Bad Facts Make Bad Law: Lender Liability Is Back on the Rise

The area of lender liability has been reasonably dormant for many years. An entire generation has grown up since this was a hot topic amongst lenders and, as a result, many of the lessons learned years ago have not been learned by at least some of the present generation of lenders. Generally, lender liability claims succeed when a lender has exercised management controls.

Christmas came a day early for a factor who woke up on Dec. 23 with a lump of coal (well, maybe a mountain of coal) in its stocking by a searing, 145-page decision issued by a Dallas Bankruptcy Court at the request of a Chapter 7 trustee that should be of concern to every lender.

This case involves: (a) a decades-old metal fabricating business; (b) its long-time owner; and (c) a factoring company. There was a short-lived financing arrangement among the parties that went terribly wrong. The bankruptcy trustee and former owner of the business alleged that:

(a) improper conduct of the factoring company ultimately destroyed the business enterprise which—although experiencing financial distress—had prestigious customers and a hopeful future; and (b) the factoring company unlawfully put a lien on and coerced the former owner to sell his exempt homestead and pay over the sale proceeds to the factoring company (based on a broken promise to resume factoring, if he did). The bankruptcy trustee and former owner allege[d] more than a dozen torts against the factoring company, in addition to breach of contract.

Specifically, the trustee alleged that the factor:

refused to advance funds under the applicable factoring and inventory loan agreements in good faith and in the manner promised—in fact, almost immediately taking a stance that the businesses were in an “over-advanced” position, which was not only not a defined concept in the agreements, but was problematic in light of several weeks of due diligence and awareness regarding certain slow-paying accounts and inventory status; (ii) charged fees, expenses, penalties and other items against “reserves” (contributing to the alleged “over-advanced” position), without any transparency; (iii) shape of viagra tablet cheap best essay on hillary clinton columbia thesis freedom of speech essay sample set design drama essay see url classification essay about facebook users number enter elevator speech example viagra assunto da donne follow url marketing principles essay cialis 6 essay picnic at seaside research paper on disaster management order cialis australia own essay buy a diploma uk essay my home town enter see url sat essay wikipedia michel de montaigne essays of idleness history viagra uk essay on ramadan in english see essay hook about fear go here exercised excessive control over the businesses, by controlling what vendors, employees, and expenses got paid, and insisting on direct payments to them by the factoring company rather than funding to the businesses as contemplated by the underlying agreements (i.e., the argument being that this was an improper exertion of control; there were no amendments of documents or forbearance agreements to justify deviating from the underlying agreements). This, collectively, is argued to have caused the businesses’ failure. (emphasis added)

In addition, the busines owner alleged that the factoring company: (a) wrongfully coerced him to transfer to it his equity from his exempt homestead in violation of the Texas Constitution and Texas Property Code; (b) misrepresented in the process that the factoring company would resume making advances on accounts receivable if he did so; (c) but had no intention of doing so and, in fact, never did so; (d) took a termination fee of $75,000 immediately after receiving $225,000 of sale proceeds from the home, without disclosing the termination fee; and (e) thereafter continued to accept accounts receivable collections but extended no funding.

The Court stated:

This was an excruciatingly difficult case but, on balance, the court has determined that the factoring company breached its agreements in certain ways and committed various torts. While the factoring company has essentially argued that the businesses involved here were dead-on-arrival and it did not cause their demise, the court strongly believes this is an incorrect assessment.

The Debtor companies were engaged in metal fabrication, product engineering and design, and provided products to suppliers for automotive manufacturers in the U.S. and Mexico. They suffered downturns during the 2008-9 recession but later developed additional sophisticated components for rocket engines used by Elon Musk and SpaceX. They also developed new technology to manufacture bullets for the military, replacing machines built during World War II, which remain in use to this day.

In 2014, the Debtor companies’ bank lender asked them to find a new lender. Another bank was interested but suggested that the companies temporarily transition via an interim factoring arrangement. The factor conducted due diligence from October 2014 through February 2015. During this period, the factor described the company as a “strong deal” although the companies were in arrears in paying ad valorem taxes. In addition, their accounts payable were in arrears with some 50% aged over a year and certain future business opportunities to be paid on a “milestone” basis.

