## Facts

- Marcia L. Pate purchased a mobile home from Melvin Williams Manufactured Homes, Inc. and financed the purchase through Greentree Financial Corporation, which held the purchase-money obligation and security interest.
- The sales/financing documents contained an arbitration clause requiring arbitration of disputes and included a waiver of jury trial.
- The clause broadly covered disputes and claims arising from the contract, but preserved Greentree’s ability to seek judicial relief to enforce its security interest.
- Pate filed a Chapter 13 bankruptcy case.
- Greentree filed a secured proof of claim for approximately $38,996.19.
- Pate commenced an adversary proceeding against Williams and Greentree asserting prepetition claims including UCC sales claims, Georgia Motor Vehicle Sales Finance Act violations, fraud, and Truth in Lending Act (TILA) violations.
- Greentree moved to stay the adversary proceeding and compel arbitration; Williams did not file a separate motion but asserted arbitration as a defense in its answer.

## Issues

1. Whether the Federal Arbitration Act requires enforcement of the parties’ arbitration agreement in a Chapter 13 adversary proceeding involving claims treated as “core” and related to a creditor’s proof of claim.
2. Whether the arbitration clause was unenforceable under Georgia law for lack of mutuality because it reserved to Greentree certain judicial remedies while requiring Pate to arbitrate.
3. Whether Pate’s statutory and tort claims (including TILA and fraud) fell within the scope of the arbitration clause.

## Decision

- The court granted Greentree’s motion to compel arbitration and stayed the adversary proceeding.
- The court held that arbitration could be compelled notwithstanding the bankruptcy court’s core jurisdiction and the filing of Greentree’s proof of claim because enforcing the clause did not conflict with the Bankruptcy Code’s purposes under the circumstances presented.
- The court rejected Pate’s mutuality challenge under Georgia contract law and found the arbitration clause enforceable.
- The court determined that Pate’s UCC, state consumer-finance, TILA, and fraud claims arose out of or related to the transaction and therefore were covered by the clause.

## Legal Principles

- The Federal Arbitration Act generally requires enforcement of written arbitration agreements according to their terms, subject to ordinary state-law contract defenses applicable to contracts as a whole.
- Bankruptcy jurisdiction and “core” status do not, by themselves, displace the FAA; a court may decline to compel arbitration only when arbitration would conflict with the Bankruptcy Code’s objectives in the конкрет dispute.
- Prepetition consumer-law and statutory claims asserted by a debtor may be compelled to arbitration when their resolution in arbitration does not prevent administration of the estate or the court’s ability to apply bankruptcy remedies.
- Under Georgia law, an arbitration agreement is not void for lack of mutuality merely because it provides one party additional judicial options (such as enforcing a security interest), so long as the agreement is supported by consideration and binds the parties in a meaningful way.
- Broad “arising out of” arbitration language typically encompasses related statutory and fraud claims stemming from the same sales/financing transaction.

## Conclusion

The bankruptcy court stayed the debtor’s adversary proceeding and compelled arbitration, holding that the FAA required enforcement of the prepetition arbitration clause, that no sufficient conflict with bankruptcy administration was shown, and that the clause was not invalid for lack of mutuality under Georgia law.


In re Pate, 198 B.R. 841 (Bankr. S.D. Ga. 1996)