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In re Anderson

United States Court of Appeals, Second Circuit

March 7, 2018

IN RE: ORRIN S. ANDERSON, AKA ORRIN S. ANDERSON, AKA ORINN SCOTT ANDERSON, Debtor,
v.
CREDIT ONE BANK, N.A., Defendant-Appellant. ORRIN S. ANDERSON, on behalf of himself and all others similarly situated, AKA ORINN SCOTT ANDERSON Plaintiff-Appellee,

          Argued: October 11, 2017

         Credit One Bank, N.A. appeals from an order of the United States District Court for the Southern District of New York (Nelson S. Román, J.), affirming the decision of the United States Bankruptcy Court for the Southern District of New York (Robert D. Drain, Bankr. J.) denying Credit One's motion to compel arbitration. Credit One sought to compel arbitration on the basis of a clause in the cardholder agreement between Credit One and Anderson. The bankruptcy court denied that motion, holding that Anderson's claims implicated core bankruptcy proceedings and that arbitration would present an inherent conflict with the congressional intent underlying the Bankruptcy Code. Credit One was entitled to an immediate appeal of the bankruptcy court's decision pursuant to the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(A). The district court affirmed the decision of the bankruptcy court, for substantially the same reasons.

         On appeal, we conclude that Anderson's claim is not arbitrable. The parties now agree that the dispute concerns a core bankruptcy proceeding, so our sole inquiry is whether arbitrating the matter would present an inherent conflict with the goals of the Bankruptcy Code. We carefully consider the particular facts of this case in light of the expressed congressional preference for arbitration and conclude that Anderson's claims present an inherent conflict between arbitration and the Bankruptcy Code. The bankruptcy court did not abuse its discretion in denying the motion to compel arbitration in this case.

         Affirmed and remanded.

          GEORGE F. CARPINELLO, Boies, Schiller & Flexner LLP (Adam R. Shaw, Anne M. Nardacci, and Jenna C. Smith, on the brief), Albany, NY, for Plaintiff-Appellee.

          Charles Juntikka, New York, NY, for Plaintiff-Appellee (on the brief).

          NOAH A. LEVINE, Wilmer Cutler Pickering Hale and Dorr, LLP (Alan E. Schoenfeld, on the brief), New York, NY, for Defendant-Appellant.

          Michael David Slodov, Chagrin Falls, OH, for Defendant- Appellant.

          Evan M. Tager, Charles E. Harris, II, Mayer Brown LLP, Washington, D.C. and Kate Comerford Todd, Warren Postman, U.S. Chamber Litigation Center, for amicus curiae Chamber of Commerce of the United States of America in support of Defendant-Appellant Credit One Bank, N.A.

          Tara Twomey, National Consumer Bankruptcy Rights Center, San Jose, CA for amici curiae Professors Ralph Brubaker, Robert M. Lawless, and Bruce A. Markell in support of Plaintiff-Appellee Orrin S. Anderson.

          Before: POOLER and DRONEY, Circuit Judges, and RAMOS, [1] District Judge.

          POOLER, Circuit Judge

         Orrin Anderson was a credit card holder with a predecessor in interest of Credit One Bank, N.A. ("Credit One"). In March 2012, Credit One "charged off" Anderson's delinquent debt, which means the bank changed the outstanding debt from a receivable to a loss in its own accounting books. It then sold Anderson's debt to a third-party buyer. Credit One reported the change in the debt's status to Equifax, Experian, and Transunion, indicating both that the bank had made the internal accounting change and that the debt remained unpaid. In 2014, Anderson filed a voluntary Chapter 7 bankruptcy petition and on May 6, 2014, the United States Bankruptcy Court for the Southern District of New York (Drain, Bankr. J.) entered a Discharge of Debtor Order of Final Decree ("discharge order") providing that Anderson was released from all dischargeable debts and closing Anderson's Chapter 7 case.

         Anderson's claim arises from Credit One's subsequent refusal to remove the charge-off notation on Anderson's credit reports. In December 2014, the bankruptcy court permitted Anderson to reopen his bankruptcy proceeding to file a putative class action complaint against Credit One. Anderson alleges that Credit One's refusal to change his credit report is an attempt to coerce Anderson into paying a debt that has already been discharged through bankruptcy, which is a violation of the bankruptcy court's discharge injunction. Credit One moved to stay the proceedings and initiate arbitration in accordance with an arbitration clause in Anderson's cardholder agreement with the bank. The bankruptcy court held that Anderson's claim was non-arbitrable because it was a core bankruptcy proceeding that went to the heart of the "fresh start" guaranteed to debtors under the Bankruptcy Code. Credit One filed an interlocutory appeal of that ruling, as is its right under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 16(a)(1)(A). The United States District Court for the Southern District of New York (Nelson S. Román, J.) agreed with the bankruptcy court.

         The parties agree that the issues raised concern "core" bankruptcy proceedings and arguments regarding legislative history and statutory text were not raised below. Accordingly, we need only inquire whether arbitration of Anderson's claim presents the sort of inherent conflict with the Bankruptcy Code that would overcome the strong congressional preference for arbitration. We agree with both lower courts that Anderson's complaint is non-arbitrable. The successful discharge of debt is not merely important to the Bankruptcy Code, it is its principal goal. An attempt to coerce debtors to pay a discharged debt is thus an attempt to undo the effect of the discharge order and the bankruptcy proceeding itself. Because the issue strikes at the heart of the bankruptcy court's unique powers to enforce its own orders, we affirm the district court decision below.

         BACKGROUND

         In October 2002, Orrin Anderson opened a credit card account with First National Bank of Marin, a predecessor in interest to Credit One. Anderson's cardholder agreement contained an arbitration clause. Specifically, the arbitration agreement provided that "either [Anderson] or [Credit One] may, without the other's consent, require that any ...


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