2006 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit
1-6-2006 

# In Re: S ubmicron Sys P r e c e de nt i al or N on-P r e c e de nt i al : P r e c e de nt i al D ocke t N o . 03-2102

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2006

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2006 D e c i sion s b y an author i z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du
. Re c omme nde d C it at ion

" In Re: S ubmicr on Sys " (2006). 2006 D e cisio n s . P ape r 1685. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2006/1685P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

N o. 03- 2102

In R e : S U B M IC R O N S Y S T E M S C O R P O R A T IO N , et a l, D eb tors H O W A R D S

. C O H E N , as P lan A d m inistrator

forthe Est at es of S u b M ic ro n S y s te m s C o rp o ra tio n , S u b M ic ro n S y s te m s In c ., S u b M i c r o n W e tP r o c e s s S t a t i o n s I n c . a n d S u b M i c r o n S y s t e ms H o ld in g s I I n c ., A p p e llan ts

v. K B M E Z Z A N IN E F U N D II, L P ; E Q U I N O X I N V E ST M E N T PA R T N E R S, L L C ; and

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J u d g e , AL I T O and A M B R O , C i r cui tJ udges ( Fi l ed J anuary6, 2006 ) R o n a J. R o sen , E sq u ir e K l ehr , H arr i s on, H arvey B ran zb u rg & E ll ers 260 Sout h B r oad St r eet Sui t e 400 Phi l adel phi a, PA 19102 J oanne B. W i l l s , E s qui r e ( A r gued) K l e h r , H a r r i s o n , H a r v e y, B ran zb u rg & E ll ers 919 N or t h M arketSt r eet Sui t e 1000 W i l m i ngt on, D E 19083 A t t or ney s forA ppel l ant L au ra D
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. K l ym an, E s qui r e ( A r gued) D av id D

. Jo h n so n , E sq u ir e La t h a m & W a t k i n s LLP 633 W es tFi fth St r eet , Sui t e 4000 L os A ngel es , C A 90071- 2007 A t t or ney s forA ppel l ees

OPI NI ON O F THE COURT

A M B R O , C i r cui tJ udge A ppel l antH ow ar d S. C ohen ( “C ohen”) , as Pl an Ad mi n i s t r a t o rf

o rt h e b a n k ru p t c y e s t a t e s o f S u b M i c r o n S y s t e ms C orporat i on , S ub M i cron S y st em s, Inc. , S ub M i c ron W etP rocess S tatio n s, In c . an d S u b M icr o n S y ste m s H o ld in g s I, In c . (jo in tly a n d se v e ra lly , “S u b M ic ro n ” ), ch a llen g e s th e sa le to a n e n tity cr eat ed b ySunr i s e C api t al Par t ner s , L P ( “Sunr i s e”) of SubM i cr on’ s as s et s under 11 U
. S. C

. § 363( b) , w hi ch author i zes cou rt -approved sal es o f asset s “o t her than i n t he ordi narycou rs e of bus i nes s . ” S unr i s e negot i at ed di r ect l yw i th s ever al

— butnotE qui nox w as form ed i n 1996 t o m anage K B aft eri tw as 1 a c q u ire d b yD re sd n e r B a n k . F o r th e sa k e o f sim p licity , w e sh a ll re f e r t o b o th e n titie s s im p ly as “ K B /E q u in o x .” T his provis i on reads: 2 A t a s a l e u n d e rs u b s e c t i o n ( b ) of

th is s e c tio n o f

p ro p e rtyth a t is s ubj ectt o a l i en thats ecur es an al l ow ed cl ai m , unle s s the courtfor caus e or der s ot herw i s e t he hol der of s uch cl ai m m aybi d ats uch s al e, a n d , if th e h o ld e r o f

su c h c laim pur chas es s uch pr oper t y , s uch h o ld e r m a yo f

f se t su c h c laim againstt he pur chas e pr i ce of s uch p r o p e r t y. 1 1 U
. S

. C

. § 3 6 3 (k). 4 al l— o f SubM i cr on’ s cr edi t or s befor e pr es ent i ng i t s bi d t o t he D istri ct C o u rt
. T h ese cre d it o rs— T h e K B M ez za n ine F u n d II, L P (“K B ”), E q u ino x Inv estm en t Pa rtn ers, L L C (“E q u ino x ”), 1 and C el er i t ySi l icon, L L C ( “C el er i t y ”) ( col l ect i vel y , t he “Lender s ”)

— agr eed t o contr i but e t ow ar d t h e p u r chas e of S u b M icr o n ’s a ss e ts n e w c a p ital a lo n g w ith a ll o f th e ir c laim s in bankrupt cyagai ns tSubM i cr on i n excha nge for e qui t yi n t he e n t i t yf o r me d b ySu n r i s e t o a c q u i r e th e a s s e t s

— Akr i o n LLC ( “A kr i on”)

. A kr i on i n turn “cr ed it b id” t he ful l val ue of the L ender s ’ s ecur ed cl ai m s contr i but ed t o i tas par tof i ts bi d for Sub M ic r on’ s as s et s pur s uantt o 11 U
. S. C

. § 363( k)

. T he 2T h is b a n k ru p tcy ca se is b e f o re th e D istric t C o u rt b e c a u se it 3 w i t hdr ew , pur s uantt o 28 U
. S.C

. § 157( d) , the r efe r ence of the cas e t o t he B ankrupt cyC our tforthe D i s t r i ctof D el aw ar e. 5 D i s t r i ctC our t appr oved the s al e. I n r e SubMi cr on Sys

. C or p. , 3 2 9 1 B
. R
. 3 1 4 (D

. D el. 2 0 0 3 ). C ohen, s eeki ng as Pl an A dm i ni s t r at orof the SubM i cr on es t at es t o ai d uns ecur ed cr edi t or s “cutoutof the dea l ” bythe L ender s and Sunr i s e, att acks t he s al e on s ever al fr ont s . Fi r s t , he ar gues t hatt he purpor t edl ys ecur ed debti nvest m en ts m ade by t he Lender s and contr i but ed t o A k ri on s houl d have be en rec h ara cterized b y the D istri ct C o u rt as eq u ity inv estm en ts. In th e a lt e r n a ti v e , if th e D istric t C o u rt d id n o t er r in d e c lin in g to re c h a ra c ter ize th e in v e stm e n ts a s eq u ity , C o h e n c o n ten d s th a t it err ed byfai l i ng t o concl ude t hat t he debt w as uns ecur ed. E ven i f the D i s t r i ctC our tpr oper l ycons i der ed the debts ecur ed, C ohen chal l enges t he propr i ety of t he D i s t r i ct C our t ’ s al l ow ance of the cr edi t bi d por t i on of A kr i on’ s offe r . A s a l as topt i on, C ohen a ss e rts th a t th e D istric t C o u rt e rre d b yd e c lin in g to e q u itab ly su b o rdin ate the L en d ers’ sec u red claim s to tho se o f c red it o rs w i t h i nfer i or cl ai m s . Fort he r eas ons di s cus s ed bel ow , w e r ej ect th e se a rg u m e n ts a n d a f

f irm th e ju d g m e n t o f

th e D istric t C o u rt. I . F act s and P roce dural P os t ure A . SubM i c r on’ s Fi nanc i ngW et benche s ar e aut om at i c proc es s t ool s us ed forcl eani ng 4 a n d e tc h in g o p e ra tio n s in s e m ic o n d u c to r p ro c e s s in g . See ht tp : //ww w. s e mi c o n d u c t or gl os s ar y . com/ defa ul t
. as p?sea r cht er m = w et+ b en ch (l ast v isi ted D ec . 2 7 , 2 0 0 5 ). 6 B efo r e i t s s al e i n bankrupt cy , SubM i cr on des i gned, m anu fa ct ur ed and mar ket ed “w etbenche s ” forus e i n t he 4 s emi conduct ori ndus t r y . B y 1 9 97, i tw as exper i enci ng sig n if ica n t f in a n c ial a n d o p e ra tio n a l d if f icu lti e s. T o su sta in its oper at i ons i n t he l at e 1990s , SubM i cr on s ecur ed fi nanci ng fr om s ever al fi nanci al and/ or i nves t m ent i ns t i tut i ons . O n N ovember 2 5 , 1 9 9 7 , ite n ter e d in to a $ 1 5 m ill io n w o rk in g c a p ital f a c ili ty w i t h G r eyr o c kBus i n e s s C r edi t( “G r eyr ock”) , gr ant i ng G r eyr ock fi r s tpr i or i t yl i ens on al l of i t s i nvent ory , equi pm ent , r ece i vabl es and gene r al i ntang ible s . T he nextday , SubM i cr on r ai s ed another$20 m i l l i on t hr ough t he i s s uance of s eni ors ubor di nat ed 12% not es ( t he “1997 N ot es ”) t o K B / E qui nox ( for$16 m i l l i on) and C el er i t y( for$4 m i l l i on) s ecur ed byl i ens behi nd G r eyr ock on s ubs t an t i al l yal l of SubM i cr on’ s as s et s . Subm i cr on s ubs equent l yi s s u ed a t hi r d s etof not es i n 1997 ( t he “J uni or 1997 N ot es ”) for$13. 7 m i l l i on, compri s i ng $8. 7 m i l l i on of 8% not es and a $5 mi l l i on not e t o T he B O C G r oup, I nc. T he J uni or 1997 N ot es w er e s ecur ed but j uni or t o the s ecur i t yfort he 1997 N otes
. D espi t e t his capit al i nflux, S ub M i cron i ncu rr ed a n etl oss o f $ 4 7
. 6 m il li o n fo r th e 1 9 9 7 fisca l y ea r. A s t e e p d o wntu r n i n t h e s e mi c o n d u c t o r i n d u s t r ym ade 1998 a s i m i l ar l ydi ffi cul ty earfor SubM i cr on. B yA ugus tof that7 y ear , it w as p ay i ng s ubs t ant i al l yal l of the i nt er es tdue on the 1 9 9 7 No t e s a s p a i d

