In re: Lu Ann Ratzlaff Craig

Filing 29

ORDER Affirming the Order of the United States Bankruptcy Court. That Appellant Global Client Solutions, LLC's Motion to Stay Bankruptcy Adversary Proceeding Pending Appeal of the Order Denying Motion to Compel Arbitration and Request for an Expedited Brief Schedule 15 and Appellant Global Client Solutions, LLC Motion for [Telephonic] Oral Argument on its Motion to Stay Bankruptcy Adversary Proceeding Pending Appeal 28 are denied as moot. By Judge Robert E. Blackburn on 12/9/2015.(mlace, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 15-cv-00674-REB-AP
(Bankruptcy Case No. 14-14536-SBB - Chapter 7)
In re: LU ANN RATZLAFF CRAIG,
Debtor.

Adversary No. 14-01507-SBB
DOUGLAS E. LARSON, Chapter 7 Trustee,
Plaintiff-Appellee,
v.
SWIFT ROCK FINANCIAL, INC., d/b/a WORLD LAW GROUP, d/b/a WORLD LAW
DEBT;
ORION PROCESSING, LLC, d/b/a WORLD LAW PROCESSING,
Defendants,
GLOBAL CLIENT SOLUTIONS, LLC,
Defendant-Appellant.

ORDER AFFIRMING THE ORDER OF
THE UNITED STATES BANKRUPTCY COURT
Blackburn, J.
Defendant-appellant Global Client Solutions, LLC (GCS) filed a timely appeal of
an order of the United States Bankruptcy Court for the District of Colorado. In that
order, the bankruptcy court denied the motion to compel arbitration filed by GCS. As

the appellant, GCS filed an opening brief [#10]1, the appellee, Douglas E. Larson as the
Chapter 7 Trustee in the underlying bankruptcy case, filed a response brief [#19], and
GCS filed a reply brief [#22]. I affirm the order of the bankruptcy court.
I. JURISDICTION
Under 28 U.S.C. § 1334, United States District Courts have original jurisdiction in
all civil proceedings arising in cases under Title 11, United states Code. I have
jurisdiction to adjudicate this bankruptcy appeal under 28 U.S.C. § 158(a)(1).
II. STANDARD OF REVIEW
I am bound by the bankruptcy court’s findings of fact, unless they are clearly
erroneous. FED. R. BANKR. P. 8013; In re Branding Iron Motel, Inc., 798 F.2d 396, 399
(10th Cir.1986). A finding of fact is clearly erroneous only if the appellate court has the
definite and firm conviction that a mistake has been committed. United States v.
United States Gypsum Co., 333 U.S. 364 (1948). It is the responsibility of an appellate
court to accept the ultimate factual determination of the fact finder, i.e., the bankruptcy
court, unless that determination either (1) is completely devoid of minimum evidentiary
support displaying some hue of credibility, or (2) bears no rational relationship to the
supportive evidentiary data. Jardine’s Professional Collision Repair, Inc. v. Gamble,
232 B.R. 799, *800 (D. Utah, 1999) (citing Gillman v. Scientific Research Prods. (In
re Mama D’Angelo, Inc.), 55 F.3d 552, 555 (10th Cir. 1995)(internal citations omitted));
In re Dinviney, 225 B.R. 762, *769 (10th Cir. BAP (Okla.), 1998) (internal citations

1

“[#10]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

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omitted). I review de novo conclusions of law reached by the bankruptcy court. In re
Mullet, 817 F.2d 677, 678 (10th Cir.1987).
III. BACKGROUND
On June 7, 2012, the debtor, Lu Ann Ratzlaff Craig, entered into a contract
with co-defendants Swift Rock Financial, Inc. d/b/a World Law Group, d/b/a World Law
Debt (WLD) and Orion Processing LLC, d/b/a World Law Processing (WLP). Under the
contract, WLD and WLP would provide Ms. Craig with certain debt resolution services.
On the same date, Ms. Craig entered into a second agreement with Global Client
Solutions, LLC (Global) for dedicated account services. Ms. Craig signed a Dedicated
Account Agreement & Application (DAAA) requesting that Global establish and maintain
a Dedicated Account in connection with her debt resolution program with WLD.
Accordingly, Global established and maintained a Dedicated Account for Ms. Craig. In
the DAAA, Ms. Craig acknowledged and agreed that Global is not a party to her debt
resolution program and that any dispute between Global and Ms. Craig must be
resolved in arbitration.
Under her contract with WLD and WLP, Ms. Craig paid WLD and WLP 9,154.89
dollars in fees. Using funds deposited in her Dedicated Account, Ms. Craig paid
4,100.00 dollars to one of her creditors in full or partial settlement of her debt to that
creditor. Ms. Craig paid a total of 179.60 dollars in fees to Global, including a 5.00
dollar account set up fee, a monthly service charge of 9.45 dollars, and 1.50 dollars for
each payment by phone. On November 18, 2013, Ms. Craig withdrew the remaining
$65.51 from her Dedicated Account before closing the account and terminating her

