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enforcement of the arbitration provision, but only if arbitration would conflict with the underlying purpose of the Code. Here, the court found such a conflict. The court stated: "Because Thorpe's alleged breaches of the Settlement Agreement were 'inextricably intertwined' with its bankruptcy, the bankruptcy court determined that resolving Continental's claim required adjudication of 'whether in conducting and administering these Chapter 11 cases and negotiating with the various constituencies involved in the case concerning the prospect of a consensual plan of reorganization, [Thorpe] has somehow run afoul of contractual provisions contained in a prepetition settlement agreement,' and that '[a]s a matter of fundamental bankruptcy policy, only a Bankruptcy Court should decide whether the manner in which someone has administered a bankruptcy estate gives rise to a claim for damages.' In other words, the nature of the allegations were such that adjudication of Continental's claim in any forum other than a bankruptcy court would conflict with 'fundamental bankruptcy policy.' As such, the bankruptcy court concluded that it had discretion not to send the claim to arbitration. The district court agreed, stating that Continental's claim raised questions 'go[ing] to the heart of § 524(g) and the management of an asbestos-related bankruptcy estate,' that 'should be resolved by a bankruptcy judge and not an arbitrator.' We agree." The Court noted the "fundamental bankruptcy policy" of having the bankruptcy court oversee all aspects of placing a "debtor's asbestos-related assets and liabilities into a single trust for the benefit of asbestos claimants." The court went on to state that "[b] ecause Congress intended that the bankruptcy court oversee all aspects of a § 524(g) reorganization, only the bankruptcy court should decide whether the debtor's conduct in the bankruptcy gives rise to a claim for breach of contract. Arbitration in this case would conflict with congressional intent.... Continental's claim, including the remanded portion of it, is based on Continental's challenge to Thorpe's efforts to seek § 524(g) relief and confirm a § 524(g) plan. There was no error in the bankruptcy court concluding that such a claim must be resolved by a bankruptcy court, not an arbitrator." The court then addressed Continental's contention that the bankruptcy court had erred in disallowing its claim before Continental could conduct discovery. The court agreed with the bankruptcy court that Continental had not been precluded from conducting discovery, but rather had made the strategic choice to forego discovery until the hoped-for arbitration. The court also noted that the bankruptcy court had disallowed Continental's claim as matter of law, so discovery would not have changed that result. Finally, the court agreed with the bankruptcy courts conclusion, on the merits, that Continental's claim should be disallowed, stating: "Continental next challenges the bankruptcy court's merits determination that Thorpe's actions in pursuing a § 524(g) reorganization did not create a claim for damages. Continental contends that Thorpe breached the Assignment Warranty by acquiring the Settling Insurers' claims and assigning them to the § 524(g) trust, and that it breached the Establishment Warranty by collaborating with asbestos claimants to structure and confirm a § 524(g) plan. But even if the covenants in the Settlement Agreement by their terms would have proscribed these actions, we conclude that, to the extent that they did, they were not enforceable, because they then would be purported prepetition waivers of the protections of the Bankruptcy Code, which need not here be permitted."
©2014 William L. Norton III
