### REVISED

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

___________________

No. 96-11140

In the Matter of: NATIONAL

GYPSUM COMPANY, a Delaware

Corporation; AANCOR HOLDINGS, INC.,

a Delaware Corporation,

Debtors

-----------------------

INSURANCE COMPANY OF NORTH AMERICA,

Appellant,

versus

NGC SETTLEMENT TRUST & ASBESTOS CLAIMS

MANAGEMENT CORPORATION,

Appellee.

________________________________________________

Appeal from the United States District Court for the

Northern District of Texas

________________________________________________

July 24, 1997

Before GARWOOD, BENAVIDES and STEWART, Circuit Judges.

GARWOOD, Circuit Judge:

Appellees Asbestos Claims Management Corporation (ACMC) and

the NGC Settlement Trust (Trust), successor s to National Gypsum

Company, a Chapte r 11 debtor, brought this declaratory judgment

adversary proceeding in the bankruptcy court seeking a declaration

that collection efforts by National Gypsu m’s liability insurance2

carrier, appellant Insurance Comp any of North America (INA),

seeking to recover certain pre-confirmation debts were violative of

the Chapter 11 discharge injunction or otherwise precluded by the

terms of the Chapter 11 confirmed reorganization plan. INA filed

a motion to stay ACMC and the Trust’s adversary proceeding in favor

of arbitration pursuant to the terms of a contractual arbitration

clause. The Bankruptcy Court, holding that it had discretion to

refuse to order the arbitration of core bankruptcy matters, denied

the motion to stay. INA appealed. The district court affirmed.

INA now appeals to this Court. We affirm.

Facts and Proceedings Below

As this appeal involves the application of an arbitration

provision in a contract assumed by National Gypsum Company pursuant

to its confir med plan of reorganization, a brief synopsis of

National Gypsum’s journey t hrough the bankruptcy process is

appropriate.

National Gypsum, a Delaware c orporation with its principal

place of business in Garland, Texas, was a manufacturer and

supplier of products and services for the building, construction,

and shelter markets. Through its various divisions, National

Gypsum manufactured, sold, and distributed product s serving the

residential, commercial, industrial, and repair and remodeling

markets. National Gypsum also performed engineering and

construction services. Historically, some of the products

manufactured by National Gypsum contained asbestos.

Beginning in the 1970s, National Gypsum, as well as many other1 Century Indemnity Company, successor to CCI Insurance Company

(which was the successor to INA), has assumed INA’s interest in

this adversary proceeding. Century is an indirect, wholly-owned

subsidiary of CIGNA Corporation.

2 More precisely, the Wellington Agreement provided:

“3. Whenever an insurance policy described in Paragraph

1 hereinabove [an insurance policy issued by a nonsignatory insurer] would have had to make payments or to

pay expenses on a particular claim unde r the Agreement

3 producers of asbestos-containing products, were named as defendants

in many lawsuits across the country involving bodily-injury claims.

INA was one of National Gypsum’s insurers. 1 On June 19, 1985, as

a result of the plethora of asbestos bodily-injury lawsuits and in

recognition of various insurance coverage disputes, National Gypsum

entered into an agreement (the Wellington Agreement) with sixteen

property and casualty insurers and t hirty-three former asbestos

products producers regarding the handling of asbestos-related

bodily-injury claims. The Wellington Agreement established the

Asbestos Claims Facility to evalu ate, defend, and settle all

pending, threatened, and future asbestos bodily-injury claims

presented to it by the signatory producers and to pay settlements,

judgments (except for portions of awards attributable to punitive

damages), and legal expenses incurred in the defense of all

asbestos bodily-injury claims advanced against the signatory

producers.

The Wellington Agreement, among other things, cal l ed for

signatory insurers to advance liability payments on behalf of

participating asbestos producers for amounts covered by insurance

contracts issued by nonsignatory insurers. 2 Signatory producershad the Insurer in question become a signatory hereto,

and the Subscribing Producer has not received monies from

such non-signatory Insurer pursuant to Paragraphs 1 and 2

hereinabove, each insurance policy in the coverage block covering

a part of the exposure period for such claim shall make payments

and pay expenses, subject to applicable limits of liability, on a

pro rata basis in lieu of the non-signatory insurance policy and to

the extent that such insurance policy would have had to make

payments under the Agreement, up to the applicable limits of such

insurance policy . . . .” Wellington Agreement ¶ XX(3).

3 Wellington Agreement ¶ XX(1),(4). The Asbestos Claims

Facility was dissolved on October 3, 1988. The parties agree that

the Wellington Agreement remains operative between and among the

signatory producers (including National Gypsum) and the signatory

insurers (including INA) with respect to insurance coverage issues

resolved therein.

4 who benefitted from such payments were required by the Wellington

Agreement to pursue claims ag ainst the nonsignatory insurers, to

repay the amounts advanced by the signatory insurers, and to pay

interest on the amounts advanced beginning two years after the date

the payments were made. 3

During the relevant period, on se veral occasions and in

amounts not material to this appeal, INA contends that it advanced

payments on behalf of National Gypsum for amounts owed by National

Gypsum’s nonsignatory insurers. ACMC and the Trust do not contest

that these payments were made on National Gypsum’s behalf.

On October 28, 1990, National Gypsum and Aancor Holdings, Inc.

(a Delaware corporatio n and 100% owner of National Gypsum’s

outstanding shares) filed voluntary petitions for bankruptcy

protection under Chapter 11 of the Bankruptcy Code in the United

States Bankruptcy Court for the Northern District of Texas, Dallas

Division.

National Gypsum and Aancor filed a “Debtors’ First Amended and4 Paragraph 7.1 of the reorganization plan assumed those

executory con tracts set forth in the “Schedule of Executory

Contracts” (annexed to the plan as Exhibit F). Exhibit F lists the

Wellington Agreement under Paragraph VII (Asbestos-Related

Agreements) with a prepetition balance of zero and an

“[i]ndefinite” term.

As discussed below, this appeal i nvolves neither a

determination of the “cure” amount (if any) required to assume the

Wellington Agreement under section 365 of the Bankruptcy Code, nor

the amount (i f any) of interest owed by National Gypsum at any

time——either pre- or post-confirmation——under the Wellington

Agreement.

5 INA, however, has maintained consistently that it was never

given the requ isite notice for assumption of the Wellington

Agreement. The Bankruptcy Court, in a subsequent ruling, rejected

INA’s notice argument and observed th at National Gypsum provided

INA with notice of the hearing to approve the disclosure statement,

and that the notice contained the last date for objections to the

disclosure statement. The disclosure statement, as usual,

included, as “Annex 1,” the reorganization plan that was ultimately

confirmed by the Bankruptcy Court. The plan, as noted above,

listed the Wellington Agreement as an executory contract to be

assumed in Exhibit F.

The Bankruptcy Court ruled that, under our opinion in In re Christopher , 28 F.3d 512, 517 (5th Cir. 1994), INA had sufficient

notice to permit it to object to the cure amount under section 365.

The merit of INA’s notice objection to the assumption of the

Wellington Agreement is also not before this Court in the present

appeal.

