On September 9 and 10, 2026, Judge Gregory B. Williams of the United States District Court for the District of Delaware signed opinions in two separate appeals taken from the same order, both docketed in the chapter 11 cases on September 10. Both affirmed. The order under review was the September 12, 2025 findings of fact, conclusions of law, and order confirming the Second Amended Combined Disclosure Statement and Chapter 11 Plan of Liquidation of Nikola Corporation and its Debtor Affiliates, entered at Bankr. D.I. 1036.

The first appeal, taken by the founder and former chief executive officer, challenged the equitable subordination of his roughly $69.8 million general unsecured indemnification claim under section 510(c), along with the plan provisions stripping his asserted setoff and recoupment rights. The second, taken by the co-lead plaintiffs in the Arizona securities class action, challenged the classification of the class claim in the plan's section 510(b) class on the ground that the debtors were required to file a Bankruptcy Rule 3007 claim objection before any subordination could occur. No party requested oral argument in either appeal.

The two opinions address different statutory provisions and reach their results on different grounds. In both, subordination was accomplished through plan confirmation. The class plaintiffs challenged that procedure directly, and the district court rejected the challenge. Milton raised a related procedural objection in the bankruptcy court, arguing that subordination had to be resolved in an adversary proceeding where he could testify, and on appeal limited his challenge to the first element of the equitable subordination test.

The debtors filed voluntary chapter 11 petitions in Delaware on February 19, 2025. What followed on the claims side was a sequence of stand-alone classification briefs, filed in advance of the objection deadline, each addressed to one disputed claim. The debtors filed a memorandum on classification of the SEC claim under section 510(b) on July 25, 2025 (D.I. 796), a memorandum on the Reyes action claim under section 510(b) on July 28 (D.I. 804), a sealed memorandum on the founder's claim under section 510(c) on July 29 (D.I. 808, redacted version at D.I. 824), and a memorandum on classification of the shareholder securities litigation claim under section 510(b) on August 1 (D.I. 820). The debtors' memorandum on the shareholder securities litigation claim landed nineteen days before plan objections were due and more than a month before the evidentiary hearing.

Objections arrived between August 19 and August 26, 2025 from the founder, the class plaintiffs, the United States Trustee, the Securities and Exchange Commission, individual equity holders, and a lessor. The founder filed both a general plan objection (D.I. 910) and an opposition directed at the section 510(c) classification memorandum (D.I. 911), then withdrew the general objection on September 4 (D.I. 989). The class plaintiffs filed a limited objection and reservation of rights (D.I. 909) resting solely on procedure. Their objection did not dispute the substance of the debtors' section 510(b) argument, did not take issue with the proposed Class 7 treatment language, and did not contest the underlying facts of the securities litigation or the nature of the damages asserted in the class claim.

The bankruptcy court held a contested evidentiary hearing on September 5, 2025 and ruled from the bench. The confirmation order followed a week later. The class plaintiffs filed their notice of appeal the same day the order was entered; the founder filed his thirteen days after that. The plan went effective on December 12, 2025, roughly nine months before either appeal was decided.

The claim at issue in Civ. No. 25-1194 was a proof of claim for $69,758,064.15, asserted as a general unsecured claim for legal fees purportedly owed under separation and indemnification agreements. The claim form also asserted that the amount could be used as a setoff against what its holder owed Nikola under the arbitration award. The debtors requested the supporting invoices. None were produced.

Nikola advanced approximately $36.8 million in legal fees before it began contesting the reasonableness of the requests. Arbitration over a $32 million invoice from a major law firm followed, of which roughly $14 million had already been paid, leaving $18 million in dispute. In February 2022 the panel found $17.2 million of that $18 million unreasonable.

Nikola commenced a separate arbitration against its former chief executive. After an eight-day hearing in July and August 2023, a three-arbitrator panel concluded on November 17, 2023 that he had violated his fiduciary duties of loyalty and good faith through a pattern of false and misleading public statements about the company's products and the state of their development, and by subordinating the company's interests to his own in refusing all efforts to review and approve his public statements in advance. The panel stated expressly that the criminal conviction "has not been considered or given any substantive weight" in that finding. Damages included the $125 million SEC penalty and millions in legal fees and expenses, with 97 percent of the total allocated to him after a comparative fault analysis. One arbitrator dissented, disagreeing only about how much fault should be attributed to Nikola, and agreed that the fiduciary breaches had been proven.

On appeal, the dissent was offered as evidence that the award lacked the firmness issue preclusion requires. The district court rejected that argument in a single sentence.

