Supreme Court to Hear Goldman Sachs’ Bankruptcy Arbitration Bid

(Bloomberg Law) -- The US Supreme Court agreed to review a request by Goldman Sachs on whether bankruptcy courts can override arbitration agreements, setting up a high-stakes test of the Federal Arbitration Act's reach.

The court on Friday approved the multinational investment bank's request that the high court clarify whether, and under what circumstances, a bankruptcy court can refuse to enforce an arbitration agreement for claims under Section 362(k) of US Bankruptcy Code if a creditor violates the automatic litigation stay protecting bankrupt people and companies.

Goldman Sachs said that because Section 362(k) issues arise frequently in bankruptcy, a circuit split on this issue reflected lower-court confusion about the FAA's intersection with bankruptcy law.

Goldman Sachs lost a bid in the US Court of Appeals for the Fourth Circuit to compel arbitration in a suit alleging it violated bankruptcy law by continuing debt collection efforts despite the stay. The majority of the three-judge Fourth Circuit panel found that arbitration inherently conflicts with the core purposes of the bankruptcy code. Judge Robert B. King, in a dissent, found that the debtors' claims belong in arbitration.

The FAA creates a national policy favoring arbitration when parties have agreed to it. But bankruptcy law is designed to provide a collective, centralized resolution of a debtor's financial affairs. Courts are generally divided over the use of a test that considers whether issues are "core" or "non-core" and whether arbitration creates an inherent conflict.

The Supreme Court hasn't tested the tension between the two statutory schemes. The debtors in this lawsuit, two holders of Apple Card accounts issued by Goldman Sachs, argued the Supreme Court shouldn't take the case because its specific facts — involving a Chapter 13 stay — make it an unsuitable fit to properly resolve the broader legal question.

The American Bankers Association filed an amicus brief in support of Goldman Sachs.

Latham & Watkins LLP represents Goldman Sachs. Kellett & Bartholow PLLC and Giles & Lambert PC represent the consumer borrowers.

The case is Goldman Sachs Bank USA v. Brown, U.S., No. 25-1408, cert denied/granted 11/6/26.