Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_10-cv-00999/USCOURTS-almd-2_10-cv-00999-0/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 15:1681 Fair Credit Reporting Act

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

MOSES HOOKS, )

)

Plaintiff, )

)

v. ) CASE NO. 2:10-CV-999-WKW 

) [WO]

)

ACCEPTANCE LOAN COMPANY, INC., )

et al., )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiff Moses Hooks filed a Complaint (Doc. # 1) against Defendants

Acceptance Loan Company, Inc. (“Acceptance Loan”), Covington Credit of Alabama,

Inc. (“Covington Credit”), and Equifax Information Services LLC (“Equifax”),

alleging three counts. Plaintiff brought one count under the Fair Credit Reporting Act

(“FCRA”) against Equifax (Count I) and two counts against Acceptance Loan and

Covington Credit for willful violation of the Bankruptcy Code’s § 524(a) discharge

injunction for attempting to collect a discharged debt (Count II) and for reporting

discharged debts on Plaintiff’s credit reports (Count III). The FCRA claim against

Equifax was dismissed on February 17, 2011, and, thus, Equifax is no longer a

defendant in this action. (Doc. # 23.) Under submission are Acceptance Loan’s and

Covington Credit’s respective motions to compel arbitration on Counts II and III. 

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(Docs. # 8, 17.) Upon consideration of the parties’ briefs and the relevant law, the

motions to compel arbitration are due to be denied and Plaintiff’s complaint

dismissed, pursuant to Federal Rule of Civil Procedure 12(b)(6). 

I. JURISDICTION AND VENUE

Subject matter jurisdiction is proper pursuant to 28 U.S.C. § 1331. Personal

jurisdiction and venue are not disputed, and there are adequate allegations in support

of both.

II. STANDARDS OF REVIEW

A. The Federal Arbitration Act

Pursuant to the Federal Arbitration Act (“FAA”), a written arbitration provision

in a “contract evidencing a transaction involving [interstate] commerce” is “valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in equity for

the revocation of any contract.” 9 U.S.C. § 2. The FAA evinces a “liberal federal

policy favoring arbitration agreements.” Hill v. Rent-A-Center, Inc., 398 F.3d 1286,

1288 (11th Cir. 2005) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr.

Corp., 460 U.S. 1, 24 (1983)); see also Picard v. Credit Solutions, Inc., 564 F.3d

1249, 1253 (11th Cir. 2009) (“The FAA creates a strong federal policy in favor of

arbitration.”). “[A]ny doubts concerning the scope of arbitrable issues should be

resolved in favor of arbitration.” Moses H. Cone, 460 U.S. at 24-25. Accordingly, the

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courts “rigorously enforce” arbitration agreements. Klay v. All Defendants, 389 F.3d

1191, 1200 (11th Cir. 2004). The FAA provides that “upon any issue referable to

arbitration under an agreement in writing for such arbitration,” and “upon being

satisfied that the issue involved in such suit or proceeding is referable to arbitration

under such an agreement,” the court “shall on application of one of the parties stay the

trial of the action until such arbitration has been had in accordance with the terms of

the agreement.” 9 U.S.C. § 3 (emphasis added). 

Where a contract contains an arbitration clause, “there is a presumption of

arbitrability in the sense that ‘[a]n order to arbitrate the particular grievance should not

be denied unless it may be said with positive assurance that the arbitration clause is

not susceptible of an interpretation that covers the asserted dispute. Doubts should be

resolved in favor of coverage.’” AT&T Tech. Inc. v. Commc’ns Workers of Am., 475

U.S. 643, 651 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav.

Co., 363 U.S. 574, 582-83 (1960)). Arbitration is, however, a matter of contract; thus,

“a party cannot be required to submit to arbitration any dispute which he has not

agreed so to submit.” United Steelworkers of Am., 363 U.S. at 582; see also Chastain

v. Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992). Ultimately,

“[t]he question whether the parties have submitted a particular dispute to arbitration,

i.e., the ‘question of arbitrability,’ is ‘an issue for judicial determination [u]nless the

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parties clearly and unmistakably provide otherwise.’” Howsam v. Dean Witter

Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting AT&T Tech. Inc., 475 U.S. at 649). 

In determining which claims are arbitrable, the court looks to the intent of the parties,

and in so doing, gives full effect to all provisions in the contract. Redmon v. Soc’y &

Corp. of Lloyds, 434 F. Supp. 2d 1211, 1218 (M.D. Ala. 2006) (citing Bullock v.

