DECISION AND ORDER
WILLIAM E. SMITH, United States District Judge.
Appellant Mortgage Electronic Registration Systems, Inc. and Wells Fargo Bank, N.A. (“MERS”) appeal from a Bankruptcy Judge’s decision in a Chapter 13 bankruptcy proceeding to deny a motion to compel an otherwise applicable arbitration clause.
This case squarely presents an unresolved question concerning the enforceability of arbitration agreements in the context of bankruptcy proceedings. For the reasons set forth below, the Court will affirm the Bankruptcy Court’s denial of MERS’ motion to compel.
I.
Background
In May 2004, Appellee Stephanie Brown entered into a loan consolidation agreement with MERS in the amount of $195,000. To secure repayment of the loan, Brown granted MERS a mortgage on her home for the same amount. A little more than a year later, Brown filed a voluntary Chapter 13 bankruptcy petition in Bankruptcy Court for the District of Rhode Island. In connection with this proceeding, she sent a Truth-In-Lending Act (“TILA”) rescission notice to MERS and in response MERS filed a Proof of Claim asserting a secured a claim for $211,314.66. Thereafter, Brown filed an adversary proceeding complaint against MERS and an additional defendant, Wells Fargo Bank, N.A., alleging violations of the TILA, 15 U.S.C. § 1601 et seq., that included certain disclosure failures and sought to rescind the agreement.
In response to the complaint, citing the arbitration clause contained in the loan agreement, MERS filed a Motion to Compel Mediation/Arbitration, which Brown opposed. On December 7, 2005, Bankruptcy Judge Arthur N. Votolato heard argument on the Motion to Compel. That same day, Judge Votolato issued an oral decision and a one page order denying the Motion to Compel on the basis that (1) such a question (whether to compel) remained within his discretion as a Bankruptcy Judge and (2) he would exercise that discretion to retain jurisdiction over the adversary proceeding.
Defendants immediately sought leave to appeal Judge Votolato’s order to this Court. After briefing and argument, this Court granted Appellants leave to appeal the order.
See Brown v. Mortgage Elec. Registration Sys., Inc.,
No. 05-523S, 2006 U.S.Dist. LEXIS 28459, at *1 (D. R.I. April 25, 2006).
II.
Standard of Review
The parties agree that a clearly erroneous standard applies to a bankruptcy court’s findings of fact and a de novo standard to its determinations of law.
Casco N. Bank, N.A. v. DN Assocs. (In re DN Associates),
3 F.3d 512, 515 (1st Cir.1993) (“In appeals of bankruptcy court holdings, we review legal determinations
de novo
and factual findings
on
a clearly erroneous standard.”) (internal quotation marks and citation omitted). Nevertheless, which standard applies here has engendered some disagreement. MERS maintains that there are no disputes of material fact in this appeal, and therefore review of the Bankruptcy Judge’s decision to deny the motion to compel is de novo. Conversely, Brown, citing
MBNA America Bank, N.A. v. Hill,
436 F.3d 104, 107 (2d Cir.2006), contends that where, as here, the decision whether to enforce arbitration is a mixed question of law implicating a “core” proceeding, a clearly erroneous standard of review is compelled.
Reading
Hill,
it is easy to see how Brown might think that the only relevant standard of review is for clear error. There, the Court of Appeals for the Second Circuit recognized that “[t]he bankruptcy court’s conclusions with respect to enforcement of the arbitration clause raise mixed questions of law and fact.” 436 F.3d at 107. The court went on to state that “[i]f the bankruptcy court has properly considered the conflicting policies in accordance with law, we acknowledge its exercise of discretion and show due deference to its determination that arbitration will seriously jeopardize a particular core bankruptcy proceeding.”
Id.
This formulation is, of course, correct as far as it goes; but to say that a bankruptcy court is entitled to a clearly erroneous standard of review any time it exercises its discretion is to ignore the question whether,
a priori,
the bankruptcy court had discretion in the first place.
