants
in many lawsuits across the country involving bodily-injury claims.
INA was one of National Gypsum’s insurers.1 On June 19, 1985, as
a result of the plethora of asbestos bodily-injury lawsuits and in
recognition of various insurance coverage disputes, National Gypsum
entered into an agreement (the Wellington Agreement) with sixteen
property and casualty insurers and thirty-three former asbestos
products producers regarding the handling of asbestos-related
bodily-injury claims. The Wellington Agreement established the
Asbestos Claims Facility to evaluate, defend, and settle all
pending, threatened, and future asbestos bodily-injury claims
presented to it by the signatory producers and to pay settlements,
judgments (except for portions of awards attributable to punitive
damages), and legal expenses incurred in the defense of all
asbestos bodily-injury claims advanced against the signatory
producers.
The Wellington Agreement, among other things, called for
signatory insurers to advance liability payments on behalf of
participating asbestos producers for amounts covered by insurance
contracts issued by nonsignatory insurers.2 Signatory producers
1
Century Indemnity Company, successor to CCI Insurance Company
(which was the successor to INA), has assumed INA’s interest in
this adversary proceeding. Century is an indirect, wholly-owned
subsidiary of CIGNA Corporation.
2
More precisely, the Wellington Agreement provided:
“3. Whenever an insurance policy described in Paragraph
1 hereinabove [an insurance policy issued by a non-
signatory insurer] would have had to make payments or to
pay expenses on a particular claim under the Agreement
3
who benefitted from such payments were required by the Wellington
Agreement to pursue claims against the nonsignatory insurers, to
repay the amounts advanced by the signatory insurers, and to pay
interest on the amounts advanced beginning two years after the date
the payments were made.3
During the relevant period, on several occasions and in
amounts not material to this appeal, INA contends that it advanced
payments on behalf of National Gypsum for amounts owed by National
Gypsum’s nonsignatory insurers. ACMC and the Trust do not contest
that these payments were made on National Gypsum’s behalf.
On October 28, 1990, National Gypsum and Aancor Holdings, Inc.
(a Delaware corporation and 100% owner of National Gypsum’s
outstanding shares) filed voluntary petitions for bankruptcy
protection under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Northern District of Texas, Dallas
Division.
National Gypsum and Aancor filed a “Debtors’ First Amended and
had the Insurer in question become a signatory hereto,
and the Subscribing Producer has not received monies from
such non-signatory Insurer pursuant to Paragraphs 1 and 2
hereinabove, each insurance policy in the coverage block covering
a part of the exposure period for such claim shall make payments
and pay expenses, subject to applicable limits of liability, on a
pro rata basis in lieu of the non-signatory insurance policy and to
the extent that such insurance policy would have had to make
payments under the Agreement, up to the applicable limits of such
insurance policy . . . .” Wellington Agreement ¶ XX(3).
3
Wellington Agreement ¶ XX(1),(4). The Asbestos Claims
Facility was dissolved on October 3, 1988. The parties agree that
the Wellington Agreement remains operative between and among the
signatory producers (including National Gypsum) and the signatory
insurers (including INA) with respect to insurance coverage issues
resolved therein.
4
Restated Joint Plan of Reorganization” dated September 4, 1992.
The Bankruptcy Court entered an order confirming the reorganization
plan on March 9, 1993. Pursuant to the reorganization plan and the
confirmation order, National Gypsum assumed the Wellington
Agreement.4 INA neither objected to, nor appealed, the Bankruptcy
Court’s confirmation of the reorganization plan.5
National Gypsum’s reorganization plan called for the
establishment of a qualified settlement fund under section 468B of
the Internal Revenue Code (the “NGC Settlement Trust (Trust)”),
which became the sole shareholder of the reorganized National
4
Paragraph 7.1 of the reorganization plan assumed those
executory contracts set forth in the “Schedule of Executory
Contracts” (annexed to the plan as Exhibit F). Exhibit F lists the
Wellington Agreement under Paragraph VII (Asbestos-Related
Agreements) with a prepetition balance of zero and an
“[i]ndefinite” term.
As discussed below, this appeal involves neither a
determination of the “cure” amount (if any) required to assume the
Wellington Agreement under section 365 of the Bankruptcy Code, nor
the amount (if any) of interest owed by National Gypsum at any
time——either pre- or post-confirmation——under the Wellington
Agreement.
5
INA, however, has maintained consistently that it was never
given the requisite notice for assumption of the Wellington
Agreement. The Bankruptcy Court, in a subsequent ruling, rejected
INA’s notice argument and observed that National Gypsum provided
INA with notice of the hearing to approve the disclosure statement,
and that the notice contained the last date for objections to the
disclosure statement. The disclosure statement, as usual,
included, as “Annex 1,” the reorganization plan that was ultimately
confirmed by the Bankruptcy Court. The plan, as noted above,
listed the Wellington Agreement as an executory contract to be
assumed in Exhibit F.
The Bankruptcy Court ruled that, under our opinion in In re
Christopher, 28 F.3d 512, 517 (5th Cir. 1994), INA had sufficient
notice to permit it to object to the cure amount under section 365.
The merit of INA’s notice objection to the assumption of the
Wellington Agreement is also not before this Court in the present
appeal.
5
Gypsum (which, in turn, became known as “Asbestos Claims Management
Corporation (ACMC)”).
In a letter to the Trust dated July 12, 1995, INA demanded
payment of $3,866,055, representing the amount purportedly advanced
under paragraph XX(3) of the Wellington Agreement, plus $1,027,118
accrued interest under paragraph XX(4). INA’s demand letter stated
that, if payment were not received within thirty days, INA would
“institute formal proceedings to collect the amount due.” In a
letter to INA dated October 9, 1995, counsel for the Trust and ACMC
stated their position that the confirmed reorganization plan had
discharged National Gypsum “from the obligations asserted in the
Demand Letter” and admonished INA that post-confirmation collection
efforts were violative of the section 524(a) discharge injunction,
section 6.5 of the reorganization plan, and section 8(a) of the
confirmation order. INA, through counsel, repeated its demand in
a letter dated October 13, 1995. INA asserted that, as the
Wellington Agreement was assumed by the reorganized National Gypsum
(ACMC) rather than assigned to the “New NGC,” the obligations were
not subject to discharge.
On October 20, 1995, ACMC and the Trust filed this adversary
proceeding-declaratory judgment complaint against INA in the
National Gypsum Company Chapter 11 case in the United States
Bankruptcy Court for the Northern District of Texas, Dallas
Division. The complaint alleged that National Gypsum’s confirmed
6
reorganization plan barred INA’s collection efforts6 and sought
declarations from the court that (1) INA was barred from obtaining
recovery by operation of the Bankruptcy Code7 and that (2) no
assets of the Trust be permitted to satisfy INA’s claims regardless
of ACMC’s liability.8 The complaint asserted no other defenses to
6
“The Trust and ACMC contend that INA is barred from
obtaining recovery for some or all of the alleged
acceleration interest arising under Section XX of the
Wellington Agreement from the Trust and ACMC pursuant to
the discharge and other provisions of the Bankruptcy
Code, the Plan and the order of this Court confirming the
Plan (the “Confirmation Order”). Recovery by Defendant
Insurer of alleged acceleration interest from the Trust
or ACMC would be contrary to the provisions of the
Bankruptcy Code, including without limitation Sections
524 and 1141 thereof, and would defeat the purposes of
the confirmed Plan and of the Trust formed pursuant to
the Plan. Confirmation of the Plan is binding on all
parties affected by the Plan, including without
limitation INA, and constitutes res judicata as to INA.