United Benefit Life Ins. Co., 165 F. Supp. 2d 1259, 1261 (M.D. Ala. 2001)).

B. Rule 12(b)(6)

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint against

the legal standard set forth in Rule 8: “a short and plain statement of the claim

showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2). When

evaluating a motion to dismiss pursuant to Rule 12(b)(6), the court must take “the

factual allegations in the complaint as true and construe them in the light most

favorable to the plaintiff.” Pielage v. McConnell, 516 F.3d 1282, 1284 (11th Cir.

2008). However, “the tenet that a court must accept as true all of the allegations

contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 129

S. Ct. 1937, 1949 (2009).

III. FACTS

In 2009, Plaintiff filed a Chapter 7 bankruptcy petition for debt relief, see In re

Moses Hooks, No. 09-33043 (Bankr. M.D. Ala. Nov. 4, 2009), and was discharged on

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May 21, 2010. (Compl. ¶ 8.) Defendant Acceptance Loan was a creditor holding a

secured claim, and Covington Credit was a creditor holding an unsecured nonpriority

claim. (Compl. ¶¶ 9, 11.) Both of these debts were discharged, and Plaintiff alleges

that Defendants received proper notice of the discharge. (Compl. ¶¶ 9-12.)

Nevertheless, in this lawsuit, Plaintiff alleges that Acceptance Loan and

Covington Credit violated the discharge injunction, see 11 U.S.C. § 524(a), by

continuing to attempt to collect the discharged debts and by continuing to report – on

at least one occasion – Plaintiff’s debts to Equifax, a Credit Reporting Agency, as

having a balance due and payable, as opposed to discharged in bankruptcy. (Compl.

¶¶ 9-12.) Counts II and III of the Complaint ensued as a result of this alleged

conduct.1

 Plaintiff makes a jury demand, and seeks compensatory and punitive

damages, costs and attorney’s fees, and other appropriate relief. (Compl. ¶ 42.)

Relying on the arbitration agreements found within the dispute resolution

agreements of the respective loans, Defendants filed the motions to compel arbitration

presently at issue. The identically-worded Arbitration Agreements read:

(1) Agreement to Arbitrate. With limited exceptions, you and we

agree that any and all disputes, claims, or controversies of any kind and

nature between us arising out of or relating to the relationship between

us will be resolved through mandatory, binding arbitration. This

1

 Count II asserts that “Defendants have willfully violated . . . the discharge injunction

by attempting to collect a debt that arose prior to and was discharged in Plaintiff’s bankruptcy

case.” (Compl. ¶ 30.) There is little factual support to this claim in the Complaint. 

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agreement to arbitrate covers claims that (a) arise out of or relate to this

Agreement or the Loan Agreement; (b) arise out of or relate to any past

transactions or dealings between us; (c) arise out of or relate to any

future transactions or dealings between us; and (d) disputes about

whether any claims, controversies, or disputes between us are subject to

arbitration to the extent permitted by federal law. Because you and we

have agreed to arbitration, both of us are waiving our rights to have 

disputes resolved in court by a judge or jury . . . .

(Arbitration Agreements (Doc. # 8, Ex. 1, at 6; Doc. # 17, Ex. 2, at 2).)

IV. DISCUSSION

Plaintiff does not dispute that the affirmative requirements for enforcement of

the Arbitration Agreements are present in this case: (1) a written agreement; (2) a

nexus to interstate commerce; and (3) coverage of the claims by the arbitration clause. 

9 U.S.C. § 2. Rather, Plaintiff urges an exception to the otherwise mandatory

enforcement of the Arbitration Agreements because his two claims involve alleged

violations of the Bankruptcy Code’s statutory injunction that is created when a debtor

is discharged from bankruptcy. See § 524(a) (“A discharge in a case under this title

. . . operates as an injunction . . . .”). In its simplest form, Plaintiff’s argument is that

the FAA should yield to the Bankruptcy Code in this context.

And indeed, this assertion is the stepping off point of an analysis to determine

whether a bankruptcy-related proceeding is subject to an otherwise applicable

arbitration clause. Although “the [FAA], standing alone, [ ] mandates enforcement

of agreements to arbitrate[,]” the Supreme Court has observed that “the [FAA]

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mandate may be overridden by a contrary congressional command.” Shearson/Am.