5 Res tated Joint Plan of Reorganization” dated September 4, 1992.

The Bankruptcy Court entered an order confirming the reorganization

plan on March 9, 1993. Pursuant to the reorganization plan and the

confirmation order, National Gypsum assumed the Wellington

Agreement. 4 INA neither objected to, nor appealed, the Bankruptcy

Court’s confirmation of the reorganization plan. 5

National Gypsum’s reorganization plan called for the

establishment of a qualified settlement fund under section 468B of

the Internal Revenue Code (the “NGC Settlement Trust (Trust)”),

which became the sole shareholder of the reorganized National6

Gypsum (which, in turn, became known as “Asbestos Claims Management

Corporation (ACMC)”).

In a letter to the Tr ust dated July 12, 1995, INA demanded

payment of $3,866,055, representing the amount purportedly advanced

under paragraph XX(3) of the Wellington Agreement, plus $1,027,118

accrued interest under paragraph XX(4). INA’s demand letter stated

that, if payment were not received within thirty days, INA would

“institute formal proceedings to collect the amount due.” In a

letter to INA dated October 9, 1995, counsel for the Trust and ACMC

stated their position that the confirmed reorganization plan had

discharged National Gypsum “fromthe obligations asserted in the

Demand Letter” and admonished INA that post-confirmation collection

efforts were violative of the section 524(a) discharge injunction,

section 6.5 of the reorganization plan, and section 8(a) of the

confirmation order. INA, through counsel, repeated its demand in

a letter dated October 13, 1995. INA asserted that, as the

Wellington Agreement was assumed by the reorganized National Gypsum

(ACMC) rather than assigned to the “New NGC,” the obligations were

not subject to discharge.

On October 20, 1995, ACMC and the Trust filed this adversary

proceeding-declaratory judgment complaint against INA in the

National Gypsum Company Chapter 1 1 case in the United States

B ankruptcy Court for the Northern District of Texas, Dallas

Division. The complaint alleged that National Gypsum’s confirmed6

“The T rust and ACMC contend that INA is barred from

obtaining re covery for some or all of the alleged

acceleration interest arising under Section XX of the

Wellington Agreement from the Trust and ACMC pursuant to

the discharge and other provisions of the Bankruptcy

Code, the Plan and the order of this Court confirming the

Plan (the “Confirmation Order”). Recovery by Defendant

Insurer of alleged acceleration interest from the Trust

or ACMC would be contrary to the provisions of the

Bankruptcy Code, including without limitation Sections

524 and 1141 thereof, and would defeat the purp oses of

the confirmed Plan and of the Trust formed pursuant to

the Plan. Confirmation of the Plan is binding on all

parties affected by the Plan, including without

limitation INA, and constitutes res judicata as to INA.

The Trust and ACMC also contend that INA, the Defendant

Insurer, has been enjoined under applicable provisions of

the Bankruptcy Code and of the Plan and this court’s

Confirmation Order from obtaining such alleged

a cceleration interest. INA is estopped from claiming

such alleged acceleration interest.” Complaint ¶ 20.

7

“The Trust and ACMC seek a declaration fro m the Court

under 28 U.S.C. §§ 2201-2202, declaring that INA, the

Defendant Insurer, is barred and enjoined pursuant to the

Bankruptcy Code, the Plan and the Confirmation Order from

obtaining recovery from either the Trust or ACMC from

[sic] any interest arising under Section XX of the

Wellington Agreement that accrued from insurer payments

made prior to March 9, 1993 [the date of confirmation].”

Complaint ¶ 23.

8

“The Trus t and ACMC seek a declaration from the Court

under 28 U.S.C. §§ 2201-2202 declaring that regardless of

the contractual liability of ACMC, if any, under Section

XX of the Wellington Agreement, no assets of th e Trust

may be used to satisfy the claims of INA, the Defendant

Insurer, with resp e ct to any interest arising under

7 reo rganization plan barred INA’s collection efforts 6 and sought

declarations from the court that (1) INA was barred from obtaining

recovery by operation of the Bankruptcy Code 7 and that (2) no

assets of the Trust be permitted to satisfy INA’s claims regardless

of ACMC’s liability. 8 The complaint asserted no other defenses toSection XX of the Wellington Agreement that accrued from

insurer payments made prior to March 9, 1993, pursuant to

the Plan and the Conformation Order.” Complaint ¶ 26.

8 the Trust and ACMC’s liability for the amounts set forth in INA’s

demand letter other than those premised on the operation of the

confirmed reorganization plan and the injunctions provided by the

Bankruptcy Code; other issues, such as ACMC and the Trust’s

liability for post-confirmation date interest, the proper

calculation of interest under the Wellington Agreement, and

equitable defen ses to collection were not addressed by the

complaint. ACMC and the Trust sought attorneys’ fees and costs.

On December 4, 1995, counsel for INA sent a letter to the CPR

Institute for Dispute Resolution requesting immediate docketing of

the dispute between INA, ACMC, and the Trust, citing the

alternative dispute resolution provisions of the Wellington

Agreement. That same day, in lieu of an answer, INA also filed a

motion in the Bankruptcy Court seeking, alternatively, abstention

in favor of arbitration (28 U.S.C. § 1334(c)(1)), a stay pending

arbitration (9 U.S.C. §§ 1-3), or a dismissal for lack of subject

matter jurisdiction (28 U.S.C. § 1334(b); 28 U.S.C. § 157(c)(1)).

On January 26 , 1996, the Bankruptcy Court entered an order

denying INA’s motion. The Bankruptcy Court found that, as the

adversary proceeding sought to ascertain whether its Confirmation

Order and the reorganization plan precluded INA’s claim, it had

“core” jurisdiction under 28 U.S.C. §§ 157 (b)(2)(B) and (C). The

Bankruptcy Court, further o b serving that its jurisdiction was

concurrent (rather than exclusive), stated that ordinarily, given9 The Bankruptcy Court, citing 28 U.S.C. § 1334(c)(2), noted

that mandatory abstention did not apply to a declaratory judgment

action raising a core matter.

9 the passage of time aft er the substantive consummation of the

confirmed plan, it would have abstained in favor of the

nonbankruptcy forum (where ACMC and the Trust could have asserted

bankruptcy discharge, the discharge injunction, and res judicata as

affirmati ve defenses). The Bankruptcy Court, however, noted the

absence of ongoing arbitration proceedings and fou nd that

bankruptcy court was the most efficient forum to determine the

issue raised in the complaint. Accordingly, the Bankruptcy Court

refused to abstain or to stay the adversary proceeding pending

arbitration. 9

INA appealed the denial of its motion for a stay pending

arbitration under the Federal Arbitration Act (the Act), 9 U.S.C.

§ 3, to the District Court. INA argued that the Bankruptcy Court

applied an in correct standard for determining whether to grant a

motion to stay under the Act, that the Bankruptcy Court had a duty

to grant a stay pending arbitration, and that the Bankruptcy Court

did not have core jurisdiction over the adversary proceeding. The

District Court affirmed the Bankruptcy Court, holding that the

issues raised in the declaratory judgment action were “core”

bankruptcy matters and that the Bankruptcy Court had discretion to

refuse to order arbitration of core bankruptcy matters. INA now

appeals to this Court the denial of its motio n to stay under the10 Although INA, in its brief to this Court, stated that “[t]his

appeal only addresses the denial of [INA’s] motion to stay in favor

of arbitration,” it listed the Bankru ptcy Court’s determination

that it possessed core bankruptcy jurisdiction as an issue on

appeal and presented arguments in support of that issue.

