Belton v. GE Capital Retail Bank

19-648 (L)
Belton v. GE Capital Retail Bank
United States Court of Appeals
For the Second Circuit
August Term 2019
Argued: April 21, 2020
Decided: June 16, 2020
Nos. 19-648 (L), 19-655 (Con.)
IN RE: NYREE BELTON, KIMBERLY BRUCE,
Debtors.
NYREE BELTON,
Plaintiff-Appellee,
KIMBERLY BRUCE,
Debtor-Appellee,
v.
GE CAPITAL RETAIL BANK,
Defendant-Appellant,
CITIGROUP INC., CITIBANK, N.A.,
Appellants.
Appeal from the United States District Court
for the Southern District of New York
Nos. 15-cv-1934, 15-cv-3311,
Vincent L. Briccetti, Judge.
Before: WINTER, WESLEY, AND SULLIVAN, Circuit Judges.
Appellants GE Capital Retail Bank, Citigroup Inc., and Citibank, N.A.
appeal from an order of the district court (Briccetti, J.) denying Appellants’
motions to compel arbitration. Specifically, Appellants argue that Appellees – two
debtors who previously held credit card accounts managed by Appellants – were
obliged to arbitrate a dispute concerning whether Appellants violated the
bankruptcy court’s discharge orders when they failed to correct the status of
Appellees’ credit card debt on their credit reports. Both the bankruptcy court and
the district court determined that the arbitration clauses in the credit card
agreements were unenforceable. On appeal, we conclude that though the text and
history of the Bankruptcy Code are ambiguous as to whether Congress intended
to displace the Federal Arbitration Act in this context, our precedent is clear that
the two statutes are in inherent conflict on this issue. We therefore affirm the
district court’s order.
AFFIRMED AND REMANDED.
GEORGE F. CARPINELLO (Adam R. Shaw, Anne M.
Nardacci, on the brief), Boies Schiller Flexner LLP,
Albany, NY; Charles Juntikka, Charles Juntikka &
Associates LLP, New York, NY, for Appellees.
JOSEPH L. NOGA, Jenner & Block LLP, New York,
NY; Matthew S. Hellman, Jenner & Block LLP,
Washington, DC, for Appellant GE Capital Retail
Bank.
BENJAMIN R. NAGIN (Eamon P. Joyce, Jonathan W.
Muenz, Qais Ghafary, on the brief), Sidley Austin
LLP, New York, NY, for Appellants Citigroup Inc.
and Citibank, N.A.
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RICHARD J. SULLIVAN, Circuit Judge:
Is the alleged violation of a bankruptcy court discharge order an arbitrable
dispute? Though we answered this very question only two years ago, we are
called upon to reconsider the issue here. If we were writing on a blank slate,
perhaps our conclusion would be different. But as our Court’s precedent is clear,
and as that precedent is not incompatible with intervening caselaw or the text and
history of the Bankruptcy Code, we are bound to answer the question in the
negative. Accordingly, we AFFIRM the order of the district court (Briccetti, J.)
affirming the decision of the bankruptcy court (Drain, Bankr. J.) denying
Appellants’ motions to compel arbitration.
I. Background
Appellants GE Capital Retail Bank (“GE”), Citigroup Inc., and Citibank,
N.A. (together, “Citi” and, collectively with GE, the “Banks”) appeal the district
court’s order and judgment affirming the bankruptcy court’s denial of the Banks’
motions to compel arbitration. In 2007, Appellees Nyree Belton and Kimberly
Bruce (together, the “Debtors”) opened credit card accounts with GE and Citi,
respectively. Unfortunately, the Debtors quickly fell behind on their credit card
debt and began to miss payments. The Banks eventually “charged off” that
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delinquent debt – changing its accounting treatment from a receivable to a loss –
and sold it to third-party consumer debt purchasers. The Banks also reported the
change in the debt’s status to the three major credit reporting agencies. In turn,
those agencies updated the Debtors’ credit reports to reflect the debt as “charged
off,” indicating that the debt was severely delinquent but still outstanding.
Within the next few years, both Debtors filed voluntary petitions for relief
under Chapter 7 of the Bankruptcy Code (the “Code”). At the completion of the
liquidation processes, the bankruptcy court entered orders discharging the
Debtors’ debts. Under 11 U.S.C. § 524(a)(2), those orders operate as “injunction[s]”
against any future collection attempts.