- i n - k i n d s e n i o rs u b o r d i n a t e d n o t e s . On D ece m ber2, 1998, SubM i cr on and G r eyr ock agr eed t o r enew t he G r eyroc k l i ne of c r edi t , r educi ng t he maxi m um funds avai l abl e fr om $15 t o $10 m i l l i on and i ncl udi ng a $2 mi l l i on over advanc e condi t i oned on SubM i c r o n ’ s s e c u r i n g a n a d d i t i o n al $4 m i l l i on i n fi nanci ng. T o s at i s fythi s condi t i on, on D ece m ber 3 , S u b M icr o n iss u e d S e rie s B 1 2 % n o tes (th e “ 1 9 9 8 N o tes ” ) to K B / E qui nox ( for$3. 2 m i l l i on) and C el er i t y( for $800, 000)

. T he 1998 N ot es r anke d pa ripa ssu w i t h the 1997 N ot es and the i nte r es tw as defe r r ed unt i l O ct ober1, 1999. SubM i cr on i ncurr ed a ne tl os s of $21. 9 m i l l i on for t he 1998 fi s cal y ear , and aty ear ’ s end i t s l i abi l i t i es exce eded i t s as s et s by$4. 2 m i l l i on. SubM i cr on’ s fi nanci al heal t h di d noti m pr ove i n 1999. B y M a r c h o f

t h a ty e a r , i t s ma n a g e me n td e t e r mi n e d th at ad d it ion al fina n cing w o u ld b e re q u ir ed to m ee t th e c o m p an y ’s i m m edi at e cr i t i cal w or ki ng capi t al needs

. T o thi s end, betw een M ar ch 10, 1999 and J une 6, 1999, SubM i cr on i s s ued a t ot al of ei ght een Ser i es 1999 12% not es (t h e “1999 Tra nche O ne N o te s ” ) f

o r a to tal o f

$ 7 ,0 3 5 ,1 5 4 (c o m p risin g n in e n o tes to K B /E q u in o x to talin g $ 5 ,8 8 8 ,1 2 3 a n d n in e n o tes to C e ler ity t o t a l i n g $ 1 , 1 4 7 , 0 3 1 )

. Th e 1 9 9 9 Tr a n c h e One Not e s pr oved in su f f icie n t to k e e p S u b M icr o n a f lo a t. A s a r e su lt, b e tw e e n Ju ly 8, 1 9 9 9 an d A ugus t31, 1999, K B / E qui nox and C el er i t ym ade p e r i o d i c p a yme n t s t o S u b M i c r o n ( t h e “ 1 9 9 9 T r a n c h e T wo F u n d i n g ” ) t o t a l i n g $ 3 , 9 8 2 , 0 3 1 a n d $ 1 4 7 , 9 6 9 , r e s p e c t i v e l y . No n o t e s we r e i s s u e d i n e x c h a n g e f o r t h e 1 9 9 9 T r a n c h e T wo8 Fund i n g . Be t wee n t h e 1 9 9 9 Tr a n c h e One Not e s a n d t h e 1999 T ran ch e T w o F u n d ing (co ll ec ti v ely , the “ 1 9 9 9 F u n d ing s”), K B / E qui nox and C el er i t yadvanced SubM i cr on a t ot al of $9, 870, 154 and $1, 295, 000, r es pect i vel y . ( T he 1999 Fundi ngs w e re re c o rd e d a s s e c u re d d e b t o n S u b M icr o n ’s 1 0 -Q f ili n g w ith t he S ecuri t i es a n d E xch ang e C om m i ssi on . ) D espi t e t he cash i nfus i ons , dur i ng t he fi r s t hal f of 1999 SubM i cr on i ncurr ed a ne t l os s of $9. 9 m i l l i on. O n J une 30, 1999, SubM i cr on’ s l i abi l i t i es exce eded i t s as s et s by$3. 1 m i l l i on. B yJ anua ry1999, K B / E qui nox had appoi nt ed thr ee m ember s t o SubM i cr on’ s B oar d of D i r ect or s . A ll appoi nt ees w er e ei t herp ri n ci pal s orempl oy ees of K B / E qui nox. B yJ une 1 9 9 9 , fo ll o w ing resign ati o n s o f v ariou s S u b M icron B o ard m em b ers, K B /E q u ino x em p loy ee s B o n ap arte L iu an d R o b ert W i ckey , and C el er i t yempl oy ee M ark B enham, r epr es ent ed t hr ee- quar t er s of the B oar d, w i t h SubM i cr on C E O D avi d Fer r an t he l one B oar d m embernotempl oy ed byK B / E qui n ox or C e l e r i t y. B . T he A cqui s i t i on S u b M icr o n b e g a n a c q u isitio n d isc u ss ions w i th S u n rise in J ul y of 1999. B yal l acc ount s , i tw as gener al l yunder s t ood t hat i f SubM i cr on fai led to r eac h a dea l w i t h Sunr i s e, i tw oul d be for ced t o l i qui dat e, l eavi ng s ecur ed cr edi t or s

— w i th t he exce pt i on of G r eyrock— w i t h penni es on t he dol l arand uns ecur ed cr edi t or s and shar ehol der s w i t h n ot hi ng.9 K B / E qui nox, notSubM i cr on’ s m anage m ent , conduct ed n e g o t i a t i o n s wi t h S u n r i s e , d e v e l o p i n g a n d a g r e e i n g o n t h e t e r ms and fi nanci al s t ructur e of an ac qui s i t i on t o occuri n t he cont ext o f a p r e p a c k a g e d b a n k ru p t c y. O n A ugus t 31, 1999, SubM i cr on ent er ed i nt o an asset pu rchase agreem ent w i t h A kri on , the en t i t ycreat ed b yS un ri se t o f u n c t i o n a s t h e a c q u i s i t i o n v e h i c l e . T h e f o l l o w i n g d a y, SubM i c r o n f

i l e d a Cha p t e r 1 1 b a n k ru p t c y p e t i t i o n a n d an a ss o c iate d m o tio n se e k in g a p p ro v a l o f th e sa le o f it s a ss e ts to S u n rise o u tsid e th e o rd in a ryc o u rse o f b u sin e ss p u rsu a n t to § 3 6 3 (b ) o f

th e B a n k ru p tc yC o d e . T h e a s s e t p u rc h a s e a g re e m e n t r e ite ra te d , in tera lia , that KB/ Eq u i n o x a n d Ce l e r i t y wo u l d c o n t r i b u t e t h e i rs e c u r e d c l a i ms ( i

. e. , th e 1 9 9 7 N o tes , the 1 9 9 8 N o tes a n d th e 1 9 9 9 F u n d in g s) in or derforA kr i on t o cr edi tbi d thes e cl aim s u n d er § 363 of t he B ankrupt cyC ode— butonl ycont i ngenton the cl o s i ng of the s al e. T he agr eemental s o r equi r ed SubM i cr on, atthe cl os i ng of t he s al e, t o pay$5, 500, 000 i m m edi at el yt o the ho lders of the 1 9 9 9 F u n d in g s. In re tu rn , K B /E q u in o x a n d C e ler ity w o u ld r ece i ve a 31. 475% i nt er esti n A kr i on ( K B / E qui nox r ece i ved a 30% i nt er es tand C el er i t yr ece i ved a 1. 475% i nt er es t )

. T he C our tand O ffi ci al C om m i t t ee of U ns ecur ed C r edi t or s ( t he

“ C re d it o rs’ C o m m itee ” ) w e re a p p rise d o f th e ter m s o f

th is a g re e m e n t p ri o r t o th e s a le

. At th e s a l e h e a r i n g Akr i o n s u b mi t t e d a b i d ofT h e se e n u m e ra ted c o m p o n e n ts o f th e c a sh p o rtio n o f th e b id 5 t ot al $9, 732, 000, not$10, 202, 000. T he D i s t r i ctC our t ’ s opi ni on l eave s uncl earw hatacc ount ed forthe mi s s i ng $470, 000. 10 $5 5, 50 7, 58 7 for S ub M i cron. T he cash com po nen t of th e b id t ot al ed $10,202, 000 and i ncl uded $5, 500, 000 i n cas h fr om A kr i on, $3, 382, 000 t o pay pr e- and pos t
- pet i t i on G rey r ock s ecur ed debt , and $850, 000 t o cover admi ni s t r at i ve cl ai m s . T he 5 cr edi tpor t i on of the bi d cons i s t ed of the $38, 721, 637 out s t andi ng fort he 1997 N ot es , t he 1998 N ot es , and the 1999 Fundi ngs ( al l of w hi ch K B / E qui nox and C el er i t yhad contr i buted to A kr i on) , pl us $1, 324, 138 i n i ndi vi dual s ecur ed cl ai m s , fora t ot al of $40, 045, 7 7 5
. Fi nal l y , the bi d i ncl uded SubM i c r o n ’ s l i a b i l i t i e s t hat w oul d be as s um ed by A kr i on— $681, 346 i n l eas e obl i gat i ons and $4, 578, 466 i n ot her as s um ed l i abi l i ti es fo ra t ot al of $5, 259, 812. N o ot herbi d for SubM i cr on’ s as s et s w as m ade, Su b M ic r on’ s B oar d and the C our tbot h appr oved A kr i on’ s bi d over t he obj ect i on of the C re d ito rs’ C o m m itt e e , a n d o n O c to b e r 1 5 , 1 9 9 9 , the a ss e t sa le c lo s e d

.On Apr i l 1 8 , 2 0 0 0 , th e Cr e d i t o r s ’ Commi t t e e b r ought a g a in st th e L e n d e rs, a m o n g o th e rs, an a d v e rsa ry p ro c e e d in g in w hi ch i tm ade the cl ai m s befor e us on appeal. ( C ohen w as s ubs equent l ys ubs t i tut ed forthe C r edi t or s ’ C om m i t t ee. ) A ft er a b e n c h trial b e f

o re Ju d g e S u e R o b in so n in late Ju ly/ea rly A ugus t2001, s he rul ed aga i ns tC ohen, s ett i ng outherr eas oni ng i n a co m prehen si ve o pini on . C oh en ap peals

.11 I I . Juri s di ct i on and St andard of R evi ew B e c a u se th e typ ica l re f e re n c e o f

b a n k ru p tcy ca se s to bankrupt cycour t s w as w i t hdr aw n her e by t he D i s t r i ct C our t , our appel l at e j ur i s di ct i on s t ems fr om 28 U
. S. C

. § 1 2 9 1 , n ot28 U .S .C . § 1 5 8 (d ). I

n r e PW S H oldi ng C or

p. , 228 F. 3d 224, 235 (3 d C ir. 2 0 0 0 ); I

n r e M ar vel E ntm ’ tG r oup, I

nc. , 140 F. 3d 463, 470 (3d C ir

. 1998)

. “W e r evi ew the D i s t r i ctC our t ’ s l egal det erm i nat i ons de novo, i t s fac tual fi ndi ngs for cl ear err or , and i t s exer ci s e of di s cr et i on forabus e ther eof. ” I n r e PW S H oldi ng C or p. , 228 F. 3d at235 ( ci t i ng I n r e O ’ B r i en Envt l

. E ner

gy, I nc. , 1 8 8 F
. 3 d 1 1 6 , 1 2 2 (3d C ir

. 1 9 9 9 )).

