Petition for Writ of Certiorari — Credit One Bank, N.A., Petitioner v. Orrin S. Anderson
Supreme Court briefJun 5, 2018
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APPENDICES
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APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Docket No. 16-2496
IN RE ORRIN S. ANDERSON, AKA ORRIN S. ANDERSON,
AKA ORINN SCOTT ANDERSON,
Debtor,
ORRIN S. ANDERSON, ON BEHALF OF HIMSELF AND
ALL OTHERS SIMILARLY SITUATED,
AKA ORINN SCOTT ANDERSON
Plaintiff-Appellee,
v.
CREDIT ONE BANK, N.A.,
Defendant-Appellant.
August Term, 2017
Argued October 11, 2017
Decided March 7, 2018
[884 F.3d 382]
Before: POOLER and DRONEY, Circuit Judges, and
RAMOS,1 District Judge.
Credit One Bank, N.A. appeals from an order of the
United States District Court for the Southern District
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Judge Edgardo Ramos, United States District Court for the
Southern District of New York, sitting by designation.
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of New York (Nelson S. Román, J.), affirming the decision of the United States Bankruptcy Court for the
Southern District of New York (Robert D. Drain,
Bankr. J.) denying Credit One’s motion to compel arbitration. Credit One sought to compel arbitration on the
basis of a clause in the cardholder agreement between
Credit One and Anderson. The bankruptcy court denied that motion, holding that Anderson’s claims implicated core bankruptcy proceedings and that arbitration
would present an inherent conflict with the congressional intent underlying the Bankruptcy Code. Credit
One was entitled to an immediate appeal of the bankruptcy court’s decision pursuant to the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(A). The district court
affirmed the decision of the bankruptcy court, for substantially the same reasons.
On appeal, we conclude that Anderson’s claim is not
arbitrable. The parties now agree that the dispute concerns a core bankruptcy proceeding, so our sole inquiry
is whether arbitrating the matter would present an inherent conflict with the goals of the Bankruptcy Code.
We carefully consider the particular facts of this case in
light of the expressed congressional preference for arbitration and conclude that Anderson’s claims present
an inherent conflict between arbitration and the Bankruptcy Code. The bankruptcy court did not abuse its
discretion in denying the motion to compel arbitration
in this case.
Affirmed and remanded.
______________________
GEORGE F. CARPINELLO, Boies, Schiller &
Flexner LLP (Adam R. Shaw, Anne M.
Nardacci, and Jenna C. Smith, on the brief), Albany, NY, for Plaintiff-Appellee.
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Charles Juntikka, New York, NY, for PlaintiffAppellee (on the brief).
NOAH A. LEVINE, Wilmer Cutler Pickering
Hale and Dorr, LLP (Alan E. Schoenfeld, on
the brief), New York, NY, for DefendantAppellant.
Michael David Slodov, Chagrin Falls, OH, for
Defendant- Appellant.
Evan M. Tager, Charles E. Harris, II, Mayer
Brown LLP, Washington, D.C. and Kate
Comerford Todd, Warren Postman, U.S.
Chamber Litigation Center, for amicus curiae
Chamber of Commerce of the United States of
America in support of Defendant-Appellant
Credit One Bank, N.A.
Tara Twomey, National Consumer Bankruptcy
Rights Center, San Jose, CA for amici curiae
Professors Ralph Brubaker, Robert M. Lawless, and Bruce A. Markell in support of Plaintiff-Appellee Orrin S. Anderson.
POOLER, Circuit Judge:
Orrin Anderson was a credit card holder with a
predecessor in interest of Credit One Bank, N.A.
(“Credit One”). In March 2012, Credit One “charged
off” Anderson’s delinquent debt, which means the bank
changed the outstanding debt from a receivable to a
loss in its own accounting books. It then sold Anderson’s debt to a third-party buyer. Credit One reported
the change in the debt’s status to Equifax, Experian,
and Transunion, indicating both that the bank had
made the internal accounting change and that the debt
remained unpaid. In 2014, Anderson filed a voluntary
Chapter 7 bankruptcy petition and on May 6, 2014, the
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United States Bankruptcy Court for the Southern District of New York (Drain, Bankr. J.) entered a Discharge of Debtor Order of Final Decree (“discharge order”) providing that Anderson was released from all
dischargeable debts and closing Anderson’s Chapter 7
case.
Anderson’s claim arises from Credit One’s subsequent refusal to remove the charge-off notation on Anderson’s credit reports. In December 2014, the bankruptcy court permitted Anderson to reopen his bankruptcy proceeding to file a putative class action complaint against Credit One. Anderson alleges that Credit One’s refusal to change his credit report is an attempt to coerce Anderson into paying a debt that has
already been discharged through bankruptcy, which is
a violation of the bankruptcy court’s discharge injunction. Credit One moved to stay the proceedings and
initiate arbitration in accordance with an arbitration
clause in Anderson’s cardholder agreement with the
bank. The bankruptcy court held that Anderson’s claim
was non-arbitrable because it was a core bankruptcy
proceeding that went to the heart of the “fresh start”
guaranteed to debtors under the Bankruptcy Code.
Credit One filed an interlocutory appeal of that ruling,
as is its right under the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 16(a)(1)(A). The United States
District Court for the Southern District of New York
(Nelson S. Román, J.) agreed with the bankruptcy
court.
The parties agree that the issues raised concern
“core” bankruptcy proceedings and arguments regarding legislative history and statutory text were not
raised below. Accordingly, we need only inquire
whether arbitration of Anderson’s claim presents the
sort of inherent conflict with the Bankruptcy Code that
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would overcome the strong congressional preference
for arbitration. We agree with both lower courts that
Anderson’s complaint is non-arbitrable. The successful
discharge of debt is not merely important to the Bankruptcy Code, it is its principal goal. An attempt to coerce debtors to pay a discharged debt is thus an attempt to undo the effect of the discharge order and the
bankruptcy proceeding itself. Because the issue strikes
at the heart of the bankruptcy court’s unique powers to
enforce its own orders, we affirm the district court decision below.
BACKGROUND
In October 2002, Orrin Anderson opened a credit
card account with First National Bank of Marin, a predecessor in interest to Credit One. Anderson’s cardholder agreement contained an arbitration clause. Specifically, the arbitration agreement provided that “either [Anderson] or [Credit One] may, without the other’s consent, require that any controversy or dispute . . .
be submitted to mandatory, binding arbitration.”
App’x at 426.
In September 2011, Anderson’s Credit One credit
card account became delinquent and it remained so until March 2012, when Credit One “charged off” Anderson’s account, reclassifying Anderson’s debt from a receivable to a loss.2 In May 2012, Credit One sold Anderson’s account to a third-party debt buyer. Credit
2
Federal regulations require banks to “charge off” debt that
is past due by over 180 days. Uniform Retail Credit Classification
and Account Management Policy, 65 Fed. Reg. 36,903, 36,904
(June 12, 2000) (“[O]pen-end retail loans that become past due 180
cumulative days from the contractual due date should be classified
Loss and charged off”).
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One then reported the charge-off and the sale of the
debt to the three major consumer credit reporting
agencies Equifax, Experian, and TransUnion.
On January 31, 2014, Anderson filed a voluntary
Chapter 7 bankruptcy petition in the United States
Bankruptcy Court for the Southern District of New
York. On May 6, 2014, the bankruptcy court entered an
order discharging all of Anderson’s dischargeable debts
and closing his Chapter 7 case.
In September 2014, Anderson contacted Credit
One and asked it to remove the charge-off from his
credit reports since the Credit One debt had been discharged in his bankruptcy proceeding. Credit One refused to contact the credit reporting agencies to correct
the alleged error on Anderson’s credit report. In October 2014, Anderson moved the bankruptcy court to reopen his case in order to pursue Credit One’s “alleged
violations of [Anderson’s] discharge injunction.” App’x
at 94. In December 2014, the bankruptcy court granted
Anderson’s motion to reopen. Anderson thereafter
filed an amended class action complaint in the bankruptcy court alleging that Credit One violated 11
U.S.C. § 524(a)(2) by “knowingly and willfully failing to
update the credit reports of [c]lass [m]embers to signify
the debts owing to [Credit One] have been discharged
in bankruptcy.” App’x at 398. In essence, Anderson
alleged that Credit One refused to update the credit
reporting agencies regarding the discharged debt in an
effort to coerce payment on the discharged debt in violation of the Section 524 discharge injunction.
In March 2015, Credit One moved to compel arbitration pursuant to the terms of the cardholder agreement and to stay the bankruptcy proceeding. The
bankruptcy court held a hearing on May 5 and denied
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the motion nine days later. Less than a month later, in
June 2015, Credit One filed an interlocutory appeal of
the bankruptcy court’s denial of its motion to compel
arbitration. The district court affirmed the decision of
the bankruptcy court a year later in June 2016. Credit
One timely filed its notice of appeal on July 13, 2016 and
amended it on July 26, 2016.
Oral argument was held in this case on October 11,
2017, and thereafter we asked the parties to submit
supplemental briefs on the issue of mootness, given
Credit One’s stipulation that it would update the credit
reports of Anderson and other consumers. The parties
submitted supplemental briefs on October 23, 2017. We
agree with both parties that the stipulation does not
moot the appeal because the question presented and
the relief sought both remain unsettled, such that we
retain jurisdiction under Article III’s “case” or “controversy” requirement. U.S. Const. Art. III, § 2. We
thus proceed to consider the merits of the appeal.
DISCUSSION
I.
STANDARD OF REVIEW
We begin by clarifying the standard of review,
which we acknowledge has been inconsistently or imprecisely applied by this Court. Bankruptcy court decisions are subject to appellate review in the first instance by the district court, pursuant to the statutory
scheme articulated in 28 U.S.C. § 158. The same section of the code grants jurisdiction to the circuit courts
to hear appeals from the orders of the district court. 28
U.S.C. § 158(d). Because this scheme requires district
courts to operate as appellate courts, we engage in plenary, or de novo, review of the district court decision.
In re Manville Forest Prod’s Corp., 896 F.2d 1384, 1388
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(2d Cir. 1990). We then apply the same standard of review employed by the district court to the decision of
the bankruptcy court. Accordingly, we review the
bankruptcy court’s findings of fact for clear error and
its legal determinations de novo. In re U.S. Lines, Inc.,
197 F.3d 631, 640-41 (2d Cir. 1999).
Our review procedure is further dictated by the
specific question posed in this case, namely, whether
arbitration may be compelled in this bankruptcy proceeding. That decision requires the bankruptcy court
to determine first whether the issue involves a “core”
or “non-core” proceeding, a distinction we explain in
more detail below (infra, section II). If the proceeding
is “non-core,” “bankruptcy courts generally must stay”
the proceedings “in favor of arbitration.” In re Crysen/Montenay Energy Co., 226 F.3d 160, 166 (2d Cir.
2000). If the matter involves a core proceeding, the
bankruptcy court is tasked with engaging in a “particularized inquiry into the nature of the claim and the facts
of the specific bankruptcy.” MBNA America Bank,
N.A. v. Hill, 436 F.3d 104, 108 (2d Cir. 2006). If the
bankruptcy court determines that arbitration would
create a “severe conflict” with the purposes of the
Bankruptcy Code, it has discretion to conclude that
“Congress intended to override the Arbitration Act’s
general policy favoring the enforcement of arbitration
agreements.” Id.
We agree with the district court that the bankruptcy court’s discretion to stay the proceedings may only
be exercised if it properly assessed the factors related
to the analysis of a potential inherent conflict between
arbitration and the bankruptcy proceeding. In re Anderson, 553 B.R. 221, 226 (S.D.N.Y. 2016). Accordingly,
we engage in de novo review of the bankruptcy court’s
determinations of whether the proceeding is core or
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non-core and whether arbitration would present the
sort of “severe conflict” with the Bankruptcy Code that
would make arbitration inappropriate. Hill, 436 F.3d at
108. If we find that the bankruptcy court’s legal analysis was correct, we review its decision to either stay
the proceedings or decline to enforce the arbitration
agreement for abuse of discretion. In re U.S. Lines,
Inc., 197 F.3d at 641.
In sum, we engage in clear error review of the
bankruptcy court’s findings of fact and de novo review
of its legal conclusions, including the core/non-core and
inherent conflict determinations. If an inherent conflict
was properly found, we review the decision of whether
to enforce the arbitration agreement under the deferential abuse of discretion standard.
II. CORE OR NON-CORE BANKRUPTCY PROCEEDINGS
In 28 U.S.C. § 157(b)(2), Congress articulated “a
nonexclusive list of 16 types of proceedings” that it considers “core” to the power of the bankruptcy court.
Wellness Intern. Network, Ltd. V. Sharif, 135 S. Ct.
1932, 1940 (2015). Proceedings that are “core” are
those that involve “more pressing bankruptcy concerns.” In re U.S. Lines, Inc., 197 F.3d at 640. We
have previously held that “[b]ankruptcy courts are
more likely to have discretion to refuse to compel arbitration of core bankruptcy matters.” Hill, 436 F.3d at
108.
The parties now agree that Anderson’s claim is a
“core” proceeding. Accordingly, we turn to the second
step of our analysis to assess whether Congress intended for this statutory right to be non-arbitrable, such
that the bankruptcy court had the discretion to refuse
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to compel arbitration in this core bankruptcy proceeding.
III. CONGRESSIONAL INTENT
The Federal Arbitration Act, 9 U.S.C. § 1 et seq.,
“establishes a federal policy favoring arbitration.”
Shearson/American Exp., Inc. v. McMahon, 482 U.S.
220, 226 (1987) (internal quotation marks omitted).
This preference, however, is not absolute. “Like any
statutory directive, the Arbitration Act’s mandate may
be overridden by a contrary congressional command.”
Id., 482 U.S. at 226. In McMahon, the Supreme Court
explained that “[t]he burden is on the party opposing
arbitration . . . to show that Congress intended to preclude a waiver of judicial remedies for the statutory
rights at issue.” Id. at 227. Congressional intent may
be discerned through the “text or legislative history, or
from an inherent conflict between arbitration and the
statute’s underlying purposes.” Id. (internal quotation
marks and citation omitted).
Though Credit One argues on appeal that intent
may be discerned through the text and legislative history, these arguments were not raised by either party
below. In re Anderson, 553 B.R. at 227 n. 3. “It is well
settled that arguments not presented to the district
court are considered waived and generally will not be
considered for the first time on appeal.” Anderson
Group, LLC v. City of Saratoga Springs, 805 F.3d 34,
50 (2d Cir. 2015). That doctrine is, of course, “entirely
prudential” and we are free to consider the arguments
if doing so is “necessary to avoid a manifest injustice.”