11 Section 16 of the Federal Arbitration Act provides:

“(a) An appeal may be taken from——

(1) an order——

(A) refusing a stay of any action under

section 3 of this title,

(B) denying a petition under section 4 of this

10 Act. 10 We affirm.

Discussion

Although this appeal arises out of a dispute between INA and

ACMC and the Trust about whether, and to what extent, National

Gypsum’s confirmed reorganization plan bars post-confirmation

collection efforts by INA for National Gypsum’s alleg ed preconfirmation liability to INA under the Wellington Agreement, the

merits of that dispute are not before this Court. Rather, this

appeal concerns only the Bankruptcy Court’s det ermination that,

assuming the Wellington Agreement’s arbitration provision can be

read broadly enough to cover the present dispute, it nevertheless

had discretion to decide not to stay the adversary proceeding

pending arbitration under the Act.

A bankruptcy court’s refusal to stay an adversary proceeding

pending arbitration, though inherently interlocutory in nature, is

nevertheless appealable because o f section 16 of the Federal

Arbitration Act. Section 16, by providing that an appeal may be

taken from an order “refusing a stay of any action under section

3,” 9 U.S.C. § 16(a)(1)(A), 11 promotes arbitration “‘by permittingtitle to order arbitration to proceed,

(C) denying an application under section 206

of this title to compel arbitration,

(D) confirming or denying confirmation of an award or partial award, or

(E) modifying, correcting, or vacating an

award;

(2) an interlocutory order granting, continuing, or modifying an injunction against an arbitration that

is subject to this title; or

(3) a final decision with respect to an arbitration

that is subject to this title.

(b) Except as otherwise p rovided in section 1292(b) of

title 28, an appeal may not be taken from an

interlocutory order——

(1) granting a stay of any action under sec tion 3

of this title;

(2) directing arbitration to proceed under section

4 of this title;

(3) compelling arbitration under section 206 of

this title; or

(4) refusing to enjoin an arbitration that is

subject to this title.” 9 U.S.C. § 16.

11 interlocutory appeals of orders favoring litigation over

arbitration and precluding review of interlocutory orders that

favor arbitration,’” McDermott Int’l, In c

. v. Underwriters at

Lloyd’s Subscribing to Memorandum of Ins. No. 104207

, 981 F.2d 744,

746-47 (5th Cir. 1993) (quoting Forsyth Int’l, S.A. v. Gibbs Oil

Co. , 915 F.2d 1017, 1020 (5th Cir. 1990)); see also American Cas.

Co. of Reading, Pa. v. L-J Inc. , 35 F.3d 133, 135 (4th Cir. 1990)

(“It matters not whether these orders [refusing arbit ration] are

final or interlocutory be cause orders that favor litigation over

arbitration are ‘ immediately appealable, even if interlocutory in

nature.’”) (citation omitted). Accordingly, this Court has

jurisdiction over INA’s appeal.

I.

INA contends that t he Bankruptcy Court erred by concluding12 28 U.S.C. § 1334(b) confers on the federal district courts

“original but not exclusive jurisdiction of all civil proceedings

arising under title 11, or arising or related to cases under title

11.” 28 U.S.C. § 157(b)(1) gives bankruptcy judges the power to

determine “all core proceedings arising under title 11, or arising

in a case under title 11” and to enter appropriate judgments and

orders. 28 U.S.C. § 157(b)(2) provides a nonexclusive list of core

proceedings, two of which the Bankruptc y Court (and the District

Court) found applicable. Id. § 157(b)(2)(B) (“allowance or

d isallowance of claims against the estate”); id. § 157(b)(2 )(C)

(“counterclaims by the estate against persons filing claims against

the estate”).

12 that ACMC’s declaratory judgment action constituted a cor e issue

under 28 U.S. C. § 157(b)(2)(B)&(C), 1 2 and argues that ACMC’s

declaratory judgment action was instead a preemptive assertion of

a f ederal defense to a state law contract claim. A bankruptcy

court’s conclusion that a proceeding is “core” under 28 U.S.C. §

157(b) is a question of law which this Court reviews de novo

. In

re United States Abatement Corp. , 79 F.3d 393, 397-98 & n.9 (5th

Cir. 1996). INA first argues that ACMC and the Trust are

attempting to utilize the Declaratory Judgment Act to transform an

affirmative defense of discharge in bankruptcy into a federal cause

of action “arising under” title 1 1. In support of its argument,

INA cites Skelly Oil Co. v. Phillips Petroleum Co. , 70 S.Ct. 876,

878-79 (1950), and Franchise Tax Bd. v. Construction Laborers

Vacation Trust

, 103 S.Ct. 2841, 2849-50 (1983), for the proposition

that, as federal defenses to state law actions do not “arise under”

federal law for the purpose of federal question jurisdiction even

when asserted in a declaratory judgment complaint, the di scharge

injunction granted pursuant to National Gypsum’s confirmed

reorganization plan cannot confer “arising under” core bankruptcy13 Section 524(a) provides a debtor with a post-discharge

injun ction against the collection of debts discharged in

bankruptcy:

“(a) A discharge in a case under this title——

. . . . (2) operates as an injunction against the

commencement or continuation of an action, the

employment of process, or an act, to c ollect,

recover or offset any such debt as a personal

liability of the debtor, whether or not d ischarge

of such debt is waived

. . . .” 11 U.S.C. §

524(a)(2).

Section 1141(d) discharges a Chapter 11 debtor (with certain

exceptions) from preconfirmation debts:

“(d)(1) Except as otherwise provided in this subsection,

in the plan, or in the order confirming the plan, the

confirmation of a plan——

(A) discharges the debtor from any debt that arose

bef ore the date of such confirmation . . . .” 11

U.S.C. § 1141(d)(1)(A).

13 jur isdiction under sections 157(b) and 1334. INA contends that

Skelly and Franchise Tax Board required the Bankruptcy Court to

realign the parties as if ACMC were asserting discharge as a

defense to a state law contract action brought by INA.

INA also argues that any affirmative right conf erred by 11

U.S.C. § 524(a) 13 does not c onfer an independent federal cause of

action. INA cites F abrique, Inc. v. Corman

, 813 F.2d 725, 726 (5th

Cir. 1987), for the proposition that “an action for a declaratory

judgment stating a preemptive bankruptcy defens e to a state law

claim [does] not constitute a cause of action for the purpose of

federal jurisdiction.”

ACMC and the Trust counter that a proceeding to determine

whether a creditor violated section 524(a)’s discharge injunction,

the reorganiz ation plan, or the confirmation order is a core14

proceeding under section 157(b) and that INA’s relian ce on

declaratory judgment/federal question cases is inapposite. ACMC

and the Trust first argue that In re Woo d ’s statement that “a

proceeding is core under section 157 if it invokes a substantive

right pro vided by title 11 or if it is a proceeding that, by its

nature, could arise only in the context of a bankruptcy case,” 825

F.2d 90, 97 (5th Cir. 1987), is controlling because their claim

that INA violated the discharge injunction “invokes a substantive

right provided by title 11.” Similarly, ACMC and the Trust contend

that their claim that INA also violated the reorganization plan and

the confirmation order could arise only in the context of a

bankruptcy case. ACMC and the Trust dispute INA’s position that a

discharge in bankruptcy, though a potential affirmative defense in

a civil proce eding, cannot also confer positive rights under

section 524.

