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 v. CREDIT ONE BANK, N.A.
Docket No. 16-2496
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term, 2017 (Argued: October 11, 2017 Decided: March 7, 2018)
POOLER, Circuit Judge
Credit One Bank, N.A. appeals from an order of the United States District Court for the Southern District 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 deniеd 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,
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
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.
Charles Juntikka, New York, NY, for Plaintiff-Appellee (on the brief).
NOAH A. LEVINE, Wilmer Cutler Pickering Hale and Dorr, LLP (Alan E. Schoenfeld, on the brief), New York, NY, for Defendant-Appellant.
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.
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 internаl accounting change and that the debt remained unpaid. In 2014, Anderson filed a voluntary Chapter 7 bankruptcy petition and on May 6, 2014, the 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
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 would overcome the strong congressional preference for arbitration. We
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 cardhоlder 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”
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 аnd 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
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 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
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
Our review procedure is further dictated by the specific quеstion 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 proceеdings may only be exercised if it properly assessed the factors
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 аrbitration agreement under the deferential abuse of discretion standard.
II. Core or Non-Core Bankruptcy Proceedings
In
The partiеs 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 to compel arbitration in this core bankruptcy proceeding.
III. Congressional Intent
The Federal Arbitration Act,
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 аrguments 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 appeal where those arguments were available to the parties bеlow 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
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 Cоde when it refused to update the credit reports of Anderson and other similarly situated discharged debtors.
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.
It is well established that the discharge is the foundatiоn 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.
Following the logic of U.S. Lines and Hill, we find that arbitration of a claim based on an alleged violation of
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
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
Third, enforcement of injunctiоns 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 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 оwn injunctions and determining when they have been violated.
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
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
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
CONCLUSION
For the foregoing reasons, we hereby AFFIRM the order of the district court and REMAND for further proceedings consistent with this opinion.