Amicus Curiae Brief — Richard Sterba, et ux., Petitioners v. PNC Bank

No. 17-423

In the Supreme Court of the United States

RICHARD STERBA AND OLGA STERBA, PETITIONERS

v.

PNC BANK

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

NOEL J. FRANCISCO

Solicitor General

Counsel of Record

CHAD A. READLER

Acting Assistant Attorney

General

MALCOLM L. STEWART

Deputy Solicitor General

ZACHARY D. TRIPP

Assistant to the Solicitor

General

MARK B. STERN

COURTNEY L. DIXON

Attorneys

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether a federal court exercising bankruptcy jurisdiction should apply a federal choice-of-law rule or the

forum State’s choice-of-law rules to determine whether

a creditor’s state-law claim is “unenforceable” within

the meaning of 11 U.S.C. 502(b)(1).

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 1

Discussion ...................................................................................... 6

Conclusion ................................................................................... 19

TABLE OF AUTHORITIES

Cases:

Amtech Lighting Servs. Co. v. Payless Cashways,

Inc. (In re Payless Cashways), 203 F.3d 1081

(8th Cir. 2000) ................................................................ 15, 16

Bianco v. Erkins (In re Gaston & Snow):

243 F.3d 599 (2d Cir.), cert. denied, 534 U.S. 1042

(2001) ........................................................................... 15

534 U.S. 1042 (2001) ........................................................ 19

Butner v. United States, 440 U.S. 48 (1979) ................... 9, 11

Compliance Marine, Inc. v. Campbell (In re Merritt

Dredging Co.), 839 F.2d 203 (4th Cir.), cert. denied,

487 U.S. 1236 (1988)............................................................ 15

Crist v. Crist (In re Crist), 632 F.2d 1226 (5th Cir.

1980), cert. denied, 451 U.S. 936, and 454 U.S. 819

(1981) .................................................................................... 16

Danning v. Pacific Propeller, Inc. (In re Holiday

Airlines Corp.), 620 F.2d 731 (9th Cir.),

cert. denied, 449 U.S. 900 (1980) ....................................... 14

Des Brisay v. Goldfield Corp., 637 F.2d 680

(9th Cir. 1981) ........................................................................ 4

Erie R.R. v. Tompkins, 304 U.S. 64 (1938) ........................... 6

Hanna v. Plummer, 380 U.S. 460 (1965) ...................... 11, 12

Jafari v. Wynn Las Vegas, LLC (In re Jafari),

569 F.3d 644 (7th Cir. 2009), cert. denied,

558 U.S. 1114 (2010)...................................................... 13, 16

(III)

IV

Cases—Continued:

Page

Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487

(1941) .......................................................................... 3, 11, 13

Liberty Tool & Mfg. v. Vortex Fishing Sys., Inc.

(In re Vortex Fishing Sys., Inc.), 277 F.3d 1057

(9th Cir. 2002) ........................................................................ 4

Limor v. Weinstein & Sutton (In re SMEC, Inc.),

160 B.R. 86 (M.D. Tenn. 1993) ........................................... 13

Lindsay v. Beneficial Reinsurance Co. (In re

Lindsay), 59 F.3d 942 (9th Cir. 1995), cert. denied,

516 U.S. 1074 (1996).............................................. 4, 5, 14, 18

MC Asset Recovery LLC v. Commerzbank A.G.

(In re Mirant Corp.), 675 F.3d 530 (5th Cir. 2012) ......... 16

Morris, In re, 30 F.3d 1578 (7th Cir. 1994) ......................... 17

Mukamal v. Bakes, 378 Fed. Appx. 890

(11th Cir. 2010), cert. denied, 563 U.S. 904 (2011)........... 16

Ovetsky, In re, 100 B.R. 115 (N.D. Ga. 1989) ...................... 13

Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15

(2000) ...................................................................................... 9

State Bank v. Miller (In re Miller), 513 Fed. Appx.

