The bankruptcy court granted relief from the automatic stay to permit arbitration to continue.

The movant is an entity that had hired the debtor for engineering, procurement, and construction services. The movant alleged mismanagement and contract breaches by the debtor and began arbitration proceedings in 2023. Days before the arbitration hearing was to begin, the debtor filed its Chapter 11 bankruptcy case.

The court noted a strong federal policy favoring arbitration and enforcement of arbitration clauses in contracts, and examined the intersection of the enforcement of such clauses with the objectives of the Bankruptcy Code such as centralized resolution of purely bankruptcy issues, protecting parties from piecemeal litigation, and the clear power of a bankruptcy court to enforce its own orders. The court found that allowing arbitration to continue would not undermine or conflict with the Code’s objectives because: (1) no other parties in interest objected to the motion for relief or expressed concern about the movant’s claim not being decided in a public proceeding; (2) while the debtor’s appeal rights are limited in arbitration, that is the process to which the parties agreed; and (3) although piecemeal litigation is a risk, that risk exists whether the claims are resolved in arbitration or in state or federal court.  

The court then found cause for granting stay relief under § 362(d)(1), given that judicial economy and trial readiness are two factors that heavily favor arbitration. The burdens to the bankruptcy estate – such as cost of defense and the erosion of its wasting indemnity insurance coverage – are not insignificant but would exist regardless of where the claim is decided, so that factor also favors granting relief to arbitrate. The court added that relief was granted only to obtain a final arbitration award, but not to enforce any such award absent further order of the court.