Oteria Moses v. Cashcall, Inc.
Filing
PUBLISHED PER CURIAM OPINION filed. Originating case number: 4:13-cv-00223-BO,12-05563-8-RDD,12-00174-8-RDD Copies to all parties and the district court/agency.[999546189].. [14-1195]
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1195
OTERIA Q. MOSES,
Plaintiff - Appellee,
v.
CASHCALL, INC.,
Defendant - Appellant,
-----------------------------NATIONAL ASSOCIATION OF CHAPTER 13 TRUSTEES;
ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS,
NATIONAL
Amici Supporting Appellee.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Greenville.
Terrence W. Boyle,
District Judge. (4:13-cv-00223-BO)
Argued:
October 30, 2014
Decided:
March 16, 2015
Before NIEMEYER and GREGORY, Circuit Judges, and DAVIS, Senior
Circuit Judge.
Affirmed in part and reversed in part and remanded by per curiam
opinion. Judge Niemeyer wrote the opinion for the court in
Parts I, II.A, and III, in which Judge Gregory joined. Judge
Niemeyer wrote a separate opinion in Part II.B dissenting from
the judgment in part. Judge Gregory wrote a separate opinion,
concurring in the judgment. Judge Davis wrote a separate
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opinion, concurring in the judgment in part and dissenting in
part.
ARGUED: Hayden J. Silver, III, WOMBLE CARLYLE SANDRIDGE & RICE,
LLP, Raleigh, North Carolina, for Appellant.
Matthew W.H.
Wessler, PUBLIC JUSTICE, P.C., Washington, D.C., for Appellee.
ON BRIEF: Raymond M. Bennett, Jesse A. Schaefer, WOMBLE CARLYLE
SANDRIDGE & RICE, LLP, Raleigh, North Carolina, for Appellant.
Adrian M. Lapas, STRICKLAND, LAPAS, AGNER & ASSOCIATES,
Goldsboro, North Carolina; Leah M. Nicholls, PUBLIC JUSTICE,
P.C., Washington, D.C., for Appellee.
John Fletcher Logan,
Chapter 13 Standing Trustee, Eastern District of North Carolina,
OFFICE OF THE CHAPTER 13 TRUSTEE, Raleigh, North Carolina, for
Amicus National Association of Chapter 13 Trustees. Tara Twomey,
Geoff Walsh, NATIONAL CONSUMER BANKRUPTCY RIGHTS CENTER, San
Jose, California, for Amicus National Association of Consumer
Bankruptcy Attorneys.
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PER CURIAM:
This bankruptcy appeal presents the issue of whether two
claims, one for declaratory relief and one for money damages,
asserted by debtor Oteria Moses in an adversary proceeding, are
subject
to
jurisdiction
CashCall,
second
arbitration.
The
over
claim
the
first
Inc.
to
compel
claim,
it
made
bankruptcy
and
arbitration.
recommended
court
denied
With
findings
the
retained
motion
respect
of
to
fact
of
the
and
conclusions of law, likewise to retain jurisdiction over the
claim and deny the motion to compel arbitration.
On appeal from
the bankruptcy court, the district court affirmed the bankruptcy
court’s denial of the motion to compel arbitration as to the
first claim and, itself, denied the motion to compel arbitration
with respect to the second claim.
On appeal, we hold, for the reasons given by Judge Niemeyer
in Parts I, II.A, and III of his opinion, in which Judge Gregory
joined, that the district court did not err in affirming the
bankruptcy
court’s
exercise
of
discretion
to
retain
bankruptcy Moses’ first claim for declaratory relief.
in
We also
hold, however, that the district court erred in retaining in
bankruptcy Moses’ claim for damages under the North Carolina
Debt
Collection
Act
and
arbitration of that claim.
denying
CashCall’s
motion
to
compel
Judge Gregory and Judge Davis wrote
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separate opinions concurring in that judgment.
Judge Niemeyer
wrote a separate opinion on that issue, dissenting.
Accordingly, the judgment of the district court is affirmed
in part and reversed in part, and this matter is remanded to the
district court with instructions to grant CashCall’s motion to
compel arbitration on Moses’ second claim for damages.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS
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NIEMEYER, Circuit Judge, writing for the court in Parts I, II.A,
and III; and writing separately in Part II.B dissenting from the
judgment in part:
To
overcome
Goldsboro,
North
financial
Carolina,
difficulties,
borrowed
$1,000
Oteria
from
Moses
of
Western
Sky
Financial, LLC, signing a consumer loan agreement in which she
promised to repay Western Sky $1,500 and 149% interest, for an
effective interest rate of 233.10% per annum.
In signing the
loan agreement, she agreed to make payments totaling $4,893.
While such a loan agreement was clearly illegal under North
Carolina
law,
as
it
provided
for
an
interest
rate
nearly
15 times the maximum allowable rate, Western Sky specified in
the agreement that Indian tribal law would apply and that any
dispute under the agreement would be resolved by arbitration
conducted by a representative of the Cheyenne River Sioux Tribe.
When Moses sought protection in a Chapter 13 bankruptcy
proceeding, CashCall, Inc., the loan servicer, filed a proof of
claim,
illegal
which
and
Moses
void.
opposed
on
the
Moses
also
ground
filed
an
that
the
adversary
loan
was
proceeding
against CashCall (1) to declare the loan illegal and void and
(2) to
obtain
damages
for
collection
activities.
In
bankruptcy
court’s
CashCall’s
a
allegedly
strategic
adjudication
of
attempt
Moses’
illegal
to
claims,
avoid
debt
the
CashCall
sought to withdraw its proof of claim, but the bankruptcy court
denied its request.
CashCall simultaneously sought to dismiss
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the
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adversary
arbitration,
district
action
which
court
or
the
to
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stay
the
bankruptcy
refused
to
proceeding
court
review
also
the
and
compel
denied.
bankruptcy
The
court’s
interlocutory order denying CashCall’s motion to withdraw its
proof of claim but agreed to review the bankruptcy court’s order
denying
CashCall’s
motion
to
dismiss
or
compel
arbitration.
From the district court’s order affirming, CashCall filed this
appeal.
We
conclude
declaratory
that
judgment
resolution
that
the
loan
of
Moses’
is
claim
illegal
under
for
a
North
Carolina law could directly impact the claims against her estate
and
that
sending
substantially
this
interfere
claim
with
to
Moses’
tribal
arbitration
efforts
to
would
reorganize.
Thus, we hold that the district court did not err in affirming
the bankruptcy’s court’s exercise of discretion to retain in
bankruptcy Moses’ claim for a declaratory judgment.
Writing separately for myself in Part II.B, I would also
affirm the district court’s exercise of discretion to retain in
bankruptcy Moses’ claim to obtain damages for CashCall’s efforts
to collect an allegedly illegal debt.
That claim presents the
exact same question as Moses’ claim for a declaratory judgment
-- namely, whether the loan agreement is invalid.
Consequently,
splitting the damages claim from the declaratory judgment claim
and sending it to arbitration will be extremely inefficient,
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estoppel
concerns,
and
will
waste
resources that Moses could otherwise use to repay her debts.
Such concerns are heightened in light of the fact that courts
have called the tribal arbitration procedure specified in the
loan agreement “illusory,” “a sham,” and “unconscionable.”
See,
e.g., Jackson v. Payday Fin., LLC, 764 F.3d 765, 768, 778-79
(7th Cir. 2014).
Therefore, I believe that the district court
did not abuse its discretion in declining to send Moses’ damages
claim to arbitration.
I
Facing financial difficulties, Moses signed a Western Sky
Consumer Loan Agreement (the “Loan Agreement”) on May 10, 2012,
promising to pay Western Sky “or any subsequent holder” $1,500,
together with 149% interest.
Upon signing the Loan Agreement,
Western Sky gave her $1,000 in cash and “retained” $500 as a
“prepaid
finance
charge/origination
fee.”
In
the
Loan
Agreement’s “Truth in Lending Act Disclosure Statement,” Western
Sky stated that the annual percentage rate for the loan was
233.10% and that the amount of all payments that would be made
“as scheduled” would be $4,893.14.
The 233.10% interest rate
disclosed in the Loan Agreement far exceeded the 16% maximum
rate allowed by North Carolina law.
Western Sky, which gave its address in the Loan Agreement
as a post office box in Timber Lake, South Dakota, was not
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licensed to make loans in North Carolina, as required by North
Carolina law.
The Loan Agreement provided, however, that it was
“governed by the Indian Commerce Clause of the Constitution of
the United States of America and the laws of the Cheyenne River
Sioux Tribe” and that “no United States state or federal law
applies to this Agreement.”
The Loan Agreement also provided that any disputes relating
to
it
were
conducted
to
by
be
the
resolved
Cheyenne
by
arbitration,
River
Sioux
“which
Tribal
shall
Nation
by
be
an
authorized representative” (emphasis added), and it gave Moses
the
right
to
designate
Association
or
JAMS
either
“to
the
administer
American
the
Arbitration
arbitration”
in
accordance with its rules and procedures “to the extent that
those rules and procedures do not contradict either the law of
the Cheyenne River Sioux Tribe or the express terms of this
Agreement to arbitrate.”
In signing the Agreement, Moses also
agreed that she could elect to have the arbitration take place
either on tribal land or within 30 miles of her residence, but
she agreed that if she elected the latter, this “accommodation”
would
not
“relinquish[]
or
waive[] . . .
the
Sioux Tribe’s sovereign status or immunity.”
Cheyenne
River
Courts that have
considered loan agreements similar to the one at issue here have
found
that
the
Cheyenne
River
Sioux
Tribe
has
no
laws
or
facilities for arbitration and that the arbitration procedure
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specified is a “sham from stem to stern.”
Jackson, 768 F.3d at
779; see also Inetianbor v. CashCall, Inc., 768 F.3d 1346, 1354
(11th Cir. 2014); Heldt v. Payday Fin., LLC, 12 F. Supp. 3d
1170, 1191 (D.S.D. 2014).
Three days after signing the Loan Agreement, Moses received
a notice from Western Sky that the Agreement had been sold to WS
Funding,
LLC,
a
subsidiary
of
CashCall,
Inc.,
and
would
be
serviced by CashCall.
On August 1, 2012, less than three months after signing the
Loan Agreement and after having made only one payment on it,
Moses
filed
a
Chapter
13
bankruptcy
petition
in
the
Eastern
District of North Carolina to reorganize her financial affairs.
One
week
later,
CashCall
filed
a
proof
of
claim
in
the
bankruptcy proceeding, asserting that Moses owed it $1,929.02 as
of August 1.
Moses objected to the proof of claim, contending
that “the loan obligation was void and not enforceable in North
Carolina” pursuant to two North Carolina statutes that prohibit
unlicensed lending, see N.C. Gen. Stat. § 53-166(a), and limit
interest rates to 16% per annum, see id. § 24-1.1(c).
initiated
an
adversary
proceeding
by
filing
a
She also
two-count
complaint seeking, in her first count, a declaratory judgment
that the loan was “void ab initio” under North Carolina law and,
in her second, damages against CashCall under the North Carolina
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Debt Collection Act, id.
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§§ 75-50 to 75-56, for taking actions
“to collect a debt that was not permitted under law.”
On October 25, 2012, the bankruptcy court confirmed Moses’
Chapter 13 plan without objection.
Moses
to
repay
administrative
fully
claims
all
The approved plan called for
secured,
over
a
priority
five-year
unsecured,
period
but
and
did
not
anticipate that there would be sufficient funds to repay any
general unsecured claims.
After
approval
of
the
plan,
but
while
the
adversary
proceeding was pending, CashCall filed simultaneous motions in
the
bankruptcy
prejudice
and
court
to
to
withdraw
dismiss
Moses’
its
proof
adversary
of
claim
proceeding
with
without
prejudice or, in the alternative, to stay the proceeding and
compel
Moses
to
arbitrate
her
Agreement’s arbitration clause.
claims
pursuant
to
the
Loan
In its motion to withdraw its
proof of claim, CashCall stated that it “no longer wish[ed] to
pursue its Proof of Claim and voluntarily abandon[ed] its claim
for the outstanding balance of the loan to the Debtor.”
But it
did not consent to a finding that its loan was illegal and void
under North Carolina law, as Moses alleged in her objection to
the
proof
proceeding.
proceeding
of
claim
and
Because
against
in
Moses
CashCall,
her
complaint
had
already
CashCall
was
in
the
adversary
an
adversary
filed
not
authorized
withdraw its proof of claim without court approval.
10
to
See Fed. R.
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Bankr. P. 3006.
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Moses objected to CashCall’s motion to withdraw
its proof of claim, maintaining that CashCall, which had filed
118 similar proofs of claim in the Eastern District of North
Carolina
to
recover
unsecured
debts,
sought
to
withdraw
its
proof of claim in her case only after she had challenged its
practices “in an attempt to divest [the bankruptcy court] of
jurisdiction” to hear her claims against it.
Following
a
hearing,
the
bankruptcy
separate orders dated January 3, 2013.
court
entered
two
In the first, it denied
CashCall’s motion to dismiss the complaint or to stay and compel
arbitration.
In doing so, the court concluded that Moses’ first
claim in the complaint, which requested a declaratory judgment
that CashCall’s loan was void, was a core bankruptcy proceeding,
as it involved the “allowance or disallowance of claims against
the
estate,”
citing
28
U.S.C.
§ 157(b)(2)(B).
As
to
Moses’
second claim, which sought damages under the North Carolina Debt
Collection Act, the court concluded that the claim was non-core,
over which it “lack[ed] constitutional authority to enter final
judgment” and could therefore only recommend findings of fact
and conclusions of law for a decision by the district court,
citing id. § 157(c)(1).