See Mintze v. American General Financial Services, Inc. (In re Mintze),
434 F.3d 222, 228 (3d Cir.2006) (“We only review the Bankruptcy Court’s decision for abuse of discretion if we first determine, under plenary review, that it had the discretion to exercise.”). Indeed, this first-order question is implicit in
Hill,
where the court recognized that only “[i]f the bankruptcy court has properly considered the conflicting policies in accordance with law,” 436 F.3d at 107, may it then be allowed deference in its exercise of discretion.
See also Gandy v. Gandy (In re Gandy),
299 F.3d 489, 494 (5th Cir.2002) (“Whether a bankruptcy court has discretion to deny a motion to stay a bankruptcy proceeding pending arbitration is a question of law .... ”);
Cibro Petroleum Prods., Inc. v. City of Albany Port District Comm’n (In re Winimo Realty Corp.),
270 B.R. 108,
117 (Bankr.S.D.N.Y.2001) (“The question of whether a Bankruptcy Court has discretion to decline to compel arbitration is ... a matter of law.”). Consequently, this Court reviews whether the bankruptcy court possessed discretion to deny the motion to compel de novo and then, assuming it has discretion, its exercise of that discretion will be reviewed for clear error.
III.
Discussion
A.
The Conflict between the Bankruptcy Code and the Federal Arbitration Act
The central, and sole, thrust of MERS’ argument is that the bankruptcy court erred in failing to enforce the arbitration agreement against Brown. MERS contends that the bankruptcy court lacked discretion to deny enforcement of the arbitration agreement because the Federal Arbitration Act (FAA) mandates that arbitration agreements, like the one in this case, be enforced. Brown agrees that whether the bankruptcy court possessed discretion to deny the arbitration agreement is the central question, but argues that the bankruptcy court properly concluded that it had discretion to determine the propriety of compelling arbitration. The question of whether, and when, a bankruptcy court may exercise discretion to deny enforcement of an otherwise applicable and mandatory arbitration clause is thus squarely before this Court.
The proper resolution of this question requires the Court to weigh competing statutory directives and implicates important principles regarding the relationship between the FAA, which requires enforcement of arbitration agreements, and the Bankruptcy Code, which centralizes disputes into a single forum and allows for the waiver of alternative dispute resolution fora. Courts that have addressed this issue are deeply split on both the best approach for resolving the question and the proper outcome. With respect to courts of this Circuit, the question is one of relative first impression.
Compare Thompson v. Irwin Home Equity Corp.,
300 F.3d 88, 91 (1st Cir.2002),
with Larocque v. Citifinancial Mortgage Co.-Tx. (In re Larocque, II),
283 B.R. 640, 642 (Bankr.D.R.I.2002).
Despite this uncertain terrain, however, the competing principles framing the inquiry have been thoroughly charted. On one hand, the FAA, 9 U.S.C. § 1
et seq.,
“was intended to reverse centuries of judicial hostility to arbitration agreements by placing arbitration agreements upon the same footing as other contracts.”
Shearson/American Express, Inc. v. McMahon,
482 U.S. 220, 225-26, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (internal quotation marks and citation omitted). By its terms, it provides that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. That command finds its force in sections 3 and 4, which respectively provide that a court “must stay its proceedings if it is satisfied that an issue before it is arbitrable under the agreement,” and may “issue an order compelling arbitration if there has been a failure, neglect, or refusal to comply with the arbitration agreement.”
McMahon,
482 U.S. at 226, 107 S.Ct. 2332 (internal quotation marks and citation omitted).
The Bankruptcy Code, on the other hand, offers a counter imperative. “The very purpose of bankruptcy is to modify the rights of debtors and creditors.”
Phillips v. Congelton, L.L.C. (In re White Mountain Mining Co., L.L.C.),
403 F.3d 164, 169 (4th Cir.2005) (quoting 1
Collier on Bankruptcy,
¶ 3.02[2] (15th ed. rev. 2005)). In general terms, under the Bankruptcy Code, the bankruptcy court has “broad, well-established powers ... to preserve the integrity of the reorganization
process.”
