Blackburn v. Captran SC, LLC et al
Filing
12
MEMORANDUM OPINION AND ORDER: Based upon the foregoing reasons, it is hereby ORDERED that the Debtor-Appellants appeal is DISMISSED. Signed by District Judge J Ronnie Greer on 3/10/2014. (See Order Memorandum for details). (JLS)
UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF TENNESSEE
AT GREENEVILLE
ANDREW HARRISON BLACKBURN,
Appellant,
v.
CAPITAL TRANSACTION GROUP, INC., and
CAPTRAN SC LLC,
Appellees.
)
)
)
)
)
)
)
)
)
)
NO. 2:13-CV-98
MEMORANDUM OPINION AND ORDER
This matter is before the Court on the appeal of Andrew Harrison Blackburn
(“Blackburn”) from the decision of the United States Bankruptcy Court for the Eastern District
of Tennessee granting a motion to enforce arbitration filed by the appellee CapTran SC LLC
(“CapTran”). For the reasons stated herein, the Bankruptcy Court's order [Docs. 1-9 and 1-12,
Record on Appeal] will be affirmed and Blackburn’s appeal [Doc. 1, Record on Appeal] will be
dismissed.
ISSUE PRESENTED BY APPELLANT
Whether the bankruptcy court had authority to deny a motion to
enforce arbitration where the arbitration proceeding seeks to
determine the amount of the claim in bankruptcy and whether the
claim is dischargeable?1
1
It should be noted that the bankruptcy court specifically found that there was no indication that CapTran seeks to
obtain a non-dischargeability determination through arbitration.
1
STANDARD OF REVIEW
A district court reviews a bankruptcy court's factual findings to determine whether they
are clearly erroneous, while legal conclusions are subject to a de novo review for correctness. In
re Maughan, 340 F. 3d 337, 341 (6th Cir. 2003); In re Caldwell, 851 F.2d 852, 857 (6th Cir.
1988).
The parties agree that issues regarding the extent of the bankruptcy court’s legal
authority are questions of law that are reviewed de novo.2 Accordingly, the Court will conduct a
de novo review of the Bankruptcy Court's conclusions of law in this case in regard to the motion
to compel arbitration.
FACTUAL AND PROCEDURAL BACKGROUND
This Court adopts the procedural and factual background as set out by the bankruptcy
court:
On August 9, 2012, the Debtor filed a voluntary petition for
Chapter 7 bankruptcy relief. On November 13, 2012, the Debtor
initiated the present adversary proceeding. According to the
complaint, the Debtor, a resident of Washington County,
Tennessee, was injured on or about November 25, 2001, during the
course of his employment as a conductor with CSX Transportation,
Inc., rendering him unable to work. In order to seek compensation
for his injuries, the Debtor sued CSX under the Federal Employers
Liability Act. While that suit was pending, between the years 2003
and 2006 the Debtor entered into a series of eight contracts to
secure funding for his living and other expenses, receiving total
funds of $80,000. Six of the contracts were with Capital Group.
The remaining two were with CapTran. Both entities are South
2
Although Blackburn summarily concludes “[b]ecause the bankruptcy court’s decision to lift the stay as to the state
court action depends upon the mistaken belief that the court had no authority to refuse to arbitrate, this decision too
must be reversed and remanded,” he failed to specifically raise this issue as an issue on appeal. Issues that are not
listed in a statement of issues on appeal are deemed waived. Smith v. H.D. Smith Wholesale Drug Corp. ( In re
McCombs ), 659 F.3d 503, 510 (5th Cir.2011); City Sanitation, LLC v. Allied Waste Servs., LLC ( In re Am.
Cartage, Inc.), 656 F.3d 82, 90–91 (1st Cir.2011); Eaton v. Ford Motor Credit Co., LLC, 2012 WL 3579644, *4
(M.D. Tenn.2012). Therefore, the Court will not address the bankruptcy court’s ruling in the order lifting the stay of
the state court action.