Id. (quoting In re Nortel Networks Corp. Sec. Litig.,
539 F.3d 129, 132 (2d Cir. 2008)). However, “the circumstances normally do not militate in favor of an exercise of discretion to address ... new arguments on ap-
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peal where those arguments were available to the parties below and they proffer no reason for their failure to
raise the arguments below.” In re Nortel, 539 F.3d at
133 (internal brackets and quotation marks omitted).
Accordingly, we decline to consider this new argument,
which did not benefit from the analysis of the courts
below. We need only consider whether there is an “inherent conflict between arbitration” and the Bankruptcy Code. McMahon, 482 U.S. at 227.
In order to determine whether enforcement of an
arbitration agreement would present an inherent conflict with the Bankruptcy Code, we must engage in a
particularized inquiry into the nature of the
claim and the facts of the specific bankruptcy.
The objectives of the Bankruptcy Code relevant to this inquiry include the goal of centralized resolution of purely bankruptcy issues, the
need to protect creditors and reorganizing
debtors from piecemeal litigation, and the undisputed power of a bankruptcy court to enforce its own orders.
Hill, 436 F.3d at 108 (citation and internal quotation
marks omitted).
Anderson’s complaint alleges that Credit One violated Section 524(a)(2) of the Bankruptcy Code when it
refused to update the credit reports of Anderson and
other similarly situated discharged debtors. Section
524(a)(2) explains that a bankruptcy discharge
operates as an injunction against the commencement or continuation of an action, the
employment of process, or an act, to collect, recover or offset any such debt as a personal lia-
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bility of the debtor, whether or not discharge of
such debt is waived.
11 U.S.C. § 524(a)(2). Anderson specifically alleges that
Credit One’s refusal reflected “a policy of not updating
credit information for debts that are discharged in
bankruptcy for the purpose of collecting such discharged debt.” App’x at 384. Anderson has alleged
that debt marked as “charged off” rather than “discharged” is more valuable to third-party debt buyers,
who believe debtors will be compelled to pay the discharged debt in order to clear this negative item from
their credit reports. This behavior is alleged to occur
across a class of debtors.
It is well established that the discharge is the foundation upon which all other portions of the Bankruptcy
Code are built. We have observed that “[b]ankruptcy
allows honest but unfortunate debtors an opportunity
to reorder their financial affairs and get a fresh start.
This is accomplished through the statutory discharge of
preexisting debts.” In re DeTrano, 326 F.3d 319, 322
(2d Cir. 2003) (internal citation and quotation marks
omitted). We have previously described the “fresh
start” procured by discharge as the “central purpose of
the bankruptcy code” as shaped by Congress, permitting debtors to obtain a “fresh start in life and a clear
field unburdened by the existence of old debts.” In re
Bogdanovich, 292 F.3d 104, 107 (2d Cir. 2002). The
“fresh start” is only possible if the discharge injunction
crafted by Congress and issued by the bankruptcy
court is fully heeded by creditors and prevents their
further collection efforts. Violations of the injunction
damage the foundation on which the debtor’s fresh
start is built.
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Following the logic of U.S. Lines and Hill, we find
that arbitration of a claim based on an alleged violation
of Section 524(a)(2) would “seriously jeopardize a particular core bankruptcy proceeding.” In re U.S. Lines,
Inc., 197 F.3d at 641. We come to this conclusion because 1) the discharge injunction is integral to the
bankruptcy court’s ability to provide debtors with the
fresh start that is the very purpose of the Code; 2) the
claim regards an ongoing bankruptcy matter that requires continuing court supervision; and 3) the equitable powers of the bankruptcy court to enforce its own
injunctions are central to the structure of the Code.
The fact that Anderson’s claim comes in the form of a
putative class action does not undermine this conclusion.
First, discharge is the paramount tool used to effectuate the central goal of bankruptcy: providing
debtors a fresh financial start. In Hill, we distinguished that claim involving an automatic stay in an already-closed bankruptcy case from those cases in which
courts found the claim to be non-arbitrable by observing that “Hill’s bankruptcy case is now closed and she
has been discharged. Resolution of Hill’s claim against
MBNA therefore cannot affect an ongoing reorganization, and arbitration would not conflict with the objectives of the automatic stay.” 436 F.3d at 110. In the
non-arbitrable cases on the other hand, “resolution of
the arbitrable claims directly implicated matters central to the purposes and policies of the Bankruptcy
Code.” 436 F.3d at 110. Because there is no matter
more “central to the purposes and policies of the Bankruptcy Code” than the fresh start provided by discharge, arbitration of Anderson’s claim presents an inherent conflict with the Bankruptcy Code.
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Second, Anderson’s claims center on alleged violations of a discharge injunction that was still eligible for
active enforcement. In Hill, we declined to find an inherent conflict where the debtor “no longer require[d]
the protection of the stay to ensure her fresh start” because her estate had been fully administered. Id. Anderson alleges the precise opposite in his complaint: the
protection of the injunction is absolutely required to
ensure his fresh start and he claims that Credit One violated that injunction. Unlike the automatic stay, the
discharge injunction is likely to be central to bankruptcy long after the close of proceedings. The automatic
stay exists only while bankruptcy proceedings continue
to ensure the status quo ante, while the integrity of the
discharge must be protected indefinitely. Enforcement
of the arbitration agreement in this case would interfere with the fresh start bankruptcy promises debtors,
which would create an inherent conflict with the Code.
Third, enforcement of injunctions is a crucial pillar
of the powers of the bankruptcy courts and central to
the statutory scheme. In Hill, we recognized that we
must consider “the undisputed power of a bankruptcy
court to enforce its own orders” as part of our “particularized inquiry into the nature of the claim and the facts
of a specific bankruptcy.” Id. at 108 (quoting Ins. Co. of
N. Am. v. NGC Settlement Trust & Asbestos Claims
Mgmt. Corp. (In re Nat’l Gypsum Co.), 118 F.3d 1056,
1069 (5th Cir.1997)). In that case we determined that
the automatic stay “which arises by operation of statutory law” was not “so closely related to an injunction
that the bankruptcy court is uniquely able to interpret
and enforce its provisions.” Id. at 110. Credit One argues that because the discharge injunction at issue here
is based in a statute and executed by the court as a
standard form using boilerplate language, the unique
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powers of the bankruptcy court are not implicated in
any meaningful way. We disagree. Though the discharge injunction itself is statutory and thus a standard
part of every bankruptcy proceeding, the bankruptcy
court retains a unique expertise in interpreting its own
injunctions and determining when they have been violated. Congress afforded the bankruptcy courts wide
latitude to enforce their own orders, specifically granting these specialty courts the power to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the Bankruptcy
Code.3 11 U.S.C. § 105(a). We have previously observed that “[t]he statutory contempt powers given to
a bankruptcy court under § 105(a) complement the inherent powers of a federal court to enforce its own orders.” In re Kalikow, 602 F.3d 82, 96 (2d Cir. 2010).
Neither the statutory basis of the order nor its similarity—even uniformity—across bankruptcy cases alters
the simple fact that the discharge injunction is an order
issued by the bankruptcy court and that the bankruptcy court alone possesses the power and unique expertise to enforce it. Indeed, as one set of amici noted in
their brief, violations of a discharge injunction simply
cannot be described as “claims” subject to arbitration
and the typical tools of contract interpretation.4 Instead, violations of this court-ordered injunction are
3
Though it is not at issue in this appeal, amici persuasively
document the judicial and legislative history of the discharge injunction and argue that “Congress deliberately chose to vest the
federal court presiding over a bankruptcy case with injunctive
power to enforce the bankruptcy debtor’s discharge.” Amici Curiae Br. for Professors Ralph Brubaker, Robert M. Lawless, and
Bruce A. Markell in Support of Appellee (“Amici Professors Br.”)
at 5.
4
Amici Professors Br. at 12-18.
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enforceable only by the bankruptcy court and only by a
contempt citation.
The power to enforce an injunction is complementary to the duty to obey the injunction, which the Supreme Court has described as a duty borne out of “respect for judicial process.” GTE Sylvania, Inc. v. Consumers Union of U.S., Inc., 445 U.S. 375, 387 (1980) (internal quotation marks omitted). That same respect for
judicial process requires us to hold that the bankruptcy
court alone has the power to enforce the discharge injunction in Section 524. Arbitration of the claim would
thus present an inherent conflict with the Bankruptcy
Code.
Finally, we observe that the class action nature of
this case does not alter our analysis. In Hill, we determined that the posture of the claim as a putative
class action cut against Hill’s argument that her claim
was “integral to her individual bankruptcy proceeding.”
Hill, 436 F.3d at 110. We have already established that
the discharge injunction at issue here is absolutely integral to the fresh start assured by Anderson’s bankruptcy proceeding. We further observe that the procedural posture of Hill’s case—a claim for a violation of
the automatic stay long after that stay had been rendered moot by the closing of her bankruptcy case—
undercut the claimed class action in a way that is not
relevant to Anderson’s claim. We observed that like
the plaintiff herself, many of Hill’s putative class members were “no longer in bankruptcy proceedings” and
that the effort to tie her claim to this larger amorphous
class suggested a “lack of close connection” between
her claim and the underlying bankruptcy case. Id.
Again, the facts of Anderson’s case are easily distinguished. Unlike violations of stays that are already
mooted by the conclusion of bankruptcy proceedings,
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where the putative class members are all allegedly victims of willful violations of the discharge injunction issued by the bankruptcy court there is a continuing disruption of the debtors’ ability to obtain their fresh
starts.
IV. DISCRETION TO DECLINE TO ENFORCE ARBITRATION
AGREEMENT
Because we determine there is an inherent conflict
between arbitration of Anderson’s claim and the Bankruptcy Code, we must also assess whether the bankruptcy court abused its discretion in declining to enforce the arbitration agreement.
We find that the bankruptcy court “properly considered the conflicting policies in accordance with law.”
In re U.S. Lines, Inc., 197 F.3d at 641. Accordingly,
“we acknowledge its exercise of discretion and show
due deference to its determination that arbitration will
seriously jeopardize a particular core bankruptcy proceeding.” Id. We hold that the bankruptcy court did
not abuse its discretion by denying Credit One’s motion
to compel arbitration in this case.
CONCLUSION
For the foregoing reasons, we hereby AFFIRM the
order of the district court and REMAND for further
proceedings consistent with this opinion.
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APPENDIX B
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
No. 15-cv-4227 (NSR)
IN RE ORINN S. ANDERSON,
Debtor,
CREDIT ONE FINANCIAL,
Appellant,
-againstORRIN S. ANDERSON, A/K/A ORINN
ANDERSON, A/K/A ORINN SCOTT ANDERSON,
Appellee, on behalf of
himself and all others
similarly situated.
Signed June 14, 2016
[553 BR 221]
OPINION & ORDER
NELSON S. ROMÁN, United States District Judge
Credit One appeals from an order of the United
States Bankruptcy Court for the Southern District of
New York (Drain, J.) (the “Bankruptcy Court”) dated
May 14, 2015 (ECF No. 3, Exhibit A), denying Credit
One’s motion to compel arbitration under the Federal
Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. For the
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following reasons, the Bankruptcy Court’s order is
AFFIRMED.
BACKGROUND
Plaintiff-Appellee Orrin Anderson opened a credit
card account with Defendant-Appellant Credit One in
2002. Mr. Anderson’s cardholder agreement contained
an arbitration agreement, which provided that, “[y] ou
and we agree that either you or we may, without the
other’s consent, require that any controversy or dispute between you and us (all of which are called
“Claims”), be submitted to mandatory, binding arbitration.” (Appx. at 203, ECF No. 33:3.) The agreement
additionally provided that “[c]laims subject to arbitration include, but are not limited to, disputes relating to
the establishment, terms, treatment, operation, handling, limitations on or termination of your account; …
credit reporting… or collections matters relating to
your account; … and any other matters relating to your
account, a prior related account or the resulting relationships between you and us.” (Id. at 204.)
In 2011, Mr. Anderson defaulted on the account,
and the account was closed in December 2011. Mr. Anderson filed a voluntary bankruptcy with the Bankruptcy Court on January 31, 2014. As a result of the
bankruptcy proceedings, Mr. Anderson received a discharge of consumer debt, including the Credit One account. Despite the discharge, the debt remained on Mr.
Anderson’s credit report as “charged off” (i.e., not discharged in bankruptcy). Mr. Anderson subsequently
contacted Credit One to notify it that the debt had been
discharged in bankruptcy and to request that Credit
One update his credit report. According to Mr. Anderson, Credit One took no action and Mr. Anderson’s
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credit report continues to show the debt as charged off
rather than discharged in bankruptcy.
On October 17, 2014, Mr. Anderson moved to reopen the bankruptcy proceeding and after a hearing, the
Bankruptcy Court reopened the case to “permit the
Debtor to commence and pursue an adversary proceeding… against Credit One Bank with respect to alleged
violations of the Debtor’s discharge injunction.” (Bank.
Doc. 14-22147-rdd, ECF No. 26.) Thereafter, Mr. Anderson filed an Amended Class Action Complaint (the
“Class Action Complaint”), seeking to represent a class
of persons having credit reports with remaining entries
for discharged debts. In the Class Action Complaint,
Mr. Anderson asserts a cause of action pursuant to 11
U.S.C. § 524 (“§ 524”) and 11 U.S.C. § 105 (“§ 105”).
Under § 524, a discharge in a bankruptcy action acts as
an injunction against all efforts to collect a discharged
debt. 11 U.S.C. § 524. Section 105(a) of the Bankruptcy
Code empowers a bankruptcy court with authority to
issue “any order, process, or judgment that is necessary or appropriate to carry out the provisions of [the
Bankruptcy Code].” 11 U.S.C. § 105(a).
On March 3, 2015, Credit One filed a combined motion to compel arbitration, among other requests. The
Bankruptcy Court held a hearing on May 5, 2015, and
on May 14, 2015, the Bankruptcy Court issued an order
denying Credit One’s motion to compel arbitration, relying principally on the analysis in In re Belton, No. 1223037 (RDD), 2014 WL 5819586 (Bankr. S.D.N.Y. Nov.
10, 2014), rev’d, No. 15 CV 1934 VB, 2015 WL 6163083
(S.D.N.Y. Oct. 14, 2015), motion to certify appeal denied, No. 15 CV 1934 (VB), 2016 WL 164620 (S.D.N.Y.
