122 B.R. 845 (Bkrtcy.D.N.H. 1990), 90-10614, In re Chorus Data Systems, Inc.

Docket NºBankruptcy No. 90-10614.
Citation122 B.R. 845
Party NameIn re CHORUS DATA SYSTEMS, INC., Debtor.
Case DateDecember 14, 1990
CourtUnited States Bankruptcy Courts, First Circuit

Page 845

122 B.R. 845 (Bkrtcy.D.N.H. 1990)

In re CHORUS DATA SYSTEMS, INC., Debtor.

Bankruptcy No. 90-10614.

United States Bankruptcy Court, D. New Hampshire.

December 14, 1990

Page 846

Michael J. Scott, Michels & Michels, Londonderry, N.H., for Chorus Data Systems, Inc.

David Sears, Law Offices of Daniel W. Sklar, P.C., Manchester, N.H., for BankEast.

Connie Rakowsky, Orr and Reno, Concord, N.H., Larry M. Wolfson, Jenner & Block, Chicago, Ill., for Mitsubishi Electronics America, Inc.

Geraldine Brotherton, Boston, Mass., U.S. Trustee.

MEMORANDUM OPINION

JAMES E. YACOS, Bankruptcy Judge.

This opinion concerns whether to grant the creditor Mitsubishi Electronics America, Inc.'s ("MELA") Motion for Relief from the Automatic Stay so as to Permit Arbitration to Proceed. This Court has jurisdiction under 28 U.S.C. § 157(b)(2)(B), and the general reference order dated February 11, 1985 by the U.S. District Court for New Hampshire.

PROCEDURAL HISTORY

A preliminary hearing was held on the motion on October 24, 1990. Then, on November 2, 1990--the claims bar deadline--MELA submitted a proof of claim "in an unliquidated amount not less than $1,221,980.00" based on an alleged breach of a written product development agreement. The claim also provided as follows:

In filing this proof of claim, Mitsubishi Electronics America, Inc., does not consent to the adjudication of the merits of its dispute with the debtor by the bankruptcy court, or waive its contractual right to have that dispute adjudicated by the American Arbitration Association, but rather reserves and restates its right to arbitration pursuant to the contractual agreement of the parties.

At the continued hearing on the motion for relief on November 14, 1990 I started the hearing by giving MELA the option of either deleting this language from its claim and thereby submitting itself to the jurisdiction of this court or withdrawing the claim. I felt this was consistent with my ruling in In re BKW Systems, Inc., 66 B.R. 546 (Bankr.D.N.H.1986) wherein I held that a creditor involved in prepetition state court litigation with the debtor had an election:

If Berton elects not to file a claim against this estate of course the entire issue as to the California litigation becomes moot because Berton would never share in the assets of this bankruptcy estate and the obtaining of any judgment against the debtor would be a futile exercise. If Berton does elect to file a proof of claim in this court on or before the claims deadline, it is clear under the decisions in this district that any hearing upon the proof of claim, and any "arising out of same transaction" counterclaim to the same filed by the debtor, would constitute a core jurisdiction matter in which this court would be fully authorized to proceed, if it should decide that the convenience and interest of the parties in interest did not require abstention or granting of a motion for relief to permit California litigation to proceed to the point of judgment.

Id. at 547.

I noted at the hearing that a bankruptcy court must always have jurisdiction to determine when and how claims against the estate are to be determined when disputed. 1 The parties prior to bankruptcy

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cannot "contract away that jurisdiction", and still provide for sharing in the estate. See In re J.T. Moran Fin. Corp., 118 B.R. 233 (Bankr.S.D.N.Y.1990); In re Edgerton, 98 B.R. 392 (Bankr.N.D.Ill.1989); see also WM.S. Newman Brewing v. C. Schmidt and Sons, 115 B.R. 25 (N.D.N.Y.1990). Of course, as I noted in BKW Systems, Inc., an outside party can request--through stay relief, or a motion for abstention--that the disputed claim be handled in non-bankruptcy court forum. But those remedies do not derive from any question or uncertainty about the power of the court to determine claims against the estate, but rather from legal principles that may permit, or require, that the resolution of particular claims be undertaken elsewhere. Cf. In re Mor-Ben Ins. Markets Corp., 73 B.R. 644, 647 (Bankr. 9th Cir.1987).