In the second order of January 3, the
bankruptcy court denied CashCall’s motion to withdraw its proof
of claim, finding that withdrawal “would cause prejudice to the
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Debtor by eliminating this Court’s jurisdiction over any causes
of action related to the claim.”
CashCall
sought
leave
from
the
district
court
to
file
interlocutory appeals with respect to both January 3 orders, as
required
by
28
U.S.C.
§ 158(a)(3),
acknowledging
that
the
district court had “discretionary jurisdiction to hear appeals
from
interlocutory
district
court
rulings
granted
interlocutory
order
arbitration,
but
of
Bankruptcy
CashCall
denying
it
the
its
denied
leave
motion
CashCall
to
Courts.”
to
appeal
dismiss
leave
to
The
or
the
compel
appeal
the
interlocutory order denying its motion to withdraw its proof of
claim.
On the appeal of the order denying CashCall’s motion to
dismiss or compel arbitration, the district court affirmed the
bankruptcy court’s order by order dated February 4, 2014.
CashCall filed a notice of appeal to this court “from the
judgment and order of the District Court . . . entered in this
case on February 4, 2014, affirming an order of the Bankruptcy
Court for the Eastern District of North Carolina that denied
CashCall’s motion to dismiss or stay and compel arbitration of
the underlying adversary proceeding.”
II
In
her
complaint
in
the
asserted two claims for relief.
declaratory
judgment
that
adversary
Moses
In the first, she sought a
CashCall’s
12
proceeding,
loan
was
illegal
and
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unenforceable, in violation of N.C. Gen. Stat. § 24-1.1(c) and
§ 53-166(a).
CashCall’s
In
her
alleged
second
claim,
violation
of
she
the
sought
North
damages
Carolina
for
Debt
Collection Act, N.C. Gen. Stat. §§ 75-51, 75-54, asserting that
CashCall sought to enforce a debt that was void under North
Carolina law.
The
district
jurisdiction
court
over
ruled
Moses’
that
first
the
bankruptcy
claim
court
had
it
was
because
“constitutionally core under Stern v. Marshall, 131 S. Ct. 2594
(2011),” and “CashCall [did] not challenge this finding.”
district
court
then
exercised
its
discretion
to
keep
The
Moses’
second claim -- that CashCall violated the North Carolina Debt
Collection Act -- in the bankruptcy case because sending it to
arbitration
“would
frustrate,
rather
than
facilitate,
the
efficiency favored by arbitration and could potentially lead to
inconsistent
results.”
The
court
noted
that
“[t]he
countervailing policy of the bankruptcy code is . . . greatly
served by allowing the bankruptcy court to consider both claims
together and to enter findings of fact and conclusions of law on
Moses’ non-core claim.”
CashCall
contending
on
challenges
appeal
that
the
district
both
should be sent to arbitration.
the
core
court’s
and
conclusions,
non-core
claims
This is an expansion of the
position that it took in the district court, where it argued
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only that Moses’ claim for damages under the North Carolina Debt
Collection
Act
was
a
non-core
proceeding
and
that
“non-core
proceedings are subject to arbitration, even in bankruptcy.”
It
now maintains that if both claims are sent to arbitration, “none
of the matters to be decided will delay or diminish [Moses’]
opportunity
increase
argues,
for
the
a
discharge,
payments
arbitration
she
alter
is
would
the
required
not
Chapter 13
to
conflict
make.”
with
Plan,
or
Thus,
it
the
policies
underlying the Bankruptcy Code.
Moses
argues
to
the
contrary,
noting
that
both
of
her
claims are premised on the invalidity of the Loan Agreement and
contending that the resolution of those claims would “directly
impact[]
the
financial
claims
on
reorganization
bankruptcy
proceedings.”
the
--
estate
the
She
and
raison
the
plan
d’etre
maintains
of
for
[her]
Chapter 13
therefore
that
arbitration would conflict with the Bankruptcy Code’s purposes.
The underlying principles that are applicable here are not
in
dispute.
Bankruptcy
courts
may
decide
core
bankruptcy
claims, which include the “allowance or disallowance of claims
against the estate” and “counterclaims by the estate against
persons
filing
claims
§ 157(b)(2)(B)-(C).
against
the
estate.”
28 U.S.C.
A bankruptcy court may also hear related
non-core claims, but it cannot finally resolve them and must
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instead submit proposed findings of fact and conclusions of law
to the district court.
Id. § 157(c)(1).
The Supreme Court has modified these statutory assignments
of responsibility, holding that Article III of the Constitution
prohibits bankruptcy courts from issuing final orders regarding
statutorily core claims unless they “stem[] from the bankruptcy
itself or would necessarily be resolved in the claims allowance
process.”
Stern,
131
S.
Ct.
at 2618.
And
the
Court
has
subsequently held that when a bankruptcy court is faced with a
claim that is statutorily core but constitutionally non-core -a so-called “Stern claim” -- it must treat the claim as if it
were statutorily non-core, submitting proposed findings of fact
and conclusions of law to the district court for de novo review.
Exec. Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165, 2173
(2014).
Here, there is no dispute that Moses’ first claim, which
seeks to declare that CashCall’s loan is unenforceable, is a
statutorily
“allowance
28 U.S.C.
core
or
claim
because
disallowance
§ 157(b)(2)(B).
such
of
It
an
claims
is
also
action
against
involves
the
the
estate.”
constitutionally
core,
because the validity of the Loan Agreement would “necessarily be
resolved” in adjudicating CashCall’s proof of claim and Moses’
objections thereto.
Stern, 131 S. Ct. at 2618; see also, e.g.,
TP, Inc. v. Bank of Am., N.A. (In re TP, Inc.), 479 B.R. 373,
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385 (Bankr. E.D.N.C. 2012) (holding that “a counterclaim by the
estate
based
in
state
law”
will
necessarily
be
resolved
in
ruling on a proof of claim if it “seek[s] to directly reduce or
recoup the amount claimed”); Pulaski v. Dakota Fin., LLC (In re
Pulaski), 475 B.R. 681, 687 (Bankr. W.D. Wis. 2012) (holding
that an objection to a proof of claim based on violations of
state law was constitutionally core); In re Olde Prairie Block
Owner, LLC, 457 B.R. 692, 698 (Bankr. N.D. Ill. 2011).
Moses’
second
claim,
which
seeks
damages
for
CashCall’s
violation of the North Carolina Debt Collection Act, is also
statutorily core because it is a “counterclaim[] by the estate
against [a] person[] filing [a] claim[] against the estate.”
See 28 U.S.C. § 157(b)(2)(C); see also, e.g., Burns v. Dennis
(In re Southeast Materials, Inc.), 467 B.R. 337, 360 (Bankr.
M.D.N.C. 2012) (holding that a cause of action seeking damages
for a creditor’s unfair or deceptive trade practices, which had
no bearing on the allowance or disallowance of a proof of claim,
was a counterclaim by the estate); SJI, Inc. v. Staehnke (In re
SJI, Inc.), 442 B.R. 690, 693 (Bankr. D. Minn. 2010) (holding
that a cause of action seeking damages for a creditor’s breach
of contract was a counterclaim by the estate).
claim is not constitutionally core.
were
to
determine
that
the
But the second
Even if a bankruptcy court
underlying
Loan
Agreement
was
illegal, it would still need to determine whether an effort to
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collect
an
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illegal
debt
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would
inherently
violate
Carolina Debt Collection Act, as Moses alleges.
the
North
Thus, Moses’
claim would not “necessarily be resolved in the claims allowance
process.”
Stern, 131 S. Ct. at 2618; see also id. at 2616-17
(distinguishing
the
case
before
the
Court,
in
which
“the
Bankruptcy Court was required to and did make several factual
and legal determinations that were not ‘disposed of in passing
on objections’ to [a] proof of claim,” id. at 2617 (quoting
Katchen v. Landy, 382 U.S. 323, 332 n.9 (1966)), from a case
where the legal elements of the claim and counterclaim were so
overlapping
that
once
the
bankruptcy
judge
ruled
on
the
creditor’s proof of claim “nothing remain[ed] for adjudication,”
id.
at 2616
(quoting
Katchen,
quotation marks omitted)).
be
treated
as
if
it
382
U.S.
at 334)
(internal
Therefore, Moses’ second claim must
were
statutorily
non-core.
See
Exec.
Benefits Ins. Agency, 134 S. Ct. at 2173.
In sum, while the two claims in Moses’ complaint in the
adversary proceeding are statutorily core claims, only the first
claim is constitutionally core.
CashCall’s
argument
that
both
Moses’
core
and
non-core
claims should be sent to arbitration rests essentially on its
argument that the strong policy favoring arbitration outweighs
the conflicting policies of the Bankruptcy Code in this case.
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To be sure, the arbitration policies implemented by the
Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-14, are to be
robustly followed.
See, e.g., CompuCredit Corp. v. Greenwood,
132 S. Ct. 665, 669 (2012) (“[The FAA] establishes ‘a liberal
federal
policy
favoring
arbitration
agreements’”
(quoting
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983))); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213,
221 (1985) (“The preeminent concern of Congress in passing the
[FAA] was to enforce private agreements into which parties had
entered, and that concern requires that we rigorously enforce
agreements to arbitrate . . .”).
“Congress
intended
bankruptcy
courts
expeditiously
estate.”
with
to
so
grant
that
all
At the same time, however,
comprehensive
they
matters
might
connected
jurisdiction
deal
efficiently
with
the
to
and
bankruptcy
Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995)
(internal quotation marks and citation omitted).
And in cases
where tension arises between the FAA and another statute, the
Supreme Court has provided a framework for resolving it, holding
that the party seeking to prevent enforcement of an applicable
arbitration agreement must show that “Congress has evinced an
intention
to
preclude
a
waiver
statutory rights at issue.”
531 U.S. 79, 90 (2000).
of
judicial
remedies
for
the
Green Tree Fin. Corp. v. Randolph,
That intent must be deducible from
(1) the statute’s text; (2) its legislative history; or (3) “an
18
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inherent
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conflict
between
underlying purposes.”
Pg: 19 of 77
arbitration
and
the
statute’s
Shearson/Am. Express, Inc. v. McMahon,
482 U.S. 220, 227 (1987); see also Gilmer v. Interstate/Johnson
Lane Corp., 895 F.2d 195, 197 (4th Cir. 1990), aff’d, 500 U.S.
20 (1991).
Where such an intent can be deduced, the court of
first impression has discretion to decide whether to withhold
arbitration, a decision that is subject to review for abuse of
that discretion.
See Cont’l Ins. Co. v. Thorpe Insulation Co.
(In re Thorpe Insulation Co.), 671 F.3d 1011, 1019-20 (9th Cir.
2012); Mintze v. Am. Gen. Fin. Servs., Inc. (In re Mintze), 434
F.3d 222, 228 (3d Cir. 2006); Gandy v. Gandy (In re Gandy), 299
F.3d 489, 494 (5th Cir. 2002).
As to the constitutionally core
claim in this case -- Moses’ claim for a declaratory judgment -the
bankruptcy
court
is
the
court
of
first
impression
to
exercise discretion whether to withhold arbitration, but as to
the non-core claim -- Moses’ claim for damages -- the district
court
is
the
court
of
first
impression
to
exercise
such
discretion.
Moses
does
not
contend
that
the
Bankruptcy
Code
or
its
surrounding legislative history demonstrates an intent to create
an exception to the FAA.
claims
to
arbitration
Rather, she argues that sending her
would
Bankruptcy Code’s purposes.
inherently
conflict
with
the
Because Moses’ complaint contains
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both a constitutionally core and a non-core claim, each claim is
analyzed separately.
A
With respect to Moses’ first claim, the constitutionally
core claim, we conclude that sending it to arbitration would
pose an inherent conflict with the Bankruptcy Code and that the
district court did not err in affirming the bankruptcy court’s
exercise of discretion in retaining it in bankruptcy.
While arbitration agreements are to be rigorously enforced,
bankruptcy too represents a fundamental public policy.
Grounded
in the Constitution, bankruptcy provides debtors with a fresh
start
and
creditors
debtor’s assets.
with
an
equitable
distribution
of
the
To those ends, a principal purpose of the
Bankruptcy Code is to provide debtors and creditors with “the
prompt
and
effectual
[debtor’s] estate.”
514
U.S.
administration
and
settlement
of
the
Katchen, 382 U.S. at 328; see also Celotex,
at 308.
Similarly,
a
principal
purpose
of
the
Bankruptcy Code is also to centralize disputes over the debtor’s
assets
and
obligations
in
one
forum,
thus
protecting
both
debtors and creditors from piecemeal litigation and conflicting
judgments.
See
Phillips
v.
Congelton,
L.L.C.
(In
re
White
Mountain Mining Co.), 403 F.3d 164, 169-70 (4th Cir. 2005); A.H.
Robbins Co. v. Piccinin, 788 F.2d 994, 998 (4th Cir. 1986).
“Ease
and
centrality
of
administration
20
are
thus
foundational
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characteristics of bankruptcy law.”
French v. Liebmann (In re
French), 440 F.3d 145, 154-55 (4th Cir. 2006) (Wilkinson, J.,
concurring).
Inherently
invoking
these
policies,
Moses
filed
a
Chapter 13 petition under the Bankruptcy Code and a five-year
plan to reorganize her financial affairs, which the bankruptcy
court approved in October 2012.
after
the
debtor
proposes
In any Chapter 13 plan, even
and
the
court
approves
a
specific
schedule of payments over a period of years, the plan “remains
subject
decreased
to
modification
ability
to
pay
for
reasons
according
to
including
plan,
as
a
debtor’s
well
as
the
debtor’s increased ability to pay,” Carroll v. Logan, 735 F.3d
147, 151 (4th Cir. 2013), until the completion of plan payments,
Pliler v. Stearns, 747 F.3d 260, 266 (4th Cir. 2014).
