In re Mintze

• Decision Date: 18 January 2006
• Docket Number: No. 03-4745.,03-4745.
• Parties: In re: Ethel Marie MINTZE, Debtor. Ethel Marie Mintze v. American General Financial Services, Inc., f/k/a American General Finance, Inc.; American General Consumer Discount Co., collectively, "American General", Appellants. Edward Sparkman, Esq.; Frederic J. Baker, Esq., Trustees.
• Court: U.S. Court of Appeals — Third Circuit

434 F.3d 222

In re: Ethel Marie MINTZE, Debtor.

Ethel Marie Mintze v. American General Financial Services, Inc., f/k/a American General Finance, Inc.; American General Consumer Discount Co., collectively, "American General", Appellants.

Edward Sparkman, Esq.; Frederic J. Baker, Esq., Trustees.

No. 03-4745.

United States Court of Appeals, Third Circuit.

Argued January 10, 2005.

Filed January 10, 2006.

As Amended January 18, 2006.

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Henry F. Reichner, (Argued), Charles L. Becker, Reed Smith, LLP, Philadelphia, PA, for Appellants.

Irv Ackelsberg, (Argued), Community legal Services, Inc., Philadelphia, PA, Paul Bland, Trial Lawyers for Public Justice, Washington, D.C., for Appellee.

Before ROTH and CHERTOFF,^* Circuit Judges, and RESTANI,^** Chief Judge.

ROTH, Circuit Judge.

In this appeal, we are asked to determine whether the Bankruptcy Court's decision to deny enforcement of an otherwise applicable arbitration clause was proper.

Ethel M. Mintze and American General Consumer Discount Company entered into a loan agreement. Mintze subsequently filed a voluntary Chapter 13 bankruptcy petition. After American General filed a proof of claim, Mintze filed a complaint in the Bankruptcy Court seeking, inter alia, to enforce a pre-petition rescission of the loan agreement. American General Consumer Discount Company and its parent company, American General Financial Services, (collectively "AGF") then filed a Motion to Compel Arbitration, which the Bankruptcy Court denied. AGF claims that the Bankruptcy Court did not have the discretion to deny enforcement of the arbitration agreement.

Based on the provisions of the Federal Arbitration Act of 1947, 9 U.S.C. § 1-14, (FAA) and Mintze's failure to establish that Congress intended to preclude waiver of judicial remedies for her claims, we hold that the Bankruptcy Court lacked the authority and discretion to deny enforcement of the arbitration provision. We reverse the District Court Order affirming the Bankruptcy Court's decision, and we remand the case to the District Court to remand it to the Bankruptcy Court with instructions to order the parties to engage in arbitration in accordance with the terms of the arbitration provision.

I.

Ethel M. Mintze is a retired and disabled homeowner. She lives with her children in a row house in Philadelphia. Late in the year 2000, she had to replace the heater in her home. The cost of a new heater was $3800. Unfortunately, Mintze could not afford it. A & M Heating, a heating contractor, referred Mintze to AGF. On October 20, 2000, Mintze and AGF entered a loan agreement, whereby AGF loaned Mintze the money to purchase a new heater in exchange for Mintze consolidating that loan and other debt, including her mortgage, into a home equity loan with AGF.

The principal balance of this agreement was $44,716.34, and consisted of her mortgage ($25,602.55); the balance of her credit card debt ($10,463.51); the cost of the new heater (about $3800); settlement charges ($2821); and premiums for two life insurance policies ($1629 in a credit life insurance policy,¹ and $400 in a term life insurance policy). The terms of the loan agreement were payments of $551.13 per month over fifteen years at an annual percentage rate of 13.44%. The loan agreement also contained a demand clause and an arbitration clause. The demand clause allowed AGF to accelerate the loan after five years. The arbitration clause stated that "all claims and disputes arising out of, in connection with, or relating to [the] loan" must "be resolved by binding arbitration."

Mintze began to fall behind in her payments to AGF, and on December 4, 2001, she voluntarily filed a Chapter 13 petition for bankruptcy. AGF filed a proof of claim against Mintze's estate. Mintze then filed a complaint against AGF in the Bankruptcy Court. In her complaint, Mintze alleged that AGF induced her to enter an illegal and abusive home equity loan that resulted in AGF holding a mortgage lien against her home; she sought to enforce a pre-petition rescission of the mortgage that she asserted under the Truth In Lending Act, 15 U.S.C. §§ 1601-1667f ("TILA"); and she asserted several other claims under federal and state consumer protection laws.²

On May 20, 2002, AGF filed a Motion to Compel Arbitration. During the motion hearing, the Bankruptcy Judge sought to confirm two stipulations of the parties. First,

THE COURT: . . . [L]et me first confirm that the parties have agreed, at least for purposes of this argument, that the matter before me is a core proceeding.

[AGF's Counsel]: Yes, Your Honor.