Nevertheless, after the Debtors emerged from bankruptcy, their credit
reports continued to reflect their credit card debt as “charged off” without any
mention of the bankruptcy discharge. The Debtors assert that this was not a simple
mistake, but rather an attempt by the Banks to coerce the Debtors into repaying
the debt notwithstanding the bankruptcy court’s orders. As a result, the Debtors,
purporting to represent a nationwide class of similarly situated debtors, reopened
their bankruptcy cases and initiated adversary proceedings against the Banks,
alleging that the Banks’ refusal to update their credit reports violated the
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bankruptcy court’s orders and the associated injunctions provided by
section 524(a)(2). The Debtors seek a contempt citation and damages.
In response, the Banks moved to enforce mandatory arbitration clauses in
the Debtors’ credit card account agreements. Ultimately, both the bankruptcy
court and the district court rejected the Banks’ motions, finding that the dispute
was not arbitrable due to an inherent conflict between the Code and the Federal
Arbitration Act (the “Arbitration Act”). The Banks appealed.
II. Jurisdiction & Standard of Review
We have jurisdiction to decide this case under 28 U.S.C. § 158(d) and 9 U.S.C.
§ 16(a)(1). As for the applicable standard of review, “[t]he rulings of a district court
acting as an appellate court in a bankruptcy case are subject to plenary review.”
Stoltz v. Brattleboro Hous. Auth. (In re Stoltz), 315 F.3d 80, 87 (2d Cir. 2002). In other
words, “[w]hen reviewing a bankruptcy court decision that was subsequently
appealed to a district court, we review the bankruptcy court’s decision
independent of the district court’s review.” Statek Corp. v. Dev. Specialists, Inc. (In
re Coudert Bros. LLP), 673 F.3d 180, 186 (2d Cir. 2012). In so doing, we review the
bankruptcy court’s legal conclusions de novo. ANZ Sec., Inc. v. Giddens (In re
Lehman Bros. Inc.), 808 F.3d 942, 946 (2d Cir. 2015).
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III. Discussion
We are called upon to decide a narrow issue: whether a dispute concerning
the violation of a bankruptcy discharge order is arbitrable. 1
The Arbitration Act requires courts to strictly enforce arbitration
agreements. But like any statutory directive, that mandate may be overridden by
contrary congressional intent. Shearson/American Express, Inc. v. McMahon, 482 U.S.
220, 226 (1987). Such an intent may be deduced from “the statute’s text or
legislative history, or from an inherent conflict between arbitration and the
statute’s underlying purposes.” Id. at 227 (internal quotation marks, citation, and
alteration omitted).
Employing the McMahon test here requires us to exhaustively parse the
Code in search of such congressional intent. But we are not writing on a blank
slate. In 2018, this Court considered a nearly identical dispute in Anderson v. Credit
One Bank, N.A. (In re Anderson), 884 F.3d 382 (2d Cir.), cert. denied, 139 S. Ct. 144
(2018). Like this case, Anderson concerned a credit card account holder seeking to
bring an adversary proceeding against a bank for violating a bankruptcy discharge
1As discussed below, our decision does not address whether such a dispute is amenable to class
adjudication.
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order. And like the account agreements here, the agreement in Anderson contained
a mandatory arbitration provision.
The Anderson Court nevertheless refused to enforce the parties’ arbitration
agreement, finding that Congress did not intend for disputes over the violation of
a discharge order to be arbitrable. The Court reached that conclusion by
determining that arbitration was in “inherent conflict” with enforcement of a
discharge order because: (1) the discharge injunction is “integral” to the
bankruptcy process; (2) “the claim [concerns] an ongoing bankruptcy matter that
requires continuing court supervision;” and (3) “the equitable powers of the
bankruptcy court to enforce its own injunctions are central to the structure of the
Code.” Id. at 390. Importantly, the Court arrived at this holding without
considering the Code’s text or legislative history, which the parties had not argued
before the district court. Id. at 388–89.
Given the overwhelming similarities between this case and Anderson, our
hands seem to be bound by that panel’s decision. See Doscher v. Sea Port Grp. Sec.,
LLC, 832 F.3d 372, 378 (2d Cir. 2016). But the Banks tell us otherwise.
