OPINION AND ORDER
S. SPIEGEL, Senior District Judge
This matter is before the Court on the Report and Recommendation (doc. 55) regarding Defendants' Motion for Summary Judgment (doc. 46), Plaintiff's memos in opposition thereto (doc. 48, 49) and Defendants' reply in support thereof (doc. 50). The Magistrate Judge recommended that the Court grant Defendants' motion; Plaintiff objected to that recommendation (doc. 60), and Defendants filed a response to those objections (doc. 61). For the reasons indicated herein, the Court ADOPTS and AFFIRMS the Magistrate Judge's Report and Recommendation in its entirety, GRANTS Defendants' motion and DISMISSES this case from the Court's docket.
I. Background
Pro se Plaintiff James Ballinger filed an Amended Complaint on May 2, 2007, against the City of Lebanon, Ohio, the former and current Lebanon City Manager, the Mayor of Lebanon, individual Lebanon City Council members, the Lebanon City Auditor/Tax Commissioner, Tax department employee Jeanne Loxley, City Attorney Mark Urick, Municipal Court Magistrate James Ruppert, City Prosecutor Andrea Hicks, the Lebanon Tax Board of Review, and three unknown/unlisted members of the Tax Board of Review, alleging false arrest, malicious prosecution, first amendment retaliation, "witness against himself," violation of City Code 151.12, and "retirement and security" (doc. 2). As noted by the Magistrate Judge, Plaintiff alleges that he is a retired business owner; the City of Lebanon "jump[ed] on his wife about her current due taxes"; the City asked for copies of his federal tax returns for ten years to prove his losses for those years; and he refused and requested that the City use its subpoena power to obtain copies of his returns (doc. 55). Plaintiff was arrested and ultimately sentenced to six months in jail for failing to file city tax returns for a twelve-year period (Id.).
Defendants Hicks and Ruppert were dismissed from this case by order of this Court (doc. 34). The remaining Defendants moved for summary judgment on all of Plaintiff's claims on the bases that the claims are barred by the applicable statutes of limitations; probable cause existed for the criminal charges and subsequent incarceration; Plaintiff's conviction is res judicata, law enforcement officials cannot be held liable for a violation of the Equal Protection Clause because they enforce a law against one person and not another; there is no factual basis in the record to support a First Amendment retaliation claim; the Older Americans Act, 42 U.S.C. § 3001 et seq., does not provide a basis for relief; the Rooker-Feldman doctrine bars Plaintiff's claims; the individual Defendants are entitled to qualified immunity; the Defendants are entitled to immunity under state law; and the Court should decline to exercise supplemental jurisdiction over Plaintiff's state-law claims (doc. 55).
In response to Defendants' motion, Plaintiff asserted "that there is a genuine issue of material fact for trial and that Plaintiff is entitled to a judgment from this court under Rule 56 for Summary Judgment as a matter of law and Justice" (doc. 48). In addition, he referenced his motion asking that the Court's decision in this matter should be stayed pending the Supreme Court's decision in Weyhrauch v. United States, 129 S.Ct. 2863 (2009), as he believed that the case would address whether Defendants deprived Plaintiff of honest services, which he presumably thought was relevant to his case (doc. 45).
II. The Magistrate Judge's Report and the Parties' Responses
The Magistrate Judge found that Plaintiff's claims are barred by the statute of limitations for Section 1983 actions, which dispenses with all claims except those that occurred after March 30, 2005 (doc. 55). None of those post-March 30, 2005 claims regarding Plaintiff's release from incarceration, the Magistrate Judge found, had any factual support in the record (Id.). Consequently, the Magistrate Judge recommended that the Court grant summary judgment to Defendants on all of Plaintiff's claims (Id.). As an alternative, the Magistrate Judge recommended that Defendants' motion be granted for the reasons set forth in the motion and noted that Plaintiff had failed to point to portions of the record with specificity to enable the Court to identify facts upon which Plaintiff relies in opposing Defendants' motion (Id.).
Plaintiff objects to the Magistrate Judge's Report and Recommendation, although the bases for his objections are difficult to tease out. For example, he argues that summary judgment should not be granted because the Court "must take Judicial Notice, Rule 201, of Constitutional Rights trumping 1871 laws regarding the KKK . . ." (doc. 60), and the Court cannot determine how this is a basis for denying summary judgment. Plaintiff then states that the Magistrate Judge did "a good job of boiler plating the Limitations of Par. 1983" and that "since it is not [his] duty to `search the entire record,'" the Magistrate Judge "reiterates the Defendants [sic] analysis" (Id.). Plaintiff again references the honest services charge as being vague and violative of the due process clause of the Fifth Amendment, however he does not explain how that criminal statute applies to his case, let alone how it serves as a basis for denying summary judgment to Defendants (Id.). A generous reading of Plaintiff's objections leads the Court to understand that he argues that his claims are not time-barred because he "discovered his path" when the Ohio Supreme Court declined to review his conviction for failure to file tax returns.