ACMC and the Trust finally argue that the section 524(a)

discharge injunction grants a federal right to be free of

collection efforts——an independent basis for federal bankruptcy

jurisdiction——t hat does not rely improperly on the Declaratory

Judgment Act, 28 U.S.C. § 2201, as a basis for federal

jurisdiction. ACMC and the Trust distinguish F abrique as a case

involving a nonbankrupt, declaratory judgment plaintiff who

premised federal jurisdiction on the federal question statute, 28

U.S.C. § 1331, advancing 11 U.S.C. § 363(m)’s warrant of title to

good faith purchasers as the only federal issue. Accordingly, they

argue that the 11 U.S. C. § 363(m) right at issue in F abrique

,15

unlike the 11 U.S.C. § 524(a) discharge injunction, can arise only

as a defense. ACMC and the Trust contend that the declaratory

judgment action concerning section 524(a) involves only an

int erpretation of the reorganization plan and the confirmation

order to determine whether the debt asserted by INA is owed under

the confirmed plan; as the merits of INA’s claims under the

Wellington Agreement were not implicated by their complaint, they

argue that the adversary proceeding involves only a determination

of their federal rights under the Bankruptcy Code.

The discharge injunction granted by section 524( a) is a

substantive right conferred by the Bankruptcy Code, often enforced

by a motion for contempt, s ee, e.g.

, In re Texaco

, 182 B.R. 937,

944 (Bankr. S.D.N.Y. 1995) (“There can be no question that a

proceeding such as this [motion for contem pt], to enforce and

construe a confirmation order issued by this Court in this case,

constitutes a proceeding ‘arising in or related to a case under

title 11.”), but also enforceable through a declaratory j udgment

action, see, e. g.

, In re Christopher , 148 B.R. 832, 833 & n.2

(Bankr. N.D. Tex. 1992) ( reorganized Chapter 11 debtor’s

declaratory judgment adversary proceeding seeking a declaration

that certain claims asserted in lawsuits were barred by 11 U.S.C.

§ 1141(d) was a core proceeding under 28 U.S.C. § 157(b)(2)(B) and

(O)), aff’d , 28 F.3d 512 (5th Cir. 1994); In re Pettibone Corp.

,

151 B.R. 166, 169-70 (Bankr. N.D. Ill. 1993) (resolution of

declaratory judgment action brought by Chapter 11 plainti ff to

declare a personal injury claim discharged and collection efforts16

violative of section 524(a) “affect[ed] the allowance of claims and

the administration of the estate [and] was a core proceeding under

28 U.S.C. § 157(b)(2)(A) and (B)”). Courts have held that actions

to enforce the discharge injunction a re core proceedings because

they call on a bankruptcy court to construe and enforce its own

orders. I n re Polysat

, 152 B.R. 886, 888 (Ba nkr. E.D. Pa. 1993)

(“As the instant proceeding concerns the scope of the discharge

injunction arising from sections 524 and 1141 of the Code, it is a

core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (I), or (O).”); In

re Jacobs , 149 B.R. 983, 989 (Bankr. N.D. Okla. 1993) (“An action

before the Court which issued a discharge, for the purpose of

determining the scope of said discharge under 11 U.S.C. § 524 . .

. is not merely related to the bankruptcy, but arises under Title

11, and arises in a case under Title 11, is a ‘proceeding . . .

affecting

. . . the adjustment of the debtor-creditor

relationship,’ and is therefore a core proceeding under 28 U.S.C.

§§ 157(b)(2)(O).”); cf. 4 Collier on Bankruptcy ¶ 524.02[2][c], at

524-18 (“A proceeding to enforce the discharge injunction is a core

proceeding under section 157(b)(2)(O) of title 28, and courts should

readily reopen a closed bankruptcy case to ensure that the essential

purposes of the discharge are not undermined.”).

The District Court rejected INA’s argument that the true

nature of ACMC’s declaratory judgment action was a federal defense

to a state law co ntract claim because “[t]he scope and

ramifications of the federal injunctions granted under Section

524(a) of the Bankruptcy Code, the Plan, and the Confirmation Order14 The declaratory judgment complaint filed by ACMC and the

Trust addressed only bankruptcy issues, specifically the operation

of the confirmed plan and the discharge injunctions. Before the

Bankruptcy Court, the parties agreed that the issues raised by the

complaint were exclusively matters of federa l bankruptcy law.

Similarly, at oral argument before this Court, counsel for INA

acknowledged that the complaint did not raise any state law

contract issues.

17 are issues which are independent of the nature of INA’s preconfirmation claims.” The District Court was correct. Although a

discharge in bankruptcy can constitute an affirmative defense to a

state law contract claim, ACMC’s acti on to enforce the discharge

injunction——and to construe the scope and effect of the confirmed

reorganization plan——need no t, i ndeed cannot

, 14 resolve any state

law contract issues, only whether INA’s pre-confirmation claim, as

stated, was d ischarged or otherwise barred by the Bankruptcy

Court’s confirmation of National Gypsum’s reorganization plan. As

such, the adversary proceeding is a federal cause of action,

asserting a statutory right under the Bankruptcy Code, that does

not depend improperly on the Declaratory Judgment Act as a basis

for core bankruptcy jurisdiction.

The Skelly Oil / Franchise Tax Board line of decisions relied on

by INA and this Court’s Fabrique decision are not inconsistent with

the Bankruptcy Court’s finding of core bankruptcy juri sdiction.

First, unlike the Federal Power Commission’s “certificate of public

convenience and necessity” at issue in Skelly Oil

, 70 S.Ct. at 880-

82, or the scop e of ERISA preemption at issue in F ranchise Tax

Board

, 103 S.Ct. at 2848-49, the section 524(a) discharge

injunction is not solely a federal defense to potential state15 Paragraph VIII(6) of the Wellington Agreement provides:

“6. Subscribing Producers and Subscribing Insurers shall

18 actions; instead, “[l]ike the automatic stay of section 362(a), the

discharge injunction is the equivalent of a court order,” 4 Collier

on Bankruptcy ¶ 524.02[2], at 524-14. Second, unlike section

363(m)’s federal “copper-bottoming” of a state good faith purchaser

defense at issue in Fabrique , a proceeding to enforce or construe

a bankruptcy court’s section 524(a) discharge injunction issued

pursuant to i t s confirmation order——and whether the confirmed

reorganization plan precludes certain post-confirmation collection

efforts——necessarily arises under title 11 and supports a finding

that federal jurisdiction exists under 28 U.S.C. § 1334 and that

such a proceeding is “core” under 28 U.S.C. § 157(b).

Accordingly, we agree with both the Bankruptcy Court and the

District Court and hold that a declaratory judgment action seeking

merely a declaration that col lection of an asserted preconfirmation liab ility is barred by a bankruptcy court’s

confirmation of a debtor’s reorganization plan (and the attendant

discharge injunctions under sections 524 and 1141 of the Bankruptcy

Code) is a core proceeding arising under title 11. W ood

, 825 F.2d

at 97; 28 U.S.C. § 157(b)(2)(B),(C), and (O).

II.

INA argues that the Bankruptcy Court erred when it concluded

that it had discretion to refuse to stay the adversary proceeding

in favor of arbitration pursuant to the Wel lington Agreement’s

arbitration provision. 15 Whether a bankruptcy court has discretionresolve through alternative dispute resolution, in the

manner set forth in Appendix C hereto, any disputed

issues within the s cope of the Agreement and the

Appendices hereto.”

