In re Bateman
| Decision Date | 21 May 2018 |
| Docket Number | Case No. 8:14–bk–05369–RCT |
| Parties | IN RE: Christopher BATEMAN, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
Robert M. Geller, Law Offices of Robert M. Geller, P.A., Gus M. Centrone, Dunlap, Bennett & Ludwig, PLLC, Katherine Earle Yanes, Kynes Markman & Felman, PA, Tampa, FL, for Debtor.
Christopher Bateman obtained a discharge in this chapter 7 case in 2014. His discharge included an old cell phone debt to Verizon Wireless Personal Communications, LP ("Verizon"). In early 2015, Verizon, acting through a debt collector, attempted to collect the discharged debt. Now, three years later, Mr. Bateman, on behalf of himself and others similarly situated, seeks to hold Verizon in contempt for violating this court's discharge order and the discharge injunction imposed pursuant to 11 U.S.C. § 524.1
Verizon responds that this contested matter is covered by the arbitration agreement in its original cell phone contract with Mr. Bateman. Accordingly, Verizon moves to compel arbitration of the Motion for Contempt and to stay these proceedings pending the outcome of the arbitration.2
The issue presented is whether the Federal Arbitration Act ("FAA")3 requires that this contested matter be stayed and sent to arbitration.
Jurisdiction of this matter is proper under 28 U.S.C. § 1334 and the standing order of reference entered by the United States District Court for the Middle District of Florida pursuant to 28 U.S.C. § 157(a). This is a core proceeding within the meaning of 28 U.S.C. § 157.4
Mr. Bateman purchased a personal cell phone from Verizon in 2011 and simultaneously entered into a service agreement. As part of this transaction, Mr. Bateman signed a receipt agreeing to the terms and conditions in the Verizon Customer Agreement, which includes an arbitration provision (the "Customer Agreement") (Doc. 29–1). The Customer Agreement also cleverly states that Verizon may unilaterally change the Customer Agreement at any time (Doc. 29–2, p. 4). And in fact, Verizon revised the terms of the Customer Agreement, including the arbitration provision, in 2012 (presumably without consulting Mr. Bateman).
The revised Customer Agreement states, in relevant part:
(Doc. 29–3, pp. 8–9) (emphasis in original).5
Two years later, in May 2014, Mr. Bateman filed his chapter 7 bankruptcy petition (Doc. 1). Verizon is duly listed as a creditor with a pre-petition general unsecured claim of $481.00 and is included in the mailing matrix attached to the petition (Doc. 1, pp. 20 & 41). Once filed, the bankruptcy proceeded uneventfully and in August 2014 this court entered an order discharging Mr. Bateman's debts as provided in 11 U.S.C. § 727 (the "Discharge Order") (Doc. 14).
After entry of the Discharge Order, Verizon, acting through an agent, Convergent Outsourcing, Inc. ("Convergent"), sent Mr. Bateman a collection notice dated January 20, 2015. The letter states that Mr. Bateman owes Verizon $568.02, but that Convergent is willing to accept $198.81 to settle the claim (Doc. 19–1). Based on this letter, Mr. Bateman claims that Verizon has violated the Discharge Order. He not only seeks to hold Verizon in contempt for this alleged violation but also seeks class certification on behalf of all other similarly victimized debtors. Mr. Bateman asserts that Verizon has "flawed policies" and a pattern and practice of attempting to collect discharged debts (Doc. 19, ¶¶ 25–38).
Verizon of course denies these allegations, but more importantly here, moves to stay these proceedings and compel arbitration (Doc. 29). Notwithstanding Mr. Bateman's discharge, Verizon argues that Mr. Bateman remains bound by the arbitration provision in the Customer Agreement (Doc. 29, ¶¶ 5–10).