Jan. 12, 2016) (hereinafter, Belton I). Credit One now
appeals that denial.
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STANDARD OF REVIEW
A district court “may affirm, modify, or reverse a
bankruptcy judge’s judgment, order, or decree.” Fed.
R. Bankr. P. 8013. A district court reviews a bankruptcy court’s conclusions of law de novo and its findings of
fact under a clearly erroneous standard. See In re
Ames Dep’t Stores, Inc., 582 F.3d 422, 426 (2d Cir. 2009)
(citing Momentum Mfg. Corp. v. Emp. Creditors
Comm., 25 F.3d 1132, 1136 (2d Cir. 1994)).
DISCUSSION
V. APPLICABLE STANDARD OF REVIEW
As an initial matter, the parties dispute the applicable standard of review. More specifically, Mr. Anderson contends that this Court must afford due deference to the Bankruptcy Court’s determination, relying
on MBNA America Bank, N.A. v. Hill, 436 F.3d 104,
107 (2d Cir. 2006) (hereinafter, Hill). Hill states that
“[i]f the bankruptcy court ‘has properly considered the
conflicting policies in accordance with law, we
acknowledge its exercise of discretion and show due
deference to its determination that arbitration will seriously jeopardize a particular core bankruptcy proceeding.’” Id. (quoting U.S. Lines, Inc. v. Am. S.S.
Owners Mut. Prot. & Indem. Ass’n, Inc. (In re U.S.
Lines, Inc.), 197 F.3d 631, 641 (2d Cir. 1999)). However,
due deference is only afforded to a bankruptcy court’s
exercise of discretion. But a bankruptcy court will not
always have this discretion; only where “it finds that
the [core] proceedings are based on provisions of the
Bankruptcy Code that inherently conflict with the
[FAA] or that arbitration of the claim would necessarily jeopardize the objectives of the Bankruptcy Code”
will the bankruptcy court have discretion to override
23a
the arbitration agreement. In re Salander-O’Reilly
Galleries, LLC, 475 B.R. 9, 25-26 (S.D.N.Y. 2012) (citing Hill, 436 F.3d at 108). The determination of whether a bankruptcy court has this discretion is “a matter of
law that must be reviewed de novo.” In re Lehman
Bros. Holdings, Inc., No. 14 CIV. 7643 ER, 2015 WL
5729645, at *4 (S.D.N.Y. Sept. 30, 2015) (citing In re
Winimo Realty Corp., 270 B.R. 108, 117 (S.D.N.Y.
2001) (internal citations omitted)). Accordingly, this
Court is required to review de novo the Bankruptcy
Court’s determination of whether the proceedings for
violations of discharge injunctions inherently conflict
with the FAA. If, and only if, there is an inherent conflict, the Bankruptcy Court is afforded discretion to
override the arbitration agreement, an exercise of
which is then entitled to due deference.
VI. ARBITRABILITY OF VIOLATION OF DISCHARGE INJUNCTION CLAIMS
The issue before the Court, therefore, is whether
the Bankruptcy Court had discretion to override the
arbitration agreement.1 A bankruptcy court has discretion to refuse arbitration where it finds that “Congress intended to preclude a waiver of judicial remedies
1
Although Mr. Anderson raises arguments regarding the validity and scope of the arbitration agreements, (Brief of PlaintiffAppellee Orrin S. Anderson, ECF No. 34, at 21-23), these issues
are raised for the first time on appeal and therefore will not be
considered. In re Nortel Networks Corp. Sec. Litig., 539 F.3d 129,
132 (2d Cir. 2008) (“it is a well-established general rule that an
appellate court will not consider an issue raised for the first time
on appeal.”) (internal citations omitted). (See also Hearing Transcript, ECF No. 3, Exhibit B, at 38: 12-15 (“I don’t believe that the
plaintiff disputes that there is, in fact, a valid agreement to arbitrate or that the scope of the agreement covers the claims that are
being made here.”))
24a
for the statutory rights at issue.” Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 227 (1987).2 Proof
of such congressional intent could “be discoverable in
the text of the [statute], its legislative history, or an
inherent conflict between arbitration and the [statute’s] underlying purposes,” Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991) (internal quotation marks omitted) (emphasis added).3 Mr.
Anderson contends—and the Bankruptcy Court
agreed—that congressional intent to preclude arbitration is evident due to an inherent conflict between arbitration and the purposes of the Bankruptcy Code. On
appeal, Credit One urges the Court to find that no such
2
The FAA establishes a “federal policy favoring arbitration
agreements,” Moses H. Cone Mem’l Hosp. v. Mercury Constr.
Corp., 460 U.S. 1, 24 (1983), and provides that written agreements
to arbitrate “shall be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the revocation of any
contract.” 9 U.S.C. § 2. A court has a duty to stay proceedings and
refer the matter to arbitration if it is satisfied that the issue before
it is arbitrable, and “[t]his duty to enforce arbitration agreements
is not diminished when a party bound by an agreement raises a
claim founded on statutory rights.” McMahon, 482 U.S. at 226.
However, where a court finds that “Congress intended to preclude
a waiver of judicial remedies for the statutory rights at issue,” the
issue is not arbitrable and no stay should be granted. Id. at 227
3
Gilmer’s discussion of congressional intent makes clear that
intent may be established any one of those three ways (i.e. text,
legislative history, or inherent conflict). 500 U.S. at 26. See also
In re U.S. Lines, Inc., 197 F.3d at 640 (finding congressional intent
to prohibit arbitration through an inherent conflict, when no conflict was apparent in the text or legislative history of the statute).
The parties in the instant case do not assert that any such intent is
present in the statute’s text or history. Therefore, the Court confines it focus to whether there is an inherent conflict between arbitration and the Bankruptcy Code.
25a
conflict exists.4 Accordingly, the Court must determine
if Congress demonstrated an intent to preclude a waiver of judicial remedies by asking whether or not an inherent conflict exists between arbitration and the underlying purposes of the Bankruptcy Code.
In addressing inherent conflicts between the Bankruptcy Code and the FAA, the Second Circuit has
drawn a distinction between core and non-core proceedings. See In re U.S. Lines, Inc., 197 F.3d at 640.
“[B]ankruptcy courts generally do not have discretion
to decline to stay non-core proceedings in favor of arbitration,” because in non-core proceedings, the interest
of the Bankruptcy Court is not as great. See In re
Crysen/Montenay Energy Co., 226 F.3d 160, 166 (2d
Cir. 2000). Core proceedings, on the other hand, implicate more pressing bankruptcy concerns and thus are
more likely to “present a conflict sufficient to override
by implication the presumption in favor of arbitration.”
Id. Nevertheless, the bankruptcy court does not always have the discretion to override an arbitration
agreement in core proceedings. Only proceedings that
“are premised on provisions of the Code that ‘inherently conflict’ with the [FAA]” and proceedings where
“arbitration [would] necessarily jeopardize the objectives of the Bankruptcy Code” present the type of severe conflict necessary to demonstrate congressional
intent to preclude a waiver of judicial remedies. Insurance Co. of N. Am. v. NGC Settlement Trust & Asbes4
In Reply, Credit One argues, by analogy to the FCRA, that
a pre-discharge credit reporting of accurate information does not
violate the discharge injunction. (Reply Brief of DefendantAppellant Credit One Bank, N.A., ECF No. 36, at 3-5.) This argument goes to the substance of the proceeding before the Bankruptcy Court and is irrelevant for purposes of determining this
appeal.
26a
tos Claims Mgmt Corp. (In re Nat’l Gypsum Co.), 118
F.3d 1056, 1067 (5th Cir. 1997).
Therefore, to determine that the Bankruptcy Court
had discretion to override the arbitration agreement,
the Court must find an inherent conflict. Because only
core issues present an inherent conflict, the Court must
first determine if the issues are core or non-core to the
Bankruptcy Code. If the issues are core, the Court
must then decide whether arbitration would present a
severe, inherent conflict with or necessarily jeopardize
the objectives of the Bankruptcy Code.
A. Core versus non-core
In this case, Mr. Anderson’s claim pursuant to § 524
of the Bankruptcy Code is properly characterized as a
core issue. See Haynes v. Chase Bank USA, N.A. (In
re Haynes), Adv. Pro. No. 13–08370–rdd, 2014 WL
3608891, at *7 (Bankr. S.D.N.Y. Jul. 22, 2014) (“A ‘core
proceeding’ includes enforcement of the discharge,
there being few matters as ‘core’ to the basic function
of the bankruptcy courts as the enforcement of the discharge under Sections 524 and 727 of the Bankruptcy
Code.”); In re Torres, 367 B.R. 478, 481 (Bankr.
S.D.N.Y. 2007) (“There is no question that the plaintiffs’ claims to enforce Bankruptcy Code section
524(a)(2)’s discharge injunction are core proceedings….”); In re Texaco Inc., 182 B.R. 937, 945 (Bankr.
S.D.N.Y. 1995) (citing In re Kiker, 98 B.R. 103, 103-04
(Bankr. N.D. Ga. 1988) for the proposition that a debtor’s motion to reopen a Chapter 13 case to enjoin an alleged violation of the discharge provision of 11 U.S.C.
§ 524 is a core proceeding); In re Russell, 378 B.R. 735,
738 (Bankr. E.D.N.Y. 2007) (holding that a “claim
brought under 11 U.S.C. § 524(a)(2) [] constitutes a core
proceeding.”).
27a
Credit One acknowledges that Mr. Anderson’s individual claim to enforce the discharge injunction is a
“core” claim under the Bankruptcy Code, but it contends that the class claims are “non-core” claims that
should be arbitrated because (1) the Bankruptcy Court
lacks jurisdiction over the putative class’s claims because they do not relate to Mr. Anderson’s bankruptcy,
and (2) the Bankruptcy Court does not have subject
matter jurisdiction to enforce discharge injunctions entered in other districts. (Credit One Memo at 17-22.)
The Bankruptcy Court previously heard and disposed of the core/non-core issue:
[The putative class members] are debtors, too.
They also got a discharge. They got a discharge under the Bankruptcy Code, specific
provisions of the Bankruptcy Code, 11 U.S.C.
524 and 727. Consequently, I believe under 28
U.S.C. Sections 157(a) through (b) and 1334,
those claims which arise under the Bankruptcy
Code, those rights to enforce the discharge
which arise under the Bankruptcy Code, i.e.
524 and 727, Congress specifically provided
that the bankruptcy court has core jurisdiction.
… This is like fundamentally core. There’s
nothing more fundamental than the discharge,
as every court that has considered this issue
has ruled.
(Hearing Transcript at 48: 10-22.) Moreover, the arguments regarding jurisdiction were made in and rejected
by the Bankruptcy Court, and this Court refused to
grant Credit One leave to appeal those determinations.
See Anderson v. Credit One Bank. N.A. (In re Anderson), No. 15–cv–4227(NSR), 2016 WL 787481 (S.D.N.Y.
Feb. 22, 2016) (declining to hear an appeal of (1) wheth-
28a
er the Bankruptcy Court has subject matter jurisdiction to entertain a putative nationwide class action over
non-core claims for alleged violations of the discharge
orders of other bankruptcy courts, and (2) whether the
Bankruptcy Court has subject matter jurisdiction to
award declaratory or injunctive relief or punitive damages for an alleged violation of the discharge injunction). Thus, those matters are not currently before the
Court.
In any event, the determination of whether a matter is core or non-core depends on the nature of the
proceeding. See In re Best Products Co., 68 F.3d 26, 31
(2d Cir. 1995). Specifically:
[c]ore proceedings are those that are found to
be arising under the Bankruptcy Code or arising in a bankruptcy case. Proceedings arising
under the Bankruptcy Code are those that
clearly invoke substantive rights created by
federal bankruptcy law. Proceedings arising in
a bankruptcy case are those claims that are not
based on any right expressly created by the
Bankruptcy Code, but nevertheless, would
have no existence outside of the bankruptcy.
In re Robert Plan Corp., 777 F.3d 594, 596-97 (2d Cir.),
cert. denied sub nom. Kirschenbaum v. Dep’t of Labor,
136 S. Ct. 317, 193 L. Ed. 2d 227 (2015) (internal citations, quotation marks, and alterations omitted). The
discharge is clearly a right created by federal bankruptcy law, and an enforcement proceeding concerning
that discharge therefore arises under the Bankruptcy
Code. See In re Nat’l Gypsum Co., 118 F.3d at 1064
(“[A] proceeding to enforce or construe a bankruptcy
court’s section 524(a) discharge injunction … necessarily arises under title 11”). Thus, a proceeding concern-
29a
ing a violation of a discharge injunction is a core proceeding. See, e.g., In re Torres, 367 B.R. at 481 (“There
is no question that the plaintiffs’ claims to enforce
Bankruptcy Code section 524(a)(2)’s discharge injunction are core proceedings”). Therefore, given that the
issues are core, the Court must proceed to the second
inquiry and determine whether enforcement of the discharge injunction by arbitration inherently conflicts
with or necessarily jeopardizes the objectives of the
Bankruptcy Code.
B. Inherent Conflict or Necessarily Jeopardized
Objectives
To make a determination that an inherent conflict
exists, a court must engage in “a particularized inquiry
into the nature of the claim and the facts of the specific
bankruptcy.”5 Hill, 436 F.3d at 108. A court may find
that an “inherent conflict” exists where arbitration of a
claim would “necessarily jeopardize” the objectives of
the Bankruptcy Code, which include “the goal of centralized resolution of purely bankruptcy issues, the
need to protect creditors and reorganizing debtors from
piecemeal litigation, and the undisputed power of a
bankruptcy court to enforce its own orders.” Hill, 436
F.3d at 108 (citing In re Nat’l Gypsum Co., 118 F.3d at
1069). Such a severe conflict exists “where arbitration
is inadequate to protect the substantive rights at is5
“Disputes that involve both the Bankruptcy Code and the
[FAA] often present conflicts of ‘near polar extremes: bankruptcy
policy exerts an inexorable pull towards centralization while arbitration policy advocates a decentralized approach toward dispute
resolution.’” Hill, 436 F.3d at 108 (citing In re U.S. Lines, Inc., 197
F.3d at 640 (quoting Societe Nationale Algerienne Pour La Recherche, La Production, Le Transport, La Transformation et La
Commercialisation des Hydrocarbures v. Distrigas Corp., 80 B.R.
606, 610 (D. Mass. 1987)).
30a
sue.” McMahon, 482 U.S. at 226. “If a severe conflict is
found, then the court can properly conclude that, with
respect to the particular Code provision involved, Congress intended to override the [FAA’s] general policy
favoring the enforcement of arbitration agreements.”