The Trust and ACMC also contend that INA, the Defendant
Insurer, has been enjoined under applicable provisions of
the Bankruptcy Code and of the Plan and this court’s
Confirmation Order from obtaining such alleged
acceleration interest. INA is estopped from claiming
such alleged acceleration interest.” Complaint ¶ 20.
7
“The Trust and ACMC seek a declaration from the Court
under 28 U.S.C. §§ 2201-2202, declaring that INA, the
Defendant Insurer, is barred and enjoined pursuant to the
Bankruptcy Code, the Plan and the Confirmation Order from
obtaining recovery from either the Trust or ACMC from
[sic] any interest arising under Section XX of the
Wellington Agreement that accrued from insurer payments
made prior to March 9, 1993 [the date of confirmation].”
Complaint ¶ 23.
8
“The Trust and ACMC seek a declaration from the Court
under 28 U.S.C. §§ 2201-2202 declaring that regardless of
the contractual liability of ACMC, if any, under Section
XX of the Wellington Agreement, no assets of the Trust
may be used to satisfy the claims of INA, the Defendant
Insurer, with respect to any interest arising under
7
the Trust and ACMC’s liability for the amounts set forth in INA’s
demand letter other than those premised on the operation of the
confirmed reorganization plan and the injunctions provided by the
Bankruptcy Code; other issues, such as ACMC and the Trust’s
liability for post-confirmation date interest, the proper
calculation of interest under the Wellington Agreement, and
equitable defenses to collection were not addressed by the
complaint. ACMC and the Trust sought attorneys’ fees and costs.
On December 4, 1995, counsel for INA sent a letter to the CPR
Institute for Dispute Resolution requesting immediate docketing of
the dispute between INA, ACMC, and the Trust, citing the
alternative dispute resolution provisions of the Wellington
Agreement. That same day, in lieu of an answer, INA also filed a
motion in the Bankruptcy Court seeking, alternatively, abstention
in favor of arbitration (28 U.S.C. § 1334(c)(1)), a stay pending
arbitration (9 U.S.C. §§ 1-3), or a dismissal for lack of subject
matter jurisdiction (28 U.S.C. § 1334(b); 28 U.S.C. § 157(c)(1)).
On January 26, 1996, the Bankruptcy Court entered an order
denying INA’s motion. The Bankruptcy Court found that, as the
adversary proceeding sought to ascertain whether its Confirmation
Order and the reorganization plan precluded INA’s claim, it had
“core” jurisdiction under 28 U.S.C. §§ 157 (b)(2)(B) and (C). The
Bankruptcy Court, further observing that its jurisdiction was
concurrent (rather than exclusive), stated that ordinarily, given
Section XX of the Wellington Agreement that accrued from
insurer payments made prior to March 9, 1993, pursuant to
the Plan and the Conformation Order.” Complaint ¶ 26.
8
the passage of time after the substantive consummation of the
confirmed plan, it would have abstained in favor of the
nonbankruptcy forum (where ACMC and the Trust could have asserted
bankruptcy discharge, the discharge injunction, and res judicata as
affirmative defenses). The Bankruptcy Court, however, noted the
absence of ongoing arbitration proceedings and found that
bankruptcy court was the most efficient forum to determine the
issue raised in the complaint. Accordingly, the Bankruptcy Court
refused to abstain or to stay the adversary proceeding pending
arbitration.9
INA appealed the denial of its motion for a stay pending
arbitration under the Federal Arbitration Act (the Act), 9 U.S.C.
§ 3, to the District Court. INA argued that the Bankruptcy Court
applied an incorrect standard for determining whether to grant a
motion to stay under the Act, that the Bankruptcy Court had a duty
to grant a stay pending arbitration, and that the Bankruptcy Court
did not have core jurisdiction over the adversary proceeding. The
District Court affirmed the Bankruptcy Court, holding that the
issues raised in the declaratory judgment action were “core”
bankruptcy matters and that the Bankruptcy Court had discretion to
refuse to order arbitration of core bankruptcy matters. INA now
appeals to this Court the denial of its motion to stay under the
9
The Bankruptcy Court, citing 28 U.S.C. § 1334(c)(2), noted
that mandatory abstention did not apply to a declaratory judgment
action raising a core matter.
9
Act.10 We affirm.
Discussion
Although this appeal arises out of a dispute between INA and
ACMC and the Trust about whether, and to what extent, National
Gypsum’s confirmed reorganization plan bars post-confirmation
collection efforts by INA for National Gypsum’s alleged pre-
confirmation liability to INA under the Wellington Agreement, the
merits of that dispute are not before this Court. Rather, this
appeal concerns only the Bankruptcy Court’s determination that,
assuming the Wellington Agreement’s arbitration provision can be
read broadly enough to cover the present dispute, it nevertheless
had discretion to decide not to stay the adversary proceeding
pending arbitration under the Act.
A bankruptcy court’s refusal to stay an adversary proceeding
pending arbitration, though inherently interlocutory in nature, is
nevertheless appealable because of section 16 of the Federal
Arbitration Act. Section 16, by providing that an appeal may be
taken from an order “refusing a stay of any action under section
3,” 9 U.S.C. § 16(a)(1)(A),11 promotes arbitration “‘by permitting
10
Although INA, in its brief to this Court, stated that “[t]his
appeal only addresses the denial of [INA’s] motion to stay in favor
of arbitration,” it listed the Bankruptcy Court’s determination
that it possessed core bankruptcy jurisdiction as an issue on
appeal and presented arguments in support of that issue.
11
Section 16 of the Federal Arbitration Act provides:
“(a) An appeal may be taken from——
(1) an order——
(A) refusing a stay of any action under
section 3 of this title,
(B) denying a petition under section 4 of this
10
interlocutory appeals of orders favoring litigation over
arbitration and precluding review of interlocutory orders that
favor arbitration,’” McDermott Int’l, Inc. v. Underwriters at
Lloyd’s Subscribing to Memorandum of Ins. No. 104207, 981 F.2d 744,
746-47 (5th Cir. 1993) (quoting Forsyth Int’l, S.A. v. Gibbs Oil
Co., 915 F.2d 1017, 1020 (5th Cir. 1990)); see also American Cas.