19 to deny a mot ion to stay is a question of law which this Court

reviews de novo

. In the Matter of Complaint of Hornbeck Offshore

(1984) Corp. , 981 F.2d 752, 754 (5th Cir. 1993).

INA makes three arguments in support of its cont ention that

the Bankruptcy Court erroneously denied its motion to stay pursuant

to the Federal Arbitration Act. First, INA argues that the legal

standard used by the Third Circuit in H ays and Co. v. Merrill

Lynch, Pierce, Fenner & Smith, Inc. , 885 F.2d 1149, 1161 (3d Cir.

1989), providing that a court “should enforce [an arbitration]

clause unless that effect would seriously jeopardize the objectives

of the Code,” applies to the instant proceeding. Second, INA

argues that the Bankruptcy Court impr operly relied on

considerations of efficiency as a basis for denying INA’s motion to

stay. Finally, INA argues that the District Court erroneously

concluded that th e Bankruptcy Court had discretion to determine

whether issues should be submitted to arbitration under the Act.

INA contends that cases holding that a bankruptcy court has

discretion to deny arbitration of core bankruptcy matters are

irreconcilable with the Supreme Court’s non-discretionary standard

set forth in Shearson/American Express, Inc. v. McMahon

, 107 S.Ct.

2332 (198 9) (holding claims under the Securities Exchange Act of

1934 and the federal RICO statute arbitrable and subject to the

Act), and Rodriguez de Quijas v. Shearson/American Express, Inc.

,20

109 S.Ct. 1917 (1989) (holding claims under the Securities Act of

1933 arbitrable), and that whether a matter is “core” or “non-core”

under 28 U.S.C. § 157 is irrelevant to mandatory arbitration under

the Act.

ACMC and the Trust, on the other hand, contend that the

arbitration clause in the Wellington Agreement does not trigger

mandatory arbitration under the Federal Arbitration Act of its

declaratory judgment action. First, they argue that arbitration

and the objectives of the Bankruptcy Code conflict wh en core

bankruptcy issues are involved. For example, ACMC and the Trust

note that the Third Circuit in Hays

, although finding pre-petition,

non-core claims of the debtor arbitrable, found that the trustee’s

section 544(b) fraudulent conveyance claim was not subject to

arbitration. Second, ACMC and the Trust argue that, even if the

core/non-core distinction is not appropriate, mandatory arbitration

of its section 524(a) claim would nevertheless conflict with

Bankruptcy Code objectives b y allowing arbitrators to determine

discharge issues and to interpret bankruptcy court orders. Third,

ACMC and the Trust make an argument that an interpretation of the

Act that would permit arbitrators to determine whether INA violated

the discharge injunction would violate the separation-of-powers

doctrine because Congress would be “interferi ng with the

[bankruptcy] court’s ability to enforce its judgments.” Finally,

they contend that the Wellington Agreement’s arbitration clause is

not broad enough to cover their claims set forth in the complaint.21

A. The Standard for Enforcing an Applicable Arbitration Clause

The parties disagree as to the standa rd a bankruptcy court

should use to determine whether to order arbitration of a core

bankruptcy issue. INA contends that, provided an arbitration

clause is otherwise appli cable, the bankruptcy court must order

arbitration unless it would seriously jeopardize the objectives of

the Bankruptcy Code. ACMC and the Trust contend that arbitration

of core bankruptcy issues inherently present such a conflict.

Se ction 3 of the Federal Arbitration Act provides, in

pertinent part, that a court “upon being satisfied that the issue

involved

. . . is referable to arbitration under such an agreement,

shall on application of one of the parties stay the trial of the

action until such arbitration has been had in accordance with the

terms of the agreement.” 9 U.S.C. § 3. Addressing the

arbitrability of federal RICO and securities fraud claims brought

under the Securities Exchange Act of 1934 in McMahon , the Supreme

Court stated:

“The Arbitration Act, standing alone, therefore mandates

enforcement of agreements to arbitrate statutory claims.

Like any statutory directive, the Arbitration Act’s

mandate may be overridden by a contr ary congressional

command. The burden is on the party opposing

arbitration, however, to show that Congress intended to

preclude a waiver of judicial remedies for the statutory

rights at issue. If Congress did intend to limit or

prohibit waiver of a ju dicial forum for a particular

claim, such an intent ‘will be de ducible from [the

statute’s] text or legislative hi story’ or from an

inherent conflict between arbitration and the statute’s

underlying purposes.” McMahon , 107 S.Ct. at 2337-38.

Two years later, addressing the arbitrability of securities fraud

claims brought under the Securities Act of 1933, the Supreme Court16 The district court premised its decision on Z immerman v.

Continental Airlines

, 712 F.2d 55 (3d Cir. 1983), cert. denied

, 104

S.Ct. 699 (1984). In Z immerman

, decided before both McMahon and

the 1984 amendments to the Bankruptcy Code, the Third Circuit held

that, “because the underlying purposes of the Bankruptcy Reform Act

impliedly modify the Arbitration Act, the granting of a stay

pen ding arbitration, even when the arbitration clause is

contractual, is a matter left to the sound discretion of the

bankruptcy judge.” Id. at 56.

22 aga in used the standard set forth in M cMahon to find the claims

arbitrable. R odriguez

, 109 S .Ct. at 1921 (“[T]he party opposing

arbitration carries the burden of showing that Congress intended in

a separate statute to preclude a waiver of judicial remedies, or

that such a waiver of judicial remedies inherently conflicts with

the underlying purposes of that other statute.”) (overruling Wilko

v. Swan , 74 S.Ct. 182 (1953)).

Citing the Supreme Court’s increased recognition of the force

of 9 U.S.C. § 3 in McMahon and Rodriguez

, the Third Circuit, in

Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

,

ordered the arbitration of a non-core bankruptcy adversary

proceeding. In H ays

, a Chapter 11 trustee brought a number of

federal and state claims against Merrill Lynch concerning various

securities transactions. Merrill Lynch filed a motion to dismiss

the federal RICO and 1933 Act claims pursuant to an arbitration

clause contained in t he brokerage agreement. The district court

refused to compel arbitration. 16 Hays , 885 F.2d at 1150-51.

The Third Circuit, reversing the district court, rejected the

notion that the Bankruptcy Code impliedly modified the Act and

stated that a Chapter 11 trustee is bound by an arbitration clause

to the same extent as would be a debtor. Id. at 1155. The Third17 11 U.S.C. § 541 defines the property included in the

bankruptcy estate, which includes all legal and equitable interests

of the debtor.

23 Circuit held that, as the “‘trustee stands in the shoes of the

debtor and can only assert those causes of action possessed by the

debtor’” subje ct to defenses——such as a contractual arbitration

provision——as could have been asserted by a defendant, the trustee

was bound to arbitrate all causes of action derived from section

541. 17 Id. at 1154. Accordingly, the Third Circuit held that the

federal RICO and securities fraud actions must be ordered

arbitrated, but that the trustee’s section 544(b) avoidance

action——which was “not derivative of the bankru pt” but rather a

“statutory cause[] of action” under the Bankruptcy Code for the

benefit of th e creditors——was not subject to the arbitration

provision. Id. at 1155.

The Hays opinion does go to some length to distinguish the

arbitrable claims as “involv[ing] non-core proceedings” and

highlighted the heightened role of nonbankruptcy court adjudication

brought about by the 1984 amendments. Id. at 1159. In light of

the “clear congressional rejection of judicial skepticism”

co ncerning arbitration recognized in M cMahon and Rodriguez

, the

Third Circuit c oncluded that an adversary proceeding involving

debtor-derivative, non-core matters would not “seriously jeopardize

the objectives of the Code.” Id. at 1160-61.

