There is a right to petition for an interlocutory appeal from an order of the bankruptcy court compelling arbitration, just as there is from a district court order compelling arbitration, according to Manhattan District Judge Jed S. Rakoff.
After confirmation of the chapter 11 plan, the plan administrator for MF Global Holdings Ltd. sued an insurance company in bankruptcy court to require payment under an errors and omissions policy. The insurance company filed a motion in bankruptcy court to compel arbitration in Bermuda, invoking an arbitration clause in the contract that was in place before bankruptcy.
After the bankruptcy court entered an order compelling arbitration, the plan administrator filed a motion to permit an interlocutory appeal under 28 U.S.C. § 158(a). The insurance company opposed the motion and argued that the plan administrator had no statutory right to seek leave to appeal a bankruptcy court order compelling arbitration.
The insurance company relied on 9 U.S.C. § 16(b), which bars an interlocutory appeal from an order compelling arbitration, “[e]xcept as otherwise provided in” 28 U.S.C. § 1292(b). Section 1292(b) allows interlocutory appeals from district courts to circuit courts.
The insurance company contended that Section 1292(b) is the only exception to the bar against interlocutory appeals from orders compelling arbitration. Because Section 1292(b) does not apply to appeals from the bankruptcy court, the lender submitted that the plan administrator had no statutory right to petition for leave to appeal a bankruptcy court’s interlocutory arbitration order.
Judge Rakoff disagreed in his Oct. 30 opinion, basing his decision on the policy notion that a litigant should have access to an Article III district judge.
If a lawsuit was never referred to the bankruptcy court, or if the district court withdrew the reference, the appellant would have the right to seek an interlocutory appeal from an arbitration order, Judge Rakoff said. On the other hand, there would be no recourse to district court from an arbitration dispute pending in bankruptcy court, if the insurance company’s logic were correct.
“There is no reason to think that Congress intended such an arbitrary result,” Judge Rakoff said, citing Supreme Court precedent for the proposition that courts should narrowly construe statutes that seem to remove Article III jurisdiction over agency decisions.
“Absent an express statement from Congress,” Judge Rakoff said that “discretionary referrals should not rob the referred parties of substantive rights of review by Article III courts to which they otherwise would be entitled.” Deciding that the plan administrator had the right to seek an interlocutory appeal, he held that “Section 16(b) therefore does not bar this appeal.
Having found a right to seek leave, Judge Rakoff went on to apply traditional rules and concluded that an interlocutory appeal was not appropriate in the circumstances.