Co. of Reading, Pa. v. L-J Inc., 35 F.3d 133, 135 (4th Cir. 1990)
(“It matters not whether these orders [refusing arbitration] are
final or interlocutory because orders that favor litigation over
arbitration are ‘immediately appealable, even if interlocutory in
nature.’”) (citation omitted). Accordingly, this Court has
jurisdiction over INA’s appeal.
I.
INA contends that the Bankruptcy Court erred by concluding
title to order arbitration to proceed,
(C) denying an application under section 206
of this title to compel arbitration,
(D) confirming or denying confirmation of an
award or partial award, or
(E) modifying, correcting, or vacating an
award;
(2) an interlocutory order granting, continuing, or
modifying an injunction against an arbitration that
is subject to this title; or
(3) a final decision with respect to an arbitration
that is subject to this title.
(b) Except as otherwise provided in section 1292(b) of
title 28, an appeal may not be taken from an
interlocutory order——
(1) granting a stay of any action under section 3
of this title;
(2) directing arbitration to proceed under section
4 of this title;
(3) compelling arbitration under section 206 of
this title; or
(4) refusing to enjoin an arbitration that is
subject to this title.” 9 U.S.C. § 16.
11
that ACMC’s declaratory judgment action constituted a core issue
under 28 U.S.C. § 157(b)(2)(B)&(C),12 and argues that ACMC’s
declaratory judgment action was instead a preemptive assertion of
a federal defense to a state law contract claim. A bankruptcy
court’s conclusion that a proceeding is “core” under 28 U.S.C. §
157(b) is a question of law which this Court reviews de novo. In
re United States Abatement Corp., 79 F.3d 393, 397-98 & n.9 (5th
Cir. 1996). INA first argues that ACMC and the Trust are
attempting to utilize the Declaratory Judgment Act to transform an
affirmative defense of discharge in bankruptcy into a federal cause
of action “arising under” title 11. In support of its argument,
INA cites Skelly Oil Co. v. Phillips Petroleum Co., 70 S. Ct. 876,
878-79 (1950), and Franchise Tax Bd. v. Construction Laborers
Vacation Trust, 103 S. Ct. 2841, 2849-50 (1983), for the proposition
that, as federal defenses to state law actions do not “arise under”
federal law for the purpose of federal question jurisdiction even
when asserted in a declaratory judgment complaint, the discharge
injunction granted pursuant to National Gypsum’s confirmed
reorganization plan cannot confer “arising under” core bankruptcy
12
28 U.S.C. § 1334(b) confers on the federal district courts
“original but not exclusive jurisdiction of all civil proceedings
arising under title 11, or arising or related to cases under title
11.” 28 U.S.C. § 157(b)(1) gives bankruptcy judges the power to
determine “all core proceedings arising under title 11, or arising
in a case under title 11” and to enter appropriate judgments and
orders. 28 U.S.C. § 157(b)(2) provides a nonexclusive list of core
proceedings, two of which the Bankruptcy Court (and the District
Court) found applicable. Id. § 157(b)(2)(B) (“allowance or
disallowance of claims against the estate”); id. § 157(b)(2)(C)
(“counterclaims by the estate against persons filing claims against
the estate”).
12
jurisdiction under sections 157(b) and 1334. INA contends that
Skelly and Franchise Tax Board required the Bankruptcy Court to
realign the parties as if ACMC were asserting discharge as a
defense to a state law contract action brought by INA.
INA also argues that any affirmative right conferred by 11
U.S.C. § 524(a)13 does not confer an independent federal cause of
action. INA cites Fabrique, Inc. v. Corman, 813 F.2d 725, 726 (5th
Cir. 1987), for the proposition that “an action for a declaratory
judgment stating a preemptive bankruptcy defense to a state law
claim [does] not constitute a cause of action for the purpose of
federal jurisdiction.”
ACMC and the Trust counter that a proceeding to determine
whether a creditor violated section 524(a)’s discharge injunction,
the reorganization plan, or the confirmation order is a core
13
Section 524(a) provides a debtor with a post-discharge
injunction against the collection of debts discharged in
bankruptcy:
“(a) A discharge in a case under this title——
. . . .
(2) operates as an injunction against the
commencement or continuation of an action, the
employment of process, or an act, to collect,
recover or offset any such debt as a personal
liability of the debtor, whether or not discharge
of such debt is waived . . . .” 11 U.S.C. §
524(a)(2).
Section 1141(d) discharges a Chapter 11 debtor (with certain
exceptions) from preconfirmation debts:
“(d)(1) Except as otherwise provided in this subsection,
in the plan, or in the order confirming the plan, the
confirmation of a plan——
(A) discharges the debtor from any debt that arose
before the date of such confirmation . . . .” 11
U.S.C. § 1141(d)(1)(A).
13
proceeding under section 157(b) and that INA’s reliance on
declaratory judgment/federal question cases is inapposite. ACMC
and the Trust first argue that In re Wood’s statement that “a
proceeding is core under section 157 if it invokes a substantive
right provided by title 11 or if it is a proceeding that, by its
nature, could arise only in the context of a bankruptcy case,” 825
F.2d 90, 97 (5th Cir. 1987), is controlling because their claim
that INA violated the discharge injunction “invokes a substantive
right provided by title 11.” Similarly, ACMC and the Trust contend
that their claim that INA also violated the reorganization plan and
the confirmation order could arise only in the context of a
bankruptcy case. ACMC and the Trust dispute INA’s position that a
discharge in bankruptcy, though a potential affirmative defense in
a civil proceeding, cannot also confer positive rights under
section 524.
ACMC and the Trust finally argue that the section 524(a)
discharge injunction grants a federal right to be free of
collection efforts——an independent basis for federal bankruptcy
jurisdiction——that does not rely improperly on the Declaratory
Judgment Act, 28 U.S.C. § 2201, as a basis for federal
jurisdiction. ACMC and the Trust distinguish Fabrique as a case
involving a nonbankrupt, declaratory judgment plaintiff who
premised federal jurisdiction on the federal question statute, 28
U.S.C. § 1331, advancing 11 U.S.C. § 363(m)’s warrant of title to
good faith purchasers as the only federal issue. Accordingly, they
argue that the 11 U.S.C. § 363(m) right at issue in Fabrique,
14
unlike the 11 U.S.C. § 524(a) discharge injunction, can arise only
as a defense. ACMC and the Trust contend that the declaratory
judgment action concerning section 524(a) involves only an
interpretation of the reorganization plan and the confirmation
order to determine whether the debt asserted by INA is owed under
the confirmed plan; as the merits of INA’s claims under the
Wellington Agreement were not implicated by their complaint, they
argue that the adversary proceeding involves only a determination
of their federal rights under the Bankruptcy Code.