With respect to derivative, non-core m atters, the Third

Circuit’s opinion in Hays makes eminent sen se, particularly in

light of the 1984 amendments to the Bankruptcy Code. Indeed, in24

this regard it has been universally accepted. S ee Fred Neufeld,

Enforcement of Contractual Arbitration Agreements under the

Bankruptcy Code

, 65 Am. Bankr. L.J. 525 (1991) (providing a

circuit-by-circuit analysis); Mette H. Kurth, Comment, An

Unstoppab le Mandate and an Immovable Policy: The Arbitration Act

and the Bankruptcy Code Collide , 43 U.C.L.A. 999 (1996) (same).

Whether a bankruptcy co urt has discretion to enforce an

applicable arbitration clause w here core bankruptcy issues are

involved was not addressed specifically by Hays , although other

courts have found the core/non-core distinction useful. S ee, e.g.

,

Selcke v. New England Ins. Co. , 995 F.2d 688, 691 (7th Cir. 1993)

(“Even broadly worded arbitration clauses are assumed not to extend

to claims that arise out of the provision s of the bankruptcy law

itself

. . . .”); In re Spectrum Info. Techs., Inc.

, 183 B.R. 360,

363 (Bankr. E.D.N.Y. 1995) (“[E]specially with re spect to core

proceedings,

. . . arbitration should not triumph over the specific

jurisdiction bestowed upon the bankruptcy courts under the

Bankruptcy Code.”) (citing ca ses); I n re Sacred Heart Hosp.

, 181

B.R. 195, 202 (Bankr. E.D. Pa. 1995) (“[A]s to core proceedings,

this court may exercise its full panoply of discretion

. . . in

determining whether to refer a proceeding before it to

arbitration.”); In re American Freight Sys., Inc. , 164 B.R. 341,

347 (D. Kan. 1994) (“The teachings of Hays & Co. are not applicable

to an adversary proceeding involving a core matter.”); In re Glen

Eagle Squ are, Inc. , 1991 WL 71782 (Bankr. E.D. Pa. May 1, 1991)

(holding that the court retained discretion to order arbitration of25

core proceedings because “th ey impact upon the Debtor’s

relationship with its entire body of creditors”); In re FRG

, 115

B.R. 72, 74-75 (E.D. Pa. 1990). But see In re Barkman , Inc., 170

B.R. 321, 323 n.1 (Bankr. E.D. Mich. 1994) (“For purposes of

determining whether Congress intended to carve out an exception to

§ 3 of the Arbitration Act, the core/non-core distinction would

seem to be of only indirect significance.”).

ACMC and the Trust urge us to adopt a position that

categorically finds arbitration of core bankruptcy proceedings

inherently irreconcilable with the Bankruptcy Code. Cognizant of

the Supreme Court’s admonition that, in the absence of an inherent

conflict with the purpose of another federal statute, the Federal

Arbitration Act mandates enforcement of contractual arbitration

provisions, McMahon , 107 S.Ct. at 2337-38, we refuse to find such

an inherent conflict based solely on the jurisdictional nature of

a bankruptcy proceeding. Rather, as did the Third Circuit in H ays

,

we believe that nonenforcement of an otherwise applicable

arbitration provision turns on t he underlying nature of the

proceeding, i.e. , whether the proceeding derives exclusively from

the provisions of the Ban kruptcy Code and, if so, whether

arbitration of the proceeding would conflict with the purposes of

the Code. In this regard, we agree with INA that the discretion

enjoyed by a bankruptcy court to refuse enforcement of an otherwise

applicable arbitration provision depends upon a findi ng that the18 We disagree, however, with the narrowness of the example

offered by IN A at oral argument of the type of arbitration that

would be “irreconcilable” with the purpose of the Bankruptcy Code:

a situation where a creditor and a debtor agreed pre-bankruptcy to

arbitrate the actual amount the creditor would be paid on a claim

under t he contract in the event of bankruptcy (effectively

contracting out of a bankruptcy court’s power to adjust claims

among different classes of creditors). Such a contractual

provision——essentially an ipso facto clause——would plainly be

unenforceable without regard to any conflict, real or apparent,

with the Federal Arbitration Act. C f. 11 U.S.C. §§ 363( l );

365(f)(1); 541(c).

19 We note that at the time the instant complaint was filed,

arbitration had not even been set in motion.

26 standard set forth in M c Mahon has been met. 18 But because we

believe that ACMC and the Trust ’ s declaratory judgment

complaint——which concerned matters central to National Gypsum’s

confirmed reorganization plan and implicated contractual issues in

only the most peripheral manner (if at all)——met this standard, we

conclude that the Bankruptcy Court was within its discretion to

refuse to order arbitration of the adversary proceeding (which was

limited to the effect, if any, of National Gypsum’s confirmed

reorganization plan and attendant injunctions on INA’s collection

efforts). 19

The core/non-core distinction conflates the inquiry set forth

in McMahon and Rodriguez with the mere identification of the

jurisdictional basis of a particular bankruptcy proceeding.

Certainly not all core bankruptcy proceedings are premised on

provisions of the Code that “inherently conflict” with the Federal

Arbitration Act; nor would arbitration of such proceedings

necessarily jeopardize the objectives of the Bankruptcy Code.

Although, as appellees suggest, “the core/non-core distinction is20 11 U.S.C. § 362(d) allows a bankruptcy court to grant relief

from the § 36 2(a) automatic stay when a creditor establishes

“cause.”

27 a practical and workable one,” it is nonetheless too broad. The

“discretion” that ACMC and the Trust urge should exist only where

a particular bankruptcy proceeding meets the standard for

nonenforcement of an arbitration clau se set forth in M cMahon and

Rodriguez

. See In re Chorus Data Sys. , 122 B.R. 845, 851 (Bankr.

N.H. 1990) (“[U]nder the Suprem e Court precedents there is

discretion but in the bankruptcy context there must be a

demonstrated specific conflict between enforcing an arbitration

clause and the textual provisions and/or purposes of the Bankruptcy

Code to justify the exercise of discretion by a bankruptcy court in

refusing to enforce an arbitration clause.”) It is doubtful that

“core” proceedings, categorically, meet the standard.

In the most common type of credit or-initiated core

proceeding——a motion for relief from the automatic

stay 20 ——bankruptcy courts regularly have permitted arbitration to

continue (or commence) in spite of the presence of core bankruptcy

jurisdiction. In those cases permitting arbitration, courts have

typically found little difficulty with arbitration of disputes

w here resolution would not involve matters of federal bankruptcy

law.

For example, in In re Statewide Realty Co.

, 159 B.R. 719, 722

(Bankr. D. N.J. 1993), the debtor had objected to claims advanced

by Hilton International under a rejected management agreement, and

Hilton sought relief from the automatic stay to resolve the claim28

pursuant to an arbitration provision in the agreement.

