Nikola Bankruptcy Appeal Tests the Reach of Trump’s Pardon Power

Pushing boundaries has always been Trevor Milton’s way. Defying the norms drove him in 2014 to start Nikola Corp., an electric-vehicle startup that aimed to be the Tesla of trucks. 

He later became the public face of its collapse, sentenced to four years in prison after being convicted of defrauding investors. Then came President Donald Trump.

Now Milton is trying to use the “full and unconditional” pardon the president awarded him last spring to test new limits in court and, with it, the centuries-old concept of the separation of powers.

His lawyers doubled down in a Jan. 30 filing on their argument that Trump’s pardon amounted to an unquestioned exoneration that materially changed Milton’s “relationship with the law” and his standing in the bankruptcy.

Among other things, they are asking a Delaware federal judge to reverse a bankruptcy court ruling that found Milton’s misconduct was enough to push his nearly $70 million claim against Nikola to the back of the creditor line, effectively wiping out his chance of a payout in the Chapter 11 proceeding.

Since returning to office, Trump has issued an unprecedented number of pardons, even without counting more than 1,000 Jan. 6 defendants. Some recipients have sought to leverage the pardon for more than just removing a conviction, asking to be reimbursed for fees or fines related to their cases. Judges have mostly rejected those bids.

Milton’s argument goes deeper, contending that the president’s pardon power is “sweeping” and that his public statements that the former Nikola executive “did nothing wrong” amount to a finding of innocence by Trump. His lawyers cite a 19th-century Supreme Court decision related to a Confederate soldier, which concluded a presidential pardon “blots out the existence of guilt.”

More recent rulings counter that argument, legal scholars say. But the Trump administration’s subjugation of the justice system and its aggressive pushback on judges make Milton’s appeal worth watching.

If a court were to adopt his argument, “it will totally transform the pardon power from one that’s just restricted to eliminating criminal punishment to one that applies to civil judgments of all sorts,” said Adam Winkler, a UCLA School of Law professor specializing in American constitutional law. 

Neither Milton nor the law firm representing him in the Nikola case, DLA Piper LLP, responded to comment requests. 

In a 50-page brief filed last month, the Nikola liquidation trustee and a committee representing unsecured creditors strongly urged Judge Gregory B. Williams to reject Milton’s claim. A presidential pardon doesn’t erase the underlying misconduct that led to the fraud charges against him, they argued.

“If pardons could dictate facts in civil proceedings such as bankruptcy, then pardons would necessarily extend to civil liability,” the trustee and creditors’ committee wrote. 

Christopher Hampson, a University of Florida Levin College of Law professor, said the prospect that executives could wash away all evidence of their wrongdoing with a pardon can’t be seen as an unsettled issue.

“It’s completely foreseeable that there will be more situations where the founder or the head of a company commits fraud, sends the company into bankruptcy, and then receives a presidential pardon,” he said. “That’s why, for me, reinforcing the limits on the pardon power is incredibly important in this moment.”

Subordination 

Milton resigned as CEO in 2020 following accusations that Nikola had misled investors about its financial outlook. Two years later, he was convicted of securities and wire fraud in New York. 

After Nikola filed for bankruptcy in 2025, Milton submitted a $69.7 million claim, asserting the company owed him under separation and indemnification agreements that also obligated Nikola to reimburse legal fees. 

Nikola initiated arbitration, alleging Milton breached his fiduciary duties as CEO. The company won an arbitration award of nearly $100 million plus interest. When Milton filed his bankruptcy claim, he said it could be used as a “setoff” against the amount he owed his former company.

Both bankruptcy and non-bankruptcy law allow courts to subordinate a claim when a creditor has acted unfairly with respect to other creditors.

The doctrine, called equitable subordination, acts as a “release valve” when someone uses their position or status to mischaracterize matters in ways that don’t match economic reality, said Bruce A. Markell, a former Nevada bankruptcy judge.  

It’s easier to apply to insiders like Milton.

“Equitable subordination is there to correct wrongs, but in my experience, most people don’t commit wrongs, so there’s not an opportunity to raise it all that often,” Markell, also a professor at Northwestern Pritzker School of Law, said.

The Securities and Exchange Commission had issued a $125 million penalty against Nikola for securities violations and intended to distribute some of it to investors who lost their money. It was settled through the bankruptcy process, with $43 million of the penalty treated as a general unsecured claim, including a $4 million cash payout, while $40 million was subordinated.