It is thus apparent that resolution of Moses’ claim that
the Loan Agreement she entered into with Western Sky was illegal
could directly impact claims against her estate and her plan for
financial reorganization, notwithstanding the fact that the plan
was confirmed in October 2012.
If a tribunal were to hold that
CashCall’s loan is valid, CashCall could petition the bankruptcy
court
as
assets.
148
(4th
an
“allowed
unsecured
creditor”
to
share
in
Moses’
See Murphy v. O’Donnell (In re Murphy), 474 F.3d 143,
Cir.
2007)
(noting
that
plan
modification
can
be
initiated by “the debtor, the Chapter 13 trustee, or an allowed
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unsecured creditor”).
Pg: 22 of 77
And the fact that unsecured creditors are
currently anticipated to receive nothing under Moses’ confirmed
plan does not mean that they never will.
at 265
(noting
that
creditors
may
See Pliler, 747 F.3d
gain
from
a
debtor’s
Chapter 13 reorganization “even if the debtor[] ha[s] zero or
negative disposable income at the time of plan confirmation,”
because “Chapter 13 debtors can and do benefit from windfalls
such as inheritances or other unforeseeable income after plan
confirmation
closed”).
but
before
their
Chapter 13
proceedings
are
Under these circumstances, ordering arbitration of a
dispute that directly pertains to Moses’ plan for reorganization
would
“substantially
reorganize.”
(holding
interfere
with
[her]
efforts
to
Phillips, 403 F.3d at 170; see also id. at 169
that
“[a]rbitration
is
inconsistent
with
[the
Bankruptcy Code’s policy of] centralized decision-making because
permitting
an
arbitrator
debtor-creditor
rights
to
decide
contingent
a
upon
core
an
issue
would
arbitrator’s
make
ruling
rather than the ruling of the bankruptcy judge assigned to hear
the debtor’s case” (emphasis added) (internal quotation marks
and citation omitted)).
Therefore, we conclude that forcing Moses to arbitrate her
constitutionally core claim would inherently conflict with the
purposes of the Bankruptcy Code and that the district court did
not
err
in
affirming
the
bankruptcy
22
court’s
exercise
of
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discretion in denying CashCall’s motion to dismiss or stay and
compel arbitration of that claim.
NIEMEYER, Circuit Judge, writing separately and dissenting from
the judgment in part in this Part II.B.
B
Nevertheless,
court
erred
arbitration.
in
the
majority
declining
to
concludes
send
Moses’
that
the
non-core
district
claim
to
Judge Gregory concludes that Moses failed to meet
her burden of showing that CashCall’s statutory right to the
enforcement
of
arbitration
agreements
should
be
trumped
by
adjudication of her non-core claim in a bankruptcy court and
therefore
that
the
bankruptcy
court
“ha[d]
refuse to arbitrate [the] non-core claim.”
no
discretion
Post, at 49.
to
He
insists that splitting Moses’ core and non-core claims -- so
that the bankruptcy court can adjudicate her core claim and a
representative of the Cheyenne River Sioux Tribe can adjudicate
her non-core claim -- would not substantially interfere with
Moses’s efforts to reorganize, despite the fact that the main
element
of
Agreement,
Moses’
will
non-core
necessarily
claim,
be
the
legality
determined
by
of
the
the
Loan
bankruptcy
court in ruling on Moses’ core claim and on her objection to
CashCall’s
proof
of
claim.
Writing
separately,
Judge
Davis
would hold that CashCall’s abandonment of its proof of claim
renders Moses’ core claim moot and eliminates any justification
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for retaining jurisdiction over Moses’ non-core claim in the
bankruptcy proceedings, despite the fact that because we lack
jurisdiction
to
revisit
the
denial
of
CashCall’s
motion
to
withdraw its proof of claim, as we hold in Part III, post,
at 34-45,
the
proof
of
claim
remains
to
be
decided
by
the
bankruptcy court.
I believe that splitting Moses’ closely related claims and
sending
Moses’
non-core
claim
to
a
questionable
and
perhaps
illusory arbitration proceeding would inherently conflict with
the purposes of the Bankruptcy Code, and therefore I dissent
from the court’s judgment insofar as it holds that the district
court
abused
its
discretion
in
retaining
jurisdiction
over
ancillary
to
Moses’ non-core claim.
Even
though
non-core
claims
are
reorganization, it is apparent that they can nonetheless affect
a
debtor’s
claims
with
to
the
efforts
to
arbitration
debtor’s
reorganize
can,
chance
Chapter 13 reorganization.
in
to
and
given
that
sending
circumstances,
complete
a
fair
and
non-core
interfere
efficient
Therefore, with core and non-core
claims alike, courts are required to inquire into the nature of
the claim and the facts of the specific bankruptcy to determine
whether enforcing arbitration would inherently conflict with the
purposes of the Bankruptcy Code.
See Cont’l Ins., 671 F.3d
at 1021 (“[T]he core/non-core distinction, though relevant, is
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not alone dispositive”); Mintze, 434 F.3d at 229 (“The core/noncore
distinction
does
not . . . affect
whether
a
bankruptcy
court has the discretion to deny enforcement of an arbitration
agreement”).
core
In addition, when a court is presented with both a
claim
proceeding,
and
the
a
non-core
discretion
to
claim
in
retain
a
the
single
non-core
adversary
claim
can
depend on the strength of its relationship with the core claim.
Here, if a separate tribunal were to award Moses damages
for CashCall’s efforts to collect an illegal loan, the increase
in Moses’ ability to pay should accrue to the other unsecured
creditors.
243
(4th
See Arnold v. Weast (In re Arnold), 869 F.2d 240,
Cir.
1989)
(“When
a
debtor’s
financial
fortunes
improve, the creditors should share some of the wealth”).
But
the many questions surrounding the Loan Agreement’s arbitration
procedure raise doubts that arbitration would conclude in time
for Moses’ creditors to seek modification of Moses’ Chapter 13
plan so that they could share in any recovery.
The
Loan
conducted
authorized
dispute
by
Agreement
the
provides
Cheyenne
representative
rules.”
It
also
River
in
that
arbitration
Sioux
accordance
provides
that
Tribal
with
“shall
Nation
its
arbitration
by
be
an
consumer
shall
be
administered by the American Arbitration Association, JAMS, or
another organization agreed upon by the parties.
Thus, before
arbitration could even begin, litigation over the arbitration
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procedure
at 1191
Filed: 03/16/2015
would
seem
(noting
Pg: 26 of 77
likely.
that
Accord
because
no
Heldt,
party
12
had
F.
Supp.
identified
3d
an
“‘authorized representative’ of the Cheyenne River Sioux Tribal
Nation
[who]
is
an
arbitrator
in
the
[American
Arbitration
Association] or JAMS system,” the arbitration agreement left a
“conundrum”
addition,
as
to
courts
who
would
reviewing
perform
Western
the
Sky
arbitration).
loan
agreements
In
with
language similar to that in the Loan Agreement in this case have
found that the Cheyenne River Sioux Tribe does not authorize
arbitration and consequently has no authorized arbitrators or
consumer
dispute
rules.
See
Jackson,
764
F.3d
at 779
(“The
arbitration clause here is void not simply because of a strong
possibility of arbitrator bias, but because it provides that a
decision is to be made under a process that is a sham from stem
to stern”); Inetianbor, 768 F.3d at 1354 (similar); Heldt, 12 F.
Supp. 3d at 1192 (“[T]he unique circumstances of this case could
give rise to . . . [a] ‘procedural nightmare’ and [a] lack of
‘orderly
administration
of
justice’”
(quoting
Nat’l
Farmers
Union Ins. Co. v. Crow Tribe of Indians, 471 U.S. 845, 856
(1985))).
My colleagues suggest that the record is not sufficiently
developed for us to make conclusions about the specified tribal
arbitration.
I submit, however, that we need not make findings
on that issue.
Rather, the doubt already expressed by other
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courts about the legitimacy and adequacy of the Loan Agreement’s
tribal arbitration mechanism indicates at the very least that
the issue will be the subject of additional litigation.
See
Colonial Penn Ins. Co. v. Coil, 887 F.2d 1236, 1239 (4th Cir.
1989) (“[F]ederal courts, in appropriate circumstances, may take
notice
of
proceedings
proceedings
(internal
have
a
quotation
in
direct
marks
other
courts, . . .
relation
and
to
citation
matters
omitted)).
if
at
those
issue”
Thus,
it
might be years before any resolution of Moses’ non-core claim
can be obtained.
which
an
Indeed, it is not hard to imagine scenarios in
arbitral
award
would
come
after
October
2017,
when
Moses’ Chapter 13 plan will have terminated, preventing Moses’
creditors from petitioning for plan modification.
Such delays
with respect to the determination of the validity of a claim
made against one of Moses’ creditors will not only interfere
with the “the prompt and effectual administration and settlement
of the [debtor’s] estate,” a principal purpose of the Bankruptcy
Code, Katchen, 382 U.S. at 328, but also prejudice the rights of
creditors
to
share
in
any
increase
in
Moses’
estate.
In
addition, it hardly undermines the policy favoring arbitration
to deny arbitration where there are “no rules, guidelines, or
guarantees of fairness.”
Jackson, 764 F.3d at 779.
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More importantly, Moses’ non-core claim is directly tied to
her
claim. 1
core
CashCall’s
Carolina
Moses
efforts
Debt
to
alleges
collect
Collection
in
the
Act
her
non-core
claim
debt
violated
the
because
the
underlying
that
North
loan
obligation was illegal, the very issue presented by her core
claim.
Therefore,
separating
her
two
claims
will
force
an
arbitrator and the bankruptcy judge separately to decide the
validity
of
the
underlying
debt.
That
scenario
inherently
conflicts with the purposes of the Bankruptcy Code for several
reasons.
First, having two tribunals adjudicate the identical issue
is inefficient.
CashCall argues that efficiency concerns are
not a valid basis for ignoring the FAA, noting that the Supreme
Court has held that the FAA “requires district courts to compel
arbitration of pendent arbitrable claims . . . even where the
1
Judge Gregory argues that “[t]he non-core litigation will
likely require detailed and time-consuming findings regarding
CashCall’s conduct in trying to collect on the loan,” post at
54, noting that Moses’ complaint alleges that CashCall “has
willfully engaged in other and further violations” of the North
Carolina Debt Collection Act, “as may be shown through discovery
and proved at trial.”
But the only factual claims that Moses
makes in support of damages are that CashCall “threaten[ed] to
draft funds from [her] account on a loan obligation that was
illegal”; that CashCall “ma[de] telephone calls and threaten[ed]
to take other actions to collect a debt that was not permitted
under law”; and that CashCall “deceptively represent[ed] . . .
that the alleged debt owing was a valid debt when such ‘contract
for loan’ was . . . void ab initio.” (Emphasis added).
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result would be the possibly inefficient maintenance of separate
proceedings in different forums,” because the FAA is not chiefly
concerned
with
“promot[ing]
the
expeditious
resolution
of
claims,” Dean Witter Reynolds, 470 U.S. at 217, 219 (emphasis
added); see also KPMG LLP v. Cocchi, 132 S. Ct. 23, 26 (2011)
(per curiam) (similar).
While this analysis governs in other
contexts, intervening concerns of bankruptcy change the analysis
here,
because
courts
to
between
the
Supreme
consider
Court’s
whether
arbitration
and
McMahon
there
the
is
an
statute’s
framework
“inherent
underlying
directs
conflict
purposes,”
482 U.S. at 227, and the “expeditious resolution of claims” is
at the heart of the Bankruptcy Code.
Thus, as other courts of
appeals have recognized, the arbitration calculus is different
when
bankruptcy
is
involved,
efficiency concerns.
requiring
courts
to
consider
See Ins. Co. of N. Am., 118 F.3d at 1069
n.21 (“[I]nsofar as efficiency concerns might present a genuine
conflict
between
the
Federal
Arbitration
Act
and
the
[Bankruptcy] Code -- for example where substantial arbitration
costs or severe delays would prejudice the rights of creditors
or
the
ability
represent
at 1023
“judicial
of
a
legitimate
n.9
debtor
reorganize --
considerations”);
(observing
economy
to
and
that
the
general
centralization
of
may
well
Ins.,
671
F.3d
proposition
Cont’l
they
that
disputes
are
not
sufficient bases for nonenforcement of an otherwise applicable
29
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arbitration
Filed: 03/16/2015
clause . . .
Pg: 30 of 77
does
not
hold
in
the
bankruptcy
context”); Gandy, 299 F.3d at 499 (“[E]fficiency concerns may be
legitimate
efficient
considerations
resolution
in
of
the
claims
bankruptcy
and
context,
conservation
where
of
the
bankruptcy estate assets are integral purposes of the Bankruptcy
Code” (citing Ins. Co. of N. Am., 118 F.3d at 1069 n.21)).
In
sum, while efficiency is not considered in determining whether
to withhold arbitration in other contexts, it is relevant where,
as here, the Bankruptcy Code is involved.
Eber
(In
re
Eber),
687
F.3d
1123,
1131
Accord Ackerman v.
(9th
Cir.
2012)
(distinguishing KPMG because it “was not a bankruptcy case”).
To be sure, the efficiency from “centralization [may] not, in
and of itself, [be] a valid reason to deny arbitration,” as
Judge
Gregory
observes,
decentralization
would
post,
be
at
56,
but
particularly
where,
as
here,
inefficient,
an
arbitration agreement should give way.
