Respondents Brief — GE Capital Retail Bank, Petitioner v. Nyree Belton

No. 20-481

IN THE

Supreme Court of the United States

___________

IN RE: NYREE BELTON,

___________

GE CAPITAL RETAIL BANK,

v.

NYREE BELTON,

___________

Debtor.

Petitioner,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Second Circuit

___________

RESPONDENTS CITIGROUP INC. AND

CITIBANK, N.A.’S BRIEF IN SUPPORT

OF THE PETITION FOR CERTIORARI

___________

JOSEPH R. GUERRA*

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

jguerra@sidley.com

BENJAMIN R. NAGIN

EAMON P. JOYCE

QAIS GHAFARY

SIDLEY AUSTIN LLP

787 Seventh Avenue

New York, NY 10019

(212) 839-5300

Counsel for Defendants-Respondents Citigroup Inc.

and Citibank, N.A.

November 13, 2020

* Counsel of Record

i

PARTIES TO THE PROCEEDINGS AND

RULE 29.6 STATEMENT

Pursuant to Supreme Court Rule 29.6, respondents

disclose the following:

Respondent Citibank, N.A., successor in interest to

Citibank (South Dakota), N.A., is a wholly owned subsidiary of Citicorp LLC, which in turn is a wholly

owned subsidiary of Citigroup Inc., a publicly held corporation. No other publicly held corporation owns ten

(10) percent or more of Citibank, N.A.’s stock.

Respondent Citigroup Inc. is a publicly traded company. Citigroup Inc. does not have a parent corporation, and no publicly held corporation owns ten (10)

percent or more of Citigroup Inc.’s stock.

Respondents were defendants-appellants in Bruce v.

Citigroup Inc. (In re Bruce), No. 19-0655 (2d Cir.),

which was consolidated with Belton v. GE Capital Retail Bank (In re Belton), No. 19-0648 (2d Cir.). The appellants in the consolidated proceedings below were

GE Capital Retail Bank; Citibank, N.A.; and Citigroup

Inc. The appellees in the consolidated proceedings below were Nyree Belton and Kimberly Bruce.

TABLE OF CONTENTS

Page

PARTIES TO THE PROCEEDINGS AND RULE

29.6 STATEMENT ............................................

i

TABLE OF AUTHORITIES .................................

iv

RESPONDENTS’ BRIEF IN SUPPORT OF THE

PETITION FOR A WRIT OF CERTIORARI ....

1

INTRODUCTION .................................................

1

STATEMENT OF THE CASE..............................

3

A. Plaintiff Asserts An Arbitrable Claim

Against Citi ..............................................

3

B. The Bankruptcy Court Refuses To Compel Arbitration .........................................

6

C. The District Court Initially Reverses And

Grants Arbitration ...................................

7

D. The Second Circuit Decides Anderson v.

Credit One Bank ......................................

7

E. This Court Subsequently Decides Epic

Systems Corp. v. Lewis ............................

9

F. The District Court Vacates Its Arbitration Order In Light Of Anderson And The

Second Circuit Affirms The Denial Of Arbitration Despite Epic Systems ...............

10

ARGUMENT .........................................................

11

I. THE SECOND CIRCUIT ERRED IN CONCLUDING THAT CLASS ACTIONS SEEKING DAMAGES FOR ALLEGED VIOLATIONS OF THE STATUTORY DISCHARGE

INJUNCTION RAISE NON-ARBITRABLE

DISPUTES OVER CONTEMPT ...................

13

(ii)

iii

TABLE OF CONTENTS—continued

II. BECAUSE THE ALLEGED VIOLATION

OF A STATUTORY DISCHARGE INJUNCTION IS REGULARLY ADJUDICATED

OUTSIDE OF BANKRUPTCY COURT, ARBITRATING SUCH ISSUES POSES NO IRRECONCILABLE CONFLICT WITH THE

BANKRUPTCY CODE..................................

CONCLUSION .....................................................

Page

17

21

iv

CASES

TABLE OF AUTHORITIES

Page

Alderwoods Grp., Inc. v. Garcia, 682 F.3d

958 (11th Cir. 2012) ...................................

16

Am. Express Co. v. Italian Colors Rest., 570

U.S. 228 (2013) ...........................................

12

Anderson v. Credit One Bank, N.A. (In re

Anderson), 884 F.3d 382 (2d Cir.), cert.

denied, 139 S. Ct. 144 (2018) ................... 7, 8, 9

In re Antonious, 373 B.R. 400 (Bankr. E.D.

Pa. 2007) .....................................................

17

In re Barrett, 377 B.R. 667 (Bankr. D. Colo.

2007) ...........................................................

18

Belton v. GE Capital Retail Bank (In re

Belton/In re Bruce), 961 F.3d 612 (2d Cir.

2020) ...........................................................

1

Bessette v. Avco Fin. Servs., Inc., 230 F.3d

439 (1st Cir. 2000) ......................................

13

In re Candidus, 327 B.R. 112 (Bankr.

E.D.N.Y. 2005) ...........................................

18

Cowart v. White, 711 N.E.2d 523, 527-30

(Ind. 1999), clarifed on reh’g, 716 N.E.2d

401 (Ind. 1999) ...........................................

17

Cox v. Zale Del., Inc., 239 F.3d 910 (7th Cir.

2001) ...........................................................

16

Crocker v. Navient Sols., L.L.C. (In re

Crocker), 941 F.3d 206 (5th Cir. 2019) ..... 13, 16

Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612

(2018) ................................................. 2, 9, 10, 12

Flanders v. Lawrence (In re Flanders), 517

B.R. 245 (Bankr. D. Colo. 2014), aff’d, No.