2
Carolina corporations with their principal places of business in
North Carolina.
Under the terms of the various contracts, each of which is
entitled "Investment and Security Agreement," in return for the
advanced funds the Debtor conveyed to the Defendants an interest
in any proceeds he recovered in the CSX litigation, with the
interest being described in a variety of terms, including a purchase,
a grant of security interest, and an investment. Each agreement
provided that it would be governed by South Carolina law.
Additionally, each agreement provided for the accrual of interest
on the advanced funds with six of the agreements providing for a
monthly rate of 4 percent and two of the agreements providing for
a flat interest charge of $3,000 if the litigation was settled within
360 days, or $6,000 if settlement occurred thereafter. The last three
agreements contained arbitration provisions, whereby the parties
agreed to submit any dispute between the parties to binding
arbitration in Charleston, South Carolina.
In June 2010, the Debtor settled the CSX litigation. The
remaining settlement proceeds of $239,000 are currently being
held in trust by the Debtor's attorney. In October 2010, the
Defendants sued the Debtor in two separate state court actions in
North Carolina in order to obtain payment from the settlement
proceeds.
In the first action, Capital Group seeks a judgment based on
a breach of contract claim against the Debtor associated with the
first five contracts between the parties. According to an affidavit
provided by the Defendants, court-ordered mediation was
unsuccessfully conducted in this action on August 6, 2012 with
trial set for September 24, 2012.
In the second action, CapTran sought a declaratory
judgment to enforce the arbitration clauses in the final three
contracts entered by the parties. On November 28, 2011, the North
Carolina Superior Court entered an order staying that action and
ordering the parties to arbitrate the claims and controversies
between them. According to an affidavit provided
by the Defendants, arbitration proceeded through discovery and
was set for hearing on July 31, 2012. The hearing was continued
when the Debtor allegedly refused to produce documents related to
the CSX settlement.
3
Both Capital Group's state court action and CapTran's
arbitration proceeding were stayed by the Debtor's bankruptcy
filing. In this adversary proceeding, the Debtor seeks a declaratory
judgment that the Defendants do not possess a lien on the
settlement proceeds, that the Defendants merely made
dischargeable loans, and that the interest charged under the eight
contracts was unlawful.
On December 21, 2012, the Defendants filed the two
motions that are presently before this court. In support of these
motions the Defendants allege that the Debtor's adversary
proceeding should be dismissed for lack of subject matter
jurisdiction because only the Trustee has standing to object to the
Defendants' claims under Federal Rules of Bankruptcy Procedure
3007 and 7001 absent a showing that there will be a surplus in the
estate, a showing that the Debtor has failed to make.
Alternatively, the Defendants seek relief from the
automatic stay pursuant to 11 U.S.C. § 362(d)(1) and (2) to
proceed with the North Carolina state court action and the South
Carolina arbitration. According to the Defendants, cause for stay
relief exists under Section 362(d)(1) of the Bankruptcy Code
because their claims against the Debtor were ready to be resolved
in these proceedings at the time of his bankruptcy filing and the
Defendants will be prejudiced if they are not allowed to proceed
outside of the bankruptcy case. The Defendants also argue
pursuant to 11 U.S.C. § 362(d)(2) that the Debtor has no interest in
the settlement proceeds because he assigned them to the
Defendants and their claims for principal and interest exceed the
amount of the settlement proceeds. According to the Debtor's
schedules, the Defendants' claims total $341,000.
ANALYSIS
Blackburn contends that the bankruptcy court adopted a “derived exclusively” test
mandating arbitration in every case where the proceedings are not derived exclusively from the
Bankruptcy Code. In his appeal, Blackburn contends that the Court should adopt the “inherent
conflict” test and determine whether there is an inherent conflict between arbitration and the
underlying purposes of the Bankruptcy Code, thus adopting the reasoning of In re White
4
Mountain Mining Co., L.L.C., 403 F. 3d 164 (4th Cir. 2005), and In re Eber, 687 F. 3d 1123 (9th
Cir.2012).