Acknowledging that its di scretion to deny enforcement of an

otherwise applicable arbitration provision rested on a finding that

arbitration would conflict with the p rovisions or purpose of the

Bankruptc y Code, the bankruptcy court rejected a reading of H ays

now advanced by ACMC and the Trust:

“The fact that the matter before the court is a core proceeding does not mean that arbitration is

inappropriate. The description of a matter as a core

proceeding simply means that the bankruptcy court has the

ju r isdiction to make a full adjudication. However,

merely becaus e the court has the authority to render a

decision does not mean it should do so. The discussion

in Ha ys regarding core and non-core proceedings is not

r ead by this court as suggesting that core proceedings

may not be subject to arbitrati on. Rather it appears

that the Hays court sought to distinguish between actions

derived from the debtor, and therefore subject to the

arbitration agreement, and bankruptcy actions in essence

created by the Bankruptcy Code for the benefit ultimately

of creditors of the estate, and therefore not encompassed

by the arbitration agreement.” Id. at 724.

The court went on to note that, although “a significant portion of

[Hilton’s] claim stems from damages that result from the Debtor’s

rejection of the Management Agreement pursuant to Bankruptcy Code

§ 365, the bankruptcy issues as to whether rejection of the

Management Agreement was a proper exercise of the Debtor’s business

judgment already have been determined in the hearings conducted by

the court.” I d. With only state contract issues concerning the

agreement left to resolve, the bankrup tcy court was unable to

discern a conflict with the Bankruptcy Code posed by arbitration.

Id. ; see also In re Chorus Data Systems, Inc.

, 122 B.R. 845 (Bankr.

D. N.H. 1990) (granting relief from the automatic stay to arbitrate

an unliquidated product development agreement claim and29

counterclaim where the Chapter 11 debtor’s reorganization plan was

not wholly contingent on the outcome and resolution involved only

state law contract issues); In re Bicoastal Corp.

, 111 B.R. 999

(Bankr. M.D. Fla. 1990) (granting relief from the automatic stay to

arbitrate an unliquidated claim arising from a stock purchase price

adjustment dispute involving exclusively contract issues and

application of generally accepted accounting principles).

We find the Statewide bankruptcy court’s reading of Hays

persuasive. Indeed, distinguishing between those actions derived

from the debtor and those created by the Bankruptcy Code explains

the consistent reluctance to permit arbitration of actions brought

to adjudicate bankruptcy rights

. There can be little dispute that

where a core proceeding involves adjudication of federal bankruptcy

rights wholly divorced from inherited cont r actual claims, the

importance of the federal bankruptcy forum provided by the Code is

at its zenith. Arguably, these actions are simply beyond the

coverage of most, if not all, arbitration provisions. But,

assuming an otherwise applicable arbitration provision, the

adjudication of these actions outside the federal bankruptcy forum

could in many instances present the type of conflict with the

purpose and provisions of the Bankruptcy Code alluded to in

McMahon

. S ee Hays

, 885 F.2d at 1155 (“Claims ass erted by the

trustee under sec tion 544(b) are not derivative of the bankrupt.

They are creditor claims that the Code authorizes the trustee to

asset on their behalf.”); In re Barney’s Inc.

, 206 B.R. 336 (Bankr.

S.D.N.Y. 1997) (finding Chapter 11 debtor’s section 544(a)30

avo idance action, section 549 avoidance action, and section 542

turnover action were not subject to arbitration); In re Dunes Hotel

Associates

, 194 B.R. 967, 992 (Bankr. D.S.C. 1996) (finding Chapter

11 debtor’s section 544(a) avoidance action, section 542 turnover

action, and s ection 365 rejection action were not subject to

arbitration); In re Arentson

, 126 B.R. 236, 238 (Bankr. N.D. Miss.

1991) (refusing to order arbitration of a wrongful term ination

action brought by a Chapter 7 debtor under section 525(b), which

provides redress for discrimination against an individual because

of a bankruptcy filing, because it was a cause of action

“exclusively related to a bankruptcy statute . . . that literally

begs for resolution in a bankruptcy forum”); c f. In re Pate

, 198

B.R. 841, 846 (Bankr. S.D. Ga. 1996) (finding Chapter 13 debtor’s

Federal Truth in Lending Act claim involving the financing of a

mob ile home, which was core under 28 U.S.C. § 157(b)(2)(C)

(counterclaims by the debtor’s estate), was arbitrable).

We think that, at least where the cause of action at issue is

not derivative of the pre-petition legal or equitable rights

possessed by a debtor but rather is derived entirely from the

federal rights conferred by the Bankruptcy Code, a bankruptcy court

retains significant discretion to assess whether arbitration would

be consistent with the purpose of the Code, including the goal of

centralized resolution of purely bankruptcy issues, the need to

protect creditors and reorganizing debtors from piecemeal

litigation,and the undisputed pow er of a bankruptcy court to

enforce its own orders.21 INA contends that the Bankruptcy Court improperly relied on

efficiency concerns to refuse enforcement of the Well ington

Agr eement’s arbitration provision. The Supreme Court has stated

that efficiency concerns are not an appropriate defe nse to an

otherwise applicable arbitration clause. M oses H. Cone Mem’l Hosp.

v. Mercury Constr. Corp.

, 103 S.Ct. 927, 939 (1983); Tai Ping Ins.

Co., Ltd. v. M/V Warschau

, 731 F.2d 1141, 1146 (5th Cir. 1984) (“To

t he extent that [a party contesting enforcement of an applica ble

arbitration clause] rel ies on premises of economy of effort,

moreover, Moses Cone indicates that this reliance is misplaced.”).

In the bankruptcy context, however, efficient resolution of claims

and conservation of the bankruptcy estate assets are integral

purposes of the Bankruptcy Code. Accordingly, insofar as

efficiency concerns might present a genui ne conflict between the

Federal Arbitration Act and the Code——for example where substantial

arbitration c osts or severe delays would prejudice the rights of

creditors or the ability of a debtor to reorganize——they may well

represent legitimate considerations. C f. In re Day

, 208 B.R. 358,

370 (Bankr. E.D. Pa. 1997) (refusing to order arbitration of claims

allowance issues where co nfirmation of the debtors’ Chapter 13

plans was dep endent upon immediate resolution of objections to

creditors’ claims). Here, the Bankruptcy Court noted that the

arbitration “process has not yet commenced” (indeed, when the

complaint was filed arbitrati on had not been requested) and that

“this court constitutes the most efficient and effective forum in

which to determine the core Bankruptcy Code issues” (and the court

went on to recite the several factors set out in In re Chicago,

Milwaukee, St. Paul & Pacific R.R. Co

., 6 F.3d 1184, 1189 (7th Cir.

1993)). The Bankruptcy Court was not so much saying that

efficiency concerns would of themselves authorize denial of the

stay as it was suggesting that had the arbitration process actually

been well advanced it might have been more in clined to grant the

stay. INA’s argument in this respect presents no reversible error.

22 ACMC and the Trust contend that their declaratory judgment

actio n was not within the scope of the Wellington Agreement’s

arbitration provision, supra note 15, and that the stay provision

of the Federal Arbitrati on Act is therefore not applicable.

Neither the Bankruptcy Court nor the District Court explicitly

addressed the issue, apparently assuming the applicability of the

arbitration provision and finding that enforcement was nevertheless

31 B. The Bankruptcy Court’s Decision Not To Order Arbitration

We turn now to whether the Bankruptcy Court’s decision not to

stay the adver sary proceeding was an abuse of discretion. 2 1 As

discussed above, t h e Bankruptcy Court possessed discretion to

refuse to enforce an otherwise applicable arbitration prov ision 2 2within the court’s discretion. Although we find the applicability

of the arbitration provision to this action subject to considerable

doubt, see United Offshore Co. v. Southern Deepwater Pipeline

, 899

F.2d 405, 409-10 (5th Cir. 1990), we also assume its applicability

for the purposes of this appeal.