566 (6th Cir. 2013) ............................................................... 16

Travelers Cas. & Sur. Co. of Am. v. Pacific Gas &

Elec. Co., 549 U.S. 443 (2007) ...................................... 2, 8, 9

Vanston Bondholders Protective Comm. v. Green,

329 U.S. 156 (1946)........................................................ 11, 13

Woods-Tucker Leasing Corp. v. Hutcheson-Ingram

Dev. Co., 642 F.2d 744 (5th Cir. 1981) ......................... 16, 17

Statutes:

Bankruptcy Code, 11 U.S.C. 101 et seq.:

11 U.S.C. 301 ...................................................................... 1

11 U.S.C. 362 ...................................................................... 1

11 U.S.C. 501(b)(1) ............................................................ 8

11 U.S.C. 502(a) ................................................................. 2

V

Statutes—Continued:

Page

11 U.S.C. 502(b) ............................................................. 2, 8

11 U.S.C. 502(b)(1) ................................................. passim

11 U.S.C. 507 .................................................................... 16

28 U.S.C. 157 .......................................................................... 11

28 U.S.C. 1332 ........................................................................ 11

28 U.S.C. 1334 ........................................................................ 11

28 U.S.C. 1408 .................................................................... 1, 12

Cal. Civ. Proc. Code § 337 (West 2006) ................................. 3

Ohio Rev. Code Ann. § 1303.16 (LexisNexis 2003) .............. 3

Miscellaneous:

4 Collier on Bankruptcy (Richard Levin & Henry J.

Sommer eds., 16th ed. 2017) ................................................ 8

Restatement (Second) of Conflict of Laws:

(1971) .................................................................................. 4

(1988) ....................................................................... passim

Webster’s Third New International Dictionary

(2002) ...................................................................................... 8

In the Supreme Court of the United States

No. 17-423

RICHARD STERBA AND OLGA STERBA, PETITIONERS

v.

PNC BANK

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the petition for a writ of certiorari should be denied.

STATEMENT

1. A debtor commences a voluntary bankruptcy case

by filing a petition in bankruptcy court. 11 U.S.C. 301.

The debtor may file a bankruptcy petition in the district

in which the debtor has been domiciled, resided, or had

its principal place of business for at least 180 days, or in

a district in which the debtor’s affiliate, general partner,

or partnership has filed for bankruptcy. 28 U.S.C. 1408.

A petition for bankruptcy automatically stays other

actions against the debtor to collect payments,

11 U.S.C. 362, and channels claims against the debtor

into the bankruptcy proceedings. “Once a proof of claim

(1)

2

has been filed, the court must determine whether the

claim is ‘allowed’ under § 502(a) of the Bankruptcy

Code.” Travelers Cas. & Sur. Co. of Am. v. Pacific Gas

& Elec. Co., 549 U.S. 443, 449 (2007); see 11 U.S.C. 502(a).

Section 502(b) of the Code identifies specific circumstances in which the bankruptcy court shall disallow a

claim. The provision at issue here requires disallowance

of a claim that is “unenforceable against the debtor

* * * under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” 11 U.S.C. 502(b)(1).

2. In 2007, petitioners purchased a condominium in

Santa Rosa, California. Pet. App. 2a, 16a-17a. To pay

for the condominium, petitioners took out two loans secured by liens against the property. Ibid. The second

loan was made by National City Bank. Id. at 2a. The

promissory note provides:

[T]he Bank is a national bank located in Ohio and

[the] Bank’s decision to make this Loan to you was

made in Ohio. Therefore, this Note shall be governed by and construed in accordance with . . . the

laws of Ohio, to the extent Ohio laws are not preempted by federal laws or regulations, and without

regard to conflict of law principles.

Id. at 17a-18a (citation omitted).

In 2008, petitioners defaulted on both loans. Pet.

App. 17a. The senior lender foreclosed, and National

City Bank was left with a claim against petitioners for

approximately $42,000. Id. at 3a. National City Bank

later merged with respondent. 1

In 2013, petitioners filed a Chapter 7 bankruptcy petition in the Northern District of California. Pet. App.

1

This brief will refer to National City Bank as respondent.

3

3a. Respondent submitted a claim based on the 2007

promissory note. Ibid. Respondent thus filed the claim

five years after petitioners defaulted.

Petitioners objected to the claim under 11 U.S.C.

502(b)(1), arguing that it was “unenforceable” under

“applicable law” because it was barred by California’s

four-year statute of limitations, Cal. Civ. Proc. Code

§ 337 (West 2006). See Pet. App. 3a. Respondent argued that the claim was enforceable because the parties’

contract mandated the application of Ohio law, and the

claim was timely under Ohio’s six-year limitations period, Ohio Rev. Code Ann. § 1303.16 (LexisNexis 2003).

See Pet. App. 3a.