13-01456, 2015 WL 4641697 (B.A.P. 10th

Cir. Aug. 5, 2015), aff’d in relevant part,

657 F. App’x 808 (10th Cir. 2016).............

18

Garfield v. Ocwen Loan Servicing, LLC, 811

F.3d 86 (2d Cir. 2016) ................................

13

v

TABLE OF AUTHORITIES—continued

Page

Gilmer v. Interstate/Johnson Lane Corp.,

500 U.S. 20 (1991) ......................................

12

Green Tree Fin. Corp.–Ala. v. Randolph, 531

U.S. 79 (2000) .............................................

12

Joubert v. ABM AMRO Mortg. Grp., Inc. (In

re Joubert), 411 F.3d 452 (3d Cir. 2005) ...

14

K.W. Enters., Inc. v. Keiter, No. CIV.A. CV01-337, 2002 WL 747914 (Me. Super. Ct.

Apr. 3, 2002) ...............................................

17

In re Kean, 207 B.R. 118 (Bankr. D.S.C.

1996) .......................................................... 17, 19

Midas Int’l Corp. v. Chesley, No. 11-cv-8933,

2012 WL 2425052 (N.D. Ill. June 26,

2012) ...........................................................

20

Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614 (1985) ..........

12

New Prime Inc. v. Oliveira, 139 S. Ct. 532

(2019) ..........................................................

20

Noodles Dev., LP v. Latham Noodles, LLC,

No. CV 09-1094-PHX-NVW, 2009 WL

2710137 (D. Ariz. Aug. 26, 2009) ...............

20

Othman v. Wells Fargo Bank, N.A., No.

A109606, 2006 WL 880170 (Cal. Ct. App.

Apr. 6, 2006) ...............................................

17

Pertuso v. Ford Motor Credit Co., 233 F.3d

417 (6th Cir. 2000) .....................................

14

Scoggins v. Scoggins, No. 4-14-0473, 2015 IL

App (4th) 140473-U, 2015 WL 754521 (Ill.

App. Ct. Feb. 20, 2015) ..............................

17

In re Scott, 244 B.R. 885 (Bankr. E.D. Mich.

1999) ...........................................................

19

Shearson/Am. Express, Inc. v. McMahon,

482 U.S. 220 (1987) .................................... 8, 9

vi

TABLE OF AUTHORITIES—continued

Page

Taggart v. Lorenzen, 139 S. Ct. 1795

(2019) ................................................ 3, 5, 19, 20

Texaco, Inc. v. Wolverine Expl. Co. (In re

Texaco, Inc.), 218 B.R. 1 (Bankr. S.D.N.Y.

1998) .......................................................... 17, 19

In re Toussaint, 259 B.R. 96 (Bankr.

E.D.N.C. 2000) ...........................................

19

Walls v. Wells Fargo Bank, N.A., 276 F.3d

502 (9th Cir. 2002) .................................... 14, 16

Watson v. Shandell (In re Watson), 192 B.R.

739 (B.A.P. 9th Cir. 1996), aff’d, 116 F.3d

488 (9th Cir. 1997) .....................................

18

STATUTES

11 U.S.C. § 105(a) .......................................... 5, 13

28 U.S.C. § 1334(b) ........................................ 3, 19

LEGISLATIVE MATERIAL

H.R. Rep. No. 95-595 (1977) .........................

19

RESPONDENTS’ BRIEF IN SUPPORT OF THE

PETITION FOR A WRIT OF CERTIORARI

Respondents Citigroup Inc. and Citibank, N.A.

(“Citi”) respectfully request that this Court grant Petitioner GE Capital Retail Bank’s (“GECRB”) petition

for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Second Circuit

in Belton v. GE Capital Retail Bank (In re Belton/In

re Bruce), 961 F.3d 612 (2d Cir. 2020).

INTRODUCTION

In two separate cases, plaintiffs brought putative nationwide class actions against GECRB and Citi, asserting that each had violated a provision of the federal Bankruptcy Code known as the discharge injunction provision. Both GECRB and Citi had valid arbitration agreements with the respective plaintiffs that

plainly covered any claim concerning a purported violation of this statutory provision. And this Court has

held, in a series of cases, that federal statutory claims

(including claims brought under laws as varied as the

Sherman Act, the Truth in Lending Act, and the Age

Discrimination in Employment Act), are subject to arbitration under the Federal Arbitration Act (FAA).

Despite this precedent, in the consolidated appeal below, the Second Circuit allowed the plaintiffs to avoid

their obligations to arbitrate based on the notion that

the Bankruptcy Code impliedly displaces the Federal

Arbitration Act.

Citi submits this brief in support of GECRB’s petition and urges the Court to review, and reverse, the

Second Circuit’s ruling. That ruling cannot be reconciled with this Court’s precedent and exacerbates the

confusion in the lower courts over the standards for

determining the arbitrability of such bankruptcy re-

2

lated claims. The Second Circuit based its decision not

on textual evidence of Congress’s “clear and manifest”

intent to preclude arbitration, as this Court instructed most recently in Epic Systems Corp. v. Lewis,

138 S. Ct. 1612 (2018), but based on an atextual analysis of whether arbitration inherently conflicts with

the underlying purposes of the Code. That framework,

and similar ones adopted by other courts of appeals,

contradicts this Court’s arbitration jurisprudence, and

requires this Court’s review.

Citi submits this brief to emphasize additional errors underlying the Second Circuit’s misguided ruling.

The Second Circuit’s analysis was influenced by a judicial belief that arbitrators cannot resolve whether an

entity is in contempt of a bankruptcy discharge order.

