Pensco Trust Co. v. Tristar Esperanza Props., No. 13-60023 (9th Cir. 2015)
Annotate this CaseJane O’Donnell paid for a minority membership interest in Tristar Esperanza Properties, LLC. O’Donnell later withdrew from the LLC, and Tristar elected the purchase her membership interest. The parties disagreed on the proper valuation of O’Donnell’s membership interest, and O’Donnell brought a contractual arbitration action. When Tristar failed to pay O’Donnell the amount an arbitrator awarded, O’Donnell sought and received a money judgment for that amount in state court. Tristar subsequently filed a chapter 11 bankruptcy petition. O’Donnell filed a claim against Tristar based on her state-court judgment. Tristar, in turn, filed an adversary proceeding against O’Donnell seeking to subordinate her claim under 11 U.S.C. 510(b) and (c) or to avoid her claim as a preference. The bankruptcy court entered summary judgment in favor of Tristar on the section 510(b) claim and in favor of O’Donnell on all other claims. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that O’Donnell’s claim was subject to mandatory subordination under the Bankruptcy Code. The Ninth Circuit affirmed, holding that because the claim was for “damages arising from the purchase or sale” of a “security of the debtor,” the bankruptcy court properly subordinated it.
Court Description: Bankruptcy. On appeal from the Bankruptcy Appellate Panel, the panel affirmed the bankruptcy court’s summary judgment in an adversary proceeding to subordinate a creditor’s claim based on a minority interest in a chapter 11 debtor. The panel held that the claim was subject to mandatory subordination under 11 U.S.C. § 510(b) because it was a claim for damages arising from the purchase or sale of a security of the debtor.
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