Court Opinion

ID: 9495371
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:01:27.972367+00
Date Added: 2024-06-11T17:52:27.464107
License: Public Domain

FAIRCHILD, Circuit Judge,
dissenting.
My colleagues interpret the Plan so that it “superceded” Ernst & Young’s right to arbitrate. In substance, they hold that Article 8.1 of the Plan limits the jurisdiction of the bankruptcy court so as to exclude its otherwise unquestioned jurisdiction to recognize and implement the parties’ promise to arbitrate. Article 8.1 begins, “Notwithstanding confirmation of the Plan or occurrence of the Effective Date, the Bankruptcy Court shall retain jurisdiction for the following purposes: .... ” There follows a list of seventeen types of actions that the bankruptcy court might be expected to perform. This long and comprehensive list suggests that an inclusive rather than an exclusive description of retained jurisdiction was intended.
Paragraph (o), one of the seventeen, lists “[adjudication of any pending adversary proceeding, or other controversy or dispute, in the Debtors’ Chapter 11 Cases, which arose pre-confirmation and over which the Bankruptcy Court had jurisdiction prior to confirmation of the Plan.” My colleagues limit the meaning of “adjudication” to a process of final determination of the adversary proceeding on its merits, and exclude a determination of a motion to dismiss or stay the adversary proceeding so as to enforce the promise to arbitrate.
In this context, this reading of adjudication seems too narrow. Again, the language of (o) seems inclusive (“adversary proceeding, or other controversy or dispute”), and the grant of a motion to compel arbitration would be a decision on the merits of the controversy raised by that motion.
Indeed, courts have often referred to the determination of the right to arbitrate as an “adjudication.” The Supreme Court has recognized that, when presented with a motion under § 3 of the Federal Arbitration Act (to stay the underlying district court proceedings while the parties arbitrate), a court may “adjudicate” the issue whether the parties executed an enforceable arbitration agreement. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). Other federal courts have reiterated that resolution of motions brought under §§ 3 and 4 of the FAA is “adjudication.” See, e.g., Walton v. Rose Mobile Homes LLC, 298 F.3d 470, 473 (5th Cir.2002) (elaborating how a two-step inquiry governs the “adjudication of motions to compel arbitration under the FAA”); National Iranian Oil Co. v. Mapco Int’l, Inc., 983 F.2d 485, 491 (3d Cir.1992) (“The Arbitration Act authorizes a district court to adjudicate the substantive issues of the making and performance of an arbitration agreement.”); Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1276 (2d Cir.1971) (the right to arbitrate is an issue “to be adjudicated by the federal courts whenever such courts have subject matter jurisdiction”) (internal quotation marks and citation omitted); Bothell v. Hitachi Zosen Corp., 97 F.Supp.2d 1048, 1050-51 (W.D.Wash.2000) (court had “jurisdiction to adjudicate” dispute over existence of valid arbitration agreement).
*759My colleagues support their narrow interpretation of “adjudication” with a dictionary definition. They offer Barron’s Law Dictionary, which defines “adjudication” as “implying] a final judgment ... as opposed to a proceeding in which the merits of the cause of action were not reached.” But though a dictionary collects common usages, it hardly exhausts the “full range of nuances that context lends to meaning.” Unelko Corp. v. Prestone Prods. Corp., 116 F.3d 237, 241 (7th Cir.1997); see also TE-TA-MA Truth Foundation-Family of URI, Inc. v. World Church of the Creator, 297 F.3d 662, 666 (7th Cir.2002) (“[Dictionaries reveal a range of historical meanings rather than how people use a particular phrase in contemporary culture.”). A single word can take multiple meanings. Calderon v. Witvoet, 999 F.2d 1101, 1104 (7th Cir.1993). In Black’s Law Dictionary (7th ed.1999), for instance, “adjudication” has three definitions, the first of which emphasizes process: “[t]he legal process of resolving a dispute; the process of judicially deciding a case.” A Dictionary Of Modern Legal Usage (2d ed.1995) introduces three more definitions, beginning with “the process of judging.”
In my view Article 8.1(o) effected no change in the bankruptcy court’s pre-con-firmation authority to enforce the parties’ arbitration agreements. “Confirmation does not alter the basic jurisdictional analysis applicable to bankruptcy courts.” 8 Collier On Bankruptcy ¶ 1142.04[1] (15th ed. rev.2002). This interpretation ■ also conforms to the strong federal policy favoring arbitration. See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 91, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000).
My colleagues go on to conclude that, regardless of how the term “adjudication” in the Plan is interpreted, Ernst & Young waived any right to arbitrate. In support, they state that Ernst & Young’s actions indicated an intention to proceed with the adversary proceeding in litigation rather than arbitration; that Ernst & Young’s active participation in the confirmation process was sufficient to waive its right to arbitrate; and that Ernst & Young did not seek arbitration in a diligent manner. With all respect, I conclude that the record does not support any of these propositions and therefore does not support a conclusion of waiver.