But the lawsuits brought by Belton and Bruce are contempt actions in name only.

Plaintiffs have not invoked the procedure for seeking

civil contempt, and instead rely on an implied cause of

action under § 524(a)(2) of the Code. They allege that

GECRB and Citi violated the statutory discharge injunction codified in that provision, and ask that a jury

award monetary damages on behalf of nationwide classes of similarly situated debtors for that violation.

These procedures and remedies, however, are not

available in an action for civil contempt for violation of

the bankruptcy court’s discharge order. In reality,

plaintiffs have simply added a request for a contempt

remedy to an ordinary damages action that turns on

whether GECRB and Citi violated § 524(a)(2)’s discharge injunction—an issue that is entirely amenable

to resolution in arbitration.

Indeed, that issue is one that state courts and arbitrators regularly adjudicate alongside federal courts.

Consistent with Congress’s grant of non-exclusive jurisdiction to federal courts over bankruptcy-related

3

civil proceedings, see 28 U.S.C. § 1334(b); Taggart v.

Lorenzen, 139 S. Ct. 1795, 1803 (2019), state courts

and arbitrators routinely evaluate the contours of

§ 524(a)(2)’s discharge injunction, assessing whether

and how the discharge injunction applies as an affirmative claim or as a defense. What is more, federal

courts regularly give preclusive effect to those state

court and arbitral rulings, which further belies any notion that discharge injunction litigation is—or was designed by Congress to be—uniquely within the province of the bankruptcy court, or that arbitration of

such claims “irreconcilably conflicts” with the Code.

In effect, the ruling of the Second Circuit, and similar rulings from other courts of appeals, is that debtors

such as plaintiffs may litigate their discharge injunction claim in any forum but arbitration. This is precisely the kind of hostility to arbitration that Congress

enacted the FAA to extinguish and this Court has

spent decades policing. The Court should grant the

petition.

STATEMENT OF THE CASE

A. Plaintiff Asserts

Against Citi

An

Arbitrable

Claim

When plaintiff Kimberly Bruce opened a credit card

account with Citi in April 2007, she agreed to arbitrate

“all claims” relating to her account, irrespective of

what remedy she pursued. JA44 ¶ 5.1 The broad arbitration provision stated:

All Claims relating to your account, a prior related account, or our relationship are subject to

1 Citations to the Joint Appendix (“JA”) and Special Appendix

(“SPA”) refer to the appendices filed in No. 19-655 (2d Cir.).

4

arbitration, including Claims regarding the application, enforceability, or interpretation of this

Agreement and this arbitration provision. All

Claims are subject to arbitration, no matter what

legal theory they are based on or what remedy

(damages, or injunctive or declaratory relief) they

seek. This includes Claims based on contract, tort

(including intentional tort), fraud, agency, your or

our negligence, statutory or regulatory provisions,

or any other sources of law; Claims made as counterclaims, cross-claims, third-party claims, interpleaders or otherwise; and Claims made independently or with other claims.

JA56. The arbitration provision further instructed

that “[a]ny questions about whether 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. This arbitration provision is

governed by the Federal Arbitration Act.” JA57.

After plaintiff did not pay her credit card debt, Citi

“charged off” the debt in December 2009, meaning Citi

determined that the debt was likely uncollectable, and

reported that change in status to the credit reporting

agencies. JA40. Then in June 2011, Citi sold the debt

to a third-party consumer debt purchaser and retained

no right to recovery against plaintiff. Id.

Nearly two years later, in January 2013, plaintiff

filed a chapter 7 petition in bankruptcy court and

listed Citi as a former creditor for “[n]otice only” and

recorded that there was no amount owed for the claim.

Appendix at A67, A127, In re Bruce, No. 15-cv-03311VB (S.D.N.Y. May 29, 2015), Dkt. No. 5-1. The bankruptcy court ultimately entered a discharge order, discharging Plaintiff’s debts, and closed the case. Id. at

A116.

5

In March 2014, plaintiff moved to reopen her bankruptcy case and then filed a class action adversary proceeding against Citi. In re Bruce, No. 13-22088-rdd

(Bankr. S.D.N.Y. Mar. 9, 2014), Dkt. No. 9. She alleged that Citi’s failure to update her credit report, and

those of similarly situated debtors, to reflect the bankruptcy discharge constituted an act to collect a discharged debt in violation of § 524’s discharge injunction. See generally JA28-33. This despite that Citi

had accurately noted the debt’s then-current status as

“charged off” when Citi sold plaintiff’s account two

years before her discharge. Plaintiff sought to hold Citi

liable for violating § 524, to obtain a monetary recovery on behalf of the putative class with respect to every

bankruptcy since May 2007 where the debtor has a

credit report and Citi sold a debt owed by the debtor

prior to bankruptcy, and to secure a jury trial. JA34,

JA36-38. Plaintiff styled her claim as seeking relief

under § 105 of the Code, which authorizes a court to

issue “any order … that is necessary or appropriate to

carry out the provisions of [the Code].” 11 U.S.C.

§ 105(a); see Taggart, 139 S. Ct. at 1801 (discussing

§ 105).2

Belton, represented by the same counsel as plaintiff,

was party to a substantially similar arbitration agreement with GECRB; she filed a substantially similar

complaint against GECRB, alleging that GECRB’s

similar failure to update her credit report violated

§ 524(a)(2)’s discharge injunction, and sought similar

relief. In re Belton, No. 14-08223-rdd (Bankr. S.D.N.Y.

Apr. 30, 2014), Dkt. No. 1.

