1

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re:

BRUCE ELIEFF,

Debtor.

BAP No. CC-21-1081-SFL

Bk. No. 8:19-bk-13858-ES

Adv. No. 8:19-ap-01205-ES

OPINION

TODD KURTIN,

Appellant,

v.

HOWARD M. EHRENBERG, Chapter 7 

Trustee,

Appellee.

Appeal from the United States Bankruptcy Court

for the Central District of California

Erithe A. Smith, Bankruptcy Judge, Presiding

APPEARANCES:

Daniel Luke Geyser of Haynes and Boone, LLP argued for appellant; Sean 

A. O’Keefe of O’Keefe & Assoc. Law Corp., P.C. argued for appellee.

Before: SPRAKER, FARIS, and LAFFERTY, Bankruptcy Judges.

SPRAKER, Bankruptcy Judge:

INTRODUCTION

Creditor Todd Kurtin appeals from the entry of summary judgment 

in favor of chapter 71 trustee Howard M. Ehrenberg subordinating Kurtin’s

1 Unless specified otherwise, all chapter and section references are to the 

FILED

MAR 21 2022

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
2

claim under § 510(b). After its initial ruling, the bankruptcy court entered 

an order clarifying that its ruling subordinated not only his claim but also 

his lien rights arising from the prepetition judgment liens he obtained 

against Elieff.

We agree with the bankruptcy court that Kurtin’s claim for damages 

arises from the purchase or sale of a security, and § 510(b) required 

subordination of his claim and the associated lien rights. Accordingly, we 

AFFIRM.

FACTS2

A. Kurtin’s and Elieff’s joint ventures.

Beginning in the early 1990s, Kurtin and Elieff, as equal partners,

engaged in a series of real estate investment and development projects.

Each project was owned and run through a separate business entity or 

collection of entities. Typically, Elieff and Kurtin used corporations or 

limited liability companies, but they also utilized limited partnerships

(collectively, the “Joint Entities”).

It is not clear whether their business relationship was a single 

partnership that engaged in multiple projects or a set of separate ventures. 

Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules 

of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of 

Civil Procedure.

2 We exercise our discretion to take judicial notice of documents electronically 

filed in the underlying bankruptcy case and adversary proceeding. See Atwood v. Chase 

Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
3

In his declaration opposing the Trustee’s summary judgment motion, 

Kurtin referred to it as “an equal general partnership, based on an oral 

agreement.” Elsewhere, however, Kurtin admitted that he and Elieff

conducted their real estate investment and development business through 

the Joint Entities and that each of them as individuals formed and jointly 

owned the Joint Entities, rather than the partnership.

B. Kurtin’s and Elieff’s first round of state court litigation and the 

resulting Settlement Agreement.

The relationship between Kurtin and Elieff began to deteriorate in the 

late 1990s. In 2003, Kurtin sued Elieff and his separately owned 

development entities. Kurtin asserted claims for breach of contract, breach 

of fiduciary duty, conversion, embezzlement, and constructive fraud,

among others. In turn, Elieff counter-sued Kurtin and his separately owned 

development entities, stating causes of action similar to those Kurtin had 

asserted.

During this litigation (the “First Lawsuit”), the parties engaged in 

mediation and entered into a Settlement Agreement in 2005. The 

Settlement Agreement not only resolved the parties’ existing disputes but 

also ended their business relationship. More specifically, the Settlement 

Agreement required Kurtin to transfer his interests in the Joint Entities to 

Elieff. In turn, Elieff agreed to indemnify Kurtin for any liabilities arising 

from the Joint Entities. In exchange for both the dismissal of his causes of 

action and the “sale” of his interest in the Joint Entities, Kurtin was to 
4

receive from Elieff or the Joint Entities an aggregate of $48.8 million in 

“Settlement Payments.” The Settlement Agreement broke the Settlement 

Payments into four installments: (1) $21 million by no later than August 19, 

2005; (2) $1.8 million on January 2, 2006; (3) $13.1 million on or before June 

30, 2006; and (4) $12.9 million on or before December 31, 2006. Elieff and 

the Joint Entities were jointly and severally liable for the first Settlement 

Payment. Only the Joint Entities were liable for the remainder of the 

Settlement Payments.

The Settlement Agreement did not allocate any specific portion of the 

Settlement Payments to either the release of Kurtin’s claims or the sale of 

his interest in the Joint Entities. Rather, the Settlement Agreement, as well 

as Kurtin’s subsequent litigation statements, all indicated that the 

resolution of disputes and the “buyout” of Kurtin’s interests were 

indivisible.

Paragraph 14 of the Settlement Agreement contained two distinct 

provisions significant to the issues before us. The first granted Kurtin a 

security interest “in the projects owned by the Joint Entities” to secure their 

obligation to make the Settlement Payments.3 The second and more 

important of the two provisions contemplated a safeguard for the source of 

funds from which Kurtin presumed the Settlement Payments would be 

3 Neither Elieff nor the Joint Entities ever executed the documents necessary to 

perfect these security interests.
5

made—the funds of the Joint Entities. This provision prohibited Elieff from 

taking any distribution from any of the Joint Entities to the extent that such 

distributions would prevent satisfaction of the obligation to make 

Settlement Payments. 

C. The default on the Settlement Agreement and the second round of 

state court litigation.

When the Joint Entities failed to pay the full amount of the third 

Settlement Payment and any of the fourth Settlement Payment, Kurtin was 

entitled to judgment in the First Lawsuit for the amount of the shortfall

under the terms of the Settlement Agreement. Kurtin sought entry of 

judgment against the Joint Entities for roughly $22.5 million. But the trial 

court denied this relief because the Joint Entities were not parties to the

First Lawsuit at the time the Settlement Agreement was entered into.

