In re USA Baby, Inc.

Summarized by Madison Conquest , State of Tennessee Real Estate Asset Management
13 years 11 months ago

Citation:

Case Nos. 11-2018, 11-2026 (7th Cir. March 28, 2012)

Tag(s):

Ruling:

Abitration provisions in creditors' contracts, even if enforceable or enforced, do not destroy bankruptcy court jurisdiction over a debtor's bankruptcy case.

Procedural context:

Scott Wallis, Debtor's 5 percent shareholder who had been the debtor's president case was converted from chapter 11 to chapter 7, appealed the Bankruptcy Court's orders denying motions to reconsider the conversion order.

Facts:

Bankruptcy Court converted involuntary chapter 11 case to chapter 7 over Wallis's objection. Wallis moved for reconsideration of the conversion order on two grounds, first accusing the trustee and franchiseees of fraud and second contending that the company could regain solvency by collecting fees allegedly owed by franchisees. Bankruptcy Court denied both motions because Wallis offered no evidence refuting the trustee's judgment that reorganization was not feasible and Wallis had no standing to bring derivative claims or personal claims against the franchisees in a Chapter 7 case. Wallis appealed by asserting that the Bankruptcy Court had no jurisdiction over the Debtor's case pursuant to Stern v. Marshall, 131 S. Ct. 2594 (2011) because the claims of the largest creditors were based upon contracts that were subject to arbitration. After confirming that the Bankruptcy Court's orders denying reconsideration were final orders pursuant to 11 U.S.C. section 158(d) because the denial effectively deprived the debtor of the chance to reorganice under Chapter 11, the Court held that the arbitration provisions did not deprive the Bankruptcy Court of jurisdiction any more than a grant of stay relief to liquidate claims in state court had any effect on the Court's jurisdiction. Appeal was frivolous and therefore Bankruptcy Court's order was affirmed and appellant was warned that future frivolous appeals would result in sanctions.

Judge(s):

Posner, Wood and Tinder

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