A district court opinion from late January enforcing an arbitration agreement to halt a class action in bankruptcy court was extended to preclude a chapter 13 debtor from pursuing a motion to hold a creditor in contempt for violating the automatic stay.
The new case appears to stand for the proposition that a debtor must arbitrate an alleged stay violation if there is no promise to share the recovery with creditors.
The new case involved a woman who had confirmed her chapter 13 plan providing no recovery for unsecured creditors. After confirmation, she received one dunning letter from a creditor attempting to collect a $40,000 debt. Although the creditor said the collection attempt was made in error, the debtor filed a motion for violation of the automatic stay.
Bankruptcy Judge Randall L. Dunn of Portland, Ore., directed the parties to brief the implications of a decision on Jan. 22 in a case called Campos v. Bluestem Brands Inc., where an Oregon district judge appeared to be holding that an arbitration clause will be enforced if the debtor initiates a class action in bankruptcy court. [To read ABI’s discussion of Campos, click here.]
In his opinion on Feb. 26, Judge Dunn recited governing authority from the Ninth Circuit in Continental Insurance Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.) for the proposition that bankruptcy courts have discretion to override an arbitration agreement arising in a core proceeding in bankruptcy court. The appeals court will disregard an arbitration agreement “only if arbitration would conflict with the underlying purpose of the Bankruptcy Code.” The alleged violation in the case before him was core, Judge Dunn said.
Since the plan had been confirmed, Judge Dunn noted that estate property revested in the debtor, who never said she would share a recovery with creditors who otherwise were to receive nothing under the plan.
At stake, Judge Dunn said, was the debtor’s “personal claims for damages” and attorneys’ fees arising from “an inadvertent and not repeated” stay violation. He said that resolution of the stay violation would “have no direct impact on performance of her chapter 13 plan” because the debtor was current in her payments.
Exercising discretion, Judge Dunn compelled arbitration of the alleged stay violation.