Defendants contend that Plaintiff's objections do not meet the specificity requirement of Federal Rule of Procedure 72(b)(2) and that general objections, such as those advanced by Plaintiff, should be treated by the Court as though the party had filed no objections at all (doc. 61). In addition, Defendants note that even if the Court entertains Plaintiff's contention that the date on which he "discovered his path" should be the date the Court uses to determine whether the statute of limitations precludes this action, Plaintiff's claims are still time-barred (Id.). Specifically, the Ohio Supreme Court declined to review Plaintiff's case on February 16, 2005, and Plaintiff filed this action on March 30, 2007, more than two years later and thus outside the statute of limitations (Id.). Defendants further contend that Plaintiff is attempting to appeal his state conviction here in federal court, which is prohibited by theRooker-Feldman doctrine and that Plaintiff failed to specifically object to the other bases for the Magistrate Judge's recommendation, and Defendants argue that Plaintiff therefore waives objection to those issues (Id.).
III. Discussion and Conclusion
The Court is under no obligation to review de novo objections that are merely perfunctory or an attempt to engage the Court in a rehashing of the same arguments set forth in the original petition. See, e.g., Edwards v. Fischer, 414 F.Supp.2d 342, 346-47 (S.D. Ny. 2006). In such cases, as here, the Court need only satisfy itself that there is no clear error on the face of the record in order to accept the Magistrate Judge's recommendation. See Advisory Committee Notes to Fed.R.Civ.P. 72; Thomas v. Arn, 474 U.S. 140, 150 (1985) ("It does not appear that Congress intended to require district court review of a magistrate judge's factual or legal conclusions, under a de novo or any other standard, when neither party objects to those findings").
The Court finds no clear error in the Magistrate Judge's Report and Recommendation. On the contrary, the Court finds it well-reasoned, thorough and correct. Indeed, it easily withstands even a de novo review, which, out of an abundance of caution, the Court has engaged in. The Magistrate Judge did not, as Plaintiff contends, merely "boiler plate" the statute of limitations issue. In fact, the Magistrate Judge engaged in a thorough discussion of how the applicable statute of limitations serves to bar Plaintiff's claims. Plaintiff had two years after the date on which he knew or had reason to know of his injury or should have discovered it through the exercise of reasonable diligence. See Sevier v. Turner, 742 F.2d 262, 272-73 (6th Cir. 1984). The most generous reading of the record would make March 24, 2007 the last day on which Plaintiff could have filed his complaint. He filed it on March 30, 2007, outside the limitations period. As Defendants note, even if the Court uses the date on which the Ohio Supreme Court denied review of his case as the date that started the clock, Plaintiff needed to have filed his complaint by no later than February 16, 2007. Therefore, any claims relating to events that occurred prior to March 24, 2005 are time-barred. The Court is not persuaded by Plaintiff's reference to the KKK on this point, and Plaintiff has presented no facts showing that a genuine issue exists regarding whether his claims are time-barred. Consequently, summary judgment for Defendants is appropriate.
With respect to the honest services issue, the Court respectfully finds that Plaintiff's reliance on the Supreme Court cases addressing the constitutionality of 18 U.S.C. § 1346 is misplaced. That section of the criminal code, which was the subject of the Supreme Court's decisions in Weyhrauch v. United States 130 S.Ct. 2971 (2010) and Skilling v. United States, 130 S.Ct. 2896 (2010), defines the term "scheme or artifice to defraud" as including a scheme or artifice to deprive another of the intangible right of honest services. Plaintiff was not charged with mail fraud or another fraud offense, to which that statute relates, nor any federal crime at all, and neither was any of the Defendants. Those cases are therefore entirely inapplicable to Plaintiff's case. If Plaintiff is alleging that Defendants committed fraud by depriving him of honest services, which is a liberal reading of Plaintiff's arguments on this issue, Plaintiff would need to pursue that allegation in some other venue and should be forewarned that the aforementioned cases found that the honest services statute covers only bribery and kickback schemes.
Clearly, Plaintiff feels he was wronged by Defendants when he was charged and convicted of failure to file city tax returns. However, he cannot find relief in the federal courts. His complaint was filed outside the statute of limitations and, even if it had been filed within the statute, he has not pointed the Court to any genuine issue of fact with respect to any of his claims. Summary judgment for Defendants is thus appropriate.