U.S. Lines, Inc. v. Am. S.S. Owners Mut. Prot. & Indem. Ass’n, Inc. (In re U.S. Lines, Inc.),
197 F.3d 631, 640 (2d Cir.1999). For example, section 105 of the Bankruptcy Code entitles the bankruptcy court to “issue
any
order, process, or judgment that is necessary or appropriate to carry out the provisions of this title,”
id.,
and one of the core goals of bankruptcy is to “centralize all disputes concerning property of the debtor’s estate so that reorganization can proceed efficiently, unimpeded by uncoordinated proceedings in other arenas.”
Id.
(quoting
Shugrue v. Air Line Pilots Ass’n Int’l (In re Ionosphere Clubs, Inc.),
922 F.2d 984, 989 (2d Cir.1990)). Consequently, and as has been oft-noted, “bankruptcy policy exerts an inexorable pull towards centralization .... ”
Societe Nationale Algerienne Pour La Recherche, La Production, Le Transport, La Transformation et La Commercialisation des Hydrocarbures v. Distrigas Corp.,
80 B.R. 606, 610 (D.Mass.1987).
In order to resolve this “conflict of near polar extremes,”
id.
at 610, courts have attempted to follow the approach first articulated in
McMahon.
There, the Supreme Court addressed a purported conflict between the FAA and the Securities Exchange Act and the Racketeer Influenced and Corrupt Organization Act (RICO). The Court reiterated the “federal policy favoring arbitration requiring ... rigorous[ ] enforce[ment of] agreements to arbitrate,”
McMahon,
482 U.S. at 226, 107 S.Ct. 2332 (quoting
Moses H. Cone Mem’l Hospital v. Mercury Constr. Corp.,
460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)), and cautioned that the “duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights,” because the competence of the ar-bitral tribunals must be assumed, even with respect to disputes based on statutes.
Id.
Recognizing, however, that such a mandate may, and at times must, “be overridden by a contrary congressional command,”
id.,
the Court formulated a disjunctive three-part test to determine when a mandate to arbitrate may be overridden: “If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent will be deducible from the statute’s text or legislative history or from an inherent conflict between arbitration and the statute’s underlying purposes.”
Id.
at 227, 107 S.Ct. 2332 (internal quotation marks and citation omitted).
Applying this test to the claim that the Securities Exchange Act and RICO should preclude a waiver of judicial forum, the Court concluded that Congress had not expressed such an intent, and that no inherent conflict was present, thus compelling the claims to be resolved through arbitration.
Of course, because
McMahon
involved a conflict between the FAA and the Securities Exchange Act and RICO, the holding is not on all fours with respect to conflicts between the FAA and the Bankruptcy Code. Indeed, a number of recent decisions addressing the effect of
McMahon
on conflicts between the Bankruptcy Code and the FAA have, as noted above, failed to yield a consensus.
B.
In re White Mountain
In
In re White Mountain,
the Court of Appeals for the Fourth Circuit considered a Chapter 11 bankruptcy proceeding in which a core issue in an adversary proceeding “was also an issue in an international arbitration to be conducted in England.”
Phillips v. Congelton, L.L.C. (In re White Mountain Mining Co., L.L.C.),
403 F.3d 164 (4th Cir.2005). The bankruptcy court denied a motion to compel arbitration pursuant to a mandatory arbitration
clause requiring arbitration in London because the dispute was a core proceeding
which “presented issues that were critical to [the debtor’s] ability to formulate a Plan of Reorganization.”
Id.
at 167.
Applying the
McMahon
framework, the Fourth Circuit affirmed the bankruptcy court’s determination. Relying on
McMahon’s
“inherent conflict” test, the court found that “[i]n the bankruptcy setting, congressional intent to permit a bankruptcy court to enjoin arbitration is sufficiently clear to override even international arbitration agreements.”