The Third Circuit applies a three-element test for equitable subordination: inequitable conduct by the claimant, resulting injury to creditors or unfair advantage to the claimant, and consistency with the provisions of the Bankruptcy Code. Citicorp Venture Cap., Ltd. v. Comm. of Creditors Holding Unsecured Claims, 160 F.3d 982, 986-87 (3d Cir. 1998). Where the claimant is an insider, the showing on the first element drops: inequitable conduct may be proven by showing illegal or fraudulent conduct, or a breach of fiduciary duties owed to the debtor, stockholders, or creditors. In re Mid-Am. Waste Sys., Inc., 284 B.R. 53, 69-70 (Bankr. D. Del. 2002); In re Zohar III, Corp., 639 B.R. 73, 91 (Bankr. D. Del. 2022).

The appeal contested only the first element. Insider status went undisputed, as did injury and consistency with the Code.

Once the District of Arizona confirmed the award, it became a judgment of the court entitled to "the same force and effect . . . as . . . a judgment in any other action," and carried the force of collateral estoppel. Teamsters Loc. 177 v. United Parcel Serv., 966 F.3d 245, 251 (3d Cir. 2021); Witkowski v. Welch, 173 F.3d 192, 198-99 (3d Cir. 1999). The district court described the bankruptcy court's application of that doctrine as "a textbook application of preclusion principles."

The argument that the award was not final because a Ninth Circuit appeal remained pending at the time of the confirmation hearing failed on two independent grounds. It had been forfeited below, where counsel never challenged the preclusive effect of the award and offered no response when debtors' counsel raised the point preemptively at the confirmation hearing. It was also wrong. "The pendency of an appeal does not affect the potential for res judicata flowing from an otherwise-valid judgment." United States v. 5 Unlabeled Boxes, 572 F.3d 169, 175 (3d Cir. 2009); see also O'Leary v. Liberty Mut. Ins. Co., 923 F.2d 1062, 1066 n.6 (3d Cir. 1991). The Ninth Circuit had in any event affirmed by the time the appeal was decided.

Civ. No. 25-1194 presented the question whether a presidential pardon bars a bankruptcy court from relying on findings of misconduct when it subordinates a claim. In the bankruptcy court, the argument was that the pardon rendered its recipient "innocent of any wrongdoing" and established factual innocence through "the President's unreviewable determination." On appeal it acquired a constitutional wrapper: that separation of powers required deference to the President's judgment that he had done nothing wrong.

The bankruptcy court had questioned the premise at the hearing, observing that the pardon said nothing on its face about innocence and that there was no need to consult extrinsic evidence such as the President's oral remarks when the written instrument was clear.

On appeal the argument failed on the merits, without any need to reach whether the Federal Arbitration Act would even permit that sort of collateral attack on a confirmed award. A pardon cannot "relieve the wrongdoer from civil liability." Angle v. Chi., St. Paul, Minneapolis & Omaha Ry. Co., 151 U.S. 1, 19 (1894). It may relieve a defendant from federal criminal punishment, but it "cannot stop" civil liability that is merely remedial and for the benefit of the complainant. Ex parte Grossman, 267 U.S. 87, 111 (1925). Counsel had conceded at the confirmation hearing that a pardon "doesn't get you out of civil liability."

The district court rejected the deference argument. If pardons could dictate facts in civil proceedings such as bankruptcy, they would necessarily extend to civil liability, which Angle forbids, and would shield defendants from liability in purely remedial contexts like the equitable subordination of claims, which operates for the benefit of private parties. A separate and narrower ground reinforced the holding. The arbitration award rested on breaches of fiduciary duty and false statements, conduct that does not necessarily constitute a criminal offense, so even a pardon read to mean no criminal fraud occurred would leave the basis for the award intact.

Because no further evidence of inequitable conduct was needed, the district court declined to reach the additional arguments about whether the pardoned conviction supplied independent evidence of inequitable conduct.

The plan precluded the claimant from asserting any right of setoff, subrogation, or recoupment against obligations he owed the estate, including the money owed under the arbitration award. On appeal he argued that section 553 preserved those rights and barred their elimination, and that eliminating them without just compensation effected an unconstitutional taking.

Neither argument had been presented to the bankruptcy court. The debtors' subordination brief had made the specific argument that setoff rights may be denied on a showing of inequitable conduct, citing the caselaw and explaining why relief was permitted under section 553. No contrary argument came back. At the confirmation hearing, counsel conceded that "if the [c]ourt equitably subordinates his claim, [then] that setoff, that recoupment is gone." The district court treated that concession as intentional relinquishment rather than mere forfeiture, and waived claims may not be resurrected on appeal. Barna v. Bd. of Sch. Dirs. of Panther Valley Sch. Dist., 877 F.3d at 146-47 (3d Cir. 2017). The takings argument drew no separate relinquishment holding. The court noted only that it had not been presented to the bankruptcy court, then addressed it on the merits anyway.