Hill, 436 F.3d at 108.
Here, the Bankruptcy Court refused to stay the
proceedings and compel arbitration on the grounds that
the discharge is the fundamental right of the debtor obtained in bankruptcy, as it guarantees a debtor’s fresh
start, which is a central purpose of the Bankruptcy
Code, and that purpose should not be jeopardized by
decentralized resolution of claims through arbitration.
(See Hearing Transcript at 45-50.) In so holding, the
court relied primarily on its analysis in Belton I and
Second Circuit precedent in MBNA America Bank,
N.A. v. Hill.
The Court agrees that arbitrating PlaintiffsAppellees’ § 524 claims would necessarily jeopardize
the objectives of the Bankruptcy Code.
In coming to this conclusion, the Court considers
and applies the analysis from the seminal case on point,
MBNA America Bank, N.A. v. Hill, where the Second
Circuit enumerated three justifications for not finding
an inherent conflict. 436 F.3d at 109. In addition, the
Court takes into account an additional consideration—
uniform application of the bankruptcy law.
i.
Hill Analysis
In Hill, the Second Circuit ruled that arbitration of
the claim would not seriously jeopardize the objectives
of the Bankruptcy Code because “(1) Hill’s estate has
now been fully administered and her debts have been
discharged, so she no longer requires protection of the
31a
automatic stay and resolution of the claim would have
no effect on her bankruptcy estate; (2) as a purported
class action, Hill’s claims lack the direct connection to
her own bankruptcy case that would weigh in favor of
refusing to compel arbitration; and (3) a stay is not so
closely related to an injunction that the bankruptcy
court is uniquely able to interpret and enforce its provisions.” Id. Applying each of these justifications to the
instant case, the Court finds that the weight of authority compels the opposite conclusion.
In Hill, the court noted that, first and most importantly, arbitration of Hill’s § 362(h) claim would not
jeopardize the important purposes that the automatic
stay serves, including “providing debtors with a fresh
start, protecting the assets of the estate, and allowing
the bankruptcy court to centralize disputes concerning
the estate.” Hill, 436 F.3d at 109. The court explained
that, because the bankruptcy case had closed, the automatic stay (which operates during the adjudication of
the bankruptcy) was no longer necessary, so arbitration
would not conflict with the objectives of the automatic
stay. This distinguished Hill’s case from the cases in
which “resolution of the arbitrable claims directly implicated matters central to the purposes and policies of
the Bankruptcy Code.” Id. (citing In re U.S. Lines,
Inc., 197 F.3d at 641 (core insurance claims were integral to bankruptcy court’s ability to preserve and equitably distribute assets of the estate where debtor faced
mass tort actions); In re Gandy, 299 F.3d 489, 495-99
(5th Cir. 2002) (core claims represented almost entirety
of the debtor’s estate, the claims concerned the equitable distribution of the assets among creditors, and one
of the remedies sought was not available in arbitration); Phillips v. Congelton, L.L.C. (In re White Mountain Mining Co., L.L.C.), 403 F.3d 164, 170 (4th Cir.
32a
2005) (bankruptcy court’s conclusion that arbitration of
the claims would “substantially interfere with [the
debtor’s] efforts to reorganize” not clearly erroneous)).
In the instant case, the Court must instead examine the purposes and objectives of the discharge (rather
than the automatic stay) and whether Mr. Anderson
still requires protection of the discharge.
The Bankruptcy Code stems from “Congress’s determination, rooted in Article 1, Section 8 of the Constitution, that debtors should be able to discharge their
debts and creditors should have the benefit of uniform
bankruptcy laws premised on that ultimate quid pro
quo.” Belton I, 2014 WL 5819586, at *8. Accordingly,
“Congress made it a central purpose of the
[B]ankruptcy [C]ode to give debtors a fresh start in life
and a clear field for future effort unburdened by the existence of old debts.” In re Bogdanovich, 292 F.3d 104,
107 (2d Cir. 2002). The effectiveness of a bankruptcy
proceeding therefore relies exclusively on a functioning
discharge.6 In other words, only through enforcement
of the discharge order can the discharge provided by
the Bankruptcy Court provide the debtor with a “fresh
start,” a central objective to the bankruptcy laws. In re
DeTrano, 326 F.3d 319, 322 (2d Cir. 2003) (citing Cohen
v. de la Cruz, 523 U.S. 213, 217 (1998)) (“Bankruptcy
allows ‘honest but unfortunate’ debtors an opportunity
to reorder their financial affairs and get a fresh start.
This is accomplished through the statutory discharge of
preexisting debts.”); In re Nassoko, 405 B.R. 515, 522
(Bankr. S.D.N.Y. 2009) (citing Green v. Welsh, 956 F.2d
30, 33 (2d Cir. 1992)).
6
For this reason, the Bankruptcy Court ruled that “[t]here’s
nothing more fundamental than the discharge.” (Hearing Transcript at 48.)
33a
Moreover, the discharge is the mechanism through
which debtors are protected after the resolution of
their bankruptcy proceedings and distribution of their
estates. Thus, whereas Hill “no longer require[d] the
protection of the stay to ensure her fresh start,” the
discharge is essential in the post-bankruptcy context,
and its objective is still—if not primarily—implicated
after the estate is fully administered. In other words,
in Hill, the automatic stay was at issue, and the automatic stay by definition operates during the debtor’s
bankruptcy, which explains the Hill court’s reluctance
to hold that an inherent conflict exists where the bankruptcy proceeding had concluded and the estate had
been administered. In contrast, the discharge operates
post-bankruptcy to ensure the objectives of the bankruptcy are carried out. Therefore, a central purpose of
the Bankruptcy Code is implicated by the discharge
even after the conclusion of bankruptcy proceedings,
and arbitration of a discharge violation would jeopardize this central objective.7
7
This conclusion is reinforced by the Fifth Circuit’s decision
in In re Nat’l Gypsum Co., 118 F.3d at 1056. In Nat’l Gypsum, the
debtors alleged that the creditor’s collection efforts—
preconfirmation claims that the creditor was attempting to enforce in a series of demand letters—violated their discharge obtained in bankruptcy. Id. at 1059-60. After recognizing that “not
all core bankruptcy proceedings are premised on provisions of the
Code that ‘inherently conflict’ with the [FAA],” the court went on
to hold that, nevertheless, “arbitration of a core bankruptcy adversary proceeding brought to determine whether [the creditor’s]
collection efforts were barred by the section 524(a) discharge injunction … would be inconsistent with the Bankruptcy Code.” Id.
at 1067, 1071. Because the dispute involved “adjudication of federal bankruptcy rights wholly divorced from inherited contractual
claims,” the court found that “importance of the federal bankruptcy forum provided by the Code is at its zenith.” Id. at 1068.
34a
Accordingly, the Court does not read Hill to imply
that arbitration is inappropriate only if it would substantially interfere with equitable distribution of the
estate assets or debtors’ efforts to reorganize.8 Indeed,
as the Second Circuit stated, “[f]irst, and most importantly, arbitration of Hill’s § 362(h) claim would not
jeopardize the important purposes that the automatic
stay serves: providing debtors with a fresh start. …”
436 F.3d at 109. Clearly, then, Hill confirmed an additional, central objective of the Bankruptcy Code–
providing debtors with a fresh start–which also has
been recognized consistently by Second Circuit courts.
See In re Bogdanovich, 292 F.3d at 107 (“Congress
made it a central purpose of the [B]ankruptcy [C]ode to
give debtors a fresh start in life and a clear field for future effort unburdened by the existence of old debts.”);
In re Stoltz, 315 F.3d 80, 94 (2d Cir. 2002) (same); In re
Hayes, 183 F.3d 162, 167 (2d Cir. 1999) (quoting Local
Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)) (“one of the
primary purposes of the bankruptcy act is to ... permit
[the honest debtor] to start afresh”) (alteration in original). See also Schwab v. Reilly, 560 U.S. 770, 791
(2010) (holding that the fresh start is a fundamental
8
On this point, the Court notes that it is in disagreement
with In re Belton, No. 15 CV 1934 VB, 2015 WL 6163083, at *7
(S.D.N.Y. Oct. 14, 2015), motion to certify appeal denied, No. 15
CV 1934 (VB), 2016 WL 164620 (S.D.N.Y. Jan. 12, 2016) (hereinafter, Belton II). In Belton II, the court held that “Hill stands for
the more modest proposition that claims alleging violations of the
Bankruptcy Code should not be arbitrated if those claims are ‘integral to [the] bankruptcy court’s ability to preserve and equitably
distribute assets of the estate’ or if arbitration would ‘substantially interfere with [the debtor’s] efforts to reorganize.’” Id. (citing
Hill, 436 F.3d at 110 (internal quotation marks omitted)). For the
reasons above, this Court respectfully disagrees with this conclusion.
35a
bankruptcy concept); United States v. Johns, No. 11–
3299, 2012 WL 2899060, at *11 (7th Cir. July 17, 2012)
(“one of the central purposes of the Bankruptcy Code ...
is to give debtors a fresh start.” ) (citations omitted).
This objective is predominantly achieved through the
discharge, and, therefore, the question of whether a
discharge injunction has been violated is essential to
proper functioning of the Bankruptcy Code, and arbitration is inadequate to protect such core, substantive
rights granted by the Code.9 See, e.g., In re Norman,
No. 04-11682, 2006 WL 2818814, at *2 (Bankr. M.D. Ala.
Sept. 29, 2006) (“The question of whether a discharge
injunction issued by the Federal Bankruptcy Court has
been violated ought to be decided by a bankruptcy
judge and not by an arbitrator.”). See also In re
Haemmerle, 529 B.R. 17, 25 (Bankr. E.D.N.Y. 2015)
(“The discharge injunction is intended to further one of
the primary purposes of the Bankruptcy Code: giving
the debtor an opportunity to make a financial fresh
start, unburdened by efforts to collect debts she no
longer owes.”) (collecting cases). This is not to say that
whenever the debtor’s fresh start is at issue, arbitration is unavailable; however, in the instant case, where
9
Although it is true that “by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by
the statute; it only submits to their resolution in an arbitral, rather
than a judicial, forum,” Congress may evince an intent to preclude
waiver of judicial remedies where statutory rights are not appropriate for arbitration. Gilmer v. Interstate/Johnson Lane Corp.,
500 U.S. 20, 26 (1991) (internal quotation marks omitted). In the
instant case, given the high barriers individual debtors would face
if arbitrating on an individual basis— specifically, cost and efficient resolution of claims—arbitration is inadequate to protect the
debtors’ rights to a discharge. See Belton I, 2014 WL 5819586, at
*9.
36a
the discharge is so fundamentally related to a debtor’s
fresh start, this conclusion is warranted.
The Court now turns to Hill’s other two bases for
holding that arbitration of the plaintiff’s automatic stay
claim would not seriously jeopardize the objectives of
the Bankruptcy Code—the facts that the proceeding
was a class action and that a bankruptcy court is not
uniquely able to interpret an automatic stay.
The Hill court noted, secondly, that the fact that
Hill filed her claim as a class action tended to show that
the claim is not integral to her individual bankruptcy
proceedings, and that lack of direct connection weighed
in favor of arbitration. Hill, 436 F.3d at 110. “By tying
her claim to a class of allegedly similarly situated individuals, many of whom are no longer in bankruptcy
proceedings, she demonstrates the lack of close connection between the claim and her own underlying bankruptcy case.” Id. Here too, the class action nature of
the action weighs in favor of arbitration.
Third and finally, Hill explained that because an
arbitrator would be asked to interpret and enforce a
statute, rather than an affirmative order of the bankruptcy court, arbitration is an appropriate and competent forum for the § 362 claim. Hill, 436 F.3d at 110. In
contrast, the claims here arise from a discharge injunction, which is an affirmative order of the bankruptcy
court. As noted in Hill, a main objective of the Bankruptcy Code is the “undisputed power of a bankruptcy
court to enforce its own orders.” Hill, 436 F.3d at 10809. Additionally, courts in the Second Circuit consistently recognize the unique power of a bankruptcy court
to interpret its own orders. See Deep v. Copyright
Creditors, 122 F. App’x 530, 533 (2d Cir. 2004) (citing In
re Casse, 198 F.3d 327, 333 (2d Cir. 1999) (“The bank-
37a
ruptcy court [is] in the best position to interpret its
own orders.”); In re Texaco Inc., 182 B.R. 937, 947
(Bankr. S.D.N.Y. 1995) (“A bankruptcy court is undoubtedly the best qualified to interpret and enforce its
own orders including those providing for discharge and
injunction”). See also PRL USA Holdings, Inc. v.
United States Polo Ass’n, Inc., No. 14-CV-764 RJS,
2015 WL 1442487, at *6 (S.D.N.Y. Mar. 27, 2015) (“Federal courts, and federal courts alone, possess ‘the inherent authority to enforce their judgments,’ and the FAA
may not be construed to divest courts of their traditional powers to police their own orders.”) (citing
Cardell Fin. Corp. v. Suchodolski Assoc., Inc., 896 F.
Supp. 2d 320, 328 (S.D.N.Y. 2012); Emilio v. Sprint
Spectrum L.P., No. 08–cv–7147 (BSJ), 2008 WL
4865050, at *2 (S.D.N.Y. Nov. 6, 2008), rev’d on other
grounds, No. 08 CV 7147(BSJ), 2008 WL 4865050, at *1
(S.D.N.Y. Nov. 6, 2008), order vacated in part, No. 08
CV 7147(BSJ), 2008 WL 4865182 (S.D.N.Y. Nov. 6,
2008), and aff’d, 315 F. App’x 322 (2d Cir. 2009)). This
consideration, therefore, weighs in favor of refusing to
compel arbitration, as the Bankruptcy Court is uniquely suited to interpret its discharge order.
In sum, the considerations outlined in Hill, as applied to the instant case, weigh against arbitration.
ii. Additional Consideration – Uniformity
In addition to the three considerations in Hill, the
court in Belton I—relied on by the Bankruptcy Court in
the instant case—addressed an additional justification
for arbitration that this Court finds compelling. Specifically, Belton I emphasized the importance of the uniform application of bankruptcy law, which has been
recognized consistently in courts throughout this district. Belton I, 2014 WL 5819586, at *10; Lehman Bros.
38a
Holdings Inc. v. Wellmont Health Sys., No. 14 CIV.