Therefore, for the foregoing reasons, the Court ADOPTS and AFFIRMS the Magistrate Judge's Report and Recommendation in its entirety (doc. 55), GRANTS Defendants' motion for summary judgment (doc. 46) and DISMISSES this case from the Court's docket.
SO ORDERED.
Dated: November 18, 2010
Exhibit
ref277 B.R. at 198 (citing
Genesco, Inc. v. T. Kakiuchi Co.,
815 F.2d 840, 844 (2d Cir. 1987);
Norcom Elec. Corp. v. CIM USA Inc.,
104 F. Supp. 2d 198, 202 (S.D.N.Y. 2000);
General Media, Inc. v. Shooker, 1998 U.S. Dist. LEXIS 10880,
1998 WL 401530, at *9 (S.D.N.Y. 1998)).
Accord Oldroyd,
134 F.3d at 75-76;
Brownstone,
514 F. Supp. 2d at 549-50;
Togut v. RBC Dain Correspondent Servs. (In re S.W. Bach Co.),
425 B.R. 78, 87 (Bankr. S.D.N.Y. 2010) ("
S.W. Bach");
Bethlehem Steel Corp. v. Moran Towing Corp. (In re Bethlehem Steel Corp.),
390 B.R. 784, 789 (Bankr. S.D.N.Y. 2008) ("
Bethlehem Steel").
Each of these factors is discussed below.
I. Parties' Agreement
The initial inquiry is whether the parties entered into an arbitration agreement. Bethlehem Steel, 390 B.R. at 789;Hagerstown, 277 B.R. at 198. Neither party here disputes that the APA contains a valid arbitration clause. However, the Debtor argues that a precondition to arbitration has not been met because the APA's arbitration clause requires the parties to submit first to mediation. This argument is unpersuasive for several reasons. First, before the filing of this Bankruptcy Case, an arbitration tribunal of the American Arbitration Association had already ruled that the Debtor "has not demonstrated that the condition precedent contained in § 11(g) of the [APA] was unmet, nor that . . . the parties are required to attend a further mediation. . . ." Second, the Debtor's argument ignores that even defenses to arbitration must be settled within arbitration.Stevenson, 2006 U.S. Dist. LEXIS 71852, at *17 (citing Moses H. Cone, 460 U.S. at 24-25; JLM Indus. v. Stolt-Nielsen, S.A., 387 F.3d 163, 172-74 (2d Cir. 2004)). In any event, the Debtor's argument is moot given that the Debtor and Gentile participated in mediation of their disputes on October 11, 2010. Accordingly, the Court concludes that the first part of the test has been satisfied.
Interim Decision And Order Of Arbitrators, Case No. 13-194-Y-016629-09, dated March 3, 2010 (the "Order"). The Order notes that the Debtor "represented to the Panel during the initial Preliminary Hearing that all conditions precedent to arbitration had been complied with . . . all the while participating voluntarily in this Arbitration." Id.
By letter dated October 12, 2010, Gentile represented to the Court that the parties undertook mediation of approximately six hours on October 11, 2010. See ECF docket number 68. That mediation was unsuccessful. Id.
II. Scope of Arbitration Clause
The second inquiry is whether the arbitration clause is "narrow" or "broad." See Bethlehem Steel, 390 B.R. at 789;Hagerstown, 277 B.R. at 198 (citations omitted). The United States Court of Appeals for the Second Circuit explained the relevance of the distinction between broad and narrow arbitration clauses:
In construing arbitration clauses, courts have at times distinguished between "broad" clauses that purport to refer all disputes arising out of a contract to arbitration and "narrow" clauses that limit arbitration to specific types of disputes. If a court concludes that a clause is a broad one, then it will order arbitration and any subsequent construction of the contract and of the parties' rights and obligations under it are within the jurisdiction of the arbitrator.
Bethlehem Steel,
390 B.R. at 790 (quoting
Collins Aikman Prods. Co. v. Bldg. Sys., Inc.,
58 F.3d 16, 20 (2d Cir. 1995)). In other words, if the clause is broad, arbitrability will be presumed.
Hagerstown,
277 B.R. at 198 (citations omitted). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration."
S.W. Bach,
425 B.R. at 86-87 (citations omitted).
A clause submitting for arbitration "any and all differences and disputes of whatsoever nature arising out of this [agreement]" is considered a broad arbitration clause. See JLM Industries, Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 167 (2d Cir. 2004); Bethlehem Steel, 390 B.R. at 790. Similarly, the Second Circuit has held that a clause referring to arbitration "any controversy or claim between [the parties] arising out of or relating to" an agreement to be broad, justifying a presumption of arbitrability. See S.W. Bach, 425 B.R. at 88 (citing Mehler v. The Terminix International Co. L.P., 205 F.3d 44, 49 (2d Cir. 2000)). See also Barnes, 2010 U.S. Dist. LEXIS 4390, at *6-7 (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 398 (1967); American Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 93 (4th Cir. 1996)).