Kurtin sought and obtained arbitration under paragraph 15 of the 

Settlement Agreement. This paragraph permitted the arbitrator to supply 

essential terms to the Settlement Agreement to the extent either party 

subsequently asserted that the Settlement Agreement was missing material 

terms. The arbitrator ultimately determined that the Settlement Agreement 

should be deemed amended to include a term that, if the default in 

Settlement Payments was not cured by June 30, 2007, “Kurtin shall have the 

right to require Bruce Elieff to transfer to Kurtin or his designee by July 10, 

2007, any and all of Elieff’s right, title and interest—held directly or 

indirectly—in and to any or all of the Joint Entities . . . .” But Kurtin never 
6

sought to enforce this new term of the Settlement Agreement. According to 

Kurtin, he suspected that by the time of the arbitrator’s ruling the 

unencumbered assets and funds of the Joint Entities were grossly 

insufficient to satisfy the shortfall in Settlement Payments. 

Instead, in December 2007, Kurtin sued Elieff and the Joint Entities, 

stating numerous causes of action (“Second Lawsuit”). Only the seventh 

cause of action for breach of contract is relevant to this appeal. In relevant 

part, Kurtin alleged that Elieff breached paragraph 14 of the Settlement 

Agreement by taking distributions from the Joint Entities, “which 

distributions prevented the payment of the settlement payments as 

required under the Settlement Agreement.”

In May 2010, following a bifurcated trial, the jury returned a verdict 

in favor of Kurtin and against Elieff for breach of paragraph 14 of the 

Settlement Agreement in the amount of $24,411,433.86, and judgment was 

entered for that amount. A series of appeals and a new trial on the amount 

of Kurtin’s damages ensued. Ultimately, in February 2020,

4 the state court 

entered its fifth amended judgment against Elieff for $33,892,117.62 based 

solely on his breach of the distribution restriction in the Settlement 

Agreement. Prior to Elieff’s bankruptcy filing, Kurtin recorded abstracts of 

judgment against Elieff and two of his separate entities that the state court 

4 In December 2019, the bankruptcy court granted Kurtin relief from the 

automatic stay so that he could take further action with respect to his claim, including 

taking the steps necessary to obtain an amended judgment from the state court.
7

included as additional judgment debtors based on its finding that those 

two entities were Elieff’s alter egos—Morse Properties, LLC (“Morse”) and 

4627 Camden, LLC (“Camden”).

D. The bankruptcy filings and the subordination litigation.

In October 2019, Elieff, Morse, and Camden each filed chapter 11 

petitions. In February 2020, three additional Elieff-related entities filed 

chapter 11 petitions. In June 2020, the bankruptcy court substantively 

consolidated the cases and ordered the appointment of a chapter 11 trustee.

In September 2020, the consolidated case was converted to chapter 7, and 

Howard Ehrenberg was appointed to serve as chapter 7 trustee.

In his schedules, as amended, Elieff listed roughly $13 million in real 

property and $260,000 in personal property. He disclosed numerous 

affiliated entities but listed their values as zero or unknown. As for 

liabilities, he listed $97 million in secured debt, including $35 million owed 

to Kurtin on his judgment liens, and roughly $300,000 in unsecured debt.

Within weeks of his bankruptcy filing, Elieff commenced an

adversary proceeding against Kurtin. In December 2019, Elieff filed his 

second amended complaint (“SAC”), which stated subordination claims 

under § 510(b), claims for transfer of Kurtin’s judgment liens to the estate 

under § 510(c)(2), and various avoidance claims. In January 2020, Kurtin 

moved to dismiss the SAC. Elieff countered in February 2020 with a 

summary judgment motion filed jointly with intervenor the Official 

Committee of Unsecured Creditors of Bruce Elieff.
8

The bankruptcy court heard and determined the motion to dismiss 

and held its initial hearing on the summary judgment motion. The court 

dismissed some of the avoidance claims with leave to amend. It also 

dismissed without leave to amend the § 510(c)(2) claims seeking to transfer 

the judgment liens to the estate. The court held that § 510(c)(2) did not 

apply to claims subordinated under § 510(b) and only applied to claims 

subordinated under § 510(c)(1). The court denied the remainder of the 

motion to dismiss. As for the summary judgment motion, the court granted 

Kurtin’s Civil Rule 56(d) (applicable via Rule 7056) request for time to 

conduct discovery and continued the summary judgment hearing.

By the time the court held its continued hearing on the summary 

judgment motion, the case had been converted, and Howard Ehrenberg, 

the chapter 7 trustee, had become the plaintiff. At the conclusion of the 

hearing the court took the matter under submission. Kurtin then filed 

another Civil Rule 56(d) motion asking for more time to conduct discovery.

Kurtin maintained that most of the rights and obligations exchanged under 

the Settlement Agreement had little or nothing to do with his transfer of his 

interests in the Joint Entities to Elieff. Kurtin advised that he intended to 

seek additional discovery to allocate the Settlement Payments between the 

transfer of his interest in the Joint Entities and other rights and obligations. 

As Kurtin reasoned, if he could prove that the value of the Joint Entities 

was less than Elieff’s first $21 million Settlement Payment, then none of the 

other Settlement Payments had anything to do with the purchase or sale of 
9

securities. But Kurtin never alleged that the Settlement Payments were 

allocable, and no evidence was submitted to suggest this. Nor did he argue 

that the Settlement Agreement contemplated that the first Settlement 

Payment specifically related to the transfer of Kurtin’s interest in the Joint 

Entities.

E. The bankruptcy court’s decision.

In January 2021, the bankruptcy court issued a memorandum 

decision granting summary judgment on the § 510(b) claims for relief.5 The 

bankruptcy court determined that the plain terms of the Settlement 

Agreement established that it involved the purchase and sale of the 

securities of Elieff’s affiliates. The bankruptcy court particularly relied on 

the provisions concerning Kurtin’s transfer of his interests in the Joint 

Entities as well as those that attempted to unwind Kurtin’s involvement in 

and potential liability for the Joint Entities’ business. As the bankruptcy 

court explained, “[t]he undisputed fact remains that the crux of the 

Settlement Agreement required Kurtin to transfer his interest in the Joint 

Entities in exchange for Settlement Payments.” Section 510(b), therefore, 

applied even if some aspects of the Settlement Agreement did not directly 

relate to the purchase or sale of securities.