01083 LGS, 2014 WL 3583089, at *1 (S.D.N.Y. July 18,
2014) (finding that uniformity in the administration of
bankruptcy laws weighs in favor of leaving the case in
bankruptcy court, noting that although the claims are
principally private and contractual in nature, “they are
brought within the context of similar disputes arising
out of various [] agreements”); In re Lehman Bros.
Holdings Inc., 480 B.R. 179, 196 (S.D.N.Y. 2012) (recognizing the important policy promoting uniform application of the bankruptcy law); In re Extended Stay,
Inc., 466 B.R. 188, 207 (S.D.N.Y. 2011) (same). Accordingly, Belton I emphasized the need for “complete and
consistent relief,” which “is more likely to occur if [the
disputes are] determined by … a bankruptcy court [rather] than on an arbitration-by-arbitration basis of separate alleged violations of the discharge.” Belton I, 2014
WL 5819586, at *10. See also In re Nat’l Gypsum, 118
F.3d at 1070 n. 21 (“Efficient resolution of claims [is an]
integral purpos[e] of the Bankruptcy Code.”). In other
words, uniform application of the Bankruptcy Code is
furthered by federal, class action litigation:
Uniformity in application of the law to the facts
in these federal statutory claims is furthered
by federal court litigation and not arbitration.
… The result is, that certain fact situations
may be expected to bring about fairly consistent results, wherever they are tried. To
subject these matters to arbitration, before individuals or tribunals with little or no experience in bankruptcy law or practice, and with
little or no concern for the rights and interests
of the body of creditors, of which the particular
defendant is only one, would introduce varia-
39a
bles into the equation which could potentially
bring about totally inconsistent results.10
In re Bethlehem Steel Corp., 390 B.R. 784, 794-95
(Bankr. S.D.N.Y. 2008). Here, a number of debtors assert claims under virtually identical agreements with
one creditor—Credit One. Given that each individual
claim would be subject to separate arbitration, this
could create wildly inconsistent results. This is especially true in light of the broad discretion arbitrators
have in deciding whether or not to apply collateral estoppel offensively. Bear, Stearns & Co., Bear, Stearns
Sec. Corp. v. 1109580 Ontario, Inc., 409 F.3d 87, 92 (2d
Cir. 2005) (“In view of differing results reached by different panels, the arbitrators had discretion to apply
collateral estoppel or not.”). In Bear Stearns, the Second Circuit upheld an arbitration decision where the
arbitrator refused to apply collateral estoppel where
differing results had been reached in separate, related
arbitrations. Id. It is certainly plausible, if not probable, that the same result (i.e., inconsistent decisions)
would manifest in the instant case if the disputes were
to be sent to separate arbitrations. Thus, multiple violations of a discharge injunction by one creditor are
more efficiently and uniformly decided by federal litigation.
In light of the two Hill factors weighing against
arbitration and the additional consideration of uniform
application of the discharge injunction, the Court finds
that the Bankruptcy Court had discretion to refuse to
10
The Court recognizes that the instant case presents the inverse scenario; namely, a number of debtors and one particular
creditor. However, the policy of uniform application of the Bankruptcy Code, as well as concerns about the introduction of numerous variables into the equation, apply in both scenarios equally.
40a
compel arbitration and agrees with the Bankruptcy
Court’s determination. As stated previously, when the
Bankruptcy Court exercises its discretion to override
an arbitration agreement, this Court must afford that
determination due deference, and the Court finds no
clear error in that aspect of the Bankruptcy Court’s decision.
CONCLUSION
For the foregoing reasons, the Court AFFIRMS
the Bankruptcy Court’s order denying Credit One’s
motion to compel arbitration. Accordingly, Credit
One’s motion to expedite the appeal and motion to stay
the Bankruptcy Court proceedings are mooted. The
Clerk of the Court is respectfully requested to terminate the motions at ECF Nos. 22 and 40 and close this
case.
Dated: June 14, 2016
White Plains, New York
SO ORDERED
[Signature]
NELSON S. ROMAN
United States District
Judge
41a
APPENDIX C
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Chapter 7
Case No. 14-22147 (RDD)
Adv. Proc. No. 15-08214 (RDD)
IN RE ORINN S. ANDERSON,
Debtor,
ORINN S. ANDERSON, A/K/A ORINN ANDERSON,
A/K/A ORINN SCOTT ANDERSON,
Debtor and Plaintiff on
behalf of himself and all
others similarly situated,
v.
CREDIT ONE BANK, N.A. AND
CREDIT ONE FINANCIAL
Defendants.
Filed May 14, 2015
ORDER ON DEFENDANTS’ MOTIONS TO
COMPEL ARBITRATION, TO STRIKE CLASS
ALLEGATIONS, AND TO DISMISS OR STAY
Upon the motions (the “Motions”) of the Defendants herein for an order or orders (1) compelling arbitration, pursuant to the Federal Arbitration Act
(“FAA”), 9 U.S.C. §§ 2-4, Fed.R. Bankr. P. 7012(b), incorporating Fed. R. Civ. P. 12(b)(3), (2) striking the
42a
class allegations, pursuant to Fed.R. Bankr. P. 7012(b),
incorporating Fed.R. Civ. P. 12(f), along with
Fed.R.Bankr. P. 7023, incorporating Fed. R.Civ. P.
23(c)(1)(A) and 23(d)(1)(D), and the FAA, (3) dismissing
the complaint in this adversary proceeding, pursuant to
Fed. R. Bankr. P. 7012 and 7021, incorporating Fed. R.
Civ. P. 12(b)(1), 12(b)(6) and 21, and (4) staying all activity in this adversary proceeding pending determination of various issues in other pending adversary proceedings, pursuant to 9 U.S.C. § 3 and the Court’s inherent authority; and, after due and sufficient notice of
the Motions, upon Plaintiffs’ opposition thereto (Dkt.
#9); and upon all pleadings submitted in connection
therewith and the record of the hearing held by the
Court on the Motions on May 5, 2015 (the “Hearing”);
and, after due deliberation and for the reasons stated
by the Court at the Hearing, it is hereby
ORDERED that the Motions to compel arbitration,
to strike class allegations, and to dismiss or stay are
DENIED, with the exception of that the portion of the
Motions that seeks the dismissal of the complaint in
this adversary proceeding against Credit One Financial, which is GRANTED without prejudice.
Dated: May 14, 2015
White Plains, New York
/s/ Robert D. Drain
Honorable Robert D. Drain
United States Bankruptcy
Judge
43a
APPENDIX D
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Chapter 7
Case No. 14-22147 (RDD)
Adv. Proc 15-08214 (RDD)
IN RE ORRIN S. ANDERSON,
Debtor.
ORRIN S. ANDERSON,
Plaintiff,
v.
CREDIT ONE BANK, N.A. ET AL,
Defendants.
TRANSCRIPT OF STATUS CONFERENCE;
PRE-TRIAL CONFERENCE;
MOTION TO DISMISS ADVERSARY
PROCEEDING, TO COMPEL ARBITRATION,
TO STRIKE CLASS ALLEGATIONS,
TO STAY PROCEEDINGS
Tuesday, May 5, 2015
11:04 a.m.
BEFORE THE HONORABLE ROBERT D. DRAIN
UNITED STATES BANKRUPTCY COURT JUDGE
44a
*
*
*
[*44] other cases.
THE COURT: Okay.
MR. CARPINELLO: Thank you.
THE COURT: All right.
MR. SLODOV: Your Honor, could I respond just
briefly?
THE COURT: Sure.
MR. SLODOV: I read through all the transcripts
in Bruce and Echevarria and Belton and Haynes, and
the one thing that I didn’t see the Court address, and I
grazed it earlier, is the question of how it’s possible
that a putative class claim becomes a core claim. I don’t
understand how that’s possible.
THE COURT: Well, it’s dealt with actually in the
Haynes opinion, I believe. It’s—
MR. SLODOV: I think the Court addressed—
THE COURT: —to enforce a right under Section
524(a) and 105(a) of the Bankruptcy Code, which specifically applies to enforcing rights under Section 524. It
arises under the Bankruptcy Code. Therefore, the fact
that there’s no estate is completely irrelevant since the
discharge under Section 524 and 727 are statutory provisions that Congress enacted so that creditors would
be precluded from pursuing interest on claims against
debtors after they are discharged.
And the statement that there’s no private right of
[*45] action under 524 is essentially a red herring because the courts have clearly recognized that there is a
cause of action to enforce the discharge as within the
bankruptcy court’s authority to enforce a specific code
45a
provision, including Section 524, see In re Nosek, 544
F.3d 44 (1st Cir. 2008), which states that the Court has
its own contempt power, as well as power under Section 105(a).
So this is really addressed in the Haynes opinion,
2014 WL 3608891 (Bankr. S.D.N.Y., July 22, 2014),
which addresses the class action issue. It’s not separately addressed in the arbitration decision, which is
Belton, 2014 WL 5819586, In Re Belton (Bankr.
S.D.N.Y., November 10, 2014).
But, you know, as I noted in Belton, nothing is
more core to bankruptcy, particularly an individual’s
bankruptcy, than getting his or her discharge and making it work. And I think you acknowledged that the
Court has power to enforce a discharge and award
sanctions for failure to do so, as well as issue an order
compelling performance or withholding or ceasing the
violation of the discharge. And the power to do that is
under 105(a), as well as the Court’s general contempt
power.
So to me the private cause of action point is really a
red herring and ignores the jurisdictional structure of
the code, which in 1334(b) states that the district courts
have jurisdiction over claims arising in and arising under and related to the bankruptcy code and case, and
then that [*46] jurisdiction is conferred on the bankruptcy court with respect to core matters.
Under 157 as far as—157(a) and (b) as far as arising
in and arising under, this clearly arises under the code.
There’s nothing more central to the Bankruptcy Code
than 524 and 727, and 105(a)—
MR. SLODOV: Your Honor, the—
46a
THE COURT: —specifically gives authority to enforce that, and it’s not limited to the Court’s own specific jurisdiction, but it’s to enforcing provisions of the
Bankruptcy Code, which is what Congress chose to do.
I’m assuming it chose to do that as opposed to just saying follow the All Writs Act because it conferred on
bankruptcy courts the power to enforce the Bankruptcy Code, and that encompasses class actions specifically—
MR. SLODOV: Your Honor, if I—
THE COURT: —as set forth in Rule 7023.
MR. SLODOV: If I could interject one point. I just
wanted to make the observation that what I’m referring to is congressional intent. And in construct—in
construing whether to compel arbitration or not, the
Court’s required to consider whether or not Congress
has indicated an intent to preclude waiver of judicial
remedies for the statutory right.
THE COURT: Well, okay.
MR. SLODOV: And—
[*47] THE COURT: And this is your FCRA argument?
MR. SLODOV: No, Your Honor.
THE COURT: Okay.
MR. SLODOV: I was trying to point out that if I
understand the Court—
THE COURT: Because the—you know, the Second Circuit in the Simon case says that the FCRA
doesn’t really apply in bankruptcy cases anyway because bankruptcy is special, In re Simon. But anyway,
I’m sorry I interrupted you.
47a
MR. SLODOV: I’m sorry, Your Honor.
As I understood what the Court held in Belton,
that under MBNA v. Hill, the Court’s required to make
a determination particularly as to inquiry into the nature of the claims and the facts of the specific bankruptcy to ascertain whether or not that intent is evident—congressional intent, that is. And under MBNA
v. Hill, the question as I read MBNA v. Hill turns on
the distinction between what’s core and what’s noncore.
And my point was, Your Honor, that with respect
to absent putative class members, their claims, relative
to Mr. Anderson, have to be considered non-core. I
don’t understand how you can reach the conclusion despite everything you’ve said, and I don’t disagree with
the fact that the Court has, you know, authority to enforce the discharge order, impose sanctions, you know,
for contempt as it pertains to the debtor.
[*48] My issue here is how do you get to that—
from that to a claim of absent class members and finding them to be core claims because if they’re non-core
claims, per MBNA v. Hill, the Court doesn’t have discretion and has to refer those claims to arbitration.
THE COURT: But—
MR. SLODOV: That’s the point that I was trying
to make.
THE COURT: Okay. But I—I’ll say this one more
time. They are debtors, too. They also got a discharge.
They got a discharge under the Bankruptcy Code, specific provisions of the Bankruptcy Code, 11 U.S.C. 524
and 727.
Consequently, I believe under 28 U.S.C. Sections
157(a) through (b) and 1334, those claims which arise
48a
under the Bankruptcy Code, those rights to enforce the
discharge which arise under the Bankruptcy Code, i.e.
524 and 727, Congress specifically provided that the
bankruptcy court has core jurisdiction.
And it’s more than, you know, the items listed in
(b)(2). This is like fundamentally core. There’s nothing
more fundamental than the discharge, as every court
that has considered this issue has ruled. And I think I
may have left out in the Belton decision In re Norman,
2006 Bankr. LEXIS 2576 (Bankr. M.D. Ala. 2006),
which ruled the same way. So it just—it’s at 157(b)(1).
It’s right there. Arising under Title 11. They separately say arising in, so it’s not limited to the case. It’s arising under Title [*49] 11.
As far as congressional intent is concerned, I have
to believe that Congress still thinks that debtors who
have actually earned the discharge, the honest but unfortunate debtor, should not be put to having to come
up with the cost to initiate an arbitration in front of
non-judges, which as I said in an aside in Belton is completely contradictory to the Supreme Court’s case law
under -- or the reading of the Supreme Court’s case law
under Stern, but maybe we’ll get an answer to that in
the Wellness decision where at least two or three of the
justices have a hard time with arbitration under the
logic of Wellness.
But it—this one, I think you’re right. You’re not
going to win on this one. And except to the extent I’ve
supplemented on the record here, I’ll rely on the logic
in Belton. And that includes on this point, as far as the
other debtors, i.e. the putative class debtors, the analysis in Haynes, which makes clear I think, as Judge Isgur did, as well, in the Cano case that I cited, that Section 105 is in furtherance of the and in addition to the
49a
Court’s contempt powers and, by its own terms, provides for enforcement of individual provisions of the
Bankruptcy Code, which are—clearly include Section
524 and 527. So maybe we should move on off of arbitration.
[*50] I do think that the agreement here differs
somewhat from the agreement in Belton, but in fact differs in a way that is not helpful to the cause of arbitration in that it would have someone who’s just gone
through a Chapter 7 bankruptcy. And if it’s supposed
to work right, and I believe it does work right in this
district and elsewhere, the debtor is basically left with
his or her income, whatever that is going forward, and
exempt assets and nothing else.
