In Re: Celsius Network LLC

Background

Celsius Mining LLC appealed a Bankruptcy Court order concerning its adversary proceeding against Maws On Infrastructure Group Inc., Luna Squares LLC, and Cosmos Infrastructure LLC. The dispute involved three agreements signed on February 23, 2022: a Co-Location Agreement, a Promissory Note documenting a $20 million loan from Celsius to Luna, and a Security Agreement.

The Co-Location Agreement contained an arbitration clause requiring arbitration of disputes “in connection with” that agreement and, in bold language, “ANY DISPUTE OF ANY NATURE BETWEEN THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT.” The clause also incorporated the American Arbitration Association’s rules, including a rule giving the arbitrator authority to decide the arbitrability of claims—that is, whether particular claims must be arbitrated.

Celsius Mining’s complaint asserted ten claims. The Bankruptcy Court ordered four claims involving alleged breaches of the Co-Location Agreement to arbitration. It denied arbitration for the remaining claims, concluding that they arose under the Promissory Note, which did not contain an arbitration clause. The Bankruptcy Court also denied a request to stay the entire adversary proceeding while arbitration occurred.

Issues on Appeal

The defendants argued that the parties had delegated questions about arbitrability to the arbitrator by incorporating the American Arbitration Association’s rules. They also argued that the Bankruptcy Court had read the arbitration clause too narrowly and that the entire adversary proceeding should be stayed during arbitration.

Court’s Analysis

Judge McMahon held that the Bankruptcy Court correctly decided the threshold question of whether the parties had agreed to arbitrate, but incorrectly limited the agreement to claims “arising under” the Co-Location Agreement. That phrase does not appear in the contract. Instead, the contract uses broader language covering disputes relating in any way to the Co-Location Agreement.

The court concluded that this language can cover disputes connected to other agreements, including the Promissory Note, as long as they relate in any way to the Co-Location Agreement. The court emphasized that the parties’ broad language, rather than merely the fact that the agreements were part of one transaction, established the scope of the arbitration agreement.

The court further held that the parties clearly and unmistakably delegated questions about the scope of the arbitration agreement to the arbitrator. The incorporated American Arbitration Association rules, together with the unusually broad arbitration clause and the contract’s statement that those rules were incorporated into the clause, showed that the arbitrator must decide whether each claim relates in any way to the Co-Location Agreement.

The court also found that no special bankruptcy concern required keeping the remaining claims in the Bankruptcy Court. It agreed with the Bankruptcy Court that one claim labeled as a turnover claim was actually a contract-related claim and did not implicate rights created by bankruptcy law. The court applied the same reasoning to another turnover claim and concluded that the entire complaint could be sent to arbitration.

Ruling and Effect

The court vacated the Bankruptcy Court’s order. It directed the parties to immediately submit the disputes pleaded in the adversary complaint to arbitration under the American Arbitration Association’s commercial arbitration rules. The arbitrator must first decide which claims are arbitrable. If the arbitrator determines that a claim does not relate in any way to the Co-Location Agreement, that claim will be litigated in the Bankruptcy Court.

The court also stayed the entire adversary proceeding pending arbitration. It chose a stay rather than dismissal because the arbitrator had not yet determined which claims were arbitrable, and dismissing claims at that stage could have been premature.