Can a debtor be forced to arbitrate an alleged violation of the discharge injunction under Section 524?
That is the topic of a petition for certiorari filed on June 5, asking the Supreme Court to review Credit One Bank NA v. Anderson (In re Anderson), 884 F.3d 382 (2d Cir. March 7, 2018). Despite an arbitration provision in a pre-bankruptcy agreement with a creditor, the Second Circuit upheld the two lower courts and refused to compel arbitration when the debtor mounted a class action contending that the creditor routinely violated the discharge injunction.
Although there is no circuit split on the arbitrability of an alleged discharge violation, the petitioner in Anderson contends that the Second Circuit was wrong in light of recently decided Epic Systems Corp. v. Lewis, 200 L. Ed. 2d 889, U.S.L.W. 4297 (Sup. Ct. May 21, 2018), where the Supreme Court compelled employees to arbitrate their wages and hours claims governed by the Fair Labor Standards Act.
Indeed, the petitioner in Anderson concedes that the Fourth, Fifth and Ninth Circuits agree with the Second Circuit and allow discretion to disregard an arbitration agreement when the lawsuit raises a “core” bankruptcy claim and arbitration would represent a “severe conflict” with the Bankruptcy Code.
The Anderson ‘Cert’ Petition
Believing that the Second Circuit was wrong in view of Epic, the creditor-petitioner in Anderson interprets Epic to mean “that another federal statute can render an arbitration agreement unenforceable . . . only if that was Congress’s clear and manifest intent.” The petitioner in Anderson believes that “[n]othing in the Bankruptcy Code evidences a clear and manifest congressional intent to displace the Arbitration Act’s command as to claims for violation of the statutory discharge injunction.”
The petitioner believes that discharge violations are arbitrable because “[t]here is no indication in either [Section 524 or Section 105] . . . that Congress intended to preclude arbitration of Section 524 claims.”
In other words, the petitioner believes that an arbitration clause in a pre-bankruptcy agreement can bar a debtor from resorting to bankruptcy court to enforce or seek redress for a violation of discharge. If that were true, a creditor with an otherwise enforceable arbitration agreement could dun a debtor after bankruptcy, knowing that the debtor could enforce his or her discharge only in arbitration.
If courts were to adopt the petitioner’s view, many otherwise “core” proceedings in bankruptcy cases would disappear into arbitration. The standard sought by the petitioner might mean that a creditor could force a debtor to arbitrate a claim objection, an objection to the dischargeability of a debt, or even a fraudulent transfer or preference claim.
Possible Disposition of the Anderson Petition
Conceding there is no circuit split on the non-arbitrability of “core” claims involving a fundamental bankruptcy right, the petitioner wants the Supreme Court to put the appeals courts on the right track because “the lower courts have been flummoxed by the Bankruptcy Code, which [the Supreme Court] has never addressed for these purposes.”
The petitioner well may be correct that Anderson cannot be squared with Epic, a 5/4 decision. However, the Supreme Court is not a court of error. Along with alleged violations of the U.S. Constitution, most Supreme Court cases resolve circuit splits.
Since there is no circuit split underlying Anderson, the petitioner forthrightly asks the Supreme Court, in the alternative, to “grant [the certiorari petition], vacate, and remand [to the Second Circuit] in light of its intervening decision in Epic Systems.” A GVR, as it is called, seems more likely than a straight-up grant of certiorari.
The debtor-plaintiff in Anderson already waived its right to file a response to the petition for certiorari. Like Tempnology, the justices are likely to consider the Anderson petition and issue a disposition as early as September 27.
Subsequent to Anderson but the same day as Epic, a bankruptcy court in Florida reached the same result as the Second Circuit. To read ABI’s discussion of In re Bateman, 14-5369, 2018 BL 181355 (Bankr. M.D. Fla. May 21, 2018), click here.
To read ABI’s discussion of the Second Circuit decision in Anderson, click here. To read the Anderson certiorari petition, click here.