## Facts

- Kathleen A. Hill had a consumer credit/loan account with MBNA America Bank, N.A. and authorized MBNA to withdraw monthly payments of $159.01 from her bank account.
- Hill filed a Chapter 7 bankruptcy petition on October 9, 2001; MBNA was scheduled as a creditor and received notice from the court and from Hill’s counsel.
- After the petition date and notice, MBNA withdrew an additional $159.01 installment from Hill’s bank account on November 5, 2001; Hill alleged MBNA continued post-petition collection activity.
- Hill filed an adversary proceeding in the bankruptcy court as a putative class action alleging (i) willful violation of the automatic stay under 11 U.S.C. § 362(h) (now § 362(k)) and (ii) unjust enrichment seeking restitution for post-petition withdrawals.
- MBNA relied on an account agreement arbitration clause covering disputes “arising from or relating to” the account and moved to dismiss or stay the adversary proceeding in favor of arbitration under the Federal Arbitration Act (FAA).
- The bankruptcy court denied arbitration; the district court affirmed, reasoning arbitration of the stay-violation claim would jeopardize Bankruptcy Code objectives.
- While the adversary proceeding was pending, Hill received a discharge and the Chapter 7 estate was administered as a no-asset case.

## Issues

1. Whether a bankruptcy court may refuse to enforce an otherwise valid arbitration agreement for a debtor’s damages claim for willful violation of the automatic stay under 11 U.S.C. § 362(h).
2. Whether compelling arbitration of the § 362(h) claim would create an inherent conflict with the purposes of the Bankruptcy Code sufficient to override the FAA’s mandate to enforce arbitration agreements.

## Decision

- The Second Circuit reversed the district court’s judgment.
- The court held the bankruptcy court lacked discretion to deny a stay pending arbitration on the § 362(h) claim in this case.
- The court concluded there was no inherent conflict between arbitration and the Bankruptcy Code’s purposes as applied to Hill’s private damages action.
- The case was directed to be stayed pending arbitration pursuant to the FAA and the parties’ arbitration agreement.

## Legal Principles

- The FAA requires enforcement of a valid arbitration agreement covering the dispute unless Congress has provided a contrary command, shown by an inherent conflict between arbitration and the statute’s underlying purposes.
- A bankruptcy court may decline to enforce arbitration only in the limited circumstance where arbitration would inherently conflict with core bankruptcy objectives.
- A debtor’s § 362(h) claim seeking money damages for a stay violation may be treated as a private remedial action that can be resolved in arbitration when doing so does not interfere with administration of the estate or other core bankruptcy functions.
- When a claim falls within the scope of an arbitration clause, 9 U.S.C. § 3 generally requires the court to stay the judicial proceeding in favor of arbitration.

## Conclusion

The Second Circuit required arbitration of a debtor’s automatic-stay damages claim because the claim functioned as a private dispute covered by a valid arbitration clause and arbitration, on these facts, did not inherently conflict with the Bankruptcy Code’s purposes.


MBNA Am. Bank, N.A. v. Hill, 436 F.3d 104 (2d Cir. 2006)