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The Bankruptcy Hotline
Judgment Based on Stock Value Not Subject to Subordination
The Ninth Circuit has ruled that where the value of a judgment against a bankrupt company is based on the company's stock price, the claim is not one for damages arising from the purchase or sale of a security subject to subordination under ' 510(b). Racusin v. American Wagering Inc. (In re American Wagering Inc.), No. 05-15969 Oct. 6).
The debt in question stemmed from an employment contract dispute that was litigated to judgment in federal district court. The court ultimately awarded the plaintiff $2.31 million, which reflected the value of the employer's stock when plaintiff could have first sold it, plus $150,000. A few days later, the employer filed a Chapter 11 petition. The debtor sought to subordinate the employee's claim under ' 510(b) as arising from the purchase or sale of a security. The bankruptcy court ruled for the employee, but the BAP reversed.
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