Setting waiver aside, the court addressed the merits and reached the same result. Section 553 does not independently create setoff rights; it incorporates and preserves the common-law right of setoff arising out of non-bankruptcy law. United States ex rel. IRS v. Norton, 717 F.2d 767, 772 (3d Cir. 1983). Because that common-law right is an equitable one, it can be lost when the claimant engages in inequitable conduct, and section 553 carried that qualification along with it when it incorporated the right. In re Commc'n Dynamics, Inc., 382 B.R. 219, 226-28 (Bankr. D. Del. 2008) (setoff); In re Am. Home Mortg. Holdings, Inc., 401 B.R. 653, 655-56 (D. Del. 2009) (recoupment).

The recoupment claim failed for an independent reason. Recoupment is a strict and narrow doctrine that applies only where both debts arise out of a single integrated transaction. In re Univ. Med. Ctr., 973 F.2d 1065, 1081 (3d Cir. 1992). The indemnification claim arose from the separation and indemnification agreements. The debt to Nikola arose from false statements made to the public. A logical relationship between the two would not be enough; recoupment requires an identical transaction, and the linkage was absent. Id. at 1080.

On takings, the district court applied the prospectivity rule. Bankruptcy laws do not effect a taking when they are imposed before the property interest arises. In re Thompson, 867 F.2d 416, 422 (7th Cir. 1989); In re Weinstein, 164 F.3d 677, 686 (1st Cir. 1999); In re Thaw, 769 F.3d 366, 370-72 (5th Cir. 2014). The putative setoff rights here were acquired decades after enactment of the Bankruptcy Code, which had already incorporated the common-law rule that setoff rights can be extinguished for inequitable conduct.

The co-lead class plaintiffs in Borteanu v. Nikola Corp., No. 2:20-cv-01797-SPL (D. Ariz.), had reached a prepetition settlement with Nikola, memorialized in a term sheet executed on January 28, 2025, under which the class was to receive $13,000,000 in cash payments and certain other consideration. Nikola agreed that if it filed for bankruptcy it would seek approval of the settlement under Bankruptcy Rule 9019. Three weeks later it filed. The first-day declaration represented that a Rule 9019 motion would be filed in due course and that the plan would distribute the settlement consideration.

The schedules filed on March 19, 2025 listed the settlement as a contingent, unliquidated, and disputed unsecured claim. The class filed Claim No. 10257 asserting an unliquidated claim of "not less than $13,000,000" based on the term sheet. The plan placed claims and interests into eight classes and created Class 7 for section 510(b) and other junior claims, a class that does not share pro rata with the Class 3 general unsecured creditors and that receives no distribution because senior classes will not be paid in full.

The appellate theory was procedural rather than substantive. The class argued that because their claim enjoyed prima facie validity under section 502(a), the debtors were required to file a claim objection under Bankruptcy Rule 3007, and that subordination could not be accomplished through the plan. Their objection put it plainly: "Assuming arguendo that the Class Claim could be subordinated, the Debtors' Plan is not the proper procedural mechanism to adjudicate that issue."

The district court found the core premise incorrect. Subordination under section 510(b) concerns priority and treatment, and it presupposes allowance. By its terms, section 510(b) applies only to a claim "allowed under section 502." When the bankruptcy court concluded that the class claim was properly subordinated under section 510(b), it necessarily treated the claim as allowed. In re Bayou Grp., LLC, 372 B.R. 661, 666 (Bankr. S.D.N.Y. 2007); Kaiser Grp. Int'l, Inc. v. Pippin (In re Kaiser Grp. Int'l, Inc.), 326 B.R. 265, 268 (D. Del. 2005).

The appeal also turned on the plan language itself. On the effective date, all section 510(b) claims were "deemed automatically cancelled, released, and extinguished." The appellants argued that this operated as disallowance without the procedural protections a claim objection would supply.

The district court noted that the appellants cited no authority holding that this language, found in numerous confirmed chapter 11 plans, constitutes claim disallowance under section 502. The opinion cites four confirmed plans using materially identical phrasing: In re Silvergate Capital Corp., No. 24-12158 (Bankr. D. Del. Nov. 13, 2025), In re SVB Financial Group, No. 23-10367 (Bankr. S.D.N.Y. Aug. 2, 2024), In re Celsius Network LLC, No. 22-10964 (Bankr. S.D.N.Y. Nov. 9, 2023), and In re Charming Charlie Holdings Inc., No. 17-12906 (Bankr. D. Del. Dec. 22, 2017).

