Khan v. Barton (In re Khan)
- Citation:
- Khan v. Barton (In re Khan), BAP Nos. CC-14-1021-TaDKi, CC-14-1041-TaDKi, CC-14-1062-TaDKi (B.A.P. 9th Cir. Dec. 9, 2014)
- Tag(s):
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- Ruling:
- AFFIRMING the bankruptcy court, the Bankruptcy Appellate Panel of the Ninth Circuit held that mandatory subordination of creditor's claims was not required and that the bankruptcy court did not err in overruling debtors' respective claims objections and dismissing adversary proceedings alleging mandatory subordination under section 510(b) with prejudice.
Disallowance of creditor's claims does not follow from mandatory subordination, as "subordination relates to the order of distribution among a debtor's creditors, not whether a claim is allowed under the Code." In any event, creditor's claims were not subject to mandatory subordination under section 510(b), as mandatory subordination relates to corporate debt and the distribution of corporate assets; section 510(b) is inapplicable in an individual debtor's case. The bankruptcy court did not abuse its discretion in converting debtors' cases to chapter 7.
- Procedural context:
- The bankruptcy court converted debtors' respective chapter 13 cases to chapter 7, overruled objections to creditor's claims, and dismissed adversary proceedings alleging mandatory subordination under section 510(b) with prejudice. These appeals followed.
- Facts:
- Creditor successfully obtained a state court judgment against debtors and their corporation, RIL, based on conversion, fraud, breach of fiduciary duty, and statutory violations related to creditor's loss of common stock shares in RIL. Prior to liquidation of damages, debtors each filed a chapter 13 petition. Creditor filed proofs of claim in each case and also moved to convert both cases to chapter 7. Creditor also filed adversary proceedings against debtors, seeking to deem the state court judgment nondischargeable. Debtors responded by filing adversary proceedings seeking to disallow creditor's claims based on the allegation that the claims were subject to mandatory subordination under section 510(b). They also filed objections to creditor's claims in their respective bankruptcy cases.
- Judge(s):
- TAYLOR, DUNN, KIRSCHER
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