Arbitration, Bankruptcy, and Public Policy: A Contractarian Analysis

As arbitration agreements become more common, bankruptcy courts increasingly encounter arbitration agreements to which a bankruptcy debtor is a party. Bankruptcy judges must then determine whether to enforce an otherwise valid arbitration clause or to refuse enforcement and decide the underlying dispute themselves. To date, bankruptcy judges facing these issues have tended to see arbitration as a competing, quasi-judicial forum. They typically refuse to enforce
arbitration agreements when they find that bankruptcy policy would favor resolution in the bankruptcy proceeding instead of in some other adjudicative forum. Building on previous work, I contend in this article that arbitration is best understood not as a type of quasi-adjudication, but as a species of contract, with the award equivalent to a contract term agreed upon by the parties ex ante. I argue that arbitration agreements should be enforced by bankruptcy courts unless enforcement would
prevent a party from vindicating its statutory bankruptcy rights, and that bankruptcy courts should then decide whether to enforce the award by considering whether the award would contravene the policy of bankruptcy law if it had been a contract term. In practice, my proposal is for enforcement of arbitration agreements with a more robust degree of judicial review of awards than arbitration law typically allows.