Liquidating Trust Comm. v. Freeman, No. 13-17500 (9th Cir. 2016)
Annotate this CaseDavid Freeman and his cohort of investors, including William Del Biaggio, III, purchased the Nashville Predators, a National Hockey League (NHL) team in Nashville, Tennessee. As a result of the sale, the Predators became wholly owned and operated by Nashville Hockey Club Limited Partnership, LLC, which is in turn wholly owned by Predators Holdings, LLC (Holdings). Several months after the sale, Freeman learned that Del Biaggio never had the funds to support his guarantees and that the $25 million Del Biaggio already invested was in fact money he had embezzled from his clients. Del Biaggio filed for Chapter 11 bankruptcy which gave rise to the current proceeding. Freeman filed a general unsecured claim against Del Biaggio’s bankruptcy estate seeking damages of an undetermined amount arising from his fraud in the Holdings transaction. In response, the Liquidating Trust Committee of the Del Biaggio Liquidating Trust, the entity charged with prosecuting claims objections in Del Biaggio’s bankruptcy, filed a counterclaim against Freeman and sought summary judgment. The bankruptcy court granted the Committee’s motion for summary judgment, finding Freeman’s claim was subject to mandatory subordination under 11 U.S.C. 510(b). The court concluded that Freeman's claim is a damages claim, and the district court did not err in applying section 510(b) to his claim against Del Biaggio because his claim is one "arising from the purchase or sale" of Holdings. Furthermore, Freeman's claim is not limited to corporate debtors. The court rejected Freeman's remaining claims and affirmed the judgment.
Court Description: Bankruptcy. Affirming the district court’s affirmance of the bankruptcy court’s summary judgment in an adversary proceeding, the panel held that an individual creditor’s general unsecured fraud claim was properly subordinated to other claims senior or equal to it. The panel held that the claim was properly subordinated under 11 U.S.C. § 510(b) because it was a damages claim arising from the purchase or sale of securities of an affiliate of the debtor. The panel held that the claim arose from the sale or purchase of securities in Predators Holdings, LLC, owner of Nashville Hockey Club Limited Partnership, LLC, which owned and operated the Nashville Predators National Hockey League team. The panel also held that § 510(b) is not limited to corporate debtors, but also applies to individual debtors. IN RE DEL BIAGGIO 3
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