18 June 2013

More Equity in Bankruptcy

With virtually no shame let me again plug my recent article, Third Time's the Charm: The Coming Impact of the Restatement (Third), Restitution and Unjust Enrichment in Bankruptcy (download here). (For the condensed version go here to read an earlier post on the article.) I mention this top-ten SSRN download bankruptcy article because it addresses (almost in passing) what is near the center of a case for which SCOTUS has just granted certiorari: Law v. Siegel. I can't summarize this case any better than Bob Lawless over at the Credit Slips blog so simply go here to read what he wrote.

But summarize the summarizer I will. Law v. Siegel is about § 105 of the Bankruptcy Code, the section that says the bankruptcy judge has the power to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of" the Bankruptcy Code." Some courts have nonchalantly used § 105 as the basis on which to impose a free-form view of "equity" in a case. Not  surprisingly, most of such equitable remedies make a lot of sense given the facts. However, what if the sensible result contradicts an express provision of the Bankruptcy Code? Does § 105 still give the court the power to do the "right thing?" That's the question in Law v. Siegel so some time later this year we should know what SCOTUS thinks.

But here's what I think: This has nothing to do with "equity" as the term has been used in bankruptcy. Quoting myself: "Bankruptcy courts have frequently been characterized as courts of equity. Often this characterization has accompanied unusually relaxed interpretation or application of a provision of the Bankruptcy Code. However, this understanding does not exhaust the meaning of equity in bankruptcy." (Emphasis added.) Rather than an excuse to ignore the law, equity was (and still should be) a clear body of law, not the justification for imposing the court's view of what's right.

I hope the Court recognizes that the slipshod use of the term equity has contributed to the problem of the proper application of § 105 and that the purpose of that section is to address lacunae in the Bankruptcy Code, not override its express provisions.

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