Two decisions shed light on factors relevant to whether the arbitration clause in this APA should be considered broad. InHagerstown, the bankruptcy court observed that arbitration clauses extending beyond disputes "arising under" a contract to disputes "relating to" or "in connection with" the contract are paradigmatically broader than the typical narrow arbitration clause. See Hagerstown, 277 B.R. at 205. In Barnes, a recent district court decision out of Maryland, the underlying agreement provided for arbitration of "any controversy or claim arising out of or relating to this Agreement, or any breach thereof," with an exception for injunctive or other provisional relief. Barnes, 2010 U.S. Dist. LEXIS 4390, at *6. But as all of the plaintiff's counts in Barnes sought money damages, the Barnes court concluded that the injunctive exception did not apply and the arbitration clause was broad. Id.
Informed by the reasoning in the Barnes and Hagerstown decisions, I find the arbitration clause here to be broad. Counts 1 through 6 of the Complaint seek the repayment of money paid by the Debtor pursuant to the APA under a variety of legal theories. While count 7 is titled as one for "Declaratory Judgment," it too seeks an award of damages. Count 8 seeks to hold the APA invalid but fails to identify any significance of such relief beyond the monetary damages sought in the other counts of the Complaint. Indeed, there appears to be no dispute among the parties that their disagreement is of a monetary nature. As money damages so predominate the Complaint, the injunctive carve-out in the APA is of little practical relevance, and I conclude that the arbitration clause here is broad.
III. Congressional Intent — Core v. Non-Core
Having addressed the first two prongs of the test, I proceed to assess the more difficult third question: whether any federal statutory claims raised were intended by Congress to be arbitrable. This third question is necessarily more complicated because it requires consideration of Congress's policy in favor of arbitration as weighed against the important federal interests embodied in the Bankruptcy Code.
In weighing this clash, the courts have focused first on whether the matter in question is a core or non-core bankruptcy proceeding. See Hagerstown, 277 B.R. at 198. "Core" proceedings are matters "arising under" the Bankruptcy Code or "arising in" bankruptcy cases. Winimo Realty, 270 B.R. at 119 (citations omitted). "Non-core" proceedings are merely "related to" bankruptcy cases. Id. (citations omitted). See also S.W. Bach, 425 B.R. at 89 (citations omitted). Core bankruptcy matters implicate "more pressing bankruptcy concerns" than do non-core matters. See MBNA Am. Bank, 436 F.3d at 108. As the Second Circuit has recognized, a non-core matter is "unlikely to present a conflict sufficient to override by implication the presumption in favor of arbitration." Hagerstown, 277 B.R. at 201 (citingU.S. Lines, 197 F.3d at 640).
Section 157 of 28 U.S.C. sets out a non-exhaustive list of core bankruptcy proceedings, subject to the constitutional limits established by Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) ("Marathon"). See Bankruptcy Servs. v. Ernst Young (In re CBI Holding Co.), 529 F.3d 432, 460 (2d Cir. 2008); Cent. Vt. PSC v. Herbert, 341 F.3d 186, 190 (2d Cir. 2003); Orion Pictures Corp. v. Showtime Networks (In re Orion Pictures Corp.), 4 F.3d 1095, 1102 (2d Cir. 1993), cert. dismissed, 511 U.S. 1026 (1994); S.W. Bach, 425 B.R. at 89. The principal holding of Marathon is that Congress has minimal authority to control the manner in which a right created by state law may be adjudicated as that right is independent of and antecedent to the reorganization petition that conferred jurisdiction upon the bankruptcy court. U.S. Lines, 197 F.3d at 637 (citing Marathon, 458 U.S. at 50; Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 584 (1985)). Therefore, underMarathon, whether a contract proceeding is core depends on (1) whether the contract is antecedent to the reorganization petition; and (2) the degree to which the proceeding is independent of the reorganization. U.S. Lines, 197 F.3d at 637. The latter inquiry hinges on "the nature of the proceeding." Id. (citing S.G. Phillips Constructors, Inc. v. City of Burlington (In re S.G. Phillips Constructors, Inc.), 45 F.3d 702, 704 (2d Cir. 1995)).