5 In September 2020, the bankruptcy court entered a separate order in which it 

made numerous evidentiary rulings. The evidentiary rulings are addressed in the 

discussion to the extent they are relevant to our analysis and resolution of this appeal.
10

The court also denied Kurtin’s supplemental Civil Rule 56(d) request. 

It concluded that even if the Settlement Payments could be partially

allocated to aspects other than the transfer of Kurtin’s interest in the Joint 

Entities, this would not constitute a material issue of fact that would 

preclude summary judgment. As the bankruptcy court reasoned, § 510 

relief is triggered whenever there was “some nexus” or “causal 

relationship” between the claim and the purchase or sale of securities of the 

debtor or the debtor’s affiliates. Even if precise allocation of the Settlement 

Payments were possible, it was immaterial as the trustee had established 

the requisite nexus under § 510(b) between the restriction on distributions 

from the Joint Entities, the unsatisfied Settlement Payment obligations, and 

Kurtin’s transfer of his interest in the Joint Entities.

F. The parties’ cross-motions seeking to clarify the court’s ruling.

After the memorandum decision, both sides requested modification 

of the court’s ruling to clarify whether subordination was limited to just 

Kurtin’s “claim,” or included his judgment liens as well. After holding 

another hearing, the court entered an order stating that Kurtin’s liens were 

subsumed within the term “claim” as used in § 510(b). As a result, the 

bankruptcy court concluded, Kurtin’s judgment liens were subordinated 

for the same reasons and to the same extent that his claim had been 

subordinated by the court.
11

On April 5, 2021, the bankruptcy court entered final judgment 

pursuant to Civil Rule 54(b) on Ehrenberg’s § 510(b) subordination claims 

for relief. Kurtin timely appealed.

6

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 

157(b)(2)(A) and (O). We have jurisdiction under 28 U.S.C. § 158.

ISSUES

1. Did the bankruptcy court err when it granted summary judgment in 

favor of Ehrenberg?

2. Did the bankruptcy court correctly construe § 510(b)?7

3. Did the bankruptcy court abuse its discretion when it denied Kurtin’s 

supplemental Civil Rule 56(d) motion?

4. Did the bankruptcy court abuse its discretion when it excluded 

certain portions of Kurtin’s evidence?

STANDARDS OF REVIEW

We review the bankruptcy court’s grant of summary judgment de 

novo. Wolkowitz v. Beverly (In re Beverly), 374 B.R. 221, 230 (9th Cir. BAP

6 The remainder of Ehrenberg’s surviving avoidance claims for relief have been 

dismissed without prejudice.

7 On appeal, Kurtin has not specifically and distinctly challenged the bankruptcy 

court’s determination that his divestment of his interests in the Joint Entities constituted 

a purchase or sale of securities of the debtor’s affiliates within the meaning of § 510(b). 

Consequently, he has forfeited any issues he might have raised related to this 

determination. See Christian Legal Soc'y v. Wu, 626 F.3d 483, 487–88 (9th Cir. 2010);

Brownfield v. City of Yakima, 612 F.3d 1140, 1149 n.4 (9th Cir. 2010).
12

2007), aff'd in part, dismissed in part, 551 F.3d 1092 (9th Cir. 2008). In 

conducting our de novo review, we must view the facts in the light most 

favorable to the nonmoving part, and we must determine whether the 

moving party was entitled to judgment as a matter of law because no 

genuinely disputed issues of material fact needed to be tried. Id.

We also review de novo the bankruptcy court’s construction of the 

Code. Francis v. Wallace (In re Francis), 505 B.R. 914, 917 (9th Cir. BAP 2014). 

De novo review means that we review the matter anew as if the 

bankruptcy court had not previously decided it. Id.

The denial of a Civil Rule 56(d) motion seeking more time to conduct 

discovery is reviewed for an abuse of discretion. Atay v. Cnty. of Maui, 842 

F.3d 688, 698 (9th Cir. 2016). We also review for an abuse of discretion the 

bankruptcy court’s exclusion of evidence. Orr v. Bank of Am., NT & SA, 285 

F.3d 764, 773 (9th Cir. 2002). The bankruptcy court abuses its discretion if it 

applies an incorrect rule of law or its factual findings are illogical, 

implausible, or without support in the record. TrafficSchool.com, Inc. v. 

Edriver, Inc., 653 F.3d 820, 832 (9th Cir. 2011).

DISCUSSION

A. Kurtin’s claim for breach of the Settlement Agreement falls within 

the broad scope of § 510(b).

Section 510(b) “mandates the subordination of damages claims 

arising from the purchase or sale of a security.” Am. Broad. Sys., Inc. v. 

Nugent (In re Betacom of Phx., Inc.), 240 F.3d 823, 827 (9th Cir. 2001) (internal 
13

quotation marks omitted).8 Its principal purpose is to ensure that creditors 

of the debtor are paid before disappointed equity interest holders who 

bargain for the potential of a greater return in exchange for a greater risk of 

loss. Racusin v. Am. Wagering, Inc. (In re Am. Wagering, Inc.), 493 F.3d 1067, 

1071-72 (9th Cir. 2007); Slain & Kripke, The Interface Between Securities 

Regulation and Bankruptcy–Allocating Risk of Illegal Securities Issuance Between 

Securityholders and the Issuer's Creditors, 48 N.Y.U. L. Rev. 261 (1973).

