First Circuit: Trustee Must Go Where Debtor Agreed to Arbitrate (Web)

First Circuit: Trustee Must Go Where Debtor Agreed to Arbitrate
 
On March 23rd, 2005, the First Circuit reversed orders by the U.S. Bankruptcy Court and District Court calling for arbitration in Rhode Island.  The case involved a distribution agreement between a Tennessee manufacturer and a Rhode Island distributor which contained a clause providing for arbitration “in Memphis, Tennessee, USA.”  The Rhode Island distributor filed for Chapter 11 bankruptcy and later the trustee filed suit in against the manufacturer for breach of contract.
 
First the U.S. Bankruptcy Court for the District of Rhode Island, and later the district court, ordered arbitration of the contract dispute to take place in Rhode Island.  These orders stemmed from the fact that none of the witnesses were in Tennessee and that the bankruptcy trustee would be “seriously inconvenienced in litigating in Memphis” and “effectively deprived of his day in court.” 
 
Judge Torruella, writing for the appellate panel, held that the arbitration had to take place in Memphis, Tennessee because of the clear forum selection clause in the contract.  “The Trustee stands in the debtor’s shoes and is not entitled to avoid the forum selected by [the bankrupt distributor] on mere allegations of inconvenience.”  Although acknowledging the difficulties in arbitrating in Tennessee, the First Circuit noted that all difficulties were foreseeable at the time of the contract.   Additionally, the panel found that the “heavy burden” on the party seeking to avoid the forum selection clause cannot be met based on the cost of litigation alone.
 
In re Mercurio can be found at 2005 WL 665321. It is also available at: http://laws.lp.findlaw.com/1st/041832.html

- Mark Boyko