23 INA argues that its collection efforts do not implicate the

section 524(a) discharge injunction because the pre-confirmation

debt it alleges stems from an assumed contract under section 365.

The Bankruptcy Court, in a bench ruling on March 28, 1997,

modifying its earlier October 22, 1996, order, essentially agreed.

32 only insofar as enforcement would conflict with the purpose or

provisions of the Bankruptcy Code.

The declaratory judgment action brought by ACMC and the Trust

sought a declaration that the section 524(a) discharge injunction

barred INA’s collection efforts, or that the terms and provisions

of the reorganization plan or the Bankruptcy Court’s confirmation

order precluded collection of INA’s claim for prepetition debts

allegedly owing under the Wellington Agreement. As stated, the

complaint raised no issues under the Wellington Agreement and was

restrict e d entirely to the adjudication of federal bankruptcy

issues. The complaint asked, in fine, for the Bankruptcy Court to

construe its own order. Nothing in the complaint permitted the

Bankruptcy Court to address the merits of INA’s claim under the

Wellington Agreement or ACMC and the Trust’s contract or equitable

defenses to INA’s claim under state law. In short, if appellees

were successful, and the Bankruptcy Court determined t hat INA’s

collection efforts were barred either by the secti on 524(a)

discharge injunction or by the terms of the confirmed

reorganization plan, INA’s collection efforts would be barred under

bankruptcy law. 23 If appellees were unsuccessful, resolution of theThe Bankruptcy Court ruled that the Chapter 11 discharge provision,

section 1141(d)(1), does not address claims based on the assumption

of an executory agreeme nt because section 365(b)(1) requires the

debtor to cure any default as a prerequisite to assumption.

Accordingly, the Bankruptcy Court ruled that section 1141(d)(1)

addresses only claims based on the rejection of an ex ecutory

contract (by referring to secti on 502(g)). The Bankruptcy Court

stated that, as to amounts allegedly owed under an assumed

exe cutory contract, the assumption order governs (which, in this

case, was incorporated in the relevant provis ions of the

reorganization plan and the confirmatio n order). Observing that

section 1141(d)(1) cannot be r ead to provide for discharge of

amounts in default under assumed executory contracts without

nullifying the cure requirement of section 365(b)(1 ), the

Bankrupt cy Court held that its a djudication of the plan——rather

than the discharge injunction pro vided by section 1141(d)(1) and

section 524(a)——precluded INA’s collection efforts. See Republic

Supply Co. v. Shoaf , 815 F.2d 1046 (5th Cir. 1987).

Whether viewed as a question of the coverage of the discharge

injunction or as an issue concerning prior adjudication, it is

plain, however, that resolution of ACMC and the Trust’s declaratory

judgment action implicated issues arising exclusively from National

Gypsum’s rights conferred by its confirmed reorganization plan. As

stated, INA’s argument relates to whether the Ban kruptcy Court

should have granted the relief soug ht by ACMC and the trust, not

whether it should have ordered arbitration. Although we express no

opinion as to the correctness of the B ankruptcy Court’s

determination, we are quite certain that it was the proper forum to

address the limited issues raised in the complaint.

24 INA cited P icco v. Global Marine Drilling Co. , 900 F.2d 846

( 5th Cir. 1990), at oral argument for the proposition that it is

appropriate for other courts——and therefore arbitrators——to

interpret the preclusive effect of bankruptcy court orders.

Picco

, however, may not be read so broadly as to always

preclude bankruptcy court refusal to defer to a prosp ective,

nonbankruptcy, nonjudicial forum to e ntertain an action limited

solely to the scope of a bankruptcy court’s order. Picco involved

a Canadian personal-injury clai mant (Picco) whose suit against a

Chapter 11 debtor was dismissed without prejudice on forum non

conveniens grounds during the pendency of the automatic stay.

Picco did not appeal the dismissal. After the bankruptcy court

lifted the automatic stay to permit personal-injury actions to

proceed, however, he refiled his claim in Canada. Later still, he

decided that Texas state court was a preferable forum, but the

statute of limitations had expired on his action. Picco therefore

moved the district court to set aside its prior judgment and re33 merits of INA’s claim under the Wellington Agreement would remain

open, presumably subject to any valid arbitration provision. 24dismiss with condit ions permitting him to refile in Texas state

court. The district court granted his motion. At issue in the

appeal was whether Picco——who chose not to appeal the initial

dismissal by the district court——could challenge jurisdiction to

enter the initial dismissal in a subsequent Rule 60(b)(4)

proceeding. This Court concluded that, as Picco had had the

opportuni t y to challenge the district court’s jurisdiction on appeal from the initial dismissal, he was barred from challenging

it in the context of a Rule 60(b) proceeding.

Our unrema rkable statement in P icco that “district courts

retain jurisdiction to determine the applicability of the [§ 362(a)

au tomatic] stay to litigation pending before them, and to enter

orders not inconsistent with the terms of the stay,” Picco

, 900

F .2d at 850, did not, of course, foreclose a debtor’s ability to

redress violations of the automa tic stay through contempt

proceedings in the bankruptcy court, nor was it intended to

diminish the ability of a bankruptcy court to entertain actions to

enforce or construe the effects of its own orders. Cf. Celotex

Corporation v. Edwards

, 115 S.Ct. 149 3 (1995) (where bankruptcy

court has jurisdiction to issue stay order, validity of that order

may not be collaterally attacked).

25 The District Court noted that, although the Bankruptcy Court

“did not expressly analyze whether referring the core issues in the

Complaint would seriously jeopardize the underlying policies of the

Bankruptcy Code,” arbitration nevertheless would present a conflict

with the Code because it would “allow a panel of arbitrators to

decide whether and how to enforce the federal injunctions granted

under 11 U.S.C. Section 524(a) and how to apply the Plan and the

34 We are convinced that arbitration of a core bankruptcy

adversary proceeding brought to determine whether INA’s collection

efforts were barred by the section 524(a) discharge injunction or

by the confirmation of National Gypsum’s reorganization plan, as a

nondebtor-derivative action to enforce asserted rights created by

the Bankruptcy Co de that are completely divorced from National

Gypsum’s prepetition rights under the Welllington Agreement, would

be inconsistent with the Bankruptcy Code. Whether premised, as the

District Court suggested, on a finding that enforcement of the

arbitration provision would irreconcilably conflict with the

Bankruptcy Code, 25 McMahon

, 107 S.Ct. 2332, or on the view thatConfirmation Order to these alleged pre-petition debts.”

26 Accordingly, we have no need to address ACMC and the Trust’s

substantially more questionable argument that arbitration would run

afoul of the separation-of-powers principles set forth in Plaut v. Spendthrift Farm, Inc. , 115 S.Ct. 1447 (1995).

35 bankruptcy courts have discretion to deny enforcement of

arbitration clauses in core cases when the only rights at issue

were created by the Bankruptcy Code rather than inherited from a

debtor’s pre-petition property, Hays

, 885 F.2d a t 1155, the

Bankruptcy Court was within its discretion to deny INA’s motion to

stay under the Federal Arbitration Act. 26 Accordingly, the judgment

of the District Court, affirming the order of the Bankruptcy Court,

is

AFFIRMED.