Justia Arbitration & Mediation Opinion Summaries

The case involves International Petroleum Products and Additives Company (IPAC), a California-based company, which entered into sales and distribution agreements with Black Gold S.A.R.L., a Monaco-based company. Black Gold breached these agreements by using IPAC’s confidential information to develop competing products. IPAC won an arbitration award of over $1 million against Black Gold. However, Black Gold declared bankruptcy in Monaco, complicating IPAC’s efforts to collect the award.The United States District Court for the Northern District of California confirmed the arbitration award and entered judgment against Black Gold. During post-judgment discovery, Black Gold engaged in misconduct, leading the district court to sanction Black Gold and add Lorenzo and Sofia Napoleoni, Black Gold’s owners, as judgment debtors on the grounds that they were Black Gold’s alter egos. Black Gold’s petition for recognition of its Monaco bankruptcy proceedings was initially denied by the bankruptcy court, but this decision was later reversed by the Bankruptcy Appellate Panel (BAP), which mandated recognition of the Monaco proceedings.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the automatic bankruptcy stay under 11 U.S.C. § 1520 did not retroactively apply to the date of the bankruptcy court’s initial denial of Black Gold’s petition. The court also held that the automatic stay did not extend to IPAC’s alter ego claim against the Napoleonis. The court affirmed the district court’s judgment and the award of attorneys’ fees and costs in favor of IPAC, concluding that the alter ego claim was not the property of Black Gold’s estate under California law. View "International Petroleum Products and Additives Co, Inc. v. Black Gold S.A.R.L." on Justia Law

The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law

Plaintiff Tutor Perini Building Corp. appealed from the district court’s order affirming an order of the United States Bankruptcy Court, which held that Plaintiff may not use 11 U.S.C. Section 365(b)(1)(A) to assert a “cure claim” against the Trustee for the Trustee’s assumption of an unexpired lease to which Plaintiff was neither a party nor a third-party beneficiary.   The Second Circuit affirmed. The court held that a creditor who seeks to assert a “cure claim” under Section 365(b)(1)(A) must have a contractual right to payment under the assumed executory contract or unexpired lease in question, and the court agreed that Plaintiff is not a third-party beneficiary of the assumed lease. The court explained that Tutor Perini’s expansive view of the priority rights conferred by 11 U.S.C. Section 365(b)(1)(A) is inconsistent with applicable principles of Bankruptcy Code interpretation, and its third-party beneficiary argument is inconsistent with controlling principles of New York contract law. View "In re: George Washington Bridge" on Justia Law

Attorney Romanzi referred a personal injury case to his employer, the Fieger law firm; meanwhile, creditors were winning default judgments against Romanzi. The case settled for $11.9 million; about $3.55 million was awarded as attorney’s fees after Romanzi quit the firm. Romanzi’s employment at the firm entitled him to a third of the fees. Before Romanzi could claim his due, his creditors forced him into Chapter 7 bankruptcy. The trustee commenced an adversary proceeding against the firm to recover Romanzi’s third of the settlement fees for the bankruptcy estate. The parties agreed to arbitration.Two of the three arbitrators found for the trustee in a single-paragraph decision that was not "reasoned" to the firm’s satisfaction. The district court remanded for clarification rather than vacating the award. On remand, the panel asked for submissions from both parties, which the trustee provided; the firm refused to participate. The arbitrators’ subsequent supplemental award, approved by the district court, awarded the trustee the fees plus interest. The Sixth Circuit affirmed, rejecting arguments that the arbitrators’ original award was compromised according to at least one factor allowing vacation under the Federal Arbitration Act, 9 U.S.C. 10(a); that the act of remanding and the powers exercised by the arbitrators on remand violated the doctrine of functus officio; and that the supplemental award should have been vacated under the section 10(a) factors. The district court’s and panel’s actions fall under the clarification exception to functus officio. View "In re: Romanzi" on Justia Law

Anne and Donald divorced in 1996 after 25 years of marriage. They later reconciled but did not re‐marry, then separated again. Because divorce laws no longer applied, Anne sued Donald in Indiana state court under equitable theories to seek redress for her contributions to the relationship during their second period together. They agreed to binding arbitration. The arbitrator awarded Anne $435,000, half the increase in value of Donald’s retirement savings during their unmarried cohabitation. Donald declared bankruptcy and sought to discharge the arbitrator’s award as a money judgment. Anne argued that the arbitrator had awarded her an interest in specific property so that the award could not be discharged in Donald’s bankruptcy.The bankruptcy court sided with Anne. The district court reversed. The Seventh Circuit affirmed, in favor of Donald. Anne was awarded a money judgment, not a property interest. The award does not identify a required source of funds or manner of payment but only lists options for satisfying the obligation. The payment of cash would suffice; the award provided for post-judgment interest. The arbitrator’s award said that “this judgment should not be dischargeable in bankruptcy” but that language is not controlling. View "Harshaw v. Harshaw" on Justia Law

