SCOTUS Seeks U.S.'s View on Bankruptcy Choice of Law Conflict

By Daniel Gill

The U.S. Supreme Court signaled it will take a close look at a case involving choice of law in bankruptcy cases by inviting the solicitor general to submit a brief on the petition for certiorari.

Such invitations generally suggest that the court is more likely to elect to hear the case.

Richard and Olga Sterba asked the high court to overturn a decision that the Ohio statute of limitations should apply to an action filed in a California bankruptcy court.

The difference was significant. If the California statute of limitations applied, plaintiff PNC Bank would be barred from asserting a claim against the Sterbas, who had filed a Chapter 7 bankruptcy case in California. Under the longer Ohio statute, PNC wouldn’t be barred.

The statute of limitations of the forum state controls “unless the exceptional circumstances of the case make such a result unreasonable,” the U.S. Court of Appeals for the Ninth Circuit held.

Bankruptcy was such an exceptional circumstance, it said.

Applying California’s shorter statute would be unreasonable because the California bankruptcy filing deprived PNC of its option to bring the suit in Ohio. PNC shouldn’t lose its claim “through no fault of its own,” the court said.

The Sterbas argue that there is a split in circuits regarding whether the forum state law should apply, or whether federal common law should allow the court to decide which law should apply.

The Sterbas are represented by Thomas P. Kelly III, Santa Rosa, Calif. PNC Bank is represented by Gibson, Dunn & Crutcher LLP, Washington.

The case is Sterba v. PNC Bank , U.S., No. 17-423, call for the view of the Solicitor General issued 1/22/18 .

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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