2 Plaintiff filed a substantially similar amended complaint after the bankruptcy court’s appealed-from order denying Citi’s motion to compel arbitration. JA245.

6

B. The Bankruptcy Court Refuses To Compel

Arbitration

GECRB and Citi each moved to compel arbitration

pursuant to their respective arbitration agreements

with plaintiffs. In re Bruce, No. 14-08224-rdd (Bankr.

S.D.N.Y. June 30, 2014), Dkt. No. 5; In re Belton, No.

14-08223-rdd (Bankr. S.D.N.Y. July 8, 2014), Dkt. No.

9. In a single opinion addressing both motions,3 the

bankruptcy court recognized that GECRB’s and Citi’s

arbitration agreements survived the bankruptcy discharges and that there was “no dispute regarding the

terms of the arbitration provision in the credit card

agreement at issue, which are broad” enough to “subject[] to arbitration ‘any … claim of any kind … that

relate in any way’” to plaintiff’s Citi account and Belton’s GECRB account. JA443, 451. The court also recognized that the text of the Code did not evidence a

congressional command to preclude arbitration.

JA449-51. But it nonetheless refused to compel arbitration due to what it perceived as a “clear conflict” between the FAA and the Code, “inherent in the underlying structure” of the Code. JA445. The bankruptcy

court divined, based on the “policy[] implicit throughout the Bankruptcy Code,” that “Congress implicitly

provided that this type of dispute not be subject to arbitration.” JA446, 451.

3 The bankruptcy court applied its reasoning and holding in In

re Belton to the near-identical action in In re Bruce. See SPA1

(issuing order denying Citi’s motion to compel arbitration for substantially the reasons stated at a hearing on Citi’s motion and in

the Belton opinion); JA233 (“each of [Citi’s] arguments [to compel

arbitration] is addressed in the Belton v. GE Capital opinion[.]”).

7

C. The District Court Initially Reverses And

Grants Arbitration

GECRB and Citi appealed to the district court,

which issued a single decision reversing the bankruptcy court and granting GECRB’s and Citi’s motions

to compel arbitration. Pet. App. 47a. The district

court confirmed that the arbitration agreements were

“valid and cover[ed] the claim[] asserted here.” Pet.

App. 30a-34a. The court held further that although

the Code did not expressly accept or reject arbitration,

“text and legislative history weigh against the conclusion that Congress intended to preclude arbitration of

[§] 524 claims.” Pet. App. 39a. The district court noted

that 28 U.S.C. § 1334 confers federal district courts

with jurisdiction over bankruptcy-related proceedings,

but expressly confers exclusive jurisdiction over only

some proceedings, such as claims under § 327. Pet.

App. 37a. It does not do so as to others, such as claims

under § 524, which “cuts against the conclusion that

Congress intended to exempt [§] 524 claims from arbitration.” Pet. App. 38a-39a. The court likewise rejected the notion that an inherent conflict existed between arbitration and plaintiffs’ discharge injunction

claims. Pet. App. 39a-40a. In response, plaintiffs petitioned the Second Circuit for a writ of mandamus to

vacate the district court’s order compelling arbitration

and the court ultimately denied the writ. In re Belton,

No. 16-833 (2d Cir. June 26, 2018), Dkt. No. 96; In re

Bruce, No. 16-830 (2d Cir. June 26, 2018), Dkt. No. 96.

D. The Second Circuit Decides Anderson v.

Credit One Bank

In March 2018, the Second Circuit decided Anderson

v. Credit One Bank, N.A. (In re Anderson), 884 F.3d

382 (2d Cir.), cert. denied, 139 S. Ct. 144 (2018). The

Anderson plaintiff, represented by the same counsel as

the plaintiffs in Bruce and Belton, asserted a similar

8

class action claim for violations of § 524 and sought

money damages. The same bankruptcy judge overseeing GECRB’s and Citi’s cases held that the Code displaced the FAA and denied the motion to compel arbitration, which was affirmed by a different district

court. Id. at 385-86.

On appeal, the parties argued over whether the text

and legislative history of the Code evidenced congressional intent to preclude arbitration of § 524 claims,

but the Second Circuit deemed those arguments

waived because the parties had failed to raise them below. Id. at 388-89. In “declin[ing] to consider” any argument based on the Bankruptcy Code’s text or legislative history, the Second Circuit “only consider[ed]

whether there is an ‘inherent conflict between arbitration’ and the Bankruptcy Code.” Id. at 389 (quoting

Shearson/Am. Express, Inc. v. McMahon, 482 U.S.

220, 227 (1987)). In other words, the Second Circuit

embarked on what is a question of statutory construction by declining to consider whether the text of the

Code spoke to an intent to displace the FAA. See id.

at 388-91 (“Congressional Intent” section of decision).

The Second Circuit purported to derive license to consider an “inherent conflict” alone in determining

whether the FAA was displaced from this Court’s decision in McMahon, 482 U.S. 220. The court of appeals

construed that three-decade-old precedent to create a

tripartite scheme that elevated a purpose-based “inherent conflict” inquiry alongside text and legislative

history as equal and independent sources from which

to discern congressional intent, Anderson, 884 F.3d at

388.4

4 While McMahon mentioned “inherent conflict” alongside text

and legislative history, it nowhere stated that each serves as an

independent and equal source to discern congressional intent. To

the contrary, McMahon’s discussion of any “inherent conflict” was

9

Anderson then inferred such a conflict based on the

rationale that “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.” Id. at 389-90. Given this “inherent conflict,” the Second Circuit affirmed the bankruptcy

court’s denial of arbitration as an appropriate use of

the court’s discretion. Id. at 388, 392.

