Arbitration of "Core" Issue Properly Enjoined

Dispute Resolution Journal, Aug-Oct 2005

The 4th Circuit upheld a bankruptcy court's refusal to compel, and its injunction against, arbitration of a "core" issue that was the subject of an "adversary proceeding" in a Chapter 11 bankruptcy. The appeals court said in In Re White Mountain Mining Co., 403 F. 3d 164 (4th Cir. April 1, 2005), that arbitration is inconsistent with the purposes of the bankruptcy laws to centralize decision making, which is especially important in reorganization cases under Chapter 11.

The court found that an "inherent conflict" between arbitration and the purposes of the Bankruptcy Code was "clearly revealed" in this case since both the arbitration and the adversary proceeding involved the core issue of whether certain advances made by a creditor were debt or equity. Thus, the 4th Circuit found no error by the bankruptcy court in concluding that the arbitration would have substantially interfered with the debtor's effort to reorganize.