Id.
at 168 (quoting
In re United States Lines, Inc.,
197 F.3d at 639). The court reached this conclusion by first recognizing that “[t]he very purpose of bankruptcy is to modify the rights of debtors and creditors,” and that “Congress intended to centralize disputes about a debtor’s assets and legal obligations in the bankruptcy courts.”
Id.
at 169. Contrasting this with arbitration, the court reasoned that “permitting an arbitrator to decide a core issue” would frustrate the goal of bankruptcy to centralize decision-making.
Id.
Because centralization of disputes was “especially critical” in Chapter 11 cases,
and in order for the reorganization to proceed as efficiently as possible, “unimpeded by uncoordinated proceedings in other arenas,” to require arbitration would inherently conflict with the Bankruptcy Code.
Id.
at 170 (internal quotation marks and citation omitted).
Thus,
In re White Mountain
stands for the proposition that where the subject of both the arbitration and the bankruptcy adversary proceeding is a core proceeding, and where enforcement of the arbitration agreement would frustrate the efficient procession of the bankruptcy case,
McMahon’s
“inherent conflict” prong will be met, thereby conferring discretion to the bankruptcy judge to determine whether to compel arbitration.
C.
In re Mintze
When faced with a similar question in
Mintze v. American General Financial Services, Inc. (In re Mintze),
434 F.3d 222 (3d Cir.2006), the Court of Appeals for the Third Circuit adopted a different approach.
Instead of determining whether the core proceeding was at issue in both the adversary proceeding and the arbitration, or whether enforcement of the arbitration would frustrate the centralization and efficiency goals of a Chapter 13 bankruptcy proceeding as prescribed by the Bankruptcy Code (the approach adopted in
In re White
Mountain), the court charted a different course, taking its cue from what it saw as a misreading (by the
In re White Mountain
court) of
McMahon.
Agreeing with the bankruptcy court that the dispute was core, the Third Circuit nonetheless disagreed that this was a material factor in the analysis of whether an
inherent conflict existed.
In re Mintze,
434 F.3d at 229 (“The core/non-core distinction does not, however, affect whether a bankruptcy court has the discretion to deny enforcement of an arbitration agreement.”). Instead, the court instructed that “nonenforcement of an otherwise applicable arbitration provision turns on the underlying nature of the proceedings, i.e., whether the proceeding derives exclusively from the provisions of the Bankruptcy Code and, if so, whether the arbitration proceeding would conflict with the purposes of the Code.”
Id.
at 231 (quoting
Ins. Co. of N. Am. v. NGC Settlement Trust & Asbestos Claims Mgmt. Corp. (In re Nat’l Gypsum),
118 F.3d 1056, 1067 (5th Cir.1997)).
The court declined to find an inherent conflict between the FAA and the Bankruptcy Code centrally because, in light of
McMahon
and
Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
885 F.2d 1149 (3d Cir.1989), in order for an inherent conflict to exist, “congressional intent to preclude a waiver of judicial remedies [must be] for the
statutory rights
at issue.”
In re Mintze,
434 F.3d at 231. Thus, because the “statutory claims” raised by the debtor arose from TILA rather than from any statutory right created by the Bankruptcy Code, there could be no inherent conflict between the Bankruptcy Code and the FAA.
Finally, the court also inquired into whether, if arbitration were enforced, it would have a substantial impact on the debtor’s bankruptcy proceeding. Because the debtor initiated the claim as an adversary proceeding in her bankruptcy case, the court, in somewhat conclusory fashion, determined that there would be no “sufficiently adverse” effect on the underlying purposes of the Bankruptcy Code.
Id.
at 232.
Based upon these two conclusions that: (1) there was no congressional intent to preclude a waiver of judicial remedies because no Bankruptcy Code-based statutory rights were at issue; and (2) enforcement of arbitration would not adversely effect the underlying purposes of the Bankruptcy Code, the Court concluded that the bankruptcy court had no discretion to deny enforcement of the arbitration provision in the contract.
D.
