District Court (Cal.) Says Bankruptcy Discharge Does Not Eviscerate Arbitration Clause in Consumer Contract; Orders FCRA Case to Arbitration

Plaintiff first argues the Agreement was rendered unenforceable because of the Bankruptcy Action. (ECF No. 15 at 5–6.) However, Plaintiff offers no cases from the Ninth Circuit that stands for the proposition that a bankruptcy discharge renders a valid arbitration agreement unenforceable. Defendant responds to this argument contending Plaintiff’s bankruptcy did not invalidate the Agreement. (ECF No. 16 at 5.)  The Ninth Circuit has stated that a bankruptcy discharge does not mean the whole contract has been merged into the judgment. Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525, 531 (9th Cir. 1998). A bankruptcy discharge “extinguishes only the personal liability of the debtor.” Johnson v. Home State Bank, 501 U.S. 78, 83, (1991) (citation omitted). Further, post-bankruptcy discharge arbitration is appropriate where there would be no adverse effect on the underlying purposes of the bankruptcy code. See e.g. Bigelow v. Green Tree Fin. Servicing Corp, No. CV–99–6644, 2000 WL 33596476, at *6 (E.D. Cal. Nov. 30, 2000).  Moreover, another district court has applied this reasoning to a post-bankruptcy claim brought under FCRA and found arbitration appropriate. See e.g. Mann v. Equifax Info. Servs., LLC, No. 12–CV–14097, 2013 WL 3814257, at *3 (E.D. Mich. July 22, 2013). The facts of Mann are strikingly similar to this case. In Mann, the plaintiff brought claims under FCRA and state law after obtaining a bankruptcy discharge, alleging the defendants listed debts on his credit report that were discharged. Id. at *5. In its analysis, the court distinguished Jernstad v. Green Tree Servicing, LLC, No. 11 C 7974, 2012 WL 8169889, at *1 (N.D. Ill. Aug. 2, 2012), which is relied on by Plaintiff. Id. at *8–9. The court explained the plaintiff’s claims in Jernstad all arose from the bank’s attempt to collect on a discharged debt,² unlike the claims brought under the FCRA and state law. Id. at *8. The court then analyzed, In re Eber, 687 F.3d 1123, 1125 (9th Cir. 2012), and concluded that the proper inquiry was whether compelling arbitration conflicts with the underlying purpose of the bankruptcy code. Id. In rejecting the plaintiff’s argument that arbitration would prevent him from obtaining the “fresh start” granted by the bankruptcy code, the court explained “the mere fact that Mann was granted a discharge of debt owed to [the creditor] does not mean that the Arbitration Agreement … cannot be enforced with respect to their future disputes.” Id (emphasis retained).  The Court finds this reasoning persuasive. Here, Plaintiff’s claims relate solely to Defendant’s alleged inaccurate reporting of debts as “charged off,” rather than “discharged in bankruptcy,” and not Defendant’s attempts to collect a discharged debt. (ECF No. 1.) Plaintiff’s only argument that compelling arbitration conflicts with the bankruptcy code is that doing so would prevent her from obtaining a fresh start. (ECF No. 15 at 5; ECF No. 1 at ¶ 110.) However, the Court agrees with the court’s reasoning in Mann that “simply enforcing a provision which defines the venue for resolving the instant dispute does not deprive [plaintiff] of [a] ‘fresh start’ granted by the bankruptcy code.” Id. at *9. As a result, the Court finds Plaintiff’s argument unpersuasive.  Thus, Plaintiff failed to establish that arbitration is unsuitable for her claims because the Agreement was rendered unenforceable.