In In re Jafari, the Seventh Circuit had the opportunity to take a position on whether state or federal choice-of-law rules should be applied in bankruptcy cases. Instead, the court chose not to resolve the question because the outcome was the same under application of Wisconsin's choice-of-law rules and the federal common law choice-of-law rule used by the First and Ninth Circuits in bankruptcy and other federal question cases. The United States Supreme Court has never directly addressed whether state choice-of-law rules must be applied in bankruptcy. Furthermore, the Court has not extended its holding from Klaxon Co. v. Stentor Electric Manufacturing Co., that federal courts exercising diversity jurisdiction must apply the forum state's choice-of-law rules to federal question cases. Without any clear direction from the Supreme Court, the federal courts have been divided over the correct approach. This Note explores the consequences of application of state choice-of-law rules in bankruptcy cases and how they are at odds with the uniform nature of the federal bankruptcy system. Specifically, this Note proposes that creating federal choice-of-law rules for bankruptcy cases would ensure uniformity and fairness in the bankruptcy context and that Congress is the institution best suited to develop federal choice-of-law rules for bankruptcy cases.
Viktoria A. Ziebarth,
Choice-of-Law Rules in Bankruptcy: An Opportunity for Congress to Resolve Conflicting Approaches,
Seventh Circuit Rev.
Available at: https://scholarship.kentlaw.iit.edu/seventhcircuitreview/vol5/iss2/3