Hill
One week after
In re Mintze,
the Court of Appeals for the Second Circuit, in
MBNA America Bank, N.A. v. Hill,
436 F.3d 104, 107 (2d Cir.2006), was presented with the issue, albeit in a slightly different context. In
Hill,
a debtor initiated
and completed
a Chapter 7 bankruptcy proceeding.
Id.
at 106. After the proceeding was finished, she filed an adversary pro
ceeding, styled as a putative class action, based on certain events that had occurred during her bankruptcy proceeding.
Id.
Because the adversary proceeding involved an agreement to authorize funds that contained a mandatory arbitration agreement, MBNA sought to enforce arbitration and stay the bankruptcy proceeding.
Id.
The bankruptcy court denied the motion to compel arbitration and the district court affirmed.
Id.
at 107.
On appeal, the Second Circuit declined to follow either
In re White Mountain
or
In re Mintze,
instead requiring a more incisive inquiry into the origin of the claims in conflict. Recognizing that “[b]ankruptcy courts are more likely to have discretion to refuse to compel arbitration of core bankruptcy matters,” because they “implicate more pressing bankruptcy concerns,” the court nonetheless refused to establish a bright line rule that core bankruptcy matters will always confer such discretion.
Id.
at 108. Instead, the court cautioned that even where a core bankruptcy proceeding is involved, the proceeding must: (1) be based on a provision of the Bankruptcy Code that inherently conflicts with the FAA; or (2) be one in which arbitration of the claim would “necessarily jeopardize” the objectives of the Bankruptcy Code, in order to trump an otherwise mandatory arbitration agreement.
Id.
at 108. Fleshing this approach out, the court stated:
[tjhis determination requires a particularized inquiry into the nature of the claim and the facts of the specific bankruptcy. The objectives of the Bankruptcy Code relevant to this inquiry include the goal of centralized resolution of purely bankruptcy issues, the need to protect creditors and reorganizing debtors from piecemeal litigation, and the undisputed power of a bankruptcy court to enforce its own orders. If a
severe conflict
is found, then the court can properly conclude that, with respect to the particular Code provision involved, Congress intended to override the Arbitration Act’s general policy favoring the enforcement of arbitration agreements.
Id.
at 108 (emphasis added) (internal citations and quotations omitted).
Applying this framework to the specific dispute, the court noted that the adverse proceeding was a core proceeding that derived from a statutory right found in the Bankruptcy Code.
However, the court went on to address whether the specific provision of the Bankruptcy Code, the automatic stay, inherently conflicted with the FAA. Answering this question in the negative, the court held that arbitration would not seriously jeopardize the objectives of the Bankruptcy Code because (1) the debt-
or’s estate had already been fully administered; (2) the claim was styled as a putative class action, thereby lacking the direct connection to the actual estate; and (3) a stay “is not so closely related to an injunction that the bankruptcy court is uniquely able to interpret and enforce its provisions.”
Id.
at 109.
Consequently, it found that the bankruptcy court did not have discretion to deny the motion to stay or dismiss the proceeding in favor of arbitration.
E.
Reconciling McMahon with its Progeny
If there is one consistency among these three cases, it is their effort to follow, at least in form, the dictates of
McMahon.
All three apply
McMahon’s
“inherent conflict” prong to determine whether the bankruptcy matter and the underlying purposes of the Bankruptcy Code irreconcilably conflict with arbitration. Moreover, each looks to what kind of dispute is at issue and how arbitration of the dispute will affect the objectives of the Bankruptcy Code and the FAA.
In
In re White Mountain,
the court determined that because the bankruptcy matter was a core proceeding, and because core proceedings implicated the essential purpose of the Bankruptcy Code — to centralize all relevant disputes in one forum— an inherent conflict existed with respect the arbitration clause. In
In re Mintze,
the court followed the same approach but determined that because the core proceeding did not invoke a substantive right established by the Bankruptcy Code and resolution of the arbitration dispute would not adversely effect the bankruptcy proceeding, no inherent conflict existed. And in
Hill,
the court concluded that the dispute was a core proceeding that invoked a substantive right under the Bankruptcy Code but that its resolution in an arbitral forum would not seriously jeopardize the underlying objectives of the Bankruptcy Code and, therefore, no inherent conflict was present.
