Summary of a Recent
Judicial Development in
Bankruptcy

Debtor's Motion to Revoke
Arbitration Award Denied

Harrison M. Pittman
Staff Attorney

In an action brought by a debtor objecting to a proof of claim filed by one of its creditors, an agricultural cooperative, and seeking revocation of the arbitration award upon which the cooperative's proof of claim was based, the United States Court of Appeals for the Sixth Circuit has ruled that the debtor could not challenge the arbitration award because it failed to timely file a motion to vacate or modify the award pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14. In re Robinson, No. 01-3985, 2003 WL 1893272, at *4 (6th Cir. Apr. 18, 2003).

Steve Robinson, debtor, was an Ohio farmer who entered into several grain contracts with Champaign Landmark, Inc. ("Landmark"). See id. at *1. Landmark was an agricultural cooperative located in Ohio. See id. The grain contracts contained an arbitration clause that required contractual disputes to be arbitrated before the National Grain and Feed Association. See id. After Robinson failed to comply with certain aspects of the grain contracts, Landmark sought to have the parties' dispute submitted to arbitration. See id. Robinson refused to have the matter submitted to arbitration. See id. Landmark brought an action seeking to have the arbitration clause enforced. See id.

The trial court ordered the parties to submit the dispute to arbitration. See id. Robinson did not appeal the trial court's order, and the parties entered into an agreement to arbitrate. See id. At the arbitration proceedings, Robinson argued that Landmark "unilaterally modified the contracts" without his consent. See id. The arbitration panel rejected this argument and awarded Landmark $219,272.00, plus interest. See id. Robinson did not file a motion in federal district court to have the arbitration award vacated under the FAA. See id.

On August 17, 1999, Robinson filed a Chapter 12 bankruptcy petition. See id. Landmark filed a proof of claim in the bankruptcy proceeding based on the arbitration award. See id. Robinson objected to Landmark's claim, arguing that "the arbitration proceeding lacked due process, that the arbitrators were not impartial, that the grain contracts were unenforceable because they failed to meet the requirements of the Commodity Exchange Act . . ., and other laws, and that Landmark had breached fiduciary duties to Robinson." Landmark argued, in part, that the doctrines of res judicata and collateral estoppel barred Robinson from pursuing his objections to its claim. See id.

The bankruptcy court ruled that "Robinson had failed to allege or to prove any specific facts warranting the vacating of the arbitration award." at *2. Applying the criteria for review of arbitration proceedings set forth in § 10 of the FAA, the bankruptcy court determined that "there was no 'evident partiality or corruption in the arbitrators.'" (quoting 9 U.S.C. § 10(a)(3)). The court also determined that "the arbitrators did not exceed or misuse their authority, or manifestly disregard the law." In addition, the bankruptcy court rejected Robinson argument that the grain contracts were "subject to the requirements of the Commodities Exchange Act." Robinson appealed the bankruptcy court's decision to the Bankruptcy Appellate Panel ("BAP") for the Sixth Circuit. See id.

The BAP affirmed the bankruptcy court's decision. See id. It determined that Robinson was bound by the trial court's order to submit the dispute to arbitration and rejected his "'generalized argument'" that the arbitrators were "tainted." It also "briefly considered Robinson's argument that he was entitled to judicial review of the . . . arbitration award, even though such an argument would more logically have been considered at the threshold." at *3. The BAP stated that the "'initial flaw'" in this argument was that under § 12 of the FAA "Robinson was 'late if his objection to Landmark's proof of claim is construed as his effort to vacate the arbitration award.'" Section 12 requires that notice "of a motion to vacate must be served on the adverse party within three months after the award is filed or delivered." The BAP affirmed the bankruptcy court's decision, concluding that "the bankruptcy court correctly found no plausible way in which Robinson could attack the arbitration award, and that the court was therefore not in error in denying Robinson a 'futile' evidentiary hearing." Robinson appealed the BAP's decision to the Sixth Circuit. See id.

The Sixth Circuit affirmed the BAP's decision on "alternate, threshold grounds." It explained that "arbitration awards under the FAA are binding unless a motion to vacate or modify has been filed in accordance with the terms of that Act." It also explained that Robinson filed no such motion, "and even construing Robinson's objection to Landmark's claim as such a motion, it was untimely. It was therefore not necessary for the bankruptcy court to consider the grounds for challenging an arbitration award under the FAA."

The court stated that "'[o]nce an arbitrator has rendered a decision the award is binding on the parties unless they challenge the underlying contract to arbitrate pursuant to . . . [the FAA] or avail themselves of the review provisions of sections 10 and 11.'" (quoting Corey v. NYSE, 691 F.2d 1205, 1212 (6th Cir. 1982)). It also stated that

Robinson cannot challenge the underlying contract to arbitrate because he was bound by the Ohio state court judgment in that regard. And he has not availed himself of the review provisions of 9 U.S.C. §§ 10 and 11 by filing a motion to vacate or modify the arbitration award. A party who is subject to a valid contract to arbitrate and who has not moved to vacate or modify the award under 9 U.S.C. §§ 10 and 11, "may not transform what would ordinarily constitute an impermissible collateral attack into a proper independent direct action by changing defendants and altering the relief sought."

at *4 (quoting Corey, 691 F.2d at 1213).

The Sixth Circuit ruled that pursuant to the FAA, "notice of a motion to vacate must be served . . . within three months after the award is filed or delivered. The arbitration award appears to have been entered on June 18, 1999, and was to have become final fifteen days later, while Robinson's objection was not filed until February 11, 2000." Thus, the court affirmed the BAP's decision because Robinson did not meet the three month deadline set forth in § 12 of the FAA. See id.

The case was decided on April 18, 2003; this summary was posted May, 2003