Walker v. Got'cha Towing & Recovery, LLC (In re Walker)

• Decision Date: 17 June 2016
• Docket Number: Adv. Proc. No. 16–05010,Case No. 14–51982–AEC
• Citation: 551 B.R. 679
• Parties: In re: Melvin Walker, Debtor. Melvin Walker, Jr., Plaintiff/Debtor, v. Got'cha Towing & Recovery, LLC and GFC Lending, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

551 B.R. 679

In re: Melvin Walker, Debtor.Melvin Walker, Jr., Plaintiff/Debtor

v.Got'cha Towing & Recovery, LLC and GFC Lending, LLC, Defendants.

Case No. 14–51982–AEC

Adv. Proc. No. 16–05010

United States Bankruptcy Court, M.D. Georgia, Macon Division.

Signed June 17, 2016

For Plaintiff: Martin L. Fierman, 296 North Main Street, Madison, GA 30650–1313

For Got'Cha Towing & Recovery, LLC: Christine L. Mast, Hawkins Parnell Thackston & Young LLP, 303 Peachtree Street, NE, Suite 4000, Atlanta, GA 30308

For GFC Lending, LLC: Jonathan E. Green, Amy L. Hanna, & Madeleine Grace Kvalheim, Baker Donelson Bearman Caldwell & Berkowitz, PC, 3414 Peachtree Road NE, Suite 1600, Atlanta, GA 30326

MEMORANDUM OPINION

Austin E. Carter, United States Bankruptcy Judge

Before the Court are the respective Motions to Compel Arbitration (Dkt. 2, Parts 24–29) filed by the Defendants. These Motions require the Court to balance a tension between the strong policies undergirding the Federal Arbitration Act (FAA)¹ and a most critical provision of the Bankruptcy Code² —the automatic stay.

Procedural History

The Debtor filed a petition for Chapter 13 bankruptcy relief in this Court on August 22, 2014. This adversary proceeding addresses a stay violation that allegedly occurred about one month after the filing of the Debtor's bankruptcy case. The manner in which this stay violation came before the Court in this adversary proceeding is somewhat convoluted.

On April 13, 2015, the Debtor filed a Complaint for Damages in the Superior Court of Baldwin County, Georgia (No. 15–CV–47481H) (Dkt. 2, Part 3) (the “Complaint”). In his Complaint, the Debtor alleges that GFC Lending, LLC (GFC),³ and its agent, Got'Cha Towing & Recovery, LLC (GTR), repossessed his Ford Mustang (the “Vehicle”) on September 30, 2014, after both Defendants had been given notice of the bankruptcy case and the automatic stay created thereby. The two cognizable legal bases for the Complaint are: (1) violation of the automatic stay arising under § 362, and (2) conversion of, and/or trespass to,⁴ the Debtor's property (Dkt. 2, Part 3). The relief sought by the Complaint includes recovery of actual damages for injury to the Vehicle and the value of certain items within the Vehicle lost during its repossession, as well as costs and attorney fees, punitive damages, and interest (whether post-judgment or pre-judgment is not specified).

The Defendants removed this case to the U.S. District Court for the Middle District of Georgia (No. 5:15–cv–00168–MTT) (Dkt. 2, Part 4), which was met by the Debtor with a Motion to Remand the case back the Superior Court (Dkt. 2, Part 7). A primary argument of the Debtor in his remand attempt was that “none of the claims [in the Complaint] are founded on a claim or right arising under the ... laws ... of the United States,” but instead are state law claims, such as “trespass to personalty and conversion” (Dkt. 2, Part 7 ¶ 2, 5).

GTR filed a Response to the Motion to Remand, stating:

[The Debtor's] claim is that [GTR] repossessed his car in violation of Federal bankruptcy law.

...

[T]he root of the [Debtor's] claim is not that [GTR] committed a trespass or conversion by repossessing a car that was not to be repossessed. The claim made by [the Debtor] is that [GTR] violated the bankruptcy stay.

...

[T]he litigation has a “significant connection” with the bankruptcy case and also the litigation “involves the application and interpretation” of bankruptcy law. The only reason a claim exists at all is because of the bankruptcy stay. If the case were remanded, a state court would have to interpret Federal Bankruptcy Law in order to determine whether the stay was violated and whether [GTR's] actions violated Federal Law.

Dkt. 2, Part 11, at 2, 4 (second emphasis added).⁵

The District Court summarily denied the Debtor's Motion to Remand (Dkt. 2, Part 19), citing Justice Cometh, Ltd. v. Lambert, 426 F.3d 1342 (11th Cir.2005), which provides that, pursuant to 28 U.S.C. §§ 1331 and 1334, the district court in which the case is pending has original jurisdiction over violations of the automatic stay under § 362 of the Bankruptcy Code (though the district court will likely refer such cases to the bankruptcy court pursuant to a standing order of reference). See 426 F.3d at 1343.