But when Nikola moved to subordinate Milton’s claim, he brought up his presidential pardon. Judge Thomas H. Horan dismissed Milton’s bid to leverage it in the Delaware bankruptcy court, noting that pardon powers don’t extend to innocence and that even if they did, the pardon was “unambiguous and clear” that there was no such finding.

That’s the ruling Milton’s now appealing.

His argument has stunned longtime observers of bankruptcy, an arena where pardons don’t usually come into play. 

“The fact that someone would even think this criminal pardon was something that you could base your civil appeal on strikes me as unusual because it’s not a bankruptcy issue, it’s a political issue,” Markell said. “[That] someone is trying to say, as a matter of law, ‘Trump likes this guy or Trump pardoned this guy, so find some reason to reverse,’ to me is just antithetical to the whole notion of how the judiciary and the executive are supposed to work.”

The Pardon 

Milton is relying largely on Trump’s response to reporters who asked him last March why he issued the pardon.

“They say the thing that he did wrong was he was one of the first people that supported a gentleman named Donald Trump,” the president said. “He did nothing wrong.” 

Trump told reporters that Milton “did nothing wrong.”

AFP via Getty Images

Milton’s lawyers argue that a pardon bars applying res judicata— the principle that issues already decided can’t be re-litigated—to establish facts during Nikola’s bankruptcy plan confirmation hearing.

That argument “might gain some traction,” Hampson said, “but Milton’s arguments about the legal effect of the pardon power run contrary to the modern view of how a pardon works.”

In his appeal of Horan’s ruling, Milton contends that the court improperly excluded Trump’s “he did nothing wrong” statement as hearsay, and that “history shows” that an unconditional pardon is treated as innocence.

The response from the trustee and unsecured creditors, filed by lawyers at Morrison & Foerster LLP and Morris James LLP, noted that most of the pardons issued by Trump have used similarly unconditional language. Even if Milton were pardoned on the grounds of innocence, they wrote, that wouldn’t erase his civil liability. 

They contend that Milton’s conviction and pardon actually reinforced the evidence of his misconduct, and that his argument misconstrued Trump’s remarks.

“Indeed, even in stating that Milton ‘did nothing wrong,’ the context suggests that the President only meant that Milton had done ‘nothing wrong’ by supporting the President politically,” their reply brief said. 

Milton argued that the bankruptcy judge unfairly relied on a pardoned conviction and an arbitration award, which he’s appealing, to lower the priority of his claim.

The bankruptcy court can rely upon the award, but it doesn’t need a ruling to find the existence of inequitable conduct, said Lawrence Ponoroff, a Tulane University Law School professor.  If the bankruptcy court found that Milton engaged in conduct that harmed other creditors or gave him an unfair advantage over them, ordering equitable subordination was within the court’s discretion, he added.

Therefore, a reversal of the award, “which is unlikely and even more unlikely to be based on a determination that the conduct did not occur,” he said, wouldn’t automatically mean that the court’s finding of inequitable conduct was clearly erroneous. 

Trump Era 

Milton’s appeal echoes the Trump administration’s broader attempts to redraw the law. Some of those efforts have succeeded. 

Last year, the Supreme Court overwhelmingly sided with the Trump administration on issues including limitations on nationwide injunctions and executive orders that led to the mass firing of agency officials and the exclusion of transgender people from the military. 

“What we have seen during the Trump era are continuous efforts to push the boundaries of the law, and to change the law in ways that help Donald Trump and Donald Trump’s supporters,” Winkler said.

Allowing pardons to impact civil proceedings like bankruptcy would undermine the distributional scheme that Congress put in place for ensuring the equitable distribution of assets, Ponoroff said. 

At the same time, Trump has lately been confronting the limits of his forgiveness powers.  

He had to issue a second pardon in November for Jan. 6  rioter Daniel Edwin Wilson  when it became clear the first pardon didn’t extend to illegal gun possession charges related to the search of Wilson’s home by federal agents.

“I would argue that Trump having to issue a second pardon demonstrates the limits of the pardon power,” Hampson said. 

Next up for Milton and his lawyers is likely oral arguments before Williams, who was nominated by President Joe Biden, in the Delaware federal court. A loss could mean appealing to the US Court of Appeals for the Third Circuit or seeking review by the US Supreme Court.