Nevertheless, a determination that a proceeding is core will not automatically give the bankruptcy court discretion to stay arbitration. Crysen/Montenay Energy Co. v. Shell Oil Co. (In re Crysen/Montenay Energy Co.), 226 F.3d 160, 166 (2d Cir. 2000);U.S. Lines, 277 B.R. at 200. Even if the proceeding is core, a bankruptcy court must still carefully determine whether any underlying purpose of the Bankruptcy Code would be adversely affected by enforcing the arbitration clause, and the arbitration clause should be enforced unless doing so would seriously jeopardize the objectives of the Code. Hagerstown, 277 B.R. at 200-01 (citing U.S. Lines, 197 F.3d at 640; Hays Co., 885 F.2d at 1161). See also Longacre Master Fund, Ltd. v. Telecheck Servs. (In re Casual Male Corp.), 317 B.R. 472, 479 (Bankr. S.D.N.Y. 2004) ("[A] determination of whether or not a matter is core is not determinative of decisions as to discretionary remand or discretionary abstention. What is more important is that state law issues predominate."). In Winimo Realty, the district court observed that "not all bankruptcy proceedings are premised on provisions of the Code that `inherently conflict' with the Federal Arbitration Act; nor would arbitration of such proceedings necessarily jeopardize the objectives of the Bankruptcy Code." Winimo Realty, 270 B.R. at 118 (citations omitted).
Determining whether a sufficiently severe conflict exists between the Bankruptcy Code and the FAA to deny the request to arbitrate "requires a particularized inquiry into the nature of the claim and the facts of the specific bankruptcy." Bethlehem Steel, 390 B.R. at 794 (quoting MBNA Am. Bank, 436 F.3d at 108). A court must determine "whether the underlying dispute concerns rights created under the Bankruptcy Code or non-Bankruptcy Code issues derivative of the debtor's pre-petition business activities. In the former situation, the bankruptcy court has discretion to refuse arbitration, but in the latter it does not."S.W. Bach, 425 B.R. at 89 (quoting Hagerstown, 277 B.R. at 202).
The bankruptcy court in Hagerstown noted that matters appearing on their face to be core may actually be core only as a procedural matter such that arbitration would still be appropriate:
If the matter is core, the bankruptcy court must still examine the nature and reason for its "coreness." Many proceedings are
procedurally core; they are garden variety pre-petition contract disputes dubbed core because of how the dispute arises or gets resolved. Objections to proofs of claim and counterclaims asserted by the estate, the types of core proceedings involved in
Singer and
Winimo, exemplify this type of matter. The arbitration of a procedurally core dispute rarely conflicts with any policy of the Bankruptcy Code unless the resolution of the dispute fundamentally and directly affects a core bankruptcy function.
Hagerstown,
277 B.R. at 203.
See also Winimo Realty,
270 B.R. at 118 ("even a determination that a proceeding is core will not automatically give the bankruptcy court discretion to stay arbitration") (citations omitted).
Evaluating these competing considerations requires a review of the individual counts of a complaint. The party opposing arbitration has the burden of proving that Congress evinced an intent to limit or prohibit waiver of a judicial forum for the particular claim at issue. Winimo Realty, 270 B.R. at 118 (citations omitted); S.W. Bach, 425 B.R. at 89 (citations omitted).
As set forth below, I conclude that nothing in the Complaint implicates a Congressional intent that would justify proceeding in this forum rather than through arbitration.
(a) Counts 1-4: Fraudulent Conveyance
Counts 1 through 4 of the Complaint raise fraudulent conveyance claims pursuant to sections 544, 548, and 550 of the Bankruptcy Code and applicable state law. The United States Supreme Court has held that fraudulent conveyance claims ostensibly brought under the Bankruptcy Code "are quintessentially suits at common law" that "resemble state-law contract claims brought by a bankrupt corporation to augment the bankruptcy estate." Winimo Realty, 270 B.R. at 124 (quoting Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 55 (1989)). Thus, the arbitration of such fraudulent conveyance claims would not seriously threaten the objectives of the Bankruptcy Code. See Hagerstown, 277 B.R. at 207 (citing Winimo Realty, 270 B.R. at 124-25). See also Enron Power Mktg. v. City of Santa Clara (In re Enron Power Mktg.), 2003 WL 68036, 2003 U.S. Dist. LEXIS 189, at *31 (S.D.N.Y. 2003) ("Because I find that plaintiff's causes of action are essentially contract claims dressed up as bankruptcy claims, they must be considered `non-core' for the purpose of the present motion to withdraw the reference from Bankruptcy Court.").
Complaint ¶¶ 43-54.
In Hagerstown, the bankruptcy court confronted an instance similar to the one before this Court: whether to stay in favor of arbitration certain fraudulent conveyance claims brought under the Bankruptcy Code. Id. at 207-08. The Hagerstown court determined that the fraudulent conveyance claims were directly connected to the underlying contract disputes. Id. at 208. The court also noted that the pending arbitration and the fraudulent conveyance claims in Hagerstown shared common questions of fact, predicting that the arbitration might contribute to the resolution of the fraudulent conveyance claims. Id. Accordingly, the Hagerstown court stayed the fraudulent conveyance claims so that the arbitration could proceed in accordance with Congressional intent. See id.
