BG Law Successfully Represents Chapter 7 Trustee in Ninth Circuit Appeal

Steven T. Gubner, Corey R. Weber and Michael W. Davis of BG Law represented Jason M. Rund, Chapter 7 Trustee (the “Trustee”), in regard to an appeal before the United States Court of Appeals for the Ninth Circuit wherein the Ninth Circuit considered whether the Bankruptcy Court had discretion to deny a motion to compel binding arbitration in an adversary proceeding. The Trustee prevailed in the published opinion issued by the Ninth Circuit.

Following oral arguments (the oral arguments may be viewed by clicking here (Corey Weber of BG Law made oral arguments on behalf of the Trustee), the Ninth Circuit held in a published opinion issued on May 9, 2016 that “we agree with the bankruptcy court that the Trustee’s fraudulent conveyance, subordination, and disallowance causes of action were core proceedings, thereby giving the bankruptcy court discretion to weigh the competing bankruptcy and arbitration interests at stake.” The Ninth Circuit further held that fraudulent transfer claims “remain statutorily core” after Exec. Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 702 F.3d 553, 565 (9th Cir. 2012), aff’d, Exec. Benefits Ins. Agency, 134 S.Ct. 2165 (2014) and Stern v. Marshall, 564 U.S. 462 (2011). As stated by the Ninth Circuit, “Stern does not affect the statutory designation of matters as core for the purpose of determining whether the bankruptcy court has discretion to deny arbitration because that decision is not itself a final judgment.”

The Ninth Circuit also held that fraudulent transfers claims brought by a bankruptcy trustee are not subject to pre-petition arbitration agreements entered into by the debtor. The Ninth Circuit held that “[t]he creditors did not sign the arbitration clauses at issue here. As a result, arbitration agreements signed by the debtors cannot apply to claims under § 544 or California Civil Code section 3439.04. See Allegaert v. Perot, 548 F.2d 432 (2d Cir. 1977) (so holding). As to these claims, then, the court had no discretion to allow arbitration.”

The Ninth Circuit’s published opinion in Kirkland v. Rund (In re EPD Investment Co., LLC), may be accessed by clicking here.

After the published opinion was issued, appellants filed a petition for panel rehearing or for rehearing en banc. On June 16, 2016, the Ninth Circuit entered an order denying appellants’ petition for panel rehearing or rehearing en banc.