Bankruptcy Claims May be Arbitrated
Laura Napoli on January 3, 2013 ·
Weil Gotshal & Manges, LLP Blog
In MicroBilt Corp. v. Fidelity National Information Services, Inc. (In re MicroBilt Corp.), No. 12-01167, 2012 WL 6137610 (Bankr. D.N.J. Dec. 11, 2012), the United States Bankruptcy Court for the District of New Jersey recently decided that certain claims, including claims relating to violation of the automatic stay, were subject to binding arbitration.
MicroBilt provides online access to credit bureau data to small and medium sized businesses. MicroBilt had a longstanding contractual arrangement with Chex Systems, Inc., pursuant to which Chex sold financial information to MicroBilt, which then resold the information to credit unions, payday lenders, and car dealerships. In 2009, Chex and MicroBilt entered into a settlement to resolve a dispute that had arisen under the contract. As part of the settlement, the parties entered into a Resale Agreement.
Meanwhile, CL Verify, another credit information supplier, entered into a Data Reseller Agreement (“DRA”) with Certegy Ltd., a UK-based company. The DRA provided that Certegy would supply certain consumer credit card information exclusively to CL Verify, which CL Verify could then resell to its end users. In return, CL Verify agreed to pricing terms that were favorable to Certegy. Also around this time, CL Verify’s UK subsidiary, CLV UK, entered into an Independent Sales Organization Agreement (“ISO”) with Certegy, whereby Certegy agreed to market and develop CLV UK’s product within the United Kingdom. MicroBilt acquired CL Verify in 2010, and CL Verify assigned its assets, including the DRA and the ISO, to MicroBilt.
By late 2010, the relationship between Chex and MicroBilt had deteriorated again, and Chex asserted a series of defaults under the Resale Agreement. In March 2011, MicroBilt and CL Verify filed for chapter 11 relief. After the filings, Chex and its parent, Fidelity National Information Systems, Inc. (“FIS”), directed Certegy to end its support for CLV UK under the ISO. MicroBilt and CL Verify then commenced an adversary proceeding, alleging that FIS and Chex tortiously interfered with its existing and prospective contractual relationships. MicroBilt also alleged that FIS and Chex had violated the automatic stay provisions of the Bankruptcy Code through their postpetition actions. In response, Chex and Certegy sought to compel arbitration of the dispute, pointing to specific provisions in the Resale Agreement and the ISO, which required that any dispute arising out, of or relating to, the agreements be determined through alternative dispute resolution.
The Tortious Interference Claims
The court first focused on the tortious interference claims and found that all of those claims fell within the context of the arbitration clauses in the Resale Agreement, the ISO, and the DRA. Because the Federal Arbitration Act requires courts to compel arbitration when an agreement requires it, the court determined that it should defer to the arbitration provisions in the contracts and enforce arbitration.
The Stay Violation Claims
Turning next to the stay violation claims, the court found that, for these claims, the language of the underlying agreements was not helpful in determining whether the parties intended to include claims arising under the Bankruptcy Code in the arbitration provisions. Despite this, the court concluded that the mere fact that claims may arise under the Bankruptcy Code does not preclude them from being arbitrated. Instead, the court focused its inquiry into whether arbitration of the claims would interfere with or affect the distribution of the bankruptcy estate.
An examination of the facts led the court to conclude that arbitration would not result in interference with the estate because the disputed conduct (tortious interference with contract) did not allow Chex and FIS either to acquire possession or control over the debtors’ assets or to advance their own interests over those of other creditors. As evidence of this, the court noted that it had recently confirmed the debtors’ plan of reorganization, which provided for a 100% distribution to unsecured creditors and postpetition interest, as well as the assumption of all executory contracts. Finding no interference, the court noted that arbitration of the stay violation claims would not be inconsistent with the Bankruptcy Code’s goals and objectives, the bankruptcy court’s authority or the centralization of bankruptcy disputes. The court also stated that the stay violation claims were factually and legally linked with the tortious interference claims, lending additional support for the determination that the stay violation claims should be resolved with the tortious interference claims in arbitration.
The court’s decision in this case echoes the strong Third Circuit policy of resolving disputes via arbitration. Yet, not all courts may agree with this policy. For example, earlier this year we blogged about a decision where the Southern District of New York affirmed a holding of the bankruptcy court that concluded that the interests of the Bankruptcy Code outweighed those of the Federal Arbitration Act, at least when it comes to determinations regarding property of the estate. As courts continue to wrestle with the role arbitration clauses should play in bankruptcy issues, it will be interesting to see how the line will be drawn between the competing policy interests of the Bankruptcy Code and the Federal Arbitration Act.
There is support for this position in Florida bankruptcy courts. But there is little case law on the subject.
If you need assistance discussing business issues involving either arbitration or bankruptcy matters, call us.
ERIC N. ASSOULINE, ESQ.
ASSOULINE & BERLOWE, P.A.
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