U.S. Government’s Bias On Bankruptcy Cases (Hertz v. Wells Fargo)

The U.S. Supreme Court does not like the Bankruptcy Code. It never has. Two examples are:

in Northern Pipeline v. Marathon Pipe Line (1982), the Supreme Court comes within one vote of declaring the entire Bankruptcy Code unconstitutional—and while it fails to deal the Code a mortal blow, the injuries that case inflicts on the Bankruptcy Code take decades to heal; and
in Stern v. Marshall (2011), the Supreme Court deals a heavy blow to bankruptcy court jurisdiction under a “public rights” doctrine that has never made sense in bankruptcy contexts and has, since then, found its way to a dustbin of irrelevance.

What the U.S. Supreme Court does not like, in particular, are benefits for bankruptcy debtors. And the Supreme Court goes to great lengths of creativity in statutory construction to minimize or eliminate such benefits. Two examples are:

in City of Chicago v. Fulton (2021), the Supreme Court holds that the City’s refusal to return debtor’s impounded car does not violate the automatic stay’s prohibition against “any act . . . to exercise control over property of the estate”; and
in Bartenwerfer v. Buckley (2022), the Supreme Court holds that a debtor’s own innocence and honesty are not a defense to denial of discharge for someone else’s fraud, based on agency concepts that the Court grafts into § 523(a).

And the Supreme Court’s dislike of the Bankruptcy Code is not a matter of partisanship: Bartenwerfer, for example, is a unanimous opinion, and only a concurring opinion by one Justice and abstention by another blemish the unanimity of the City of Chicago opinion.

Inviting Solicitor General’s Views

An illustration of the U.S. Supreme Court’s anti-Code and anti-debtor bias is its practice of:

inviting the U.S. Solicitor General to file a brief expressing the views of the U.S. in bankruptcy cases where the U.S. is not a party; and
then adopting the Solicitor’s views as its own.

What’s egregious about such a practice are these realities:

the United States is the largest creditor in the entire U.S. bankruptcy system;
so the views of the U.S., as articulated by the Solicitor General, are always pro-creditor and anti-debtor; and
such views are anti-Code because they occasionally require creativity in construing Bankruptcy Code language that is plain and unambiguous.

The Supreme Court justices are, obviously, aware of such realities. What’s curious is whether the Supreme Court invites the Solicitor’s views in bankruptcy cases:

despite the Solictor’s obvious bias (i.e., with the intention of winnowing-out the biased portion of the Solicitor’s views); or
because of the Solictor’s obvious bias (i.e., with the intention of adopting the Solicitor’s biased views)?

The latter seems more likely. But either way, such an approach seems:

lazy; and
contrary to the expectation that both the Supreme Court and the Solicitor General will attempt an even-handed approach to construing the Bankruptcy Court toward such goals as maximizing value for creditors and protecting the honest but unfortunate debtor.

Hertz v. Wells Fargo

A latest example of the Solicitor General filing a brief in a bankruptcy case in which it is not a party, at the Supreme Court’s invitation, is The Hertz Corporation v. Wells Fargo Bank, NA, Case No. 24-1062.

–Chronology & Question Presented

A chronology from the Supreme Court’s electronic docket for the Hertz case is:

April 4, 2025—Petition filed by The Hertz Corporation, et al.;

April 29, 2025—Brief filed by Wells Fargo

June 2, 2025—“The Solicitor General is invited to file a brief in this case expressing the views of the Unted States”;

December 3, 2025—“Brief amicus curiae of Unted States filed”;

December 23, 2025—“DISTRIBUTED for conference of 1/9/2025”;

December 23, 2025—“Supplemental brief of petitioners The Hertz Corporation, et al. filed”; and

January 12, 2026—“Petition DENIED. Justice Kavanaugh would grant the petition for a writ of certiorari.”

The “Question Presented” to the Supreme Court in Hertz is whether a “make whole” contract provision allows a debtor’s secured creditor to gain a cash windfall of unearned interest in bankruptcy. Circuits are split on this question.

–Solicitor’s Views

In response to the Supreme Court’s invitation, the Solicitor files a brief opposing the grant of certiorari because:

although “the government disagrees with the court of appeals’ reasoning”;
the court of appeals was correct in “ultimately reaching the right result” based on a different legal theory that the Solicitor likes; and
“the question presented arises infrequently” because it is “irrelevant to nearly all bankruptcy proceedings.”

–Petitioners’ Supplemental Brief

In response, the Petitioners file a “Supplemental Brief.” What follows is a summary of the argument therein.

The Solicitor General’s brief squarely agrees with petitioners that the Third Circuit’s absolute-priority-rule reasoning, which subordinated the Bankruptcy Code’s plain text to pre-Code judicial practice, is wrong.
The government nevertheless defends the bottom-line result that unmatured interest, though clearly disallowed by the Code, must still be paid, but only by arguing that the Third Circuit made a second error because a creditor is impaired by the plan under 11 U.S.C. §1124 even when the creditor’s claim is disallowed by the Code—the government:
- concedes that such a position runs counter to a “monolithic mountain of authority”; but
- still insists that the government—and not the monolithic mountain—is correct.
The panel majority recognized that its reasoning squarely conflicts with the Second Circuit’s approach and departs from the reasoning of the Fifth and Ninth Circuits (not to mention the persuasive dissents of Judges Ikuta, Oldham, and Porter).
Worse still, the panel majority laid the blame for its atextual approach on the Supreme Court’s doorstep.
Finally, the government’s claim that the question arises infrequently cannot be squared with the reality that it keeps arising in nine-figure disputes in which no two courts (or now the government) can agree on how to evade the result clearly compelled by statutory text.

Certiorari Denied

And, of course, the Supreme Court follows the Solicitor General’s lead and denies certiorari, on January 12, 2026.

The trouble is that such denial was predictable—based on the Court’s invitation to the Solicitor General and the recommendation given by the Solicitor General in response:

the Supreme Court, in the Hertz case, adopts the Solicitor General’s recommendation—as it commonly does; and
it does so, according to the entry on its electronic docket quoted above, with only a single dissenting voice among the Supreme Court Justices.

Conclusion

The entire U.S. bankruptcy system and all of its constituents deserve an approach by the U.S. Government that is more even-handed and less biased.

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