III. R ec h a ra cte riza ti o n a s E q u it y C o h e n a rg u e s t h a t th e D istric t C o u rt e rre d b yf a ili n g to re c h a ra c ter ize th e in f

u sio n o f th e 1 9 9 9 F u n d in g s a s a n e q u ity i nv estm ent. T o succe ed w i t h thi s ar gu m ent, h e m ust d em o n str ate tha t th e D istri ct C o u rtab u sed it s d is cre ti o n ary author i tyorpr emi s ed i t s det erm i nat i on on cl ear l yerr oneous f i n d i n g s o f f

a c t
. Be c a u s e h e h a s f

a i l e d t o d o s o , we a f

f i r m t he D i s t r i ctC our t ’ s r echa r act er i zat i on hol di ng. A . R echarac t eri zat i on /E qui t abl e Subordi nat i on A tt he o uts et , i ti s i m po rt ant to dis t i ng uis h r echa r act er i zat i on fr om equi t abl e subor di nat i on. B oth r emedi esB ankrupt cycour t s ’ gener al pow er s of equi t yar e codi fi ed at 6 11 U
. S. C

. § 105( a) , w h ich st at es t hata “c our tm ayi s s ue any o rd e r, p ro c e ss , o r ju d g m e n t th a t is n e c e ss a ryo r a p p ro p ria te to carr youtt he pr ovi s i ons of [t he B ankrupt cyC ode]

. ” The pow er o f e q u i t a b l e s u b o r d i n a t i o n i s s p e c i f i c a l l y c o d i f

i e d a t 1 1 U. S

. C. § 5 1 0 (c ), w h ic h s ta te s th a t, aft ernot i ce a nd a hear i ng, t he cour tm ay( 1) under p rin c ip les o f

e q u itab le s u b o rd in a tio n , s ub o rd in a te forpurpos es of di s t r i but i on al l orp artof an al l ow ed cl ai m t o al l orpartof anotheral l ow ed cl ai m oral l or par t of an al l ow ed i nt er es tt o al l or par t of anot her al l ow ed i nt er es t ; or( 2) or derthat anyl i en s ecur i ng s uch a s ubor di nat ed cl ai m be t r ans ferr ed t o t he es t at e. 12 are g rou n d ed in b an k rup tcyco u rt s ’ equi t abl e author ity to en su re 6 “thats ubs t ance w i l l n o t g i ve w ayt o form , thatt echni cal cons i der at i ons w i l l notpr events ubs t ant i al j us t i ce f r om bei ng done. ” P eppe r v. Li t t on , 308 U
. S. 295, 305 ( 1939)

. Y et r echa r act er i zat i on and equi t abl e s ubor di nat i on addr es s di s t i nct conce r ns . E qui t abl e s ubor di nat i on i s aptw hen equi t ydemands th att he p aym ent pr i ori t yof clai m s of an otherw i se l egit i m a te c re d ito r b e c h a n g e d to f

a ll b e h in d th o s e o f

o th e r c la im a n ts
. See, e. g. , C i t i corp V

enture C ap i tal, L td. v. C om m . of C redi t ors Ho ld i n gUn s e c u r e d

Cla i ms , 1 6 0 F .3 d 9 8 2 , 9 8 6

– 8 7 (3d C ir

. 1 9 9 8 ); B ayer C or

p. v. Mas coTech, I

nc. (In re Au t ost

yl e P l ast i cs, I nc. ) , 269 F. 3d 726, 749 ( 6th C i r . 2001)

. I n contr as t , the foc us o f th e re c h a ra c ter iza tio n in q u iryis w h e th e r “ a d e b t ac tu a lly exi s t s , ” In re A ut os t

yl e Pl as t i cs , 269 F. 3d at748 ( i nt ernalIn th is c o n tex t, th e lab e l “ re char act er i zat i on” i s m i s l eadi ng. 7 See C i t i cor

p R eal Estate, I nc. v. P W

A , I nc. (I n r e Ge o r

g e t o wn B ldg. A s s ocs . Ltd. P ’s hi p) , 2 4 0 B
. R
. 1 2 4 , 1 3 7 ( B a n k r . D. D. C. 1 9 9 9 ) (“ T h e d e b t-v e rsu s-e q u ityin q u iryis n o t an e x e rc ise in r echar act er iz i nga cl ai m , butof char a cteriz i ngthe a d v an ce ’s tru e c h a ra c ter .” (e m p h a se s in o rig in a l)); I n r e C old Har bor As s o c s . , L. P. , 204 B
. R
. 904, 915 ( B ankr

. E
. D
. V a. 1997) ( “ R a t h e r t h a n r e c h a r a c t e r i z i n g t h e e x c h a n g e f r o m d e b tt o e q u i t y, o r sub o rdin ati n g the c lai m fo r som e re aso n , the q u esti o n b ef o re th is C o u rt is w h e th e r th e tra n s a c ti o n c re a ted a d e b t o r e q u ity relati o n sh ip f

rom the o u tset
. ”).

13 quot at i on m arks om i t t ed) or , putanother w ay , w e as k w hati s t he p ro p e r c h a ra c ter iza tio n in th e f irst in sta n c e o f

a n in v e stm e n t. 7 Fort hes e r eas ons , w e agr ee w i t h t hos e court s t hathave det erm i ned that“the i s s ues of r echa r act er i za ti o n of debtas equi t ycapi t al and equi t abl e s ubor di nat i on s houl d be tr eat ed s epar at el y . ” B lasba l

g v. T arro (I n r e H yper i on E nt ers . , I

nc. ), 1 5 8 B .R . 5 5 5 , 5 6 0 (D .R .I. 19 9 3 ); s ee , e. g. , I n re A u to sty le P l as t ic s , 2 6 9 F .3 d a t 7 4 9 (e x p lain in g th a t “[ b ]e c a u se b o th r echa r act er i zat i on and equi t abl e s ubor di nat i on ar e s uppor t ed by t he B ank rupt cy C od e and serve d i fferentpu rposes, w e j oin tho se cour t s t hathave concl uded t hat a bankrupt cy cour thas the pow er t o r echa r act er i ze a cl aim fr om debtt o equi t y ” and c ol l ect i ng c a se s); A qui no v. B l ack (In r e A tla n tic R a n c h e r, In c .) , 2 7 9 B. R. 411, 433 ( B ankr

. D
. M as s . 2002) ( s t at i ng t hat“w hi l e once c o n sid e re d so lelyin c o n ju n c tio n w ith th e d o c trin e o f e q u itab le s ubor di nat i on, b a n k r upt cy cour t s now cons i derI n R o th S te e l T u b e C o . v. C o m m ’r , 8 0 0 F
. 2 d 6 2 5 (6th C ir

. 8 1986) , t he C our tof A ppeal s forthe Si xth C i r cui tl ai d outel even f a c to rs to d e ter m in e w h e th e r a n in v e stm e n t w a s d e b t o r e q u ity in th e c o n te x t o f a s s e s s in g in c o m e ta x lia b ility. I d. a t 6 3 0
. In re A ut os t yl e Pl as t i cs ext ended the use of t hos e fa ct or s t o t he r echa r act er i zat i on cont ext
. 269 F. 3d at749–50. T heyar e: 14 rec h ara cterizati o n a se p ara te ca u se o f a cti o n ”). C ohen adva nces both ar gum ent s . H e ar gues t hatt he i nfus i on of the 1999 Fundi ngs i s m os tacc ur at el ychar act er i zed as an equi t yi nves t m ent

— a r echa r act er i zat i on ar gum ent

— and, i n t he al t ern ati ve, t hati f the i nfus i on i s deemed a debt in v e stm e n t, th e L e n d e rs’ c laim s sh o u ld b e e q u itab ly su b o rd in a ted . W e tu rn f irst to th e re c h a ra c ter iza tio n a rg u m e n t, a s “ [ d ]e ter m in in g [ a n ] e q u ita b le su b o rd in a tio n iss u e p rio r to d e ter m in in g w h e th e r [ a n ] a d v a n c e is a lo a n o r [ a n e q u ity in v e s tm e n t ] is s im ila r t o ta k in g th e c a rt b e f o re th e h o rs e .” D ia so n ics , In c . v. In g a lls , 1 2 1 B .R
. 6 2 6 , 6 3 0 (B a n k r. N .D . F la ., 1 9 9 0 ). I f

a “ p a rt ic u la r a d v a n c e i s a c a p ita l c o n tr ib u tio n , . . .

