In re MicroBilt Corporation, No. 11-18143; U.S. Bankruptcy Court (DNJ); opinion by Kaplan, U.S.B.J.; filed December 11, 2012.
Plaintiffs MicroBilt Inc. and CL Verify, L.L.C. (the debtors), commenced this adversary proceeding against defendants Fidelity National Information Systems Inc. (FIS), Chex Systems Inc. and Certegy Ltd.
After a dispute arose under a longstanding contractual relationship between MicroBilt and Chex Systems Inc., the parties reached a settlement, which produced a memorandum of understanding and a definitive information resale agreement. CL Verify subsequently entered into a data reseller agreement (DRA) with Certegy. Thereafter, CL Verify UK Ltd., a wholly owned subsidiary of CL Verify, and Certegy entered into a related independent sales organization agreement (ISO agreement).
Through a series of corporate transactions, including a merger, MicroBilt acquired CL Verify. As part of the merger, CL Verify became a wholly owned subsidiary of MicroBilt, and MicroBilt obtained hundreds of end users from CL Verify. CL Verify executed a written assignment of assets, including the DRA, to MicroBilt, as specifically allowed by the provisions of that agreement. CLV UK executed a written assignment of assets, including the ISO agreement, to MicroBilt. The parties to the DRA and ISO agreement were MicroBilt and Certegy.
The relationship between Chex and MicroBilt deteriorated and Chex asserted a series of defaults under the resale agreement, causing MicroBilt to file for Chapter 11 relief in order to avoid the cessation of services by Chex. CL Verify commenced a Chapter 11 case as well. Plaintiffs allege that subsequent to the Chapter 11 filings, representatives of FIS/Chex directed Certegy to cease providing support under the ISO agreement because MicroBilt and CL Verify had filed for bankruptcy protection. Certegy allegedly acquiesced. Plaintiffs contend the intent was to maliciously cause MicroBilt and CL Verify financial harm. Plaintiffs assert that defendants engaged in such wrongful conduct with the express aim of pressuring MicroBilt into renegotiating the pricing under the resale agreement.
In counts one and two, plaintiffs allege tortious interference with existing and prospective contractual relationships. In count three, plaintiffs allege that defendants’ conduct constitutes a willful, malicious, knowing and intentional violation of the automatic stay, designed to harm MicroBilt and CL Verify for the purpose of obtaining an advantage in pricing negotiations. In count four, plaintiffs allege that FIS/Chex undertook several additional postpetition actions in violation of the automatic stay provisions of the bankruptcy code.
Defendants Chex Systems Inc. and Certegy Ltd. filed motions seeking to dismiss plaintiffs’ second amended adversary complaint and compel arbitration. Defendants largely base their motion to dismiss on the the arbitration clauses found in the resale agreement, ISO agreement and DRA.
Held: Finding all of the claims asserted in the adversary complaint are subject to binding arbitration, the court grants defendants’ motions to dismiss and to compel arbitration.
The issue is whether the allegations in the complaint arise out of or relate to the referenced contractual agreements.
The gravamen of plaintiffs’ claims in counts one and two are bottomed on the contention that defendants acted with the intent to deprive MicroBilt of the economic benefits under the resale agreement, ISO agreement and DRA, as well as to coerce MicroBilt into submission with respect to the ongoing pricing dispute under the resale agreement. In this matter, defendants are not seeking to gain a competitive advantage in the market or drive plaintiffs from the industry for economic gain. Rather, plaintiffs contend that defendants’ actions have been undertaken to financially squeeze the debtors and impel acquiescence to a favorable pricing scheme under the resale agreement. It is clear that the claims are very much related to the various agreements and fall within the scope of the respective arbitration provisions.
With respect to counts three and four, these claims seek recoveries for alleged violations of the automatic stay. The language of the various agreements do not give any indication, either way, that the parties intended to include claims under the bankruptcy code. The court finds arbitration of counts three and four will not affect the administration of plaintiffs’ bankruptcy estates. The disputed conduct did not allow defendants either to acquire possession or control over debtors’ assets, or advance defendants’ interests over competing creditor constituencies. Moreover, the court recently confirmed the debtors’ fourth amended plan of reorganization, which provides for a 100 percent distribution to unsecured creditors, together with postpetition interest at the federal judgment rate. The plan further provides for the assumption of all pertinent executory agreements. Arbitration of the stay violation claims will not impede the administration of the bankruptcy estates or affect creditor recoveries. The court does not regard arbitration of the claims in the complaint to be inconsistent with the goals and objectives underlying the bankruptcy code, the court’s authority with respect to its orders, or the centralization of disputes involving bankruptcy issues.
The stay violations asserted against defendants arise allegedly from actions and conduct that may give rise to causes of action for tortious interference, as discussed above, as well as postpetition breaches of contract relative to the resale agreement, ISO agreement and DRA. As such, the stay violations are “inextricably intertwined” with claims that the court deems arbitrable and therefore should be pursued collectively in arbitration.
The court grants the motions to dismiss and directs the parties to proceed to arbitration. The court further permissively abstains from hearing the balance of the claims in the litigation.
For MicroBilt Corporation — Bruce S. Luckman and Michael J. Dube (Sherman, Silverstein, Kohl, Rose & Podolsky). For Chex Systems Inc. — Derek J. Baker, Gary J. Ruckelshaus and Brian M. Schenker (Reed Smith).