Educational Financial Service v. Stephanie Henry

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit

No. 18-20809
FILED
October 17, 2019
Lyle W. Cayce
In the Matter of: STEPHANIE MARIE HENRY Clerk

Debtor

STEPHANIE MARIE HENRY, formerly known as Stephanie Marie
Henschel,

Appellee

EDUCATIONAL FINANCIAL SERVICE, A Division of Wells Fargo Bank,
N.A.,

Appellant

Appeal from the United States Bankruptcy Court
for the Southern District of Texas

Before KING, HIGGINSON, and DUNCAN, Circuit Judges.
PER CURIAM:
Years after Stephanie Marie Henry took out a student loan, she filed for
bankruptcy and received a discharge. Henry and the company that currently
holds her loan, Educational Financial Service, a Division of Wells Fargo Bank,
No. 18-20809
N.A., disagree about whether Henry’s discharge applies to that loan. 1 Henry
filed an adversary proceeding in bankruptcy court raising that issue, but Wells
Fargo moved the bankruptcy court to compel arbitration. The bankruptcy court
denied that motion, and for the following reasons, we AFFIRM.
I.
Stephanie Marie Henry borrowed money from Wachovia Bank of
Delaware, N.A.—the predecessor in interest of Educational Financial Service,
a Division of Wells Fargo Bank, N.A. (“Wells Fargo”)—to attend the
Ultrasound Diagnostic School in Houston. The documentation for the loan
contained the following arbitration provision:
14. Arbitration. Any controversy or claim arising out of or related
to this Note, or an alleged breach of this Note, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. Judgment upon the
arbitration award may be entered in any court having jurisdiction.
Henry signed that documentation on November 11, 2002.
More than a decade later, Henry filed for bankruptcy under Chapter 13
of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Texas. Wells Fargo filed a proof of claim in Henry’s
bankruptcy proceeding. The bankruptcy court confirmed Henry’s Chapter 13
plan on April 25, 2013. Over the next five years, Henry made payments to her
creditors, including Wells Fargo, as required by her plan. Because Henry
completed her Chapter 13 plan, the bankruptcy court entered a discharge order
on May 17, 2018.
When Henry received her discharge, her attorney sent a letter to Wells
Fargo. That letter stated that Henry’s debt to Wells Fargo had been discharged

1 The Bankruptcy Code says that some—but not all—student loans are not
dischargeable unless failing to discharge the loan “would impose an undue hardship on the
debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8).
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No. 18-20809
and asked Wells Fargo: “Please acknowledge that you recognize the discharge
of this loan, and report it accurately on [Henry’s] credit reports.” Wells Fargo
sent a reply letter to Henry’s lawyer, stating that Wells Fargo had processed
his “request to cease all communication with Stephanie Henry” about her loan.
Wells Fargo indicated that future correspondence would be sent to the
lawyer—not Henry—and asked the lawyer: “Once Stephanie Henry is no
longer your client, please contact our office . . . to let us know communication
should resume with Stephanie Henry.” Wells Fargo sent a different letter to
Henry, telling her that it had “received a request from Austin C. Smith ESQ to
cease all communication on” Henry’s loan. Both of Wells Fargo’s letters
contained the following postscript: “The laws of some states require us to
inform you that this communication is an attempt to collect a debt and . . .
information obtained will be used for that purpose.”
Wells Fargo’s correspondence prompted Henry to initiate an adversary
proceeding in the bankruptcy court on her own behalf and on behalf of a
putative class of similarly situated individuals. According to Henry, Wells
Fargo violated the bankruptcy court’s discharge order by attempting to collect
a discharged debt. See 11 U.S.C. § 524(a)(2) (stating that a discharge “operates
as an injunction against . . . an act, to collect, recover or offset” a discharged
debt). Henry sought injunctive relief, a declaratory judgment, damages, and
attorney’s fees.
Wells Fargo moved the bankruptcy court to compel arbitration. Wells
Fargo asserted that Henry’s claim fell within the scope of the arbitration
provision in her loan documentation, and Wells Fargo argued that the Federal
Arbitration Act (“FAA”) required the bankruptcy court to enforce that
provision. Wells Fargo acknowledged that, under our precedents, the
bankruptcy court had discretion to refuse to compel arbitration in an action to
enforce a discharge order. Wells Fargo maintained, however, that the Supreme
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No. 18-20809
Court’s decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) cast
doubt on those precedents.
The bankruptcy court denied Wells Fargo’s motion. The bankruptcy
court reasoned that Henry’s claims did not “arise under the loan agreement
between the parties,” because Wells Fargo’s “obligation to comply with the
Court’s discharge order and the statutory injunction provided under 11 U.S.C.
§ 524 is not, and cannot be, part of a contractual negotiation between private
parties.” 2 The bankruptcy court found Epic Systems to be “inapplicable to the
instant case,” because “Henry’s claims do not arise out of an arbitrable contract
between the parties,” and because “the Supreme Court gave no indication in
Epic that it intended its decision to reach” the Bankruptcy Code. The
bankruptcy court certified its order for an interlocutory appeal directly to this
court under 28 U.S.C. § 158(a)(3) and (d)(2)(A). Subsequently, we authorized
such an appeal pursuant to § 158(d)(2)(A).
II.
“The Federal Arbitration Act requires courts to enforce covered
arbitration agreements according to their terms.” Lamps Plus, Inc. v. Varela,
139 S. Ct. 1407, 1412 (2019). But the FAA is not the only statute on the books,
and its “mandate may be overridden by a contrary congressional command.”
Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987). “A party
seeking to suggest that two statutes cannot be harmonized, and that one