The Ninth Circuit broadly interprets the scope of § 510(b). See 

Liquidating Tr. Comm. of the Del Biaggio Liquidating Tr. v. Freeman (In re Del 

Biaggio), 834 F.3d 1003, 1009 (9th Cir. 2016); Pensco Tr. Co. v. Tristar 

Esperanza Props., LLC (In re Tristar Esperanza Props., LLC), 782 F.3d 492, 495

(9th Cir. 2015) (“Tristar”). Thus, the Ninth Circuit has held that a claim 

“arises from” the purchase or sale of securities whenever it shares a “nexus 

or causal relationship” with the purchase or sale of securities. In re Del 

Biaggio, 834 F.3d at 1009 (citing In re Am. Wagering, Inc., 493 F.3d at 1072).

We see no material difference between Tristar and the instant case. In 

Tristar, creditor O’Donnell sought to withdraw as a member of the debtor 

limited liability company. 782 F.3d at 494. In response, Tristar invoked its 

right to purchase O’Donnell’s membership interest, but the parties could 

8 Section 510(b) also applies to claims “arising from rescission of a purchase or 

sale of a security of the debtor or of an affiliate of the debtor” and claims “for 

reimbursement or contribution allowed under section 502 on account of such a claim.” 

But the bankruptcy court’s ruling did not apply either of these aspects of § 510(b). There 

is no need for us to consider these other aspects of § 510(b).
14

not agree on a valuation of her interest. O’Donnell then initiated an 

arbitration and obtained an award which was reduced to judgment in state 

court. Id. Tristar then filed its chapter 11 bankruptcy petition and 

commenced an adversary proceeding to subordinate O’Donnell’s claim 

under § 510(b) and (c). The bankruptcy court granted summary judgment 

in favor of Tristar on its § 510(b) claim. Id. Relying on its broad construction 

of “arising from,” the Ninth Circuit affirmed. In the process, it rejected

O’Donnell’s contention that § 510(b) did not apply because the claim had 

been reduced to judgment and was a debt as of the petition date. Id. at 495-

97. As the Tristar panel explained:

[I]t is clear that O’Donnell’s claim arises from the sale of a security of 

the debtor. Her claim originates from the failed sale of her 

membership interest and Tristar’s breach of the operating 

agreement’s provisions regarding repurchase of membership 

interests. The direct causal link between O’Donnell’s claim and the 

purchase and sale of an equity interest leaves no doubt as to whether 

her claim for damages “flows from” the purchase or sale of a security 

of the debtor.

Id. at 497.

Similarly, Kurtin’s claim originated from the failed Settlement 

Agreement pursuant to which he divested himself of his interests or rights 

in the Joint Entities. Kurtin has admitted these interests were worth 

millions of dollars at the time of the Settlement Agreement. Under the 

Settlement Agreement, the only significant consideration flowing to Kurtin

was his right to receive the Settlement Payments. And the restriction in 
15

paragraph 14 prohibiting Elieff from receiving distributions from the Joint 

Entities to the extent they interfered with the Settlement Payments 

indisputably was intended to protect and preserve the Joint Entities’ funds 

necessary to make the Settlement Payments. Under these undisputed facts, 

Kurtin’s claim based on Elieff’s breach of paragraph 14 shares a direct 

causal link with the conveyance of his equity interests in the Joint Entities.

Accordingly, the bankruptcy court correctly applied § 510(b) to Kurtin’s 

claim.

B. None of Kurtin’s arguments persuade us that the bankruptcy court 

erred in construing or applying § 510(b).

1. Khan does not justify reversal.

Citing Khan v. Barton (In re Khan), 846 F.3d 1058 (9th Cir. 2017), Kurtin 

contends that § 510(b) does not apply because his claim arises from “Elieff’s 

post-settlement diversion of [Joint Entity] assets,” which has nothing to do 

with the sale of securities. Aplt. Opn. Br. at 37 (emphasis in original). In 

Khan, the creditor, Barton, obtained a state court judgment against the 

debtors for the fraudulent conversion of his stock in the debtors’ affiliated 

entity. 846 F.3d at 1061, 1063-64. In their subsequent bankruptcy cases, the 

debtors sought mandatory subordination of Barton’s proof of claim under 

§ 510(b). Id. at 1062. The Ninth Circuit acknowledged the broad 

construction afforded § 510(b), but it reasoned that there was necessarily an 

outer limit to the scope of § 510(b) that “stops short of encompassing every 

transaction that touches on or involves stock in a corporation.” Id. at 1064 
16

(citing In re Am. Wagering, Inc., 493 F.3d at 1071-73). According to Khan, the 

debtors’ conversion of Barton’s interest and the resulting damages had 

“nothing to do with his investment” in the entity except for the fact that his 

loss was measured by the value of his stock at the time the debtors 

converted it. Id. at 1064-65.

Kurtin argues that this case is analogous to Khan because his 

damages arose from Elieff’s post-settlement misconduct, which occurred 

after the purchase of securities was complete. He contends that Elieff’s 

conduct was too remote to trigger subordination under § 510(b). However, 

in Khan there was no connection between the debtors’ conversion of 

Barton’s stock and the earlier purchase of that stock. In contrast, by 

Kurtin’s own admission, the purpose of paragraph 14’s restriction on 

distributions from the Joint Entities was to protect and preserve the 

“income stream allocated to Kurtin” to ensure that all of the Settlement 

Payments were made. The Settlement Payments, in turn, were the only 

significant consideration flowing to Kurtin on account of his divestment of 

his interests in the Joint Entities. Unlike the conversion of the interests in 

Khan, Kurtin’s judgment was based on Elieff’s breach of the Settlement 

Agreement. As such, it shared a direct causal link to Kurtin’s sale of his 

interests in the Joint Entities made in that very same agreement. Kurtin 

obviously expected to be compensated for these interests from the Joint 

Entities’ cash. And the purpose of the distribution restriction in paragraph 

14 was to protect and preserve that source of funds. Kurtin’s claim arising 
17

from the breach of the Settlement Agreement thus triggers § 510(b) because 

the claim originates or flows from his efforts to divest himself of his equity 

investment. Tristar, 782 F.3d at 497; see also Baroda Hill Invs., Ltd. v. 