On November 9 and 18, 2015, Defendants filed in the District Court their respective Motions to Compel Arbitration. On January 14, 2016, before ruling on the Motions, the District Court referred the case to this Court because “[t]he complaint asserts a claim for damages because of a violation of the automatic stay imposed by filing for bankruptcy” (Dkt. 2, Part 2, at I).⁶

The Defendants pursue their Motions to Compel Arbitration here. Counsel for the Debtor announced his opposition to the Defendants' Motions at a hearing on this matter (see In re Walker, No. 14–51982 (Bankr.M.D.Ga. Feb. 25, 2016), ECF No. 42), but has not presented any legal or factual basis for doing so.

By the Motions, the Defendants seek an order of the Court staying or dismissing these proceedings and ordering the Debtor to pursue his claims in an arbitral forum. According to the Motions, arbitration is required under an agreement executed by the Debtor when he purchased the Vehicle (Dkt. 2, Part 27). The Defendants base their position on several provisions of this agreement, including the provision requiring arbitration of “any claim, dispute or controversy ... arising from or related to ... [a]ny repossession, or replevin, of the vehicle” (Dkt. 2, Part 27, at 12). The Debtor does not contest (but does not confirm) that he agreed to this provision as to both Defendants and that the provision contemplates a repossession of the Vehicle in violation of the automatic stay.

As the parties (in their Motions or otherwise) had not previously addressed the enforceability of an agreement requiring arbitration of a violation of the automatic stay arising under § 362 of the Bankruptcy Code, the Court, by Order (Dkt.15), gave the parties an opportunity to brief the issue. The Debtor did not file a brief. The Defendants, on the other hand, filed a joint brief (Dkt.18), by which they argue that this Court must enforce the arbitration agreement because the Debtor's Complaint asserts only non-core state law claims, and not a violation of the automatic stay.

Conclusions of Law

I. Explanation of Controlling Law.

Section 2 of the FAA provides that written agreements to submit disputes to arbitration “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. A party seeking to compel arbitration has the burden to prove the existence of a valid agreement to arbitrate the claims in question. Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) ; Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000) ; see also Hanover Ins. Co. v. Atlantis Drywall & Framing LLC, 611 Fed.Appx. 585, 588 (11th Cir.2015). This is because “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Once the movant's initial burden is met, the party seeking to avoid arbitration has the burden to show that “Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.” Randolph, 531 U.S. at 90, 121 S.Ct. 513 ; Shearson/Am. Express, Inc. v. McMahon , 482 U.S. 220, 227, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987).

The FAA represents a strong federal policy in favor of arbitration, such that the Supreme Court has subjected to arbitration many federal rights furthering important social policies.⁷ To this Court's knowledge, the Supreme Court has not expressly addressed the FAA's relationship to the Bankruptcy Code. The Eleventh Circuit, however, has.⁸

In Whiting–Turner Contracting Company v. Electric Machinery Enterprises, Inc. (In re Electric Machinery Enterprises, Inc.), the Eleventh Circuit, disagreeing with the courts below, ruled that the bankruptcy court did not have discretion to refuse to grant a creditor's motion to compel arbitration of a prepetition breach of contract claim asserted by the debtor against that creditor. 479 F.3d 791 (11th Cir.2007). In doing so, however, the Eleventh Circuit recognized circumstances under which a bankruptcy court might have discretion to decline to compel a litigant to arbitrate a bankruptcy-related matter—where doing so would inherently conflict with the underlying purposes of the Bankruptcy Code.⁹ Id. at 796 (“[W]e look to the third factor of the McMahon test and examine whether an inherent conflict exists between arbitration and the underlying purposes of the Bankruptcy Code.”). The Eleventh Circuit, joining other courts to address the question, began this analysis by examining whether the matter is core or non-core. Id. (“Courts addressing the issue of whether arbitration inherently conflicts with the Bankruptcy Code distinguish between core and non-core proceedings.”). Determining that the matter is non-core weighs in favor of compelling arbitration.¹⁰ But, “even if a proceeding is determined to be a core proceeding, the bankruptcy court must still analyze whether enforcing a valid arbitration agreement would inherently conflict with the underlying purposes of the Bankruptcy Code.”Id. at 796.¹¹

II. Application of Law.

A. The Court has discretion not to enforce the arbitration agreement.

(1) The claims are core.

The Bankruptcy Code provides a non-exclusive list of core proceedings. See28 U.S.C. § 157(b)(2)(A)-(P).... [S]ince the list is non-exhaustive, we must inquire as to the nature of a core versus a non-core proceeding. In In re Toledo, we stated that “ ‘[i]f the proceeding involves a right created by the federal bankruptcy law, it

...