In a collision between a retention of jurisdiction clause in a sale-approval order and an agreement to arbitrate, District Judge Sue L. Robinson of Delaware upheld the ability of Bankruptcy Judge Christopher S. Sontchi to interpret the contract before delegating arbitrators with the task of crunching the numbers.
The appeal arose from the going-concern chapter 11 sale of Furniture Brands International Inc. to a buyer for a fixed price of $280 million. Because items in transit did not allow the parties to calculate all cash debits and credits on the day of closing, the amended asset purchase agreement called for post-closing adjustments.
The governing sale documents contained potentially conflicting provisions. The sale agreement required arbitration before an accounting firm of “any disputed items” regarding the adjustments, but the sale-approval order provided that the bankruptcy court retained jurisdiction “to interpret, implement and enforce” the sale order and the asset-purchase agreement.
The purchaser and the trustee for the creditors’ trust disagreed about the post-closing adjustments. The trustee filed an adversary proceeding asking the bankruptcy judge to rule on threshold issues of contract interpretation while conceding that an arbitration would later be required to calculate the closing adjustments. The buyer filed a motion to compel arbitration of everything, contract interpretation and legal issues included.
Bankruptcy Judge Sontchi ruled in favor of the trustee and denied the arbitration motion, saying that the core of the disputes revolved around contract interpretation. The buyer appealed and lost in Judge Robinson’s opinion on May 16.
On appeal, the buyer contended that the bankruptcy court had ignored the “strong federal policy” favoring arbitration. Judge Robinson responded by saying that the presumption of arbitrability “does not apply in all circumstances.” Citing Third Circuit authority, she said that the presumption “applies only where the arbitration provision is broad or there is some ambiguity or doubt as to its scope.”
Judge Robinson agreed with the bankruptcy judge’s conclusion that the arbitration agreement was “narrow in scope” because it did not apply to “any dispute” arising from the contract. Rather, it applied only to specified post-closing adjustments. From there on, the opinion went downhill for the buyer.
Trotting out a plethora of rules governing contract construction, Judge Robinson said it was proper for the bankruptcy judge to “harmonize the sale order with the arbitration agreement.” She said that the sale order reflected “the parties’ intention that the bankruptcy court address all matters of interpretation, implementation, and enforcement” of the sale contract.
Judge Robinson found “no basis to disagree” with the bankruptcy judge’s findings and conclusions and said the result was “compelled by a straightforward reading of the arbitration provision,” its “unambiguous language,” and the parties’ “express agreement” in the sale order.