In re Statewide Realty Co.

Statewide Realty Co. (Statewide) (debtor) owned a hotel and entered into a management agreement with Hilton International Company and Vista International (NJ) Inc. (collectively, Hilton) (creditors) to have Hilton manage and operate the business. The management agreement contained an arbitration provision governing any dispute related to the agreement. Disputes arose over operation of the hotel, and Hilton initiated an arbitration proceeding before the American Arbitration Association (AAA) against Statewide and its former partners. Statewide filed a counterclaim against Hilton. Before an arbitrator was selected and hearings began, the parties voluntarily chose to stay the arbitration, attempting to settle their dispute. Statewide filed a voluntary petition for relief in bankruptcy court under the Bankruptcy Code and continued to operate and manage the hotel as a debtor-in-possession. Hilton filed a proof of claim for services rendered before the bankruptcy petition. Statewide moved to reject the management agreement, and the bankruptcy court granted the motion and rejected the agreement. Hilton filed an amended and restated proof of claim with the bankruptcy court and an amended arbitration demand with the AAA. Hilton requested that the AAA continue the arbitration against Statewide’s former partners, removing Statewide from the proceeding. Statewide filed a motion for partial summary judgment with the bankruptcy court, seeking to expunge Hilton’s damage claims as a matter of law based on the management agreement. Hilton filed a motion with the court to compel arbitration.