United States District Court, W.D. Washington, Seattle
In re JANAY L. FARMER, Debtor.
JANAY L. FARMER, Appellee. NAVIENT SOLUTIONS, LLC, Appellant,
ORDER AFFIRMING BANKRUPTCY COURT
C. COUGHENOUR, UNITED STATES DISTRICT JUDGE.
matter comes before this Court on Appellant Navient
Solutions, LLC's (“Navient”) Brief (Dkt. No.
10), Appellee Janey Farmer's (“Farmer”) Brief
(Dkt. No. 13) and Navient's Reply (Dkt. No. 14). Having
considered the briefs and other papers submitted by the
parties, and determining that oral argument is unnecessary,
this Court AFFIRMS the decision of the bankruptcy court.
appeals a decision by the bankruptcy court denying its motion
to compel arbitration on a loan it services between Farmer
and Sallie Mae (Dkt. No. 10). See In re Farmer, 567
B.R. 895, 897-98 (Bankr. W.D. Wash. 2017). Farmer took out
the loan in 2010 to finance her post-graduate bar
examination. Id. She never repaid it, and in 2016
filed a Chapter 7 bankruptcy case, scheduling the loan as a
$20, 751.15 unsecured claim. Id. Farmer does not
dispute the applicability or enforcement of an arbitration
clause contained within the Note. Id. But she
contends that because arbitration would address a core
bankruptcy matter-whether the loan is a non-dischargeable
education debt-the bankruptcy court has discretion to retain
jurisdiction to resolve the matter. Id. The
bankruptcy court agreed, denying Navient's motion to
compel arbitration and to dismiss or to stay the case pending
arbitration. Id. Navient appeals this decision.
(Dkt. No. 10.)
Court may review the bankruptcy court's decision. 9
U.S.C. § 16(a)(1)(A)-(B); 28 U.S.C. § 158(a)(1).
Conclusions of law are subject to de novo review.
In re EPD Inv. Co., LLC, 821 F.3d 1146, 1150 (9th
Cir. 2016). Discretionary matters are reviewed “only
for an abuse of discretion.” Id.
Statutes Conflicting with the Federal Arbitration
Shearson/Am. Exp., Inc. v. McMahon, the Supreme
Court held that even though the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 1 et seq.,
“establishes a federal policy favoring arbitration . .
. the [FAA's] mandate may be overridden by a contrary
congressional command.” 482 U.S. 220, 227 (1987). The
Court went on to articulate a three-factor test to allow
courts to assess whether another statute reflects
Congress's desire to override the FAA. Id.
Courts are to examine: (1) the text of the statute; (2) the
statute's legislative history; and (3) absent such
express conflict, whether an inherent conflict exists between
arbitration and the underlying purposes of the statute.
issue in this case is whether the Bankruptcy Code, 11 U.S.C.
§ 1 et seq., represents a contradictory
statute. Farmer concedes “that there is nothing in the
text or legislative history of the Bankruptcy Code evincing
Congressional intent to override the FAA.” (Dkt. No. 13
the question before this Court is limited to the third
factor-whether an inherent conflict exists between the
underlying purpose of the Bankruptcy Code and arbitration.
argues that Supreme Court jurisprudence has evolved since
McMahon and no longer includes the inherent conflict
factor. (Dkt. No. 10 at 34.) It asserts the bankruptcy court
misapplied Supreme Court precedent in relying on an inherent
conflict between the Bankruptcy Code and arbitration to
conclude that it had discretion to refuse to compel
arbitration. (Dkt. No. 10 at 29.) In support, Navient cites
CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012),
and Am. Exp. Co. v. Italian Colors Rest., 133 S.Ct.
2304 (2013). In both cases, the Supreme Court considered
solely the text and legislative history of
potentially-conflicting statutes to address whether a
congressional command existed. See CompuCredit, 565
U.S. at 104; Italian Colors, 133 S.Ct. at 2308-09.
But as the bankruptcy court noted here, “[i]n neither
case did the Supreme Court specifically apply the
McMahon factors.” In re Farmer, 567
B.R. at 899.
in 2016, the Ninth Circuit applied the inherent conflict
analysis in affirming a bankruptcy court's denial of a
motion to compel arbitration. See In re EPD Inv.
Co., 821 F.3d at 1150. Navient argues EPD
conflicts with Supreme Court precedent and is wrongly decided
(Dkt. No. 10 at 34.) This Court sees no such conflict.
EPD was decided well after CompuCredit and
Italian Colors, and if the Supreme Court wanted to
abandon inherent conflict as a consideration, it would have
done so explicitly in those prior cases. In Italian
Colors, the Court referenced McMahon without
explicitly challenging any aspect of that ruling. 133 S.Ct.
at 2309. In CompuCredit, Justices Sotomayor and
Kagan indicated that they did “not understand the
majority opinion to hold” that express preemption is
required. 565 U.S. at 109 (Sotomayor, J., concurring in
judgment). Therefore, this Court finds that the bankruptcy
court's consideration of the inherent conflict factor was
Bankruptcy Court's Application of the Inherent Conflict
argues that even if inherent conflict is a relevant factor,
the bankruptcy court abused its discretion in applying it.
(Dkt. No. 10 at 37.) Navient seeks to arbitrate whether
Farmer's loan is precluded from discharge as a qualifying
education loan pursuant to 11 U.S.C. § 523(a)(8). (Dkt.
No. 10-1 at 44, 60.); see In re Coleman, 560 F.3d
1000, 1004 (9th Cir. 2009) (discussing the
non-dischargeability of such loans). It asserts that given
the facts specific to this case-a single adversary proceeding
to determine the dischargeability of debt owed to ...