Express, Inc. v. McMahon, 482 U.S. 220, 226-27 (1987). “In McMahon, the

[Supreme Court] promulgated a three factor test in order to determine Congress’

intent: ‘(1) the text of the statute; (2) its legislative history; and (3) whether an

inherent conflict between arbitration and the underlying purposes [of the statute]

exists.’” In re Elec. Mach. Enter., Inc., 479 F.3d 791, 796 (11th Cir. 2007) (quoting

Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1273 (11th Cir. 2002) (citation to and

quotation of McMahon omitted)). Looking to the first two factors, the Eleventh

Circuit “[found] no evidence within the text or legislative history that Congress

intended to create an exception to the FAA in the Bankruptcy Code.” Id. (citing

Mintze v. Am. Gen. Fin. Servs., Inc. (In re Mintze), 434 F.3d 222, 231 (3d Cir. 2006)). 

Thus, in the bankruptcy context, the third factor becomes dispositive: “[W]hether an 

inherent conflict exists between arbitration and the underlying purposes of the

Bankruptcy Code.” Id. “[T]he 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.” McMahon, 482 U.S. at 226-27. 

The first step in addressing whether arbitration inherently conflicts with the

Bankruptcy Code is to classify the proceeding sought to be arbitrated as core or noncore. In re Elec. Mach. Enter., Inc., 479 F.3d at 796; see also Hays & Co. v. Merrill

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Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1157, 1161 (3d Cir. 1989)

(holding that arbitration of certain “non-core adversary proceeding[s] [initiated] in a

district court” by the debtor’s Chapter 11 Trustee did not “seriously jeopardize the

objectives of the [Bankruptcy] Code”). However, the core/non-core distinction is not

dispositive. To this court’s knowledge, no court of appeals has ever concluded that

arbitration of a non-core proceeding would produce an inherent conflict between the

FAA and the Bankruptcy Code. At the same time, both the Fifth and Eleventh

Circuits have indicated a willingness to compel arbitration over core proceedings

when the party opposing arbitration fails to meet its burden of showing that arbitration

of the core proceeding inherently conflicts with the Bankruptcy Code. See In re Nat’l

Gypsum Co., 118 F.3d 1056, 1067 (5th Cir. 1997) (conceding that the core/non-core

distinction is practical, but finding that it is “too broad” and stating that “[i]t is

doubtful that ‘core’ proceedings, categorically, meet the [McMahon] standard”); In

re Elec. Mach. Enter., Inc., 479 F.3d at 798-99 (“[E]ven if we were to find that EME’s

claim against Whiting-Turner constitutes a core proceeding, we find 

that EME did not sustain its burden under McMahon to demonstrate that Congress

intended to limit or prohibit waiver of a judicial forum for the type of claim that EME

brought against Whiting-Turner . . . . Therefore, even if this dispute is in fact core,

it is still subject to arbitration.”).

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The claims asserted in this case by Plaintiff are somewhat difficult to classify

as either core or non-core. On the one hand, “[c]ourts have held that actions to

enforce the discharge injunction are core proceedings because they call on a

bankruptcy court to construe and enforce its own orders.” In re Nat’l Gypsum Co.,

118 F.3d at 1063 (collecting cases and treatises); see also Chambers v. NASCO, Inc.,

501 U.S. 32, 43 (1991) (A court’s inherent contempt powers “are governed not by rule

or statute but by the control necessarily vested in courts to manage their own affairs

so as to achieve the orderly and expeditious disposition of cases . . . .”) (emphasis

added). On the other hand, several courts of appeals have held that there is no

independent cause of action to redress violations of the discharge injunction. See

Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507 (9th Cir. 2002) (declining to find

a private right of action for redress of § 524 violations and stating that “contempt is

the appropriate remedy and no further remedy is necessary”); Pertuso v. Ford Motor

Credit Co., 233 F.3d 417, 422-23 (6th Cir. 2000) (“[W]e have no hesitancy in joining

those courts (a clear majority) that have held § 524 does not impliedly create a private

right of action.”); see also Cox v. Zale Delaware, Inc., 239 F.3d 910, 917 (7th Cir.

2001) (suit for violation of § 524 can be brought only as contempt action).