. then equi t abl e s ubor di nat i on nevercomes i nt o pl ay . ” I n r e G eorgetow n B ldg

. A ssocs. , 240 B
. R
. at137.
B . R echarac t eri zat i on F ram ew ork I n defi ni ng t he r echa r act erizat i on i nqui r y , cour t s have adopt ed a va r i etyof m ul t i

- fac t ort es t s bor r ow ed fr om nonb a n k ru p tcy ca se law

. W h ile th e se tes ts u n d o u b ted ly 8( 1 ) t h e n a m e s g i v e n t o th e i n s t ru m e n t s , i f a n y, evi denci ng t he i ndebt ednes s ; ( 2) t he pr es ence or abs ence of a f

i xed m at ur i t ydat e and s chedul e of p ay m en t s ; ( 3) the pr es ence orabs ence of a f i xed r at e of i nt er es tand i nt er es tpaym ent s ; ( 4) t he s our ce of

r epaym ent s ; ( 5) t he ade quacyor i nadequa cyof ca pi tal iz at i on; ( 6) t he i dent i t yof interest be tw ee n the c red it o r an d the s tock h o lder; ( 7) t he s ecur i t y , if an y , fort he adva nces ; ( 8) t he corpor at i on’ s abi l i t yt o obt ai n fi nanci n g fr om o u tsid e len d in g in stitu tio n s; (9 ) th e e x ten t to w hi ch the adva nces w er e s ubor di nat ed t o t he c la im s o f

o u tsid e c re d ito rs; (1 0 ) th e e x ten t to w hi ch the adva nces w er e us ed t o acqui r e ca pi t al as s et s ; and ( 11) t he pr es ence orabs ence of a si nk i ng fun d to provi de repay m ents
. R oth St eel

Tube C o. , 800 F. 2d at630. T h e C o u rts o f

A p p e a l f o r th e E lev e n th a n d F if

th C irc u its al s o empl oya mul t i

- fac t ort es ti n t he t ax cont ext
. T h eyhave i den t i fi ed the foll ow i ng thirt een f act ors: ( 1) t he names gi ven t o t he ce r t i fi cat es evi denci ng t he i ndebt ednes s ; ( 2) t he pr es ence orabs ence of a fi xed m aturi t ydate; (3) the sou rc e of p aym ents ; ( 4) t he r i ghtt o enfor ce pa ym entof pr incip al and i nt er es t ; ( 5) par t i ci pat i on i n m anage m entfl ow i ng a s a re su lt; (6 ) th e st a tu s o f th e c o n trib u tio n in r el at i on t o r egul arcorpor at e cr edi t or s ; ( 7) t he in te n t o f th e p a rties ; (8 ) “ th in ” o r a d e q u a te capi t al i zat i on; ( 9) i dent i t yof i nt er es tbetw een 15credi t or and st ock ho l der; (10) s ou rc e o f i nter est p a ym e n ts; (1 1 ) th e a b ili tyo f th e c o rp o ra tio n to ob t ai n loans from ou t si de lendi ng i nst ituti on s; (1 2 ) th e e x ten t to w h ich th e a d v a n c e w a s u se d to acqui r e ca pi t al asse t s ; and ( 13) the fa i l ur e of the debt ort o r epayo n t he due da t e ort o s eek a p o stp o n e m e n t. S ti n n ett ’s P o n tia c S erv . , Inc

. v. C o m m ’r , 730 F. 2d 634, 638 ( 11t h C i r . 1984 ) (cit i ng Es tat e of Mi xon v. U ni t ed Stat es , 464 F .2 d 3 9 4 , 4 0 2 (5 th C ir . 1 9 7 2 ))

. I n r e Cold

Har b o rAs s o c s . , L. P. , 204 B
. R
. at915, di s cus s ed both of the above t es t s i n t he r echa r act erizati on cont extand appl i ed t h e fa ctor s r el evantt o thatcas e, and In re G eorgetow n B ldg

. A ssocs. , 240 B
. R
. at137, ci t ed w i t h appr oval C old Har bor ’ s us e of thes e fa ct or s i n the r echa r act er i zat i on cont ext ( but found i tunnece s s aryt o adoptform al l ya s peci fi c s et o f f ac tors). In this case, t he D i stri ctC ou rtapp l i ed a seven-fact or t est us ed i n an unpubl i s hed D i s t r i ctof D el aw ar e ca s e thatw as b a n k ru p tc yre la te d , O

f f i ci alC om m . of

U ns ecured C r edi t ors of C o lo r Tile , In c . v. B la c k sto n e Fa m ily In v . P ’sh ip (I n r e C ol or Ti l e, I nc. ), N o . C iv

. A

. 9 8 -3 5 8 -S L R , 2 0 0 0 W L 1 5 2 1 2 9 (D . D e l. F eb

. 9 , 2 0 0 0 ) (R o b inso n , J. ). T h o se f ac tors are ( 1 ) the na m e gi ven t o the i ns t rum ent ; ( 2) t he i n t e n to f t h e p a r t i e s ; ( 3 ) t h e p r e s e n c e o ra bs ence of a f i xed matur i t ydat e; (4 ) the r i ghtt o enfor ce paym entof pr i nci pal and i nt er es t ; ( 5) t he pr es ence orabs ence of vot i ng r i ght s ; ( 6) the s t atus of the c o n trib u tio n in re latio n to re g u lar c o rp o ra te 16contr i but or s ; and ( 7 ) c ert ai ntyof paym enti n the eventof the corpor at i on’ s i ns ol v encyor liq u id a tio n . In re Sub Mi cron S

ys. , 291 B
. R
. at323 ( ci t i ng In re C o lo r Tile , 2 0 0 0 W L 1 5 2 1 2 9 , at *4 ). 17 i ncl ude pert i nentfac t or s , t heydevol ve t o an over arc hi ng inq u iry : th e c h ara cterizati o n as d eb t or eq u ityis a co u rt ’s at t empt t o di s cern w hethert he part i es cal l ed an i ns t rum entone t hi ng w hen i n fac tt heyi nt ended i tas s om et h ing else. T hat in ten t m a yb e in f

e rre d f ro m w h a t th e p a rties s a yin th e ir contr act s , fr om w hatt heydo t hr ough t hei r act i ons , and fr om the e c o n o m ic r e a lity o f th e su rro u n d in g c irc u m sta n c e s. A n sw e rs lie in f a c ts th a t c o n f

e r c o n te x t c a s e -b y -c a s e . N o m echa ni s t i c s cor eca r d s uffi ces . A nd none s houl d, for Ka b u k i o u t c o me s e l u d e di f f i c u l tf a c tp a t t e r n s . W h i l e s o me c a s e s a r e e a s y ( e. g. , a docum entt i t l ed a “ N ot e” c al l i ng for p a ym e n ts of su m s ce rta in a t f ix e d in ter v a ls w ith m a rk e t-ra te in t eres tand t hese ob l i gati on s ar e secured and are partly per form ed, ver s us a documenti s s ued as a cert i fi cat e i ndi cat i ng a p ro p o rtio n a l in ter e st in th e e n terp rise to w h ich th e c e rtific a te r el at es ) , ot her s ar e har d ( s uch as a “N ot e” w i t h conven ti o n al r epaym entt erm s y et r efl ect i ng an amount pr opor t i onal t o pr i or equi t y i nt er es t s and w hos e paym entt erm s ar e i gnor ed)

. W hi ch cour s e a c our tdi s cerns i s typi cal l ya comm ons ens e conc l us i on th a t th e p a rtyin f

u sin g f u n d s d o e s s o a s a b a n k e r (th e p a rty ex p ec ts t o b e re p aid w ith in te re st no m att er the b o rrow er’sR esear ch h as unco vered o nly o ne b ank rupt cycase 9 di s cus s i ng w hetherthe ca pi t al contr i but i on ver s us l oan det erm i nat i on ques t i on i s pr i m ar i l yone of l aw orfac t
. T her e the C our tconcl uded t hat“[t ] he i s s ue of c l as s i fi cat i on of an a dvance pr es ent s a ques t ion of l aw s ubj ectt o de novo r evi ew . ” C el ot ex C or p. v. Hi l l

s bor ough H

oldi ngs C or

p. (I n r e Hil l

s bor ough H oldi ngs C or

p. ) , 176 B
. R
. 223, 248 ( M
. D
. Fl a. 1994) ( ci t i ng L an e v. U

nited S tates (I

n r e Lane ), 7 4 2 F
. 2 d 1 3 1 1 (11 th C ir

. 1 9 8 4 ), a tax ref

u n d ca se). 18 for tunes ; t her efor e, t he funds ar e debt ) oras an i nves t or( t he fun ds i nfu sed are r epaid based o n t he b orr ow er’ s fortun es; hence , t heyar e equi t y )

. For m i s no doubta fa ct or , but i n t he end it i s n o m o re th a n a n in d ica to r o f w h a t th e p a rties a c tu a lly i nt ended a nd act ed on. C . R e v iew o f the D i s trict C o u rt’s R e c har ac t e r i z at i on H ol di ng

i ) St andard of R evi ew W e m u st fir st de term ine w h ethe r th e D istri ct C o u rt ’s r echa r act er i zat i on concl us i on i s a fi ndi ng of fa ctw e r evi ew for cl ear err or or a con cl usi on of l aw ov er w hich w e exerci se pl enaryr evi ew . D i r ectpr ece denton t hi s i s s ue i s l acki ng, but 9 se v e ra l co u rts h a v e c o n sid e re d th is iss u e in th e tax c o n tex t. In t ax cases add res si ng w hetherfor t ax p urposes aO f c o u rse , it co u ld b e a rg u e d th a t th e E lev e n th C irc u it d id 10 notr eac h t hi s concl us i on of i t s ow n ac co rd. W hen the form er Fi fth C i r cui tw as s pl i ti nt o t he Fi fth and El eve n th Ci r cui t s on O ct ober 1, 1981, t he El eventh C i r cui tadopt ed as pr ece dentt he deci s i ons of the Fi fth C i r cui t handed dow n as of Sept ember30, 1 9 8 1
. B on ner v. C i t

y of Pri cha rd , 6 6 1 F .2 d 1 2 0 6 , 1 2 0 9 (1 1 th C ir . 1 9 8 1 ). T h u s , Mi

xon w as bi nding pr ece dentforthe Lane C o u rt. 19 contr i but i on s houl d be tr eat ed as debtorequi t y , cour t s of appe al ar e s pl i t
. T he U ni t ed St at es C our t s of A ppeal s forthe Si xth and N i nt h C i r cui t s have c onclud ed the i s s ue i s one of f actt o be re v ie w e d f

o r c le a r e rr o r. R oth S teel Tube , 800 F. 2d at629 ( c i t i ng Sm ith v. C o m m ’r , 3 7 0 F
. 2 d 1 7 8 , 1 8 0 (6th C ir

. 1 9 6 6 )); B a u er v . C o m m ’r , 748 F. 2d 1 3 6 5, 1367 ( 9th C i r . 1985) ( ci t i ng A