Telegroup, Inc. (In re Telegroup, Inc.), 281 F.3d 133, 142 (3d Cir. 2002) (in

affirming subordination of shareholders’ claims for the debtorcorporation’s post-sale breach of the stock purchase agreement, the court 

stated: “[m]ore important than the timing of the actionable conduct, from a 

policy standpoint, is the fact that the claims in this case seek to recover a 

portion of the claimants’ equity investment.”).

2. Kurtin’s consideration under the Settlement Agreement 

cannot be apportioned between the securities-related and 

non-securities-related components.

Kurtin next argues that even if his judgment against Elieff is directly 

linked to the Settlement Payments, there is no link between the unpaid

Settlement Payments and his sale of his interests in the Joint Entities.

Though Kurtin admits that some amount of the Settlement Payments was 

meant to compensate him for his sale of his interests in the Joint Entities, he 

maintains that they also included compensation for other non-sale 

damages beyond the scope of § 510(b). Kurtin believes that the first 

Settlement Payment of $21 million fully paid the securities sale aspect of 

the Settlement Agreement. In support, he states that he only transferred his 

equity interest after Elieff made the first Settlement Payment. As a result, 
18

he argues, the outstanding Settlement Payments cannot constitute damages 

that arise from the sale of his securities under § 510(b).

Kurtin has cited nothing in the record that evidenced, or even 

suggested, that the division or allocation of the Settlement Payments was a 

part of the parties’ contract. To the contrary, the plain language of the 

Settlement Agreement reveals no distinction of purpose between any of the 

Settlement Payments. Moreover, nothing in the record remotely suggests 

that the Settlement Payments were severable rather than indivisible.

Undeterred, Kurtin asserts that the bankruptcy court still should 

have allocated the Settlement Payments between the securities sale and 

other damages. As Kurtin put it, “if those non-sale items were separated 

out into individual claims, there would be no basis for subordinating them 

under Section 510(b).” Kurtin cites Betacom of Phoenix, Inc., 240 F.3d at 831-

32, and KIT digital, Inc. v. Invigor Grp. Ltd. (In re KIT digital, Inc.), 497 B.R. 

170 (Bankr. S.D.N.Y. 2013), as modified (Dec. 2, 2013), in support of his 

position. But these decisions do not help Kurtin. Neither stands for the 

proposition that damages from a single indivisible contract can be 

apportioned between damages that trigger § 510(b) and those that do not. 

California law applies, and it simply does not permit apportionment 

of cash consideration within a contract when the contract itself does not 

provide some basis or means for attributing consideration between the 

various items or services for which it was given. Absent such basis, the 

contract is indivisible, and the consideration cannot be apportioned. See
19

Alderson v. Houston, 154 Cal. 1, 9 (1908); see also Keene v. Harling, 61 Cal. 2d 

318, 320 (1964) (stating that severing and apportioning a partially illegal 

contract only is permissible when the court can “reasonably relate the 

illegal consideration on one side to some specified or determinable portion 

of the consideration on the other side” in a manner that is “consistent with 

the intent of the parties”); Perry v. Ayers, 159 Cal. 414, 418 (1911) (“The 

purchase price was not apportioned to the various items of property, and 

there is no basis upon which this court can divide the purchase price, and 

say that any specific part of it was applicable to the stock of the Mother 

Lode Company and any other part to the interest in the Crystalline 

mine.”).9

In sum, Kurtin failed to establish a genuine dispute that the 

Settlement Agreement permitted allocation of the Settlement Payments 

among the purchase and sale of securities and other non-securities related 

damages. The breach of paragraph 14 was directly linked to the obligation 

to make the Settlement Payments that arose, in part, from the purchase and 

sale of his securities. Kurtin expected to be paid from the source of funds 

9 Under California law, whether a contract is indivisible or severable largely 

depends on the contract’s language and subject matter and like any question of contract

interpretation must be answered based on the parties’ intent. Keene, 61 Cal. 2d at 320; 

Sterling v. Gregory, 149 Cal. 117, 119–21, (1906). In turn, when considering the parties’ 

intent for purposes of contract interpretation, it is their mutual intent as manifested in 

the contract and in their conduct that matters, not whatever subjective intent they 

harbored in their own minds. Italiane v. Jeffrey Catanzarite Family Ltd. P’ship (In re 

Italiane), 632 B.R. 662, 674 (9th Cir. BAP 2021) (citing California cases).
20

that paragraph 14 was meant to protect. As such, all of the Settlement 

Payments were integral and indivisible consideration for the triggering 

securities sale. Under these circumstances, Kurtin’s attempt to break the 

causal link between a portion of his claim and the sale of his interests in the 

Joint Entities must fail. That the Settlement Payments also resolved other 

disputes is immaterial because Kurtin failed to present any basis to treat 

the Settlement Agreement as severable. As a result, the bankruptcy court 

correctly determined that Kurtin’s entire claim for breach of paragraph 14 

“arose from” the sale of his interests in the Joint Entities for purposes of 

§ 510(b). To hold otherwise would impermissibly read into the mandatory 

language of § 510(b) a requirement that the claim “solely” arise from the 

purchase or sale of securities. As the bankruptcy court correctly observed, 

§ 510(b) contains no such requirement.

C. Kurtin’s liens were subordinated under § 510(b) for distribution 

purposes.

Kurtin also contends that the bankruptcy court misinterpreted 

§ 510(b) by applying it to his judgment liens. Kurtin admits that § 510(b) 

subordinates claims, including secured claims. But he maintains that 

§ 510(b) has no effect on liens. According to Kurtin, subordination 

reprioritized Elieff’s personal liability only. He contends that his secured 

claim remains entitled to the same priority it held prior to subordination. 

Because of this, he contends that the bankruptcy court erred when it 

subordinated the judgment liens that secure his claim.
21

1. The structure and text of the Code do not bar the bankruptcy 

court’s interpretation of § 510(b) as covering liens.