3. The bankruptcy court allowed respondent’s claim.

Pet. App. 31a-34a. The court applied the choice-of-law

rules of the forum State (California), reasoning that it

was “exercis[ing] jurisdiction over state law claims.” Id.

at 31a (citing Klaxon Co. v. Stentor Elec. Mfg. Co.,

313 U.S. 487, 496 (1941)). The bankruptcy court determined that California applies the Restatement (Second)

of Conflict of Laws § 187 (1988) (Restatement) to determine whether a contractual choice-of-law provision is

enforceable. See Pet. App. 32a. Applying that approach, the bankruptcy court held that California would

give effect to the parties’ agreement to apply Ohio law

because Ohio had a “substantial relationship” to the

transaction, and because application of Ohio law did not

violate a fundamental public policy of California. Ibid.

Applying Ohio’s six-year limitations period, the bankruptcy court determined that the claim was timely and

therefore not unenforceable. Id. at 32a-33a.

4. The bankruptcy appellate panel (BAP) reversed.

Pet. App. 15a-30a. Relying on circuit precedent, the

BAP first held that the bankruptcy court should have

4

applied a federal choice-of-law rule, rather than the forum State’s choice-of-law rules, because the bankruptcy

court was “exercising federal question jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(B).” Id. at 20a

(citing Liberty Tool & Mfg. v. Vortex Fishing Sys., Inc.

(In re Vortex Fishing Sys., Inc.), 277 F.3d 1057, 1069 (9th

Cir. 2002), and Lindsay v. Beneficial Reinsurance Co. (In

re Lindsay), 59 F.3d 942, 948 (9th Cir. 1995), cert. denied,

516 U.S. 1074 (1996)). The BAP explained that federal

choice-of-law rules in the Ninth Circuit “generally follow” the Restatement. Ibid. The BAP applied Restatement § 187 and agreed with the bankruptcy court that

Ohio had a “substantial relationship” to the parties and

transaction, and that California had no fundamental

policy against applying Ohio’s limitations period. Pet.

App. 22a-24a.

The BAP nevertheless held that California’s fouryear limitations period should apply. The BAP reached

that conclusion because it construed Des Brisay v. Goldfield Corp., 637 F.2d 680, 682 (9th Cir. 1981), to dictate

that result under an earlier version of the Restatement,

namely, Restatement (Second) of Conflict of Laws § 142

(1971). See Pet. App. 25a-27a. Specifically, the BAP

read Des Brisay to hold that a “standard contractual

choice of law provision does not cover choice of law

questions involving statutes of limitations.” Id. at 26a.

The BAP thus found that the parties’ contractual choice

of Ohio law did not encompass Ohio’s limitations period.

Ibid. The BAP applied California’s four-year limitations period, and concluded that respondent’s claim was

untimely and therefore unenforceable. Id. at 26a-28a.

5. The court of appeals reversed the BAP. Pet. App.

1a-14a. The court agreed with the BAP that, “in bankruptcy, federal choice-of-law rules control which state’s

5

law applies.” Id. at 2a (citing In re Lindsay, 59 F.3d

at 948). The court also agreed with the BAP that, under

Des Brisay, a contractual choice-of-law provision does

not encompass a limitations period unless the parties

“expressly” incorporate it, and that the promissory note

at issue here does not. Id. at 4a.

The court of appeals held, however, that in the absence of an express contractual choice of a limitations

period, Restatement § 142 governs the determination of

what period applies. Pet. App. 5a-6a. Under the 1988

version of Section 142, the forum State’s statute-oflimitations period governs “unless the exceptional circumstances of the case make such a result unreasonable.” Id. at 6a (quoting Section 142). The court held

that this case presented “exceptional circumstances”

that required the application of Ohio’s limitations period rather than California’s. Id. at 7a. In particular,

the court emphasized that Des Brisay was a federal securities case, not a bankruptcy case. Id. at 4a-5a. The

court explained that, because of “the unique strictures

of the bankruptcy code,” respondent was required to

file its proof of claim in bankruptcy court in California,

even though outside bankruptcy “another jurisdiction—

[respondent’s] home state of Ohio—would hear the

claim, and has a substantial interest in its resolution.”

Id. at 8a. The court held that, “under these exceptional

circumstances, the bankruptcy court was correct to apply Ohio’s six-year statute of limitations and overrule

[petitioners’] objection to [respondent’s] claim.” Ibid.

Judge Tashima concurred in the judgment. Pet.

App. 11a-12a. Judge Tashima would have resolved this

case based on Restatement § 187, which provides that

“[t]he law of the state chosen by the parties . . . will be

applied.” Pet. App. 11a (quoting Section 187) (brackets

6

in original). He explained that, under Section 187,

“there is no reason not to give effect to the parties’

choice-of-law, which included their choice of the Ohio

statute of limitations.” Id. at 12a. He concluded that

the parties had made that choice by including in their

choice-of-law provision “the phrase ‘without regard to

conflict of law principles,’ which, in this case, means

without regard to any analysis that would otherwise be

called for under § 142 of the Restatement.” Ibid.