Despite employing the same general approach for resolving the conflict, the three
;post-McMahon
cases reach widely-divergent conclusions both with respect to what qualifies as an “inherent conflict,” and what constitutes “interference” in the administration of a bankruptcy estate. These differences lead to equally divergent outcomes concerning the existence of a bankruptcy judge’s discretion to deny or compel a motion to arbitrate.
One explanation for this result may be the lack of guidance
McMahon
offers for resolving conflicts outside the narrow con
fines of the Exchange Act or RICO. However, the divergent outcomes found in these decisions may also be explained, more fundamentally, by a misperception of the nature of arbitration agreements and the function of the FAA in enforcing such agreements.
Arbitration agreements are “privately negotiated agreements,”
Volt Info. Scis. v. Bd. of Trustees,
489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), that specify “not only the situs of suit but also the procedure to be used in resolving the dispute.”
Scherk v. Alberto-Culver Co.,
417 U.S. 506, 519, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974). They have thus been alternately described as “contractual choice-of-forum provisions,”
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 615, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), and “a specialized kind of forum-selection clause.”
Scherk,
417 U.S. at 519, 94 S.Ct. 2449, and are, consequently, no different in form than other freely negotiated contractual provisions that circumscribe rights to be enforced by their terms.
See Volt,
489 U.S. at 477-78, 109 S.Ct. 1248;
see also Hays,
885 F.2d at 1162 (“[W]e do not see any relevant distinction between a forum selec tion clause and an arbitration clause.”);
but see Diaz Contracting, Inc. v. Nanco Contracting Corp. (In re Diaz Contracting, Inc.),
817 F.2d 1047, 1054 (3d Cir.1987) (distinguishing the principles governing the enforceability of arbitration clauses from the principles governing enforcement of contractual forum selection clauses). Arbitration under the FAA is, therefore, “a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.”
Action Indus., Inc. v. U.S. Fidelity & Guar. Co.,
358 F.3d 337, 340 (5th Cir.2004) (quoting
Volt,
489 U.S. at 477, 109 S.Ct. 1248). Conceptually, then, arbitration agreements operate with no more, or less, force than any other privately agreed upon contractual provisions — which is to say merely that they are to be enforced according to their terms.
Volt,
489 U.S. at 477-78, 109 S.Ct. 1248.
This understanding of arbitration agreements squares with the inscribed intent of the FAA “to overrule the judiciary’s long-standing refusal to enforce agreements to arbitrate,” and “to place such agreements upon the same footing as other contracts,”
Volt,
489 U.S. at 478, 109 S.Ct. 1248 (internal citations and quotations omitted), and explains the number of decisions to reject the automatic and absolute enforcement of arbitration agreements under the FAA.
See Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 126 S.Ct. 1204, 1211, 163 L.Ed.2d 1038 (2006) (noting that challenges to an arbitration clause itself may be considered by a judicial body);
Volt,
489 U.S. at 479, 109 S.Ct. 1248;
Prima Paint Corp. v. Flood & Conklin Mfg. Co.,
388 U.S. 395, 404 n. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967);
Double TRL, Inc. v. F.S. Leasing, Inc. (In re Double TRL, Inc.),
65 B.R. 993 (Bankr.E.D.N.Y.1986). The FAA thus “simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.”
Volt,
489 U.S. at 478, 109 S.Ct. 1248.
McMahon
must be read within this framework. And it is this understanding that should guide courts in determining the proper approach for resolving conflicts between the Bankruptcy Code and the FAA. Consequently, where an approach for resolving conflicts between the FAA and another, competing statutory command results in the elevation of arbitration agreements over and above other forms of contract, it simply cannot be reconciled with, and would actually do violence to, the strong and compelling prescriptions of the FAA “to make arbitration agreements as
enforceable as other contracts, but not more so.”
