Contributed by Joshua Nemser.
May 6, 2013 was a good day for us at the Weil Bankruptcy Blog.  The high in New York City was 61.7 degrees Fahrenheit and Memorial Day was a mere three weeks away.  More importantly, we bankruptcy and arbitration aficionados were able to report on a decision handed down by Judge Gross of the United States Bankruptcy Court for the District of Delaware.  In re Nortel Networks Inc. stood for the simple proposition that notwithstanding the public policy in favor of arbitration, courts will not compel arbitration in the absence of a clear, valid, and binding agreement.
Now it is December.  The thermometer refuses to budge above 30 degrees and the sun sets at 4:29 pm.  But despite the cold weather, there is a beaming ray of sunshine for those of us who appreciate clarity in the world of arbitration and bankruptcy.  The United States Court of Appeals for the Third Circuit handed down a precedential opinion (Nortel II) upholding the Bankruptcy Court.  As we—and the Beastie Boys (to some extent)—stated before, “(You Gotta) Fight for Your Right (To [Arbitrate]!).”
In a nutshell, Nortel was a massive worldwide telecommunications conglomerate that commenced insolvency proceedings in 2009.  Nortel debtors from around the world filed bankruptcy petitions in U.S., Canadian, English, and French courts.  Recognizing that Nortel’s assets had to be sold quickly in order to maximize value, numerous Nortel debtors entered into an Interim Funding and Settlement Agreement.  The agreement permitted the Nortel debtors to sell their assets without an accord as to how the proceeds would be allocated.  The agreement provided that the Nortel debtors would either consensually allocate the proceeds or develop a protocol for resolving disputes regarding the allocation of proceeds.  Notably, the section of the agreement that addresses dispute resolution does not contain the word “arbitrators,” “arbitration,” or “arbitral associations.”  In 2009 and 2010, the Nortel debtors sold assets pursuant to this agreement, but unfortunately, were neither able to consensually allocate the proceeds of the sales or arrive at a dispute resolution protocol.  The U.S. Nortel debtors and the U.S. Creditors’ Committee moved for the Bankruptcy Court to decide asset allocation disputes.  The Joint Administrators for the U.K. Nortel debtors, on the basis of the Interim Funding and Settlement Agreement, cross-moved to compel arbitration.
At the time the Third Circuit issued its opinion, approximately $7.5 billion sat frozen in escrow accounts.
To Arbitrate or Not to Arbitrate?
The Joint Administrators’ arbitration argument hinged on language in the agreement that called for a determination of asset allocation disputes “by the relevant dispute resolver(s) under the terms of the Protocol. . . .”  The Joint Administrators argued that use of the term “dispute resolver(s)” evidenced an intent to arbitrate.
The Third Circuit’s analysis focused on the dictionary definitions of the words “dispute” and “resolver” and found that the plain meaning of “‘dispute resolver(s)’ encompasses those persons or things that settle controversies.”  Although “dispute resolver(s)” could include arbitrators, it does not exclude courts.  Because the term could mean “arbitrators, courts, or mediators,” the court found that “the use of the words ‘dispute resolver(s)’ does not, standing alone, show that the Nortel entities intended to arbitrate their disputes.”  The court closed its analysis stating, “Because we conclude that the agreement contains no promise to arbitrate, our analysis ends at the text.”
As we have discussed, obtaining access to arbitration in bankruptcy raises novel issues such as the conflict between arbitration and the Bankruptcy Code.  Before even considering those issues, a court must find that an agreement to arbitrate exists in the first place.  That agreement should be set forth in plain language.  As the Third Circuit noted, “Parties wishing to arbitrate should not hide their intent to do so in the shadows of the text.”