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relationship with Global. On April 18, 2014, Ms. Craig filed for relief under Chapter 7 of
the Bankruptcy Code.
In a complaint filed in the bankruptcy court, the Chapter 7 Trustee asserts claims
against WLD, WLP, and Global. Complaint, [#5-1], pp. 4 - 8. The trustee seeks to
recover the payments made by Ms. Craig to WLD, WLP, and Global, totaling 9,334.49
dollars.
In the First Claim for Relief, the trustee seeks to recover these payments under
11 U.S.C. § 548(a)(1)(B). In the Second Claim for Relief, the trustee seeks to recover
the same fees under §12-14.5-235, C.R.S., which is part of the Colorado Uniform Debt
Management Services Act (CUDMSA). The trustee alleges the fees charged to Ms.
Craig were in excess of the fees permitted under §§12-14.5-223 and 224, C.R.S. The
trustee asserts the CUDMSA claim on behalf of the debtor in an effort to recover
property of the bankruptcy estate. The trustee alleges that the defendants “have acted
in concert to engage in the acts and practices described throughout this Complaint and
each Defendant is jointly and severally liable for the acts and practices described
below.” Complaint [#5-1], pp. 4 - 8, ¶ 10.
Global responded to the complaint by moving to compel arbitration of the claims
of the trustee under the arbitration clause in the contract between Global and Ms. Craig.
Global disputes the allegation that WLD, WLP, and Global acted in concert and are
jointly and severally liable. After briefing and hearing, the bankruptcy court denied the
motion to compel arbitration. The court found the case brought by the trustee “is
fundamentally a fraudulent transfer claim under 11 USC 548 . . . .” Oral Ruling [#5-2],
CM/ECF p. 54. The § 548 claim is, the court found, “a direct claim by the Trustee and
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not a derivative claim of the Debtor and Section 548 simply gives the Trustee direct and
substantial avoiding powers for the benefit of the estate and the Trustee’s exercising
core substantive rights in the Bankruptcy code . . . .” Oral Ruling Regarding the
Defendant Global Client Solutions, LLC’s Motion to Compel Arbitration under the
Federal Arbitration Act and Alternative Motion to Dismiss the Adversary
Complaint Filed November 13, 2014 (Docket #7 and #8) and Plaintiff’s Response
Filed December 5, 2014 (Docket #13) [#5-2], CM/ECF p. 54. The bankruptcy court
found that the § 548 claim is a core proceeding.2
Contrastingly, the bankruptcy court found that the CUDMSA state law claim, the
second claim for relief, is not a core proceeding. Oral Ruling Regarding the
Defendant Global Client Solutions, LLC’s Motion to Compel Arbitration under the
Federal Arbitration Act and Alternative Motion to Dismiss the Adversary
Complaint Filed November 13, 2014 (Docket #7 and #8) and Plaintiff’s Response
Filed December 5, 2014 (Docket #13) [#5-2], CM/ECF pp. 51 - 61. The bankruptcy
court re-stated and supplemented the bases for its ruling in its Order Certifying Global
Client Solutions, LLC’s Appeal as Frivolous and Denying Motion To Stay
Adversary Proceeding [#18].3 The court found that neither claim of the trustee, in the

2

28 U.S.C. § 157(b) defines what is a core proceeding in bankruptcy. Generally, core
proceedings involve administration of the bankruptcy estate and are based on bankruptcy law.
Bankruptcy judges may hear and determine core proceedings. A bankruptcy judge also may hear a
proceeding that is not a core proceeding but is related to a bankruptcy case. 28 U.S.C. § 157(c).
However, a bankruptcy judge may not make a final determination of a non-core proceeding. Id. Rather, in
a non-core proceeding, the bankruptcy judge must submit proposed findings of fact and conclusions of law
to the district court. Id.
3

The order of the bankruptcy court denying the motion to stay is docketed in this bankruptcy
appeal as [#18]. I cite that order as document [#18] in this case.