The discharge injunction granted by section 524(a) is a
substantive right conferred by the Bankruptcy Code, often enforced
by a motion for contempt, see, e.g., In re Texaco, 182 B.R. 937,
944 (Bankr. S.D.N.Y. 1995) (“There can be no question that a
proceeding such as this [motion for contempt], to enforce and
construe a confirmation order issued by this Court in this case,
constitutes a proceeding ‘arising in or related to a case under
title 11.”), but also enforceable through a declaratory judgment
action, see, e.g., In re Christopher, 148 B.R. 832, 833 & n.2
(Bankr. N.D. Tex. 1992) (reorganized Chapter 11 debtor’s
declaratory judgment adversary proceeding seeking a declaration
that certain claims asserted in lawsuits were barred by 11 U.S.C.
§ 1141(d) was a core proceeding under 28 U.S.C. § 157(b)(2)(B) and
(O)), aff’d, 28 F.3d 512 (5th Cir. 1994); In re Pettibone Corp.,
151 B.R. 166, 169-70 (Bankr. N.D. Ill. 1993) (resolution of
declaratory judgment action brought by Chapter 11 plaintiff to
declare a personal injury claim discharged and collection efforts
15
violative of section 524(a) “affect[ed] the allowance of claims and
the administration of the estate [and] was a core proceeding under
28 U.S.C. § 157(b)(2)(A) and (B)”). Courts have held that actions
to enforce the discharge injunction are core proceedings because
they call on a bankruptcy court to construe and enforce its own
orders. In re Polysat, 152 B.R. 886, 888 (Bankr. E.D. Pa. 1993)
(“As the instant proceeding concerns the scope of the discharge
injunction arising from sections 524 and 1141 of the Code, it is a
core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (I), or (O).”); In
re Jacobs, 149 B.R. 983, 989 (Bankr. N.D. Okla. 1993) (“An action
before the Court which issued a discharge, for the purpose of
determining the scope of said discharge under 11 U.S.C. § 524 . .
. is not merely related to the bankruptcy, but arises under Title
11, and arises in a case under Title 11, is a ‘proceeding . . .
affecting . . . the adjustment of the debtor-creditor
relationship,’ and is therefore a core proceeding under 28 U.S.C.
§§ 157(b)(2)(O).”); cf. 4 Collier on Bankruptcy ¶ 524.02[2][c], at
524-18 (“A proceeding to enforce the discharge injunction is a core
proceeding under section 157(b)(2)(O) of title 28, and courts should
readily reopen a closed bankruptcy case to ensure that the essential
purposes of the discharge are not undermined.”).
The District Court rejected INA’s argument that the true
nature of ACMC’s declaratory judgment action was a federal defense
to a state law contract claim because “[t]he scope and
ramifications of the federal injunctions granted under Section
524(a) of the Bankruptcy Code, the Plan, and the Confirmation Order
16
are issues which are independent of the nature of INA’s pre-
confirmation claims.” The District Court was correct. Although a
discharge in bankruptcy can constitute an affirmative defense to a
state law contract claim, ACMC’s action to enforce the discharge
injunction——and to construe the scope and effect of the confirmed
reorganization plan——need not, indeed cannot,14 resolve any state
law contract issues, only whether INA’s pre-confirmation claim, as
stated, was discharged or otherwise barred by the Bankruptcy
Court’s confirmation of National Gypsum’s reorganization plan. As
such, the adversary proceeding is a federal cause of action,
asserting a statutory right under the Bankruptcy Code, that does
not depend improperly on the Declaratory Judgment Act as a basis
for core bankruptcy jurisdiction.
The Skelly Oil/Franchise Tax Board line of decisions relied on
by INA and this Court’s Fabrique decision are not inconsistent with
the Bankruptcy Court’s finding of core bankruptcy jurisdiction.
First, unlike the Federal Power Commission’s “certificate of public
convenience and necessity” at issue in Skelly Oil, 70 S. Ct. at 880-
82, or the scope of ERISA preemption at issue in Franchise Tax
Board, 103 S. Ct. at 2848-49, the section 524(a) discharge
injunction is not solely a federal defense to potential state
14
The declaratory judgment complaint filed by ACMC and the
Trust addressed only bankruptcy issues, specifically the operation
of the confirmed plan and the discharge injunctions. Before the
Bankruptcy Court, the parties agreed that the issues raised by the
complaint were exclusively matters of federal bankruptcy law.
Similarly, at oral argument before this Court, counsel for INA
acknowledged that the complaint did not raise any state law
contract issues.
17
actions; instead, “[l]ike the automatic stay of section 362(a), the
discharge injunction is the equivalent of a court order,” 4 Collier
on Bankruptcy ¶ 524.02[2], at 524-14. Second, unlike section
363(m)’s federal “copper-bottoming” of a state good faith purchaser
defense at issue in Fabrique, a proceeding to enforce or construe
a bankruptcy court’s section 524(a) discharge injunction issued
pursuant to its confirmation order——and whether the confirmed
reorganization plan precludes certain post-confirmation collection
efforts——necessarily arises under title 11 and supports a finding
that federal jurisdiction exists under 28 U.S.C. § 1334 and that
such a proceeding is “core” under 28 U.S.C. § 157(b).
Accordingly, we agree with both the Bankruptcy Court and the
District Court and hold that a declaratory judgment action seeking
merely a declaration that collection of an asserted pre-
confirmation liability is barred by a bankruptcy court’s
confirmation of a debtor’s reorganization plan (and the attendant
discharge injunctions under sections 524 and 1141 of the Bankruptcy
Code) is a core proceeding arising under title 11. Wood, 825 F.2d
at 97; 28 U.S.C. § 157(b)(2)(B),(C), and (O).
II.
INA argues that the Bankruptcy Court erred when it concluded
that it had discretion to refuse to stay the adversary proceeding
in favor of arbitration pursuant to the Wellington Agreement’s
arbitration provision.15 Whether a bankruptcy court has discretion
15
Paragraph VIII(6) of the Wellington Agreement provides:
“6. Subscribing Producers and Subscribing Insurers shall
18
to deny a motion to stay is a question of law which this Court
reviews de novo. In the Matter of Complaint of Hornbeck Offshore
(1984) Corp., 981 F.2d 752, 754 (5th Cir. 1993).
INA makes three arguments in support of its contention that
the Bankruptcy Court erroneously denied its motion to stay pursuant
to the Federal Arbitration Act. First, INA argues that the legal
standard used by the Third Circuit in Hays and Co. v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1161 (3d Cir.
1989), providing that a court “should enforce [an arbitration]
clause unless that effect would seriously jeopardize the objectives
of the Code,” applies to the instant proceeding. Second, INA
argues that the Bankruptcy Court improperly relied on
considerations of efficiency as a basis for denying INA’s motion to
stay. Finally, INA argues that the District Court erroneously
concluded that the Bankruptcy Court had discretion to determine
whether issues should be submitted to arbitration under the Act.
INA contends that cases holding that a bankruptcy court has
discretion to deny arbitration of core bankruptcy matters are
irreconcilable with the Supreme Court’s non-discretionary standard
set forth in Shearson/American Express, Inc. v. McMahon, 107 S. Ct.