According to them, the Supreme Court’s recent decision in Epic Systems
Corp. v. Lewis, 138 S. Ct. 1612 (2018), undermined Anderson’s interpretation of
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McMahon and its progeny. Specifically, they argue that Epic Systems rejected the
notion that an inherent conflict between statutory purpose and arbitration is
independently sufficient to displace the Arbitration Act. The Banks instead see
Epic Systems as requiring a text-first approach that cannot be satisfied by reference
only to statutory purpose.
We disagree. To be sure, Epic Systems describes an exacting gauntlet
through which a party must run to demonstrate congressional intent to displace
the Arbitration Act. See id. at 1624 (“A party seeking to suggest that two statutes
cannot be harmonized, and that one displaces the other, bears the heavy burden
of showing a clearly expressed congressional intention that such a result should
follow.” (internal quotation marks omitted)). But despite the difference in tone,
“the test [Epic Systems] employs is substantially the same as McMahon’s.” Henry v.
Educ. Fin. Serv. (In re Henry), 944 F.3d 587, 592 (5th Cir. 2019). More to the point,
Epic Systems never stated an intention to overrule McMahon or render any prong
of its tripartite test a dead letter. See Bosse v. Oklahoma, 137 S. Ct. 1, 2 (2016); Shalala
v. Ill. Council on Long Term Care Inc., 529 U.S. 1, 18 (2000) (acknowledging that the
Court “does not normally overturn, or . . . dramatically limit, earlier authority sub
silentio”).
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What, then, is the impact of Epic Systems on McMahon (and thus Anderson)?
Like the Fifth Circuit, we see Epic Systems as clarifying that where two of
McMahon’s factors clash, a court should resolve the dispute in favor of the
statutory text and any contextual clues derived therefrom. See Henry, 944 F.3d
at 592. But that gloss on McMahon does not undermine Anderson’s conclusion –
that an “inherent conflict” is sufficient to displace the Arbitration Act where the
statutory text is ambiguous.
Of course, Anderson’s survival does not end our inquiry. Anderson, by virtue
of the posture in which it arrived before the panel, was narrowly circumscribed.
Specifically, the parties had waived any arguments concerning the Code’s text or
legislative history, and the Court declined to consider them. Anderson, 884 F.3d at
388–89. That is not the case here. We must therefore reexamine Anderson’s
conclusion in light of the Code’s text and history, and Epic Systems’s reminder that
a statute’s purpose cannot circumvent its text.
Here, no one disputes that the Code is silent on the issue of arbitration in
this context. The contested question is what to make of that fact. Epic Systems
clearly viewed statutory silence as probative evidence that Congress did not
intend to displace the Arbitration Act. See 138 S. Ct. at 1626 (noting that “Congress
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has . . . shown that it knows how to override the Arbitration Act when it wishes”).
But it did not treat silence as outcome determinative – since that would have
rendered much of Epic Systems’s analysis surplusage. Accordingly, we do not
think that the Code’s failure to expressly disclaim arbitrability undermines
Anderson’s conclusion.
The Banks do, however, have one textual argument with some teeth: state
courts have concurrent jurisdiction to enforce the discharge injunction as an
affirmative defense in collections suits. See Taggart v. Lorenzen, 139 S. Ct. 1795, 1803
(2019). The Banks sensibly posit that if state courts are competent to interpret the
scope of a discharge order, then so too are arbitrators. See Hays & Co. v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1157 n.11 (3d Cir. 1989) (“Where
Congress has specifically indicated subjugation of arbitration to the dictates of the
bankruptcy laws in one situation, but not in another, we must presume that
Congress neither intended to subjugate arbitration in the second instance, nor saw
the two laws as conflicting in this respect.”).
But what the Banks overlook is that the Debtors are not invoking the
discharge injunction as a defense to collection. Rather, they are proceeding
affirmatively to recover damages for an alleged violation of a court order and
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injunction. Because our Court has never identified a private right of action under
section 524, the Debtors have pursued this remedy through a contempt
proceeding. See Garfield v. Ocwen Loan Servicing, LLC, 811 F.3d 86, 91–92, 92 n.7 (2d
Cir. 2016); Yaghobi v. Robinson, 145 F. App’x 697, 699 (2d Cir. 2005). And as this
Court and numerous other circuits have concluded, the only court that may offer
a contempt remedy is the court that issued the discharge order – the bankruptcy
court. See Anderson, 884 F.3d at 391 (recognizing that “the bankruptcy court alone
has the power to enforce the discharge injunction in Section 524” through a
contempt citation); accord Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206,
216–17 (5th Cir. 2019); Alderwoods Grp., Inc. v. Garcia, 682 F.3d 958, 970 (11th
Cir. 2012); Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 509-10 (9th Cir. 2002); Cox
v. Zale Del., Inc., 239 F.3d 910, 916–17 (7th Cir. 2001) (Posner, J.).