[Mintze's Counsel]: Yes, Your Honor.

Second,

THE COURT: . . . [I]n Zimmerman, as in this case, [the proceeding] involved a core matter. And the upshot of that would mean that whether I choose to grant the relief is within my discretion. Both counsel agree that in terms of the standard that I'm applying?

[Mintze's Counsel]: Yes, Your Honor.

THE COURT: Okay. Now, I'll ask the same type of question on a different issue, and I know I might not get agreement on this one, but I'll ask it anyway.

As is apparent, counsel for AGF made no response to the question of the court concerning the court's discretion to grant AGF's Motion to Compel Arbitration. Based on this exchange, the Bankruptcy Court determined that the proceeding before it was a core proceeding and that it had the discretion to deny enforcement of the arbitration clause. The Bankruptcy Court then decided that the matter was best resolved in the bankruptcy court system because the outcome of Mintze's rescission claim would affect her bankruptcy plan and the distribution of monies to her other creditors. See Mintze v. Am. Gen. Fin., Inc. (In re Mintze), 288 B.R. 95 (Bankr.E.D.Pa.2003) (Mintze I). On January 21, 2003, AGF filed a timely appeal. Finding that the Bankruptcy Court acted within its discretion, the District Court affirmed the Bankruptcy Court Order. See In re Mintze, 2003 WL 22701020 (E.D.Pa.2003) (Mintze II). On December 11, 2003, AGF filed a timely appeal.

On September 24, 2004, while the current case was pending before us, the Bankruptcy Court issued an Order in response to AGF's Motion for Summary Judgment with respect to several of Mintze's claims. The Court granted AGF's motion with respect to Mintze's TILA and HOEPA claims. The Court also marked Mintze's HIFA claim as withdrawn.

II.

This appeal comes to us from the United States District Court for the Eastern District of Pennsylvania. The case originated in the Bankruptcy Court for that district. The Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334(b). The District Court had appellate jurisdiction under 28 U.S.C. § 158(a)(1) and 9 U.S.C. § 16(a)(1)(B) (providing appeal from an order denying arbitration). We have appellate jurisdiction pursuant to 28 U.S.C. § 158(d) and 9 U.S.C. § 16(a)(1)(B).

We give plenary review to a decision of a district court sitting as an appellate court in a bankruptcy proceeding. See The Resolution Trust Corp. v. Swedeland Dev. Group, Inc. (In re Swedeland Dev. Group, Inc.), 16 F.3d 552, 559 (3d Cir.1994). Therefore, we review "the Bankruptcy Court's findings of fact under the clearly erroneous standard and conclusions of law under a de novo standard." Halper v. Halper, 164 F.3d 830, 835 (3d Cir.1999). We only review the Bankruptcy Court's decision for abuse of discretion if we first determine, under plenary review, that it had the discretion to exercise. See Hays & Co. v. Merrill Lynch Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1156 (3d Cir.1989) (refusing to review case for abuse of discretion because court "committed a more fundamental error in determining that it had discretion to exercise").

III.

AGF argues that the Bankruptcy Court lacked the discretion to deny enforcement of the arbitration clause in the mortgage agreement. The District Court held, and Mintze contends, that the Bankruptcy Court had such discretion and that it was within its bounds of discretion when it ruled against AGF. The parties' arguments stem from the two stipulations that the parties made at the hearing on AGF's Motion to Compel. At the hearing, the parties allegedly stipulated that the proceeding in question was a "core" proceeding and that the Bankruptcy Court had the discretion to deny enforcement of the arbitration clause in the loan agreement. AGF claims that, despite its concession that the proceeding was a "core" proceeding, the proceeding was a non-core proceeding and that, even if the proceeding is deemed to be core, such a determination did not automatically give the Bankruptcy Court the discretion to deny arbitration. AGF claims that the Bankruptcy Court did not have discretion to deny enforcement of the arbitration clause because the standard set out in Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987), was not satisfied.

Mintze claims that AGF is bound by its stipulations. According to Mintze, the Bankruptcy Court had the discretion to deny arbitration and our standard of review is for abuse of that discretion, which Mintze claims was not abused. Mintze also claims that we should dismiss AGF's claims under the doctrine of judicial estoppel and our rule against considering new issues on appeal.

Before we can determine whether the Bankruptcy Court abused its discretion, we must determine whether the Bankruptcy Court had any discretion to exercise. See Hays, 885 F.2d at 1156 (refusing to address the abuse of discretion issue because the court "committed a more fundamental error in determining that it had discretion to exercise"). We are not bound by the parties' stipulations concerning questions of law. See Kraft Gen. Foods, Inc. v. Iowa Dep't of Rev. & Fin., 505 U.S. 71, 85, 112 S.Ct. 2365, 120 L.Ed.2d 59 (1992). Whether a bankruptcy proceeding is a core or non-core proceeding is a question of law. See Halper, 164 F.3d at 836-37. See...