Here, too, the Arbitration shares common questions of fact with the fraudulent conveyance claims raised by the Complaint. Counts 1 through 3 explicitly reference the APA and count 4 is clearly related to the APA. Moreover, not only do these fraudulent conveyance claims arise out of and relate to the APA, but they also closely resemble, and sometimes overtly cite, underlying state law. Because the Debtor's claims are directly derivative of the Debtor's rights under the APA, I conclude that nothing in counts 1 through 4 weighs against proceeding with the Arbitration. See Bethlehem Steel, 390 B.R. at 791-92 ("Claims that are derivative of a debtor's rights may be subject to arbitration."). Compare S.W. Bach, 425 B.R. at 91 ("[T]he fraudulent conveyance claim in this case is not directly connected to the performance of any contract between the Debtor and AGI — indeed, there was no contract between [the parties]. The fraudulent conveyance claim stands on its own; the outcome does not depend the outcome of otherwise arbitrable claims.").
(b) Count 5: Disallowance of Claim
Count 5 of the Complaint seeks "expungement, disallowance and/or setoff of the Proof of Claim . . . without prejudice to the right to file a separate objection to said claim." The Debtor makes two arguments: (1) that this count is a substantively core proceeding, and (2) that Gentile has waived her right to arbitrate by availing herself of the bankruptcy court through filing the Proof of Claim, attending the 341 Meeting, and obtaining a 2004 Order. Both arguments lack merit.
Complaint ¶ 56.
Objection ¶ 29.
As for the first argument, issues involving the filing and validity of a proof of claim are often denominated as "procedurally core." See S.W. Bach, 425 B.R. at 90. As discussed above, procedurally core claims may still be subject to mandatory arbitration. See id.; Hagerstown, 277 B.R. at 203. In Singer, the creditor filed a proof of claim as required "to be eligible for any payment in respect of its claim." Singer, 2001 WL 984678, at *6 n. 11. The Singer court was unpersuaded that the filing of the proof of claim removed the issue from the purview of arbitration:
While a creditor must generally file a proof of claim to be eligible to receive payment and the Bankruptcy Code imposes an automatic stay on creditors' collection efforts in non-bankruptcy fora, there is no Code requirement that all issues relating to a debtor's activities be adjudicated in the Bankruptcy Court. The risk of inconsistent adjudications is not unique to bankruptcy and does not frame an inherent conflict between Bankruptcy Code and FAA policy.
Id. at *6.
See also I.E. Liquidation, Inc. v. Litostroj Hydro, Inc. (In re I.E. Liquidation, Inc.),
2009 WL 1586706, 2009 Bankr. LEXIS 1448, at *25 (Bankr. N.D. Ohio 2009) ("The validity of [creditor-defendant's] proof of claim will almost certainly turn entirely on the facts that will be litigated in the claims and counterclaims for breach of contract that [the parties] will bring against one another in [another forum]. Few legal issues and even fewer factual issues appear likely to stand between the resolution of that non-core proceeding and the matter of allowing or disallowing [creditor-defendant's] claim against the estate."),
cited in S.W. Bach,
425 B.R. at 96;
Hagerstown,
277 B.R. at 203 ("Objections to proofs of claim and counterclaims asserted by the estate, the types of core proceedings involved in
Singer and
Winimo, exemplify [a procedurally core] matter. The arbitration of a procedurally core dispute rarely conflicts with any policy of the Bankruptcy Code unless the resolution of the dispute fundamentally and directly affects a core bankruptcy function.").
Nor am I persuaded by the Debtor's waiver argument. Given the strong federal policy in favor of arbitration, a waiver of the right to arbitrate "is not to be lightly inferred." Brownstone, 514 F. Supp. 2d at 550 (citing Leadertex v. Morganton Dyeing Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995); Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968)). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. at 549 (citations omitted); Stevenson, 2006 U.S. Dist. LEXIS 71852, at *15 (citing Moses H. Cone, 460 U.S. at 24-25). Accord JLM Indus., 387 F.3d at 172-74; Kirschner, 2008 U.S. Dist. LEXIS 41453, at *22; Moore, 1995 U.S. Dist. LEXIS 971, at *20. A waiver will be found only when the party against whom waiver is asserted has engaged in substantial litigation activity resulting in prejudice to the party asserting waiver. Brownstone, 514 F. Supp. 2d at 550. "In determining whether [a party] has waived its right to arbitration, we will consider such factors as (1) the time elapsed from the commencement of litigation to the request for arbitration, (2) the amount of litigation (including any substantive motions and discovery), and (3) proof of prejudice." Id. (citing PPG Indus., Inc. v. Webster Auto Parts, Inc., 128 F.3d 103, 107 (2d Cir. 1997)).
