In the absence of intervening legislative or Supreme Court directive, the Second Circuit followed its precedent finding that a debtor could not be compelled to arbitrate his contempt motion for violation of the discharge injunction. Belton v. GE Capital Retail Bank, No. 19-648 (2d Cir. June 16, 2020) (consolidated with Bruce v. Citicorp Inc., No. 19-655). Read More
Tag Archive: arbitration
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Arbitration Clause Not Enforced in Discharge Violation Case
Posted by NCBRC - June 24th, 2020
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No Abuse of Discretion in Denying Motion to Compel Arbitration
Posted by NCBRC - December 17th, 2019
The bankruptcy court did not abuse its discretion in denying the creditor’s motion to compel arbitration of two counts of the debtor’s adversary complaint where one count sought to disallow the creditor’s claim as based on a contract that violated Virginia’s usury and consumer finance laws and the other count asserted claims for violation of those same laws. Allied Title Lending, LLC v. Taylor, 2019 WL 5406039 (E.D. Va. Oct. 22, 2019) (case no. 3:18-cv-845), appeal filed, Taylor v. Allied Title Lending LLC, Case No. 19-2283 (4th Cir. filed Nov. 15, 2019).
The chapter 13 debtor entered into a credit agreement with Allied Title Lending under which she agreed to pay back a $1,500 loan at an annualized interest rate of 273.75%. Allied filed a proof of claim for $2,756.92 in her bankruptcy, and the debtor filed an adversary complaint alleging, in pertinent part, that the underlying lending agreement was null and void because it violated Virginia’s usury and consumer finance laws. Ms. Taylor sought disallowance of Allied’s claim as well as monetary damages and fees and costs for herself and a putative class of similarly-situated plaintiffs. Allied moved to compel arbitration under the terms of the credit agreement. The Attorney General for the Commonwealth of Virginia then moved to intervene in order to press a claim against Allied for violation of Virginia consumer protection laws. At that time, the commonwealth had already filed a case against Allied in state court alleging that Allied’s open-end credit plan and interest rates violated state laws. Read More
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Court Has Discretion to Deny Arbitration in Discharge Injunction Case
Posted by NCBRC - October 21st, 2019
The Fifth Circuit found that the test it established in In re Nat’l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), was still good law notwithstanding the intervening case of Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), and that, under National Gypsum, the bankruptcy properly exercised its discretion to deny the creditor’s motion to compel arbitration in an action alleging discharge injunction violation. Henry v. Educ. Fin. Serv., No 18-20809 (5th Cir. Oct. 17, 2019).
NCBRC, NACBA and Professor Jay Westbrook provided an amicus brief, authored by NACBA member Allan Gropper, in support of the debtor in this case.
Stephanie Henry filed for chapter 13 bankruptcy ten years after entering into a student loan contract with Wells Fargo’s predecessor. After she successfully completed her five-year plan, Wells Fargo sent her a letter containing language to the effect that it was attempting to collect the remaining debt on the loan. Ms. Henry filed an adversary proceeding alleging violation of the discharge injunction. Wells Fargo moved to compel arbitration in accordance with a clause in the lending agreement under which Ms. Henry agreed to have any complaint “arising under or relating to” the debt settled by arbitration. The bankruptcy court denied Wells Fargo’s motion to compel arbitration on the basis that the cause of action did not arise under or relate to the student loan contract. The court certified the case for interlocutory appeal directly to the Fifth Circuit. Read More
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Arbitration Clause Does Not Constrain Court’s Contempt Power
Posted by NCBRC - October 14th, 2019
Finding that “[w]ords in a consumer agreement cannot deprive the bankruptcy court of the inherent power to enforce compliance with an injunction,” the district court found an arbitration clause in a consumer contract did not constrain the court’s contempt powers. Verizon Wireless Personal Communications, LP v. Bateman, No. 14-5369, Adv. Proc. No. 18-1394 (M.D. Fla. Sept. 24, 2019).