Notwithstanding the “issues” the factor and the company entered into a factoring agreement as well as a revolving inventory loan agreement. In reciting the facts, the Court appeared to be critical of a number of provisions in these agreements including common ABL and factoring loan provisions such as cross-default provisions, general insecurity clauses, using availability under one facility to satisfy the unpaid fees in the other facility, and 15 categories of fees and expenses to be charged under the factoring agreement.

Almost immediately after closing and funding the financing and factoring agreements, the companies fell into an over-advance situation.

The Court cited destructive acts by the factor as:

  • refusing to make advances in good faith;
  • making payments directly to third-party vendors and employees of factor’s choosing;
  • exercising excessive control over the Debtor’s business;
  • misleading the Debtor about availability;
  • wrongfully placing a lien on the Guarantor’s exempt homestead;
  • declaring a default without a reasonable basis; and
  • taking a termination fee.

The Court concluded that the factor’s actions destroyed the business.

The court fully recognizes that the Agreements (the Factoring Agreements as well as the Inventory Loan Agreements) were quite replete with rights, fees, and other provisions that heavily favored [the factor] . . . ). In fact, the Agreements were shockingly one-sided in favor of [the factor]. And, generally, a contract is a contract. Be that as it may, the following are non-exclusive examples that the court finds demonstrated [the factor]’s bad faith and, at times, even malice toward [the Debtors], especially from July 1, 2015 forward.

. . . .

While this court believes that [the factor]’s conduct was in many ways tortious (and shocking), the breach of contract analysis here is actually quite vexing. As alluded to earlier, the Agreements are amazingly one-sided. In fact, they are so one-sided (i.e., providing a smorgasbord of rights, remedies, and discretion in favor of [the factor], with very few rights in favor of Debtors) that there seem to be very few breaches of contract. In other words, many of the alleged bad acts articulated by the Trustee were seemingly permitted by the terms of the Agreements.

The Court went on to find the factor liable for:

  1. breach of contract;
  2. breach of the duty of good faith and fair dealing;
  3. lender liability (which it described as a broad umbrella of tort liability);
  4. fraud;
  5. tortious interference with contractual and business relations;
  6. violations of the bankruptcy automatic stay; and
  7. attorneys’ fees.

The Court ultimately awarded the Trustee $17 million in damages ($13 million of which was for breach of contract, breach of duty of good faith and fair dealing, fraudulent misrepresentation); plus $2 million for separate tort of contractual and business interference; plus $2 million for willful automatic stay violations (including some $1.5 million in punitive damages); plus in excess of $1 million to the Guarantor. And this is before the attorneys’ fees have been assessed.

The key takeaway is to exercise care when involved in a workout. Most critical is to secure releases at every stage to better ensure that you will not be a victim of an ugly lawsuit such as this one. A valuable lesson may be learned from this case. In a case I defended years ago where the lenders’ conduct was not nearly as bad, but where we secured releases at every opportunity, the result was significantly different. Read that decision from the Second Circuit Court of Appeals.

The Value of Spousal Waivers

Generally, a creditor may not require the signature of an applicant’s spouse (or any other person other than a joint applicant) on any loan if the applicant qualifies for the credit requested under the lender’s standards of creditworthiness. If an applicant does not meet the lender’s standards of creditworthiness, then the lender may (among other things) condition approval of the credit upon the applicant furnishing the signature of another person (e.g., guarantor), but the creditor may not require that person to be the applicant’s spouse. If a creditor routinely requires spousal guarantees, for example, without first ascertaining whether an applicant is creditworthy, then the conditioning of the loan on the spousal guarantee violates Federal Reserve Board Regulation B.

Of course, there are exceptions to this rule. Regulation B expressly permits a spousal guaranty when the spouse’s guaranty is necessary to make property available as collateral to satisfy the debt in the event of a default. Understand that potential borrowers tend to push back on requests for spousal guaranties and waivers, but there are reasons why they are necessary. We will look at a recent case from the Second Circuit Court of Appeals which addressed a fraudulent conveyance action where the spouse transferred her interests in jointly owned property to her daughter.

In May 2015, Husband and Wife conveyed their respective interests in valuable real property to their daughter. Their apparent goal in this conveyance, as in two prior transactions, was to shelter the property from enforcement of a $45 million default judgment entered days earlier against the Husband. In 2017, the U.S. District Court for the Eastern District of New York (EDNY) voided the transfer as fraudulent under New York law. Then in 2020, the EDNY issued an order extinguishing Wife’s right of survivorship in the property, determining that Wife had acted in bad faith by participating in the conveyance to the daughter.

