The United States District Court for the District of Delaware recently affirmed the Bankruptcy Court’s subordination of a $69.758 million general unsecured claim for inequitable conduct under 11 U.S.C. § 510(c) despite the claim holder’s “full and unconditional” pardon by the President. The case is Milton v. Pitta (In re Nikola Corp.), No. 25-1194-GBW, 2026 U.S. Dist. LEXIS 205471 (D. Del. Sep. 10, 2026). Trevor Milton, Nikola’s former CEO, appealed the order confirming Nikola’s Chapter 11 Plan of Liquidation. At issue was the subordination of Milton’s $69.758 million general unsecured claim for fees he asserted were owed to him from Nikola on account of separation and indemnification agreements. A prior arbitration award found that Milton had breached his fiduciary duties of good faith and loyalty to Nikola on account of false and misleading public statements.
While Milton’s appeal of his criminal matter was pending, the President granted to him a “full and unconditional” pardon for his criminal offenses. Milton argued that the pardon erased his misconduct based on the President’s “unreviewable determination” and his bankruptcy claim could therefore not be equitably subordinated. The District Court rejected this argument on appeal, stating that a pardon does not relieve a wrongdoer from civil liability and holding there is no basis to collaterally attack the arbitration award. Further, the District Court held that pardons do not dictate facts in civil proceedings such as bankruptcy, so a civil court is not precluded from determining that a defendant engaged in the type of misconduct that would trigger Section 510(c) equitable subordination. Finally, the District Court distinguished between the arbitration award that was premised on breaches of fiduciary duty and false statements and the criminal case, stating that the arbitration award was more than sufficient to subordinate Milton’s claim. Because unsecured creditors will not be paid in full, the subordination of Milton’s claim means he will receive no distribution on account of his general unsecured claim.
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