Second, bifurcating Moses’ claims will inherently conflict
with the purposes of the Bankruptcy Code because an arbitration
proceeding could come to a judgment before the bankruptcy court
ruling
and
inappropriately
bind
the
bankruptcy
court
on
the
validity of CashCall’s Loan Agreement, a constitutionally core
issue for the bankruptcy court to decide.
See Phillips, 403
F.3d at 169 (“[P]ermitting an arbitrator to decide a core issue
would
make
debtor-creditor
rights
30
‘contingent
upon
an
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arbitrator’s ruling’ rather than the ruling of the bankruptcy
judge
assigned
to
hear
the
debtor’s
case”
(quoting
Note,
Jurisdiction in Bankruptcy Proceedings: A Test Case for Implied
Repeal of the Federal Arbitration Act, 117 Harv. L. Rev. 2296,
2307 (2004))); Ackerman, 687 F.3d at 1131 (“We find unpersuasive
[the
creditors’]
argument
that
the
bankruptcy
court
inappropriately denied them the opportunity to arbitrate because
it
was
concerned
about
arbitrator’s decision”).
being
collaterally
stopped
by
the
And even if collateral estoppel were
not to apply, bifurcation “could yield different results and
subject parties to dichotomous obligations.”
at 499.
Judge
Gregory’s
suggestion
that
Gandy, 299 F.3d
the
district
court
could stay arbitration until it has ruled on Moses’ core claim,
post,
at
55,
only
highlights
further
the
inefficiencies
associated with bifurcating Moses’ claims.
Third, the additional litigation costs inherent in being
forced to litigate claims before two separate tribunals will
harm
Moses’
creditors
by
reducing
the
Moses has available to pay her debts.
at 170
(holding
that
adversary
proceeding
Mountain’s
efforts
“ordering
would
to
amount
income
that
See Phillips, 403 F.3d
arbitration
substantially
reorganize”
of
and
staying
interfere
because
the
with
White
arbitration
would
“impose additional costs on the estate and divert the attention
and
time
of
the
debtor[],”
whereas
31
“allowing
the
adversary
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proceeding to go forward would ‘allow all creditors, owners and
parties in interest to participate [in a centralized proceeding]
at a minimum of cost’” (second alteration in original)); see
also Kent L. Richland, Stern v. Marshall:
A Dead End Marathon?,
28 Emory Bankr. Dev. J. 393, 413 (2012) (“Particularly where the
bankruptcy estate is relatively small, keeping the entire matter
in the bankruptcy court may be the only way to preserve the
estate against excessive costs”).
Moreover, at a more general level, courts have regularly
refused
to
Gandy,
the
causes
of
state-law
bifurcate
debtor
related
initiated
action
created
causes
of
core
an
and
non-core
adversary
matters.
proceeding
by
the
Bankruptcy
action
for
breach
Code
of
as
In
alleging
well
fiduciary
as
duty,
negligence, fraud, constructive trust, and breach of contract.
The
Fifth
Circuit
affirmed
the
district
court’s
refusal
to
divide the debtor’s case by sending some claims to arbitration
because
“[p]arallel
proceedings
would
be
wasteful
and
inefficient, and potentially could yield different results and
subject parties to dichotomous obligations.”
at 499. 2
Gandy, 299 F.3d
Similarly, in Ackerman, the Ninth Circuit refused to
2
Judge Gregory argues that Gandy is distinguishable because
the state-law claims in that case were “peripheral” or
“inconsequential relative to the bankruptcy causes of action.”
299 F.3d at 497, 500.
But the facts of this case are no
different.
Here, at the heart of Moses’ non-core claim is her
32
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compel
Filed: 03/16/2015
arbitration
of
a
Pg: 33 of 77
creditor’s
claims
for
breach
of
contract, fraud, and breach of fiduciary duty because “allowing
an arbitrator to decide issues that are so closely intertwined”
with the creditor’s core claim that the underlying debt was not
dischargeable “would ‘conflict with the underlying purposes of
the
Bankruptcy
Ins.,
671
F.3d
Code.’”
687
at 1021).
F.3d
And
at 1130-31
in
(quoting
Continental
Cont’l
Insurance,
the
Ninth Circuit held that because a creditor’s non-core breach of
contract
claim
bankruptcy
was
challenging
actions
“inextricably
that
the
intertwined”
debtor
with
the
took
in
debtor’s
bankruptcy plan confirmation, “adjudication of [the creditor’s]
claim in any other forum other than a bankruptcy court would
conflict
with
‘fundamental
bankruptcy
policy.’”
671 F.3d
at 1022 (internal quotation marks omitted).
At
bottom,
I
simply
cannot
see
how
the
district
court
abused its discretion by keeping Moses’ non-core claim together
allegation that the underlying loan agreement is unenforceable.
If the district court agrees with that allegation, it need only
resolve one simple legal question:
Does the effort to collect
an illegal debt inherently violate the North Carolina Debt
Collection Act? If the answer to that question is yes, Moses is
entitled to monetary damages, and her creditors are entitled to
share in her newfound wealth. If the answer is no, Moses’ noncore claim must fail, because Moses has pleaded no facts
suggesting that CashCall’s debt collection practices were
otherwise unfair, deceptive, coercive, or unlawful. Thus, as in
Gandy, a core bankruptcy matter -- here, the validity of loan
agreement -- predominates.
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with the core claim for adjudication in the bankruptcy court in
the circumstances of this case.
I would therefore affirm.
NIEMEYER, Circuit Judge, writing for the court:
III
To support his argument that the district court erred in
keeping
the
related
core
and
non-core
claims
in
bankruptcy,
Judge Davis, in his separate opinion concurring in the judgment
in
part
and
dissenting
in
part,
would
have
us
review
the
unappealed and unappealable interlocutory January 3, 2013 order
issued
by
the
bankruptcy
court
withdraw its proof of claim.
denying
CashCall’s
motion
to
He finds this approach necessary
in order to conclude that the district court erred in affirming
the bankruptcy court’s order denying the motion to dismiss or
compel
abandons
arbitration
its
proof
because,
of
as
claim
he
and
reasons,
releases
“once
Moses
CashCall
from
her
obligations under the loan agreement, the sine qua non of the
bankruptcy court’s justification for retaining jurisdiction over
Moses’s non-core claim evaporates; there is no core claim to
remit to arbitration, and the only question is whether to compel
arbitration on Moses’s non-core claim.”
Post, at 68.
But the
only issue that CashCall has appealed -- and, indeed, that it
could appeal -- is whether the district court erred in entering
its order of February 4, 2014, affirming the bankruptcy court’s
34
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ruling
Doc: 59
that
together
claims.
the
in
CashCall’s
Filed: 03/16/2015
related
the
bankruptcy
motion
to
core
Pg: 35 of 77
and
court
dismiss
or
non-core
claims
and,
that
to
compel
be
decided
end,
denying
arbitration
of
those
This is also the only issue that the parties briefed.
Because we have no jurisdiction to review the bankruptcy court’s
January 3
order
and
therefore
no
power
to
allow
CashCall
to
withdraw its proof of claim, Moses’ core claim is not moot.
In bankruptcy cases, courts of appeals have jurisdiction
only over (1) “final decisions, judgments, orders, and decrees”
of
district
courts,
(2) interlocutory
pursuant
appeals
from
to
28
district
U.S.C.
§ 158(d)(1);
courts
under
the
collateral-order doctrine of Cohen v. Beneficial Industrial Loan
Corp., 337 U.S. 541 (1949); (3) appeals from interlocutory or
final orders of the bankruptcy court in which the bankruptcy
court,
the
district
court,
or
the
parties
acting
jointly,
certify an appeal and the court of appeals authorizes a direct
appeal, pursuant to § 158(d)(2); and (4) interlocutory appeals
in which a district court states in writing “[i] that an order
not otherwise appealable . . . involves a controlling question
of law as to which there is substantial ground for difference of
opinion and [ii] that an immediate appeal from the order may
materially
advance
the
ultimate
litigation,” 28 U.S.C. § 1292(b).
determination
of
the
See Legal Representatives for
Future Claimants v. Aetna Cas. & Sur. Co. (In re Wallace & Gale
35
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Co.), 72 F.3d 21, 24 (4th Cir. 1995).
In addition, Congress has
created limited exceptions to the final-judgment rule for orders
implicating
certain
subjects.
See,
e.g.,
9
U.S.C.
§ 16(a)(1)(A). 3
As CashCall itself recognized, the bankruptcy court’s order
denying
its
motion
interlocutory.
to
withdraw
its
proof
of
claim
was
Pursuant to § 158(a)(3), an interlocutory order
of a bankruptcy court is reviewable by a district court only
with
that
court’s
permission.
The
district
court
here
specifically denied CashCall permission to appeal the bankruptcy
court’s order to it and accordingly the district court never
reviewed the bankruptcy court’s order on the merits.
3
Thus, the
To
justify
jurisdiction
over
an
unappealed
and
unappealable order, Judge Davis relies on Dart Cherokee Basin
Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014). That case,
however, is inapposite. There, after the Tenth Circuit declined
to hear a discretionary appeal from an order denying a motion to
remand a class action, the Supreme Court found no jurisdictional
barrier to granting review of the denial of the leave-to-appeal
application.
But unlike the closely circumscribed grounds for
courts of appeals’ jurisdiction in bankruptcy cases, the Supreme
Court has jurisdiction to hear any “[c]ase[] in the courts of
appeals.”
28 U.S.C. § 1254(1).
As the Court explained, the
leave-to-appeal application was at some point “in” the court of
appeals, so the Supreme Court had jurisdiction over what the
court of appeals did.
Dart Cherokee Basin, 135 S. Ct. at 555.
Our jurisdiction is not so plenary.
Moreover, the Court
emphasized not once, but twice, that neither party had
questioned its jurisdiction and that it was addressing the issue
only at the behest of an amicus curiae.
Here, by contrast,
neither party believed that the bankruptcy court’s order denying
CashCall’s motion to withdraw its proof of claim was before this
court on appeal.
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district court proceedings never gave rise to a reviewable final
order
of
the
district
court
that
we
could
review
under
§ 158(d)(1) or to an interlocutory order of the district court
that
we
could
§ 1292(b).
review
And
§ 158(d)(2).
bankruptcy
no
under
court
Indeed,
court’s
the
collateral-order
ever
CashCall
order
is
made
has
a
doctrine
certification
not
suggested
appealable
under
under
that
any
or
the
possible
formulation.
Moreover, even if there were any question as to our lack of
jurisdiction
withdraw,
over
CashCall
the
order
did
not
denying
appeal
CashCall’s
that
order.
motion
A
to
court
of
appeals only has jurisdiction over an order that has actually
been appealed and presented to it.
See Fed. R. App. P. 3–4;
Smith v. Barry, 502 U.S. 244, 248 (1992) (“[Federal Rule of
Appellate Procedure] 3’s dictates are jurisdictional in nature,
and
their
satisfaction
review. . . .
Bowles
v.
is
a
[N]oncompliance
is
Russell,
551
U.S.
prerequisite
fatal
205,
214
to
an
to
appellate
appeal.”);
(2007)
(“[T]he
cf.
timely
filing of a notice of appeal in a civil case is a jurisdictional
requirement”).
reference
carefully
the
CashCall’s
bankruptcy
limiting
the
notice
court’s
scope
of
court’s February 4 order:
37
of
appeal
January 3
the
appeal
did
order,
to
the
not
even
instead
district
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Defendant CashCall, Inc. appeals to the United States
Court of Appeals for the Fourth Circuit from the
judgment and order of the District Court for the
Eastern District of North Carolina, entered in this
case on February 4, 2014, affirming an order of the
Bankruptcy Court for the Eastern District of North
Carolina that denied CashCall’s motion to dismiss or
stay
and
compel
arbitration
of
the
underlying
adversary proceeding.
(Emphasis added).
And unsurprisingly, CashCall never addressed
the merits of the bankruptcy court’s January 3 order in its
briefing before this court.
Cf. Bogart v. Chapell, 396 F.3d
548,
(recognizing
555
(4th
Cir.
2005)
that
in
order
to
demonstrate that the appellee “had notice of [an] issue and the
opportunity to fully brief it,” the appellant “needs to address
the merits of a particular issue in her opening brief” (emphasis
added)); Edwards v. City of Goldsboro, 178 F.3d 231, 241 n.6
(4th Cir. 1999) (stating that failure to raise a claim and the
reasons therefore in the opening brief “triggers abandonment of
that claim on appeal”).
Despite
the
clear
absence
of
any
power
to
review
the
interlocutory order of the bankruptcy court, Judge Davis would
hold that the doctrine of pendent appellate jurisdiction gives
us jurisdiction over that order.
applicable
to
the
circumstances
That doctrine, however, is not
presented
here
for
several
reasons.
First, there is no final judgment to which review of the
bankruptcy
court’s
order
could
38
be
appended.
In
Swint
v.
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Chambers
Court
Filed: 03/16/2015
County
refused
Commission,
to
apply
Pg: 39 of 77
514
the
U.S.
doctrine
35
(1995),
of
the
pendent
Supreme
appellant
jurisdiction to consider an unappealable issue where the order
to which that issue would be appended was an interlocutory order
appealable only under the collateral-order doctrine.
The Court
explained that “[i]f courts of appeals had discretion to append
to a Cohen-authorized appeal from a collateral order further
rulings of a kind neither independently appealable nor certified
by the district court, then the two-tiered arrangement § 1292(b)
mandates would be severely undermined.”
at 49-50
(“[A]
jurisdiction
collateral
tickets”).
that
in
courts
would
orders
loosely
encourage
into
allowing
parties
multi-issue
to
pendent
appellate
parlay
Cohen-type
interlocutory
appeal
To safeguard Congress’ mandate, the Swint Court held
appeals
only
rule
Id. at 47; see also id.
have
authorized
by
jurisdiction
the
to
collateral-order
consider
claims
doctrine,
that
“fall
within Cohen’s collateral-order exception to the final-judgment
rule.”
