Friesen v. Seacoast Capital Partners II, L.P.

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
TENTH CIRCUIT December 5, 2012
Elisabeth A. Shumaker
Clerk of Court
In re: QuVIS, INC.,
Debtor.
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DOUGLAS A. FRIESEN, M.D.;
MARILYN R. FRIESEN GREENBUSH,
Ph.D.; DOUGLAS C. CUSICK
Plaintiffs–Appellants,
No. 12-3099
and (D.C. No. 6:11-CV-01072-EFM)
(D. Kan.)
JFM LIMITED PARTNERSHIP I;
UNSECURED CREDITORS’
COMMITTEE,
Plaintiffs,
v.
SEACOAST CAPITAL PARTNERS II,
L.P.,
Defendant–Appellee.
ORDER AND JUDGMENT*
* This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
Continued . . .
Before LUCERO, SEYMOUR, and MURPHY, Circuit Judges.
Appellants seek reversal of a bankruptcy court order declining to equitably
subordinate the claim of Seacoast Capital Partners II, L.P. (“Seacoast”). We are in
substantial agreement with the bankruptcy and district courts. Exercising jurisdiction
under 28 U.S.C. § 158(d)(1), we affirm.
I
Given our agreement with the lower courts in this matter, we will not recite the
facts of this case in detail. Appellants, along with Seacoast and other lenders, loaned
funds to QuVIS, Inc., a company that was later placed into involuntary Chapter 11
bankruptcy. Although appellants initially possessed a secured interest in QuVIS’s assets
pursuant to a UCC-1 financing statement filed with the Kansas Secretary of State, they
lost their secured status when the financing statement lapsed by operation of state law.
Seacoast, along with other lenders, noted the lapse and filed new financing statements to
secure their interests. The bankruptcy court ruled that secured lenders would be paid
from the QuVIS estate on a first-to-file basis, an issue not before us on appeal.
Appellants initiated an adversary proceeding seeking to equitably subordinate
Seacoast’s claim. The bankruptcy court concluded that equitable subordination would be
the terms and conditions of 10th Cir. R. 32.1.
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improper because Seacoast was not an insider of QuVIS and Seacoast did not engage in
inequitable conduct. The district court affirmed.
II
“In an appeal in a bankruptcy case, we independently review the bankruptcy
court’s decision, applying the same standard as the . . . district court.” Miller v. Bill and
Carolyn Ltd. P’ship (In re Baldwin), 593 F.3d 1155, 1159 (10th Cir. 2010). We review
the grant of summary judgment de novo. Atl. Richfield Co. v. Farm Credit Bank of
Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000).
A bankruptcy court may “subordinate for purposes of distribution all or part of an
allowed claim to all or part of another allowed claim.” 11 U.S.C. § 510. A party seeking
equitable subordination must establish, inter alia, “inequitable conduct on the part of the
party whose debt is sought to be subordinated.” Sender v. Bronze Grp., Ltd. (In re
Hedged-Investments Assocs.), 380 F.3d 1292, 1300 (10th Cir. 2004) (quotation omitted).
“Where the claimant is an insider or a fiduciary, the party seeking subordination need
only show some unfair conduct, and a degree of culpability, on the part of the insider.”
Id. at 1301. “If the claimant is not an insider or a fiduciary, however, the party seeking
subordination must demonstrate even more egregious conduct such as gross misconduct
tantamount to fraud, misrepresentation, overreaching or spoilation.” Id. at 1301-02(quotation omitted).
We agree with the thorough and persuasive orders of the bankruptcy and district
courts. Appellants have not advanced evidence creating a question of fact as to whether
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Seacoast was an insider of QuVIS. See 11 U.S.C. § 101(31)(B) (criteria for statutory
insiders); Anstine v. Carl Zeiss Meditec AG (In re U.S. Medical, Inc.), 531 F.3d 1272,
1276 (10th Cir. 2008) (criteria for non-statutory insiders). Nor have they created a fact
question as to whether Seacoast engaged in inequitable conduct. See Sender, 380 F.3d at
1301-02 (describing inequitable conduct standard for non-insiders). The record
demonstrates that Seacoast simply filed a financing statement to secure its interest after
noting a lapse as part of its due diligence investigation.
III
AFFIRMED.
Entered for the Court
Carlos F. Lucero
Circuit Judge
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