Anderson v. Credit One Bank, N.A. (In re Anderson), Docket No. 16-2496
| Decision Date | 07 March 2018 |
| Docket Number | August Term, 2017,Docket No. 16-2496 |
| Parties | 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. |
| Court | U.S. Court of Appeals — Second Circuit |
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.
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.
Before: POOLER and DRONEY, Circuit Judges, and RAMOS,1 District 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 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 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.
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 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 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.
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 (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...
To continue reading
Request your trial
-
Rora LLC v. 404 E. 79th St. Lender LLC
...standard of review employed by the district court to the decision of the bankruptcy court" (quoting Anderson v. Credit One Bank, N.A. (In re Anderson ), 884 F.3d 382, 387 (2d Cir. 2018) )). "A finding is ‘clearly erroneous’ when, on consideration of the record as a whole, the reviewing cour......
-
Anderson v. Credit One Bank, N.A. (In re Anderson)
...debt's changed status from "charged off" to being subject to the bankruptcy discharge. As noted in Anderson v. Credit One Bank, N.A. (In re Anderson ), 884 F.3d 382, 385 (2d Cir. 2018), cert. denied , ––– U.S. ––––, 139 S. Ct. 144, 202 L.Ed.2d 35 (2018), "charging off" a delinquent debt "me......
-
In re Homaidan
...fact that the discharge injunction is an order issued by the bankruptcy court[.]’ " Opp. at 11 (quoting Anderson v. Credit One Bank, N.A. , 884 F.3d 382, 390-91 (2d Cir. 2018) ).In addition, Navient responds that only the issuing court is empowered to enforce an injunction through a contemp......
-
Trevino v. Select Porfolio Servicing, Inc. (In re Trevino)
...v. Hill , 436 F.3d 104, 110 (2d Cir. 2006).154 Id.155 In re Belton , 2015 WL 6163083, at *8–9.156 Anderson v. Credit One Bank, N.A. (In re Anderson ), 884 F.3d 382, 390–91 (2d Cir. 2018).157 Id.158 Id. at 391.159 McMahon , 482 U.S. at 231, 107 S.Ct. 2332.160 Id. at 232, 107 S.Ct. 2332 (quot......
-
Arbitration Agreements as Executory Contracts in Bankruptcy After Mission Prod. Holdings, Inc. v. Tempnology, LLC.
...how 'damages' could be calculated for breach of an arbitration agreement in and of itself"). (112) See, e.g., Anderson v. Credit One Bank, 884 F.3d 382 (2d Cir. 2018) (refusing to enforce agreement to arbitrate debtor's claim that creditor violated discharge injunction); Belton v. GE Cap. R......
-
The Bankruptcy Tribunal.
...discussion of the idea of inherent conflict in the bankruptcy-arbitration case law. See Lawless, supra note 3. (10) See In re Anderson, 884 F.3d 382, 390 (2d Cir. 2018) (denying arbitration and noting that shifting a case out of the bankruptcy court would undermine the purpose of bankruptcy......