Ames v. Zimmerman (In re Ames)

525 B.R. 866, 2015 Bankr. LEXIS 549
CourtUnited States Bankruptcy Court, D. Massachusetts
DecidedFebruary 24, 2015
DocketCase No. 11-40020-MSH; Adversary Proceeding No. 14-04010
StatusPublished

This text of 525 B.R. 866 (Ames v. Zimmerman (In re Ames)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ames v. Zimmerman (In re Ames), 525 B.R. 866, 2015 Bankr. LEXIS 549 (Mass. 2015).

Opinion

MEMORANDUM OF DECISION ON DEFENDANT’S MOTION TO DISMISS OR TO COMPEL ARBITRATION

Melvin S. Hoffman, U.S. Bankruptcy Judge

This matter arises from a motion to dismiss or in the alternative to compel arbitration filed by Craig N. Zimmerman, [868]*868the defendant in this adversary proceeding. Mr. Zimmerman believes that the proceeding commenced by the debtor in the main case, Kenneth Ames, should be dismissed for, among other reasons, the failure of Mr. Ames’s complaint to state a claim and the court’s lack of personal jurisdiction over Mr. Zimmerman. Alternatively, Mr. Zimmerman requests that Mr. Ames be compelled to participate in arbitration as required in the legal services agreement between Mr. Zimmerman and Mr. Ames. Because the parties agreed to arbitrate all disputes between them, I will grant the motion to compel arbitration, modify the automatic stay for that purpose and stay further proceedings until completion of arbitration.

Background

Mr. Ames filed a voluntary petition under chapter 7 of the Bankruptcy Code (which is title 11 of the United States Code) on December 30, 2010. In May 2011, his case was converted to one under chapter 13. On February 17, 2014, Mr. Ames commenced this adversary proceeding against Mr. Zimmerman.

The dispute here arises from a legal services agreement entered into by the parties on February 5, 2010. Under the agreement Mr. Ames, a resident of New Hampshire whose principal asset was at all relevant times located in Massachusetts,1 hired Mr. Zimmerman’s law firm, the Law Offices of Craig N. Zimmerman, located in California, to settle certain of his unsecured debts. While not specifically identified, the debts are defined in the agreement as “Referred Accounts.” Pursuant to the agreement, Mr. Ames agreed to pay Mr. Zimmerman $700 each month for 60 months which Mr. Zimmerman would use to settle the Referred Accounts. The agreement also entitled Mr. Zimmerman to charge various fees for his services which he could deduct from the funds paid by Mr. Ames. According to the statement of financial affairs accompanying his bankruptcy petition, Mr.- Ames made ten $700 payments to Mr. Zimmerman between March and November 2010. The complaint alleges that Mr. Zimmerman failed to use any of the $7,000 Mr. Ames paid him to settle with Mr. Ames’s creditors and instead used the funds to pay himself. Mr. Ames accuses Mr. Zimmerman of breaching his fiduciary duty to Mr. Ames (count II), engaging in fraud, deceit and misrepresentation (count III) and unjustly enriching himself (count IV). Mr. Ames also seeks an accounting (count I).

The legal services agreement includes an arbitration provision that states:

Client and Law Firm understand and agree that any dispute or controversy between the parties against the other ... arising from or related to the Law Firm and/or its agents or representatives, including the applicability of this arbitration clause, shall be resolved by neutral binding arbitration by The American Arbitration Association (AAA).... This Arbitration Agreement is made pursuant to a transaction involving interstate commerce and shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16. Judgment upon the award may be entered in any Court having jurisdiction. THE PARTIES UNDERSTAND THAT THEY WOULD HAVE HAD THE RIGHT OR OPPORTUNITY TO LITIGATE THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THEIR CASE BUT THEY VOLUNTARILY [869]*869AND KNOWINGLY CHOOSE TO HAVE ANY DISPUTES DECIDED THROUGH ARBITRATION, (emphasis in original)

Each page of the legal services agreement appears to be either signed or initialed by Mr. Ames.

Positions of the Parties

Mr. Zimmerman argues that the complaint should be dismissed because the court lacks personal jurisdiction over him, venue is improper, Mr. Ames fails to state a claim upon which relief can be granted and the action is barred by relevant statutes of limitations. Alternatively, he suggests that the court should enter an order compelling arbitration based on the arbitration provision contained in the legal services agreement.

In addition to denying the bases for. dismissal raised by Mr. Zimmerman, Mr. Ames argues that the bankruptcy court has discretion to decline to enforce arbitration clauses. He points to a District of Massachusetts bankruptcy case, In re Payton Construction Corp., 399 B.R. 352 (Bankr.D.Mass.2009), in which the court denied a motion to compel arbitration when there was “an inherent conflict between arbitration and the bankruptcy laws’ underlying purposes.” Mr. Ames believes that if he were forced to arbitrate, “arbitration would take place presumably in a distant, thus far unidentified forum ... under unfamiliar rules” resulting in “substantial and likely unjustifiable” “cost and delay.” He suggests that neither he nor the bankruptcy estate should have to “give up a potentially valuable asset or incur such cost and delay.”

Discussion

The arbitration provision in the legal services agreement states that it is governed by the Federal Arbitration Act. This Act “established a strong policy in favor of arbitration,” declaring that arbitration agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” Sternklar v. Heritage Auction Galleries, Inc. (In re The Rarities Grp., Inc.), 434 B.R. 1, 7 (D.Mass. 2010) (citing in part the Federal Arbitration Act, 9 U.S.C. § 1 et seq.). “The FAA’s mandate, however, can be overridden ... [i]f Congress intended to preclude a waiver of judicial remedies for certain statutory rights.” Sternklar, 434 B.R. at 7. Thus courts consider (i) whether the parties agreed to arbitrate the dispute and (ii) whether arbitration inherently conflicts with the Bankruptcy Code. Sternklar, 434 B.R. at 8; Highway Solutions LLC v. McKnight Constr. Co. (In re Highway Solutions), 0731461, 2009 WL 2611949, at *2-3, 2009 Bankr.LEXIS 2392, at *5-6 (Bankr.M.D.Ala. Aug. 24, 2009). If there is a valid arbitration agreement and arbitration does not conflict with the Code, courts compel arbitration consistent with the FAA’s policy. See Sternklar, 434 B.R. at 1; In re Highway Solutions, 2009 WL 2611949, at *1-3, 2009 Bankr.LEXIS 2392 at *5-10; cf. Compucredit Corp. v. Greenwood, — U.S. —, 132 S.Ct. 665, 668, 673, 181 L.Ed.2d 586 (2012) (holding that the FAA required arbitration when class action plaintiffs bringing claims under the Credit Repair Organization Act agreed to be bound by an arbitration provision in a credit card application).

As to part one of the Sternklar analysis, Mr. Ames and Mr. Zimmerman agreed to arbitrate disputes arising under the legal services agreement. The agreement provides that “any dispute or controversy between the parties against the other ... arising from or related to the Law Firm and/or its agents or representatives, including the applicability of this arbitration clause, shall be resolved by neutral binding arbitration.” The claims by Mr. Ames against Mr. Zimmerman arise from the legal services agreement; hence they fall [870]*870within the scope of the agreement’s arbitration provision. Indeed, Mr.

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525 B.R. 866, 2015 Bankr. LEXIS 549, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ames-v-zimmerman-in-re-ames-mab-2015.