The EDNY analyzed the text of the fraudulent conveyance provisions of the New York Debtor and Creditor Law which provided for two remedies for creditors whose claim has matured:

[h]ave the conveyance set aside or obligation annulled to the extent necessary to satisfy his claim,

or to

[d]isregard the conveyance and attach or levy execution upon the property conveyed.

The judgment creditor and the EDNY recognized that the Debtor and Creditor Law does not state generally that a creditor may seek equitable remedies, much less the specific equitable remedy awarded here: termination of a non-debtor’s right of survivorship to a fraudulently conveyed property.

In considering the issue, the Second Circuit noted:

The New York Court of Appeals has not ruled directly on this question. Our task therefore is ‘carefully to predict how the [state’s] highest court’ would interpret the statute.

Note, that unlike the Second Circuit decision addressed in yesterday’s issue of WurstCaseScenario, the Second Circuit did not certify the question to the New York Court of Appeals but, instead, predicted how it would interpret the statute.

… case law strongly suggests that the New York Court of Appeals would follow [the decision of a New York intermediate appellate court] and find that the remedy the [EDNY] Court ordered is impermissible [under the statute]. The [EDNY]’s first order, voiding the conveyance from [Husband] and [Wife] to [the daughter] as fraudulent, restored the “status quo ante” in this case: under that order, [Judgment Creditor] retains its preexisting lien over [Husband]’s interest in the property, and [Wife] retains her share of the tenancy by the entirety for the [p]roperty, including her right of survivorship. Extinguishing [Wife]’s right of survivorship expands [Judgement Creditor]’s’ rights relative to the status quo ante….

The Second Circuit concluded:

…we predict with confidence that were the New York Court of Appeals to address this issue, it would conclude that the remedy ordered by the District Court was not available under New York’s [Debtor Creditor Law]. Because we conclude that the District Court could not terminate [Wife]’s right of survivorship under that statute, we vacate the District Court’s order and remand for proceedings consistent with the interpretation of New York law described in this Order.

So what does this mean? It means that despite Wife’s dirty hands, she retains her right of survivorship and, assuming Husband predeceases her, she will take the property free and clear of the Judgment Creditor’s judgment lien. It also means that the existence of the joint tenancy will prevent the Judgment Creditor from executing on the property. Understand that there is a 20-year statute of limitations in which an action may be brought on a judgment. The joint tenancy makes it more possible to retain the property until after the statute of limitations has run.

Now – what does all of this mean to you? It means that if you intend to rely on property that is subject to a joint tenancy, you very much need to have a spousal guaranty or spousal waiver. Without it, your judgment will very likely remain in limbo hoping that your judgment creditor’s spouse predeceases him or her prior to the expiration of the applicable statute of limitations.

We recognize that it is unpleasant to require a spousal guaranty or waiver, and many lenders just hope that they won’t need it. But when they do, they will be pleased they have it. Or they will be disappointed that they failed to get it when they should have.

Deerbrook Insurance Company v Mirvis, 2021 WL 4256845 (2d Cir. September 20, 2021)

Investment or Loan? Beware of Usury

New York has the harshest[1] usury laws in the country. Unlike many other jurisdictions where the penalty for making a usurious loan is the loss of interest, New York penalizes a usurious lender by forgiving the principal as well. However, because New York recognizes that sophisticated commercial borrowers may have good reason to obtain loans at usurious rates, New York usury laws only apply to loans of less than $2.5 million, so most commercial lenders need not worry.

The New York Court of Appeals (the highest court in New York) recently addressed an interesting usury matter. Keep in mind that federal courts ruling on state law must be guided by state court rulings. When questions arise for which there is no authoritative guidance the question is referred to the state’s highest court.

The underlying action was brought by Adar Bays, LLC, against GeneSYS ID, Inc. (publicly traded on the OTC) to collect on a Convertible Redeemable Note (Note) issued in connection with a $35,000 loan from Adar Bays to GeneSYS which had defaulted. The Note permitted Adar Bays to convert any outstanding loan balance into GeneSYS common stock at a 35% discount from the stock’s market price. The primary issue presented was whether this conversion option meant that the Note’s interest rate exceeded the 25% cap set by New York’s criminal usury law.