In 2005, U.S. Home Corporation entered into a contract to purchase two contiguous tracts of land, one of which was owned by West Pleasant-CPGT, Inc. Under the contract, West Pleasant and the other landowner were to gain certain approvals permitting development of the properties. Pursuant to the contract, U.S. Home paid advances to the landowners totaling over $1.5 million. As security for the advances, West Pleasant executed a mortgage and note on its property; the other landowner did not. When a contract dispute arose in 2006, U.S. Home sought to terminate the contract and get a return of its total advance. U.S. Home prevailed in arbitration and was awarded a judgment in the full amount of the advance, plus interest. The Appellate Division affirmed the judgment in 2009. When the judgment was not satisfied, U.S. Home commenced foreclosure actions against the properties. The foreclosure proceedings were stayed when West Pleasant and the other property owner filed for bankruptcy. In West Pleasant’s bankruptcy action, U.S. Home moved to dismiss and for relief from the automatic stay. West Pleasant and U.S. Home executed a Consent Order, in which West Pleasant dismissed its bankruptcy proceeding, waived a fair market valuation and its right to object to a sheriff’s sale of its property, and released U.S. Home from any claims in law or equity. U.S. Home never proceeded with any deficiency action against either landowner. Nonetheless, the landowners commenced the affirmative litigation that gave rise to this appeal, seeking a declaration that the arbitration award was fully satisfied, as well as compensation “in the amount of the excess fair market value of the properties obtained by defendant[] U.S. Home over the amount of its outstanding judgment.” The second property owner then assigned its rights to West Pleasant. After trial, the court valued the second property as worth almost $2.4 million and West Pleasant’s property as worth almost $2 million. The court ordered U.S. Home to pay the fair market value of the West Pleasant property, plus interest, and extinguished the arbitration award on the second property. On appeal, the Appellate Division determined that West Pleasant had waived its right to a fair market valuation on its property but that it was owed a fair market value credit for the second property. The Appellate Division remanded the matter to the trial court for recalculation of damages. The New Jersey Supreme Court reversed, finding use of fair market value credit by this debtor to obtain a money judgment against a creditor, in the absence of a deficiency claim threatened or pursued or any objection being raised at the time of the sheriff’s sales, was "inconsistent with sound foreclosure processes and, moreover, inequitable in the circumstances presented." The judgment of the Appellate Division was reversed and the matter remanded for further proceedings. View "West Pleasant-CPGT, Inc. v. U.S. Home Corporation" on Justia Law

Violation of a bankruptcy court discharge order is not an arbitrable dispute. The Second Circuit affirmed the district court's order denying appellants' motions to compel arbitration of a dispute with two debtors who previously held credit card accounts managed by appellants. Appellants argued that debtors were obliged to arbitrate the dispute concerning whether appellants violated the bankruptcy court's discharge orders when they failed to correct the status of debtors' credit card debt on their credit reports.Though the text and history of the Bankruptcy Code are ambiguous as to whether Congress intended to displace the Federal Arbitration Act in this context, the court held that circuit precedent is clear that the two statutes are in inherent conflict on this issue. In Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir.), cert. denied, 139 S. Ct. 144 (2018), the court refused to enforce the parties' arbitration agreement, finding that Congress did not intend for disputes over the violation of a discharge order to be arbitrable. View "Belton v. GE Capital Retail Bank" on Justia Law

The Fifth Circuit withdrew its previously filed opinion and substituted the following opinion.The court held that its holding in In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction, remains good law following the Supreme Court's decision in Epic Sys., 138 S. Ct. at 1623-24. In this case, the court affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration of a dispute over whether debtor's discharge applied to a student loan. View "Henry v. Educational Financial Service" on Justia Law

Debtor filed an adversary proceeding in bankruptcy court raising the issue of whether her bankruptcy discharge applied to a student loan. The Fifth Circuit affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration.The court held that its holding In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), -- that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction -- remains good law following the Supreme Court's decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). The court held that Epic Systems shows that National Gypsum's doctrinal foundation remains sound. View "Henry v. Educational Financial Service" on Justia Law

The Second Circuit affirmed the bankruptcy court's denial of Credit One's motion to compel arbitration on the basis of a clause in the cardholder agreement between Credit One and debtor. The court held that debtor's claim was not arbitrable because the dispute concerned a core bankruptcy proceeding and arbitrating the matter would present an inherent conflict with the goals of the Bankruptcy Code. In this case, the successful discharge of debt was not merely important to the Bankruptcy Code, it was its principal goal. The court explained that an attempt to coerce debtors to pay a discharged debt was thus an attempt to undo the effect of the discharge order and the bankruptcy proceeding itself. View "In re Orrin S. Anderson" on Justia Law