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context of the bankruptcy of Ms. Craig, is appropriate for arbitration and denied the
motion to compel arbitration of Global.
Global then filed this appeal and a motion to stay the adversary proceeding in the
bankruptcy court pending its appeal of the order of the bankruptcy court denying the
motion to compel arbitration. In a written order, the bankruptcy court denied the motion
to stay. Order [#18]. First, the court found that the § 548 avoidance claim of the trustee
is not derivative of the rights of the debtor and is not a claim which could be asserted by
or on behalf of the debtor. Rather, the § 548 claim is a statutory claim “created in favor
of creditors that can only be prosecuted by a trustee or debtor-in-possession,” as
opposed to the debtor herself. Order [#18], p. 3. Addressing the § 548 claim, the
bankruptcy court found that neither the trustee nor the creditors he represents are
parties to the arbitration clause asserted by Global. Thus, the court concluded that the
arbitration clause has no application to the § 548 claim asserted by the trustee. Order
[#18], p. 4.
Second, the court found it has discretion to deny enforcement of the arbitration
clause as to the CUDMSA claim asserted by the trustee on behalf of the debtor. Order
[#18], p. 4. Although the court found this claim may be subject to the arbitration clause,
it concluded that enforcement of the arbitration clause as to this claim could be denied
by the bankruptcy court “if it determines that arbitrating a claim would conflict with the
underlying purposes of the Bankruptcy Code.” Order [#18], p. 4. The court then found
that enforcement of the arbitration clause as to the CUDMSA claim “would split the
adversary proceeding - consisting of two causes of action with entirely common facts and conflict with the Bankruptcy Court’s timely, efficient, and unified administration of
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the Debtor’s bankruptcy.” Order [#18], p. 4. The two claims, the court found, “involve
the same parties, the same facts, and the same payments – and both have an effect on
the administration of the Debtor’s bankruptcy estate.” Order [#18], p. 5. In addition, the
court found arbitration would “impose insurmountable arbitration costs on the no-asset
bankruptcy estate,” effectively resulting in dismissal of the claims of the trustee. Order
[#18], p. 5.
Third, the bankruptcy court found that its decision to deny the motion to compel
arbitration and to hear both the § 548 claim and the CUDMSA claim “is clearly within its
discretion. Any argument otherwise is without legal merit.” Order [#18], p. 6. Thus, the
bankruptcy court certified the appeal of Global now before this court “as being without
merit and frivolous.” Order [#18], p. 6.
In its appeal, Global raises five issues. First, Global contends the § 548 claim of
the trustee is a breach of contract claim cast in the guise of a § 548 claim for the
purpose of avoiding the arbitration clause. Second, Global contends the CUDSMA
claim is a none-core claim subject to arbitration. Third, Global contends the arbitration
clause is enforceable under Colorado law. Fourth, and in the alternative, Global asserts
that arbitration can proceed, even if the § 548 claim is a non-arbitrable core claim of the
trustee, without causing conflict with the purpose of the Bankruptcy Code. Fifth, Global
asserts that litigation of the § 548 claim, if that claim is not subject to the arbitration
clause, should be stayed pending arbitration of the CUDSMA claim.
IV. ANALYSIS
A. § 548 Claim and Applicability of Arbitration Clause
Title 11 U.S.C. § 548(a)(1)(B) permits the trustee to avoid a transfer of an interest
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of the debtor in property made or incurred within two years before the date of the
bankruptcy petition if the debtor “received less than a reasonably equivalent value in
exchange for such transfer” and (a) the debtor was insolvent at the time of the transfer
or became insolvent as a result of the transfer; or (b) the debtor was engaged in a
transaction for which any property remaining with the debtor was an unreasonably small
capital; or (c) the debtor intended to incur, or believed he or she would incur, debts that
wold be beyond the debtor’s ability to pay. In the complaint, the trustee alleges that the
transactions of the debtor with WLD, WLP, and Global are avoidable under
§ 548(a)(1)(B). Complaint [#5-1], CM/ECF pp. 4 - 8, ¶¶ 23 - 27.
Global contends the § 548 claim of the trustee is, in reality, “a garden variety
contract claim which should be compelled to arbitration” under the arbitration clause.
Brief of Appellant [#10], p. 13. According to Global, the § 548 claim of the trustee “is
based purely on a garden variety breach of contract allegation.” Brief of Appellant [#10],
p. 18. A breach of contract claim, Global asserts, is subject to the arbitration clause.
A review of the complaint reveals no allegations in the nature of breach of
contract. Complaint [#5-1], CM/ECF pp. 4 - 8. The § 548 claim is, as the bankruptcy
court found, based on allegations that Ms. Craig made a transfer to the defendants
within two years of the petition date, the transfer was for less than reasonably
equivalent value in exchange, and one or more of the requirements of § 548(a)(1)(B)(ii)
were satisfied. Complaint [#5-1], CM/ECF pp. 6 - 7, ¶¶ 23 - 27. To put it mildly, it is
disingenuous to describe the § 548 claim of the trustee as “based purely on a garden
variety breach of contract allegation.” Brief of Appellant [#10], p. 18. Rather, the § 548
claim is a claim for recovery of assets of the debtor based on constructive fraud as
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defined in § 548. The less than equivalent value and insolvency factors defined in
§ 548(a)(1)(B) are the key elements of constructive fraud implicated by this claim.
As § 548 (a)(1) makes plain, a § 548 claim is a claim of the trustee on behalf of
creditors. A § 548 claim is not a claim that may be asserted by a debtor. The trustee in
this case is not a party to the arbitration clause asserted by Global. Therefore, the
arbitration clause is not applicable to the § 548 claim of the trustee.
In sum, the bankruptcy court properly refused to treat the § 548 claim as a
breach of contract claim in the guise of an improper § 548 claim. The bankruptcy court
properly treated the § 548 claim as a claim of the trustee and not of the debtor. On
these bases, the bankruptcy court properly found that the arbitration clause asserted by
Global has no application to the § 548 claim of the trustee.
B. CUDMSA Claim and Applicability of Arbitration Clause
The Federal Arbitration Act (FAA) applies to all arbitration agreements involving
interstate commerce. 9 U.S.C. § 2. The FAA creates a body of federal substantive law
of arbitrability, applicable to any arbitration agreement within the coverage of the Act.
Comanche Indian Tribe Of Oklahoma v. 49, L.L.C., 391 F.3d 1129, 1131 (10th Cir.
2004). The FAA provides that written arbitration agreements in transactions involving
interstate commerce are “valid, irrevocable, and enforceable.” 9 U.S.C. § 2. Federal
policy strongly favors the arbitration of disputes and requires the federal courts to
vigorously enforce agreements to arbitrate. Shearson/American Express, Inc. v.
McMahon, 482 U.S. 220, 226 (1987).
“Like any statutory directive, the Arbitration Act's mandate may be overridden by

