Consumer and labor arbitration continue to attract significant attention, and sometimes controversy, in the wake of the Supreme Court’s recent decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (May 21, 2018). The ruling permits employers to use arbitration clauses to prevent class action suits from employees. Critics of the decision see it as a sign of arbitration’s unboundedness, predicting that mandatory provisions to arbitrate will soon be included in almost all contracts. On the other hand, Congress’s policy in favor of arbitration is well established.
In Anderson v. Credit One Bank, N.A. (In re Anderson), 884 F.3d 382 (2d Cir. 2018), the Second Circuit addressed the enforceability of a consumer arbitration clause after the debtor had been discharged in bankruptcy. The plaintiff Anderson filed a bankruptcy petition under Chapter 7 and ultimately was released from all dischargeable debts. Credit One had sold Anderson’s debt to a third-party buyer and then allegedly declined to update Anderson’s debt as “discharged” rather than “charged-off.” In response, Anderson filed a class action complaint arguing that Credit One’s refusal to properly characterize his debt was an attempt to force him to make payment, contrary to the bankruptcy court’s discharge order. Credit One moved to stay Anderson’s lawsuit and compel him to arbitrate the matter pursuant to its credit holder agreement with Anderson.
The district court denied Credit One’s motion, and the Second Circuit affirmed, finding that arbitration over a debt discharged by court order conflicted with bankruptcy’s aim to give “honest but unfortunate debtors” a fresh start. The court noted that “Anderson’s claim presents the sort of inherent conflict with the Bankruptcy Code that would overcome the strong congressional preference for arbitration.” The opinion made clear that successfully discharging debt is not only critical to the Bankruptcy Code, it is its principal goal.
Credit One’s cardholder agreement included both an arbitration clause and class action waiver, provisions which have generally been enforced by the courts. Yet the Court refused to enforce both clauses here (in part due in part to Credit One’s counsel’s failure to raise relevant arguments in the lower court). The recent decisions by both SCOTUS and the Second Circuit illustrate that arbitration’s place in the legal system is still being determined.