Document: 517 U.S. 535116 S.Ct. 1524134 L.Ed.2d 748 UNITED STATESv.NOLAND, TRUSTEE FOR DEBTOR FIRST TRUCK LINES, INC.Certiorari to the United States Court of Appeals for Sixth Circuit. No. 95-323. Supreme Argued March 25, 1996 Decided May 13, Syllabus* The Internal Revenue Service filed claims in Bankruptcy taxes, interest, and penalties that accrued after debtor First Truck Lines, Inc., sought relief under Chapter 11 Code but before case was converted a 7 bankruptcy. court found all IRS's were entitled first priority as administrative expenses U. S. C. Section(s) 503(b)(1)(C) 507(a)(1), held penalty claim subject ``equitable subordination'' 510(c), which interpreted giving it authority not only deal with inequitable Government conduct, also adjust statutory category claims. court's decision subordinate general unsecured creditors affirmed by District Circuit, concluded postpetition, nonpecuniary loss tax are susceptible subordination their very nature. Held: A bankruptcy may equitably on categorical basis derogation Congress's priorities scheme. language principles construction, legislative history clearly indicate intent its 1978 revision use existing judge-made doctrine equitable starting point deciding when is appropriate. By adopting "principles subordination," 510(c) allows reorder justified particular facts. It clear Congress meant give courts some leeway develop doctrine. However, reading statute would broad enough allow at odds congressional ordering improbable extreme. then empower modify provision's operation same level operated made characteristically judgment establish hierarchy place, thus delegating revision, authorizing exception. Nonetheless, just such type underlies reordering here. Circuit's runs directly counter policy postpetition should receive an expense. Since rationale inappropriately nature, this need decide whether must always find creditor misconduct be subordinated. Pp. 3-9. 48 F. 3d 210, reversed remanded. Souter, J., delivered opinion unanimous Court. Justice Souter 1 issue scope power 510(c). Here, absence any finding conduct part Government, subordinated Government's noncompensatory penalty, normally "administrative expense," 503(b)(1)(C), 507(a)(1). We hold scheme priorities. 2 In April 1986, voluntarily Code, subsequent business debtor-in-possession incurred, failed discharge, liabilities Service. moved convert liquidation June 1988, August 1988 granted motion appointed respondent Thomas R. Noland trustee. estate's assets raised insufficient funds pay creditors. 3 After conversion, IRS filing although parties agreed taxes interest expenses, 503(b), 726(a)(1),1 they disagreed about given penalties. determined (like interest) 503(b) them 510(c).2 so doing, read section provide part, accordingly weighed relative equities seemed flow from what described "the Code's preference compensating actual claims," those re 141 B. 621, 629 (SD Ohio 1992). affirmed. v. Noland, 190 827 1993). 4 reviewing several recent appeals cases penalties, Circuit affirmed, well. 210 (1995). stated did 5 "not see fairness or justice permitting Commissioner's being assessed because pecuniary losses Service, enjoy equal higher based extension value debtor, secured not. Further, assessing against estate no longer existence serves punitive purpose. Because nature case, we believe subordination. To otherwise who have supported during attempt reorganize penalized once effort has there go around." Id., 218. 6 See Burden States, 917 2d 115, 120 (CA3 1990); Schultz Broadway Inn 912 230, 234 (CA8 Virtual Network Services Corp., 902 1246, 1250 (CA7 1990). certiorari determine appropriate 516 ___ (1995), now reverse. predates 1978. Relying our earlier cases, see, e.g., Comstock Group Institutional Investors, 335 211 (1948); Pepper Litton, 308 295 (1939); Taylor Standard Gas & Elec. Co., 306 307 (1939), Fifth influential Mobile Steel 563 692, 700 (CA5 1977), observed application generally triggered showing had engaged "some conduct." discussed two further conditions relating doctrine: "resulted injury bankrupt conferred unfair advantage claimant," inconsistent provisions Act." Ibid. This