The United States District Court for the Southern District of New York granted summary judgment in favor of Adar, ruling that under New York law, the Note’s conversion option did not result in a criminally usurious interest rate. GeneSYS appealed to the Second Circuit.

Because the resolution of the issues before it turned on questions of state law for which no controlling decisions of the New York Court of Appeals exist, The Second Circuit certified two questions to the New York Court of Appeals:

    1. Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates … the criminal usury law.
    2. If the interest charged on a loan is determined to be criminally usurious …, whether the contract is void ab initio …

In considering the matter, the Second Circuit noted that

[w]hen a note is not usurious on its face, usury is not presumed and the debtor must prove all the elements of usury, including usurious intent.

The Second Circuit went on to recognize that

New York courts … have generally rejected the view that a conversion option with a discounted rate should be treated as interest.

The New York Court of Appeals started with an extensive history of New York’s usury laws dating back to colonial times and continued through the present.

When determining whether a transaction is a loan, substance—not form—controls… Several factors help distinguish loans from equity purchases and joint ventures, which are not subject to the usury laws. First, parties who are not directly exposed to market risk in the value of the underlying assets are likely to be lenders, not investors… Additionally, context, such as whether a party applied to the other for a loan or had outstanding, separate transactions, helps to distinguish between intent to borrow and intent to engage in a joint transaction or exchange money for some other reason.

The Court noted that Adar Bays was a lender; GeneSYS executed a note where it promised to repay the loaned principal plus interest by the maturity date. It further noted that by having a floating-price conversion option, the lender avoided any share-price risk that an equity investor or joint venturer would bear. Specifically, Adar Bays would always receive more stock than the converted principal could have purchased on the open market at the then current trading price.

From colonial times to present, the legislature has defined interest to include the value of all goods and promises exchanged in consideration for a loan in the usury analysis. The earliest usury prohibition in the colony of New York set out the modern and broad language prohibiting the “direct[] or indirect[]” taking of usurious interest.

In rendering its decision, the Court made it clear that it was not holding that convertible stock options are per se usurious.

We have not been asked how to determine the value of stock conversion options here and do not endorse any particular methodology. Nonetheless, we are confident that convertible options are not so speculative that, as a matter of law, they cannot be valued. The valuation of options is widespread and is the foundation on which hedge funds operate.

However, floating rate convertible options will be more closely scrutinized to assess whether the balancing of the risks associated render the transaction an investment or a loan.

One reading the decision should be sure to review the dissent, which expressed concerns with multiple examples of the dangers that might result from the Court’s ruling, to which the majority responded:

The dissent worries, essentially, that usurers making loans of less than $2.5 million with floating-price conversion options will move their operations to other states, and perhaps some legitimate lenders of such loans who are close to the edge will do likewise. If so, that result is in harmony with our legislature’s unbroken intent over many centuries: the strict protection of more vulnerable borrowers from extortionate rates. As it has done before, our legislature can freely adjust the usury laws if the dissent’s parade of horribles turns out to be something more than phantasm.

Inasmuch as much of today’s commercial lending is derived from non-bank and nontraditional lenders whose objectives are different from those of traditional banks, consideration must be given when structuring such transactions to mitigate the lender’s risks and better assure that its investment will be best protected.

Adar Bays, LLC v GeneSYS ID, Inc. (__ NY. 3d ____ October 14, 2021)

See also, Adar Bays, LLC v GeneSYS ID, Inc. (962 F3d 86, 2d Cir. 2020)

[1] ‘New York’s voiding of usurious contracts “can be harsh,” perhaps especially in comparison to other states’ laws, but the penalty reflects the legislature’s consistent condemnation of the ‘evils of usury’” (Seidel v 18 E. 17th St. Owners, 79 NY2d 735, 740-741 [1992]).

Third-Party Beneficiary Rights to Legal Fees? Not So Fast!

I am confident my readers will understand that one of the things near and dear to my heart is having lawyers get paid for their work. Those of us at the lenders’ bar often take solace in knowing that borrowers are obligated to pay our fees; and when they do not, the institutions we represent have both the wherewithal and desire to work with us in getting paid.

But not always.

