Court Concludes That Bankruptcy Discharge Does Not Affect Arbitration Clause

Carlton Fields
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Carlton Fields

The Eastern District of Pennsylvania recently granted a creditor’s request to compel arbitration over a plaintiff’s argument that the arbitration agreement he had signed was void as a result of a bankruptcy court discharging the loan that was governed by the agreement. The court held that the bankruptcy ruling discharged the plaintiff’s debt obligations, not his other obligations under the agreement such as his obligation to arbitrate claims related to the agreement.

Soldon Winton entered into a loan agreement with OneMain Financial Group LLC. That agreement contained an arbitration clause. Winton subsequently filed for bankruptcy, and the bankruptcy court discharged Winton’s debt to OneMain. Winton allegedly discovered that his credit report still included an outstanding debt to OneMain. He therefore brought suit against OneMain, Trans Union LLC, and other defendants for violations of the Fair Credit Reporting Act.

OneMain responded by moving to compel arbitration under the agreement. Winton opposed OneMain’s motion. Although there was no dispute that Winton’s claim was within the scope of the arbitration agreement, Winton claimed that the bankruptcy ruling discharged all of his obligations under the agreement. Winton also sought to avoid arbitration on several other grounds or, in the alternative, to require OneMain to cover all of the costs of the arbitration.

The district court rejected Winton’s arguments. It held that the bankruptcy court had discharged Winton’s debt obligations, not his other obligations, including his obligation to arbitrate disputes related to the loan agreement. The court also rejected Winton’s arguments that it would be unfair to require him to pursue his claims in two different forums (in arbitration against OneMain and in court against the other defendants). Finally, the court denied without prejudice Winton’s request that OneMain bear the costs of arbitration. Among other issues, the arbitration agreement allowed Winton to request that OneMain bear Winton’s costs. Winton had apparently not done so, and the court determined that he should do so before seeking judicial relief.

Winton v. Trans Union, LLC, No. 2:18-cv-05587 (E.D. Pa. Aug. 27, 2019).

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