DISCUSSION

The court of appeals correctly treated the question

whether respondent’s state-law claim was “unenforceable” within the meaning of 11 U.S.C. 502(b)(1) as an issue of federal law. Use of a federal rule in this bankruptcy context is appropriate because a court in determining whether a claim is unenforceable is interpreting

and applying Section 502(b)(1), a federal statutory provision. The court below was also correct in holding that,

because Ohio courts would have treated respondent’s

claim as timely outside the bankruptcy context, the

claim is not “unenforceable” within the meaning of Section 502(b)(1). This approach is faithful to Section

502(b)(1)’s text and furthers the broader purposes of

the Bankruptcy Code. The principles of Erie Railroad

Co. v. Tompkins, 304 U.S. 64 (1938), are inapposite here

because this case arises under bankruptcy jurisdiction,

not under diversity jurisdiction, and involves the application of a federal statute.

Courts of appeals have articulated somewhat inconsistent standards for determining whether choice-oflaw questions that arise in bankruptcy cases should be

resolved under federal or state choice-of-law rules. No

circuit conflict exists, however, concerning the ap-

7

proach that should be used to decide whether a particular state-law claim is time-barred and therefore “unenforceable” within the meaning of Section 502(b)(1). And

there is no basis for petitioners’ apparent assumption

that a single standard or mode of analysis should govern

every choice-of-law issue that might arise in a bankruptcy case.

Petitioners’ argument assumes that California

courts would have applied that State’s four-year statute

of limitations and would have treated respondent’s

claim as untimely, notwithstanding the choice-of-law

clause in the promissory note, if the claim had been asserted outside of bankruptcy. But even on that assumption, the claim is not “unenforceable” under Section

502(b)(1), since the claim could have been brought and

heard in an Ohio court under that State’s six-year limitations period. Pet. App. 8a. Petitioners’ decision to file

their Chapter 7 petition in California does not affect the

application of the federal rule that is used to determine

whether a claim is enforceable in bankruptcy. See ibid.

No court of appeals has relied on the forum State’s

choice-of-law rules to identify the law to apply when deciding whether a claim is “unenforceable” under Section

502(b)(1). It is also unclear whether the broader tension

in the circuits has any meaningful practical significance.

Indeed, several courts of appeals have declined to decide whether federal or state choice-of-law rules should

apply in particular bankruptcy contexts because the

choice has consistently been immaterial to the outcome

of the cases that have arisen in those circuits.

This case would be an especially poor vehicle for attempting to clarify the choice-of-law rules that apply in

the bankruptcy context. In the court of appeals, petitioners did not argue that California’s choice-of-law

8

rules should apply, but instead acknowledged that circuit precedent mandated the use of a federal choice-oflaw rule. This Court should deny the petition for a writ

of certiorari.

1. The court of appeals correctly applied a federal

rule, rather than the forum State’s choice-of-law rule, to

determine whether respondent’s claim was unenforceable in bankruptcy.

a. Section 502(b) of the Bankruptcy Code sets forth

the grounds on which a bankruptcy court shall disallow

a creditor’s claim against the debtor’s estate. Under

Section 502(b)(1), a claim shall be disallowed if it is “unenforceable against the debtor * * * under any agreement or applicable law.” 11 U.S.C. 501(b)(1). The relevant “applicable law” is the “applicable nonbankruptcy

law” that would govern if the creditor brought suit on

the claim outside of bankruptcy. Travelers Cas. & Sur.

Co. of Am. v. Pacific Gas & Elec. Co., 549 U.S. 443, 450

(2007) (citations omitted); see 4 Collier on Bankruptcy

¶ 502.03[2][b], at p. 502-21 (Richard Levin & Henry J.

Sommer eds., 16th ed. 2017).

A claim is “unenforceable against the debtor” under

applicable non-bankruptcy law if it could not be enforced under that law. See, e.g., Webster’s Third New

International Dictionary 2493 (2002) (defining “unenforceable”). A bankruptcy court thus should consider

whether the claim could be enforced under the laws of

any State—in this case, either Ohio or California—in

which the claim might have been asserted outside of

bankruptcy in a suit brought by the creditor. If the

claim could be enforced outside of bankruptcy under the

laws of any such State, then it is not “unenforceable

against the debtor” within the meaning of Section

502(b)(1). That is a federal rule of decision because it

9

depends on the meaning of terms in a federal statute,

Section 502(b)(1).

