The debtor filed for Chapter 11 bankruptcy. The creditor moved to compel arbitration over a claim allowance dispute pursuant to an arbitration clause in a prepetition agreement. The creditor expressed the need for a quick resolution. The court agreed and offered to expedite the trial; however, the creditor argued that its interest in arbitration was not limited only to the speediness of the trial. The court relied on its prior opinion in Samson v. LCF Grp., Inc. (In re Bridger Steel, Inc.), where it had concluded that the issues formed a core component of the bankruptcy proceeding, and arbitration of these core issues would divide the forum and cause conflict with the claim allowance process established in the bankruptcy code. No. 2:23-bk-20019-BPH, 2024 WL 4377452, 2024 Bankr. LEXIS 2386 (Bankr. D. Mont. Sep. 30, 2024) (unpublished opinion). Therefore, the court deemed the claim allowance issue a core proceeding in which enforcing arbitration would negatively affect the goals of the bankruptcy code and could significantly impact other creditors. The court therefore denied the creditor’s motion to compel arbitration. The creditor sought a stay pending appeal.
In Harada Family Dental Care, P.C. v. Strategic Funding Source, Inc. (In re Harada Family Dental Care, P.C.), No. 4:24-bk-40076-BPH, 2025 WL 2738569, 2025 Bankr. LEXIS 2438 (Bankr. D. Mont. Sept. 25, 2025) (unpublished opinion), the court denied the creditor’s motion for stay. In determining whether there was a justification for the stay, the court applied the traditional four-part test outlined by the Supreme Court in Nken v. Holder: “(1) [w]hether the stay applicant [ ] made a strong showing that he [was] likely to succeed on the merits; (2) [w]hether the applicant w[ould] be irreparably injured absent a stay; (3) [w]hether issuance of the stay w[ould] substantially injure the other parties interested in the proceeding; and (4) [w]here public interest lies.” 556 U.S. 418, 433 (2009). In applying the traditional test, the court rejected the creditor’s argument to automatically require a stay for a bankruptcy case as provided for in Coinbase, Inc. v. Bielski, 599 U.S. 736 (2023). The court addressed each factor, with the burden of proof on the creditor, as the party petitioning for the stay. First, the court explained that the Federal Arbitration Act does not allow arbitration clauses to pass through bankruptcy any differently than other similar clauses that would ordinarily not be allowed. Thus, the court reasoned that the creditor “[was] not likely to prevail on appeal.” Second, the court determined there likely was not irreparable injury, as the goal of arbitration is to expedite the process, and the deadlines set by the court would occur sooner than the completion of arbitration. Third, the court stated that a stay pending appeal would likely cause little harm to the debtor; however, the creditor had “little to gain from a stay” other than “mere preference.” Fourth, and finally, the court acknowledged that historically federal policy favored arbitration, but current federal policy places arbitration on the same level as any contract. The court also ruled that a stay would go against the public interest, which relies on the bankruptcy system’s ability to provide an equitable distribution to all creditors involved and requires a singular system under federal control rather than individualized litigation. Ultimately, the court found that the first, second, and fourth factors weighed heavily against the creditor’s stay motion and accordingly denied it.
By Noah Coggan [email protected]
Edited By Taylor O’Brien [email protected]
Edited By Kristin Meurer [email protected]
Edited By Hayden Mariott [email protected]