Prima Paint,
388 U.S. at 404 n. 12, 87 S.Ct. 1801.
In this regard, the approach taken by
In re Mintze
and
Hill
undermines the well-settled intent of the FAA to place arbitration agreements on the same footing as other contracts and elevates arbitration agreements over and above other analogous forum selection agreements. Both cases rejected the core/non-core standard, preferring instead to hinge nonenforcement of an otherwise applicable arbitration provision on “whether the proceeding derives exclusively from the provisions of the Bankruptcy Code and, if so, whether the arbitration proceeding would conflict with the purposes of the Code.”
In re Mintze,
434 F.3d at 231 (quoting
In re Nat’l Gypsum,
118 F.3d at 1067).
To be clear, such a standard entirely withdraws the discretion of bankruptcy judges to deny a motion to compel arbitration unless, inter alia, the proceeding invokes a substantive right of the Bankruptcy Code.
See In re Merrill,
343 B.R. at 11 (reading
In re Mintze
to hold that “no discretion exists until the
McMahon
evidence of congressional intent-to-preclude test (as shown by ‘inherent conflict’ or statutory text or legislative history) is met”). In order to be consistent with the mandate of the FAA, then, this approach should comport with the approach taken with similarly situated non-arbitration agreements in the bankruptcy context. As detailed below, it does not.
Normally, where a contract proceeding is determined to be core, a bankruptcy judge has the authority to adjudicate the proceeding, precisely because such proceedings often involve “[fjixing the order of priority of creditor claims against a debtor, ... placing] the property of the bankrupt, wherever found, under the control of the court, for equal distribution among the creditors, and administering all property in the bankrupt’s possession.”
In re U.S. Lines, Inc.,
197 F.3d at 637 (internal citations and quotations omitted). The bankruptcy court maintains such authority even in the face of an objection by one of the parties, or an attempt by one of the parties to compel adjudication of the core contract proceeding by an article III court or, for that matter, a state court.
See S.G. Phillips Constructors, Inc. v. City of Burlington, Vermont (In re S.G. Phillips Constructors, Inc.),
45 F.3d 702, 707 (2d Cir.1995) (finding that because the contract dispute was a core proceeding, the bankruptcy court maintained authority over the dispute even under an attempt to compel the issue to be resolved by a state court).
However, the presence of a forum selection clause complicates a bankruptcy court’s jurisdiction to adjudicate core contract claims. In
M/S Bremen v. Zapata Off-Shore Co.,
407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513, (1972), the Supreme Court established the test to be used in determining whether to enforce forum selection clauses. The Court held that forum selection clauses “are prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable’ under the circumstances.”
Id.
at 10, 92 S.Ct. 1907. Expanding on this statement, the Court required the resisting party to demonstrate that (1) the clause was invalid for such reasons as
fraud or overreaching, or (2) enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, or (3) that enforcement of the clause would be so gravely difficult and inconvenient as to be unreasonable and unjust and that it would deprive the party of its day in court.
Id.
at 10, 15, 18, 92 S.Ct. 1907.
Like
McMahon,
however, resolution of the forum selection dispute in
M/S Bremen
arose outside the bankruptcy context.
Thus, with respect to the force of forum selection clauses in bankruptcy proceedings, courts have been left to interpret the appropriate application of
M/S Bremen
test.
In this regard, courts have uniformly found that forum selection clauses in
core
contract proceedings are not automatically enforceable because such enforcement would undermine the goal of centralizing bankruptcy proceedings.