. R

. Lant

zC o. v. U

ni t ed Stat es , 424 F. 2d 1330, 1334 ( 9th C ir

. 1970) )

. T h e F ifth and El eventh C i r cui tC our t s of A ppeal s , on t he otherhand, have he l d t he i s s ue t o be pr i m ar i l yone of l aw s ubj ectt o de novo re v ie w . L an e v. U nited S tates ( In r e Lane ), 7 4 2 F
. 2 d 1 3 1 1 , 1 3 1 5 (11 th C ir

. 1 9 8 4 ); Es tat e of Mi xon v. U ni t ed Stat es , 464 F. 2d 3 9 4 , 4 02–03 & n. 13 ( 5th C i r . 1972)

. I n our 10 C o u rt, w e w e re c a lled u p o n to re v iew a d e b t v e rsu s e q u ity det erm i nat i on i n t he t ax cont exti n G e ftm a n v. C o m m ’r , 154 F. 3d 61 ( 3d C i r . 1998) , butw e es chew ed ent er i ng t he thi cketof d eci di ng w hether w e w er e r evi ew i ng a fi ndi ng of fac t or a c o n c lu s io n o f

la w . See i d. at68 n. 9. A s d isc u ss e d a b o v e , the d e ter m in a tiv e in q u iryin20 cl as s i fy i ng advanc es as debt or equi t yi s the i nt entof the part i es as i texi s t ed att he t i m e of t he t r ans act i on. So fr amed, w e agr ee w i t h o ur Sixth an d N i nth C i rcui tcoll eagu es that this i s a que s t i o n o f

f a c tt h a t , “ o n c e r e s o l v e d b ya d i s t r i c tc o u r t , c a n n ot be overtur ned un le s s cl ear l yerr oneous . ” A

. R

. Lant zC o. , 424 F. 2d at1334. ii ) T he D i s t ri ctC our t’s D ete rm inati on W as N ot C l e ar l y E r r one ous T he D i s t r i ctC our t ’ s opi ni on i ncl udes ampl e fi ndi ngs of factt o sup po rti t s r echaract eri zat i on determ i nati on . B ecause t hese findi ng s ar e no tcl earl yerr on eou s and o verw helm i n g ly s uppor tt he C our t ’ s deci s i on t o char act er i ze the 1999 Fundi ngs as debt( underanyfr amew ork o r test ) , w e af fi r m i t s fac tual det erm i nat i on. T h e D istric t C o u rt se t o u t n u m e ro u s f a c ts to su p p o rt a d e b t ch a ra c ter iza tio n . L o o k in g to th e len d in g d o c u m e n ts, it f o u n d “ b e y o n d d isp u te in th e re c o rd th a t .
. . th e n a m e g iv e n to t he 1999 fundi ngs w as debt

. . . and .

. . the 1999 fundi ngs had a fi xed ma turi ty d at e and i nt er es tr at e. ” In re Sub Mi cron S ys. , 29 1 B
. R
. at32 5. T he C ou rtal so fou nd evidence of the part i es’ i ntentt o cr eat e a deb ti nv estm ent out si de the l end i ng do cum ents
. Forexampl e, i t not ed that“[t ] he 1999 not es w er e r ecor ded as sec u red d eb t on S u b M icron ’s 10 Q S E C fil ing an d U C C -1 fi nanci ng s t at ement s . ” Id . a t 3 1 9
.21 T he D i s t r i ct C o u r tcoul d notfi nd, on t he otherhand, convi nci ng evi dence t o s uppor tan equi t yinv estm ent ch ara cteriz a tio n o f th e 1 9 9 9 F u n d ing s. Itrejected C o h en ’s ar gum entt hatt he di r e fi nanci al ci r cumst ance s s urr oundi ng the in f u sio n o f

th e 1 9 9 9 F u n d in g s s u p p o rte d a n e q u ity char act er i zat i on. I ns t ead, i t concl uded, w i th r efe r ence to t he confl i ct i ng t es t i m onyand r el at i ve cr edi bil ityof w i t nes s es p re s e n te d b yb o th p a rt ie s , th a t C o h e n “ f a ile d to p ro v e th a t[ ,] u n d er S u b M icron ’s dire c ir cu m stan ce s, [th e L en d ers’] tr a n s a c tio n s w e re im p ro p e r o r u n u s u a l [ a s d e b t i n v e s tm e n ts ].” Id

. a t 3 2 5 . R e c o g n izin g th a t “‘ [ w ]h e n a c o rp o ra tio n is under capi t al i zed, a courti s m or e s kept i cal of purpor t ed l oans m ad e to it b ec au se they m ay in rea li ty b e inf u sion s o f c ap it al, ’” id

. ( quot i ng I

n r e Aut os t

yl e Pl as t i cs , 269 F.3d at 7 46–47) , t he D i s t r i ctC our t al s o not ed t hat “w hen exi s t i ng l ender s m ake l oans t o a di s t r es s ed com pany , t hey ar e t r y i ng t o pr ot ect t hei rexi s t i ng l oans and t rad it i onal fac t or s t hatl ender s cons i der( s uch as capit alizati on , sol ven cy , coll at eral , abil i t yt o p aycash i nter est and debtcapa ci ty rat i os ) do notappl yas theyw oul d w hen l endi ng t o a fi nanci al l yheal t hycompany , ” id

. W ei gh i ng these co m p eti n g co n s id era ti o n s, itd id n o t fi n d S u b M icron ’s under capi t ali za ti o n g rea tl ysu p p o rt ed an eq u itych ara cteri zat i on. I d. Si m i l ar l y , t he C our tfound the Lender s ’ par t i ci pat i on on th e S u b M icron B o ard d id n o t, in an d o f it self, pro v ide s u p p o rt fo ran equi t ychar act er i zat i on. A gai n r el y i ng on exp ert tes tim o n y , it e m p h a siz e d th a t it is “n o t u n u su a l f o r l e n d e r s to22 have de s ign ees on a company ’ s boar d, part i cul ar l yw hen the company[i s ] a di s t r es s ed one. ” Id

. at325–26. A ft err evi ew i ng confl i ct i ng ev i dence on t he i s s ue, the C our tconcl uded that C ohen “[ di d] notpr ove[] tha t[Lender s ] ort hei rdes i gnees contr ol l ed or dom i nat ed S ubM i cr on’ s B oar d i n anyw ay . ” Id

. at 326. B as ed on t hes e fa ctual det erm i nat i ons , the conc l us i on w as inev it ab le th at th e L en d ers’ rep rese n tat ion o n S u b M icron ’s B oar d di d notnece s s ar i l ys uppor tan equi t ychar act er i zat i on. L as t l y , t he C our tfound unper s uas i ve C ohen’ s ar gum ent t hatSub M i cr on’ s fai l ur e t o i s s ue not es fort he 1999 Tra nche T w o F un ding shou l d b e un derst oo d as evi den ce of the p art i es’ u n d e rsta n d in g th a t th e 1 9 9 9 F u n d in g s w e re , in e f f e c t, eq u ity i nves t m ent s . I tnot ed that“[t ] he r ecord is c l earthat SubM i cr on’ s acc ount i ng depart m entm ade numer ou s m i s t akes and err or s w hen gene r at i ng not es , ” conc l udi ng t hat“[t ] he fa ct t hat no t es w ere gen erat ed for som e fun dings and no t oth e rs is nots uffi ci ent , i n and of i t s el f, to rec har act er i ze the 1999 fundi ngs as equi t y . ” Id . a t 3 2 6
. In sh o rt, th e D istric t C o u rt f o u n d a m p le e v id e n c e to su p p o rt a d e b t c h a ra c ter iza tio n a n d little e v id e n c e to su p p o rt a charact eri zat i on of eq uityi nfu si on . O n the basi s of t hese fi ndi ngs , w hi ch compor tw i t h t he reco rd, i tw as har dl ycl ear err orfort he C our t t o concl ude that“[Cohen] ha[d] notpr oven bya p r e p o n d e r a n c e o f

th e e v i d e n c e th a tth e 1 9 9 9 [ F] u n d i ngs s houl d be r echa r act er i zed a s equi t y . ” Id

. at325.Si nce then, a r evi s ed A r t i cl e 9 has been a dopt ed i n eac h 11 s t at e. 23 I V . The 19 99 Fundi ngs W e r e Se c ur e d D e bt H a v in g e sta b lish e d th a t th e D is trict C o u rt p ro p e rly co n clud ed the 1 9 9 9 F u n d ing s w ere d eb t, w e turn to C o h en ’s as s er t i on t hatt he Lender s di d notpr es enta val i d s ecur ed c l a i m. In d e ter m in in g w h e th e r c laim s a ss e rte d b yc re d ito rs in b a n k r u p tc ya re s e c u re d , s ta te la w a p p lie s . See I n r e Bol l i nger C or p. , 6 1 4 F
. 2 d 9 2 4 , 9 2 5 n . 1 (3d C ir

. 1 9 8 0 ). C ohen conc edes t hat , w hether one appl i es D el aw ar e, Penns y l vani a, C al i forni a or N ew Y o rk law , the req u ir em en ts to o b tai n a se cu ri tyinterest are the s am e . T h u s ea ch stat e’s c o d ifi ca ti o n o f U n ifo rm C o m m e rc ial C o d e (“ U .C .C .”) § § 9 -2 0 3 a n d 9 -3 0 2 e x istin g in 1999 r equi r es a w r i t t en s ecur i t yagr eementi n fa v o r of the 11 l ender des cr i bi ng t he col l at er al and, for t he col l at er al i n ques t i on ( i nvent or y , equi pm ent , r ece i vabl es and gene r al i nt angi bl es ) , t he fi l i ng of a pr oper l yexec ut ed fi nanc ing st at ement( unl es s t he in ven t ory and equ i pm ent are po sses sed by t he l end er o r its r e p r e s e n t a t i v e , s o m e t h i n g n o r m a l l y, a n d h e r e h i g h l y, im p rac ti ca l)

. C o h e n c o n ten d s th a t th e L e n d e rs d id n o t co m p lyw ith s t at e U. C. C. l a w ( a n d t h u s t h e r e q u i r e me n t s f o r a s s e r t i o n of a s ecur ed cl ai m )

