Educational Financial Service v. Stephanie Henry (In re Henry)

Fifth Circuit panel does not interpret recent Supreme Court authority as overruling circuit opinions allowing bankruptcy courts to disregard arbitration agreements.

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Case Type:
Case Status:
18-20809 (5th Circuit, Oct 17,2019) Not Published
Bankruptcy Courts have discretion to refuse to compel arbitration of discharge disputes. The Fifth Circuit followed its prior rulings in In re National Gypsum and In re Gandy and found: (1) Henry's claims sought adjudication of statutory rights conferred by the Bankruptcy Code; (2) requiring arbitration in this instance would conflict with a bankruptcy court's ability to enforce its own order; (3) the FAA does not require a bankruptcy court to enforce an arbitration clause; and (4) National Gypsum's holding remains applicable precedent following Epic Systems.
Procedural context:
Henry filed a post-confirmation adversary proceeding in her Chapter 13 case alleging that Wells Fargo was attempting to collect a discharged debt under 524(a)(2). Wells Fargo's attempt to compel arbitration failed because Henry's Section 524 claims did not "arise under the loan agreement between the parties." The Bankruptcy Court certified its ruling for a direct interlocutory appeal to the Fifth Circuit, which then addressed the singular issue of whether bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction even after the Supreme Court's ruling in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018).
Plaintiff / Debtor ("Henry") took out a pre-petition student loan from Wells Fargo's predecessor. The loan documentation included a provision that any controversy or claim arising out of or related to the note, or a breach thereof, would be arbitrated. Henry argued that her Chapter 13 discharge applied to her pre-petition student loan debt to Defendant Educational Financial Service, a division of Wells Fargo ("Wells Fargo"). Wells Fargo did file a proof of claim in Henry's Chapter 13 case. Henry completed all payments, including payments to Wells Fargo, required by her Chapter 13 plan and she obtained her discharge. Wells Fargo's post-discharge correspondence to Henry included a standard post-script that it was "an attempt to collect a debt." Henry filed an adversary proceeding alleging that Wells Fargo was attempting to collect a discharged debt under 524(a)(2).
King, Higginson and Duncan

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