Academic journal article Defense Counsel Journal

International Arbitration in Bankruptcy Proceedings: Uncertainty in the Enforcement of Arbitration Agreements

Academic journal article Defense Counsel Journal

International Arbitration in Bankruptcy Proceedings: Uncertainty in the Enforcement of Arbitration Agreements

Article excerpt

ARBITRATION agreements are becoming more the norm, especially in international transactions. (1) International arbitration courts like the ICSID and the international Chamber of Commerce have shown a steady, continuing increase in international arbitration cases. (2) As arbitration clauses become more prevalent in contracts, bankruptcy courts will often have to determine if to submit a claim in bankruptcy court to arbitration, as arbitration clauses are generally broad, encompassing "all disputes arising out of or in connection with" that contract. (3) International transactions can be enormous, even involving states, and bankruptcy remains a prevalent issue. (4) zzzz What bankruptcy courts are required to do is still uncertain in the United States. The Supreme Court has not addressed this issue, and there is some variation between circuits. Generally, bankruptcy courts tend to refuse enforcement of an arbitration agreement when arbitration would "inherently conflict" with the purposes of the Bankruptcy Code. But some courts rely heavily on the core/non-core distinction in bankruptcy claims in determining if the arbitration agreement should be enforced, while others only focus on the "inherent conflict" between purposes of the Bankruptcy Code and FAA. The trend by the Supreme Court seems to be in limiting the power of the bankruptcy court under Article III, (5) while broadly enforcing international arbitration agreements in general, even when the dispute involves statutory rights. International arbitration agreements rely on predictability in resolving the disputes and providing a neutral forum for the dispute, protecting the rights of all parties. This article discusses the increasing trend by courts to enforce arbitration agreements unless they conflict with the Bankruptcy Code's purpose, and analyzes new issues that may affect bankruptcy courts' determinations. In international arbitration agreements, even in the context of bankruptcy proceedings, these agreements should be enforced more rigorously than domestic arbitrations to remain in line with the Supreme Court's recent jurisprudence and protect the rights of all international parties.

I. Conflicting Purposes

Bankruptcy and arbitration are often at odds in their purpose. "[T]he purposes of the Bankruptcy Code include '[centralization of disputes concerning a debtor's legal obligations'" and "protect[ing] creditors and reorganizing debtors from piecemeal litigation'" (6) while arbitration can disrupt this purpose because it can "permit[] an arbitrator to decide a core issue would make debtor-creditor rights 'contingent upon an arbitrator's ruling' rather than the ruling of the bankruptcy judge assigned to hear the debtor's case.'" (7) In bankruptcy, efficient decisions of claims and conserving of the bankrupt estate's assets are fundamental to the purposes of the Bankruptcy Code. (8) However, arbitration has the potential to last much longer and can affect the rights of creditors, presenting what many courts view as "legitimate concerns." (9) The Bankruptcy Code and the FAA may even "present a conflict of near polar extremes: bankruptcy policy exerts an inexorable pull towards centralization while arbitration policy advocates a decentralized approach towards dispute resolution." (10) Arbitration may also present piecemeal litigation concerns as well, especially as some courts will distinguish between "core" and "non-core" issues, discussed below.

But, in the context of international arbitration, the benefits and purposes of international arbitration may outweigh the costs that arbitration imposes on bankruptcy. Many of the cases discussed below are domestic arbitration cases, but in the context of international arbitration a court should be more willing to compel arbitration. A U.S. bankruptcy court has discretion to compel or not compel arbitration in either a core or non-core proceeding, but there is a greater tendency to compel arbitration where international arbitration is involved. …

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