E. This Court Subsequently Decides Epic Systems Corp. v. Lewis

Shortly after Anderson was decided, this Court confirmed that “[a] party seeking to suggest that two statutes cannot be harmonized, and that one displaces the

other, bears the heavy burden of showing ‘a clearly expressed congressional intention’ that such a result

should follow.” Epic Sys. Corp., 138 S. Ct. at 1624

(quoting Vimar Seguros y Reaseguros, S.A. v. M/V Sky

Reefer, 515 U.S. 528, 533 (1995)). This “intention must

be ‘clear and manifest.’” Id. (quoting Morton v.

Mancari, 417 U.S. 535, 551 (1974)); see id. (“[The

Court] come[s] armed with the ‘stron[g] presum[ption]’

that … ‘Congress will specifically address’ preexisting

law …” (third and fourth alterations in original)). Epic

also reiterated that any “statutory conflict” requiring

displacement of the FAA must be “irreconcilable,” an

exercise of “statutory interpretation” that must not

itself steeped in the text and legislative history of the RICO statute there at issue. See, e.g., McMahon, 482 U.S. at 239 (analyzing

interplay of RICO’s civil and criminal provisions to help assess

arbitrability of § 1964(c) claims in assessing the McMahons’ argument “that there is an irreconcilable conflict between arbitration and RICO’s underlying purposes”).

10

“too easily find[]” such conflict and instead “aim[] for

harmony.” Id.

This Court then stressed that it has never found the

FAA impliedly displaced, has “rejected every such effort” to “conjure conflicts between the [FAA] and other

federal statutes,” and found that “the absence of any

specific statutory discussion of arbitration or class actions is an important and telling clue that Congress

has not displaced the [FAA].” Id. at 1627. Epic thus

focused on “textual and contextual clues” of congressional intent in the National Labor Relations Act

(NLRA), id., with neither the majority opinion nor the

dissenting Justices once mentioning an “inherent conflict” standard. Applying this framework, Epic concluded that the NLRA does not “offer[] a conflicting

command” that overrides Congress’s instruction in the

FAA “to enforce arbitration agreements according to

their terms.” Id. at 1619.

F. The District Court Vacates Its Arbitration

Order In Light Of Anderson And The Second

Circuit Affirms The Denial Of Arbitration

Despite Epic Systems

After Anderson, plaintiffs moved for reconsideration

of the district court’s orders compelling arbitration.

Plaintiffs argued that the text and legislative history

of the Code and the FAA were irrelevant to the statutory displacement question given Anderson’s recognition of an inherent conflict between arbitration and

the purposes of the Code. Mot. for Recons. at 11-14, In

re Belton, No. 15-cv-01934-VB (S.D.N.Y. July 10,

2018), Dkt. No. 38; Mot. for Recons. at 11-14, In re

Bruce, No. 15-cv-03311-VB (S.DN.Y. July 10, 2018),

Dkt. No. 31. The district court agreed, holding in a

single opinion addressing both motions that evidence

of congressional intent could be construed equally and

11

independently from the statutory text, legislative history, or an “inherent conflict” analysis, and that Anderson’s “inherent conflict” finding ended the inquiry.

Pet. App. 21a.

GECRB and Citi appealed to the Second Circuit,

which consolidated the appeals. The banks argued

that a purpose-based “inherent conflict” inquiry was

foreclosed under this Court’s arbitration jurisprudence, including Epic’s reaffirmation of the primacy of

textual evidence in determining whether Congress expressed a “clear and manifest” intent to displace the

FAA due to an irreconcilably conflicting statute. Despite Anderson’s unusual posture and nontextual approach to what is a question of statutory interpretation, the Second Circuit considered itself bound by that

precedent. Pet. App. 3a. The panel acknowledged

that, “[i]f we were writing on a blank slate, perhaps

our conclusion would be different,” but it concluded

that Anderson survived Epic, and ruled that the purpose of a federal statute is alone enough to evidence an

“inherent conflict” that impliedly displaces the FAA.

Id. As applied to the Code, the Second Circuit found

that the importance of the Code’s fresh start provisions

inherently conflicted with, and so impliedly displaced,

the FAA. And although the Second Circuit recognized

that state and federal courts shared concurrent jurisdiction to resolve disputes under § 524, the court held

that the fact of state court adjudication did not support

arbitrability because plaintiffs’ claims were technically ones for contempt for violation of a court order.

ARGUMENT

GECRB’s petition details how the decision below

conflicts with this Court’s clear precedent regarding

the scope of the FAA and why this Court’s review is

necessary to resolve the persistent confusion in the

12

lower courts over whether the Code displaces the FAA.

Epic confirmed that a dispute is presumptively arbitrable unless the party challenging arbitration carries

the “heavy burden” of demonstrating that the competing statute poses an “irreconcilable” conflict with the

FAA and of marshalling textual and contextual statutory evidence that Congress “clearly expressed” a

“clear and manifest” intent that the FAA be displaced.

138 S. Ct. at 1624-27. The Second Circuit’s use of a

purpose-based “inherent conflict” inquiry to discern

congressional intent is contrary to that standard. See

Pet. at 17-19. Other courts of appeals have had no

more success in delineating how and whether to deem

the FAA displaced by the Code. Pet. at 21-25. Citi

urges the Court to grant GECRB’s petition for the reasons stated therein.

Citi offers the following additional reasons for review of the judgment adverse to Citi and GECRB. This

Court has repeatedly been called upon to address and

remedy the misconception that certain types of statutory claims are not subject to arbitration. See, e.g., Am.

Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013)

(Sherman Act); Green Tree Fin. Corp.–Ala. v. Randolph, 531 U.S. 79 (2000) (Truth in Lending Act);

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20

(1991) (Age Discrimination in Employment Act);

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614 (1985) (antitrust laws). The same

misconception is at play here—and justifies review in

this case as it did in those just cited. But there is a

further wrinkle: the Second Circuit believed that

plaintiffs’ claims were not arbitrable because plaintiffs

seek contempt for alleged violations of court orders.

In fact, plaintiffs’ request for a contempt remedy is a

proverbial red herring. Plaintiffs seek class-wide dam-

13

ages based on an alleged violation of a statutory provision, namely Code § 524. Whether Citi and GECRB

violated that provision is a question entirely amenable

to resolution in arbitration. Indeed, state courts routinely resolve that question. Review is thus warranted

to confirm that arbitrators may likewise resolve that

question.

I. THE SECOND CIRCUIT ERRED IN CONCLUDING THAT CLASS ACTIONS SEEKING DAMAGES FOR ALLEGED VIOLATIONS OF THE STATUTORY DISCHARGE

INJUNCTION RAISE NON-ARBITRABLE

DISPUTES OVER CONTEMPT.

The Second Circuit’s analysis was influenced by its

belief that plaintiffs are seeking to have Citi and

GECRB held in contempt, and that arbitrators cannot

resolve whether an entity is in contempt of a bankruptcy discharge order—an order that is created and

exists based solely on statute—§ 524. But that understanding of the issue to be arbitrated is mistaken.

Section 524(a)(2) provides that a bankruptcy court’s

discharge order “operates as an injunction” against an

attempt to collect a discharged debt. That statutory

provision does not provide a private cause of action for

violations of the discharge injunction. Pet. App. 9a10a; Garfield v. Ocwen Loan Servicing, LLC, 811 F.3d

86, 91-92 & n.7 (2d Cir. 2016). Instead, courts have

found that the means to redress violations of the discharge injunction is a motion for contempt under

§ 105(a). See 11 U.S.C. § 105(a) (authorizing bankruptcy courts to issue “any order … necessary or appropriate to carry out the provisions” of Title 11); see

also Pet. App. 9a-10a (discharge injunction enforceable

by contempt proceeding); Crocker v. Navient Sols.,

L.L.C. (In re Crocker), 941 F.3d 206, 210-11 (5th Cir.

2019) (same); Bessette v. Avco Fin. Servs., Inc., 230

14

F.3d 439, 445 (1st Cir. 2000) (same). Section 105(a)

“‘gives the court general equitable powers’ … to fashion orders in furtherance of [the Code]” but it “does not

‘create substantive rights that would otherwise be unavailable under the [Code].’” Joubert v. ABM AMRO

Mortg. Grp., Inc. (In re Joubert), 411 F.3d 452, 455 (3d

Cir. 2005); see also Pertuso v. Ford Motor Credit Co.,

233 F.3d 417, 423 (6th Cir. 2000) (“[W]e do not read

§ 105 as conferring on courts … broad remedial powers

[over alleged § 524 violations]. The ‘provisions of this

title’ simply denote a set of remedies fixed by Congress.

A court cannot legislate to add to them.” (first alteration in original) (quoting Kelvin v. Avon Printing Co.

(In re Kelvin Publ’g, Inc.), 72 F.3d 129 (6th Cir. 1995)

(per curiam))). For this reason, alleged discharge injunction violations “may not independently be remedied through § 105 absent a contempt proceeding in

the bankruptcy court.” Walls v. Wells Fargo Bank,

N.A., 276 F.3d 502, 506 (9th Cir. 2002).

But plaintiffs have not filed a motion for contempt

under § 105, which would not provide a basis for recovering monetary damages on behalf of nationwide classes. Instead, they have relied on an implied cause of

action in order to seek damages while maintaining the

veneer that their suits are really about seeking to hold

Citi and GECBR in contempt for violating court orders. This packaging of their claims, however, cannot

disguise the fact that this case involves alleged violations of a statute—claims that are plainly subject to

arbitration.

The plaintiffs’ essentially identical bankruptcy filings speak for themselves. When Plaintiff Bruce

moved in March 2014 to reopen her Chapter 7 proceeding, her stated basis was to seek an order finding that

Citi “willfully violated the discharge injunction under

11 U.S.C. § 524 of the Bankruptcy Code.” In re Bruce,

15

No. 13-22088-rdd (Bankr. S.D.N.Y. Mar. 13, 2014),

Dkt. No. 9. Among other relief, she asked for “actual

and punitive damages” and that Citi be “sanctioned for

civil contempt.” Id. While the relief she requested included contempt (alongside damages), the violation

she alleged was of the statutory discharge injunction.

Plaintiffs’ putative class-action adversary complaints echoed these allegations. See, e.g., JA36 ¶¶ 3839 (labeling Bruce’s cause of action Citi’s “failure to

abide by the injunction contained in § 524(a)(2)”);

Compl. ¶¶ 36-37, In re Belton, No. 14-08223-rdd

(Bankr. S.D.N.Y. Apr. 30, 2014), Dkt. No. 1 (similar as

to GECRB).

Even plaintiffs’ request for contempt relief is framed

as one for GECRB’s and Citi’s alleged violation of the

statutory discharge injunction. See, e.g., JA36 ¶ 1

(seeking declaration that Citi’s practice is in “contempt

of the statutory injunction set forth in § 524(a)(2)”);

JA37 ¶ 4 (seeking order holding Citi “in contempt of

court for its willful violation of the injunction set forth

in § 524(a)(2)”). Although the Second Circuit accepted

plaintiffs’ argument on appeal that they are asking for

judicial enforcement of the bankruptcy court’s own orders, their complaints nowhere actually mention enforcement of a court order. That omission is consistent

with plaintiffs’ demands for jury trials, which is not

the means by which a court would exercise inherent

powers to enforce its own orders.

