By: Donald L Swanson
We have a direct statutory conflict:
- one statute requires an ERISA dispute to be resolved in arbitration; but
- a bankruptcy statute requires the same dispute to be resolved in bankruptcy.
Which statute should prevail? The bankruptcy statute, of course.
- That’s the conclusion of In re Yellow Corp.[Fn. 1]
Statutory Conflict
The In re Yellow Corp. case presents a direct conflict between these two federal statutes (emphases added):
- 11 U.S.C. § 502(b) says, if an “objection to a claim is made, the court . . . shall determine the amount of such claim . . . ”; but
- the Employee Retirement and Security Act (“ERISA”) says, “Any dispute between an employer and the plan sponsor of a multiemployer plan . . . shall be resolved through arbitration” (29 U.S.C. § 1401(a)(1)).
Facts
In re Yellow Corp. is a Chapter 11 trucking company case.
Debtor withdraws from several multiemployer ERISA plans, and those plans file proofs of claims totaling $7.8 billion in Debtor’s bankruptcy.
Debtor and other interested parties object to those proofs of claims.
In response, the ERISA plans file motions in the Bankruptcy Court to send the claims objections to arbitration, as provided by federal statute. Debtor and other parties in interest object.
Legal Standards
Here are legal standards for resolving the statutory conflict.
Procedurally, the arbitration motions will be treated as motions for relief from the automatic stay to have the ERISA claims against Debtor liquidated in another forum.
The Supreme Court has declared that, when confronted with two Acts of Congress allegedly touching on the same topic, courts must “strive to give effect to both.”
But the 11 U.S.C. § 502(b) claims allowance process and the ERISA arbitration requirement cannot simultaneously be given their full effect:
- one says that certain disputes “shall” be resolved in bankruptcy; and
- another says the same dispute “shall” be decided by arbitration?
Instead, they can be harmonized like this: by treating the ERISA arbitration requirement as creating a presumption in favor of arbitration.
In deciding whether to follow the presumption, multiple factors must be considered, including whether:
- relief would result in a partial or complete resolution of the issues;
- any connection with or interference exists with the bankruptcy case;
- a specialized tribunal with the necessary expertise has been established to hear the cause;
- litigation in another forum would prejudice the interests of other creditors;
- the interests of judicial economy and the expeditious and economical resolution of litigation;
- the parties are ready for trial in the other proceeding; and
- the stay on the parties and the balance of harms are appropriate.
Among all the factors, the congressional judgment that these ERISA disputes should be resolved in arbitration is entitled to very substantial weight—i.e., should presumptively be granted.
But such a presumption can be overcome:
- where the imperatives of the bankruptcy case (i.e., the other factors) so require; and
- particularly when the arbitration is likely to be long and expensive.
Ruling & Analysis
The Bankruptcy Court rules that the arbitration presumption is overcome and that the § 502(b) claims allowance process should proceed.
Here’s why.
First. In the typical claims allowance dispute, only the debtor-in-possession objects to a creditor’s claim—but here, other parties in interest are also objecting, and they would not be allowed to participate in the arbitration.
Second. A bankruptcy scheduling order exists, with trial scheduled for the near future. A timely resolution of the ERISA claims dispute is crucial to the bankruptcy—i.e., likely to determine the allocation of hundreds of millions of dollars from Debtors’ highly successful asset sales. Risks of delay in the arbitration weigh strongly against arbitration.
Third. Unlike an arbitration under the Federal Arbitration Act, the proposed ERISA arbitration is subject to judicial review under the same standards as a bankruptcy court appeal. So, the policy favoring arbitration should be afforded less weight
Fourth. This case involves a challenge to the validity of an ERISA regulation. And it is contended by one of the parties that:
- neither the Bankruptcy Court nor the arbitrator has authority to address the challenge; and
- a complex parallel proceeding in the district court is required.
This weighs against arbitration.
Opinion’s Conclusion
The Court:
- does not believe that the presumption in favor of arbitration is one that should lightly be overcome; but
- denies the arbitration motion, anyway, for the reasons set forth above.
Conclusion
It’s always nice to see a bankruptcy opinion favoring a proceeding in bankruptcy over arbitration.
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Footnote 1. The opinion is In re Yellow Corp., Case No. 23-11069 in the Delaware Bankruptcy Court, issued March 27, 2024 (Doc. 2765).
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