We understand that at times the scope of the transaction exceeds initial expectations and fees may run up. We lawyers remain sensitive to that and work with our clients and their borrowers to reach a reasonable resolution when this occurs. But when a deal does not result in a closing, things may get difficult.

The United States District Court for the Southern District of New York recently issued a decision concerning a law firm’s attempt to recover over $800,000 in legal fees owed in connection with its representation of the agent lender in a deal that resulted in an executed loan agreement that did not fund.

The $167 million loan was intended to fund the development and construction of an 18,000-seat arena on the Virginia Beach waterfront. The City retained the right to approve the financing, and when it declined to grant its approval, the deal fell through.

The developer sued the City, which resulted in a finding that the City had not breached its agreement with the developer. The law firm brought its action against the borrower-developer and not its client, the lender.

The loan agreement provided that the borrower would pay all reasonable fees, charges and disbursements of counsel for the agent. The law firm, however, was not a party to the loan agreement and the law firm argued that it was an intended third-party beneficiary. The developer moved to dismiss the complaint claiming that the law firm did not have standing to sue because it was neither a party to the loan agreement nor an intended beneficiary.

The Court wrote:

Under New York law, non-parties can sue for breach only if they are an intended beneficiary of the contract. Those who qualify as mere incidental beneficiaries have no standing to sue on the contract.

The Court then focused on whether the contract provided that the law firm was intended to be a third-party beneficiary. The contract specifically stated:

… Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person … any legal or equitable right, remedy or claim under or by reason of this Agreement.

The Court noted that the contract did not specifically include the law firm or even counsel to the agent.

So, the question becomes: Is there anything in the contract that “expressly contemplates” that [the law firm] can bring a claim against [the developer] for payment of the fees it incurred in representing [the lender]? The answer is no. There is no such provision. There is no indication anywhere in the Credit Agreement that [the law firm] was either to receive payment directly from [the developer] or that it had any right to sue … for payment.

In fact, the Court stated:

the contract specifically indicates that [the lender] was to receive payment from the “Borrower” … for its counsel fees.

The Court went on:

The New York Court of Appeals has “sanctioned a third party’s right to enforce a contract in two situations: when the third party is the only one who could recover for the breach of contract or when it is otherwise clear from the language of the contract that there was “an intent to permit enforcement by the third party.”

The contract provided that the lender would receive payment, which excluded the law firm from directly suing to collect.

In dismissing the law firm’s complaint, the Court added:

This dismissal is of course without prejudice to [lender]’s ability to sue to recover any attorney’s fees that it pays to [law firm].

However, it would appear that if the lender was willing to sue to pursue its legal costs it would have at least authorized the firm to bring the action in the lender’s name. It is understandable that the lender might not have wanted to sue in its own name to recover legal fees – especially when a transaction does not close. That left the law firm out of pocket for a significant fee.

So, what is the takeaway?

Lawyers write the agreements. Protect yourself and make yourself a third-party beneficiary.

But consider that this case was very rare in that the loan agreements were executed but the deal still did not fund. Most deals that fail collapse before execution of the loan agreements. That certainly takes away a significant element – the executed loan agreements. Commitment letters – even nonbinding term sheet/proposal letters, provide for the lender recovering its legal costs and fees. Consider this a plea to add the lawyers as third-party beneficiaries to the proposal/commitment letters.

One can only imagine what might have occurred in the relationship between lender and its lawyers to leave the law firm strung out.

Caveat attornatus. (Lawyers beware.)

Winston & Strawn LLP v Mid-Atlantic Arena, LLC, ESG Enterprises, Inc., SDNY July 19, 2021, 2021 WL 3037478

The Emerging Use of Arbitration in Bankruptcy Matters

Readers of this blog (as well as my other published articles) should be familiar with my advocacy for use of arbitration in resolving commercial finance disputes. Certainly, in matters involving disputes between secured creditors (e.g., intercreditor disputes), I have long expressed my view that things like these should be resolved privately, not through a public forum. This is a great benefit of arbitration. I am also inclined to privately resolving disputes between lenders and borrowers through arbitration. In those rare instances when a lender may have crossed the line and is subject to liability, isn’t it better to keep that dispute under the cover of a confidential arbitration?