Nor are class actions the means for such enforcement. Plaintiffs allege that GECRB’s and Citi’s conduct violated the discharge injunction as to each class

member across “thousands” of bankruptcy cases in districts nationwide. See, e.g., JA28 ¶ 8. Thus, plaintiffs

do not seek merely to have the bankruptcy court enforce its own orders: they are asking a single bankruptcy judge to enforce thousands of discharge orders

16

issued by other judges. Indeed, that is inconsistent

with rulings by numerous courts of appeals, which

have outright rejected or cast doubt upon this method

of enforcing § 524(a)(2)’s discharge injunction.5

In reality, plaintiffs’ class actions are premised on

the notion that § 524 discharge orders are materially

identical and turn on whether GECRB and Citi violated § 524’s discharge injunction, a question that can

be adjudicated on a class wide basis by judges other

than those who entered the discharge orders. An individual court’s expertise and familiarity in enforcing its

own orders is simply not implicated by plaintiffs’ actions.

For all of these reasons, plaintiffs’ contempt action

packaging cannot obscure that claims alleging violations of a particular federal statute—here § 524(a) of

the Code—are consistently held to be arbitrable.

5 See, e.g., Crocker, 941 F.3d at 216-17 (bankruptcy court cannot “address contempt for violations of injunctions arising from

discharges by bankruptcy courts in other districts”); Alderwoods

Grp., Inc. v. Garcia, 682 F.3d 958, 970 (11th Cir. 2012) (“[T]he

court that issued the injunctive order alone possesses the power

to enforce compliance with and punish contempt of that order.”);

Walls, 276 F.3d at 509-10 (same); Cox v. Zale Del., Inc., 239 F.3d

910, 916 (7th Cir. 2001) (same); see also Pet. App. 11a (“[W]e question whether a bankruptcy court would even have jurisdiction to

hold a creditor in contempt of another court’s order. Most circuits

that have considered the issue have rejected the notion.”).

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II. BECAUSE THE ALLEGED VIOLATION OF A

STATUTORY DISCHARGE INJUNCTION IS

REGULARLY ADJUDICATED OUTSIDE OF

BANKRUPTCY COURT, ARBITRATING

SUCH ISSUES POSES NO IRRECONCILABLE CONFLICT WITH THE BANKRUPTCY

CODE.

Even if plaintiffs’ suits are properly viewed as contempt actions, the question they raise—whether a

creditor has violated the discharge injunction—is arbitrable. Indeed, whether such a statutory violation of

the Code exists is routinely adjudicated outside of

bankruptcy court. It has been adjudicated by state

courts and arbitrators alike, whether as an affirmative

claim or a defense.6 This widespread practice belies

6 See, e.g., In re Antonious, 373 B.R. 400, 406-07 (Bankr. E.D.

Pa. 2007) (“Enforcement of the [§ 524] discharge injunction can

be obtained in the Pennsylvania state court system.”); Texaco,

Inc. v. Wolverine Expl. Co. (In re Texaco, Inc.), 218 B.R. 1, 9, 11

(Bankr. S.D.N.Y. 1998) (recognizing arbitration panel’s determination of whether creditor violated the discharge injunction from

debtor’s Chapter 11 bankruptcy); In re Kean, 207 B.R. 118, 12122 (Bankr. D.S.C. 1996) (recognizing arbitration panel’s determination of whether creditor violated the discharge injunction from

debtor’s Chapter 7 bankruptcy); Othman v. Wells Fargo Bank,

N.A., No. A109606, 2006 WL 880170, at *2, *9 (Cal. Ct. App. Apr.

6, 2006) (affirming dismissal of claim alleging “a purported violation of title 11 United States Code section 524 in attempting to

collect on the discharged debt”); Scoggins v. Scoggins, No. 4-140473, 2015 IL App (4th) 140473-U, ¶ 27, 2015 WL 754521, at *5

(Ill. App. Ct. Feb. 20, 2015) (affirming denial of discharge claim

because party “failed to demonstrate a violation of [§] 524(a) of

the [United States] Bankruptcy Code”); Cowart v. White, 711

N.E.2d 523, 527-30 (Ind. 1999) (considering on appeal whether

trial court violated bankruptcy discharge injunction by finding

former debtor in contempt of child support obligations that allegedly had been discharged), clarifed on reh’g, 716 N.E.2d 401 (Ind.

1999); K.W. Enters., Inc. v. Keiter, No. CIV.A. CV-01-337, 2002

18

any conflict between the Code and arbitration of plaintiffs’ suits, let alone an irreconcilable one.

What is more, bankruptcy courts are bound by collateral estoppel to other adjudicators’ conclusions

about dischargeability, including when parties seek

§ 105 relief in bankruptcy court premised on the violation of a discharge injunction. This undermines any

notion that bankruptcy courts possess unique expertise, or exclusive jurisdictional power, to police the discharge injunction. For example, in a decision affirmed

by the Tenth Circuit, the bankruptcy court in Flanders

v. Lawrence (In re Flanders) held that a debtor was

precluded from seeking contempt sanctions for an alleged violation of the discharge injunction because he

had already unsuccessfully litigated the issue in his

state-court divorce proceedings. See 517 B.R. 245,

259-60 (Bankr. D. Colo. 2014), aff’d, No. 13-01456,

2015 WL 4641697 (B.A.P. 10th Cir. Aug. 5, 2015), aff’d

in relevant part, 657 F. App’x 808 (10th Cir. 2016).