Citing Javitch v. First Union Securities, Inc., 315 F. 3d 619, 624 (6th Cir. 2003), the
bankruptcy court concluded that the appropriate initial inquiry is whether “a valid agreement to
arbitrate exists between the parties and the specific dispute falls within the substantive scope of
the agreement.”
The bankruptcy court noted that a similar arbitration provision involving
CapTran has been found to be valid by United States District Judge Curtis Collier in Lee v.
CapTran SC LLC, 2011 WL 2882756 (E.D. Tenn. Mar. 11, 2011). The bankruptcy court also
found that the parties’ dispute in regard to the illegality of the lien and interest rate provisions did
fall within the substantive scope of the arbitration agreements, and therefore, the parties’ dispute
was subject to arbitration.
The bankruptcy court found that “the determinative inquiry in enforcing the arbitration
agreement is whether the proceeding derives exclusively from the provisions of the Bankruptcy
Code.” See In re Great Spa Manufacturing Company, Inc., 2009 WL 1457740, *6 (Bankr. E.D.
Tenn. May 22, 2009). The bankruptcy court concluded that CapTran’s claim against Blackburn
and Blackburn’s defenses to that claim derive from the parties’ pre-petition contract and state
law and not from rights created by the Bankruptcy Code, and, therefore, “there was no inherent
conflict between the arbitration sought by CapTran and the Bankruptcy Code.” (emphasis added)
The background law governing the issue before the Court is the Federal Arbitration Act
(FAA), 9 U.S.C. § 1 et seq., enacted in 1925 as a response to judicial hostility to arbitration.
AT&T Mobility LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740, 1745, 179 L.Ed.2d 742
(2011). The FAA provides:
5
“A written provision in any maritime transaction or a contract
evidencing a transaction involving commerce to settle by arbitration
a controversy thereafter arising out of such contract or transaction ...
shall be valid, irrevocable, and enforceable, save upon such grounds
as exist at law or in equity for the revocation of any contract.” 9
U.S.C. § 2.
Citing 9 U.S.C. § 2, the Supreme Court in CompuCredit Corp. v. Greenwood, -–U.S.—, 132
S.Ct. 665, 668 -669 (2012)3 , explains:
This provision establishes “a liberal federal policy favoring
arbitration agreements.” Moses H. Cone Memorial Hospital v.
Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d
765 (1983). See also, e.g., Concepcion, supra, at ––––, 131 S.Ct.,
at 1745; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25,
111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). It requires courts to
enforce agreements to arbitrate according to their terms. See Dean
Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238,
84 L.Ed.2d 158 (1985). That is the case even when the claims at
issue are federal statutory claims, unless the FAA's mandate has
been “overridden by a contrary congressional command.”
Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226,
107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). See also Mitsubishi
Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628,
105 S.Ct. 3346, 87 L.Ed.2d 444 (1985).
CompuCredit involved a cause of action for a violation of the Credit Repair Organization Act,
§405(a), 15 U.S.C. §§ 1679c(a), 1679f(a).(“CROA”). In CompuCredit, the Supreme Court held
that “[b]ecause the CROA is silent on whether claims under the Act can proceed in an arbitrable
forum, the FAA requires the arbitration agreement to be enforced according to its terms.” Id. at
673. Likewise in this case, because the Bankruptcy Code is silent on whether claims under the
Act can proceed in an arbitrable forum, the FAA also requires the arbitration agreement to be
enforced according to its terms, and there is no need to apply an “inherent conflict” test.
3
It should be noted that CompCredit was decided after In re Eber, and obviously after In re White Mountain
Mining.
6
CONCLUSION
Based upon the foregoing reasons, it is hereby ORDERED that the Debtor-Appellant’s
appeal is DISMISSED.
So ordered.
ENTER:
s/J. RONNIE GREER
UNITED STATES DISTRICT JUDGE
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?