Applying these factors, I find Gentile did not waive her right to arbitrate. Gentile filed her Proof of Claim because she was required to comply with a court-ordered deadline. Gentile's Proof of Claim is based upon her claims filed in the Arbitration. Moreover, the timing of events in this Bankruptcy Case and the Arbitration strongly undermine the Debtor's argument. Despite the entry of the 2004 Orders, the Arbitration and any discovery ordered in connection with the Arbitration predates this Bankruptcy Case. In addition, there can be no waiver of the right to arbitrate unless a party's conduct has resulted in prejudice to the other party. See Brownstone, 514 F. Supp. 2d at 551 (citing Leadertex, 67 F.3d at 26; Cotton v. Slone, 4 F.3d 176, 180 (2d Cir. 1993); Rush v. Oppenheimer Co., 779 F.2d 885, 887 (2d Cir. 1985)). The Debtor has failed to meet his burden in this regard. See Winimo Realty, 270 B.R. at 118; S.W. Bach, 425 B.R. at 89. While the parties may have undertaken discovery in this Bankruptcy Case pursuant to the 2004 Orders, the Debtor fails to identify any information that may have been obtained pursuant to such 2004 Orders that would have been unavailable in the Arbitration. Indeed, the Debtor admits that the 2004 Orders largely overlap with the issues raised in the Arbitration. Nor is the Debtor's Complaint a factor because it was filed after the Motion seeking to resume arbitration. In any event, expense and delay, without more, do not constitute prejudice sufficient to support a finding of waiver. Brownstone, 514 F. Supp. 2d at 552 (citations omitted).
See supra notes 21-22 and accompanying text.
See supra note 24 and accompanying text.
(c) Count 6: Turnover of Property of the Estate
The Debtor brings count 6 under section 542 of the Bankruptcy Code for turnover of estate property as that term is defined in section 541. While section 542 is tied to the underlying objectives of the Bankruptcy Code, count 6 of the Debtor's Complaint does not raise any unique bankruptcy issue and, therefore, is not an impediment to arbitration.
Complaint ¶¶ 57-60.
Nearly every issue concerning a debtor in bankruptcy relates to the debtor's estate. As the Second Circuit observed in U.S. Lines, it cannot be that all proceedings involving property of the estate are core; such an approach would create an exception to Marathon that would swallow the rule. U.S. Lines, 197 F.3d at 637 (quoting Orion Pictures, 4 F.3d at 1102). Moreover, the Debtor's reliance on section 542 is facially problematic because that section provides only for the turnover of undisputed debts, and the alleged debt here is clearly disputed. See Andrew Velez Constr., Inc. v. Consol. Edison Co. of N.Y., Inc. (In re Andrew Velez Constr., Inc.), 373 B.R. 262, 273 (Bankr. S.D.N.Y. 2007);Savage Assoc., P.C. v. Mandl (In re Teligent, Inc.), 325 B.R. 134, 137-38 (Bankr. S.D.N.Y. 2005); Hirsch v. London S.S. Owners Mut. Life Ins. Ass'n Ltd. (In re Seatrain Lines, Inc.), 198 B.R. 45, 50 n. 7 (S.D.N.Y. 1996). Despite its bankruptcy gloss, count 6 appears to be nothing more than an attempt to recover some or all of the same disputed money sought in counts 1 through 5.
Given the underlying nature of the parties' disagreements and their disputed nature, nothing in count 6 raises a unique bankruptcy issue that counsels against proceeding with the pending arbitration. Enron Power, 2003 U.S. Dist. LEXIS 189, at *31 (citing In re McMahon, 222 B.R. 205, 208 (S.D.N.Y. 1998)). See also Complete Management Inc. v. Arthur Andreson, LLP (In re Complete Management, Inc.), 2002 U.S. Dist. LEXIS 18344, 2002 WL 31163878, at *3 (S.D.N.Y. 2002) ("Every claim of a debtor in bankruptcy is an asset of the estate which, if successful, will enure to the benefit of the estate. To interpret the language of § 157(b)(2)(O) so broadly would render the distinction between core and non-core claims meaningless.").
(d) Counts 7-8: Declaratory Judgment
Under counts 7 and 8 of the Complaint, the Debtor seeks declaratory relief relating to the APA. Collectively, the two counts claim that the Debtor was fraudulently induced into entering the APA, that Gentile is liable under the APA, and that the APA should be declared void. As the Debtor has not established that these claims are core bankruptcy proceedings that properly should be decided in this forum, I conclude that they are not an impediment to proceeding with arbitration.