Over the past 30 years, the use of mediation has become common in bankruptcy disputes. But the question has long been raised whether arbitration clauses would be enforced in the context of a bankruptcy case. That issue was addressed in a recent decision from the Bankruptcy Court for the District of Maryland. While this decision may not be the first to address this question and enforce a prepetition arbitration private provision, the scholarship of this decision certainly makes it ripe to present.

The Maryland Bankruptcy Court wrote:

The filing of a chapter 11 bankruptcy case generally stops all matters affecting the debtor’s financial affairs and consolidates the resolution of those matters in one forum, the bankruptcy court. That collective process is intended to, among other things, allow a debtor to catch its financial breath and develop a cohesive reorganization plan; provide consistency and certainty in the resolution of matters potentially affecting the debtor’s reorganization; and ensure fair and equal treatment of the debtor’s creditors. …A frequent question…. is how these basic principles apply to an arbitration clause in a prepetition contract between the debtor and just one creditor.

Prior to the filing of his personal bankruptcy case, the debtor entered into a litigation funding agreement whereby the lender extended financing to fund the cost of the lawsuit in exchange for a percentage of the debtor’s interest in a whistleblower litigation. When the lender and borrower found themselves in a dispute, the lender invoked the arbitration clause contained in its agreement and the debtor filed a Chapter 11 case. The lender moved for relief from the automatic stay to allow the arbitration to proceed. The debtor objected.

The lender argued that the Bankruptcy Court was required to enforce the prepetition arbitration agreement, while the debtor argued that enforcement would conflict with the objectives of the Bankruptcy Code.

The [Federal Arbitration Act] and the [Bankruptcy] Code both are grounded in important policy considerations concerning efficiency and fairness. The FAA focuses on these notions in the context of, among other things, private contracts affecting commerce, creating a strong presumption in favor of the parties’ threshold agreement to arbitrate disputes. …The Code …  is not party- or contract-specific but seeks to balance the rights of many parties with many different contracts, rights, and interests involving a single debtor.

The Court turned to whether the dispute was a core proceeding:

If a claim is a constitutionally core proceeding, the bankruptcy court has the discretion to retain the proceeding and not enforce the terms of the parties’ arbitration agreement. …[T]his discretion arises from the inherent conflict in allowing an arbitrator to resolve proceedings that are grounded in the Code itself or that are integral to the debtor’s reorganization efforts…. A bankruptcy court’s discretion is far more limited with respect to nonconstitutionally core or non-core proceedings.

Some circuit courts have ruled that a bankruptcy court has no discretion to refuse arbitration of non-core claims. The Court quoted a New York case for the steps to follow in evaluating requests to compel arbitration:

[F]irst, it must determine whether the parties agree to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.

In doing its analysis, the Court determined that this was a hybrid case involving constitutionally core and non-core proceedings with the state law contract claims being subject to the prepetition arbitration agreement. The Court further noted that those claims could be separated from the bankruptcy and fair debt collection claims – “even if that may not be the most procedurally efficient approach….” In light of legal precedent in the Fourth Circuit Court of Appeals, the Bankruptcy Judge felt compelled to bifurcate the claims and allow the contract and nonbankruptcy claims to proceed to arbitration.

The Court acknowledges that, if the arbitrator resolves the Contract Claims or the Non-Bankruptcy Claims prior to this Court addressing the Bankruptcy Claims, the parties could face conflicting results, or one forum may be bound by the other’s decision under the doctrine of claim or issue preclusion. The Court is not prepared to rule on such matters at this time, but will by separate order issue a temporary stay of proceedings on the Debtor’s Complaint to monitor how these matters progress and to guard against undue delay or gamesmanship. The Court dislikes the element of uncertainty introduced by this approach but, absent clear authority under the Code or case law giving this Court more discretion to refuse arbitration in the context of non-constitutionally core or non-core claims, the Court finds this approach warranted and most appropriate under the circumstances.

The takeaway in this developing area of the law is, that while bankruptcy claims must be resolved in the Bankruptcy Court, nonbankruptcy claims that are the subject of an arbitration agreement may be compelled to be resolved by an arbitration tribunal. I will continue to keep an eye on this doctrine and continue to advocate the use of arbitration for the resolution of commercial finance disputes.


In re: John McDonnell McPherson v Camac Fund, L.P., Bankr. MD, June 1, 2021, 2021 WL 2232351