The undisputed purpose of § 510(b) is to prevent an existing or 

former equity investor from sharing pari passu with the estate’s creditors 

based on the attempted or consummated transmutation of its investment 

from equity to debt whether consensually or by a court ruling. See, e.g., In

re Am. Wagering, Inc., 493 F.3d at 1071-72; In re Betacom of Phx., Inc., 240 F.3d 

at 830. It also is undisputed that the scope of § 510(b) covers both secured 

and unsecured claims. § 101(5).10 But Kurtin insists that § 510(b) does not 

cover liens because Congress only referenced “claims” in § 510(b) and did 

not mention “liens” in that subsection. We disagree. 

a. Section 510(b) subordinates the entirety of a claim

including the creditor’s in rem right to payment.

As the bankruptcy court noted, Kurtin’s narrow interpretation of 

§ 510(b) is inconsistent with Johnson v. Home State Bank, 501 U.S. 78, 83-84 

(1991), which held that the term “claim” as used in the Code includes 

mortgage liens. In Johnson, the Supreme Court examined the relationship 

between the underlying “claim” and the lien that secures repayment, 

10 This is consistent with Congress’ understanding of pre-Code bankruptcy law. 

As reflected in the legislative history for § 510, Congress recognized that, “under 

existing law, a claim is generally subordinated . . . if . . . the claim itself is of a status 

susceptible to subordination, such as a penalty or a claim for damages arising from the 

purchase or sale of a security of the debtor. The fact that such a claim may be secured 

is of no consequence to the issue of subordination. 124 Cong. Rec. H11,095 (daily ed. 

Sept. 28, 1978) (remarks of Rep. Don Edwards), as reprinted in D Collier on Bankruptcy 

App’x Part 4(f)(i)(2) (16th ed. 2021) (emphasis added).
22

beginning with the statutory definition of “claim” as either an unsecured or 

secured right of payment or a right to an equitable remedy. § 101(5). The 

Supreme Court explained:

A mortgage is an interest in real property that secures a creditor’s 

right to repayment. But unless the debtor and creditor have provided 

otherwise, the creditor ordinarily is not limited to foreclosure on the 

mortgaged property should the debtor default on his obligation; 

rather, the creditor may in addition sue to establish the debtor’s in 

personam liability for any deficiency on the debt and may enforce any 

judgment against the debtor’s assets generally. A defaulting debtor 

can protect himself from personal liability by obtaining a discharge in 

a Chapter 7 liquidation. However, such a discharge extinguishes only

the personal liability of the debtor. Codifying the rule of Long v. 

Bullard, the Code provides that a creditor’s right to foreclose on the 

mortgage survives or passes through the bankruptcy.

Johnson, 501 U.S. at 82-83 (cleaned up).

Johnson proceeded to distinguish the two components of a secured 

claim: (1) personal liability dischargeable in bankruptcy; and (2) in rem

liability that remains unaffected by a bankruptcy discharge. It concluded:

“a bankruptcy discharge extinguishes only one mode of enforcing a 

claim—namely, an action against the debtor in personam—while leaving 

intact another—namely, an action against the debtor in rem.” Id. at 84.

Section 510(b) mandates the subordination of the “claim” for 

damages arising from the sale of securities. This necessarily encompasses 

the entirety of Kurtin’s “right to payment” whether personal or in rem.

§ 101(5). Thus, unlike a bankruptcy discharge, which only enjoins collection 
23

of the in personam liability, subordination divested Kurtin of any right to 

payment from any means until the unsecured creditors are paid in full. As 

the bankruptcy court correctly pointed out, Kurtin retains his secured 

claim. Subordination simply rendered it junior to the interests of the 

unsecured creditors. And a lien is incident to the debt it secures. Cal. Civ. 

Code § 2909. Therefore, unless the unsecured creditors have been paid in 

full, Kurtin has no right to any repayment. If the unsecured creditors 

remain unpaid, Kurtin’s judgment liens are simply wholly undersecured, 

valueless junior liens.

Viewed from another vantage, Kurtin’s narrow reading of “claim” as 

used in § 510(b) would lead to incongruous if not absurd results that are 

wholly at odds with a contextual reading of the statute. The specific benefit 

of reordering priorities that § 510(b) confers on unsecured creditors would 

be nullified by Kurtin’s reading of the statute. It would permit a former 

equity investor to elevate its lien rights ahead of the unsecured creditors 

§ 510(b) was enacted to protect. Neither § 510(b) nor the Ninth Circuit’s 

case law can be reconciled with this result. If obtaining a judgment for 

damages arising from the purchase or sale of securities does not remove 

that claim from § 510(b)’s purview, Tristar, 782 F.3d at 495-96, it makes no 

sense why recording that same judgment would have any greater effect. 

Indeed, Tristar evidently involved a claim secured by a judgment lien, see 

id., and that fact did not alter the Ninth Circuit’s subordination analysis.
24

In short, § 510(b) statutorily precludes Kurtin from collecting his 

damages until the unsecured creditors are paid. However one may choose 

to explain that result, it remains the same: satisfaction of Kurtin’s right to 

payment on his underlying claim, whether deriving personally or in rem, is 

not statutorily permitted until all other claims are paid.

b. Subordination of liens does not conflict with other 

provisions of the Bankruptcy Code.

Kurtin additionally argues that any interpretation of § 510(b) to 

include subordination of liens conflicts with both § 725 and § 510(c).

Section 510(b) states that mandatory subordination is for “the purpose of 

distribution.” Kurtin believes that subordination only affects distribution of 

the estate’s property under § 726 and, therefore, cannot affect his liens. In 

Kurtin’s view, his liens retain their prepetition priority, and the 

encumbered property must be “disposed of” pursuant to § 725 which 

provides:

After the commencement of a case under this chapter, but 

before final distribution of property of the estate under section 

726 of this title, the trustee, after notice and a hearing, shall 

dispose of any property in which an entity other than the estate 

has an interest, such as a lien, and that has not been disposed of 

under another section of this title.