So Congress clearly has stated by MBNA v. Hill,
put a premium on the debtor’s fresh start, and it’s hard
for me to believe that Congress, where there was an
allegation that the discharge is being violated, would so
jeopardize the fresh start as to require the debtor to
shell out the cost of an arbitration and leave it up to the
arbitrator and/or the good graces of the credit card
company to shift that cost to the credit card company.
I also have concerns that there’s no express acknowledgment of equitable relief or injunctive relief.
The primary relief being sought here is to stop the allegedly improper violation of the discharge, and as I
discussed in Belton, that power is at best hazy and time
consuming if one goes the arbitration route even when
there is an express acknowledgment of injunctive and
equitable remedies in the agreement.
So I believe that in this—with regard to these
[*51] types of causative action, I should agree with the
other courts that have held that arbitration was not intended by Congress when a violation of a discharge was
50a
at issue and whether that’s for an individual debtor before the court in the case before the court—that is the
Chapter 7 case before the court—or debtors generally.
Congress recognized a class action remedy, and in the
jurisdictional sections that I’ve quoted, gave the Court
the power to enforce the code generally. So maybe we
should turn to the next issue.
MR. SLODOV: Thank you, Your Honor.
The next issue that was briefed is the motion to
dismiss for improper venue. A number of the courts
have likened or analogized the arbitration agreement
itself as a forum selection clause, and when a case is
filed in court as opposed to an arbitration, it’s considered to be in the wrong venue.
THE COURT: But this is—
MR. SLODOV: And—
THE COURT: There’s no specific venue selection
provision here. It’s really just premised on the arbitration provision, right?
MR. SLODOV: Yes.
THE COURT: So if I conclude that arbitration
doesn’t apply, logically I should conclude that this argument doesn’t hold water either.
*
*
*
51a
APPENDIX E
FIRST NATIONAL BANK of Marin
M-47416 (06-02)
PARTIALLY SECURED
VISA/MASTERCARD CARDHOLDER
AGREEMENT, DISCLOSURE STATEMENT AND
ARBITRATION AGREEMENT
PLEASE READ THIS PROVISION OF YOUR CARD
AGREEMENT CAREFULLY. IT PROVIDES THAT
EITHER YOU OR WE CAN REQUIRE THAT ANY
CONTROVERSY OR DISPUTE BE RESOLVED BY
BINDING ARBITRATION.
ARBITRATION REPLACES THE RIGHT TO GO TO COURT, INCLUDING THE RIGHT TO A JURY AND THE RIGHT TO
PARTICIPATE IN A CLASS ACTION OR SIMILAR
PROCEEDING. IN ARBITRATION, A DISPUTE IS
RESOLVED BY A NEUTRAL ARBITRATOR INSTEAD OF A JUDGE OR JURY. ARBITRATION
PROCEDURES ARE SIMPLER AND MORE LIMITED THAN RULES APPLICABLE IN COURT. IN
ARBITRATION, YOU MAY CHOOSE TO HAVE A
HEARING AND BE REPRESENTED BY COUNSEL.
Agreement to Arbitrate:
You and we agree that either you or we may, without
the other’s consent, require that any controversy or
dispute between you and us (all of which are called
“Claims”), be submitted to mandatory, binding arbitration. This arbitration provision is made pursuant to a
transaction involving interstate commerce, and shall be
52a
governed by, and enforceable under, the Federal Arbitration Act (the “FAA”), 9 U.S.C. §1 et seq., and (to the
extent State law is applicable), the State law governing
this Agreement.
Claims Covered:
Claims subject to arbitration include, but are not
limited to, disputes relating to the establishment,
terms, treatment, operation, handling, limitations
on or termination of your account; any disclosures
or other documents or communications relating to
your account; any transactions or attempted transactions involving your account, whether authorized
or not; billing, billing errors, credit reporting, the
posting of transactions, payment or credits, or collections matters relating to your account; services
or benefits programs relating to your account,
whether or not they are offered, introduced, sold or
provided by us; advertisements, promotions, or oral
or written statements related to (or preceding the
opening of) your account, goods or services financed under your account, or the terms of financing; the application, enforceability or interpretation
of this Agreement, including this arbitration provision; and any other matters relating to your account, a prior related account or the resulting relationships between you and us. Any questions about
what Claims are subject to arbitration shall be resolved by interpreting this arbitration provision in
the broadest way the law will allow it to be enforced.
Claims subject to arbitration include not only
Claims made directly by you, but also Claims made
by anyone connected with you or claiming through
you, such as a co-applicant or authorized user of
53a
your account, your agent, representative or heirs,
or a trustee in bankruptcy. Similarly, Claims subject to arbitration include not only Claims that relate directly to us, a parent company, affiliated
company, and any predecessors and successors
(and the employees, officers and directors of all of
these entities), but also Claims for which we may
be directly or indirectly liable, even if we are not
properly named at the time the Claim is made.
Claims subject to arbitration include Claims based
on any theory of law, any contract, statute, regulation, ordinance, tort (including fraud or any intentional tort), common law, constitutional provision,
respondeat superior, agency or other doctrine concerning liability for other persons, custom or course
of dealing or any other legal or equitable ground
(including any claim for injunctive or declaratory
relief).
Claims subject to arbitration include
Claims based on any allegations of fact, including
an alleged act, inaction, omission, suppression, representation, statement, obligation, duty, right, condition, status or relationship.
Claims subject to arbitration include Claims that
arose in the past, or arise in the present or future.
Claims are subject to arbitration whether they are
made independently or with other claims in proceedings involving you, us or others. Claims subject to arbitration include Claims that are made as
counterclaims, crossclaims, third-party claims, interpleaders or otherwise, and a party who initiates
a proceeding in court may elect arbitration with respect to any Claim(s) advanced in the lawsuit by
any other party or parties. Claims subject to arbitration include Claims made as part of a class action
54a
or other representative action, and the arbitration
of such Claims must proceed on an individual basis.
If you or we require arbitration of a particular
Claim, neither you, we, nor any other person may
pursue the Claim in any litigation, whether as a
class action, private attorney general action, other
representative action or otherwise.
Claims are not subject to arbitration if they are
filed by you or us in a small claims court, so long as
the matter remains in such court and advances only
an individual claim for relief.
Initiation of Arbitration: The party filing an arbitration must choose one of the following three arbitration administrators: National Arbitration Forum;
American Arbitration Association; or JAMS. These
administrators are independent from us, and you must
follow their rules and procedures for initiating and pursuing an arbitration. If you initiate the arbitration, you
must also notify us in writing at Post Office Box 90249,
Henderson, Nevada 89009-0249. If we initiate the arbitration, we will notify you in writing at your then current billing address or (if your account is closed) the
last address we have on file for you. Any arbitration
hearing that you attend will be held at a place chosen
by the arbitrator or arbitration administrator in the
same city as the U.S. District Court closest to your billing address, or at some other place to which you and we
agree in writing. You may obtain copies of the current
rules of each of the three arbitration administrators
named above, and other related materials, including
forms and instructions for initiating an arbitration, by
contacting the arbitration administrators as follows:
55a
National Arbitration Forum
P.O. Box 50191
Minneapolis, MN 55405
Web Site: www.arbitration-forum.com
American Arbitration Association
335 Madison Avenue, Floor 10
New York, NY 10017-4605
Web Site: www.adr.org
JAMS
1920 Main Street, Suite 300
Irvine, CA 92610
Web Site: www.jamsadr.com
Procedures and Law Applicable in Arbitration:
A single arbitrator will resolve Claims. The arbitrator
will either be a lawyer with at least ten years experience or a retired or former judge. The arbitrator will
be selected in accordance with the rules of the arbitration administrator and will be neutral. The arbitration
will be conducted under the applicable procedures and
rules of the arbitration administrator that are in effect
on the date the arbitration is filed unless this arbitration provision is inconsistent with those procedures and
rules, in which case this Agreement will prevail. These
procedures and rules may limit the amount of discovery
available to you or us. The arbitrator will apply applicable substantive law consistent with the FAA and applicable statutes of limitations, and will honor claims of
privilege recognized at law. The arbitrator will take
reasonable steps to protect customer account information and other confidential information, including the
use of protective orders to prohibit disclosure outside
the arbitration, if requested to do so by you or us. The
56a
arbitrator will have the power to award to a party any
damages or other relief provided for under applicable
law, and will not have the power to award relief to,
against, or for the benefit of, any person who is not a
party to the proceeding. The arbitrator will make any
award in writing but need not provide a statement of
reasons unless requested by a party. Upon a request
by you or us, the arbitrator will provide a brief statement of the reasons for the award.
Costs: If we file the arbitration, we will pay the initial filing fee. If you file the arbitration, you will pay
the initial filing fee, unless you seek and qualify for a
fee waiver under the applicable rules of the arbitration
administrator. We will reimburse you for the initial filing fee if you paid it and you prevail. If there is a hearing, we will pay any fees of the arbitrator and arbitration administrator for the first day of that hearing. All
other fees will be allocated in keeping with the rules of
the arbitration administrator and applicable law. However, we will advance or reimburse filing fees and other
fees if the arbitration administrator or arbitrator determines there is other good reason for requiring us to
do so, or we determine there is good cause for doing so.
Each party will bear the expense of that party’s attorneys, experts, and witnesses, and other expenses, regardless of which party prevails, except that the arbitrator shall apply any applicable law in determining
whether a party should recover any or all expenses
from another party.
All
parties to the arbitration must be individually named.
Claims by persons other than individually named parties shall not be raised or determined. Notwithstanding anything else that may be in this arbitration provision or Agreement, no class action, private attorney
No Consolidation or Joinder of Parties:
57a
general action or other representative action may be
pursued in arbitration, nor may such action be pursued
in court if any party has elected arbitration. Unless
consented to by all parties to the arbitration, Claims of
two or more persons may not be joined, consolidated or
otherwise brought together in the same arbitration (unless those persons are applicants, co-applicants or authorized users on a single account and/or related accounts or parties to a single transaction or related
transactions); this is so whether or not the Claims (or
any interest in the Claims) may have been assigned.
Enforcement, Finality, Appeals: You or we may
bring an action, including a summary or expedited motion, to compel arbitration of Claims subject to arbitration, or to stay the litigation of any Claims pending arbitration, in any court having jurisdiction. Such action
may be brought at any time, even if any such Claims
are part of a lawsuit, unless a trial has begun or a final
judgment has been entered. Failure or forbearance to
enforce this arbitration provision at any particular
time, or in connection with any particular Claims, will
not constitute a waiver of any rights to require arbitration at a later time or in connection with any other
Claims. Any additional or different agreement between you and us regarding arbitration must be in
writing.
Within fifteen days after an award by the single
arbitrator, any party may appeal the award by requesting in writing a new arbitration before a panel of three
neutral arbitrators designated by the same arbitration
administrator. The panel will consider all factual and
legal issues anew, follow the same rules that apply to a
proceeding using a single arbitrator, and make decisions based on the vote of the majority. Costs will be
allocated in the same way they are allocated for arbi-
58a
tration before a single arbitrator. An award by a panel,
or an award by a single arbitrator after fifteen days has
passed, shall be final and binding on the parties, subject
to judicial review that may be permitted under the
FAA. An award in arbitration will be enforceable as
provided by the FAA or other applicable law by any
court having jurisdiction. An award in arbitration shall
determine the rights and obligations between the
named parties only, and only in respect of the Claims in
arbitration, and shall not have any bearing on the
rights and obligations of any other person, nor on the
resolution of any other dispute or controversy.
Severability, Survival: This arbitration provision
shall survive: (i) termination or changes in the Agreement, the account and the relationship between you and
us concerning the account; (ii) the bankruptcy of any
party; and (iii) any transfer or assignment of your account, or any amounts owed on your account, to any
other person. If any portion of this arbitration provision is deemed invalid or unenforceable, the remaining
portions shall nevertheless remain in force.
59a
APPENDIX F
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Chapter 7
Case No. 14-22147 (RDD)
IN RE ORINN S. ANDERSON,
Debtor,
ORINN S. ANDERSON, A/K/A ORINN ANDERSON,
A/K/A ORINN SCOTT ANDERSON,
Debtor and Plaintiff
on behalf of himself
and all others similarly
situated,
v.
CREDIT ONE BANK, N.A. AND
CREDIT ONE FINANCIAL
AMENDED CLASS ACTION
ADVERSARY COMPLAINT
1. Plaintiff, Orinn S. Anderson, on behalf of himself and all others similarly situated, brings this Complaint, by and through his attorneys, for declaratory
judgment, injunctive relief and damages arising out of
the Defendants’ systematic practice of violating the
discharge injunction under Section 524(a)(2) of the
Bankruptcy Code, 11 U.S.C. Sections 101 et seq. by acting to collect discharged debts through their failure to
update and correct credit information to credit report-
60a
ing agencies to show that such debts are no longer due
and owing and that they have been discharged in bankruptcy.
JURISDICTION AND VENUE
2. This Court has original jurisdiction pursuant to
28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in U.S.C. § 157(b)(2)(A) and (O).
3. Venue is properly in this District pursuant to
28 U.S.C. § 1391(b)(1) and (2), as Defendants resides in
this District within the meaning of § 1391(c)(2), Plaintiff
resides in this district, and a substantial part of the
events or omissions giving rise to Plaintiff’s claims occurred here.
PARTIES
4. Plaintiff Orinn S. Anderson resides at 215
South 9th Avenue, Mount Vernon, Westchester County, New York.
5. Upon information and belief, Credit One Bank,
N.A. is a banking association existing under the laws of
the United States with a place of business in Las Vegas, Nevada and engages in continuous business within
the State of New York.
6. Upon information and belief, Credit One Financial is a banking association existing under the laws
of the United States with a place of business in Las Vegas, Nevada and engages in continuous business within
the State of New York.
7. Credit One Bank, N.A. and Credit One Financial are collectively referred to herein as “Defendants.”
61a
8. The debt Plaintiff previously owed to Defendants were reporting to the credit reporting agencies as
owed to “Credit One Bank.”
BACKGROUND
9. This Complaint alleges that Defendants have
violated § 524(a)(2) of the Bankruptcy Code because
they have willfully attempted to collect on discharged
debts. Specifically: (1) Defendants were aware of
Plaintiff’s discharge in bankruptcy and the discharge of
the debts Plaintiff owed to Defendants; (2) Defendants
were aware that they were reporting on the status of
Plaintiff’s accounts incorrectly; (3) Defendants had the
ability to update or correct their reporting on the status of Plaintiff’s accounts after Plaintiff received the
bankruptcy discharge; and (4) Defendants willfully
failed to update or correct Plaintiff’s and other Class
Members’ credit reports because they have adopted a
policy of not updating credit information for debts that
are discharged in bankruptcy for the purpose of collecting such discharged debt.