I therefore found it improper for MELA to file a claim against this estate which purports to deny the jurisdiction of the court receiving the claim to pass upon its allowance or disallowance. MELA cannot have it both ways, i.e., either the claim is a positive assertion that MELA wants to share in any distribution of this estate, and that it consents to jurisdiction for that purpose, or MELA has not effectively asserted a claim against this estate within the prescribed deadline. 2

I noted finally that a MELA claim filed without reservation clearly would be a core proceeding under 28 U.S.C. § 157(b)(2)(B), and any counterclaim by the debtor-in-possession would be a core proceeding under 28 U.S.C. § 157(b)(2)(C). Contrary to MELA's assertions, nothing in Northern Pipeline Constr. Co. v. Marathon Pipeline Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), would indicate any lack of jurisdiction in this Court to hear and determine the matters involved in a claim against this estate, and any counterclaims arising out of the same transaction, inasmuch as the Northern Pipeline holding involved only the situation in which a representative of the bankruptcy estate seeks to initiate litigation involving state law in the bankruptcy court against a third party that is not otherwise involved in the bankruptcy proceeding. Cf. Langenkamp v. C.A. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (reaffirming bankruptcy court jurisdiction to hear and determine counterclaims against creditors filing claims against bankruptcy estates and denying jury trial rights in that situation which would otherwise exist).

After consideration and discussion of all of the foregoing I allowed MELA to make its election, i.e., MELA did not have to submit itself to the jurisdiction of the court handling the administration of the estate if it did not seek payment of its claim from the estate. MELA elected to withdraw the paragraph concerning a reservation of jurisdiction, so I proceeded with the merits of the motion for relief. If MELA had elected not to withdraw the reservation I would have denied the motion for relief, since in my judgment MELA would not have asserted any effective claim against this estate, and MELA could have contested that proposition on appeal.

KEY FACTS

Chorus Data Systems, Inc. ("Chorus") and MELA entered into a written product Development Agreement dated April 28, 1987. The contract required Chorus to develop a "video interface", which is a certain technology and equipment that would enable MELA to electronically transmit video pictures to a thermal printer manufactured by its parent company, Mitsubishi Electric Corporation of Japan. Paragraph 14 of the Development Agreement is an arbitration clause providing:

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This Agreement shall be construed and enforced under the laws of the State of New Hampshire. If any provision of this Agreement is held invalid, illegal or unenforceable, the remaining provisions will continue unimpaired. In the event any dispute arising out of this Agreement cannot be resolved by the parties, such dispute shall be submitted to binding arbitration to be held in Chicago, Illinois in accordance with the rules of the American Arbitration Association.

Disputes arose between the parties later in the year 1987 regarding the contract in question. The parties negotiated throughout 1988 trying to resolve those disputes but the negotiations ultimately broke down. MELA initiated arbitration proceedings before the American Arbitration Association in Chicago on December 1, 1988. Its claim alleged, among other things, that Chorus delayed in producing the product and failed to give MELA design documentation of the product. MELA claimed $1,221,980.00 by virtue of the asserted breaches of the contract by the debtor.

On January 30, 1989 Chorus filed its first counterclaim against MELA in the arbitration proceeding. On November 30, 1989 Chorus filed a new counterclaim in those proceedings including causes of action for breach of contract, fraud, estoppel and unjust enrichment. On March 17, 1990, after discovery had closed in the arbitration proceeding, and approximately one month before the scheduled commencement of the arbitration hearing on April 24, 1990, the parties at the direction of the arbitration panel filed their detailed damage studies regarding the matter in arbitration. The study filed by Chorus asserted damage claims on all of its causes of action at $862,551.00.

On April 12, 1990 MELA moved in the arbitration proceeding to continue the trial date scheduled for April 24th due to the additional causes of action asserted in the amended counterclaim. On April 17th, 1990 Chorus' attorney in the arbitration proceeding resigned. On April 20, 1990 Chorus filed its voluntary chapter 11 petition in this Court. Consequently, the arbitration proceedings were stayed. The present motion for relief from the automatic stay was filed in this Court by MELA on September 24, 1990, and was heard before the Court on October 24 and November 14, 1990. 3

On November 14, 1990 Chorus filed a counterclaim against MELA in this Court in Adversary Proceeding No. 90-1153 seeking damages in excess of $40,000,000.00. Chorus now informs this Court that to proceed in arbitration with such a claim it would have to pay an "entry fee" to the American Arbitration Association of $49,250.00. Chorus claims it "has insufficient cash in the estate to satisfy the above-referenced entry fee and still consummate its plan of reorganization." This recent discovery by Chorus that its claim against MELA should be increased fifty-fold, i.e., from some $826,000 to $40,000,000.00, is to say the least suspect in light of the history of the proceedings before...