According to Kurtin, there is a substantive difference between the 

estate’s distribution under § 726, which specifically references § 510, and 

the disposition of encumbered property required by § 725, which does not. 
25

As a result, Kurtin contends that subordination of his liens runs afoul of

§ 725.

Kurtin’s reliance on § 725 is misplaced. Section 725 is one of the Code 

sections governing “distribution” of estate property. See Czyzewski v. Jevic 

Holding Corp., 137 S. Ct. 973, 979 (2017) (citing both §§ 725 and 726 and 

stating that “distributions of assets in a Chapter 7 liquidation must follow 

this prescribed order” (emphasis added)); see also H.R. Rep. No. 95-595, 

382-383, as reprinted in 1978 U.S.C.C.A.N. 5963, 6338-39 (explaining that 

§ 725—which grants bankruptcy courts broad and flexible authority to 

order “dispositions” of estate property in which third parties hold interests 

or liens—was enacted by Congress “in lieu of a section that would direct a 

certain distribution to secured creditors” (emphasis added)). As such, it is 

explicitly subject to the mandatory effect of subordination under the plain 

language of § 510(b). 

More importantly, there is no conflict between § 510(b) and § 725. 

Section 725 only requires the trustee to dispose of any other entity’s interest 

prior to the final distribution under § 726. There is no evidence in the 

record that the estate is ready for final distribution. Indeed, there is nothing 

in the record concerning the administration of this estate to implicate § 725 

at all. Rather, it appears that the trustee sought subordination of Kurtin’s 

liens so it could administer the property of the estate that the liens

encumber. Presumably, Kurtin’s liens precluded the estate from 

administering the estate’s asset(s) under § 363(f). His subordinated liens are
26

now junior to the unsecured creditors’ interests, and the estate will likely 

liquidate those encumbered assets under § 363(f) and § 506(d). Any 

encumbered proceeds from the liquidation of those assets would be 

distributed in satisfaction of § 725. Furthermore, an approved sale that did 

not pay the unsecured creditors in full would establish that the 

subordinated liens were worthless and effectively unsecured. If the estate 

does not administer the encumbered assets, they will be disposed of prior 

to the estate’s final distribution under § 726. That is all that § 725 requires. 

There is nothing to suggest that subordinating his liens violates that 

statute.

Kurtin next points to § 510(c)(2) to support his argument that “claim” 

as used in § 510(b) should not be read to include liens. Section 510(c)(2)

permits the court to exercise its discretion to transfer a lien to the estate 

under equitable subordination principles.11 Kurtin theorizes that the 

reference to “claims” in § 510(b) should be narrowly construed to exclude

“liens” because § 510(c) provides for separate treatment of “liens” and 

“claims” in the context of equitable subordination whereas § 510(b) does 

not. As Kurtin posits, if Congress wanted to cover liens for purposes of 

§ 510(b), it obviously knew how to do so. And the absence of a provision 

11 Section 510(c) generally codifies the result in Pepper v. Litton, 308 U.S. 295 

(1939), and similar pre-Code cases. H.R. Rep. No. 95-595, 359, as reprinted in 1978 

U.S.C.C.A.N. 5963, 6315. Litton itself involved the subordination of a secured claim. See 

308 U.S. at 312.
27

like § 510(c)(2) in § 510(b) is a strong indicator that Congress did not intend 

§ 510(b) subordination to cover liens.

Kurtin’s argument misses the point. Lien transfer is a remedy distinct 

from lien subordination. As explained above, lien subordination under 

§ 510(b)—and § 510(c)(1)—is nothing more than a recognition of the wellestablished proposition that a lien is an incident of the debt, Freeman v. 

Nationstar Mortg. LLC (In re Freeman), 608 B.R. 228, 235 (9th Cir. BAP 2019),

and that once the claim has been subordinated, the lien automatically 

follows the debt. In contrast, the lien transfer relief provided for under 

§ 510(c)(2) gives the estate the benefit of the lien right—including priority 

over intervening liens. Simply put, these two forms of lien relief are not 

mutually exclusive. And Congress’s choice not to provide for lien transfer 

relief in conjunction with § 510(b) tells us little or nothing about its 

provision of lien subordination relief under both § 510(b) and (c).

In sum, none of Kurtin’s arguments based on the text and structure of 

the Code persuade us that the bankruptcy court incorrectly interpreted 

§ 510(b).

2. The traditional and general treatment of liens in bankruptcy 

does not bar the bankruptcy court’s interpretation of § 510(b) 

as covering liens.

Kurtin insists that subordination of liens under § 510(b) also is 

inconsistent with the traditional and general protections that liens are 

afforded out of respect for the secured creditor’s state law rights. Relying 
28

on such venerable cases as Dewsnup v. Timm, 502 U.S. 410, 417 (1992),

Johnson, 501 U.S. at 84, and United States v. Whiting Pools, Inc., 462 U.S. 198, 

211–12 (1983), Kurtin points out that liens generally pass through 

bankruptcy unaffected, and when Congress has modified or impeded the 

exercise of lien rights, it typically strives to provide safeguards to protect 

their collateral from dissipation or devaluation, or it offers offsetting 

compensation to the extent the collateral is consumed.

However, Kurtin’s argument regarding Congress’s generally 

protective attitude towards lien rights ignores the fact that when Congress 

perceives a need and justification to affect such rights, it has done so.

Merely within chapter five of the Code, there are numerous sections that 

can drastically affect lien rights. See §§ 506(c), 506(d), 522(f), 547, and 548. 

Based on our above analysis and construction, § 510(b) also affects lien 

rights. Based on our construction of § 510(b) as covering “liens,” we reject 

Kurtin’s argument founded on the Code’s general practice of protecting 

and preserving lien rights.

3. Application of § 510(b) to Kurtin’s lien rights did not violate 

his due process rights.

