Current Month (March 2026)
Bankruptcy Court Holds Avoidance Claims Not Subject to Debtor’s Prepetition Arbitration Agreement
By Leslie A. Berkoff, Partner and Chair of Dispute Resolution Practice Group, Moritt Hock & Hamroff LLP
In ACJK, Inc. v. Aetna Health Management, LLC (In re ACJK, Inc.), the United States Bankruptcy Court for the Southern District of Illinois denied motions to dismiss and compel arbitration, holding that bankruptcy avoidance claims brought by a debtor in possession are not subject to the debtor’s prepetition arbitration agreement.
ACJK, Inc. filed for Chapter 11 and initiated an adversary proceeding asserting several claims, including: (1) avoidance and recovery of unauthorized postpetition transfers under 11 U.S.C. §§ 549 and 550; (2) turnover and accounting under § 542; and (3) avoidance of prepetition transfers as constructively fraudulent under § 548 and the Illinois Uniform Fraudulent Transfer Act.
Aetna and CVS moved to dismiss the complaints and sought instead to compel arbitration under the Federal Arbitration Act (“FAA”), arguing that the debtor’s disputes were governed by an arbitration clause contained in a prepetition Provider Agreement with Caremark. The defendants asserted that the agreement incorporated American Arbitration Association rules delegating questions of arbitrability to the arbitrator. ACJK opposed arbitration, arguing that the claims asserted were bankruptcy avoidance actions brought on behalf of creditors and therefore not subject to the debtor’s prepetition arbitration agreement.
As a threshold inquiry, the court found it had to determine whether the parties were bound by a valid arbitration agreement. In order to determine this, the court recognized that it had to evaluate in what capacity the claims were being advanced by the debtor, as a party cannot be bound to arbitrate a dispute it did not agree to arbitrate in the first instance. Here the debtor was operating as a debtor in possession and was effectively wearing two hats, acting both as a debtor itself and as a fiduciary representative of the bankruptcy estate with powers equivalent to those of a trustee. The court noted that the debtor’s role depended on the nature of the claims being advanced, and here the claims were traditional statutory avoidance actions asserted for the benefit of creditors. As such, the court found that such claims could only be brought by a trustee or debtor in possession, and they did not flow from the contract itself; as a result, the underlying arbitration provision contained in the agreement was not binding.
The court held that when a debtor in possession asserts claims belonging to a trustee or creditors, the debtor in possession is “no more bound by the debtor’s arbitration agreement than any other who was not a party to that agreement.” The fact that the claims may tie into the underlying contracts and the debtor’s relationship to Aetna and CVS does not alter the fact that the debtor pled statutory causes of action that were not challenged by the defendants under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Accordingly, the defendants’ motions to compel arbitration were denied, and the adversary proceedings were permitted to proceed in bankruptcy court. The analysis in this case adds to the growing body of caselaw addressed to the intersection of bankruptcy and arbitration.
