Pensco Trust Co. v. Tristar Esperanza Properties, LLC

Jane O’Donnell challenges the ■ decisions of the bankruptcy court and the Bankruptcy Appellate Panel (BAP) that her claim based on a minority membership interest in the debtor, Tristar Esperanza Properties, LLC (Tristar), is subject to mandatory subordination under the Bankruptcy Code. Before the bankruptcy petition was filed, Tristar failed to pay O’Donnell the amount an arbitrator awarded for the repurchase of her membership interest, and O’Donnell sought and received a money judgment for that amount' in state court. Because the claim is “for damages arising from the purchase or sale” of “a security of the debtor,” 11 U.S.C. § 510 (b), we affirm.

BACKGROUND

In 2005, O’Donnell paid $100,000 for an approximately 15 percent membership interest in Tristar, a single-asset real estate company. In July 2008, O’Donnell exercised her right to withdraw from the LLC, and Tristar elected to purchase her membership interest based on the valuation procedure of the operating agreement. When the parties failed to agree on the proper valuation of O’Donnell’s membership interest, O’Donnell brought a contractual arbitration action. On March 16, 2010, the arbitrator ruled in O’Donnell’s…