See N. Parent, Inc., v. Cotter & Co. (In re N. Parent, Inc.),
221 B.R. 609, 622 (Bankr.D.Mass.1998) (collecting cases and holding that “[rjetaining core proceedings in this Court, in spite of a valid forum selection clause, promotes the well-defined policy goals of centralizing all bankruptcy matters in a specialized forum to ensure the expeditious reorganization of debtors”);
see also Iridium Operating LLC v. Motorola Inc. (In re Iridium Operating LLC),
285 B.R. 822, 837 (Bankr.S.D.N.Y.2002) (holding that “although there is a strong policy favoring the enforcement of forum selection clauses ... this policy is not so strong as to mandate that forum selection clauses be adhered to where the dispute is core”);
Breeden v. Aegis Consumer Funding Group Inc. (In re Bennett Funding Group, Inc.),
259 B.R. 243, 252 (Bankr.N.D.N.Y.2001) (“Transferring a core matter that is not ‘inextricably intertwined’ with non-core matters adversely impacts the strong public policy interest in centralizing all core matters in the bankruptcy court.”).
Implicit in these holdings is the recognition that the policies underlying forum selection clauses may conflict with the policies underlying core bankruptcy proceedings.
See In re Iridium Operating LLC,
285 B.R. at 837.
Given the foregoing, of the three
post-McMahon
cases, the approach adopted in
In re White Mountain
best applies the above framework for guiding inquiries into the effect and operation of arbitration agreements in the bankruptcy context.
There, as noted, the Fourth
Circuit concluded that where a conflict exists between the Bankruptcy Code and the FAA, a bankruptcy court retains discretion to decide whether and when to compel arbitration if the at-issue proceeding is core.
In re White Mountain,
403 F.3d at 169. The “core/non-core” distinction represents the best approach for resolving conflicts between the FAA and the Bankruptcy Code because it locates arbitration agreements precisely upon the same footing as other forms of contracts,
see Volt,
489 U.S. at 478, 109 S.Ct. 1248, while at the same time heeding
McMahon’s
dictate that a waiver of judicial forum may only be prohibited where, inter alia, an inherent conflict is present between arbitration and the conflicting statute’s underlying purpose.
McMahon,
482 U.S. at 227, 107 S.Ct. 2332.
There is no evidence to suggest that the presence of an arbitration clause, as opposed to a standard forum selection clause, in a core contract proceeding should change the jurisdictional posture of that proceeding. Indeed, to require a different standard, as was countenanced in
Hill
and
In re Mintze,
would seem to present an irreconcilable conflict with the fundamental precepts of the FAA. Principal to accurately situating the FAA and arbitration within the framework established by
McMahon
is a recognition that, contrary to the holding in
In re Mintze,
the most parsimonious understanding of arbitration’s position as a dispute resolution forum is that it exists as equal to and commensurate with other dispute resolution tribunals. Thus, even with the presence of an arbitration clause, resolution of the dispute in bankruptcy court, so long as it is a core proceeding, complies with the intent of the FAA by situating arbitration in exactly the same place as other forum selection clauses. Consequently, in order to harmonize arbitration agreements with their traditional contractual counterparts, forum selection clauses, a bankruptcy court must maintain authority to exercise discretion concerning whether to enforce arbitration over core contract proceedings even where those contracts possess an arbitration agreement.
IV.
Conclusion
Having determined that the bankruptcy judge had discretion to determine whether to compel arbitration, the court must now decide whether the bankruptcy judge’s exercise of that discretion was sound. Upon review, this court concludes that it was. Here, the bankruptcy court was presented with a motion to compel arbitration of Brown’s adversary claim to enforce a pre-petition rescission of her mortgage under the TILA. The bankruptcy court concluded that the outcome of the action would clearly affect Brown’s Chapter 13 plan and the distribution her creditor’s would receive. This determination is not clearly erroneous. The bankruptcy court properly found that compelling arbitration in this case would be inconsistent with the purpose of the bankruptcy laws to centralize disputes about a debtor’s legal obligations so that reorganization can proceed efficiently. As noted earlier, this proceeding occurred pre-petition and directly implicates the reorganization process. Thus, the bankruptcy court “properly considered the conflicting policies in accordance with law,”
In re U.S. Lines, Inc.,
197 F.3d at 641, and its decision to deny the motion to compel cannot be said to have been an abuse of discretion. The bankruptcy court’s denial of the motion to compel arbitration is AFFIRMED.