663
Id. at 49 (quoting Abney v. United States, 431 U.S. 651,
(1977))
(internal
quotation
marks
omitted).
Here,
the
district court’s order affirming the denial of CashCall’s motion
to dismiss or compel arbitration was an interlocutory order, and
appellate jurisdiction over that order was authorized solely by
9 U.S.C. § 16(a)(1)(A), which permits an interlocutory appeal of
an order refusing to stay an action pending arbitration.
39
See
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Thomson McKinnon Sec., Inc. v. Salter, 873 F.2d 1397, 1399 (11th
Cir. 1989) (“Under [§ 16(a)(1)], interlocutory orders refusing
to compel arbitration now are appealable -- even though they are
not final within the meaning of 28 U.S.C. § 1291”); see also,
e.g., Campbell v. Gen. Dynamics Gov’t Sys. Corp., 407 F.3d 546,
550
(1st
Cir.
2005);
Arnold
v.
Arnold
Corp.
--
Printed
Communc’ns for Bus., 920 F.2d 1269, 1274 (6th Cir. 1990).
To
apply the doctrine of pendent appellate jurisdiction in this
context
would
statutorily
appeal,
be
to
authorized
precisely
the
sanction
the
interlocutory
effect
that
conversion
appeal
the
of
into
Swint
a
a
Court
narrow,
full-blown
sought
to
avoid -- i.e., the practical and flexible approach to pendent
appellate review that Judge Davis would have us adopt.
See
Swint, 514 U.S. at 45 (noting that such an approach would be
incompatible with “the statutory instructions Congress has given
to control the timing of appellate proceedings”).
Second, the concerns expressed in Swint are magnified in
this case because the district court, acting under 28 U.S.C.
§ 158(a)(3), specifically denied CashCall leave to appeal the
bankruptcy court’s interlocutory order to the district court.
As the Second Circuit recognized in Gibson v. Kassover (In re
Kassover), 343 F.3d 91, 95 (2d Cir. 2003), “[i]n requiring that
a
district
decision
on
court
the
grant
merits
leave
[in
to
appeal
before
§ 158(a)(3)],
40
rendering
Congress
a
surely
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intended to make the declining of such leave the end of the
matter, save perhaps for the seeking of an extraordinary writ.”
Were it otherwise, appellate review would proceed “without the
benefit of a district court’s findings of fact and conclusions
of law.”
Id.
Indeed, courts of appeals have regularly held
that they lack jurisdiction to review issues in the analogous
situation
where
a
district
court
has
declined
to
certify
a
question for interlocutory appeal to a court of appeals under
§ 1292(b).
See Taylor v. Robertson, 879 F.2d 863 (4th Cir.
1989) (unpublished) (“As the district court expressly declined
to issue the required certification, we deny the petition for an
interlocutory appeal under § 1292(b)”); see also, e.g., In re
Ford
Motor
Co.,
344
(“Certification
by
prerequisite
interlocutory
to
the
F.3d
648,
district
654
court
review
(7th
is
under
a
Cir.
2003)
jurisdictional
§ 1292(b) . . .”);
Mason v. Stallings, 82 F.3d 1007, 1010 (11th Cir. 1996) (“The
district court in this case denied a § 1292(b) certification.
Therefore, it is not open to us to reverse the denial of summary
judgment . . . .”); Green v. Occidental Petrol. Corp., 541 F.2d
1335, 1338 (9th Cir. 1976) (“Concurrence of both the district
court and the appellate court is necessary and we are without
power to assume unilaterally an appeal under section 1292(b)”);
In re Master Key Antitrust Litig., 528 F.2d 5, 8 (2d Cir. 1975)
(“[The district court’s] refusal to certify the interlocutory
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appeal of [its] rulings is, of course, not appealable . . .”);
United States v. 687.30 Acres of Land, 451 F.2d 667, 670 (8th
Cir. 1971) (“We have no jurisdiction to review the trial court’s
denial
of
the
§
1292(b)
certificate”).
In
short,
applying
pendent appellate jurisdiction -- “an exception [to the finaljudgment requirement] of limited and narrow application,” Rux v.
Republic
of
Sudan,
461
F.3d
461,
475
(4th
Cir.
2006) -- to
review an issue that the district court expressly refused to
consider itself under § 158(a)(3) and that was never certified
to us under § 158(d)(2) or § 1292(b) would circumvent the clear
intent of Congress.
Third, the bankruptcy court’s January 3 interlocutory order
is not, as Judge Davis contends, inextricably intertwined with
the district court’s February 4 order affirming the denial of
CashCall’s motion to dismiss the adversary complaint or compel
arbitration.
Although
jurisdiction
is
the
available
doctrine
“when
an
of
pendent
issue
is
appellate
‘inextricably
intertwined’ with a question that is the proper subject of an
immediate appeal,” Rux, 461 F.3d at 475 (quoting Swint, 514 U.S.
at 51), separate rulings are inextricably intertwined only if
“the same specific question will underlie both the appealable
and the non-appealable order,” Scott v. Family Dollar Stores,
Inc.,
733
F.3d
(quoting Ealy
v.
105,
111
Pinkerton
(4th
Gov’t
42
Cir.
2013)
Servs.,
(emphasis
Inc.,
514
F.
added)
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299, 309 (4th Cir. 2013) (per curiam)), cert. denied, 134 S. Ct.
2871
(2014).
arbitration
Here,
CashCall’s
presents
the
motion
question
of
to
dismiss
whether
or
compel
arbitration
of
Moses’ claim would substantially interfere with the purposes of
the Bankruptcy Code.
By contrast, review of CashCall’s motion
to withdraw its proof of claim would require a court to consider
the distinct question of whether withdrawal would cause Moses to
suffer prejudice.
Judge Davis, also recognizing that CashCall never included
the
bankruptcy
court’s
January 3
interlocutory
order
in
its
notice of appeal, asserts nonetheless that we have “discretion”
to review that order, post, at 62, because notices of appeal are
to be liberally construed, post, at 69 (citing Powell v. Symons,
680 F.3d 301, 306 n.2 (3d Cir. 2012)).
But this case does not
allow for any construction of the notice of appeal.
CashCall’s
notice of appeal was clear and explicit in limiting the appeal
to the February 4 order.
CashCall did not appeal the bankruptcy
court’s January 3 interlocutory order, stating in its brief that
it “simply cannot appeal that issue yet.”
policy
of
document.
liberal
construction
to
We cannot invoke the
create
an
entirely
new
That policy applies only when “a party files a notice
of appeal ‘that is technically at variance with the letter of a
procedural
rule, . . .
functional
equivalent
[but]
of
the
what
43
the
litigant’s
rule
action
requires.’”
is
the
United
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States v. Little, 392 F.3d 671, 681 (4th Cir. 2004) (quoting
Torres v. Oakland Scavenger Co., 487 U.S. 312, 316-17 (1988));
see also Gunther v. E.I. du Pont de Nemours & Co., 255 F.2d 710,
717 (4th Cir. 1958) (“When it appears that adequate information
is given by the notice, the appeal should not be dismissed for
mistakes which do not mislead or prejudice the appellee”).
Somehow
reaching
the
merits
of
the
bankruptcy
court’s
unappealed and unappealable January 3 order, Judge Davis would
conclude
denying
that
the
CashCall’s
bankruptcy
motion
court
to
abused
withdraw
its
its
discretion
proof
of
in
claim
because, as he views it, Moses would not be prejudiced by the
withdrawal.
more
Post, at 64-65.
relevant
bankruptcy
equitable
court.
For
He fails, however, to consider the
considerations
instance,
CashCall
presented
issued
a
to
loan
the
at
nearly 15 times the maximum allowable interest rate under North
Carolina law and then filed a proof of claim to collect Moses’
unpaid debt, just as it had done in 118 other cases in the
Eastern District of North Carolina.
Had Moses not objected to
CashCall’s claim, CashCall would have been more than happy to
use the federal courts to collect $1,929.02, which amounted to a
92.9% return on its investment over a period of less than three
months.
But as soon as Moses fought back, alleging that the
Loan Agreement was issued in violation of state usury laws and
seeking damages for CashCall’s efforts to collect an illegal
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debt, CashCall attempted to withdraw its proof of claim in an
effort to divest the bankruptcy court of jurisdiction and shunt
Moses’ claims into tribal arbitration, causing additional costs
and delays.
CashCall’s
gamesmanship
could
not
have
been
clearer.
Denying Moses the benefit of the bankruptcy forum and requiring
her, with her meager funds, to challenge the questionable and
perhaps even illusory tribal arbitration process and to try her
case in another forum, only to bring back any proceeds to the
bankruptcy court, would hardly serve equity.
Bankruptcy courts
are courts of equity, see IRS v. Levy (In re Landbank Equity
Corp.), 973 F.2d 265, 271 (4th Cir. 1992), and as such, they
should
not
practice.
at
the
be
required
to
give
effect
to
this
inequitable
While Judge Davis states that he is not “blink[ing]”
underlying
motivations
of
CashCall’s
transparently
tactical decision to withdraw its proof of claim in this case as
a means to pretermit the adversary proceeding, post, at 76, his
stated position reveals precisely the opposite.
At bottom, it is clear that the bankruptcy court’s order
denying CashCall’s motion to withdraw its proof of claim is not
before us and that the bankruptcy court still has jurisdiction
to decide CashCall’s proof of claim and Moses’ objection to it.
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GREGORY, Circuit Judge, concurring in the majority opinion in
part, and concurring in the judgment:
I agree with Judge Niemeyer’s majority opinion upholding the
bankruptcy
court’s
claim
declaratory
for
exercise
of
jurisdiction
judgment. 1
Sending
over
Moses’
such
a
core
claim
to
arbitration would indeed present an “inherent conflict” with the
Bankruptcy
Code
insofar
as
the
claim
validity of a demand on Moses’ estate.
seeks
to
determine
the
See Shearson/Am. Express,
Inc. v. McMahon, 482 U.S. 220, 227 (1987) (allowing the nonenforcement of an arbitration agreement when the arbitration of a
claim
would
present
an
“inherent
conflict”
with
a
“statute’s
underlying purposes”).
The
claim,
same,
which
however,
demands
cannot
money
be
said
damages
for
for
Moses’
CashCall’s
non-core
alleged
violations of the North Carolina Debt Collection Act (NCDCA),
NC. Gen. Stat. §§ 75-50 to 56 (2012).
failure
of
the
non-core
claim
may
Although the success or
have
ancillary
effects
on
Moses’ bankruptcy – primarily through the enlargement of the
underlying estate due to any damages received – any such results
are
simply
bankruptcy,
too
to
attenuated,
constitute
and
an
indeed
“inherent
1
extrinsic
conflict”
to
the
with
the
I also join Part III of Judge Niemeyer’s opinion holding
that we have no jurisdiction to review the bankruptcy court’s
interlocutory order denying CashCall’s motion to withdraw its
proof of claim.
46
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Bankruptcy
Filed: 03/16/2015
Code’s
reorganization.
purpose
As
the
Pg: 47 of 77
of
facilitating
bankruptcy
judge
an
efficient
himself
observed
regarding the non-core claim, “[t]hese damages are unrelated to
the
Defendant’s
proof
of
claim
and
are
only
related
to
the
bankruptcy case in that if successful, the bankruptcy estate
will recover any non-exempt funds and disburse them to claims in
accordance
with
the
bankruptcy
code.”
J.A.
87.
In
such
circumstances, Moses has failed to meet her burden of showing
“that
Congress
intended
to
preclude
a
waiver
remedies for the statutory rights at issue.”
of
judicial
McMahon, 482 U.S.
at 227; see also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S.
213, 221 (1985) (observing that courts must “rigorously enforce
agreements to arbitrate, . . . at least absent a countervailing
policy manifested in another federal statute”); Moses H. Cone
Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)
(describing
the
“federal
policy
favoring
arbitration
agreements”).
I would thus reverse the district court’s decision allowing
Moses’ non-core claim to remain in the bankruptcy court.
I.
To begin with the obvious, a claim is constitutionally noncore because it is ancillary to the underlying bankruptcy.
In
recognition of that fact, a bankruptcy judge’s dominion over
non-core
claims
is
limited
by
47
Article
III,
§ 1
of
the
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Constitution
conclusions
Filed: 03/16/2015
to
of
submitting
law
to
the
Pg: 48 of 77
“proposed
district
findings
court,
review and issuance of final judgment.”
for
of
fact
that
and
court’s
Stern v. Marshall, 131
S. Ct. 2594, 2602 (2011); see also id. at 2620 (holding that a
bankruptcy judge’s authority is likewise limited for claims that
are statutorily core but constitutionally non-core); see also N.
Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71
(1982)
(describing
the
enforcement
of
non-core
state-created
private rights as separate and apart from “the restructuring of
debtor-creditor
relations”).
Further,
the
Bankruptcy
Code
itself limits a bankruptcy judge’s authority to hear certain
state law matters, even when the resolution of those matters may
affect
the
underlying
estate.
See
28
U.S.C.
§ 1334(c)(2)
(requiring that bankruptcy courts “abstain from hearing” certain
non-core state law claims); 28 U.S.C. § 1334(c)(1) (providing
that bankruptcy courts may “abstain[] from hearing a particular
proceeding,”
including
core
and
non-core
matters,
“in
the
interest of comity with State courts or respect for State law”);
see also Stern, 131 S. Ct. at 2619-20.