2 To resolve this appeal, we do not need to address whether the bankruptcy court’s
interpretation of the arbitration provision was correct, but it is worth noting that other courts
have held that disputes about allegedly improper debt collection are at least “related” to the
underlying debt. See Koch v. Compucredit Corp., 543 F.3d 460, 466 (8th Cir. 2008) (concluding
that “[a] dispute over the collection of a debt incurred under the credit agreement is a
‘controversy arising from or related to’” that agreement); Carbajal v. H&R Block Tax Servs.,
Inc., 372 F.3d 903, 905 (7th Cir. 2004) (Easterbrook, J.) (compelling arbitration of Fair Debt
Collection Practices Act claims based on an arbitration agreement found in loan
documentation).
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No. 18-20809
displaces the other, bears the heavy burden of showing a clearly expressed
congressional intention that such a result should follow.” Epic Sys., 138 S. Ct.
at 1624 (internal quotation marks omitted). Such an intent can be deduced
from statutory text, legislative history, or “from an inherent conflict between
arbitration and the statute’s underlying purposes.” McMahon, 482 U.S. at 227.
Applying McMahon, we have held that bankruptcy courts may decline to
enforce arbitration clauses when two requirements are met. First, the
proceeding must adjudicate statutory rights conferred by the Bankruptcy Code
and not the debtor’s prepetition legal or equitable rights. In re Nat’l Gypsum
Co., 118 F.3d 1059, 1069 (5th Cir. 1997). See also 10 Collier on Bankruptcy
¶ 9019.05 (16th ed. 2019) (“A trustee in bankruptcy has two kinds of causes of
action: those inherited from the debtor and those granted by statute (the so-
called avoiding powers).”). Second, bankruptcy courts may decline enforcement
of arbitration agreements only if requiring arbitration would conflict with the
purposes of the Bankruptcy Code. In re Gandy, 299 F.3d 489, 495 (5th Cir.
2002) (citing Nat’l Gypsum, 118 F.3d at 1067). Those purposes include “the goal
of centralized resolution of purely bankruptcy issues, the need to protect
creditors and reorganizing debtors from piecemeal litigation, and the
undisputed power of a bankruptcy court to enforce its own orders.” Nat’l
Gypsum, 118 F.3d at 1069.
Accordingly, in National Gypsum, we held that bankruptcy courts need
not enforce agreements to arbitrate whether a creditor’s efforts to collect a debt
violated a discharge order. Id. at 1071. A debtor’s right to be free from collection
efforts for discharged debts is a creature of the Bankruptcy Code. 11 U.S.C.
§ 524(a). An action to enforce such a right implicates an important bankruptcy
policy, the ability of a bankruptcy court to enforce its own orders, such that
requiring arbitration “would be inconsistent with the Bankruptcy Code.” Nat’l
Gypsum, 118 F.3d at 1071.
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No. 18-20809
On appeal, we review whether a bankruptcy court was obliged to enforce
an arbitration clause de novo. In re Gandy, 299 F.3d at 494. If the FAA does
not require a bankruptcy court to enforce an arbitration clause, then the
bankruptcy court has discretion regarding whether to order arbitration, and
“the exercise of that discretion is reviewable only for abuse.” Id.
III.
Wells Fargo’s appeal presents a single issue: Does our holding in
National Gypsum—that bankruptcy courts have discretion to refuse to compel
arbitration in proceedings seeking enforcement of a discharge injunction—
remain good law following the Supreme Court’s decision in Epic Systems? We
conclude that it does.
Under the rule of orderliness, “one panel of this circuit may not overturn
another panel absent an intervening decision to the contrary by the Supreme
Court or this court en banc.” United States v. Simkanin, 420 F.3d 397, 420 n.25
(5th Cir. 2005). To overrule one of our precedents, a “Supreme Court decision
must be more than merely illuminating with respect to the case before us.”
Martin v. Medtronic, Inc., 254 F.3d 573, 577 (5th Cir. 2001). Instead, “a panel
of this court can only overrule a prior panel decision if ‘such overruling is
unequivocally directed by controlling Supreme Court precedent.’” Id. (quoting
United States v. Zuniga-Salinas, 945 F.2d 1302, 1306 (5th Cir. 1991)).
Far from unequivocally directing us to overrule National Gypsum, Epic
Systems shows that National Gypsum’s doctrinal foundation, i.e., McMahon,
remains sound. For one thing, Epic Systems cites McMahon for support. 138 S.
Ct. at 1627. For another, McMahon and Epic Systems apply essentially the
same tests for determining whether a statute overrides the FAA’s command to
enforce arbitration agreements according to their terms. In McMahon, the
Court said that:

