Bankruptcy Battleground: Even "Core" Disputes May Be Subject to Arbitration

Whether an arbitration clause in a contract will be enforced by the bankruptcy courts in accordance with the Federal Arbitration Act (the "FAA") has been the focus of numerous court decisions in recent times. The consensus among most courts addressing the issue has been that a bankruptcy court can adjudicate a dispute otherwise subject to binding arbitration if the dispute falls within the court’s "core" jurisdiction. Even so, rulings recently handed down by the Second and Third Circuit Courts of Appeal suggest that the scope of a bankruptcy court’s retained discretion in this area may be even less broad than is generally understood. MBNA America Bank, N.A. v. Hill and Mintze v. American General Financial Services Inc. (In re Mintze) stand for the proposition that arbitration is the favored means of resolving disputes — even those that fall within the bankruptcy court’s "core" jurisdiction.