The core/non-core distinction, however, is not mechanically
dispositive in deciding whether a bankruptcy judge may refuse to
send a claim to arbitration.
See Cont’l Ins. Co. v. Thorpe
Insulation Co. (In re Thorpe Insulation Co.), 671 F.3d 1011,
1021
(9th
Cir.
2012)
(“We
agree
48
that
the
core/non-core
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distinction, though relevant, is not alone dispositive.”); In re
Mintze, 434 F.3d 222, 229 (3d Cir. 2006) (“The core/non-core
distinction does not . . . affect whether a bankruptcy court has
the
discretion
agreement.”).
to
deny
enforcement
of
an
arbitration
Instead, what matters fundamentally is whether
compelling arbitration for a claim would inherently undermine
the
Bankruptcy
efficient
Code’s
animating
reorganization
“[c]entralization
of
purpose
of
an
disputes
of
facilitating
estate
concerning
a
the
through
debtor’s
the
legal
obligations . . . .” Phillips v. Congelton, LLC (In re White
Mountain Mining Co.), 403 F.3d 164, 170 (4th Cir. 2005).
Although the mere designation of a claim as non-core does
not
end
the
bankruptcy
inquiry,
courts
I
agree
generally
arbitrate a non-core claim.
with
have
no
our
sister
discretion
circuits
to
that
refuse
to
As the Ninth Circuit has observed,
surveying other circuits:
The
core
versus
non-core
distinction
has
been
articulated
by
our
sister
circuits
as
follows:
generally, bankruptcy judges do not have discretion to
refuse to compel arbitration of non-core matters
because they are generally only tangentially related
to a bankruptcy case. Bankruptcy courts may, however,
exercise discretion to refuse to compel arbitration of
core bankruptcy matters, which implicate more pressing
bankruptcy
concerns.
Yet,
even
as
to
core
proceedings, the bankruptcy court will not have
discretion to override an arbitration agreement unless
it finds that the proceedings are based on provisions
of the Bankruptcy Code that inherently conflict with
the Arbitration Act or that arbitration of the claim
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would necessarily
Bankruptcy Code.
Pg: 50 of 77
jeopardize
the
objectives
of
the
Ackerman v. Eber (In re Eber), 687 F.3d 1123, 1130 n.6 (9th Cir.
2012) (internal citations and quotation marks omitted); see also
Crysen/Montenay Energy Co. v. Shell Oil Co. & Scallop Petroleum
Co. (In re Crysen/Montenay Energy Co.), 226 F.3d 160, 166 (2d
Cir.
2000)
(embracing
generally
must
stay
the
conclusion
non-core
“that
bankruptcy
proceedings
in
courts
favor
of
arbitration”); Hays & Co. v. Merrill Lynch, Pierce, Fenner &
Smith, Inc., 885 F.2d 1149, 1150, 1160 (3d Cir. 1989) (same);
Whiting-Turner Contracting Co. v. Elec. Mach. Enters., Inc. (In
re Elec. Mach. Enters., Inc.), 479 F.3d 791, 796 (11th Cir.
2007) (same); see also Fred Neufeld, Enforcement of Contractual
Arbitration Agreements Under the Bankruptcy Code, 65 Am. Bankr.
L.J. 525, 526 (1991) (arguing in support of the Third Circuit’s
conclusion in Hays, 885 F.2d at 1150, that “bankruptcy courts do
not
have
clauses
the
in
discretion
noncore
to
deny
adversary
enforcement
proceedings
of
arbitration
brought
by
the
trustee”).
Dissenting from the majority’s conclusion that Moses’ noncore claim should be sent to arbitration, Judge Niemeyer cites
the Fifth Circuit’s decision in Gandy v. Gandy (In re Gandy),
299 F.3d 489 (5th Cir. 2002), as supporting the proposition that
“courts have regularly refused to bifurcate related core and
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non-core matters.”
Pg: 51 of 77
In Gandy, however, the Fifth Circuit went so
far as to observe that “bankruptcy courts generally do not have
discretion
to
decline
to
stay
proceedings
involving
non-core
matters.”
Id. at 495 (emphasis added) (also observing that it
is “universally accepted” that bankruptcy courts generally do
not have such discretion); see also Hays, 885 F.2d at 1150,
1160.
Instead,
Gandy
determined
that
a
bankruptcy
judge’s
discretion primarily extends “to refuse to enforce an otherwise
applicable arbitration agreement when the underlying nature of a
proceeding
derives
exclusively
from
the
provisions
of
the
Bankruptcy Code and the arbitration of the proceeding conflicts
with
the
purpose
of
the
Code.”
299
F.3d
at
495;
see
also
Crysen/Montenay, 226 F.3d at 166 (“[T]he presumption in favor of
arbitration
bankruptcy
could
generally
courts
otherwise
in
be
will
trump
adjudicating
arbitrated.”).
the
lesser
non-core
interest
proceedings
Factually,
Gandy
of
that
involved
“three causes of action that derive[d] entirely from the federal
rights
conferred
by
the
Bankruptcy
Code”
and
available outside of bankruptcy to the debtor.
497.
were
thus
not
299 F.3d at 495,
The debtor’s complaint, the court found, also implicated
“non-bankruptcy contractual and tort issues in only the most
peripheral
manner.”
omitted).
Such
concluded,
were
Id.
at
497
non-bankruptcy
simply
(internal
causes
of
“inconsequential
51
quotation
action,
relative
the
to
marks
court
the
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bankruptcy causes of action.”
Pg: 52 of 77
Id. at 500.
As discussed further
below, the same cannot be said of Moses’ state-law claim under
the NCDCA.
II.
A bankruptcy judge’s discretion to deny arbitration of noncore matters is thus necessarily narrow.
As we suggested in
Phillips in the context of a core proceeding, the discretion to
deny arbitration should be limited to cases where arbitration
would “substantially interfere[] with the debtor’s efforts to
reorganize.”
Phillips,
403
F.3d
at
170.
Paradigmatically,
substantial interference occurs when the resolution of the claim
will necessarily affect reorganization in a significant way, and
arbitration will thus inherently conflict with the purposes of
Bankruptcy
Code.
See
id.
In
Phillips,
for
example,
we
confronted whether an individual was owed money by a debtor – a
classic core claim.
The debtor’s bankruptcy plan had yet to be
approved, the core claim was “critical to . . . the plan of
reorganization,” and sending the proceeding to arbitration would
have jeopardized the reorganization process.
Id.
No such danger is present here, however, regarding Moses’
non-core claim under the state debt collector statute.
Chapter
13
bankruptcy
plan
has
already
been
Moses’
approved,
and
unsecured creditors like CashCall will likely receive nothing.
See J.A. 42-50.
Nonetheless, the district court affirmed the
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bankruptcy court’s refusal to send the claim to arbitration,
reasoning
damages
that
the
arising
non-core
out
of
claim
the
core
“inextricably intertwined” with it.
was
essentially
proceeding
one
and
was
for
thus
J.A. 127.
It is true that Moses’ core and non-core actions share one
common
question.
CashCall’s
proof
The
of
claim
Consumer Finance Act.
an
allegation
that
core
action
was
void
seeks
a
declaration
under
the
North
that
Carolina
The non-core claim is based, in part, on
CashCall
sought
to
collect
on
an
invalid
debt, while also alleging that CashCall “has willfully engaged
in other and further violations of the North Carolina Prohibited
Acts by Debt Collector as may be shown through discovery and
proved at trial.”
J.A. 39.
But the fact that the claims may share a question does not
mean that arbitrating one of them will pose an inherent conflict
with
the
efficient
reorganization
of
a
debtor’s
estate.
Although the district court itself provided no reasons why it
believed such a conflict was inevitable, it suggested in one
sentence that the potential for inefficiency and “inconsistent
results” justified the bankruptcy court’s actions.
J.A. 128.
As for any potential inefficiency and delay, if the bankruptcy
court retained jurisdiction over Moses’ non-core claim, it could
only issue findings of fact and recommendations of law, which
would then be subject to de novo review by the district court
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before a final order could be entered.
But if the claim went to
arbitration, the arbitrator’s order would simply be subject to
enforcement
by
the
district
court,
distributed as part of the estate. 2
Furthermore,
with
the
core
underlying
loan
litigation
will
Moses’
claim,
was
non-core
apart
void
likely
in
claim
the
any
proceeds
then
See Hays, 885 F.2d at 1158.
from
require
with
shares
the
little
question
first
place.
detailed
whether
The
and
overlap
the
non-core
time-consuming
findings regarding CashCall’s conduct in trying to collect on
the loan, other violations of the state statute, and damages
like
emotional
distress.
As
the
bankruptcy
judge
observed
regarding the non-core claim, “[t]hese damages are unrelated to
the
Defendant’s
proof
of
claim
and
are
only
related
to
the
bankruptcy case in that if successful, the bankruptcy estate
will recover any non-exempt funds and disburse them to claims in
accordance with the bankruptcy code.”
J.A. 87.
Although the
core and non-core claims may overlap in one respect, they cannot
be said to be inextricably intertwined such that the denial of
arbitration was proper.
2
As discussed further below, it is possible that the
arbitration agreement is entirely unenforceable on its face, as
Moses now argues, because of its tribal choice of law and forum
selection provisions. Neither the bankruptcy court nor district
court, however, made factual findings about the effect of those
provisions in the loan agreement, and we cannot reach the issue
on the record before us.
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Moses additionally argues that arbitration of the non-core
claim
could
proceedings
substantially
by
allowing
an
interfere
with
the
to
decide
arbitrator
bankruptcy
an
issue
inextricably interrelated with the core claim (the validity of
the loan agreement) and thus potentially bind a bankruptcy judge
through
collateral
speculative
at
estoppel.
best.
As
Such
the
a
danger,
Supreme
Court
however,
has
is
held,
“arbitration proceedings will not necessarily have a preclusive
effect on subsequent federal-court proceedings.”
Dean Witter,
470 U.S. at 223 (citing McDonald v. West Branch, 466 U.S. 284
(1984));
see
also
Hays,
885
F.2d
Witter to a bankruptcy context).
at
1158-59
(applying
Dean
Further, the Court in Dean
Witter noted that “courts may directly and effectively protect
federal interests by determining the preclusive effect to be
given to an arbitration proceeding.”
Dean Witter, 470 U.S. at
223; see also Hays, 885 F.2d at 1158-59.
Finally, to the extent
that any danger of preclusion remains, a court may simply stay
arbitration proceedings for some brief period until it has ruled
on the underlying core claim.
There
these
is
thus
circumstances
no
reason
will
to
believe
substantially
that
arbitration
interfere
with
in
Moses’
bankruptcy and present an inherent conflict with the purposes of
the Bankruptcy Code.
Indeed, the mere possibility of generic
litigation-related exigencies, inherent in the act of litigating
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in another forum, cannot justify the refusal to arbitrate a noncore claim.
As the Third Circuit observed in Hays, Congress’
decision to restrict a bankruptcy court’s jurisdiction over noncore claims, and to require that certain claims be heard in
state court, shows that centralization is not, in and of itself,
a valid reason to deny arbitration.
885 F.2d at 1159-60.
The
court further concluded that “even if there were some potential
for an adverse impact on the core proceeding [as a result of
arbitration],
such
as
inefficient
delay,
duplicative
proceedings, or collateral estoppel effect, Hayes [sic] has not
shown that it would be substantial enough to override the policy
favoring arbitration.”
Id. at 1158.
I reach the same conclusion about three additional possible
rationales for a refusal to send a claim to arbitration in these
circumstances.
First, the Fifth Circuit in Gandy determined
that a bankruptcy judge may refuse to arbitrate state-law claims
when those claims are “inconsequential” compared with any coreclaims.
legal
Gandy, 299 F.3d at 500.
conclusion
believe
that
about
Moses’
inconsequential.
seeks
the
CashCall,
her
including
those
of
state
for
arbitrability
non-core
Whereas
invalidation
Without embracing Gandy’s
an
NCDCA
Moses’
claim
emotional
56
$1,929.02
seeks
distress
such
cannot
declaratory
alleged
claim
of
claims,
be
substantial
and
called
judgment
debt
I
action
owed
to
damages,
anxiety,
and
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statutory penalties up to $4,000 per violation of the Act.
39, 87.
J.A.
As previously described, the state cause of action
requires
a
court
to
make
detailed
determinations
regarding
CashCall’s conduct before Moses declared bankruptcy – apart from
the
single
underlying
shared
loan
-
question
regarding
including
the
allegations
illegality
that
of
CashCall
the
“has
willfully engaged in other and further violations of the [Act]”
that go beyond attempting to collect an invalid debt.
J.A. 39.
Against
is
that
backdrop,
the
state-law
action
not
inconsequential, or entirely peripheral to the core claim.
Second, Judge Niemeyer suggests that the bankruptcy court
may have been justified because Moses’ estate could be enriched
or depleted as a result of litigation.
If Moses prevailed, the
estate could potentially benefit from any damages received – a
result that certainly would not frustrate creditors who could
share in the spoils.
And if she lost, the costs of unsuccessful
litigation could partly deplete the estate.
But if such generic
considerations were enough to justify a denial of arbitration,
there would be little limit to a bankruptcy judge’s discretion.
Neither
Phillips
that result.
the
nor
the
Federal
Arbitration
Act
countenance
As previously observed, Phillips instead approved
bankruptcy
court’s
refusal
to
send
a
core
claim
to
arbitration only after finding that “the arbitration would have
substantially
interfered
with
57
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debtor’s
efforts
to
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403 F.3d at 170.
There has been no such showing
here.