Christopher Bateman filed for chapter 7 bankruptcy listing Verizon as an unsecured creditor. Verizon did not acknowledge or take part in the bankruptcy in any way. Five months after Mr. Bateman obtained his discharge, Verizon sent him a letter attempting to collect the discharged debt. Mr. Bateman moved the court to hold Verizon in contempt for violation of the discharge injunction. In response, Verizon moved to compel arbitration, invoking its Customer Agreement with Mr. Bateman which provided that any dispute which “in any way relates to or arises out of” the agreement is subject to arbitration. The bankruptcy court found that its power to enforce its order was not subject to the terms of Mr. Bateman’s Customer Agreement with Verizon. Read More
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Arbitration Issue Goes to Fifth Circuit
Posted by NCBRC - January 18th, 2019
The bankruptcy court denied the creditor’s motion to compel arbitration where the debtor’s adversary complaint, based on the creditor’s violation of the discharge injunction, was based on a purely bankruptcy issue. Henry v. Educ. Fin. Serv., No. 13-30519, Adv. Proc. No. 18-3154 (Bankr. S.D. Tex. Oct. 17, 2018). Read More
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Court Declines to Enforce Arbitration Clause in Student Loan Agreement
Posted by NCBRC - December 13th, 2018
An arbitration clause in a student loan contract is unenforceable where the debtor seeks an order of discharge of the loan in bankruptcy. Roth v. Butler University (In re Roth), No. 17-4109, Adv. Proc. No. 18-50097 (Bankr. S.D. Ind. Nov. 16, 2018).
After Matthew Roth obtained his chapter 7 discharge, he moved to reopen his bankruptcy to seek discharge of his student loans under section 523(a)(8). One of his student loan lenders, Sallie Mae, answered with a motion to compel arbitration based on the terms of the student loan agreement. Read More
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SCOTUS Denies Cert in Creditor’s Arbitration Appeal
Posted by NCBRC - October 1st, 2018
The Supreme Court today denied certiorari in a case filed by Credit One Bank seeking to enforce an arbitration clause in a consumer credit card agreement. Credit One Bank, N.A. v. Anderson, No. 17-1652, petition denied, (Oct. 1, 2018).
The case originated in the Bankruptcy Court for the Southern District of New York on the debtor’s motion to reopen his bankruptcy and seek redress for a discharge injunction violation based on Credit One’s post-discharge collection efforts. Faced with Credit One’s motion to compel arbitration, the bankruptcy court found an inherent conflict between arbitration and the goals of the Bankruptcy Code and denied the motion. The district court and the Second Circuit Court of Appeals affirmed. Anderson v. Credit One Bank, No. 16-2496 (2d Cir. March 7, 2018).
Find copies of NACBA’s amicus brief and the Second Circuit opinion here.
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Second Circuit Finds Arbitration Conflicts with Discharge Injunction
Posted by NCBRC - March 9th, 2018
Arbitration of the debtor’s claim for violation of the discharge injunction presented an inherent conflict with the Bankruptcy Code and the bankruptcy court did not abuse its discretion in refusing to compel arbitration. Anderson v. Credit One Bank, No. 16-2496 (2d Cir. March 7, 2018).
Credit One charged off Orrin Anderson’s credit card debt, sold the account to a debt buyer, and reported the default to the major credit reporting agencies. After Mr. Anderson obtained a chapter 7 discharge, Credit One refused to change the credit report to reflect the discharge. Mr. Anderson reopened his bankruptcy and filed a class action suit complaining that Credit One’s inaction with respect to his credit reports and those of other putative class members violated section 524(a)(2). The bankruptcy court rejected Credit One’s efforts to enforce the arbitration clause in the credit card agreement. On Credit One’s interlocutory appeal, the district court affirmed. In re Anderson, 553 B.R. 221 (S.D. N.Y. 2016). Read More
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Court Properly Declined to Compel Arbitration of Educational Loan Issue
Posted by NCBRC - October 23rd, 2017
Potential discharge of an educational loan is a core bankruptcy proceeding over which the bankruptcy court may exercise jurisdiction despite an arbitration clause in the lending agreement. Navient Solutions v. Farmer, No. 17-764 (W.D. Wash. Oct. 16, 2017).
In her chapter 7 bankruptcy, Janay Farmer sought to discharge a loan she had taken out to finance her post-graduation bar-examination. The lender, Navient, moved to compel arbitration in accordance with the terms of the lending agreement. Reasoning that the issue of treatment of the loan was a core bankruptcy matter, the bankruptcy court found that it had discretion to exercise jurisdiction over the case. In re Farmer, 567 B.R. 895 (Bankr. W.D. Wash. 2017). Read More
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Arbitration Clause a “Farce”
Posted by NCBRC - February 3rd, 2016
“The FAA does not protect the sort of arbitration agreement that unambiguously forbids an arbitrator from even applying the applicable law.” Hayes v. Western Sky Financial, No. 15-1170 (4th Cir. Feb. 2, 2016). Read More
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