That approach is also consistent with the structure

and purpose of the Bankruptcy Code. A debtor’s petition for bankruptcy channels all claims against the

debtor into bankruptcy court in the venue the debtor

has chosen—even if creditors proceeding outside of

bankruptcy could or would have brought their claims

against the debtor in a different jurisdiction. In light of

this unique jurisdictional structure, “[t]he ‘basic federal

rule’ in bankruptcy is that state law governs the substance of claims,” and a federal court exercising bankruptcy jurisdiction must generally analyze state-law

claims in the same way that they would be analyzed in a

suit brought by the creditor outside of bankruptcy.

Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20

(2000) (quoting Butner v. United States, 440 U.S. 48, 57

(1979)); Travelers Cas. & Sur. Co. of Am., 549 U.S. at 450.

That rule looks to the States’ laws that could apply to

the claim outside of bankruptcy, and allows any claim

that could be enforced under any of those potentially

applicable laws. This approach ensures that a state-law

claim that could be brought and heard outside of bankruptcy does not become unenforceable “merely by reason of the happenstance of bankruptcy,” Butner,

440 U.S. at 55 (citation omitted), or the debtor’s decision

to file his bankruptcy petition in a particular State.

b. Although the court of appeals reached its ultimate

conclusion by a somewhat circuitous analytic route, the

court correctly treated the issue of enforceability as one

of federal law, and it correctly held that respondent’s

claim was enforceable. See Pet. App. 5a, 7a. The court

looked to Restatement § 142, which provides that, “[i]n

general, unless the exceptional circumstances of the

10

case make such a result unreasonable,” the “forum will

apply its own statute of limitations barring the claim.”

Pet. App. 6a (quoting Section 142). The court concluded

that, although respondent had filed its claim after California’s four-year statute of limitations had expired,

this case presented “exceptional circumstances” that

made it “unreasonable” to dismiss the claim on that basis. Id. at 7a-8a.

The court of appeals based that conclusion on “the

unique strictures of the bankruptcy code,” under which

respondent “was obligated to bring all its claims in the

district where [petitioners] filed” their bankruptcy petition. Pet. App. 8a. The court explained that, “[w]here

another jurisdiction—[respondent’s] home state of Ohio

—would hear the claim [outside of bankruptcy], and has

a substantial interest in its resolution, disallowing it by

mechanical adoption of California’s statute of limitations would be wholly unreasonable.” Ibid. The court

held that, “under these exceptional circumstances, the

bankruptcy court was correct to apply Ohio’s six-year

statute of limitations and overrule [petitioners’] objection to [respondent’s] claim.” Ibid.

Although the court of appeals based its holding on

the Restatement rather than on the text of Section

502(b)(1), the substance of its analysis was sound. The

court considered the statutes of limitations—Ohio’s and

California’s—that might have applied if respondent had

brought the claim outside of bankruptcy. The court correctly held that, because Ohio courts would have treated

the claim as timely if it had been filed in that State outside of bankruptcy, the claim is not unenforceable in

this bankruptcy case. That analysis is consistent with

Section 502(b)(1)’s language and with the Bankruptcy

Code’s purpose of ensuring that claims existing outside

11

of bankruptcy are not analyzed differently “by reason

of the happenstance of bankruptcy.” Butner, 440 U.S.

at 55. The court below also correctly recognized that,

even if California courts would have treated respondent’s claim as untimely, petitioners’ election to file their

bankruptcy petition in that State should not preclude

allowance of a claim that otherwise could have been

brought and heard in Ohio.

c. Petitioner contends (Pet. 23-24) that Erie requires a bankruptcy court to apply the choice-of-law

rules of the forum State. That argument lacks merit.

The Erie doctrine requires a federal court exercising

diversity jurisdiction to apply the substantive law of the

State in which it sits, including that State’s choice-oflaw rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.

487, 496 (1941). That rule prevents a litigant’s choice

between state and federal court from being outcomedeterminative in a diversity case, thus avoiding intrastate forum shopping and “inequitable administration

of the laws” within a State. Hanna v. Plummer, 380

U.S. 460, 468 (1965). “Otherwise the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal

courts sitting side by side.” Klaxon, 313 U.S. at 496.