Third,
Judge
Niemeyer
argues
that
our
holding
pays
insufficient attention to the 800-pound gorilla lurking in the
litigation,
namely,
the
enforceability
of
the
arbitration
agreement itself.
For the first time on appeal, Moses argues
that
arbitration
the
tribal
agreement are illusory.
provisions
specified
in
the
She specifically maintains that “there
is no such thing as arbitration conducted by the Cheyenne River
Sioux Tribe, there are no tribal representatives authorized to
conduct arbitration, and there are no tribal consumer dispute
rules.”
Br.
of
Appellee
2.
CashCall’s
strategy,
as
Moses
alleges, is thus to “shield its illegal scheme from any American
court and any American law” by sending claims into “a legal
black hole called tribal arbitration.”
Id. at 2 (citing Heldt
v. Payday Fin., LLC, No. CIV 13-3023-RAL, 2014 WL 1330924, at
*21 (D.S.D. Mar. 31, 2014)).
The choice of law and arbitration provisions in question
indeed appear similar to others used by CashCall that have been
increasingly scrutinized, and at times derided, by the courts.
See Jackson v. Payday Fin., LLC, 764 F.3d 765, 774-76 (7th Cir.
2014) (refusing to compel arbitration under similar provisions);
Inetianbor
v.
CashCall,
Inc.,
962
F.
Supp.
2d
1303,
1308-09
(S.D. Fla. 2013) (finding a similar arbitration agreement to be
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void); Heldt, 2014 WL 1330924, at *17-20 (enumerating pervasive
problems with enforcement of a similar agreement).
Moses, however, did not raise the issue before the district
court or bankruptcy court, and those courts did not make any
relevant factual findings about the nature of the loan agreement
or its arbitration provisions.
Further, CashCall argues in its
reply brief that the provisions governing Moses’ agreement are
substantially
different
from
those
that
other
courts
have
considered – an argument that Moses could not respond to and
that we are not equipped to resolve.
See In re Under Seal, 749
F.3d 276, 285 (4th Cir. 2014) (“Our settled rule is simple:
[a]bsent
exceptional
circumstances, . . . we
do
not
consider
issues raised for the first time on appeal.” (internal quotation
marks omitted, alterations in original)).
Without more fulsome
briefing and a more developed record, we simply cannot reach the
enforceability of the agreement.
Judge Niemeyer nonetheless argues that the mere prospect of
additional
justify
litigation
the
arbitration.
decision
over
not
to
enforceability
send
Moses’
may
itself
non-core
help
claim
to
In essence, such cart-preceding-horse logic would
reject an arbitration agreement because the agreement may be
challenged.
length
of
arbitration
The dissent “imagine[s] scenarios” in which the
time
it
may
agreement
take
could
to
litigate
prevent
59
a
Moses’
challenge
of
creditors
the
from
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sharing
in
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any
received.
augmentation
But
substantially
reorganization.
and
Pg: 60 of 77
of
imagined
the
estate
conflicts
inherently
are
interfere
through
not
with
damages
enough
a
to
debtor’s
That is particularly the case here where Moses’
bankruptcy plan has already been approved.
III.
In sum, the refusal to send a non-core claim to arbitration
requires more than a finding that arbitration would potentially
conflict with the purposes of the Bankruptcy Code.
conflict
must
implication
the
be
inherent
presumption
and
in
“sufficient
favor
of
to
Rather, the
override
arbitration.”
by
U.S.
Lines, Inc. v. Am. Steamship Owners Mut. Prot. & Indemnity Ass’n
(In re U.S. Lines), 197 F.3d 631, 640 (2d Cir. 1999).
On the
facts before us, I conclude that Moses has failed to carry her
burden to show such a conflict.
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DAVIS, Senior Circuit Judge, concurring in the judgment in part
and dissenting in part:
The district court allowed a bankruptcy court to protect
its
jurisdiction
over
a
state
law
claim
by
refusing
to
acknowledge that a proof of claim in the bankruptcy case had
become moot by virtue of its abandonment and withdrawal by the
creditor.
I
am
constrained
to
reject
this
jurisdictional
sleight of hand.
Appellee
Oteria
Moses,
faced
with
severe
financial
difficulties, obtained from Western Sky Financial, LLC (“Western
Sky”) a $1,500 loan; Appellant, CashCall, Inc. (“CashCall”) is
Western Sky’s successor-in-interest.
Upon Moses’s filing of a
bankruptcy petition, CashCall filed a proof of claim, seeking
nearly $2,000 from Moses’s estate.
adversary
proceeding
declaring
the
Consumer
loan
Finance
in
which
agreement
Act
Moses objected and filed an
she
void
(“NCCFA”)
requested
under
and
(2)
the
(1)
a
judgment
North
Carolina
money
damages
for
CashCall’s alleged violation of North Carolina’s Prohibited Acts
by Debt Collectors statute (“North Carolina Debt Collection Act”
or “NCDCA”).
CashCall, explaining that it was abandoning its claim for
the outstanding balance of the loan, filed a motion to withdraw
its proof of claim and then, shortly after that, a motion to
compel arbitration of the adversary proceeding.
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The bankruptcy
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court denied both motions.
Pg: 62 of 77
Upon CashCall’s appeal, the district
court denied CashCall’s motion for leave to appeal the denial of
its
motion
affirmed
to
the
withdraw
its
bankruptcy
proof
court’s
of
order
claim,
and
refusing
the
to
court
compel
arbitration.
On appeal to this Court, CashCall challenges the bankruptcy
court’s denial of its motion to compel arbitration.
did
not,
denial
however,
of
note
leave
to
an
appeal
appeal
the
from
the
CashCall
district
bankruptcy
disallowing withdrawal of its proof of claim.
court’s
court’s
order
At oral argument
before this panel, while reiterating that it has abandoned its
proof of claim, CashCall explained that it did not believe it
could appeal to this Court the district court’s denial of leave
to appeal.
For the reasons stated below, I would elect to exercise our
discretion to review the bankruptcy court’s denial of the motion
to withdraw the proof of claim, reverse in part, vacate in part,
and remand with instructions that the district court reverse the
bankruptcy court’s denial of the motion to compel arbitration.
I.
When
reviewing
a
district
court’s
judgment
affirming
a
bankruptcy court’s order, we “consider directly the bankruptcy
court’s
findings
of
facts
and
conclusions
of
Alvarez, 733 F.3d 136, 140 (4th Cir. 2013).
62
law.”
In
re
We review the
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bankruptcy
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court’s
(as
conclusions de novo.
clear error.
well
Id.
Pg: 63 of 77
as
the
district
court’s)
legal
Findings of fact are reviewed for
Id.
II.
A.
I look first to the bankruptcy court’s denial of CashCall’s
motion to withdraw its proof of claim.
Moses suggests that,
despite CashCall’s representations to the bankruptcy court and
to this Court that it has abandoned its claim on the loan, the
bankruptcy
court
nevertheless
withdraw the proof of claim.
properly
denied
the
motion
to
I cannot agree.
Federal Rule of Bankruptcy Procedure 3006 provides that:
If after a creditor has filed a proof of claim an
objection is filed thereto or a complaint is filed
against that creditor in an adversary proceeding,
. . . the creditor may not withdraw the claim except
on order of the court after a hearing on notice to the
trustee or debtor in possession . . . .
A motion to withdraw a proof of claim under Rule 3006 has been
analogized to a motion under Federal Rule of Civil Procedure
41(a),
and
thus
similar
considerations
govern
both
motions.
See, e.g., In re Varona, 388 B.R. 705, 726 (E.D. Va. 2008); In
re Kaiser Group Int’l, Inc., 272 B.R. 852, 855 (D. Del. 2002);
In re 20/20 Sport, Inc., 200 B.R. 972, 979 (S.D.N.Y. 1996).
“As
with a [] motion [to voluntarily dismiss a civil action], a
motion to withdraw a proof of claim is left to the court’s
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discretion, which is ‘to be exercised with due regard to the
legitimate interests of both [parties].’”
In re Ogden New York
Servs., 312 B.R. 729, 732 (S.D.N.Y. 2004) (quoting 20/20 Sport,
Inc.,
200
B.R.
at
979).
“In
general,
withdrawal
should
be
granted unless the party opposing the motion can demonstrate
that it would be legally prejudiced by the withdrawal.”
Id.;
see also In re Lowenschuss, 67 F.3d 1394, 1399–1400 (9th Cir.
1995).
Here,
Moses
failed
to
demonstrate
that
she
would
be
“legally prejudiced” by the withdrawal of CashCall’s proof of
claim.
The bankruptcy court reached the opposite conclusion by
reasoning that “allowing CashCall to withdraw its claim would .
. . eliminat[e] [the court’s] jurisdiction over any cases of
action related to the claim,” and force Moses “to file an action
in the General Court of Justice for the State of North Carolina
or proceed with arbitration as required by the loan agreement.”
J.A. 92.
This was legal error; the bankruptcy court is simply
incorrect
that
litigating
arbitration
her
Moses
would
claims
procedures
in
set
suffer
state
out
in
cognizable
prejudice
by
court
or
following
the
her
loan
agreement
(as
supplemented by the availability of judicial review after any
arbitration proceedings).
Cf. In re Armstrong, 215 B.R. 730,
732 (E.D. Ark. 1997); In re Cnty. of Orange, 203 B.R. 977, 982
(C.D. Cal. 1996).
I would decline to hold, at least on the
64
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record
here,
United
States
Filed: 03/16/2015
that
it
Pg: 65 of 77
constitutes
bankruptcy
judge
“prejudice”
(as
not
to
opposed
to
have
some
a
other
adjudicator) decide a state law claim between private parties.
Given the absence of any legally cognizable prejudice to Moses
should CashCall’s proof of claim be withdrawn, the bankruptcy
court committed legal error and thereby abused its discretion in
denying CashCall’s motion.
See Dart Cherokee Basin Operating
Co., LLC v. Owens, 135 S. Ct. 547, 555 (2014) (“A court ‘would
necessarily abuse its discretion if it based its ruling on an
erroneous view of the law.’” (quoting Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405 (1990))); Koon v. United States, 518
U.S. 81, 100 (1996) (“A district court by definition abuses its
discretion when it makes an error of law.”).
In so concluding, I observe that, although the district
court
denied
leave
to
file
an
interlocutory
appeal
of
the
bankruptcy court’s order disallowing withdrawal of the proof of
claim, and although CashCall did not include in its notice of
appeal to this Court a challenge to the district court’s denial
of leave to appeal the withdrawal motion, we may nevertheless
assess the propriety of the bankruptcy court’s order.
Cherokee,
135
S.
Ct.
at
555–56
(finding
“no
Cf. Dart
jurisdictional
barrier” to review of a district court’s order, even though the
court of appeals denied leave to appeal that order).
court
must
“rely
on
the
parties
65
to
frame
the
While the
issues
for
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decision,” Greenlaw v. United States, 554 U.S. 237, 243 (2008),
the Supreme Court has long recognized that “a court may consider
an issue ‘antecedent to . . . and ultimately dispositive of’ the
dispute before it, even an issue the parties fail to identify
and brief.”
U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of
Am., Inc., 508 U.S. 439, 447 (1993) (quoting Arcadia v. Ohio
Power Co., 498 U.S. 73, 77 (1990) (alterations in original)).
Under the pendent appellate jurisdiction exception to the
final judgment requirement, “we retain the discretion to review
issues that are not otherwise subject to immediate appeal when
such issues are so interconnected with immediately appealable
issues that they warrant concurrent review.”
Rux v. Republic of
Sudan, 461 F.3d 461, 475 (4th Cir. 2006).
“Pendent appellate
jurisdiction is an exception of limited and narrow application
driven by considerations of need, rather than of efficiency,”
and
“is
available
only
(1)
when
an
issue
is
‘inextricably
intertwined’ with a question that is the proper subject of an
immediate
appeal;
or
(2)
when
review
of
a
jurisdictionally
insufficient issue is ‘necessary to ensure meaningful review’ of
an
immediately
appealable
issue.”
Id.
(quoting
Swint
v.
Chambers Cnty. Comm’n, 514 U.S. 35, 50–51 (1995)). 1
1
Judge Niemeyer, relying on Swint, claims that pendent
appellate jurisdiction is unavailable in this case, because
“there is no final judgment to which review of the bankruptcy
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Here,
district
we
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undoubtedly
court’s
affirmance
Pg: 67 of 77
have
of
jurisdiction
the
order refusing to compel arbitration.
Co.,
72
F.3d
21,
24
(4th
Cir.
bankruptcy
to
review
court’s
the
final
See In re Wallace & Gale
1995)
(generally
describing
appealable orders in bankruptcy proceedings); see also Noohi v.
Toll Bros., Inc., 708 F.3d 599, 604 (4th Cir. 2013) (“In short,
a party may appeal the denial of a motion to stay an action
concerning a matter that a written agreement has committed to
arbitration.”).
The question, then, is whether we may exercise
pendent appellate jurisdiction to concurrently review for legal
error the bankruptcy court’s order denying withdrawal of the
proof of claim.
The answer is yes.
court’s order could be appended.”
Ante, at 38 (emphasis in
original).
But Swint simply refused to recognize “‘pendent
party’ appellate jurisdiction.” 514 U.S. at 51. In Swint, the
Court
concluded
that
“[t]he
Eleventh
Circuit’s
authority
immediately to review the District Court’s denial of the
individual police officer defendants’ summary judgment motions
[based on their alleged immunity from suit] did not include
authority to review at once the unrelated question of the county
commission’s liability.”
Id. (emphasis added).
In any event,
the district court’s order affirming the bankruptcy court’s
refusal to compel arbitration is, in function, a final order.