2332 (1989) (holding claims under the Securities Exchange Act of
1934 and the federal RICO statute arbitrable and subject to the
Act), and Rodriguez de Quijas v. Shearson/American Express, Inc.,
resolve through alternative dispute resolution, in the
manner set forth in Appendix C hereto, any disputed
issues within the scope of the Agreement and the
Appendices hereto.”
19
109 S. Ct. 1917 (1989) (holding claims under the Securities Act of
1933 arbitrable), and that whether a matter is “core” or “non-core”
under 28 U.S.C. § 157 is irrelevant to mandatory arbitration under
the Act.
ACMC and the Trust, on the other hand, contend that the
arbitration clause in the Wellington Agreement does not trigger
mandatory arbitration under the Federal Arbitration Act of its
declaratory judgment action. First, they argue that arbitration
and the objectives of the Bankruptcy Code conflict when core
bankruptcy issues are involved. For example, ACMC and the Trust
note that the Third Circuit in Hays, although finding pre-petition,
non-core claims of the debtor arbitrable, found that the trustee’s
section 544(b) fraudulent conveyance claim was not subject to
arbitration. Second, ACMC and the Trust argue that, even if the
core/non-core distinction is not appropriate, mandatory arbitration
of its section 524(a) claim would nevertheless conflict with
Bankruptcy Code objectives by allowing arbitrators to determine
discharge issues and to interpret bankruptcy court orders. Third,
ACMC and the Trust make an argument that an interpretation of the
Act that would permit arbitrators to determine whether INA violated
the discharge injunction would violate the separation-of-powers
doctrine because Congress would be “interfering with the
[bankruptcy] court’s ability to enforce its judgments.” Finally,
they contend that the Wellington Agreement’s arbitration clause is
not broad enough to cover their claims set forth in the complaint.
20
A. The Standard for Enforcing an Applicable Arbitration Clause
The parties disagree as to the standard a bankruptcy court
should use to determine whether to order arbitration of a core
bankruptcy issue. INA contends that, provided an arbitration
clause is otherwise applicable, the bankruptcy court must order
arbitration unless it would seriously jeopardize the objectives of
the Bankruptcy Code. ACMC and the Trust contend that arbitration
of core bankruptcy issues inherently present such a conflict.
Section 3 of the Federal Arbitration Act provides, in
pertinent part, that a court “upon being satisfied that the issue
involved . . . is referable to arbitration under such an agreement,
shall on application of one of the parties stay the trial of the
action until such arbitration has been had in accordance with the
terms of the agreement.” 9 U.S.C. § 3. Addressing the
arbitrability of federal RICO and securities fraud claims brought
under the Securities Exchange Act of 1934 in McMahon, the Supreme
Court stated:
“The Arbitration Act, standing alone, therefore mandates
enforcement of agreements to arbitrate statutory claims.
Like any statutory directive, the Arbitration Act’s
mandate may be overridden by a contrary congressional
command. The burden is on the party opposing
arbitration, however, to show that Congress intended to
preclude a waiver of judicial remedies for the statutory
rights at issue. If Congress did intend to limit or
prohibit waiver of a judicial forum for a particular
claim, such an intent ‘will be deducible from [the
statute’s] text or legislative history’ or from an
inherent conflict between arbitration and the statute’s
underlying purposes.” McMahon, 107 S. Ct. at 2337-38.
Two years later, addressing the arbitrability of securities fraud
claims brought under the Securities Act of 1933, the Supreme Court
21
again used the standard set forth in McMahon to find the claims
arbitrable. Rodriguez, 109 S. Ct. at 1921 (“[T]he party opposing
arbitration carries the burden of showing that Congress intended in
a separate statute to preclude a waiver of judicial remedies, or
that such a waiver of judicial remedies inherently conflicts with
the underlying purposes of that other statute.”) (overruling Wilko
v. Swan, 74 S. Ct. 182 (1953)).
Citing the Supreme Court’s increased recognition of the force
of 9 U.S.C. § 3 in McMahon and Rodriguez, the Third Circuit, in
Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
ordered the arbitration of a non-core bankruptcy adversary
proceeding. In Hays, a Chapter 11 trustee brought a number of
federal and state claims against Merrill Lynch concerning various
securities transactions. Merrill Lynch filed a motion to dismiss
the federal RICO and 1933 Act claims pursuant to an arbitration
clause contained in the brokerage agreement. The district court
refused to compel arbitration.16 Hays, 885 F.2d at 1150-51.
The Third Circuit, reversing the district court, rejected the
notion that the Bankruptcy Code impliedly modified the Act and
stated that a Chapter 11 trustee is bound by an arbitration clause
to the same extent as would be a debtor. Id. at 1155. The Third
16
The district court premised its decision on Zimmerman v.
Continental Airlines, 712 F.2d 55 (3d Cir. 1983), cert. denied, 104
S. Ct. 699 (1984). In Zimmerman, decided before both McMahon and
the 1984 amendments to the Bankruptcy Code, the Third Circuit held
that, “because the underlying purposes of the Bankruptcy Reform Act
impliedly modify the Arbitration Act, the granting of a stay
pending arbitration, even when the arbitration clause is
contractual, is a matter left to the sound discretion of the
bankruptcy judge.” Id. at 56.
22
Circuit held that, as the “‘trustee stands in the shoes of the
debtor and can only assert those causes of action possessed by the
debtor’” subject to defenses——such as a contractual arbitration
provision——as could have been asserted by a defendant, the trustee
was bound to arbitrate all causes of action derived from section
541.17 Id. at 1154. Accordingly, the Third Circuit held that the
federal RICO and securities fraud actions must be ordered
arbitrated, but that the trustee’s section 544(b) avoidance
action——which was “not derivative of the bankrupt” but rather a
“statutory cause[] of action” under the Bankruptcy Code for the
benefit of the creditors——was not subject to the arbitration
provision. Id. at 1155.
The Hays opinion does go to some length to distinguish the
arbitrable claims as “involv[ing] non-core proceedings” and
highlighted the heightened role of nonbankruptcy court adjudication
brought about by the 1984 amendments. Id. at 1159. In light of
the “clear congressional rejection of judicial skepticism”
concerning arbitration recognized in McMahon and Rodriguez, the
Third Circuit concluded that an adversary proceeding involving
debtor-derivative, non-core matters would not “seriously jeopardize
the objectives of the Code.” Id. at 1160-61.
With respect to derivative, non-core matters, the Third
Circuit’s opinion in Hays makes eminent sense, particularly in
light of the 1984 amendments to the Bankruptcy Code. Indeed, in
17
11 U.S.C. § 541 defines the property included in the
bankruptcy estate, which includes all legal and equitable interests
of the debtor.
23
this regard it has been universally accepted. See Fred Neufeld,
Enforcement of Contractual Arbitration Agreements under the
Bankruptcy Code, 65 Am. Bankr. L.J. 525 (1991) (providing a
circuit-by-circuit analysis); Mette H. Kurth, Comment, An
Unstoppable Mandate and an Immovable Policy: The Arbitration Act
and the Bankruptcy Code Collide, 43 U.C.L.A. 999 (1996) (same).