Confronted with the strong authority that no private cause of action exists for

violations of the discharge injunction, Plaintiff states that he “recognizes that the

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persuasive authority from other circuits . . . does not [allow for] a private right of

action in enforcing section 524 . . . .” (Doc. # 26, at 4.) Nevertheless, Plaintiff cites

Jove Engineering, Inc. v. Internal Revenue Service, 92 F.3d 1539 (11th Cir. 1996), for

the proposition that “the district courts are not without authority to consider and

dispose of an action for contempt arising out of a bankruptcy case.” (Doc. # 26, at 4.) 

Plaintiff’s reliance on Jove Engineering contains fundamental errors. First, Plaintiff

misunderstands Jove Engineering’s holding. In that case, the Eleventh Circuit

concluded that courts (which necessarily includes the district courts since the district

courts have primary bankruptcy jurisdiction) could use the statutory contempt power

of 11 U.S.C. § 105(a) “to award monetary and other forms of relief for automatic stay

violations to the extent such awards are ‘necessary or appropriate’ to carry out the

provisions of the Bankruptcy Code.” Jove Eng’g, 92 F.3d at 1554 (quoting 11 U.S.C.

§ 105(a)). Nowhere in that case does the Eleventh Circuit authorize a separate or

private “action for contempt.” (Doc. # 26, at 4.) 

Second, Plaintiff errs by describing his claims as “contempt claims.” Plaintiff

clearly attempts to state independent, private causes of action. The two claims are

both numbered counts in a complaint in a new and different case number from

Plaintiff’s bankruptcy case. And perhaps most revealing of the nature of these claims

as non-contempt claims is Plaintiff’s jury demand. Since Plaintiff requests a jury trial,

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the relief envisaged by Plaintiff clearly cannot be a contempt of court order. Rather,

Plaintiff “demands judgment against Defendants in an amount to be determined by the

jury . . . .” (Compl. ¶ 42.) Section 105(a) states that “[t]he court may issue any order,

process, or judgment that is necessary or appropriate to carry out the provisions of this

title.” Id. Thus, a jury trial necessarily implicates a new private cause of action, one

which does not exist. 

Returning to the McMahon analysis, it would be difficult to justify a decision

holding that compelling arbitration over a non-existent claim would create an inherent

conflict between the FAA and Bankruptcy Code. Phrased in the interrogative, how

can arbitration of a bankruptcy cause of action that does not exist “seriously

jeopardize the objectives of the [Bankruptcy] Code[?]” Hays & Co., 885 F.2d at 1161. 

At the same time, there are several reasons counseling against compelling arbitration

over Plaintiff’s claims. The most obvious reason is the close relationship between

these failed causes of action and what is unquestionably a core proceeding. See In re

Nat’l Gypsum Co., 118 F.3d at 1063. And, although being a core proceeding does not

automatically foreclose arbitration, see In re Elect. Mach. Enter., 479 F.3d at 798-99,

it would seem anomalous to allow an arbitrator to construe a court’s order in a

contempt setting. As a general matter, allowing arbitration of contempt proceedings

would effectively strip the courts of their primary enforcement mechanism. The

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contempt power of a court has been described by the Supreme Court as

“[indispensable], because [it] [is] necessary to the exercise of all other [ ] [powers].” 

Jove Eng’g, Inc., 92 F.3d at 1553 (quoting Chambers, 501 U.S. at 43). More

specifically, arbitration of § 105(a) contempt proceedings would inherently conflict

with the Bankruptcy Code, undermining the bankruptcy court’s authority to enforce

its orders. Even though these causes of action are not § 105(a) contempt proceedings,

granting the motions to compel arbitration would nevertheless send to arbitration a

dispute that, on its merits, squarely implicates the court’s contempt power.

V. CONCLUSION

Weighing all of these considerations, the court concludes that the appropriate

resolution of this dispute is to deny the motions to compel arbitration and dismiss

Plaintiff’s Complaint for failure to state a claim upon which relief can be granted. 

Accordingly, it is ORDERED:

1. Defendants’ Motions to Compel Arbitration (Docs. # 8, 17) are

DENIED;

2. Defendants’ Motion to Dismiss (Docs. # 27) are GRANTED; and

3. Plaintiff’s claims will be DISMISSED with prejudice, but without

prejudice to his rights in bankruptcy court.

An appropriate judgment will be entered.

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DONE this 14th day of July, 2011. 

 /s/ W. Keith Watkins 

CHIEF UNITED STATES DISTRICT JUDGE

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