MBNA America Bank v. Hill

Kathleen Hill (plaintiff) had a consumer loan from MBNA America Bank (MBNA) (defendant). Hill authorized MBNA to make monthly withdrawals of $159.01 from her bank account to pay down the loan balance. A few days after MBNA’s first withdrawal, Hill filed a Chapter 7 bankruptcy petition. The bankruptcy court and Hill’s lawyer both notified MBNA of Hill’s bankruptcy. Despite this notice, MBNA withdrew $159.01 from Hill’s account the following month. Hill brought an adversary proceeding against MBNA in the bankruptcy case under 11 U.S.C. § 362(h), alleging that MBNA was willfully violating 11 U.S.C. § 362(a)’s automatic stay of collection efforts against a debtor. MBNA moved to stay or dismiss the adversary proceeding in favor of arbitration, asserting that the account agreement between MBNA and Hill provided that any claim or dispute arising from or relating to the account agreement must be resolved by binding arbitration. The bankruptcy court denied MBNA’s motion after concluding that bankruptcy court was the most appropriate forum to adjudicate Hill’s claims. The district court affirmed the bankruptcy court’s refusal to dismiss or stay the automatic-stay-violation claim in favor of arbitration, finding that allowing arbitration of that claim would jeopardize the Bankruptcy Code’s objectives. MBNA appealed the order denying arbitration of the automatic-stay-violation claim. While the adversary proceeding was still pending, Hill’s bankruptcy case concluded when the bankruptcy court discharged Hill’s debts. [Editor’s Note: 11 U.S.C. § 362(h) was subsequently redesignated as 11 U.S.C. § 362(k).]