See Complaint ¶¶ 61-70.
Declaratory relief is proper, "only (i) where the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, or (ii) when it will terminate and afford relief from the uncertainty, insecurity and controversy giving rise to the proceedings." Rickel Associates Inc. v. Smith (In re Rickel Assocs.), 272 B.R. 74, 98 (Bankr. S.D.N.Y. 2002) (quoting Maryland Casualty Co. v. Rosen, 445 F.2d 1012, 1014 (2d Cir. 1971)). A court has broad discretion to decide whether to render a declaratory judgment. Id. at 98-99 (citing Orion Pictures, 4 F.3d at 1100).
The Debtor has not explained why the declaratory judgment sought by the Complaint is inherent to federal bankruptcy law or why such relief is not more appropriately raised within the Arbitration. Indeed, the declaratory relief sought by the Debtor is fundamentally tied to the APA. The interpretation of the APA and the parties' conduct in connection with the APA should be decided through arbitration as agreed upon by the parties in the APA. The Debtor has not shown that a bankruptcy court determination of such issues would serve a useful purpose or resolve any uncertainty.
In Barnes, a scenario similar to the instant factual situation presented itself, and the district court refused to allow the bankruptcy court to entertain the forum shopping of a plaintiff who sought to avoid the plain meaning of the arbitration agreement to which it was bound:
Counts II through IV also appear to arise out of or relate to the 2005 Agreement. Plaintiff incorporated the same factual allegations in these Counts that gave rise to Count I. Moreover, each of them arises as a result of Plaintiffs allegations relating to Defendant's termination of the 2005 Agreement and purported acts of bad faith in connection with that termination. Even if the Court could not conclude with certainty, however, that claims such as those raised in Counts II through IV were intended to be arbitrated, the ambiguity is to be resolved in favor of arbitration.
Barnes, 2010 U.S. Dist. LEXIS 4390, at *8-9. As in
Barnes, the Arbitration already underway between Gentile and the Debtor, if allowed to continue, is likely to dispose of most if not all of the claims raised in the Complaint.
IV. Whether to Stay Any Non-Arbitrable Claims
The fourth prong of the test applies where a court determines that some, but not all, of the relevant claims are arbitrable. In such an instance, the court must determine whether to stay the balance of claims. Hagerstown, 277 B.R. at 199 (citations omitted). Because the Debtor's Complaint was filed only after Gentile had filed her Motion to compel Arbitration, Gentile has not sought any relief from this Court relating to the Complaint other than to proceed with the pending Arbitration. But as the Arbitration will address the same issues contained in the Complaint, I exercise my discretion to stay any proceedings relating to the Complaint and Gentile's Proof of Claim until after the Arbitration concludes.See Cont'l Casualty Co. v. Pfizer, Inc. (In re Quigley Co.), 361 B.R. 723, 742 (Bankr. S.D.N.Y. 2007) ("Courts have the inherent power to grant a discretionary stay of a proceeding pending arbitration, where there are issues common to the arbitration and the court proceeding, and those issues may be determined by the arbitration."). See also Singer, 2001 WL 984678, at *3 ("Congress did not envision all bankruptcy related matters being adjudicated in a single bankruptcy court."); Moore, 1995 U.S. Dist. LEXIS 971, at *19 ("It is well-settled that claims are appropriately stayed when they involve common issues of fact and law with those subject to arbitration or when the arbitration is likely to dispose of issues common to claims against both arbitrating and non-arbitrating defendants.").
Where all of the issues raised in a complaint are arbitrable, a court may dismiss an action rather than stay proceedings. Am. Gen. Life Ins. Co. v. Oppenheimer Life Agency Oppenheimer Co., 2010 WL 1924747, 2010 U.S. Dist. LEXIS 46573, at *11 (S.D.N.Y. 2010) (citations omitted). See also Barnes, 2010 U.S. Dist. LEXIS 4390, at *6 ("When all of the issues presented in a lawsuit are arbitrable, however, `dismissal is a proper remedy.'") (citing Choice Hotels Int'l Inc. v. BSR Tropicana Resort, Inc., 252 F.3d 707, 709-10 (4th Cir. 2001)). Because this Bankruptcy Case was filed in large measure to stay the Arbitration, the parties should consider now whether the Complaint and the Bankruptcy Case should proceed or whether the estate would be better served by dismissal.
CONCLUSION
Given the strong federal policy favoring arbitration agreements, the Motion to compel the Arbitration is granted and the Complaint is stayed in its entirety.
IT IS SO ORDERED.
Dated: New York, New York
November 18, 2010