. T he mai n s our ce of cont ent i on i s thatfi nanci ng stat em ent s fi l ed byt he Lender s onl yl i s t“Equi nox I nves t m entN o cl ai m i s m ade thata s ecur it y inter es ti n the col l at er al 12 w as not cr eat ed ( t he s ecur i t yagr eement s fort he 1997 N ot es and t he 1998 N ot es s t at e thatt he col l at er al s ecur es “the paym entof al l pr es entand futur e i ndebt edness” ) , onl ythati tw as not p ro p e rl yp e rf

e c te d

. 24 P a r t n e r s , L L C , a s C o l l a t e r a l A g e n t , ” a s th e s e c u r e d p a r t y. 12 Co h e n a s s e r t s t h a tt h e l i s t i n g o f E q u i n o x s o l e l y( a n d n o ta l s o KB and C el er i t y ) r ender ed t he fi nanci ng s t at ementi neff ect i ve under th e th e n - e x tan t U .C .C . § 9 -4 0 2 (1 ), w h ich sta ted th a t a “fi nanci ng s t at ementi s s uffi ci enti f i t g ive s t he names of the debt orand the s ecur ed part y , i s s i gned byt he debt or , g ives an addr es s of t he s ecur ed par t y fr om w hi ch i nform at i on conce r ni ng t he s ecur i t yi nt er es tm aybe obt ai ned, gi ves a mai l i ng addr es s of t he debt orand cont ai ns a st atementi ndi cat i ng the types , or des cr i bi ng t he i t ems, of col l at er al

. ” O ffi ci al C om m ent 2 t o thenU
. C

. C

. § 9- 402 i ndi cat ed thatA r t i cl e 9 empl oy ed a “ not i ce f ili n g ” sy ste m w h e re b yf in a n c in g sta tem e n ts n e e d e d o n lyto i n d i c a t e t h a t a s e c u r e d p a r t y “ m ay have a sec ur i t yi nt er es ti n t he col l at er al des cr i bed. Fur t her i nqui r yfr om t he part i es conce r ned

. . . [ m a y ] b e n e c e s s a ry to d is c lo s e th e c o m p le te s ta te o f a f f a ir s .” ( E m phas i s added. ) I n t hi s cont ext , “[t ] he U ni form C om m er ci al C ode does n o t req u ir e thatt he s ecur ed part yas l i s t ed i n [a f in a n c in g ] s ta te m e n t b e a p ri n c ip a l c re d i t o r a n d n o t a n a g e n t.” I ndus

. P ackagi ng P r ods

. C o. v. For tP i t tP ackagi ng I nt ’ l , I nc. , 1 6 1 A .2 d 1 9 , 2 1 (P a . 1 9 6 0 ). B e c a u se th e f in a n c in g sta tem e n ts n a m e b o t h S u b M i c r o n a s d e b t o ra n d E q u i n o x a s s e c u r e d p a r t y, pr ovi de mai l i ng addr es s es forboth ent i t i es , and des cr i be theT h is p ro v isio n re a d s in p e rtin e n t p a rt: 13 A n al l ow ed cl ai m of a c r edi t ors ec u red b ya l i en on 25 col l at er al t hat i s s ubj ect t o t he s ecur i t yagr eement , w e conc l ude th a t a n y in ter e ste d p a rty w o u ld b e o n n o tice to c o m m u n ica te w ith E q u ino x reg ard ing the s tatu s o f it s (an d it s p ri n cip a ls ’) i nt er es ti n SubM i cr on’ s as s et s . T hi s i s s uffi ci entforA r t i cl e 9 p e rf e c tio n p u rp o s e s . I

d. W e al s o concl ude that , on the r ecor d befor e us , t her e ca n be no doubtt hatK B and C el er i t yw er e i nt ended s ecur ed part i es s erved byt hei ragent , E qui n o x . I ndeed, i n t he s chedul e of l i abi l i t i es fi l ed w i t h t he D i s t r i ct C our t , SubM i cr on l i s t s K B and C el er i t yas s ecur ed not ehol der s . T he D i s t r i ct C our tfound on the b asis o f o v erw h e lm ing ev iden ce that K B an d C elerityw ere i nt ended s ecur ed part i es w i t h r es pect t o t he 1999 Fundi ngs and w e dis cern no basi s t o beli eve t his determ i nati on w as erroneou s. I n s um , w e conc l ude thatt he L en d ers pr es ent ed val i d s ecur ed cl ai m s for the 1 99 9 F un dings.

V . P r o p r iet y o f § 3 6 3 C r e d it B id H avi ng det erm i ned that t he 1999 Fundi ngs r epr es ent ed an ext ens i on of s ecur ed debt , w e turn t o C ohen’ s ar gum entt hat t he § 36 3(k) credi t bid w as i m proper becau se t he L e n d e rs d id n o t (a n d c o u ld n o t) d e m o n s tr a te th a t so m e p o rtio n o f th e ir cl ai m s r emai ned s ecur ed by col l at er al as defi ned i n B ankrupt cy C ode § 506( a)

. T he D i s t r i ct C ourtdet erm i ned that“ther e w as 13p ro p e rtyin w h ich th e e sta te h a s an in ter e st . . . is a se c u re d c laim t o t he ext ent of t he val ue of s uch cr edi t or ’ s i nt ere st i n t he e sta te’ s in ter e st in su c h p ro p e rty
. . . an d is a n u n se c u re d c laim t o the ext ent that the value of such credi t or’ s int eres t
. . . i s l ess t h a n t h e a mo u n to f

s u c h a l l o we d c l a i m. 1 1 U
. S

. C

. § 5 0 6 (a). 26 no col l at er al avai l abl e t o actual l ys ecur e the 1999 fundi ngs . ” In re Sub Mi cron S

ys. , 291 B
. R
. at 327. A s a r es ul t , C ohen ar gues that , beca us e the s ecur ed debthad no ac tual ( oreconomi c) val ue, i tcoul d notbe cr ed it b i d under§ 363( k)

. B eca us e that sect i on em po w ers credi t ors t o b i d the t ota l f ace v a lu e o f

th e ir c l a i ms

— i td o e s n o t l i mi tb i d s t o c l a i ms ’ e c o n o mi c v a l u e

— we di s agr ee a nd hol d t hat t he D i s t r i ct C our tdi d noterri n al l ow i ng t he L end ers t o credi tbid theircl ai m s. It is w e ll se ttl e d a m o n g d is trict a n d b a n k ru p tcy co u rts t h a tc r e d i t o r s c a n b i d t h e f u l l f a c e v a l u e o f

t h e i rs e c u r e d c l a i ms u n d e r § 3 6 3 (k ). Se e , e . g. , I n r e Su nc r uzCas i no s , LLC , 2 9 8 B. R. 833, 839 ( B ank r. S. D
. Fl a. 2003) ( “[T] he pl ai n l anguage of [ se c tio n 3 6 3 (k )] m a k e s c lea r th a t th e se c u re d c re d ito r m a yc re d it bid i t s e n tire c la im , i ncl udi ng any uns ecur ed defi ci encypor t i on th e re o f.” (e m p h a sis in o rig in a l) ); I n r e Mor

gan H ous e G en. P ’sh ip , N os . 96- M C

- 184 & 96- M C

- 185, 1997 W L 50419, at*1 (E .D
. P a . F e b

. 7 , 1 9 9 7 ) (h o ld in g th a t se c u re d c re d ito rs m a yb id

“ to th e e x ten t o f

[ th e ir] c laim ” u n d e r § 3 6 3 (k )); I n r e Mi dw ay I nvs . , Ltd. , 1 8 7 B. R. 3 8 2 , 3 9 1 n . 1 2 ( Ba n k r . S

. D. F l a . 1 9 9 5 ) ( “ [ A] sec u re d c re d it o r m ayb id in the fu ll am o u n t of the c red it o r’s27 al l ow ed cl ai m , i ncl udi ng the sec ur ed port i on and anyuns ecur ed p o r tio n th e re o f

” (c iti n g leg isla tiv e h isto ry ) (a ltera tio n in o rig in a l) (in ter n a l q u o tatio n m a rk s o m itt e d )); In r e R e a lty In v s ., Ltd

. V, 7 2 B .R
. 1 4 3 , 1 4 6 (B a n k r. C .D
. C a l. 1 9 8 7 ) (sa m e ); s ee al s o Cr i i m i Mae Se r v s . Ltd. P’s hi p v. W D H H owel l , LLC(In re WDH Ho we l l

, L L C) , 2 9 8 B .R . 5 2 7 , 5 3 2 n .8 (D .N .J . 2 0 0 3 ).
In f a c t, l o g ic d e m a n d s th a t § 3 6 3 (k ) be in terp re ted in th is w ay ; i nt erpr et i ng i tt o cap c r edi tbi ds at the ec onom i c val ue of th e u n d e rl y in g c o lla te ra l is th e o re tic a lly n o n s e n s ic a l. A hypot het i cal i s i l l us t r at i ve. As s u me t h a tDeb t o rh a s a s i n g l e a s s e t : a t ru c k , T. L enderi s a s ecur ed cr edi t orthathas l oaned Deb t o r$ 1 5 , t a k i n g a s e c u r i t yi n t e r e s ti n T. D ebt ori s i n C hapt er 11 bankrupt cy and has fi l ed a § 363 mot i on t o s el l T t o B i d d er fo r$10. D ebt orar gues t hatL ender can onl y cr edi tbi d $10 forT and mustbi d any exce s s i n cas h i f i tw i s hes t o o u tb i d B. T hi s hypot het ical revea l s the l ogi cal pr obl em w i t h an ac tual val ue bi d ca p . I f Lenderbi ds $12 forT , bydefi ni t i on $12 becom es th e v a lu e o f

L e n d e r’s se c u rityin ter e st in T . In th is w a y , u n til L e n d e r is p a id in f u ll, L e n d e r c a n a lw a y s o v e rb id B i dder

