United States v. Thomas R. Noland, Trustee for Debtor First Truck Lines, Inc. (517 U.S. 535)
U.S. Supreme Court · decided May 13, 1996 · Supreme Court Database (Spaeth)
- Citation
- 517 U.S. 535 · 116 S. Ct. 1524
- Decided
- May 13, 1996
- Term
- October Term 1995
- Vote
- 9–0
- Majority author
- Justice Souter
- Issue area
- Federal Taxation
- Disposition
- Reversed and remanded
- Outcome
- Petitioning party won
- Ideological direction
- Liberal
Opinion excerpt
Justice Souter delivered the opinion of the Court. The issue in this case is' the scope of a bankruptcy court’s power of equitable subordination under 11 U. S. C. § 510(c). Here, in the absence of any finding of inequitable conduct on the part of the Government, the Bankruptcy Court subordinated the Government’s claim for a postpetition, noncom-pensatory tax penalty, which would normally receive first priority in bankruptcy as an “administrative expense,” §§ 503(b)(1)(C), 507(a)(1). We hold that the bankruptcy court may not equitably subordinate claims on a categorical basis in derogation of Congress’s scheme of priorities. In April 1986, First Truck Lines, Inc., voluntarily filed for relief under Chapter 11 of the Bankruptcy Code, and in the subsequent operation of its business as a debtor-in-possession incurred, but failed to discharge, tax liabilities to the Internal Revenue Service (IRS). First Truck moved to convert the case to a Chapter 7 liquidation in June 1988, and in August 1988 the Bankruptcy Court granted that motion and appointed respondent Thomas R. Noland as trustee. The liquidation of the estate’s assets raised insufficient funds to pay all of the creditors. After the conversion, the IRS filed claims for taxes, interest, and penalties that accrued after the Chapter 11 filing but before the Chapter 7 conversion, and although the parties agreed that the claims…
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