Meanwhile, Mr. Bateman also filed a complaint, first in federal district court,6 and later in state court,7 alleging that Verizon's conduct warrants class certification to pursue violations of consumer protection laws. His district court complaint was dismissed for lack of jurisdiction. Verizon also tried to stay the State Court Action and compel arbitration, but was unsuccessful. Its motion to stay the State Court Action and to compel arbitration was denied on December 14, 2017. Verizon appealed the state court's decision to the Second District Court of Appeals where it remains pending.8
The FAA was enacted in 1925 "in response to widespread judicial hostility to arbitration agreements."9 Section 2 of the FAA states:
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.10
This section of the FAA represents an early congressional declaration of a "liberal federal policy favoring arbitration,"11 and the "fundamental principle that arbitration is a matter of contract."12 Ultimately, the goal of the FAA is to "place arbitration agreements on equal footing with other contracts"13 and to "enforce them according to their terms."14
The FAA, however, "does not mandate the arbitration of all claims."15 "Arbitration under the [FAA] is a matter of consent, not coercion."16 Indeed, enforcement of arbitration agreements according to negotiated terms is intended to "give effect to the contractual rights and expectations of the parties."17
Consistent with this purpose, the Eleventh Circuit has developed a two-step inquiry when considering a motion to compel arbitration. First, the court must determine whether the parties have actually agreed to arbitrate the dispute.18 If the parties have actually agreed, then the court must decide whether any "legal constraints external to the parties' agreement foreclose arbitration."19 Bankruptcy may be one of the legal constraints foreclosing arbitration, but only if the matter under consideration is within the bankruptcy court's "core" jurisdiction, and if enforcement of the arbitration agreement inherently conflicts with the underlying purpose of the Bankruptcy Code.20
Mr. Bateman first argues that the Customer Agreement (and hence the arbitration provision) is no longer valid because it was effectively discharged and rendered unenforceable in his bankruptcy. He relies primarily on Harrier v. Verizon Wireless Personal Comm. LP ,21 and notes that this decision was recently cited with approval in the order denying arbitration of his State Court Action.
But courts do not agree on how a bankruptcy discharge impacts an agreement to arbitrate. Some, such as the Harrier court, conclude that if an agreement is not reaffirmed, the bankruptcy discharge nullifies the contract and renders it—and any arbitration clause contained therein—totally unenforceable.22 Other courts reason that a discharge is limited to relieving the debtor from personal liability and the arbitration agreement survives the discharge. 23
This court finds the latter approach to be more consistent with both the text and structure of the Bankruptcy Code.24
A chapter 7 discharge is provided under § 727 of the Bankruptcy Code.25 Section 727(b) "discharges the debtor from all debts " and "any liability on a claim" that arose, or are determined to arise, before the bankruptcy is filed.26 Section 727(b) thus defines the scope of the discharge that Mr. Bateman received in 2014. He was relieved of all of his pre-petition debts, including the amount owed Verizon.
Section 524 of the Code sets forth the effect of a discharge and defines the scope of the discharge injunction which is applicable to all chapters of the Bankruptcy Code.27 A discharge voids any judgments for personal liability of the discharged debt and generally enjoins any effort to collect the discharged debts.28 Section 524 also limits the discharge by providing detailed instructions on how a debt may be reaffirmed and excepted from the discharge.29 But nothing in § 524 expands the discharge granted under § 727. Indeed, the Supreme Court has made clear that the effect of a chapter 7 discharge is simply to relieve the debtor of personal liability.30
The fact that Mr. Bateman did not reaffirm his debt with Verizon does not change this analysis. Section 524(c) is an exception to the general discharge provided in § 727. It provides that an agreement to reaffirm a debt is only enforceable against the debtor if that agreement complies with the strict requirements of the statute.31 Read in context, the "agreement" referred to in § 524(c) is the potential reaffirmation agreement. It is not the underlying contract that formed the basis of the original debt. Section 524(c) painstakingly instructs how to create a valid and enforceable reaffirmation agreement. It does not speak to the original contract between the debtor and the creditor.
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Verizon Wireless Pers. Commc'ns, LP v. Bateman
...violating the discharge order. Verizon unsuccessfully tried to stay the bankruptcy claims and compel arbitration. In reBateman, 585 B.R. 618, 630 (Bankr. M.D. Fla. 2018).II. Analysis We review the trial court's order de novo. See Sherwood v. Slazinski, 162 So.3d 229, 231 (Fla. 2d DCA 2015).......
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...enforcement of the arbitration agreement inherently conflicts with the underlying purpose of the Bankruptcy Code." In re Bateman, 585 B.R. 618, 624 (Bankr. M.D. Fla. 2018) (citing The Whiting-Turner Contracting Co. v. Elec. Mach. Enter., Inc. (In re Elec. Mach. Enter., Inc.), 479 F.3d 791, ......
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...11 U.S.C. § 362 "to prosecute to conclusion its state law claims against the Debtors in the arbitration proceedings." B. Analysis In In re Bateman,17 the bankruptcy court considered whether a dispute should be sent to arbitration under a prior arbitration agreement between the parties. The ......
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