The Improper Application of the Clear-and-Convincing Standard of Proof: Are Bankruptcy Courts Distorting Accepted Risk Allocation Schemes?
University of Cincinnati Law Review, Vol. 78, 2009
44 Pages Posted: 3 Jul 2009
Date Written: October 2009
Bankruptcy proceedings tend to involve civil disputes where nothing more than money is at stake. In such instances, the application of the preponderance-of-the-evidence standard of proof offers the greatest utility and is aligned with the comparatively minimal importance society places on purely monetary disputes. However, bankruptcy courts are not viewed as typical civil courts. Rather, many view these courts as “courts of equity” and this perception serves as a crutch which many bankruptcy judges use in advocating the application of the clear-and-convincing standard of proof to customary civil disputes. These actions distort the accepted risk allocation schemes implicit in standards of proof; the consequence of which often is inequitable results. A lack of direction by the Supreme Court is a key factor in this process failure. The Court has addressed the application of standards of proof infrequently and, when it has, the holding has been narrowly tailored. In 1990, the Court issued a ruling in Grogan v. Garner, 498 U.S. 279 (1991), that appeared to provide guidance. Unfortunately, as of late, the ruling has been misinterpreted by a number of courts and has led to additional confusion on an issue that was already elusive.
In my article, I propose a new, comprehensive normative approach to determine which standard of proof is applicable in disputes involving debtors in possession under the Bankruptcy Code. My approach is based on a coextensive reading of applicable Supreme Court precedent that honors the narrow basis on which many of these rulings are made. I urge use of an approach that will engender greater uniformity on this fundamental issue. Further, I analyze some key forms of relief available under the Bankruptcy Code in which courts have advocated the application of the clear-and-convincing standard of proof but failed to provide any explanation for this action. By applying my approach, I evaluate bankruptcy case law and isolate instances where bankruptcy courts impermissibly distort accepted risk allocation schemes. Finally, I attempt to show that some unexplained applications of the clear-and-convincing standard of proof are justified.
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