May v. Midland Funding, LLC (In re May), 591 B.R. 712

Background

Debtors Freddy and Amber May sued Midland Funding, LLC/Midland Credit Management alleging postpetition wrongful proofs of claim that misrepresented inclusion of interest/fees and violated Fed. R. Bankr. P. 3001 and the FDCPA.
Midland moved to compel arbitration and to strike class allegations; the court heard only the arbitration issue and took it under advisement.
Debtors conceded a valid arbitration clause existed between Freddy May and Synchrony (the original creditor) but argued Midland did not succeed to Synchrony’s arbitration rights or, alternatively, the bankruptcy court should decline to compel arbitration.
Midland produced a Forward Flow Accounts Purchase Agreement (and related documents) showing sale of "Accounts" (defined to include the account and associated receivable) and required delivery of account documents, including the credit card agreement containing the arbitration clause.
The court found the Purchase Agreement unambiguously transferred the account and related rights to Midland and thus Midland succeeded to Synchrony’s arbitration rights.
The court nonetheless denied Midland’s request to compel arbitration, holding that the debtors’ claims arose postpetition, are core to the bankruptcy case, and that arbitration would conflict with the Bankruptcy Code’s centralized claims/allowance process.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Midland succeeded to Synchrony’s arbitration rights via purchase agreement	Transfer may have been limited to receivable; Midland did not show assignment of arbitration rights or full contract	Purchase Agreement and Bill of Sale convey "Accounts" (account + receivable) and require delivery of account documents (including arbitration clause)	Midland did succeed to Synchrony’s arbitration rights; transfer of the account (not merely receivable) was clear
Whether arbitration must be compelled despite bankruptcy context	Bankruptcy court should refuse arbitration where arbitration conflicts with Bankruptcy Code purposes (claims/allowance process)	FAA and strong federal policy favor enforcing arbitration clauses; arbitration clause should be enforced	Court denied arbitration under McMahon inherent-conflict analysis: claims arose postpetition, are core, and concern bankruptcy-unique proof-of-claim procedures
Whether FDCPA claim (related count) must be arbitrated	FDCPA count arises solely from the proof-of-claim conduct and cannot exist outside the bankruptcy case, so bankruptcy forum is appropriate	FDCPA is non-core and could be arbitrated; arbitration should cover all claims	FDCPA claim is related to and derives from core, postpetition proof-of-claim conduct; arbitration would fragment centralized process and was denied
Whether arbitration would prejudice estate/creditors or impede core bankruptcy functions	Arbitration would fragment forum, impede centralized resolution of claims, and affect other creditors and estate administration	Arbitration does not inherently prejudice estate and federal law favors arbitration; any conflict is insufficient here	Court found arbitration threatened centralized claims administration and specialized bankruptcy expertise; denied compelling arbitration

Key Cases Cited

Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (Sup. Ct.) (reinforces strong federal policy favoring enforcement of arbitration agreements)
CompuCredit Corp. v. Greenwood, 565 U.S. 95 (Sup. Ct.) (arbitration clauses generally enforceable absent clear congressional intent to the contrary)
AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (Sup. Ct.) (preemption of state rules that interfere with arbitration agreements)
Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79 (Sup. Ct.) (arbitration enforceability and enforceability concerns about cost-shifting and effective vindication)
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (Sup. Ct.) (statutory claims may be subject to arbitration)
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (Sup. Ct.) (courts enforce arbitration agreements according to their terms)
Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220 (Sup. Ct.) (Congressional intent to preclude arbitration must be shown by statute text, history, or inherent conflict with statutory purpose)
In re Mintze, 434 F.3d 222 (3d Cir.) (applies McMahon framework to bankruptcy/arbitration tension)
In re Nat'l Gypsum Co., 118 F.3d 1056 (5th Cir.) (discusses core/non-core distinction and arbitration in bankruptcy)
Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (N.Y.) (construction of unambiguous contract is a question of law to be enforced according to its terms)