WDVA: Goldman Sachs v. Brown- Denial of motion to compel arbitration in Bankruptcy

Summary:

The U.S. District Court for the Western District of Virginia affirmed a Bankruptcy Court decision denying Goldman Sachs Bank USA’s motion to compel arbitration in a case involving alleged violations of the automatic stay in bankruptcy. Plaintiffs Rhea Ann Brown and Gregory Kevin Maze, who filed for bankruptcy under Chapter 13 and Chapter 7, respectively, claimed Goldman Sachs continued to send collection communications regarding pre-petition Apple Card debts despite the automatic stay. Goldman Sachs sought to enforce arbitration based on the Apple Card Agreement, but the Bankruptcy Court ruled that enforcing arbitration would conflict with the Bankruptcy Code’s objectives, particularly the court’s authority to enforce the automatic stay and provide a centralized forum for resolving debtor-creditor disputes.

On appeal, the District Court reviewed the Bankruptcy Court’s decision de novo and found that arbitration of constitutionally core claims—such as enforcing the automatic stay—would inherently conflict with the purpose of the Bankruptcy Code. The court emphasized that the automatic stay is a fundamental protection for debtors, preventing collection efforts outside the bankruptcy process. Because compelling arbitration would undermine this protection and the Bankruptcy Court’s role in overseeing the bankruptcy proceedings, the District Court held that the Bankruptcy Court properly exercised its discretion in denying the motion.

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