United States Abatement Corp. v. Mobil Exploration & Producing U.S. Inc.

KING, Circuit Judge:

This appeal involves the question whether a bankruptcy court, upon motion of a Chapter 11 debtor, may equitably subordinate the claim of a creditor who exercised a contractual right to recoup from the debtor sums it became obligated to pay to other creditors who had filed liens against the recouping creditor’s property. The debtor contended that the exercise of the right of recoupment constituted an inequitable exercise of control over the debtor, forcing the debtor into bankruptcy, all to the detriment of other creditors. The bankruptcy court held that the exercise of a…