10. Even after Plaintiff contacted Defendants in
September 20014, Defendants have not changed their
policy and continue to refuse to update tradeline information they know is false and detrimental to the “fresh
start” that debtors are entitled to receive from the
Bankruptcy Code. This continued policy of refusing to
update the bankruptcy status of discharged accounts
constitutes willful acts to collect discharged debts.
11. Defendants have a deliberate policy of refusing
all debtor requests to update credit reports with regard
to debts discharged in bankruptcy for accounts sold
prior to the filing of the bankruptcy. This refusal policy
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applies to all accounts sold prior to the filing of bankruptcy.
12. Upon information and belief, Defendants’ refusal policy also applies to accounts that Defendants
have not sold prior to filing of the bankruptcy.
13. Defendants’ failure to update credit reports is
not a matter of inadvertence; it is a willful policy of attempting to lay a trap for Plaintiff and other Class
Members until the point that they need an accurate
credit report, and they cannot obtain such a credit report without paying on a discharged debt.
14. By refusing to correct former debtors’ credit
information to reflect that their debts have been discharged in bankruptcy, Defendants enhance the value
of the debt they sell to third parties because third parties will pay Defendants more for delinquent debts if
the third party knows that Defendants will not update
the debtors’ credit reports to list the debt as discharged
in bankruptcy. Furthermore, since Defendants and
their debt purchasers understand that they are prohibited by the Bankruptcy Code from contacting the discharged debtors, they know that their sole method of
debt collection is the coercive effect of the negative
credit reporting that will pressure the discharged debtors to pay the debt and / or pressure the discharged
debtors to contact Defendants or the debt purchasers
who can then exert further pressure to pay the debt.
15. Upon information and belief, Defendants have
a direct financial interest in the collection of discharged
debts, including Plaintiff’s debts, because they retain a
percentage interest in amounts paid by the discharged
debtors directly to Defendants.
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16. Defendants also act as agents for the thirdparty debt purchasers after the sale by forwarding to
the debt purchasers amounts paid by the discharged
debtors directly to Defendants.
PLAINTIFF ORINN ANDERSON
17. Plaintiff Anderson repeats and realleges the allegations in Paragraphs 1 - 16 as if fully set forth herein.
18. Plaintiff Anderson is among many thousands of
persons in the United States who have filed bankruptcies pursuant to Chapter 7 of the U.S. Bankruptcy
Code and who have been granted orders of discharge
by a U.S. Bankruptcy Court. Under federal bankruptcy laws, such an order fully and completely discharges
all statutorily dischargeable debts incurred prior to the
filing of bankruptcies, except for those that have been:
(1) reaffirmed by the debtor in a reaffirmation agreement; or (2) successfully challenged as nondischargeable by one of the creditors in a related adversary proceeding. Plaintiff Anderson and the Class
Members are persons for whom the debts at issue herein have been discharged through bankruptcy.
19. Prior to July 2011, Plaintiff Anderson incurred
a debt with Defendants.
20. Sometime after July, 2011, the debt became delinquent and in May, 2012 “Credit One Bank,” with the
address of P.O. Box 98872, Las Vegas, Nevada 891938872, filed credit information with the credit reporting
companies noting that the debt was delinquent.
21. Thereafter, Defendants reported the debt as
“charged off.”
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22. On January 31, 2014, Plaintiff Anderson filed a
voluntary petition for relief under Chapter 7 of Title 11
of the U.S. Code.
23. On or about May 6, 2014, this Court entered an
Order discharging Plaintiff’s debts including the debts
owed to Defendants.
24. On May 8, 2014, this Court notified Defendants
of the discharge of Plaintiff’s debt to Defendants.
25. On or about August 23, 2014, Plaintiff Anderson obtained his Trans Union and Equifax credit reports, which showed the words “charged off” next to
the discharged account at issue in the current status of
the credit reports. The credit reports showed no indication that the account had been “included in bankruptcy.” The account in question was not subject to a reaffirmation agreement with Defendants or an adversary
proceeding brought by Defendants.
26. From September 22, 2014 until today, Defendants have rejected Plaintiff Anderson’s demand that his
credit report be updated to remove the erroneous
“charge off” on his discharged debt.
27. Defendants were placed on notice of the inaccuracy of the credit report and of Plaintiff Anderson’s
demand that Defendants delete the erroneous “charge
off” on the discharged debt on his credit report when
Plaintiff called Defendants and requested that they remove the “charge off” on September 22, 2014. Even
after the notice, Defendants took no action to correct
Plaintiff Anderson’s credit information.
28. The erroneous “charge off” remains on the
Plaintiff Anderson’s credit reports.
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29. At some point in time, currently unknown, Defendants assigned Plaintiff Anderson’s debt to a third
party.
30. Upon information and belief, Defendants agree
to act as agent for the third party in the collection of
such debt. As agent, Defendants forward to the third
party all amounts collected by Defendants on debts sold
to the third party.
31. Defendants also have a direct financial interest
in the collection of Plaintiff Anderson’s discharged
debt. Upon information and belief, Defendants keep a
percentage of all the amounts collected by Defendants
on debts sold to the third party that are collected by
Defendants.
32. In addition, Defendants have another direct financial interest in the collection of Plaintiff Anderson’s
discharged debt because third party purchasers are
willing to pay more for Defendants’ discharged debt
portfolio because they know they can collect on discharged debts.
33. Plaintiff Anderson’s credit reports list the subject debt only in the name of “Credit One Bank,” not in
the name of any third party. No third party debt buyer
is listed anywhere on Plaintiff Anderson’s credit reports.
34. Upon information and belief, the credit reporting agencies will not permit the third parties to make
any change in a tradeline listing Defendants as the
creditor.
35. Thus, Defendants are aware that only they can
effect a change in Plaintiff Anderson’s tradeline to correctly reflect that the debt has been discharged in
bankruptcy. Yet, they continue their policy of not up-
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dating credit reports and have refused Plaintiff Anderson’s request to do so.
36. Defendants’ refusal to correct the tradeline referring to this discharged debt has an adverse effect on
Plaintiff Anderson because he is being denied his fresh
start provided by the bankruptcy discharge and he is
aware that his ability to obtain credit, housing, students loans or employment is adversely affected by the
erroneous credit information.
THE CLASS INCLUDING THE PLAINTIFF
37. Plaintiff repeats and realleges the allegations
in Paragraphs 1 - 36 as if fully set forth herein.
38. Defendants are creditors regularly engaged in
the business of extending credit to Plaintiff and other
members of the Class.
39. In the ordinary course of business, Defendants’
debtors who are enduring financial hardship fall behind
on their payments on Defendants’ credit accounts. Prior to the filing of any personal bankruptcies, Defendants, their collection agencies or delinquent debt companies that purchase Defendants’ debt, act to collect
these past due debts by threatening in dunning letters
to place a “charge off” or other similar “past due” notations on the debtors’ credit reports. Said letters
threaten to ruin the debtors’ credit unless they pay the
past due debt. Defendants, their debt collectors and
delinquent debt companies that purchase Defendants’
debt also act to collect these past due debts by promising in dunning letters to remove the “charge off” or
other “past due” notations on the debtors’ credit reports to show that the past due debts have been paid if
the debts are paid.
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40. In the ordinary course of business, Defendants
issue reports to credit reporting agencies as to the current status of debts incurred by individuals whom Defendants have extended credit. They are also entities
which regularly and, in the ordinary course of business,
furnish information to one or more credit reporting
agencies about their transactions and experiences with
consumers.
DEFENDANTS HAVE KNOWLEDGE OF
THE DISCHARGE OF PLAINTIFF’S DEBT
AND THAT OF OTHER CLASS MEMBERS
41. Defendants have knowledge of when their past
due debts and delinquent accounts are discharged because they receive a discharge notice from the U.S.
Bankruptcy Court. Defendants received such notice of
the discharge of Plaintiff’s debts to Defendants.
42. Since 2004, upon information and belief, Defendants have had knowledge of the fact that a very
large number of discharged debtors have notified them
of legal claims including lawsuits alleging that the Defendants have a willful policy of not updating sold accounts and certain other accounts to remove the charge
off or other negative information from their credit reports in violation of the discharge injunction.
43. Upon information and belief, Defendants, and
the responsible individuals who were or are in authority to change the Defendants’ policy for credit reporting
policies, were (1) aware of the knowledge alleged in the
foregoing paragraphs and in the other paragraphs of
this complaint; and (2) willfully decided to not update
the credit reports of the Plaintiff and the other class
members for the purpose of obtaining a monetary bene-
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fit for Defendants or Defendants third party purchasers of delinquent debt.
DEFENDANTS KNOW THAT REPORTING ON
PLAINTIFF’S DEBT AND THAT OF OTHER
CLASS MEMBERS IS ERRONEOUS
44. Defendants know that credit reporting agencies continue to report Plaintiff’s discharged debt and
those of other Class Members as “charged off.” Defendants are aware of this fact because they regularly
report to the credit reporting agencies and have access
to this data, and can learn at any time the status of a
tradeline that reports one or more of the Defendants as
the creditor. They also know because Plaintiff Anderson told Defendants that his report was erroneous.
45. Defendants also know that, without correction
by Defendants, the tradeline will not be changed because it is not the practice of credit reporting agencies
to make such changes if the debt has been transferred
by the original creditor.
46. Further, upon information and belief, Defendants have specific knowledge that the information in
the credit reports will not be changed unless they do so
because they have agreements with the purchasers of
delinquent debt that the purchasers of such debt will
not change credit lines that list any of Defendants as
the creditor.
47. Defendants also continue to engage in regular
transactions with debtors whose debt has been sold to
third-party purchasers because Defendants forward to
such purchasers payments they received on sold debts.
Defendants know that a significant amount of payments
will be made to them, rather than the third-party purchasers, because the tradelines remain in the name of
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“Credit One Bank”. The name of the third party debt
purchasers generally does not even appear on the credit reports just as no debt purchaser appears on the
Plaintiff’s credit reports in this case.
48. Upon information and belief, the credit reporting agencies will not permit third party debt purchasers to make any change in any tradelines for accounts
listed by the original creditors. In this case, the original creditor on the tradeline is “Credit One Bank.”
Thus, Defendants have knowledge that the credit information that they have placed on Plaintiff’s and other
Class Members’ credit reports is and continues to be
inaccurate.
DEFENDANTS HAVE THE ABILITY TO CORRECT
THEIR REPORTING ON THE STATUS OF PLAINTIFF’S ACCOUNT AFTER THEY RECEIVED
NOTICE OF A BANKRUPTCY DISCHARGE
49. Defendants have the ability to correct or delete
the credit information that indicates that Plaintiff’s
subject debt is still “charged off.” Banks and other
lending institutions such as Defendants have the ability
to delete or correct erroneous tradelines, even when
those debts have been transferred to third parties.
50. Many banks and other creditors routinely delete or correct tradelines to reflect discharges in bankruptcy, even when those debts have been transferred.
Defendants know they have the ability to correct these
tradelines but have continued to not update their credit
reports and refused the requests of the Plaintiff and all
other Class Members who have asked them to do so.
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DEFENDANTS’ CONDUCT IS WILLFUL
51. Despite the fact that Defendants have received
notice of the discharge of Plaintiff’s and each Class
Member’s debt to Defendants, Defendants have a deliberate policy of not notifying credit reporting agencies that debts formerly owing to Defendants are no
longer “charged off” or currently still due and owing
because they have been discharged in bankruptcy. As
result of Defendants’ policy of not updating the accounts at issue with the credit reporting agencies,
debts that have been discharged in bankruptcy are
listed on Class Members’ credit reports as “past due”
and/or “charged off.” These notations clearly indicate
to potential creditors, employers, or other third parties
that a Class Member still owes a debt and that debt
may be subject to collection. These notations adversely
affect Plaintiff’s and every Class Member’s ability to
obtain credit or employment and have the inherent coercive effect of inducing Plaintiff and all other Class
Members to make payment on the debt.
52. Defendants have willfully continued the policy
of not updating the Plaintiff’s credit reports and the
credit reports for all members of the prospective class
until the present day.
53. On information and belief, other large credit
card issuers update their sold accounts to reflect that
the credit account was discharged in virtually every
case.
54. Many debtors whose debts have been discharged in bankruptcy have advised Defendants of
their failure to update the information on their credit
reports to show that their debts have been discharged
to bankruptcy. These debtors have requested that De-
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fendants remove the past due notations from their
credit reports. Defendants have refused to do so.
55. Defendants have a deliberate policy of refusing
the debtors’ requests to remove “charge offs” and other
similar “past due” notations from Defendants’ debts
that were sold prior to the filing of the bankruptcy from
the debtors’ credit reports. As a result, the credit reports of these individuals and of all Class Members incorrectly show their indebtedness to Defendants to be
collectible.
56. Even in response to notices from Class Members that information contained in their credit reports
was inaccurate, Defendants have refused to correct erroneous credit information. In fact, Defendants have
advised former debtors that, unless they pay the discharged debt, the credit reports must reflect that the
debt was “charged off” or similar language for seven (7)
years. This policy of refusing all requests by discharged debtors who ask that that Defendants remove
charge offs from their credit reports independently establishes that Defendants are willfully acting to collect
discharged debts by not updating credit reports.
57. Upon information and belief, Defendants have
also received requests from time to time from the credit reporting agencies that Defendants verify that the
debt owed by Plaintiff and Class Members were discharged in bankruptcy to which Defendants have responded that the debts were still due and owing, despite Defendants’ knowledge that such debts have in
fact been discharged in bankruptcy.
58. Defendants know that the existence of such inaccurate information in the Class Members’ credit reports would damage the Class Members’ credit ratings,
including that of Plaintiff, and their ability to obtain
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new credit, a lease, a mortgage or employment, all of
which may be essential to reestablishing their life after
going through bankruptcy.
59. Defendants have chosen not to advise the credit reporting agencies of the fact that Plaintiff’s and other Class Members’ debts have been discharged because
Defendants continue to receive payment or a monetary
benefit either directly or indirectly on discharged
debts. This policy has been applied to Plaintiff, even
though Defendants know that only they can correct the
erroneous credit information relating to Plaintiff. This
results from the fact that Class Members, including
Plaintiff, in order to obtain favorable credit or credit at
all, often feel it necessary to pay off the debt despite its
discharge in order to remove the inaccurate information from their credit reports.