The question of Ernst & Young’s diligence requires a chronology of the adversary proceeding. The complaint was filed on December 7, 1999. Summons was issued on December 19, requiring an answer to be filed by January 19, 2000. Ernst & Young received consecutive extensions to respond, first by February 18 and then by March 10, 2000. On March 10 — only 16 days after confirmation of the Plan — Ernst & Young filed in the district court its motion for arbitration (the appellees, furthermore, do not dispute Ernst & Young’s representation on appeal that it had raised its right to arbitrate informally with the plaintiffs “[w]ell before filing its Arbitration Motion”). Aso on March 10, Ernst & Young filed in the bankruptcy court a motion to dismiss, or in the alternative, a motion to stay proceedings pending arbitration. That very same day, Ernst & Young sought (and later received) a third extension to answer the complaint pending the court’s ruling oU its motion to dismiss or alternatively its motion to stay.
The majority believes that this case is controlled by Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc. 50 F.3d 388, 391 (7th Cir.1995), in which we explained that “diligence or lack thereof’ should, among other factors, “weigh heavily in the decision whether to send the case to arbitration.” In that case, we found waiver because the party seeking an elev*760enth-hour arbitration already had removed the case to federal court, actively engaged in discovery, and compelled the opponent to produce almost 2,000 documents. See also St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 591 (7th Cir.1992) (party waived right to arbitrate by spending ten months filing discovery requests and participating in depositions); Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 33 (1st Cir.2001) (party did not waive right to arbitrate by moving to dismiss complaint and engaging in limited discovery because it did not “substantially invoke[ ]” the “litigation machinery”) (internal quotation marks and citation omitted). No such substantial resort to litigation occurred here. In any event, Ernst & Young did not delay: it asserted its right to arbitrate as soon as it was legally required to do so; beyond that, it owed no explanation for the timing of its request.
The majority also believes that this case falls within Cabinetree’s holding that an election to proceed before a nonarbitral forum to resolve a dispute presumptively waives the right to arbitrate, even if the opposing party would not be prejudiced by an order compelling arbitration. 50 F.3d at 390. According to my colleagues, Ernst & Young manifested an intent to proceed in a judicial forum when it actively participated in the Plan confirmation process before seeking arbitration. As they explain, because Ernst & Yourig did not assert its desire to arbitrate “at an earlier date,” it acted “inconsistently]” with — and therefore waived — its claimed right to arbitrate.
In Cabinetree, we held that a presumptive waiver may arise from recourse to the judicial process, but we also recognized that this is just a presumption and not an invariable rule. We noted that there may be situations in which such recourse “does not signify an intention to proceed in a court to the exclusion of arbitration.” Cabinetree, 50 F.3d at 390. For instance, the “shape of the case might so alter as a result of unexpected developments during discovery or otherwise that it might become obvious that the party should be relieved from its waiver and arbitration allowed to proceed.” Id. at 391. More recently we interpreted Cabinetree as establishing the proposition that a party waives its right to arbitrate only when it “elect[s] a judicial forum rather than the arbitral tribunal.” Iowa Grain Co. v. Brown, 171 F.3d 504, 509 (7th Cir.1999).
Ernst & Young never elected a judicial forum over an arbitral forum. Its only substantive act in the bankruptcy proceeding was to file an objection (on January 19, 2000) to the Plan. Article IX of the Plan incorporated a Baker Settlement Agreement releasing Patrick J. Baker (sole shareholder of debtor Baker O’Neal) and his wife from all claims that any creditor of the debtors may have against them. Ernst & Young, a creditor, objected to the “nonconsensual release of claims of all creditors” against the Bakers. The objection stated that the release would “disadvantage creditors such as Ernst & Young in the adversary proceeding and any other litigation.” It noted Ernst & Young’s right to initiate a third-party complaint against the Bakers in the adversary proceeding, which right would be nullified by the release, as well as other claims and non-party defenses “whether in the adversary proceeding or outside of it.” The most that can be said concerning this language is that Ernst & Young had not yet decided to participate in merit litigation of the adversary proceeding. The obvious purpose of the objection was to protect Ernst & Young from release of its claims against the Bakers. The Bakers were not parties to the arbitration agreement, and the language of the objection showed that Ernst & Young was still considering the *761adversary proceeding as one forum in which to pursue those claims, although the objection made clear that there were other fora. The language cannot be read as a statement that Ernst & Young intended to participate in the adversary proceeding rather than to exercise its right to arbitrate. See Iowa Grain Co., 171 F.3d at 510 (filing a class action lawsuit rather than an arbitration claim was insufficient to waive right to arbitrate individual claims).
I respectfully dissent.