Whether a bankruptcy court has discretion to enforce an
applicable arbitration clause where core bankruptcy issues are
involved was not addressed specifically by Hays, although other
courts have found the core/non-core distinction useful. See, e.g.,
Selcke v. New England Ins. Co., 995 F.2d 688, 691 (7th Cir. 1993)
(“Even broadly worded arbitration clauses are assumed not to extend
to claims that arise out of the provisions of the bankruptcy law
itself . . . .”); In re Spectrum Info. Techs., Inc., 183 B.R. 360,
363 (Bankr. E.D.N.Y. 1995) (“[E]specially with respect to core
proceedings, . . . arbitration should not triumph over the specific
jurisdiction bestowed upon the bankruptcy courts under the
Bankruptcy Code.”) (citing cases); In re Sacred Heart Hosp., 181
B.R. 195, 202 (Bankr. E.D. Pa. 1995) (“[A]s to core proceedings,
this court may exercise its full panoply of discretion . . . in
determining whether to refer a proceeding before it to
arbitration.”); In re American Freight Sys., Inc., 164 B.R. 341,
347 (D. Kan. 1994) (“The teachings of Hays & Co. are not applicable
to an adversary proceeding involving a core matter.”); In re Glen
Eagle Square, Inc., 1991 WL 71782 (Bankr. E.D. Pa. May 1, 1991)
(holding that the court retained discretion to order arbitration of
24
core proceedings because “they impact upon the Debtor’s
relationship with its entire body of creditors”); In re FRG, 115
B.R. 72, 74-75 (E.D. Pa. 1990). But see In re Barkman, Inc., 170
B.R. 321, 323 n.1 (Bankr. E.D. Mich. 1994) (“For purposes of
determining whether Congress intended to carve out an exception to
§ 3 of the Arbitration Act, the core/non-core distinction would
seem to be of only indirect significance.”).
ACMC and the Trust urge us to adopt a position that
categorically finds arbitration of core bankruptcy proceedings
inherently irreconcilable with the Bankruptcy Code. Cognizant of
the Supreme Court’s admonition that, in the absence of an inherent
conflict with the purpose of another federal statute, the Federal
Arbitration Act mandates enforcement of contractual arbitration
provisions, McMahon, 107 S. Ct. at 2337-38, we refuse to find such
an inherent conflict based solely on the jurisdictional nature of
a bankruptcy proceeding. Rather, as did the Third Circuit in Hays,
we believe that nonenforcement of an otherwise applicable
arbitration provision turns on the underlying nature of the
proceeding, i.e., whether the proceeding derives exclusively from
the provisions of the Bankruptcy Code and, if so, whether
arbitration of the proceeding would conflict with the purposes of
the Code. In this regard, we agree with INA that the discretion
enjoyed by a bankruptcy court to refuse enforcement of an otherwise
applicable arbitration provision depends upon a finding that the
25
standard set forth in McMahon has been met.18 But because we
believe that ACMC and the Trust’s declaratory judgment
complaint——which concerned matters central to National Gypsum’s
confirmed reorganization plan and implicated contractual issues in
only the most peripheral manner (if at all)——met this standard, we
conclude that the Bankruptcy Court was within its discretion to
refuse to order arbitration of the adversary proceeding (which was
limited to the effect, if any, of National Gypsum’s confirmed
reorganization plan and attendant injunctions on INA’s collection
efforts).19
The core/non-core distinction conflates the inquiry set forth
in McMahon and Rodriguez with the mere identification of the
jurisdictional basis of a particular bankruptcy proceeding.
Certainly not all core bankruptcy proceedings are premised on
provisions of the Code that “inherently conflict” with the Federal
Arbitration Act; nor would arbitration of such proceedings
necessarily jeopardize the objectives of the Bankruptcy Code.
Although, as appellees suggest, “the core/non-core distinction is
18
We disagree, however, with the narrowness of the example
offered by INA at oral argument of the type of arbitration that
would be “irreconcilable” with the purpose of the Bankruptcy Code:
a situation where a creditor and a debtor agreed pre-bankruptcy to
arbitrate the actual amount the creditor would be paid on a claim
under the contract in the event of bankruptcy (effectively
contracting out of a bankruptcy court’s power to adjust claims
among different classes of creditors). Such a contractual
provision——essentially an ipso facto clause——would plainly be
unenforceable without regard to any conflict, real or apparent,
with the Federal Arbitration Act. Cf. 11 U.S.C. §§ 363(l);
365(f)(1); 541(c).
19
We note that at the time the instant complaint was filed,
arbitration had not even been set in motion.
26
a practical and workable one,” it is nonetheless too broad. The
“discretion” that ACMC and the Trust urge should exist only where
a particular bankruptcy proceeding meets the standard for
nonenforcement of an arbitration clause set forth in McMahon and
Rodriguez. See In re Chorus Data Sys., 122 B.R. 845, 851 (Bankr.
N.H. 1990) (“[U]nder the Supreme Court precedents there is
discretion but in the bankruptcy context there must be a
demonstrated specific conflict between enforcing an arbitration
clause and the textual provisions and/or purposes of the Bankruptcy
Code to justify the exercise of discretion by a bankruptcy court in
refusing to enforce an arbitration clause.”) It is doubtful that
“core” proceedings, categorically, meet the standard.
In the most common type of creditor-initiated core
proceeding——a motion for relief from the automatic
stay20——bankruptcy courts regularly have permitted arbitration to
continue (or commence) in spite of the presence of core bankruptcy
jurisdiction. In those cases permitting arbitration, courts have
typically found little difficulty with arbitration of disputes
where resolution would not involve matters of federal bankruptcy
law.
For example, in In re Statewide Realty Co., 159 B.R. 719, 722
(Bankr. D. N.J. 1993), the debtor had objected to claims advanced
by Hilton International under a rejected management agreement, and
Hilton sought relief from the automatic stay to resolve the claim
20
11 U.S.C. § 362(d) allows a bankruptcy court to grant relief
from the § 362(a) automatic stay when a creditor establishes
“cause.”
27
pursuant to an arbitration provision in the agreement.
Acknowledging that its discretion to deny enforcement of an
otherwise applicable arbitration provision rested on a finding that
arbitration would conflict with the provisions or purpose of the
Bankruptcy Code, the bankruptcy court rejected a reading of Hays
now advanced by ACMC and the Trust:
“The fact that the matter before the court is a core
proceeding does not mean that arbitration is
inappropriate. The description of a matter as a core
proceeding simply means that the bankruptcy court has the
jurisdiction to make a full adjudication. However,
merely because the court has the authority to render a
decision does not mean it should do so. The discussion
in Hays regarding core and non-core proceedings is not
read by this court as suggesting that core proceedings
may not be subject to arbitration. Rather it appears
that the Hays court sought to distinguish between actions
derived from the debtor, and therefore subject to the
arbitration agreement, and bankruptcy actions in essence
created by the Bankruptcy Code for the benefit ultimately
of creditors of the estate, and therefore not encompassed
by the arbitration agreement.” Id. at 724.