. ( N atur al l y , L enderw i l l notoutbi d B i dderunl es s L ender b eli ev es itco u ld g en era te a g rea ter retu rn o n T than the re turnPrec ise l yt hi s l ogi cal ar gum entw as pr es ent ed i n In re 14 R eal t y I nvs . , Ltd V: A n ar gum entm i g h t be m ade thatt he “al l ow ed cl ai m ” r efe r r ed t o i n t he C ongr es s i onal R ecor d i s onl yt he s ecur ed porti on of [the cre d it o r]’ s claim

. B u t th is i s an arg u m en t of fo rm and notof s ubs t ance . U nt i l [the nonrecour s e under s ecur ed l ender ] i s pai d i n ful l , any bi d r ece i ved i s s ubj ect to o v e rb id b y[ th e le n d e r]. If [ th e b id d e r]’s b id w ere v alue d [b elow the f u ll v alue o f th e len d er’s cl ai m ] , [the l ender ] c o ul d overbi d i t , and [the l ender ]’s bi d w oul d t hen bec om e, bydefi ni t i on, t he “a l l ow ed” c l ai m . . . . [I ] ti s pr act i cal that[the l ender ] w i l l bi d i n i t s ent i r e obl i gat i on and t her efor e t hat i s i t s “al l ow ed” cl ai m . B eca us e no o n e c o u ld b u ythe pro p ertyw ith o u t [th e len d er]’s cons ent , unl es s [the l ender ] i s pai d i n ful l , t he “a ll ow ed cl ai m ” of [ t he l ender ] m us t( for p u rp o se s o f

c re d it b id d in g ) b e its to tal c laim w i t h o u tr e f

e r e n c e t o th e “ v a l u e ” o f th e p r o p e r t y. 72 B
. R
. at146. 28 fo r L e n d e r repres ented byB i dd er’ s offer. ) A s L end er hol ds a s ecur i t yi nt er es ti n T , anyamount bi d fori tup t o t he val ue of L en d er’s fu ll claim b ec o m es th e se cu red p o rt ion o f L en d er’s cl ai m bydefi ni t i on. G i ven t he w ei ghtof r eas on’ s demand t hat 14 “i tm us tbe s o, ” w e see no r eas on t o cat al og the my r i ad other a rg u m e n ts th a t h a v e b e e n a d v a n c e d to su p p o rt th isW e paus e nonethel es s t o note o n e su ch argument , i n t he 15 m ode of s t atut or yi nt erpr et at i on, that i s bas ed on t he exc ept i on fo r § 3 6 3 sales c o n tai n e d in § 1 1 1 1 (b)(1 )(A )’s st atuto ry pr ot ect i on fornonr ecour s e cr edi t or s ( t hat i s , i n t he eve ntof the bor r ow er ’ s defa ul t , t he cr edi t orm aynotl ook t o the borr ow erfor r epaym ent , and t hus i s l i m i t ed t o i t s s ecur i t y , i f any )

. T he l at t er w as “ena ct ed by C o n g ress t o cur e the har s h r es ul tof G r eat N at i onalLi

f e Ins

. C o. v. P i ne G at e Ass oci at es , Ltd. , 2 B. C. D. 1478 ( B ankr

. N
. D
. G a. 1976)

. ” Tam pa B ay A sso cs. , Ltd. v. D R W W o r th in g to n , L td

. (I

n r e Ta mpa Ba

y As s o c s . , Ltd. ) , 864 F. 2 d 4 7 , 4 9 ( 5 t h Ci r . 1 9 8 9 )

. I n P in e G a te , a s ecur ed cr edi t or h o ld in g a n o n re c o u rse lien a g a in st re a l p ro p e rtyu n su c c e ss f u lly o b jec ted to th e b a n k ru p tcy sa le o f th e p ro p e rtya t a d ra m a tica lly depr essed pr i ce. T he ca s e made cl earthat“underthe form er B ankrupt cyA cta debt orcoul d fi l e bankrupt cypr ocee di ngs dur i ng a per i od w hen r eal pr oper ty v al ues w er e depr es s ed, pr opos e t o r epays ec u red [nonr ecour s e] l ender s onl yt o the ext entof the the n -ap pr ai s ed val ue of the pr oper t y , and ‘ cr am d o w n ’ th e s e c u re d lend er c lass, p rese rvin g an yfu ture appr eci at i on of the pr opert yfor t he debt or . ” I d. at50
. C on gress att em p ted to rem ed y this p rob lem b yen ac ti n g § 1 1 1 1 (b)(1 )(A ), w h ich “ p ro v id [ e s] s u c h c re d ito rs w ith a n o p p o rtu n ity to e lec t to have thei rl i ens t r eat ed as r ecour s e cl ai m s i f thei rdebt or s i nt end t o r et ai n t he prope r t y s ecur ed .

. . . ” I d. T h e p ro v isio n e x p licitly e x c e p t s s a l e s o f

p r o p e r t yu n d e r§ 3 6 3 , h o we v e r . 1 1 U. S

. C. § 1 1 1 1 (b )( 1 )( A )( ii)

. T he r at i onal e forthi s e x c e p t i o n pr es uppos es that§ 363( k) credi tbidders can b i d the full v a lu e of thei r s ecured clai m s. 29 “ in te rp re ta tio n .” 15“C ongr es s i nt ended t o pr ot ectt he nonr ecour s e under s ecur ed cr edi t oronl yi f s uch a cr edi t or i s not perm i t t ed t o pur chas e the col l at er al ata s al e ori f the debt ori nt ends t o r et ai n t he col l at er al aft erbankrupt cyand notr ep ay the debti n ful l

. ” I n r e Tam pa B ay A ssocs. , 864 F. 2d at50. C ongr es s deemed t he under s ecur ed nonr ecour s e cr edi t or ’ s abi l i t yt o cr edi tbi d t he fu llv a lu e o f h is cl ai m adequa t e pr ot ect i on i n the § 363 cont ext , r ender i ng § 1 1 1 1 ( b ) ( 1 ) ( A ) u n n e c e s s a r y: T he l egi s l at i ve hi s t ory ver i fi es t hi s congr es s i onal inten t i n li m it ing the a p p li ca b il ity o f th e statuto ry r ecour s e s t atus : “Sal e of pr oper t y under [§] 363 or under t he pl an i s excl uded fr om t r eatm entunder [ § ] 11 1 1 (b ) b e c a u se o f

th e se c u re d p a rty ’s r ig h t to bi d in th e fu ll a m o u n t o

f h is a llo w e d

c la im atany s a le o f c o lla te ra l u n d e r s e c tio n 3 6 3 (k ) . . . .” Id. (quoti ng 12 4 C on g. R ec. H 11 , 10 3-04 ( 19 78 )) (om i ssio n in or i gi nal ) ( emphasi s ad d ed). B eca us e an unde r s ecur ed nonr ecour s e cr edi t ori s pr ot ect ed t o t he ful l ext ent of i t s cl ai m by vi r tue of i t s abi l i t yt o bi d up t o t he ful l val ue of thatcl ai m under § 363( k) , C ongr es s conclud ed t hat§ 1111( b) ( 1) ( A ) need not app l yt o § 36 3 sal es. 30 C ohen i s not outof pl aus i bl e ar gum ent s , how ever , as he c laim s th a t b e c a u se th e L e n d e rs w e re n o t p a rtia lly under s ecur ed b u t c o m p le te ly u n d e r s ecur ed— t hati s , beca us e the col l at er al w as found t o have no e conomi c val ue— t hi s cas e i s d iffe rent
. Y et not hi ng about t he l ogi c of al l ow i ng cr edi tbi ds up t o t he ful l fac e val ue of the col l at er al change s i f the col l at er al has n o actual v a lu e . B e c a u se th e L e n d e rs h a d a v a lid se c u ri ty in te re st in31 e ss e n tiallya ll th e a ss e ts s o ld , b yd e f in iti o n th e yw e re e n tit led to t he s a t i s f a c t i o n o f t h e i r c l a i ms f

r o m a v a i l a b l e p r o c e e d s o f any s al e of thos e under l y i ng as s et s . T hei rcr edi tbi d di d n o thi ng m or e than pr es erve thei rr i ghtt o the pr ocee ds , as cr edi tbi ds do u n d er § 3 6 3 (k). U n a b le sq u a re ly to re st th is arg u m e n t o n a th e o re tica lly s ound cons t ruct i on of the B ankrupt cyC ode’ s cr edi tbi ddi ng pr ovi s i ons , C ohen enl i s t s the aid of 11 U

. S. C

. § 506( a) , w hi ch p ro v id e s f

o r th e sp littin g o f

p a rtiallyse c u re d c laim s in to th e ir s ecur ed cl ai m an d u ns ecur ed cl ai m component s . Y et§ 506( a) i s i nappl i cabl e. A s o n e m emberof the Supr eme C our thas e x p lain e d , “[ w ]h e n . . . the B a n k ru p tcy C o d e m e a n s to re f e r to a s e c u re d p a rt y ’s e n tir e a llo w e d c la im , i

. e. , t o both t he ‘ s ecur ed’ an d ‘un sec u red ’ po rt ion s u n d er § 5 0 6 (a), itu ses th e term
‘ a llo w e d c la im ’— a s i n 1 1 U. S

. C. § 363( k)

. . . . ” D ew s nup v. T i mm , 50 2 U
. S

. 41 0, 42 2 (199 2) ( S cal i a, J. , dis sent i ng ) ( fi rs t emphasi s i n or i g inal)

. T hati s , § 363( k) s peaks t o t he ful l fac e val ue of a s ecur ed cr edi t or ’ s cl ai m , nott o the por t i on of that cl ai m t hati s actual l ycol l at er al i zed a s des cr i bed i n § 506. M o reov er, as a pract i cal m at t er, no § 5 06 valuat i on is r equi r ed bef

or e a § 363 s al e of the under l y i ng col l at er al can be ap p roved. Sect i on 363 at t empt s t o a v o id the compl exi t i es and i neff i ci enci es of val ui ng col l at er al al t ogetherbys ubs t i tut i ng t he t heor et i cal l ypr efe r abl e mechan is m of a f r ee mar kets al e t o s et t he pr i ce. T he pr ovi s i on i s pr emi s ed o n the not i on t hatt he m arket ’ s r eac t i on t o a s al e bes t r efl ect s t he ec onom i c r eal i t i es of32 a ss e ts’ w o rth . N a tu ra lly , the n , c o u r ts a re n o t re q u ire d f irst to det erm i ne the as s et s ’ w or t h befor e appr ovi ng s uch a mar kets al e. T h is w o u ld co n tr av en e the b asis fo r th e p rov isi o n ’s ve ry e x is te n c e . F o r th ese rea so n s, w e c o n clud e tha t th e D istri ct C o u rt pr oper l yal l ow ed the Lender s t o contr i but e thei rcr edi tbi ds undert he §363 s al e.