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a contrary congressional command.” McMahon, 482 U.S. at 226. A party opposing
arbitration has the burden of proving “that Congress intended to preclude a waiver of
judicial remedies for [the particular claim] at issue.” Id. at 227. In McMahon, the
Supreme Court of the United States noted three bases on which a court may determine
the intent of Congress in this context: (1) the text of the statute; (2) its legislative history;
and (3) whether there is an inherent conflict between arbitration and the underlying
purposes of the statute. Id. at 796 - 797.
The third, ninth, and eleventh circuits have held that neither the text nor
legislative history of the Bankruptcy Code demonstrates Congressional intent to create
a broad exception to the FAA via the Bankruptcy Code. In re Eber, 687 F.3d 1123,
1129 (9th Cir. 2012) (citing cases). When the FAA and the Bankruptcy Code conflict,
the inquiry is “whether there is an inherent conflict between arbitration and the
underlying purposes of the Bankruptcy Code.” In re Thorpe Insulation Co., 671 F.3d
1011, 1020 (9th Cir. 2012). A “bankruptcy court has discretion to decline to enforce an
otherwise applicable arbitration provision only if arbitration would conflict with the
underlying purposes of the Bankruptcy Code.” Id. at 1021. This analysis is applicable
to both core proceedings and non-core proceedings. In re Mintze , 434 F.3d 222, 231
(3rd Cir. 2006).
In contrast to the § 548 claim, the CUDMSA claim asserted by the trustee is a
non-core claim that is derivative of the debtor. In other words, when asserting this
claim, the trustee stands in the shoes of the debtor. If the debtor was asserting this
claim outside of bankruptcy, the claim on its face would fall within the arbitration clause.