The court went on to note that, although “a significant portion of
[Hilton’s] claim stems from damages that result from the Debtor’s
rejection of the Management Agreement pursuant to Bankruptcy Code
§ 365, the bankruptcy issues as to whether rejection of the
Management Agreement was a proper exercise of the Debtor’s business
judgment already have been determined in the hearings conducted by
the court.” Id. With only state contract issues concerning the
agreement left to resolve, the bankruptcy court was unable to
discern a conflict with the Bankruptcy Code posed by arbitration.
Id.; see also In re Chorus Data Systems, Inc., 122 B.R. 845 (Bankr.
D. N.H. 1990) (granting relief from the automatic stay to arbitrate
an unliquidated product development agreement claim and
28
counterclaim where the Chapter 11 debtor’s reorganization plan was
not wholly contingent on the outcome and resolution involved only
state law contract issues); In re Bicoastal Corp., 111 B.R. 999
(Bankr. M.D. Fla. 1990) (granting relief from the automatic stay to
arbitrate an unliquidated claim arising from a stock purchase price
adjustment dispute involving exclusively contract issues and
application of generally accepted accounting principles).
We find the Statewide bankruptcy court’s reading of Hays
persuasive. Indeed, distinguishing between those actions derived
from the debtor and those created by the Bankruptcy Code explains
the consistent reluctance to permit arbitration of actions brought
to adjudicate bankruptcy rights. There can be little dispute that
where a core proceeding involves adjudication of federal bankruptcy
rights wholly divorced from inherited contractual claims, the
importance of the federal bankruptcy forum provided by the Code is
at its zenith. Arguably, these actions are simply beyond the
coverage of most, if not all, arbitration provisions. But,
assuming an otherwise applicable arbitration provision, the
adjudication of these actions outside the federal bankruptcy forum
could in many instances present the type of conflict with the
purpose and provisions of the Bankruptcy Code alluded to in
McMahon. See Hays, 885 F.2d at 1155 (“Claims asserted by the
trustee under section 544(b) are not derivative of the bankrupt.
They are creditor claims that the Code authorizes the trustee to
asset on their behalf.”); In re Barney’s Inc., 206 B.R. 336 (Bankr.
S.D.N.Y. 1997) (finding Chapter 11 debtor’s section 544(a)
29
avoidance action, section 549 avoidance action, and section 542
turnover action were not subject to arbitration); In re Dunes Hotel
Associates, 194 B.R. 967, 992 (Bankr. D.S.C. 1996) (finding Chapter
11 debtor’s section 544(a) avoidance action, section 542 turnover
action, and section 365 rejection action were not subject to
arbitration); In re Arentson, 126 B.R. 236, 238 (Bankr. N.D. Miss.
1991) (refusing to order arbitration of a wrongful termination
action brought by a Chapter 7 debtor under section 525(b), which
provides redress for discrimination against an individual because
of a bankruptcy filing, because it was a cause of action
“exclusively related to a bankruptcy statute . . . that literally
begs for resolution in a bankruptcy forum”); cf. In re Pate, 198
B.R. 841, 846 (Bankr. S.D. Ga. 1996) (finding Chapter 13 debtor’s
Federal Truth in Lending Act claim involving the financing of a
mobile home, which was core under 28 U.S.C. § 157(b)(2)(C)
(counterclaims by the debtor’s estate), was arbitrable).
We think that, at least where the cause of action at issue is
not derivative of the pre-petition legal or equitable rights
possessed by a debtor but rather is derived entirely from the
federal rights conferred by the Bankruptcy Code, a bankruptcy court
retains significant discretion to assess whether arbitration would
be consistent with the purpose of the Code, including the goal of
centralized resolution of purely bankruptcy issues, the need to
protect creditors and reorganizing debtors from piecemeal
litigation,and the undisputed power of a bankruptcy court to
enforce its own orders.
30
B. The Bankruptcy Court’s Decision Not To Order Arbitration
We turn now to whether the Bankruptcy Court’s decision not to
stay the adversary proceeding was an abuse of discretion.21 As
discussed above, the Bankruptcy Court possessed discretion to
refuse to enforce an otherwise applicable arbitration provision22
21
INA contends that the Bankruptcy Court improperly relied on
efficiency concerns to refuse enforcement of the Wellington
Agreement’s arbitration provision. The Supreme Court has stated
that efficiency concerns are not an appropriate defense to an
otherwise applicable arbitration clause. Moses H. Cone Mem’l Hosp.
v. Mercury Constr. Corp., 103 S. Ct. 927, 939 (1983); Tai Ping Ins.
Co., Ltd. v. M/V Warschau, 731 F.2d 1141, 1146 (5th Cir. 1984) (“To
the extent that [a party contesting enforcement of an applicable
arbitration clause] relies on premises of economy of effort,
moreover, Moses Cone indicates that this reliance is misplaced.”).
In the bankruptcy context, however, efficient resolution of claims
and conservation of the bankruptcy estate assets are integral
purposes of the Bankruptcy Code. Accordingly, insofar as
efficiency concerns might present a genuine conflict between the
Federal Arbitration Act and the Code——for example where substantial
arbitration costs or severe delays would prejudice the rights of
creditors or the ability of a debtor to reorganize——they may well
represent legitimate considerations. Cf. In re Day, 208 B.R. 358,
370 (Bankr. E.D. Pa. 1997) (refusing to order arbitration of claims
allowance issues where confirmation of the debtors’ Chapter 13
plans was dependent upon immediate resolution of objections to
creditors’ claims). Here, the Bankruptcy Court noted that the
arbitration “process has not yet commenced” (indeed, when the
complaint was filed arbitration had not been requested) and that
“this court constitutes the most efficient and effective forum in
which to determine the core Bankruptcy Code issues” (and the court
went on to recite the several factors set out in In re Chicago,
Milwaukee, St. Paul & Pacific R.R. Co., 6 F.3d 1184, 1189 (7th Cir.
1993)). The Bankruptcy Court was not so much saying that
efficiency concerns would of themselves authorize denial of the
stay as it was suggesting that had the arbitration process actually
been well advanced it might have been more inclined to grant the
stay. INA’s argument in this respect presents no reversible error.
22
ACMC and the Trust contend that their declaratory judgment
action was not within the scope of the Wellington Agreement’s
arbitration provision, supra note 15, and that the stay provision
of the Federal Arbitration Act is therefore not applicable.
Neither the Bankruptcy Court nor the District Court explicitly
addressed the issue, apparently assuming the applicability of the
arbitration provision and finding that enforcement was nevertheless
31
only insofar as enforcement would conflict with the purpose or
provisions of the Bankruptcy Code.