The Erie doctrine is inapplicable here because this is

not a diversity case under 28 U.S.C. 1332. Instead,

bankruptcy cases arise under federal-question jurisdiction, pursuant to 28 U.S.C. 157 and 1334. Bankruptcy

jurisdiction is exclusive to federal court. See Vanston

Bondholders Protective Comm. v. Green, 329 U.S. 156,

163 (1946) (explaining that bankruptcy courts “administer and enforce the Bankruptcy [Code] as interpreted

by this Court in accordance with authority granted by

12

Congress”). And when deciding whether a claim is “unenforceable against the debtor” under “applicable law,”

11 U.S.C. 502(b)(1), a bankruptcy court is construing

and applying a federal statute.

To be sure, the court of appeals’ determination that

respondent’s claim was not “unenforceable” under Section 502(b)(1) turned in part on the court’s analysis of

state law. In particular, an essential element of the

court’s reasoning was that respondent’s claim would

have been timely under Ohio’s six-year statute of limitations if respondent had filed suit there outside of

bankruptcy. See Pet. App. 8a. But petitioners have not

disputed that Ohio courts would have heard and decided

respondent’s claim if it had been asserted in that State

before petitioners sought bankruptcy relief. Rather,

the contested issue in this case is whether the claim was

“unenforceable” under Section 502(b)(1) when it would

have been timely under Ohio’s limitations provision but

untimely under that of California, the State in which petitioners chose to file their bankruptcy petition. That

question goes to the meaning of a federal statute, and it

accordingly raises an issue of federal law.

It would also disserve the “twin aims” of Erie to determine the enforceability of a claim in bankruptcy

based on the forum State’s choice-of-law rules. Hanna,

380 U.S. at 468. That approach could encourage forum

shopping and could result in “inequitable administration of the laws.” Ibid. A debtor’s petition for bankruptcy channels all claims against the debtor into whatever venue the debtor selects, and bankruptcy has relatively liberal venue provisions, see 28 U.S.C. 1408. Using the forum State’s choice-of-law rules to identify the

State whose law will govern the enforceability of a bankruptcy claim could encourage “debtors in the shadow of

13

bankruptcy to restructure or relocate their business

dealings in such a way as to gain the benefit of a certain

forum’s laws.” Limor v. Weinstein & Sutton (In re

SMEC, Inc.), 160 B.R. 86, 90 (M.D. Tenn. 1993) (SMEC);

see In re Ovetsky, 100 B.R. 115, 118 (N.D. Ga. 1989) (“[I]f

this Court were to find that it is the forum’s state law

which must control, such a holding would lead to forum

shopping where tort-feasors would relocate to the state

with the shortest statute of limitations.”). By contrast,

application of the federal-law rule described above,

which takes into account whether the claim could be enforced under the non-bankruptcy laws of any relevant

State, discourages forum shopping and ensures that

creditors “are not subjected to, or given the benefit of,

an unjustified quirk of legal procedure that imposes on

them” the laws of a State in which they may never have

transacted. SMEC, 160 B.R. at 90-91.

Unlike in diversity cases, there is also no reason to

presume in bankruptcy that the forum State “has the

greatest interest in seeing its law applied.” SMEC,

160 B.R. at 90. In diversity cases, federal courts are sitting “side by side” with state courts in the forum State

and have a goal of intrastate uniformity. See Klaxon,

313 U.S. at 496. That is not so in bankruptcy cases,

which are likely to involve transactions and property

with “significant contacts in many states.” Vanston,

329 U.S. at 161; see SMEC, 160 B.R. at 90 (“[T]he location of a debtor may bear little relation to the location

of his or her property interests or to the corpus of his

or her business dealings.”). A federal court exercising

bankruptcy jurisdiction also “has a goal of national uniformity rather than congruence with” the law of the forum State. Jafari v. Wynn Las Vegas, LLC (In re

Jafari), 569 F.3d 644, 648 (7th Cir. 2009), cert. denied,

14

558 U.S. 1114 (2010). The relationship between the federal court and the forum State is thus fundamentally

different in bankruptcy than in diversity.

2. There is some disagreement among the circuits

about whether, in a bankruptcy case, federal courts

should apply federal or state choice-of-law rules to select the law governing state-law claims. The specific

question presented here, however, concerns the mode

of analysis that should be used to determine whether a

claim is “unenforceable” under 11 U.S.C. 502(b)(1). No

circuit conflict exists on this question, as no court of appeals has relied on the forum State’s choice-of-law rules

to determine the enforceability of a claim.