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The bankruptcy court found it had discretion to deny arbitration as to this claim “if it
determines that arbitrating [the] claim would conflict with the underlying purposes of the
Bankruptcy Code.” Order [#18], p. 6. I concur.
Addressing this issue, the bankruptcy court noted that the two claims asserted by
the trustee “involve the same parties, the same facts, and the same payments – and
both have an effect on the administration of the Debtor’s bankruptcy estate.” [#18], p.
5. Enforcement of the arbitration clause as to the CUDMSA claim, the court found,
would impair the effort to conduct “an expeditious and equitable distribution of the
Debtor’s assets to her creditors.” Order [#18], p. 5. Further, denying arbitration “avoids
the potential for competing and/or conflicting orders arising from the arbitration and this
Court.” Order [#18], p. 5. Equally important, the court found enforcement of the
arbitration clause would “impose insurmountable arbitration costs on the no-asset
bankruptcy estate, essentially acting as a dismissal of the Trustee’s claims.” Order
[#18], p. 5. Ultimately, the bankruptcy court found that it was appropriate to decline to
enforce the arbitration clause because denying arbitration “furthers the Bankruptcy
Code’s fundamental policies of centralized resolution of purely bankruptcy issues; the
need to protect creditors and reorganizing debtors from piecemeal litigation; and the
undisputed power of a bankruptcy court to enforce its own orders.” Order [#18], p. 5
(internal quotation omitted).
The factual findings and legal conclusions of the bankruptcy court are amply
supported in the record. None of the factual findings of the bankruptcy court is clearly
erroneous. After de novo review, I concur with the legal conclusions of the bankruptcy
court. Given the circumstances of the bankruptcy estate of the debtor and the nature of
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the two claims asserted by the trustee, there is an inherent conflict between arbitration
of the CUDMSA claim, as demanded by Global, and the underlying purposes of the
Bankruptcy Code, as described by the bankruptcy court in its orders. In the context of
this case, enforcing arbitration would substantially undermine the orderly, efficient, and
effective administration of the bankruptcy estate. In addition, requiring arbitration likely
would deprive the estate, and thus its creditors, of the possibility of any recovery of
assets for the estate. This conflict is stark. In the circumstances of this case, the
fundamental purposes of the Bankruptcy Code are paramount to the requirements of
the arbitration clause and the FAA.
V. CONCLUSION & ORDERS
The § 548 claim is a claim of the trustee, not a claim of the debtor. The trustee is
not a party to the arbitration clause. Therefore, the arbitration clause does not apply to
the § 548 claim of the trustee.
The CUDMSA claim falls within the terms of the arbitration clause. However,
enforcement the arbitration clause would substantially undermine the orderly, efficient,
and effective administration of the bankruptcy estate. Under the standards established
in McMahon and its progeny, the bankruptcy court concluded correctly that, given the
circumstances of this case, the fundamental purposes of the Bankruptcy Code take
precedence over the requirements of the arbitration clause and the FAA. Thus, the
bankruptcy court properly denied the motion to compel arbitration of Global.
THEREFORE, IT IS ORDERED as follows:
1. That the order of the bankruptcy court denying the motion to compel

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arbitration filed by defendant Global Client Solutions, LLC, see Oral Ruling Regarding
the Defendant Global Client Solutions, LLC’s Motion to Compel Arbitration under
the Federal Arbitration Act and Alternative Motion to Dismiss the Adversary
Complaint Filed November 13, 2014 (Docket #7 and #8) and Plaintiff’s Response
Filed December 5, 2014 (Docket #13) [#5-2], CM/ECF pp. 51 - 61, as supplemented in
the Order Certifying Global Client Solutions, LLC’s Appeal as Frivolous and
Denying Motion To Stay Adversary Proceeding [#18], is affirmed; and
2. That Appellant Global Client Solutions, LLC’s Motion to Stay Bankruptcy
Adversary Proceeding Pending Appeal of the Order Denying Motion to Compel
Arbitration and Request for an Expedited Brief Schedule [#15] and Appellant
Global Client Solutions, LLC Motion for [Telephonic] Oral Argument on its Motion
to Stay Bankruptcy Adversary Proceeding Pending Appeal [#28] are denied as
moot.
Dated December 9, 2015, at Denver, Colorado.
BY THE COURT:

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