The Peabody COALTRADE International Ltd. unit of Peabody Energy (NYSE: BTU) on Sept. 7 again asked a federal bankruptcy court to put a coal dispute with Dynegy Danskammer LLC, which has been in Chapter 11 protection since last November, into arbitration.
Dynegy Danskammer has filed an adversary proceeding, which is basically a lawsuit, against Peabody COALTRADE at the U.S. Bankruptcy Court for the Southern District of New York. Dynegy Danskammer said it incurred costs late last year when Peabody failed to deliver a shipload of Venezuelan coal, the last load of coal due under a 2008 contract, to a waiting ship hired by Dynegy Danskammer.
Peabody said in its Sept. 7 argument that Dynegy concedes that its claims are subject to mandatory arbitration as provided in the parties’ 2008 agreement. “Dynegy argues, however, that its case against Peabody is a ‘core’ proceeding under the Bankruptcy Code, and that ‘judicial economy’ and ‘the objectives of the Bankruptcy Code’ support resolution of this proceeding in the Bankruptcy Court rather than in arbitration,” said Peabody. “Dynegy’s arguments are unavailing.”
Peabody noted that in 2006 in a different case, an appeals court ruled that bankruptcy courts generally should compel arbitration of “non-core” matters, and explained that, even as to “core proceedings,” a bankruptcy court should still compel arbitration unless the court finds that the proceedings are based on provisions of the bankruptcy code that “inherently conflict” with the Arbitration Act, or that arbitration would “necessarily jeopardize” the objectives of the Bankruptcy Code, Peabody noted.
“Here, Dynegy’s claims against Peabody all arise from and relate to an alleged failure to deliver a shipment of coal for loading at a designated location in Venezuela,” Peabody added. “Dynegy’s claims do not involve rights created under the Bankruptcy Code, and there is no inherent conflict with the Arbitration Act. Additionally, Dynegy has not met its burden to demonstrate – indeed, Dynegy has not even suggested – that arbitration would ‘jeopardize’ Dynegy’s reorganization or other objectives of the Bankruptcy Code. Arbitration of Dynegy’s claims is accordingly appropriate.”
Dynegy’s argument that arbitration will delay the proceedings or lead to inefficiency is unpersuasive, Peabody added. Dynegy’s breach of contract claims, whether litigated in arbitration, before the bankruptcy court or before the district court, involve discrete factual and legal issues that are entirely distinct from other issues before the bankruptcy court. There is simply no efficiency to be realized by keeping this matter before the bankruptcy court.
Dynegy said this is a bankruptcy court-eligible case
Dynegy Danskammer told its bankruptcy court on Aug. 21 that it should be allowed to go forward with this complaint, even though Peabody is asking the court to put this dispute in arbitration.
“Danskammer brought this adversary proceeding for a post-petition breach of a contract that obligated Peabody to deliver a shipment of coal for loading at a port in Venezuela for transportation to the United States on a vessel hired by Danskammer,” said the Aug. 21 filing. “In reliance on assurances from Peabody that it was holding the coal for delivery to Danskammer, Danskammer made the shipping arrangements. Shortly after Danskammer filed its Chapter 11 petition, and while its vessel was en route, Peabody suddenly announced that coal was not being held for Danskammer, and the coal was never delivered to Danskammer. The unmistakable conclusion, from Peabody’s conduct and its statements, is that Peabody’s actions were motivated by concerns over Danskammer’s filing and status as Debtor in Possession. As a result of Defendant’s unlawful conduct and breach, Danskammer has suffered substantial damages.”
Peabody wants to compel arbitration based on its claim that this adversary proceeding is “non-core” to the bankruptcy case. But, federal court precedent shows that an action alleging a post-petition breach of contract can be properly viewed as a “core” proceeding under the bankruptcy code, Dynegy said.
The contract under dispute is a January 2008 deal for Guasare steam coal. The dispute is because the last shipload of coal under that contract couldn’t be delivered late last year by Peabody to a Dynegy-hired ship waiting at a Venezuelan port. Peabody eventually invoked force majeure, saying that rain had cut coal shipments over a road leading from the mine to the port.