The declaratory judgment action brought by ACMC and the Trust
sought a declaration that the section 524(a) discharge injunction
barred INA’s collection efforts, or that the terms and provisions
of the reorganization plan or the Bankruptcy Court’s confirmation
order precluded collection of INA’s claim for prepetition debts
allegedly owing under the Wellington Agreement. As stated, the
complaint raised no issues under the Wellington Agreement and was
restricted entirely to the adjudication of federal bankruptcy
issues. The complaint asked, in fine, for the Bankruptcy Court to
construe its own order. Nothing in the complaint permitted the
Bankruptcy Court to address the merits of INA’s claim under the
Wellington Agreement or ACMC and the Trust’s contract or equitable
defenses to INA’s claim under state law. In short, if appellees
were successful, and the Bankruptcy Court determined that INA’s
collection efforts were barred either by the section 524(a)
discharge injunction or by the terms of the confirmed
reorganization plan, INA’s collection efforts would be barred under
bankruptcy law.23 If appellees were unsuccessful, resolution of the
within the court’s discretion. Although we find the applicability
of the arbitration provision to this action subject to considerable
doubt, see United Offshore Co. v. Southern Deepwater Pipeline, 899
F.2d 405, 409-10 (5th Cir. 1990), we also assume its applicability
for the purposes of this appeal.
23
INA argues that its collection efforts do not implicate the
section 524(a) discharge injunction because the pre-confirmation
debt it alleges stems from an assumed contract under section 365.
The Bankruptcy Court, in a bench ruling on March 28, 1997,
modifying its earlier October 22, 1996, order, essentially agreed.
32
merits of INA’s claim under the Wellington Agreement would remain
open, presumably subject to any valid arbitration provision.24
The Bankruptcy Court ruled that the Chapter 11 discharge provision,
section 1141(d)(1), does not address claims based on the assumption
of an executory agreement because section 365(b)(1) requires the
debtor to cure any default as a prerequisite to assumption.
Accordingly, the Bankruptcy Court ruled that section 1141(d)(1)
addresses only claims based on the rejection of an executory
contract (by referring to section 502(g)). The Bankruptcy Court
stated that, as to amounts allegedly owed under an assumed
executory contract, the assumption order governs (which, in this
case, was incorporated in the relevant provisions of the
reorganization plan and the confirmation order). Observing that
section 1141(d)(1) cannot be read to provide for discharge of
amounts in default under assumed executory contracts without
nullifying the cure requirement of section 365(b)(1), the
Bankruptcy Court held that its adjudication of the plan——rather
than the discharge injunction provided by section 1141(d)(1) and
section 524(a)——precluded INA’s collection efforts. See Republic
Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir. 1987).
Whether viewed as a question of the coverage of the discharge
injunction or as an issue concerning prior adjudication, it is
plain, however, that resolution of ACMC and the Trust’s declaratory
judgment action implicated issues arising exclusively from National
Gypsum’s rights conferred by its confirmed reorganization plan. As
stated, INA’s argument relates to whether the Bankruptcy Court
should have granted the relief sought by ACMC and the trust, not
whether it should have ordered arbitration. Although we express no
opinion as to the correctness of the Bankruptcy Court’s
determination, we are quite certain that it was the proper forum to
address the limited issues raised in the complaint.
24
INA cited Picco v. Global Marine Drilling Co., 900 F.2d 846
(5th Cir. 1990), at oral argument for the proposition that it is
appropriate for other courts——and therefore arbitrators——to
interpret the preclusive effect of bankruptcy court orders.
Picco, however, may not be read so broadly as to always
preclude bankruptcy court refusal to defer to a prospective,
nonbankruptcy, nonjudicial forum to entertain an action limited
solely to the scope of a bankruptcy court’s order. Picco involved
a Canadian personal-injury claimant (Picco) whose suit against a
Chapter 11 debtor was dismissed without prejudice on forum non
conveniens grounds during the pendency of the automatic stay.
Picco did not appeal the dismissal. After the bankruptcy court
lifted the automatic stay to permit personal-injury actions to
proceed, however, he refiled his claim in Canada. Later still, he
decided that Texas state court was a preferable forum, but the
statute of limitations had expired on his action. Picco therefore
moved the district court to set aside its prior judgment and re-
33
We are convinced that arbitration of a core bankruptcy
adversary proceeding brought to determine whether INA’s collection
efforts were barred by the section 524(a) discharge injunction or
by the confirmation of National Gypsum’s reorganization plan, as a
nondebtor-derivative action to enforce asserted rights created by
the Bankruptcy Code that are completely divorced from National
Gypsum’s prepetition rights under the Welllington Agreement, would
be inconsistent with the Bankruptcy Code. Whether premised, as the
District Court suggested, on a finding that enforcement of the
arbitration provision would irreconcilably conflict with the
Bankruptcy Code,25 McMahon, 107 S. Ct. 2332, or on the view that
dismiss with conditions permitting him to refile in Texas state
court. The district court granted his motion. At issue in the
appeal was whether Picco——who chose not to appeal the initial
dismissal by the district court——could challenge jurisdiction to
enter the initial dismissal in a subsequent Rule 60(b)(4)
proceeding. This Court concluded that, as Picco had had the
opportunity to challenge the district court’s jurisdiction on
appeal from the initial dismissal, he was barred from challenging
it in the context of a Rule 60(b) proceeding.
Our unremarkable statement in Picco that “district courts
retain jurisdiction to determine the applicability of the [§ 362(a)
automatic] stay to litigation pending before them, and to enter
orders not inconsistent with the terms of the stay,” Picco, 900
F.2d at 850, did not, of course, foreclose a debtor’s ability to
redress violations of the automatic stay through contempt
proceedings in the bankruptcy court, nor was it intended to
diminish the ability of a bankruptcy court to entertain actions to
enforce or construe the effects of its own orders. Cf. Celotex
Corporation v. Edwards, 115 S. Ct. 1493 (1995) (where bankruptcy
court has jurisdiction to issue stay order, validity of that order
may not be collaterally attacked).
25
The District Court noted that, although the Bankruptcy Court
“did not expressly analyze whether referring the core issues in the
Complaint would seriously jeopardize the underlying policies of the
Bankruptcy Code,” arbitration nevertheless would present a conflict
with the Code because it would “allow a panel of arbitrators to
decide whether and how to enforce the federal injunctions granted
under 11 U.S.C. Section 524(a) and how to apply the Plan and the
34
bankruptcy courts have discretion to deny enforcement of
arbitration clauses in core cases when the only rights at issue
were created by the Bankruptcy Code rather than inherited from a
debtor’s pre-petition property, Hays, 885 F.2d at 1155, the
Bankruptcy Court was within its discretion to deny INA’s motion to
stay under the Federal Arbitration Act.26 Accordingly, the judgment
of the District Court, affirming the order of the Bankruptcy Court,
is
AFFIRMED.
Confirmation Order to these alleged pre-petition debts.”
26
Accordingly, we have no need to address ACMC and the Trust’s
substantially more questionable argument that arbitration would run
afoul of the separation-of-powers principles set forth in Plaut v.
Spendthrift Farm, Inc., 115 S. Ct. 1447 (1995).
35