US Supreme Court to hear Goldman Sachs appeal in bankruptcy arbitration case
US Supreme Court to hear Goldman Sachs appeal in bankruptcy arbitration case By Jonathan Stempel
Nov 6 (Reuters) - The US Supreme Court agreed on Friday to hear Goldman Sachs' GS.N appeal over whether debtors can be required to submit to arbitration when creditors violate the automatic stays that generally halt collection efforts during bankruptcy.
Rhea Brown and Kevin Maze filed a proposed class action accusing Goldman Sachs Bank USA, also known as Marcus, of continuing to collect credit card debt after they sought protection from creditors, though the US Bankruptcy Code puts such collection efforts on hold.
Goldman Sachs invoked an arbitration clause in the debtors' credit card agreements and sought to move the disputes to arbitration.
In March, a divided 4th US Circuit Court of Appeals in Richmond, Virginia, rejected Goldman Sachs' efforts to compel arbitration, upholding a federal bankruptcy judge and a federal district judge.
Circuit Judge Paul Niemeyer wrote for a 2-1 majority that arbitration would conflict with the underlying purposes of the bankruptcy code, which include the centralization of bankruptcy proceedings, the need for automatic stays, and the expertise that bankruptcy judges offer.
The dissenting judge, Circuit Judge Robert King, said there was no conflict because the success or failure of the debtors' claims would not change the number of creditors or "frustrate creditor distribution."
He also said the majority "needlessly" created a split with the 2nd US Circuit Court of Appeals in Manhattan, which in 2006 said arbitrating a bankruptcy stay claim would not interfere with administering a debtor's estate.
Lawyers for Brown and Maze did not immediately respond to requests for comment. Goldman Sachs spokesperson Tony Fratto declined to comment.
In its Supreme Court appeal, Goldman Sachs said the circuit split reflected lower court confusion about the Federal Arbitration Act's intersection with the bankruptcy code, including whether certain kinds of claims are "core" to bankruptcies.
The debtors' lawyers countered that their claims were "as core as any claim that arises from bankruptcy proceedings," and that a bankruptcy judge may enforce the automatic stay by imposing civil contempt sanctions, including damages.
The Supreme Court will likely rule before its current term ends in the middle of 2027.
(Reporting by Jonathan Stempel in New York)