The Ninth Circuit has stated in broad terms that, “in

bankruptcy, federal choice-of-law rules control which

state’s law applies.” Pet. App. 2a; see Lindsay v. Beneficial Reinsurance Co. (In re Lindsay), 59 F.3d 942, 948

(1995) (“In federal question cases with exclusive jurisdiction in federal court, such as bankruptcy, the court

should apply federal, not forum state, choice of law

rules.”), cert. denied, 516 U.S. 1074 (1996); see also Danning v. Pacific Propeller, Inc. (In re Holiday Airlines

Corp.), 620 F.2d 731, 734 (9th Cir.) (rejecting “mechanical application of the conflicts law of the forum State” in

bankruptcy), cert. denied, 449 U.S. 900 (1980). The court

below followed that general approach in determining

whether respondent’s claim was enforceable. Invoking

Restatement § 142 as a source of federal choice-of-law

rules, Pet. App. 5a, the court held that “disallowing [the

claim] by mechanical adoption of California’s statute of

limitations would be wholly unreasonable” when the

claim could have been brought and heard in Ohio outside the bankruptcy context, id. at 8a.

15

The Second and Fourth Circuits apply the forum

State’s choice-of-law rules in bankruptcy, “in the absence of a compelling federal interest which dictates

otherwise.” Compliance Marine, Inc. v. Campbell (In

re Merritt Dredging Co.), 839 F.2d 203, 206 (4th Cir.),

cert. denied, 487 U.S. 1236 (1988); see Bianco v. Erkins

(In re Gaston & Snow), 243 F.3d 599, 606 (2d Cir.)

(quoting In re Merritt Dredging), cert. denied, 534 U.S.

1042 (2001). It is unclear, however, whether those circuits would apply the forum State’s choice-of-law rules

when determining whether a claim is “unenforceable”

under Section 502(b)(1)—particularly when the parties’

contract has a choice-of-law clause and the contract

claim is timely and therefore enforceable under the chosen State’s law. Those circuits have addressed the

choice-of-law issue only when deciding very different

questions under the Bankruptcy Code. See In re Gaston & Snow, 243 F.3d at 607 (deciding which State’s law

applied in resolving a trustee’s claim against a third

party in an adversary proceeding to recover a debt); In

re Merritt Dredging, 839 F.2d at 205 (deciding which

State’s law controlled whether a barge was property of

the estate). Neither court has held that a claim can be

deemed “unenforceable” under Section 502(b)(1), based

on the forum State’s statute of limitations, when the

creditor has identified a State in which the claim could

have been brought and heard outside of bankruptcy.

The Eighth Circuit has stated, without analysis, that

a “bankruptcy court applies the choice of law rules of

the state in which it sits.” Amtech Lighting Servs. Co.

v. Payless Cashways, Inc. (In re Payless Cashways),

203 F.3d 1081, 1084 (2000). 2 The contested issue in that

In an unpublished opinion, the Eleventh Circuit applied the forum State’s choice-of-law rule, without analysis, to select the law

2

16

case was whether a particular claim was secured and

thus had priority under 11 U.S.C. 507, which depended

on whether a lien had been perfected. See 203 F.3d

at 1083-1084. Because it was undisputed that the claim

was allowable, id. at 1083, the court had no occasion to

address whether the claim was “unenforceable” within

the meaning of Section 502(b)(1), or to identify the rules

that would apply in making that determination.

The Fifth, Sixth, and Seventh Circuits have repeatedly declined to decide whether federal or forum-State

choice-of-law rules should be used to select the law governing state-law claims in bankruptcy. See, e.g., MC

Asset Recovery LLC v. Commerzbank A.G. (In re Mirant Corp.), 675 F.3d 530, 537 (5th Cir. 2012) (noting that

“[t]his circuit has not determined whether the [federal

common law] independent judgment test or the forum

state’s choice-of-law rules should be applied in bankruptcy,” and declining to choose between the two because the relevant rules were “ ‘essentially synonymous’ ”) (citation omitted); 3 State Bank v. Miller (In re

Miller), 513 Fed. Appx. 566, 572 (6th Cir. 2013) (“We

need not resolve that issue here” because “under either

[State’s] law,” the result would be the same); In re

governing an adversary proceeding brought by the trustee against

third parties for breach of fiduciary duty. Mukamal v. Bakes,

378 Fed. Appx. 890, 896-897 (2010), cert. denied, 563 U.S. 904 (2011).

3

The Fifth Circuit stated in Crist v. Crist (In re Crist), 632 F.2d

1226 (1980), cert. denied, 451 U.S. 936, and 454 U.S. 819 (1981), that

“[w]hen disposition of a federal question requires reference to state

law, federal courts are not bound by the forum state’s choice of law

rules, but are free to apply the law considered relevant to the pending controversy.” Id. at 1229. Later decisions have clarified that

the circuit remains undecided on this issue. See Woods-Tucker

Leasing Corp. v. Hutcheson-Ingram Dev. Co., 642 F.2d 744, 748-749

(5th Cir. 1981).