V I . E qui t abl e Subordi nat i on C ohen al s o ar gues t hat t he Lender s ’ cl ai m s r el at ed t o t he 1 9 9 9 F u n d i n g s s h o u l d b e e q u i t a b l ys u b o r d i n a t e d t o t he c l a i ms o f th e ge n era l u n sec u red cre d it o rs. In C iti c o rp V e n tu re C a

p ita l, L td

. v . Co mm. o

f Cr e d i t o rs Ho ld i n gUn s e c u r e d Cla i ms , we e x p lain e d th a t [ b ]efore or deri ng equ i t able s ub ordi nati on , m ost cour t s have r equi r ed a s how i ng i nvol vi ng thr ee e lem e n ts: (1 ) th e c la im a n t m u st h a v e e n g a g e d in s om e type of i nequi t abl e conduc t , ( 2) t he m isco n ductm us thave r es ul t ed i n i nj uryt o t he cr edi t or s or confe r r ed an unfai radvant age on the cl ai m ant , and ( 3) equi t abl e s ubo rdi nat i on of the cl ai m m us tnot be i ncons i s t ent w i t h the pr ovi s i ons o f th e [ B ]a n k ru p tc y[ C ]o d e . 160 F. 3d 98 2 , 9 8 6 –87 ( 3d C i r . 1998) ( ci t i ng U ni t ed Stat es v.O ur hes i t ancy t o adoptan i nequi t abl e conduc tr equi r ement 16 i n C i t i cor

p V ent ur e C api talste m m e d f ro m o u r p rio r h o ld in g in I n r e Burden v

. U

ni t ed Stat es , 9 1 7 F
. 2 d 1 1 5 , 1 2 0 (3d C ir

. 1 9 9 0 ), t hat“cr edi t orm i s conducti s not[al w ay s ] a pr er equi s i t e for e q u ita b le s u b o rd in a tio n .” A s w e e x p la in e d , “ B ur den i nvol ved s ubor di nat i on of a t ax pena l t yi n the abs ence of governm ent m i s conduct

. ” 160 F. 3d at987 n. 2. 33 N ol and , 517 U
. S. 535 ( 1996) )

. W e decl i ned, how ever , t o adopt t he fi r s tgener al l yr ecogni zed e l ementas a form al r equi r ement forequi t abl e s ubor di nat ion, not i ng i ns t ead thatbeca us e the B ankrupt cyC our ti n C i t i corp V ent u re C api talpr oper l yfound i nequi t abl e conduc t , ther e w as n o “nee d .

. . [t o] r es ol ve the iss u e o f w h e th e r m iscon d u c t is a lw a y s a p re re q u isite to e q u itab le s ubor di nat i on . . . . ” 160 F. 3d at987 n. 2. In a simi l arvei n, 16 beca us e the D ist ri ct C our tfound i n ourcas e, thr ough a pr oper ex erc ise o f it s d iscreti o n , that n o injury resu lt ed to S u b M icron ’s u n se c u re d c re d ito rs a s a re su lt o f th e L e n d e rs ’ d e a lin g s w ith A k rio n , w e n e e d n o t re a c h th e iss u e o f in e q u itab le c o n d u c t in or dert o aff

i r m t he D i s t r i ct C o ur t ’ s equi t abl e s ubor di nat i on hol di ng. A s th e D istric t C o u rt e x p lain e d , the d o c trin e o f e q u itab le s ubor di nat i on “i s r emedi al , not penal , and s houl d b e a p p l i ed o n ly to th e ex tent n ec essa ry to of fse t spe cific h arm that cre d it o rs h a v e s u f f e r e d o n a c c o u n t o f

th e i n e q u i t a b l e c o n d u c t
. ” 2 9 1 B. R. at327 ( ci t i ng Trone v. Sm i th (I n r e W es t gat e- C al i f or ni a C or

p. ), 6 4 2 F .2 d 1 1 7 4 , 1 1 7 8 (9 th C ir.1 9 8 1 )); s ee als o C i t i corp V enture34 C api tal , 1 6 0 F
. 3 d a t 9 9 1 (“ A b a n k ru p tc yc o u rt s h o u ld

. . . at t empt t o i dent i fy t he natur e and e xt entof the harm i ti nt ends t o compensate i n a mannert hatw i l l perm i ta j udgm entt o be m ad e re g ar d ing the p rop o rt ion ali tyo f th e re m ed yto the injury t hathas been s uffe r ed byt hos e w ho w i l l bene fitfr om t he su b o rd in a tio n .”); S to u m b o s v . K ili m n ik , 9 8 8 F .2 d 9 4 9 , 9 6 0 (9 th C i r . 1993) ( “A cl ai m w i l l be s ubor di nat ed onl y t o t he cl ai m s of cre d ito rs w h o m the in eq u it ab le co n d u ct ha s d isad v an tage d

. ”); Es t es v. N & D P r ops . , I nc. (I n r e N & D P r ops . , I

nc. , 799 F. 2d 726, 733 ( 11t h C i r . 1986) ( s t at i ng t hat“equi t abl e s ubor di nat i on o p e ra te s o n ly to re d re s s th e a m o u n t o f a c tu a l h a rm d o n e ” ). C ons i der i ng C ohen’ s equi t abl e s ubor di nat i on cl ai m , t he D i s t r i ctC our thel d: [P] l ai nt i ff ha s fai led to show that

. . . the uns ecur ed cr edi t or s s uffe r ed anyharm as t he res ultof d efen dan t s’ act i on s. T he tr i al t es t i m onyi s uncontr adi ct ed that h a d d e f e n d a n ts n o t m a d e th e 1 9 9 9 [ F ]u n d in g s to SubM i cr on, t he companyw oul d have be en for ced t o cl os e dow n an d l i qui dat e, l eavi ng the uns ecur ed cr edi t or s w i t h not hi ng. F u rth erm o re, th e rec o rd sh o w s tha t th ere w er e no otherpar t i es i nt er es t ed i n acqui r i ng SubM i cr on att he t i m e of the bi d. Pl ai nt i ff ha sW h ile th e las t m a jo r h e a d in g in C o h e n ’s O p e n in g B rie f is 17 t hat“The R ecor d C ont ai ns O verw hel m i ng E vi dence ThatT he Ap p e l l e e s Br e a c h e d Th e i rF i d u c i a r yDu t i e s a n d Th e i rCl a i ms S h o u ld b e E q u itab lyS u b o rd in a ted ,” C o h e n O p . B r. a t 5 1 , li ttl e arg u m en t eve n im p li es th e D istri ct C o u rt ’s find ing s w ere e n te re d in e rr o r. A s an asi de, w e not e thatC ohen r eci t es the gene r al i zat i on t hatD el aw ar e court s have he l d thatdi r ect or s ’ fi duci arydut i es ext end t o cr edi t or s as w el l as s har ehol der s once a debt ori s i n the “vi ci ni t yof i ns ol vency . ” I d. at52 ( ci t i ng G e

y e r v . In g e rs o ll P ubl ’ ns C o. , 6 2 1 A .2 d 7 8 4 , 7 8 9 (D e l. C h . 1 9 9 2 ); C re d it Lyonnais B ank N

eder l and, N

. V

. v. P athe C om m c’ ns C or p. , C i v. A

. N o. 12150, 1991 W L 277613, at *34 & n. 55 ( D el

. C h. D ec. 30, 1991) )

. T he r ece nt D el aw ar e C hance r yC our topi ni on of V i ce Chancel l orSt r i ne i n Pr o d u c t i o n Re s o u r c e s Gr o u p , L

. L

. C. 35 f a iled to sh o w th a t an yo th e r p a rtyw a s w ill in g to b i d o n Su b M i c r o n a t a n y p r i c e . I n f a c t , t he t es t i m onys how s t hat Sunr i s e/A kr i on w as t he dea l of l as tr es o rt for SubM i cr on and the company aggr es sivel ys oughtothers ui t or s pr i ort o the Sunr i s e/A kr i on deal

. G i ven thes e fa ct s , pl ai nt i ff has notpr ov en tha tanyharm r es ul t ed fr om any i m pr operdoubl e bi ddi ng ori nfl at ed bi d pr i ce. In re Sub Mi cron S

ys. , 2 9 1 B .R . a t 3 2 9
. T he r ecor d s uppor t s the C our t ’ s fi ndi ngs , and C ohen bar el yar gues ot herw i s e. Fur t her , C ohen poi nt s t o no evi dence 17v. NC T G r oup, I nc. , 8 6 3 A. 2 d 7 7 2 ( Del

. Ch. 2 0 0 4 ) , addr es s es th e e x te n t o f d ir e c to r d u tie s w h e n a c o rp o ra tio n is in s o lv e n t. I d. a t 7 8 7

– 9 3 . In so d o in g , the V ice C h a n c e llo r c lar if ies in a c c u ra te gener al i zat i ons of C re d it L y o n n a is t hathave g ained t r act i on fr om uncr i t i cal r epet i t i on. I ndeed, i tappea r s t he 1999 Fundi ngs benef i t t ed uns ecur ed 18 cr edi t or s byenabl i ng SubM i cr on t o payoper at i ng expens es and t o avoi d a C hapt er7 l i qui dat i on. 36 s how i ng t hatuns ecur ed c r e d i t o r s wer e i n anyw aydi s advant aged o r h a rm e d b yth e sa le o f a ss e ts. In th is c o n tex t, eq u itab le

18 s ubor di nat i on w oul d s erve no purpo se and the C our tt hus p r o p e r l yd e n i e d Co h e n ’ s c l a i m. * * * * * W e a f f irm th e D istric t C o u rt’s a p p ro v a l o f th e § 3 6 3 sa le of S ub M i cron’s asset s.