United States v. Noland, 517 U.S. 535, 5 (1996)

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Cite as: 517 U. S. 535 (1996)

Opinion of the Court

sistent with the provisions of the Bankruptcy Act." Ibid. This last requirement has been read as a "reminder to the bankruptcy court that although it is a court of equity, it is not free to adjust the legally valid claim of an innocent party who asserts the claim in good faith merely because the court perceives that the result is inequitable." DeNatale & Abram, The Doctrine of Equitable Subordination as Applied to Nonmanagement Creditors, 40 Bus. Law. 417, 428 (1985). The District Courts and Courts of Appeals have generally followed the Mobile Steel formulation, In re Baker & Getty Financial Services, Inc., 974 F. 2d 712, 717 (CA6 1992).

Although Congress included no explicit criteria for equitable subordination when it enacted 510(c)(1), the reference in 510(c) to "principles of equitable subordination" clearly indicates congressional intent at least to start with existing doctrine. This conclusion is confirmed both by principles of statutory construction, see Midlantic Nat. Bank v. New Jersey Dept. of Environmental Protection, 474 U. S. 494, 501 (1986) ("The normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific. The Court has followed this rule with particular care in construing the scope of bankruptcy codifications") (citation omitted), and by statements in the legislative history that Congress "intended that the term 'principles of equitable subordination' follow existing case law and leave to the courts development of this principle," 124 Cong. Rec. 32398 (1978) (Rep. Edwards); see also id., at 33998 (Sen. DeConcini). In keeping with pre-1978 doctrine, many Courts of Appeals have continued to require inequitable conduct before allowing the equitable subordination of most claims, see, e. g., In re Fabricators, Inc., 926 F. 2d 1458, 1464 (CA5 1991); In re Bellanca Aircraft Corp., 850 F. 2d 1275, 1282-1283 (CA8 1988), although several have done away with the requirement when the claim in question was a tax penalty.


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