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Imagine a client contracted to sell real estate. The deadline for the deal to close passed, the deal did not close and a second buyer has stepped forward with a better offer. Then imagine that the first prospective buyer sues in state court to enforce the expired real estate contract. The seller-defendant may end the case by filing a dispositive motion against the first prospective buyer. Maybe that’s how real estate litigation works, but not how arbitration works. More and more contracts today, real estate and otherwise, include mandatory arbitration clauses. Arbitration is a “mini-trial,” less formal than a court trial and without the usual rules of engagement. If the sale contract had a mandatory arbitration clause and the buyer-plaintiff’s state court action is sent to arbitration, the seller-defendant would have no right to file a summary judgment motion; would have limited, if any, discovery rights; and could not freely appeal an erroneous decision. See, e.g., Calif. Code Civ. Proc., � 1286.2 (a)(4) (an arbitration award shall be vacated only if the arbitrator exceeded his or her power, and the award cannot be corrected without affecting the merits of the decision). The seller-defendant would have no guarantees of quick resolution and, usually, would be obligated to pay half the arbitrator’s costs, even if the amount is more than he or she can afford. Faced with the possibility of an adverse result that the seller cannot afford, what are the seller’s options? A litigant in these circumstances may resort to bankruptcy for protection. Once in bankruptcy, the arbitration matter is stayed � it cannot go forward without the bankruptcy court’s permission. The seller may believe that, as with almost all litigation matters, the seller should be able to force the dispute to be resolved by the bankruptcy court by removing the litigation to bankruptcy court. However, this does not appear to be an option under current law. There are compelling reasons why it should be. A party may remove a ‘civil action’ to bankruptcy court Removal procedures and time limits are outlined in Federal Rule of Bankruptcy Procedure 9027. A party may remove to a bankruptcy court “any claim or cause of action in a civil action . . . to the [bankruptcy] court for the district where such civil action is pending if such [bankruptcy] court has jurisdiction of such claim or cause of action under [28 U.S.C.] 1134.” 28 U.S.C. 1452(a). Bankruptcy courts have jurisdiction over all matters “arising in and related to a case under” the U.S. Bankruptcy Code. 28 U.S.C. 157(a). Any party may seek removal, and one defendant may remove a case without the consent of the other defendants. Creasy v. Coleman Furniture Corp., 763 F.2d 656 (4th Cir. 1985). In a bankruptcy court, parties will find speedy resolution of disputes, the ability to conduct formal and informal discovery and an additional layer of appellate review to ensure that a decision is proper. In bankruptcy, all unsecured creditors are required to be treated fairly and ratably. A bankruptcy judge considers a debtor’s assets and liabilities holistically, seeking equality of treatment for those with like rights while centralizing controversies relative to the debtor and the estate. Further, rarely, if ever, do bankruptcy courts award specific performance for real estate cases because that remedy is only available to a claimant when specific performance is the exclusive remedy available under state law. Roxse Homes Inc. v. Roxse Homes L.P., 83 B.R. 185 (D. Mass. 1988); In re Aslan, 65 B.R. 826 (Bankr. C.D. Calif. 1986); see also In re Rega Properties Ltd., 894 F.2d 1136 (9th Cir. 1990) (proper remedy for rejection of real estate purchase contract is monetary damages). Despite these advantages to having the hypothetical sale contract adjudicated in a bankruptcy court, current case law does not recognize arbitrations as a removable “civil action.” Collier on Bankruptcy, a leading treatise, concluded that the term “civil action” in the bankruptcy removal statute should be read narrowly “in light of the historical use” of that term in connection with the general removal statute. On that authority, arbitration was held not to be a “civil action” removable to bankruptcy court. Non-Ferrous Metals (U.S.A.) Inc. v. Vantage Steel Corp. (In re Vantage Steel Corp.), 125 B.R. 880 (Bankr. S.D.N.Y. 1991). That is thin authority indeed. When arbitration is a contracted-for method of resolving a dispute that would otherwise constitute a “civil action,” there are strong reasons why such litigation should be deemed a civil action for purpose of the removal statute. Finding litigation taking place through arbitration rather than in a state court to be anything other than a civil action elevates form over function. To the seller-defendant, the arbitration is a “civil action,” indeed: The arbitrator’s decision is a binding adjudication of the first buyer’s claims. It is a 100% substitute for civil litigation that would otherwise be decided before a state court judge. Despite this logic, there is not yet a single case that holds arbitration is a “civil action.” In NLRB v. Adams Delivery Serv. (In re Adams Delivery Serv.), 24 B.R. 589 (B.A.P. 9th Cir. 1982), the court held that removal to a bankruptcy court is not permissible for administrative proceedings. Neither is removal to a bankruptcy court permitted for criminal cases or proceedings before the U.S. Tax Court, because reason suggests that such specialized matters belong before specialized courts. 