17

Jafari, 569 F.3d at 651 (“[W]e need not decide * * * because Nevada substantive law would apply either

way.”). Indeed, the Fifth and Seventh Circuits have declined to resolve the question for decades, consistently

finding that the choice between federal and state choiceof-law rules would not affect the outcome of the particular cases before them. See In re Morris, 30 F.3d 1578,

1582 (7th Cir. 1994); Woods-Tucker Leasing Corp. v.

Hutcheson-Ingram Dev. Co., 642 F.2d 744, 748-749 (5th

Cir. 1981). The remaining circuits do not appear to have

addressed the question.

In sum, petitioners offer no sound reason to believe

that any other circuit would have applied the forum

State’s choice-of-law rules in determining whether respondent’s claim was “unenforceable” within the meaning of Section 502(b)(1). More generally, petitioners

offer no sound reason to believe that any inconsistency

among the various circuits’ approaches to choice-of-law

issues in bankruptcy has affected the outcome of an appreciable number of cases. And while petitioners appear to assume that a single rule or mode of analysis

governs all of the disparate choice-of-law issues that

might arise in bankruptcy cases, there is no sound reason to suppose that such a uniform rule exists. This

Court’s elucidation of the respective roles of federal and

state law in determining whether a particular claim is

“unenforceable” under Section 502(b)(1) thus might

provide little guidance for other bankruptcy contexts.

3. This case would be an especially poor vehicle for

deciding how a bankruptcy court should approach

choice-of-law issues in deciding whether a claim is “unenforceable” within the meaning of Section 502(b)(1).

Petitioners did not press before the panel of the court

of appeals any argument that California’s choice-of-law

18

rules should apply. To the contrary, petitioners stated

that, “[i]n federal question cases with exclusive jurisdiction in federal court, such as bankruptcy, this Court applies federal choice of law rules.” Pets. C.A. Br. 5; see

Resp. C.A. Br. 6 (same). The court below accordingly

did not address that question at any length, but instead

simply noted the Ninth Circuit’s prior holding that, “in

bankruptcy, federal choice-of-law rules control which

state’s law applies.” Pet. App. 2a (citing In re Lindsay,

59 F.3d at 948).

In their briefs to the panel, the parties offered casespecific arguments about the application of Restatement principles to the facts of this case. See Pets. C.A.

Br. 5-16; Resp. C.A. Br. 6-12. The panel majority applied Restatement § 142 to conclude that, because respondent could have brought its claim in an Ohio court

outside the bankruptcy context, the claim should be

treated as timely in this bankruptcy case. See Pet. App.

3a-10a. Judge Tashima concurred in the judgment. Id.

at 11a-12a. Relying substantially on the choice-of-law

provision in the promissory note, and on Restatement

§ 187, he concluded that “there is no reason not to give

effect to the parties’ choice-of-law, which included their

choice of the Ohio statute of limitations.” Pet. App. 12a. 4

Petitioners filed a petition for rehearing en banc urging that California’s choice-of-law rules should apply.

See Pet. for Reh’g 1. The court of appeals denied that

petition, with no judge requesting a vote. Pet. App. 35a.

Although the bankruptcy court applied California choice-of-law

principles, it held that respondent’s claim was allowable, based on

the promissory note’s selection of Ohio law. Pet. App. 31a-34a. The

BAP reversed and ruled in petitioners’ favor, but strongly suggested that it would have reached the opposite result if it had not

been constrained by Ninth Circuit precedent. See id. at 27a-28a.

4

19

The Ninth Circuit therefore devoted no meaningful

analysis to the question whether California’s choice-oflaw rules should govern the issue of enforceability under Section 502(b)(1). And any dispute as to the proper

application of federal-law principles in resolving the

enforceability issue is not fairly encompassed by the

question presented in the certiorari petition. See Pet. i.

This Court previously denied certiorari on a choiceof-law question in a bankruptcy case where the issue

was not clearly presented by the parties or discussed

fully by the court below. See Erkins v. Bianco (In re

Gaston & Snow), 534 U.S. 1042 (2001). There is no reason for a different result here.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

NOEL J. FRANCISCO

Solicitor General

CHAD A. READLER

Acting Assistant Attorney

General

MALCOLM L. STEWART

Deputy Solicitor General

ZACHARY D. TRIPP

Assistant to the Solicitor

General

MARK B. STERN

COURTNEY L. DIXON

Attorneys

MAY 2018