Fourth Circuit Blocks Goldman Sachs Bid to Force Arbitration in Bankruptcy Case

The U.S. Court of Appeals for the Fourth Circuit ruled last Wednesday that Goldman Sachs Bank USA cannot compel arbitration of bankruptcy automatic-stay claims brought by two consumer debtors, delivering a setback to the bank's Marcus credit card operation and leaving open the prospect of a nationwide class action in bankruptcy court.

The 2-1 decision in Goldman Sachs Bank USA v. Brown, No. 25-1439, affirmed a March 2025 order by U.S. District Judge Robert S. Ballou of the Western District of Virginia, who had denied Goldman's motion to force Rhea Ann Brown and Gregory Kevin Maze into individual arbitration. The Fourth Circuit argued the case on January 29, 2026, and issued its published opinion on March 18.

Judge Paul V. Niemeyer wrote the majority opinion, joined by Judge Pamela A. Harris. Their core finding: forcing consumer debtors to arbitrate claims under 11 U.S.C. § 362(k), which covers willful violations of the bankruptcy automatic stay, would create an "inherent conflict" with the Bankruptcy Code's fundamental purposes. Requiring a consumer debtor to arbitrate credit card collection actions, the court concluded, "would interfere with the clear purpose of the federal bankruptcy code."

The majority applied what bankruptcy practitioners know as the McMahon framework to assess whether arbitration conflicts with a particular federal statute. Applying that test to the bankruptcy context, Judge Niemeyer identified five specific objectives that arbitration would undermine: centralized resolution of disputes, enforcement of the automatic stay, uniformity of bankruptcy law, the debtor's "breathing spell" from collection actions, and the bankruptcy court's specialized expertise and speed, which the majority described as "at least the equal of any arbitrator."

The opinion also emphasized bankruptcy's "unique constitutional status" as a counterpoint to the Supreme Court's long-running preference for arbitration of statutory claims — a framing that goes further than simply parsing statutory text. In a notable move, the majority expressly relied on a law review article by Professor Kara Bruce, "Bankruptcy's Arbitration Countercurrent and the Future of the Debtor Class," published in the American Bankruptcy Law Journal, to anchor its view that bankruptcy operates against the grain of the Supreme Court's pro-arbitration jurisprudence.

Goldman Sachs had argued, in part, by pointing to the Hill decision from another circuit, which had permitted arbitration in a bankruptcy-adjacent dispute. The Fourth Circuit distinguished Hill on a narrow but dispositive fact: in that case, the bankruptcy proceeding had already closed. "We cannot determine whether the Hill court would have ruled the same way had it been faced with an arbitration issue in an ongoing bankruptcy proceeding, as we are here," Judge Niemeyer wrote. The Brown and Maze bankruptcy cases remain open, making the automatic stay's protections live and immediate.

Judge Robert B. King dissented sharply. "With great respect, I am constrained to dissent from the panel majority's erroneous affirmance," he wrote, arguing that the outcome "is readily compelled by the Supreme Court's precedent of Shearson/American Express, Inc. v. McMahon." In King's view, the majority's invocation of bankruptcy's uniqueness stretches past what Supreme Court precedent actually permits, and the case should have gone to arbitration.

Roman Martinez of Latham & Watkins argued the appeal for Goldman Sachs. The National Association of Consumer Bankruptcy Attorneys and the National Consumer Bankruptcy Rights Center filed briefs as amici curiae supporting the debtors.

The practical stakes extend well beyond Brown and Maze. Keeping the dispute in bankruptcy court preserves the potential for a nationwide class action against Goldman Sachs over its Marcus credit card collection practices. The split panel also sets up a potential circuit conflict that could eventually draw Supreme Court attention, given that Judge King's dissent rests directly on Supreme Court precedent that the majority effectively carved an exception around. Whether Goldman Sachs pursues en banc rehearing or certiorari has not been publicly stated.