In two 1996 decisions involving equitable subordination of claims in bankruptcy cases, United States v. Noland and United States v. Reorganized CF&I Fabricators of Utah, Inc., the Supreme Court did not answer the question of whether a bankruptcy court must find creditor misconduct before it equitably subordinates a creditor’s claim. In this Note, Rafael Pardo argues that the Court should have established a bright-line rule that requires such a finding, using prepetition, nonpecuniary loss tax penalty claims of the IRS as a model. After showing that, as codified in the Bankruptcy Cod, the doctrine of equitable subordination requires a finding of creditor misconduct, he analyzes circuit courts of appeals cases prior to Noland and Reorganized CF&I Fabricators that upheld equitable subordination of IRS prepetition tax penalty claims wider a no-fault standard. Pardo argues that use of a no-fault standard of equitable subordination by a bankruptcy court constitutes impermissible judicial activism, and concludes that any unfairness resulting from the treatment of claims by the Bankruptcy Code should be remedied by Congress.
Rafael Ignacio Pardo
In this Comment, Rafael Pardo criticizes a recent pair of decisions by the United States Court of Appeals for the Second Circuit, FCC v. NextWave Personal Communications, Inc. (In re NextWave Personal Communications, Inc.) and In re FCC. Those cases held that a bankruptcy court lacks jurisdiction to determine whether the Federal Communications Commission is stayed from revoking a debtor’s licenses. Pardo argues that the court of appeals interpreted the bankruptcy court’s jurisdiction too narrowly because it failed to distinguish properly between an agency’s action as a creditor and as a regulator. He concludes that bankruptcy courts and courts of appeals have concurrent jurisdiction to make automatic stay determinations regarding FCC licenses and that, for reasons of institutional competence, courts of appeals should defer to this exercise of jurisdiction by bankruptcy courts.