28 U.S.C. 1452(a). The specialization argument fails as to arbitration over a contract dispute, which, in contrast, is quintessentially a “civil action.” A bankruptcy judge does not need specialized knowledge to adjudicate matters in arbitration that, had they remained in state court, unquestionably would fall within his or her abilities. Nor is the bar to removing arbitrations a matter of specialized jurisdiction, because the only matters a bankruptcy judge expressly may not hear are those pertaining to personal injury torts and wrongful death claims. 28 U.S.C. 157(a)(5). Distinguishing arbitrations this way seems arbitrary and otherwise artificially limiting on a bankruptcy court’s unique ability to centralize and adjudicate claims. For example, if the buyer-plaintiff files a proof of claim based on the expired contract in the seller-defendant debtor’s bankruptcy case, the allowance or disallowance of that claim would be a “core” matter squarely within a bankruptcy court’s jurisdiction, in essence subsuming a breach-of-contract case. Durkin v. Benedor Corp. (In re G.I. Industries Inc.), 204 F.3d 1276 (9th Cir. 2000). Thus, under existing law, the arbitration on the sale contract is generally allowed to proceed because, as nonremovable litigation, the matters raised therein can only be resolved through arbitration. Meanwhile, the objection to the proof-of-claim process involving the same sale contract proceeds in bankruptcy court. This furthers no legitimate interest, is wasteful of judicial resources and causes essentially double legal costs. It also creates a risk of inconsistent rulings. Finally, and perhaps most unfairly, the creditors of the debtor-defendant cannot participate in the arbitration process and cannot appeal an adverse ruling. The flaws in the current system are obvious. Arbitration is not a panacea and it is not a constitutional right. Giving bankruptcy judges discretion to keep or remand Courts should recognize arbitrations as “civil actions” and allow them to be removed to and heard by bankruptcy courts. There will be times when removing the arbitration will be most economical or equitable to third parties, and such a decision can be made only by a single judge who knows all the facts. Bankruptcy courts should decide whether to keep jurisdiction over arbitrations using the same standard by which they decide whether to remand any other civil action. Specifically, bankruptcy courts may remand on “any equitable ground,” a broad standard that leaves remand issues to the discretion of the court. McCarthy v. Prince (In re McCarthy), 230 B.R. 414 (B.A.P. 9th Cir. 1999); Grace Community Inc. v. KPMG Peat Marwick LLP (In re Grace Community Inc.), 262 B.R. 625 (Bankr. E.D. Pa. 2001); 28 U.S.C. 1452(b). Courts consider factors including the effect on the efficient administration of the bankruptcy estate; the extent to which issues of state law predominate; the difficulty or unsettled nature of the applicable state law; comity; the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; the existence of the right to a jury trial; and prejudice to the involuntary removed defendants. Drexel Burnham Lambert Group Inc. v. Vigilant Ins. Co. (In re Drexel Burnham Lambert Group Inc.), 130 B.R. 405 (S.D.N.Y. 1991). There are compelling reasons why a bankruptcy judge should be allowed to decide whether to hear the arbitration or whether to allow the arbitration to go forward based on the same standards applied to all civil actions. The court should not be required to allow a costly, wasteful and inequitable process to proceed. There are times when allowing an arbitration to be completed after a bankruptcy filing would be equitable. But that decision should be made on a case-by-case basis by the bankruptcy judge in charge of resolving all claims against a debtor. Using its equitable discretion, a bankruptcy judge is in the best position to consider the interest of all parties to a bankruptcy case and to decide what method of resolution would be most efficient and economical. It’s just common sense. Craig M. Rankin is a partner and Gil Hopenstand is an associate at Los Angeles-based Levene, Neale, Bender, Rankin & Brill, a bankruptcy boutique.

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