As a result, we conclude that the Code’s text offers little guidance on
Congress’s intentions in the context of contempt proceedings like those at issue
here. We further find that the legislative history of the relevant provisions is
similarly unenlightening. We are therefore left with Anderson’s conclusion that the
Code is in “inherent conflict” with arbitration. And under this Circuit’s precedent,
that is enough to displace the Arbitration Act. See Anderson, 884 F.3d at 389–92; see
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also MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104, 108 (2d Cir. 2006) (citing Ins. Co. of
N. Am. v. NGC Settlement Tr. & Asbestos Claims Mgmt. Corp. (In re Nat’l Gypsum Co.),
118 F.3d 1056, 1069 (5th Cir. 1997)); U.S. Lines, Inc. v. American Steamship Owners
Mut. Prot. & Indem. Assoc., Inc. (In re U.S. Lines, Inc.), 197 F.3d 631, 640–41 (2d
Cir. 1999). Accordingly, we are bound to affirm the district court’s judgment.
* * *
Having determined that Anderson controls the issue before us, we pause
only to offer a few words concerning the scope of that conclusion. Specifically, we
have not endeavored to address whether a nationwide class action is a permissible
vehicle for adjudicating thousands of contempt proceedings, and neither our
decision today nor Anderson should be read as a tacit endorsement of such.
Indeed, permitting a bankruptcy court to adjudicate compliance with
another court’s order appears to be in severe tension with Anderson’s reasoning.
In particular, Anderson found that the Code displaced the Arbitration Act, in part,
because contempt proceedings involve considerations that the issuing court is
uniquely positioned to assess. See 884 F.3d at 390–91 (“[T]he bankruptcy court
retains a unique expertise in interpreting its own injunctions and determining
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when they have been violated.”). It seems to us that this rationale is anathema to
a nationwide class action. 2
More fundamentally, we question whether a bankruptcy court would even
have jurisdiction to hold a creditor in contempt of another court’s order. Most
circuits that have considered the issue have rejected the notion. See Crocker, 941
F.3d at 216–17 (“We adopt the language of [Anderson] that returning to the issuing
bankruptcy court to enforce an injunction is required at least in order to uphold
‘respect for judicial process.’”); Alderwoods Grp., 682 F.3d at 970 (“[T]he court that
issued the injunctive order alone possesses the power to enforce compliance with
and punish contempt of that order.”); Walls, 276 F.3d at 509–10 (same); Cox, 239
F.3d at 916–17 (same); but see Bassette v. Avco Fin. Servs., Inc., 230 F.3d 439, 446 (1st
Cir. 2000) (holding that a debtor is not required to “bring her claims in the court
that issued the original discharge order”). 3 And those cases are buttressed by the
Supreme Court’s recent decision in Taggart, which made clear that the contempt
2 To be sure, Anderson noted that “the class action nature” of the case did not alter the Court’s
conclusion. 884 F.3d at 391. But we read that language to refer to the Court’s holding that the
claims were not arbitrable, not to the unpresented issue of class certification and bankruptcy court
jurisdiction.
3 But even in Bassette, on remand, the District of Rhode Island found that its jurisdiction was
limited to “claims that are related to bankruptcy estates in the District of Rhode Island,” and
refused to certify a nationwide class. Bassette v. Avco Fin. Servs., Inc., 279 B.R. 442, 449
(D.R.I. 2002).
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powers provided under sections 524(a)(2) and 105(a) “bring with them the ‘old
soil’ that has long governed how courts enforce injunctions.” 139 S. Ct. at 1802.
So, while we affirm the district court’s judgment, we leave for another day
the issue of class certification.
IV. Conclusion
Accordingly, we AFFIRM the order of the district court and REMAND for
further proceedings consistent with this opinion. The Debtors’ motion for
summary affirmance is DENIED as moot.
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