Pensco Trust Co. v. Tristar Esperanza Prop. (In re Tristar Esperanza Prop., LLC)

Case No. 13-60023 (9th Cir. CA April 2, 2015)
The Ninth Circuit Court of Appeal affirmed the Ninth Circuit Bankruptcy Appellate Panel. Despite the creditor not having an equity interest on the petition date; creditor's claim had sufficient nexus or causal relationship between the claim and purchase of the equity interest. Therefore, creditor's claim must be subordinated. The Ninth Circuit Court of Appeal ruled that 11 U.S.C. Sec 510(b) is not a question of what the claim's status is as of the petition date; rather, what did the claim arise from.
Procedural context:
Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's judgment subordinating a creditor's claim based on a minority interest in a chapter 11 debtor. Creditor appeals
Sometime in 2005, now creditor, invested in Tristar Esperanza Prop., LLC ("Tristar"). Tristar was a single asset real estate company. Approximately 3 years later the creditor exercised her right to withdraw from Tristar, and Tristar elected to purchase the creditor's interest pursuant to the terms of the operating agreement. Tristar and creditor were unable to agree on a valuation of the membership interest; therefore, creditor commenced a contractual arbitration action against Tristar. The arbitrator ruled in favor of the creditor and entered an award of damages. Tristar failed to pay the amount, and creditor pursued and received, a state court judgment in the amount awarded by the arbitrator. Tristar commenced a chapter 11 bankruptcy, creditor timely filed a proof of claim, and Tristar sought to subordinate creditor's claim. Creditor asserts her claim is not for damages, rather an admitted debt; therefore, 11 U.S.C. Sec. 510(b) does not apply.
Consuelo M. Callahan, Paul J. Watford, and John B. Owens, Circuit Judges

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