The phrase reflects the distributional consequence of subordination in an insolvent estate. A subordinated claim, like equity, receives nothing unless all senior claims are paid in full. Where the estate is insolvent, the practical effect of subordination may resemble disallowance because neither subordinated claims nor equity receive anything, and the claim nonetheless remains allowed. In re Bayou Grp., LLC, 439 B.R. 284, 300 (S.D.N.Y. 2010).

The opinion then set out the statutory structure. Disallowed claims are precluded from receiving distributions. Subordinated claims remain allowed and are assigned the lowest priority. Section 510(b) requires claims for damages arising from the sale of the debtor's securities to share "the same priority as" the underlying equity, and the Nikola plan implemented that mandate by according Class 7 the same treatment as the Class 5 equity interests. Both were cancelled on the effective date because, given the debtors' insolvency, neither was entitled to a distribution unless all senior creditor classes were paid in full. No evidence at confirmation suggested they would be. See Gaff v. FDIC, 919 F.2d 384, 394 (6th Cir. 1990) (rescission claims subject to section 510(b) "are not disallowed. They are merely moved to the last set of priorities").

The holding described in this section comes from the class plaintiffs' appeal. Milton raised a related procedural objection in the bankruptcy court, arguing that subordination of his claim had to be resolved in an adversary proceeding where he could testify, and did not carry it forward. Civ. No. 25-1194 contains no ruling on the question.

Bankruptcy Rule 7001(h) requires an adversary proceeding to subordinate an allowed claim or interest, "except when subordination is provided in a Chapter 9, 11, 12, or 13 plan." The district court applied the exception as written. There are two procedural paths to subordination, and the district court held that the Rules impose no third requirement of the kind the appellants proposed.

Rule 3007 governs objections to the allowance of claims under section 502. It does not apply where the debtor leaves the claim's allowance status untouched and invokes section 510(b)'s mandatory priority instead. In re Wash. Mut., Inc., 462 B.R. 137, 145 (Bankr. D. Del. 2011); In re Trib. Co., 472 B.R. 223, 228 (Bankr. D. Del. 2012); In re Best Prods. Co., 168 B.R. 35, 39 (Bankr. S.D.N.Y. 1994). Rule 3007(b) itself provides that a party objecting to a claim must not include a demand for relief specified in Rule 7001, which points back to the adversary-proceeding or plan alternatives.

The opinion also addressed redundancy. Once the debtors filed a plan calling for subordination of the class claim, the class objected to the plan, triggering a contested matter under Rule 3020(b) to litigate exactly that question. On the appellants' proposed rule, the debtors would also have been obligated to file a claim objection asserting subordination, initiating a second contested matter to litigate the same issue already in dispute.

The court distinguished the lien cases the class relied on, which arise under Rule 7001(b) and contain no exception for chapter 11 plans. SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin), 530 F.3d 230, 237 (3d Cir. 2008). Rule 7001(h) does contain one.

The bankruptcy court never ruled on the debtors' disallowance arguments. Because equitable subordination rendered the founder's claim incapable of receiving a distribution, allowance became unnecessary, and the parties appeared to agree at the hearing that subordination was a dispositive gating issue. Several claim-side matters remained pending during the appeal.

The debtors filed a supplemental objection to the claim on October 23, 2025 (D.I. 1212) and served document requests and interrogatories the same day (D.I. 1213). The claimant responded with a motion to dismiss the supplemental objection for want of jurisdiction (D.I. 1295) and a motion for a protective order forbidding the discovery (D.I. 1310), supported by a memorandum of law (D.I. 1311). On December 22, 2025, the bankruptcy court approved a stipulation extending the response deadline on both motions to thirty days following entry of a final order in the appeal of the confirmation order. The stipulation was certified at D.I. 1396, the entry the district court cited, and approved by order at D.I. 1402. The September 10 order is a final order in that appeal.

The parties also litigated the contents of the appellate record. The debtors moved to strike items and issues designated for inclusion (D.I. 1261), and the bankruptcy court entered an order on that motion on November 25, 2025 (D.I. 1322).

Each appellant retains the ability to seek review in the Third Circuit under 28 U.S.C. § 158(d)(1). A notice of appeal from a district court order in this posture is due within thirty days under Federal Rule of Appellate Procedure 4(a)(1)(A). The plan went effective on December 12, 2025, so any further appeal would proceed against a consummated liquidating plan.

Every document cited in this report is available on the Nikola Corporation docket in Research Suite. The case record is at In re Nikola Corporation, No. 25-10258 (Bankr. D. Del.).