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No. 18-20809
Like any statutory directive, the Arbitration Act’s mandate may be
overridden by a contrary congressional command. The burden is
on the party opposing arbitration, however, to show that Congress
intended to preclude a waiver of judicial remedies for the statutory
rights at issue. If Congress did intend to limit or prohibit waiver of
a judicial forum for a particular claim, such an intent “will be
deducible from [the statute’s] text or legislative history,” or from
an inherent conflict between arbitration and the statute’s
underlying purposes.
McMahon, 482 U.S. at 226-27 (alteration in original) (citations omitted)
(quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 628 (1985)). While the Supreme Court’s decision in Epic Systems has a
different tone, the test it employs is substantially the same as McMahon’s:
Even if the Arbitration Act normally requires us to enforce
arbitration agreements like theirs, the employees reply that the
[National Labor Relations Act] overrides that guidance in these
cases and commands us to hold their agreements unlawful yet.

This argument faces a stout uphill climb. When confronted
with two Acts of Congress allegedly touching on the same topic,
this Court is not at liberty to pick and choose among congressional
enactments and must instead strive to give effect to both. 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. The intention must be clear and manifest.
Epic Sys., 138 S. Ct. at 1623-24 (citations and internal quotation marks
omitted). The difference between a “deducible” congressional intent, McMahon,
482 U.S. at 227, and a “clear and manifest” intent, Epic Sys., 138 S. Ct. at 1624,
is not an unequivocal direction to overrule our precedent.
Wells Fargo argues that Epic Systems altered McMahon, because the
former “expressly rejected the use of legislative history.” While Epic Systems
says that “legislative history is not the law,” Epic Sys., 138 S. Ct. at 1631, that
statement clarifies that the legislative history upon which the dissent relies
does not trump the “[l]inguistic and statutory context” identified by the
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No. 18-20809
majority. Id. That is not the same as saying that legislative history can never
be relevant when interpreting a statute.
Even if Epic Systems’s comments regarding legislative history partially
overrule McMahon, that change would not affect the validity of National
Gypsum, because National Gypsum did not rely on legislative history. Instead,
in determining whether the FAA’s requirements were overridden, National
Gypsum looked to the purposes of the Bankruptcy Code. 118 F.3d at 1069. And
statutory purpose remains a valid tool for determining whether a given statute
displaces the FAA. See Epic Sys., 138 S. Ct. at 1627 (“Union organization and
collective bargaining in the workplace are the bread and butter of the NLRA,
while the particulars of dispute resolution procedures in Article III courts or
arbitration proceedings are usually left to other statutes and rules . . . .”).
Consequently, we conclude that National Gypsum’s application of McMahon
remains good law following Epic Systems.
IV.
For the foregoing reasons, we AFFIRM.