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29 practice notes
  • 181 B.R. 910 (Bkrtcy.E.D.Tenn. 1995), 94-1098, In re Bradford
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • April 14, 1995
    ...169 B.R. 804 (Bankr.S.D.N.Y.1994); After Six, Inc. v. Abraham Zion Corp., 167 B.R. 35 (E.D.Pa.1994); In re Chorus Data Systems, Inc., 122 B.R. 845 (Bankr.D.N.H.1990); In re FRG, 115 B.R. 72 (E.D.Pa.1990). 2 Since the Supreme Court's decision in Gilmer, the federal courts have required arbit......
  • 208 B.R. 358 (Bkrtcy.E.D.Pa. 1997), 96, In re Day
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • May 15, 1997
    ...from the Debtors or to attempt to effect their eviction. Finally, we note that the CHA's citation to the In re Chorus Data Systems, Inc., 122 B.R. 845 (Bankr.D.N.H.1990), is inapposite. Confirmation of the debtor's plan in Chorus Data was not dependant on the litigation which the court refe......
  • 243 B.R. 300 (S.D.Tex. 1999), H-98-3836, Trefny v. Bear Stearns Securities Corp.
    • United States
    • Federal Cases United States District Courts 5th Circuit Southern District of Texas
    • May 26, 1999
    ...of Trefny's claims against Bear Stearns does not conflict with the policies behind the Bankruptcy Code. See In re Chorus Data Sys., Inc., 122 B.R. 845, 852 (Bankr.D.N.H.1990) ("[T]he only proper inquiry for a bankruptcy court in these circumstances is whether the text or purposes of th......
  • 259 B.R. 865 (Bkrtcy.E.D.Tex. 2001), 00-43503, In re Hemphill Bus Sales, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Fifth Circuit
    • March 22, 2001
    ...discretion to determine whether arbitration agreements should be enforced in core proceedings. See, e.g., In re Chorus Data Systems, Inc., 122 B.R. 845, 851 n. 6 (Bankr.D.N.H.1990) (noting that Hays applies only to noncore proceedings); In re FRG, 115 B.R. 72, 75 (E.D.Pa.1990) (advocating c......
  • Request a trial to view additional results
29 cases
  • 181 B.R. 910 (Bkrtcy.E.D.Tenn. 1995), 94-1098, In re Bradford
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • April 14, 1995
    ...169 B.R. 804 (Bankr.S.D.N.Y.1994); After Six, Inc. v. Abraham Zion Corp., 167 B.R. 35 (E.D.Pa.1994); In re Chorus Data Systems, Inc., 122 B.R. 845 (Bankr.D.N.H.1990); In re FRG, 115 B.R. 72 (E.D.Pa.1990). 2 Since the Supreme Court's decision in Gilmer, the federal courts have required arbit......
  • 208 B.R. 358 (Bkrtcy.E.D.Pa. 1997), 96, In re Day
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • May 15, 1997
    ...from the Debtors or to attempt to effect their eviction. Finally, we note that the CHA's citation to the In re Chorus Data Systems, Inc., 122 B.R. 845 (Bankr.D.N.H.1990), is inapposite. Confirmation of the debtor's plan in Chorus Data was not dependant on the litigation which the court refe......
  • 243 B.R. 300 (S.D.Tex. 1999), H-98-3836, Trefny v. Bear Stearns Securities Corp.
    • United States
    • Federal Cases United States District Courts 5th Circuit Southern District of Texas
    • May 26, 1999
    ...of Trefny's claims against Bear Stearns does not conflict with the policies behind the Bankruptcy Code. See In re Chorus Data Sys., Inc., 122 B.R. 845, 852 (Bankr.D.N.H.1990) ("[T]he only proper inquiry for a bankruptcy court in these circumstances is whether the text or purposes of th......
  • 259 B.R. 865 (Bkrtcy.E.D.Tex. 2001), 00-43503, In re Hemphill Bus Sales, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Fifth Circuit
    • March 22, 2001
    ...discretion to determine whether arbitration agreements should be enforced in core proceedings. See, e.g., In re Chorus Data Systems, Inc., 122 B.R. 845, 851 n. 6 (Bankr.D.N.H.1990) (noting that Hays applies only to noncore proceedings); In re FRG, 115 B.R. 72, 75 (E.D.Pa.1990) (advocating c......
  • Request a trial to view additional results