The
district
court’s
ruling
pretermitted
all
arbitration
proceedings, conclusively resolving a specific dispute within
the larger case.
See Mort Ranta v. Gorman, 721 F.3d 241, 246
(4th Cir. 2013) (“As we have recognized on many occasions, the
concept of finality in bankruptcy traditionally has been applied
in a ‘more pragmatic and less technical way’ than in other
situations. . . . [W]e have held final and appealable a variety
of orders that resolve a specific dispute within the larger case
without dismissing the entire action or resolving all other
issues.” (citations and internal quotation marks omitted)).
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Whether
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the
bankruptcy
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court
properly
denied
leave
to
withdraw the proof of claim is “inextricably intertwined” with
whether it properly refused to compel arbitration.
not
be
more
(explicitly)
CashCall’s
clear,
and
because
the
as
district
abandonment
of
both
the
bankruptcy
court
(implicitly)
proof
its
This could
of
claim
court
recognized,
and
consequent
release of Moses from her obligations under the loan agreement
altogether
abandons
moots
its
Moses’s
proof
of
core
claim
claim.
and
And,
releases
once
Moses
CashCall
from
her
obligations under the loan agreement, the sine qua non of the
bankruptcy court’s justification for retaining jurisdiction over
Moses’s non-core claim evaporates; there is no core claim to
remit to arbitration, and the only question is whether to compel
arbitration on Moses’s non-core claim.
Cf. EQT Prod. Co. v.
Adair, 764 F.3d 347, 364–65 (4th Cir. 2014) (suggesting that
pendent appellate jurisdiction is available when resolution of a
pendent issue is necessary to resolve an issue properly before
the court on appeal).
Accordingly, I would elect to exercise
pendent appellate jurisdiction over the bankruptcy court’s order
denying withdrawal of the proof of claim. 2
2
Judge Niemeyer disagrees that the bankruptcy court’s order
denying withdrawal of the proof of claim is inextricably
intertwined with the district court’s order affirming the
bankruptcy court’s refusal to compel arbitration. Ante, at 42–
43.
I cannot reconcile this conclusion with his determination
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Turning to whether CashCall properly designated this order
for appeal, I note that “[n]otices of appeal . . . are liberally
construed,
and
we
can
exercise
jurisdiction
over
orders
not
specified in a notice of appeal if (1) there is a connection
between the specified and unspecified orders; (2) the intention
to
appeal
the
unspecified
order
is
apparent;
and
(3)
the
opposing party is not prejudiced and has a full opportunity to
brief the issues.”
Powell v. Symons, 680 F.3d 301, 306 n.2 (3d
Cir. 2012) (citation and internal quotation marks omitted); see
United States ex rel. Hefner v. Hackensack Univ. Med. Ctr., 495
F.3d
103,
108
n.1
(3d
Cir.
2007)
(exercising
discretion
to
review an order not specified in the notice of appeal, as there
was a “definite connection” between that order and an order that
had been specified); see also MLC Auto., LLC v. Town of Southern
Pines, 532 F.3d 269, 279–80 (4th Cir. 2008) (recognizing that
notices of appeal are to be liberally construed, and that a
party may demonstrate an intent to appeal an order not specified
in
the
notice
of
appeal,
as
long
as
the
appellee
is
not
prejudiced by the appellant’s failure to specifically note that
order).
that Moses’s core and non-core claims are so closely intertwined
that they dare not be disaggregated.
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As already discussed above, there is undoubtedly a close
connection between the bankruptcy court’s order on CashCall’s
motion
to
withdraw
its
proof
of
claim
CashCall’s motion to compel arbitration.
and
its
order
on
Additionally, CashCall
made clear its desire to appeal the bankruptcy court’s order on
its withdrawal motion, as it stated time and again that it had
abandoned
its
proof
of
claim
and
district court to appeal the denial.
sought
leave
before
the
Moses, therefore, was on
notice that we may take up this issue and, indeed, argued before
this panel that the denial of leave to appeal the bankruptcy
court’s order precluded our review.
In
any
bankruptcy
event,
court’s
to
conclude
order
on
that
we
may
CashCall’s
not
motion
review
to
the
withdraw
suborns its abuse of discretion and permits it, in essence, to
solve a problem that does not exist: by denying the motion to
withdraw the proof of claim, the bankruptcy court insisted on
deciding
the
abstract
question
of
the
validity
and
enforceability of an abandoned loan agreement, and relatedly,
whether
CashCall
despite
the
fact
may
receive
that
seeking any such award.
an
CashCall
award
from
indicated
it
Moses’s
was
no
estate,
longer
Cf. Dart Cherokee Basin Operating, 135
S. Ct. at 556 (recognizing that, should the Supreme Court refuse
to review a district court order, which the court of appeals
denied leave to appeal, the district court’s incorrect statement
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of the law would remain impermissibly “frozen in place”); see
also Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 99 (1991)
(recognizing
a
court’s
fundamental
cannot,
as
obligation
to
ascertain
controlling law).
In
sum,
CashCall’s
I
representations
district
court,
judicial
admission,
outstanding
CashCall
Moses
and
to
us,
the
by
way
it
of
the
from
her
of
loan.
Moses
has
have
us
bankruptcy
that
balance
released
to
would
its
abandoned
do,
court,
to
counsel’s
its
Having
ignore
binding
claim
for
recognized
obligations
under
the
the
that
the
loan
agreement, I would conclude that Moses’s core claim has been
rendered moot.
Under this reasoning, we need not decide whether
the bankruptcy court erred in refusing to compel arbitration on
Moses’s
core
question
of
claim,
whether
and
her
are
instead
non-core
left
claim
with
must
be
the
narrow
referred
to
arbitration.
B.
I agree with CashCall that Moses’s non-core claim must be
remitted to arbitration, as doing so would not substantially
interfere with her efforts to reorganize.
1.
The
FAA
arbitration.’”
U.S.
220,
226
“establishes
‘a
Shearson/American
(1987)
(quoting
federal
Exp.,
Moses
71
H.
policy
Inc.
Cone
v.
favoring
McMahon,
Mem’l
Hosp.
482
v.
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Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).
Simply put, it
requires
agreements
courts
to
“‘rigorously
enforce
to
arbitrate’” by compelling arbitration of all claims contemplated
by
the
arbitration
agreement.
Id.
(quoting
Dean
Witter
Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985)).
“Like any statutory directive,” however, the FAA “may be
overridden
by
Congressional
a
intent
contrary
to
congressional
override
the
FAA’s
command.”
policy
Id.
favoring
arbitration may be ascertained from (1) the text of the statute,
(2)
its
legislative
history,
or
(3)
“an
inherent
conflict
between arbitration and the statute’s underlying purposes.”
at 227 (emphasis added). 3
Id.
The party opposing arbitration has the
burden of showing “Congress intended to preclude a waiver of
judicial remedies for the statutory rights at issue.”
Id.
Applying McMahon, we have considered whether there is an
“inherent conflict” between arbitration and the bankruptcy laws
justifying the bankruptcy court’s refusal to compel arbitration.
In In re White Mountain Mining Co., L.L.C., 403 F.3d 164 (4th
Cir. 2005), Joseph Phillips initiated an adversary proceeding in
bankruptcy court against White Mountain Mining Company, L.L.C.
(“White Mountain”), claiming, inter alia, that money he advanced
3
Moses does not assert that either the text of the
Bankruptcy
Code
or
its
legislative
history
demonstrates
congressional intent to limit the FAA. See Moses Br. 13.
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the
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company was
a
debt
Pg: 73 of 77
him. 4
owed to
Id. at
167.
In
response, one of the owners of White Mountain—who asserted that
Phillips’s
advances
to
White
Mountain
were
contributions
to
capital rather than loans—moved the bankruptcy court to compel
arbitration
of
Phillips’s
claims,
agreement the parties had signed.
citing
that,
determination
“because
that
[he]
Phillips’s
is
arbitration
Id. at 166–67.
The bankruptcy court denied the motion.
reasoned
an
owed
Id. at 167.
complaint
money
by
the
sought
‘a
Debtor,’
it
entailed a core proceeding under 28 U.S.C. § 157(b)(2)(B).”
This
core
“presented
proceeding,
issues
that
the
were
bankruptcy
‘critical
to
It
Id.
court
determined,
[White
Mountain’s]
ability to formulate a Plan of Reorganization,” and therefore
“trumped the arbitration.”
Id.
In a comprehensive opinion by Judge Michael, we affirmed.
The
court
determined
that
“[t]he
inherent
conflict
between
arbitration and the purposes of the Bankruptcy Code is revealed
clearly in this case, in which both the adversary proceeding and
the [] arbitration involved the core issue of whether Phillips’s
advances
to
the
(emphasis added).
debtor
were
debt
or
equity.”
Id.
at
170
As found by the bankruptcy court,
4
Phillips also sought a judgment declaring that he did not
have to advance any additional money to White Mountain.
White
Mountain, 403 F.3d at 167.
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an ongoing arbitration proceeding . . . would (1) make
it very difficult for the debtor to attract additional
funding because of the uncertainty as to whether
Phillips’s claim was debt or equity, (2) undermine
creditor
confidence
in
the
debtor’s
ability
to
reorganize, (3) undermine the confidence of other
parties doing business with the debtor, and (4) impose
additional costs on the estate and divert the
attention and time of the debtor’s management . . . .
Id.
The
bankruptcy
court’s
findings,
we
reasoned,
were
not
clearly erroneous and, indeed, confirmed that arbitration would
be
“inconsistent
with
centralize
disputes
obligations
so
Id.
that
the
purpose
about
a
of
the
chapter
reorganization
can
bankruptcy
11
laws
debtor’s
proceed
to
legal
efficiently.”
Because “arbitration would have substantially interfered
with the debtor’s efforts to reorganize,” the bankruptcy court
did not err in refusing to compel arbitration.
Id.
2.
Applying White Mountain to Moses’s case, arbitration of her
non-core claim under the NCDCA would not substantially interfere
with her ability to reorganize.
The only way in which the non-
core
the
claim
is
even
related
to
bankruptcy
proceedings
is
that, if it is successful, the bankruptcy estate will recover
additional
funds.
Moses
offers
no
explanation—and
I
can
conceive of none—as to how an enlargement of the assets in the
bankruptcy
estate
would
frustrate
creditor
distribution
otherwise interfere with the bankruptcy proceedings.
74
or
Thus, in
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sum, I agree with CashCall that Moses must arbitrate her noncore claim.
C.
Finally, I note Moses’s argument, made for the first time
on appeal, that her claims may not be referred to arbitration,
as
no
arbitral
forum
actually
exists.
Moses
claims
in
particular that “there is no such thing as arbitration conducted
by
the
Cheyenne
River
Sioux
Tribe,
there
are
no
tribal
representatives authorized to conduct arbitration, and there are
no
tribal
consumer
dispute
rules.”
Moses
Br.
2.
Tribal
arbitration, she asserts, is a “legal black hole,” created “to
shield
[CashCall’s]
illegal
court and any American law.”
lending
scheme
from
any
American
Moses Br. 2.
These assertions are not without support; this is hardly
the first time that CashCall’s practices have been called into
serious question.
Most recently, in Inetianbor v. CashCall,
Inc., 768 F.3d 1346 (11th Cir. 2014), the Eleventh Circuit held
that CashCall could not enforce a tribal arbitration agreement,
as the agreement required the involvement of the Cheyenne River
Sioux
Tribe,
yet
the
arbitration proceedings.
Tribe
would
not
participate
in
any
Id. at 1350–54; see also id. at 1354–
56 (Restani, J., concurring) (explaining that she would refuse
to compel arbitration because the agreement to arbitrate was
both procedurally and substantively unconscionable).
75
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in Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir. 2014),
the Seventh Circuit held that CashCall, along with other payday
lenders,
could
not
enforce
calling it a “sham.”
a
tribal
arbitration
Id. at 768, 779.
agreement,
The Seventh Circuit
determined that the agreement was procedurally and substantively
unconscionable
because
the
Cheyenne
River
Sioux
Tribe
“has
neither a set of procedures for the selection of arbitrators nor
one for the conduct of arbitral proceedings” and there “was no
prospect ‘of a meaningful and fairly conducted arbitration.’”
Id.
at
778–79;
see
also
National
Association
of
Consumer
Bankruptcy Attorneys Br. 2–3 (stating that at least seventeen
states
have
initiated
formal
proceedings
to
stop
CashCall’s
operations from affecting their residents, more than ten states
have issued cease and desist orders against CashCall’s internet
lending
operations,
and
several
states
have
determined
that
CashCall’s loans are void in whole or in part).
I do not hesitate to observe the odiousness of CashCall’s
apparent practice of using tribal arbitration agreements to prey
on financially distressed consumers, while shielding itself from
state actions to enforce consumer protection laws.
Nor do I
blink at the underlying motivations of CashCall’s transparently
tactical decision to withdraw its proof of claim in this case as
a means to pretermit the adversary proceedings.
Yet, unlike the
above cited cases, this case does not call upon us to determine
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whether Moses’s arbitration agreement is unenforceable on its
face.
Because Moses never raised this issue in the proceedings
below, we lack any factual record upon which to make such a
ruling.
I note that nothing contained in this opinion would
impair Moses’s ability to raise the issue of unconscionability
(and any other alleged bar to arbitration of her damages claims
under North Carolina law) upon further proceedings in any action
against CashCall.
III.
For
the
reasons
stated
above,
I
would
reverse
in
part,
vacate in part, and remand this case with instructions that the
district
court
reverse
the
bankruptcy
motion to compel arbitration.
court’s
denial
of
the
I am pleased that that is the
ultimate result reached by the panel.
77
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