Arbitration Clause Does Not Constrain Court’s Contempt Power

Posted by NCBRC - October 14, 2019

Finding that “[w]ords in a consumer agreement cannot deprive the bankruptcy court of the inherent power to enforce compliance with an injunction,” the district court found an arbitration clause in a consumer contract did not constrain the court’s contempt powers. Verizon Wireless Personal Communications, LP v. Bateman, No. 14-5369, Adv. Proc. No. 18-1394 (M.D. Fla. Sept. 24, 2019).

Christopher Bateman filed for chapter 7 bankruptcy listing Verizon as an unsecured creditor. Verizon did not acknowledge or take part in the bankruptcy in any way. Five months after Mr. Bateman obtained his discharge, Verizon sent him a letter attempting to collect the discharged debt. Mr. Bateman moved the court to hold Verizon in contempt for violation of the discharge injunction. In response, Verizon moved to compel arbitration, invoking its Customer Agreement with Mr. Bateman which provided that any dispute which “in any way relates to or arises out of” the agreement is subject to arbitration. The bankruptcy court found that its power to enforce its order was not subject to the terms of Mr. Bateman’s Customer Agreement with Verizon.

On appeal, the district court observed that arbitration agreements are binding only as between the parties that agreed to them. The court went on to point out that while the contempt action was initiated by the debtor, because the present controversy involved compliance with a court order, the action was between the court and Verizon. The court rejected Verizon’s contention that its effort to collect the discharged debt represented an attempt to enforce the Customer Agreement, finding that, because that debt was discharged, Verizon’s actions could not relate to or arise out of that contract. Rather, Verizon’s conduct offended the authority of the bankruptcy court and only that court could condemn the conduct under its contempt powers.

The court affirmed the denial of Verizon’s motion to compel arbitration.

Bateman MD Fla Sept 2019

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