60. This belief is intentionally reinforced by Defendants themselves when Class Members contact Defendants asking them to correct the erroneous credit
information. Thus, upon information and belief, when a
Class Member needs to rent a car, obtain employment
or rent an apartment, or other similar transactions, and
they are advised by Defendants that Defendants will
not remove the erroneous information unless they pay
the debt, Class Members often pay that debt despite
the fact that it has been discharged in bankruptcy.
Thus, Defendants know that they are obtaining repayment on debts that have been discharged in bankruptcy.
61. Class Members often believe that they must
pay the debt in order to remove it from the credit reports because they are often advised prior to bankruptcy by Defendants and collection agencies that, if their
debt is marked as charged off, it will dramatically affect
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their credit rating and will severely impact their ability
to receive credit in the future.
62. The Plaintiff is in possession of collection letters mailed by Defendants to class members—prior to
the bankruptcy filing—stating that “charge offs” will
ruin their ability to obtain credit and conversely promising to remove the “charge off’ if they pay the delinquent debt in full. Consequently, Defendants are fully
aware that their deliberate failure to update a discharged debtor’s discharged account coerces the debtor
to pay said account.
63. Defendants have adopted a pattern and practice of failing and refusing to update credit information
with regard to debts discharged in bankruptcy because
they sell those debts and profit by the sale. Defendants
know that if the credit information is not updated many
Class Members will feel compelled to pay off the debt
even though it is discharged in bankruptcy. The purchasers of Defendants’ delinquent debt are aware of the
foregoing facts. Thus, purchasers of Defendants’ debt
know, and are willing to pay more for the fact that, purchasers will be able to collect portions of Defendants’
sold debt despite the discharge of that debt in bankruptcy.
64. Acting as agent for the third-party purchasers
to whom Defendants have sold the debts, Defendants
forward to such purchasers payments received from
former debtors who feel compelled to pay off discharged debts as the only means of correcting the erroneous credit information that Defendants refuse to correct and upon information and belief, Defendants keep
a percentage of amounts received on discharged debts.
65. Defendants therefore have a clear economic incentive to violate the discharge injunction of § 524(a)(2).
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66. In addition, Defendants are on notice that this
Court and others have found that Defendants’ conduct
is likely in violation of § 524(a)(2). See McKenzieGilyard v. HSBC Bank Nevada, N.A., 388 B.R. 474
(Bankr. E.D.N.Y. 2007); Torres v. Chase Bank USA,
N.A., 367 B.R. 478 (Bankr. S.D.N.Y. 2007); In Re Russell, 378 B.R. 735 (Bankr. E.D.N.Y. 2007). Despite this
notice, Defendants have willfully, recklessly or negligently failed to correct their practice of failing to update credit information of Class Members including
Plaintiff to show that debts have been discharged in
bankruptcy.
67. Defendants’ actions constitute a violation of 11
U.S.C. § 524(a)(2), which provides that a discharge in
bankruptcy operates as an injunction against the commencement or continuation of an action, the employment or process, or an act, to collect, recover or offset
any such debt as a personal liability of the debtor.
68. Defendants’ conduct is in bad faith, is vexatious
and oppressive and is done with full knowledge that it
is in violation of the law.
69. Defendants’ persistent refusal to provide updated credit information to the credit reporting agencies that Plaintiff’s and Class Members’ past due debts
to Defendants are no longer “charged off” or “past due”
because they have been discharged in bankruptcy is
knowing and willful and constitutes a contempt of the
statutory injunction of § 524(a)(2).
THIS ACTION SHOULD BE
MAINTAINED AS A CLASS ACTION
70. Plaintiff repeats and realleges the allegations
set forth in Paragraphs 1 - 69 as if fully set forth herein.
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71. Plaintiff seeks to maintain this action as a class
action representing a class consisting of the following:
All individuals who, after May 3, 2007, have had
a consumer credit report relating to them prepared by any of the credit reporting agencies in
which one or more of their Tradeline accounts
or debts with Defendants was not reported as
discharged despite the fact that such debts had
been discharged as a result of their bankruptcy
under Chapter 7 of the Bankruptcy Code.
72. Assertainability / Numerosity: This Class is
ascertainable in that it is comprised of individuals who
can be identified by reference to purely objective criteria contained in the records of Defendants and the various credit reporting agencies. On information and belief, there are many thousands of members of the Class,
and therefore would be impractical to bring all or even
a substantial portion of such persons before this Court
as individual plaintiff.
73. Typicality: The claims of the named Plaintiff is
typical of the claims of each member of the Class they
seek to represent because: (1) they all had debts owed
to Defendants that were discharged in Chapter 7 bankruptcy; (2) they have all been injured by Defendants’
refusal to remove the notation “charged off” or “past
due/charged off” or similar notations despite the fact
that the debts have been discharged in bankruptcy; and
(3) each of their claims is based upon the same legal
theory, i.e., that Defendants have violated the injunction contained in § 524(a)(2).
74. Adequacy of Representation: Plaintiff is an
adequate representative of the Class he seeks to represent because: (a) they are willing and able to represent
the proposed class and have every incentive to pursue
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this action to a successful conclusion; (b) their interests
are not in any way antagonistic to those of the other
Class Members; and (c) they are represented by counsel experienced in litigating significant bankruptcy issues, including the issues specifically raised in this action, and who has represented literally hundreds of individuals who have experienced similar failures by Defendants and other institutions to comply with the injunction of § 524(a)(2).
75. Commonality: There are several questions of
law and fact common to all members of the Class. The
primary question of law and fact that is common to all
members of the class is whether Defendants, in failing
and/or refusing to update and correct the credit reports
of Class Members, have acted knowingly and willfully
in violation of § 524(a)(2).
76. Propriety of Class Certification Under Fed. R.
Civ. P. 23(b)(2) and Bankruptcy Rule 7023: Class certification of all of Plaintiff’s claims is appropriate under
Fed. R. Civ. P. 23(b)(2) and Bankruptcy Rule 7023 because Defendants have acted and/or refused to act on
grounds generally applicable to the entire class, thereby making declaratory and final injunctive relief appropriate. Such generally applicable grounds consist of
Defendants’ conduct in failing and refusing to update
and correct the current reports of Class Members to
properly designate that the Class Members’ debts have
been discharged in bankruptcy pursuant to the order of
this and similar courts.
77. Propriety of Class Certification Under Fed. R.
Civ. P. 23(b)(3) and Rule 7023: Class certification of the
Plaintiff’s claims for willful failure to update or correct
the credit reports of Class Members in violation of
§ 524(a)(2), is appropriate under Fed. R. Civ. P. 23(b)(3)
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and Bankruptcy Rule 7023. The common question of
law and fact relating to Plaintiff’s claims predominate
over any questions affecting only individual Members
of the Class. Moreover, the class action vehicle is superior to other available methods for the fair and efficient
adjudication of these claims. For the overwhelming
majority of Members of the Class, the amount of any
potential recovery is too small to justify the cost of
prosecuting each claim individually.
78. Moreover, Defendants’ violation of the injunction of § 524(a)(2) is widespread and literally nationwide. Further, requiring each Class Member to pursue
his or her claim individually would entail needless duplication of effort, would waste the resources of both
the parties and the Court, and would risk inconsistent
adjudications.
FIRST CAUSE OF ACTION
Failure to Abide By the Injunction
Contained In § 524(a)(2)
(On Behalf of Plaintiff and All Class Members)
79. Plaintiff repeats and realleges the allegations
set forth in Paragraphs 1 - 78 as if fully set forth herein.
80. By knowingly and willfully failing to update the
credit reports of Class Members to signify the debts
owing to Defendants have been discharged in bankruptcy Defendants have violated § 524(a)(2) and are in
contempt of this Court.
81. Both pursuant to its inherent authority and
pursuant to § 105 of the Bankruptcy Code, this Court
may award appropriate declaratory and injunctive relief and award compensatory and punitive damages, attorney’s fees and costs for Defendants’ violation of
§ 524(a)(2).
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WHEREFORE, Plaintiff respectfully prays:
1. That the practices of Defendants be declared to
be in violation of the rights of Plaintiff and Class Members under the Bankruptcy Code and a contempt of the
statutory injunction set forth in § 524(a)(2).
2. That a permanent injunction be entered requiring Defendants to immediately correct and update the
credit reporting records of all Class Members by removing any negative notations such as “charge off”,
“past due”, “late” or any other notations that indicate
that the discharged accounts have a current status of
being still due and owing and update all such records on
a permanent basis.
3. That the Court enter an Order certifying all
the claims of the Class alleged herein pursuant to Fed.
R. Civ. P. 23(b)(2) and (b)(3) and Bankruptcy Rule 7023
for willful violation of the injunction set forth in
§ 524(a)(2).
4. That this Court order that Defendants be held
in contempt of court for their willful violation of the injunction set forth in § 524(a)(2), and that they be assessed damages, fines, penalties and punitive damages
in amounts to be determined by the Court.
5. That Defendants be ordered to disgorge and
pay to the individual Class Members all funds received
by Defendants or by any purchasers of Defendants’
debt on debts that were discharged in bankruptcy or
were the subject of a bankruptcy proceeding before
such payment was made by the Class Members.
6. That this Court award Plaintiff and the Class
the costs of this action together with reasonable attorney’s fees as the Court may determine.
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7. That the Plaintiff and Class Members be
awarded such other and further relief as may be found
appropriate and as the Court may deem just and equitable.
DEMAND FOR JURY TRIAL
Pursuant to Fed. R. Civ. P. 28, Plaintiff hereby demand a trial by jury on all issues so triable if this Court
determines that any issue in this matter is appropriate
for a jury trial.
Date: January 30, 2015 By: /s/ Adam R. Shaw
BOIES, SCHILLER &
FLEXNER LLP
GEORGE F. CARPINELLO
ADAM R. SHAW
30 South Pearl St., 11th Floor
Albany, NY 12207
(518) 434-0600
CHARLES JUNTIKKA & ASSOCIATES LLP
CHARLES JUNTIKKA
1250 Broadway, 24th Floor
New York, NY 10001
(212) 315-3755
Attorneys for Plaintiff Orinn
S. Anderson
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APPENDIX G
RELEVANT STATUTORY PROVISIONS
9 U.S.C. § 2
§ 2. Validity, irrevocability, and enforcement of
agreements to arbitrate
A written provision in any maritime transaction or a
contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising
out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement
in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the
revocation of any contract.
9 U.S.C. § 4
§ 4. Failure to arbitrate under agreement; petition
to United States court having jurisdiction for order to compel arbitration; notice and service
thereof; hearing and determination
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement
for arbitration may petition any United States district
court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty
of the subject matter of a suit arising out of the controversy between the parties, for an order directing that
such arbitration proceed in the manner provided for in
such agreement. Five days’ notice in writing of such
application shall be served upon the party in default.
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Service thereof shall be made in the manner provided
by the Federal Rules of Civil Procedure. The court
shall hear the parties, and upon being satisfied that the
making of the agreement for arbitration or the failure
to comply therewith is not in issue, the court shall make
an order directing the parties to proceed to arbitration
in accordance with the terms of the agreement. The
hearing and proceedings, under such agreement, shall
be within the district in which the petition for an order
directing such arbitration is filed. If the making of the
arbitration agreement or the failure, neglect, or refusal
to perform the same be in issue, the court shall proceed
summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the
matter in dispute is within admiralty jurisdiction, the
court shall hear and determine such issue. Where such
an issue is raised, the party alleged to be in default
may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial
of such issue, and upon such demand the court shall
make an order referring the issue or issues to a jury in
the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If
the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding
thereunder, the proceeding shall be dismissed. If the
jury find that an agreement for arbitration was made in
writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.
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11 U.S.C. § 105
§ 105. Power of court
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the
provisions of this title. No provision of this title providing for the raising of an issue by a party in interest
shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court
orders or rules, or to prevent an abuse of process.
(b) Notwithstanding subsection (a) of this section, a
court may not appoint a receiver in a case under this
title.
(c) The ability of any district judge or other officer or
employee of a district court to exercise any of the authority or responsibilities conferred upon the court under this title shall be determined by reference to the
provisions relating to such judge, officer, or employee
set forth in title 28. This subsection shall not be interpreted to exclude bankruptcy judges and other officers
or employees appointed pursuant to chapter 6 of title 28
from its operation.
(d) The court, on its own motion or on the request of a
party in interest—
(1) shall hold such status conferences as are necessary to further the expeditious and economical resolution of the case; and
(2) unless inconsistent with another provision of
this title or with applicable Federal Rules of Bankruptcy Procedure, may issue an order at any such
conference prescribing such limitations and conditions as the court deems appropriate to ensure that
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the case is handled expeditiously and economically,
including an order that—
(A) sets the date by which the trustee must
assume or reject an executory contract or unexpired lease; or
(B) in a case under chapter 11 of this title—
(i) sets a date by which the debtor, or
trustee if one has been appointed, shall file
a disclosure statement and plan;
(ii) sets a date by which the debtor, or
trustee if one has been appointed, shall solicit acceptances of a plan;
(iii) sets the date by which a party in interest other than a debtor may file a plan;
(iv) sets a date by which a proponent of a
plan, other than the debtor, shall solicit acceptances of such plan;
(v) fixes the scope and format of the notice
to be provided regarding the hearing on
approval of the disclosure statement; or
(vi) provides that the hearing on approval
of the disclosure statement may be combined with the hearing on confirmation of
the plan.
11 U.S.C. § 524
§ 524. Effect of discharge
(a) A discharge in a case under this title—
(1) voids any judgment at any time obtained, to
the extent that such judgment is a determination of
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the personal liability of the debtor with respect to
any debt discharged under section 727, 944, 1141,
1228, or 1328 of this title, whether or not discharge
of such debt is waived;
(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or
offset any such debt as a personal liability of the
debtor, whether or not discharge of such debt is
waived; and
(3) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect or recover
from, or offset against, property of the debtor of
the kind specified in section 541(a)(2) of this title
that is acquired after the commencement of the
case, on account of any allowable community claim,
except a community claim that is excepted from
discharge under section 523, 1228(a)(1), or
1328(a)(1), or that would be so excepted, determined in accordance with the provisions of sections
523(c) and 523(d) of this title, in a case concerning
the debtor’s spouse commenced on the date of the
filing of the petition in the case concerning the
debtor, whether or not discharge of the debt based
on such community claim is waived.
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.