last requirement been "reminder equity, free legally valid innocent party asserts good faith merely perceives result inequitable." DeNatale Abram, Doctrine Equitable Subordination Applied Nonmanagement Creditors, 40 Bus. Law. 417, 428 (1985). district followed formulation, Baker Getty Financial Services, 974 712, 717 (CA6 8 Although included explicit criteria enacted 510(c)(1), reference indicates least start conclusion confirmed both Midlantic Nat. Bank New Jersey Dept. Environmental Protection, 474 494, 501 (1986) ("The normal rule construction if intends legislation change interpretation judicially created concept, makes specific. care construing codifications") (citation omitted), statements "intended term `principles subordination' follow law leave development principle," 124 Cong. Rec. 32398 (1978) (Rep. Edwards); id., 33998 (Sen. DeConcini). keeping pre-1978 doctrine, many Courts continued require allowing most claims, Fabricators, 926 1458, 1464 1991); Bellanca Aircraft 850 1275, 1282-1283 1988), done away question penalty. See, Burden, supra, 120; Schultz, 234; Network, 1250. 9 since trustee distribute "in order specified . 507," (which gives expense penalties) qualification, "[e]xcept provided 510 title ." 726(a). Thus, subordination" case. almost (1978), rather than freeze place. category. 10 answer turns probable preserve distinction between levels generality trial legislatures respectively function course. Hence, adoption permits make exceptions facts, cf. Hecht Co. Bowles, 321 321, 329 (1944) essence equity jurisdiction Chancellor do mould each decree necessities case"). But provision authorized conclude general, treated paid first, That is, characteristic functions simply swept away, delegate authorize "Decisions treatment categories proceedings dictated illuminated fall within judicial 2d, 122 (Alito, concurring dissenting part). Just decision, however, Court's here, approved Appeals. Despite requiring balancing individual actually "postpetition, claims" "susceptible "nature." 3d, And said every subordinated, ibid., inevitable consistent applications employed depends supposedly unfairness satisfying creditor. 12 Appeals's expense, regardless Noland's argument compensatory itself generality. Indeed, recognized elsewhere provisions: specifically assigned 8th certain 507(a)(8)(G), 12th prepetition, 726(a)(1), (4).3 13 sure, invoked more modest relied leaders revisions, 215, 217-218, true Representative Edwards Senator DeConcini "under law, [the] holder guilty status subordination, damages arising purchase sale security debtor." remarks reliance unexplained ran previous endorsement Nicholas 384 678, 692-695 (1966). More fundamentally, cannot particularized into delegated revise categorization, untethered obligation coherence substantive judgments. 14 Given today (in reconcile conflicting choices) circumstances prompt occur choice drafting Code. Cf. Ahlswede, 784, 787 (CA9) ("[T]he [equity] chancellor never did, does now, exercise unrestricted contradict common he feels fairer obtained different rule"), cert. denied sub nom. Stebbins Crocker Citizens Bank, 423 913 (1975); Columbia Ribbon 117 999, 1002 1941) (court "set up subclassification fix sub-classes according theory equity"). 15 instance, could have, not, deny noncompensatory, other take upon themselves determination guise reversed, remanded opinion. 16 ordered. * syllabus constitutes prepared Reporter Decisions convenience reader. Detroit Lumber 200 337. Section 507(a)(1) provides, relevant part: "(a) following order: (1) First, allowed Under 503(b)(1), include "any incurred estate" (with here), well fine [or] [such] 726(a)(1) adopts payment 507 proceedings. purposes distribution argues "although arose postpetition," viewed prepetition "reorganized respects similar [and] conversion [this] chapter tantamount new petition." Brief Respondent 16, n. 7. agree 214 here pursuant 348(d), 503(b)(1). 348(d) provides "claim arises 1112, 1208, 1307 title, shall arisen immediately date petition," "specified 503(b)" already like argument, Congress, Court, chooses.

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