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.

                                              6
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



                                            7
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”).



                                             8
      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



                                         9
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



                                          10
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



                                           11
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




                                         12
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).

                                                13
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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