Similarly, the Ninth Circuit affirmed a decision holding that a bankruptcy court was “required” under collateral estoppel to bar the debtor’s “allegation that the

state court judgment violated the discharge injunction” because the state court had previously “adjudicated the issue of the applicability of § 524(a)—the discharge injunction.” Watson v. Shandell (In re Watson),

192 B.R. 739, 749-50 (B.A.P. 9th Cir. 1996), aff’d, 116

F.3d 488 (9th Cir. 1997). Instances of bankruptcy

court deference to the dischargeability determinations

of state courts abound. See, e.g., In re Barrett, 377 B.R.

667, 676-77 (Bankr. D. Colo. 2007); In re Candidus,

WL 747914, at *1 (Me. Super. Ct. Apr. 3, 2002) (asserting claim

alleging violation of discharge injunction in Maine state court).

19

327 B.R. 112, 121 (Bankr. E.D.N.Y. 2005); In re Toussaint, 259 B.R. 96, 104 (Bankr. E.D.N.C. 2000); In re

Scott, 244 B.R. 885, 888 (Bankr. E.D. Mich. 1999).7

The regularity with which adjudicators outside of

bankruptcy court evaluate the effect of bankruptcy discharge orders, including whether and how a discharge

injunction should be enforced, disproves the notion

that bankruptcy courts alone can appropriately determine whether a discharge injunction has been violated. That bankruptcy courts and the courts of appeals then refuse to second-guess these non-bankruptcy court determinations and treat them as binding

upon the bankruptcy court makes the point irrefutable.

These adjudications of discharge violations outside

of bankruptcy court are consistent with federal district

courts’ non-exclusive jurisdiction over bankruptcy-related civil proceedings, see 28 U.S.C. § 1334(b); see

generally Taggart, 139 S. Ct. at 1803.8 It also exposes

plaintiffs’ manufactured conflict between arbitration

7 Similarly, bankruptcy courts have applied collateral estoppel

based on arbitrators’ dischargeability holdings to foreclose actions like those here. For example, the bankruptcy court in In re

Kean found a debtor precluded from bringing an adversary proceeding against creditors for violations of the § 524 discharge injunction, because the debtor’s discharge defense had been fully

litigated in arbitration. See 207 B.R. at 121-22; id. at 122 (finding

the arbitration panel’s conclusion “binding”); see also In re Texaco,

218 B.R. at 9, 11 (similar).

8 The legislative history of § 524 demonstrates that Congress

specifically declined to give bankruptcy courts (or federal courts

generally) exclusive jurisdiction over § 524 issues. After recognizing that, “in all but extraordinary situations the effect of a discharge had been a matter which would be determined only in a

state court,” H.R. Rep. No. 95-595, at 46-47 (1977) (emphasis

added), Congress decided to confer on bankruptcy courts non-exclusive jurisdiction to also decide those issues.

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of § 524 discharge injunction disputes and the Code as

non-existent, never mind one that is irreconcilable.

“Congress adopted the Arbitration Act in an effort to

counteract judicial hostility to arbitration,” New Prime

Inc. v. Oliveira, 139 S. Ct. 532, 543 (2019), yet the Second Circuit’s denial of § 524 arbitrations is driven precisely by such hostility, given that state courts and

even arbitrators already police § 524’s discharge injunction and do so authoritatively.9

9 Moreover, whether a party has violated the discharge order is

a question distinct from whether the violation merits contempt

sanctions. See Taggart, 139 S. Ct. at 1801-02 (recognizing that

contempt for a discharge violation is appropriate only where there

is no “fair ground of doubt as to the wrongfulness of the defendant’s conduct,” a standard that “reflects the fact that civil contempt is a ‘severe remedy,’ and that principles of ‘basic fairness

requir[e] that those enjoined receive explicit notice’ of ‘what conduct is outlawed’ before being held in civil contempt” (alteration

in original) (emphasis omitted) (citations omitted)). Courts have

recognized this distinction in requiring arbitration of the underlying merits of a claim where an arbitration agreement delegated

the question of violation or liability to an arbitrator while leaving

the appropriate remedy to a court. See, e.g., Noodles Dev., LP v.

Latham Noodles, LLC, No. CV 09-1094-PHX-NVW, 2009 WL

2710137, at *3-4 (D. Ariz. Aug. 26, 2009) (requiring party to first

arbitrate merits of claim per arbitration agreement before seeking injunctive relief from court); Midas Int’l Corp. v. Chesley, No.

11-cv-8933, 2012 WL 2425052, at *6 (N.D. Ill. June 26, 2012) (requiring parties to first arbitrate merits of claim per arbitration

agreement before seeking damages determination from court).

Thus, even if the appropriate sanction for a discharge injunction

violation must be fashioned by a court, the antecedent, threshold

question of whether the discharge injunction was violated remains with the arbitrator.

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CONCLUSION

For the foregoing reasons, and those stated by

GECRB, the petition should be granted.

Respectfully submitted,

JOSEPH R. GUERRA*

SIDLEY AUSTIN LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

jguerra@sidley.com

BENJAMIN R. NAGIN

EAMON P. JOYCE

QAIS GHAFARY

SIDLEY AUSTIN LLP

787 Seventh Avenue

New York, NY 10019

(212) 839-5300

Counsel for Defendants-Respondents Citigroup Inc.

and Citibank, N.A.

November 13, 2020

* Counsel of Record