Similarly, Kurtin’s constitutional argument is circular. Kurtin argues 

that the bankruptcy court should have eschewed a construction of § 510(b) 

that risks a determination that § 510(b) is unconstitutional. As Kurtin 

reasons, to the extent § 510(b) affects his lien rights, it constitutes an 
29

unconstitutional taking of his property interests in violation of the Fifth 

Amendment.

Assuming without deciding that judicial liens constitute property 

interests subject to Fifth Amendment protection, Kurtin’s constitutional 

argument still lacks merit. When Congress duly exercises its bankruptcy 

power to impair property rights granted under state law, and the enacted 

bankruptcy legislation pre-dates the parties’ agreement, the limitations on 

the parties’ property rights arising from the legislation become an implicit 

part of the parties’ agreement. See Wright v. Union Cent. Life Ins. Co., 304 

U.S. 502, 516-18 (1938). Hence Congress’s legislation does not violate either 

party’s due process rights. Id.

Nor can there be any legitimate question that bankruptcy courts have 

the power to subordinate claims, and the appurtenant lien rights, 

regardless of state law. See Litton, 308 U.S. at 304-06, 312; see also Fahs v. 

Martin, 224 F.2d 387, 395 & n.5 (5th Cir. 1955) (citing Vanston Bondholders 

Protective Comm. v. Green, 329 U.S. 156, 162-63 & n.5 (1946), and recognizing 

bankruptcy court’s power and duty to subordinate certain claims).

Given our reading of § 510(b), the potential that a bankruptcy court 

might later subordinate any claims or liens arising from the Settlement 

Agreement was an implicit part of the contract between Kurtin and Elieff. 

As a result, we reject Kurtin’s argument that his due process rights might 

have been violated as a result of the bankruptcy court’s subordination of 

his liens under § 510(b).
30

4. Kurtin’s liens were not extinguished as a result of the 

subordination, but his collateral can be consumed through 

distribution.

Kurtin generally argues that subordination of his secured claim 

makes no sense because the court did not avoid his lien. He points out that 

the court took pains to articulate that his liens were not avoided but merely 

subordinated. He reasons that this necessarily means that his lien, and its 

priority, remain unaffected. Kurtin goes so far as to say that “if the trustee 

distributes that property [his collateral] to someone else, the property 

arguably remains subject to his lien.” Accordingly, in his view, his lien 

rights would continue to exist in the same priority as prior to 

subordination even after that collateral is distributed to other creditors of 

Elieff’s bankruptcy estate.

For the reasons previously discussed at length, subordination of 

Kurtin’s claim was required under § 510(b). Subordination of the claim 

necessarily subordinated the associated liens securing the underlying 

claim. The court did not avoid the lien; it did not need to do so. Based on 

the bankruptcy court’s decision, Kurtin holds a subordinated encumbrance 

junior to the unsecured creditors. His claim is not entitled to payment from 

any source until the unsecured creditors are paid in full. Kurtin’s 

observations concerning lien avoidance are unfounded and do not 

establish any error in the bankruptcy court’s decision.
31

D. Kurtin’s challenge of the bankruptcy court’s denial of his 

supplemental Civil Rule 56(d) request and its evidentiary rulings

do not justify reversal.

Kurtin contends that the bankruptcy court committed reversible 

error by denying his supplemental Civil Rule 56(d) request. Kurtin 

maintains that he needed additional time to conduct discovery on two 

points. First, he stated that he needed additional time to discover facts 

regarding the value of the different types of consideration he gave under 

the Settlement Agreement. Kurtin particularly wanted discovery as to the 

value of the securities-sale component and the value of the dispute 

resolution component to allocate the Settlement Payments between those 

two components. 

As we have explained above, the Settlement Agreement was an 

indivisible contract, its various components were not severable, and 

consideration could not be apportioned among them. Consequently, the 

valuation evidence was irrelevant to the bankruptcy court’s summary 

judgment ruling. The valuation issue did not pertain to a genuine issue of 

“material” fact. For summary judgment purposes, a factual issue only is 

material if it could affect the outcome of the litigation under applicable law. 

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Therefore, Kurtin’s 

asserted need to discover valuation evidence was insufficient to support its 

supplemental Civil Rule 56(d) motion. See Cal. ex rel. Cal. Dep't of Toxic 

Substances Control v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998) (holding that 
32

a litigant seeking to extend discovery in the face of a pending summary 

judgment motion must show among other things that evidence the litigant 

seeks to discover is “essential” to opposing summary judgment).

The only other facts Kurtin sought to discover related to his belief 

that the sale of his equity interests in the Joint Entities occurred so long

before the bankruptcy case that the causal nexus between his equity

interest and the resulting debt had been negated. He claims he needed 

additional time to conduct discovery regarding the evolution of the Joint 

Entities’ debt structure. The unstated conclusion Kurtin draws from these 

circumstances is that his equity to debt transmutation was so “old and 

cold” that creditors in existence at the time of Elieff’s bankruptcy filing 

could not possibly have extended credit in reliance on the equity cushion 

his equity investments in the Joint Entities provided. However, creditor

reliance on the equity cushion is only one of the two rationales for 

imposition of § 510(b) subordination. See In re Am. Wagering, Inc., 493 F.3d 

at 1071-72 (explaining the two rationales underlying § 510(b)). The other 

rationale is the greater risk of loss investors assume when they invest in a 

business entity—as compared to the risk assumed by creditors. See id. 

Nothing that Kurtin has shown or argued suggests that the passage of time 

has impacted this risk-allocation rationale as it applies in this case.

The Ninth Circuit has made clear that the risk allocation rationale is 

the critical rationale for imposing § 510(b) subordination and that the 

creditor reliance rationale does not apply at all in the context of a sale of 
33

securities by an affiliate of the debtor. In re Del Biaggio, 834 F.3d at 1011-12.

Because Kurtin’s “old and cold” argument only implicates the creditor 

reliance rationale, any evidence he sought to discover in support of that 

argument was not material to the plaintiffs’ summary judgment motion.

As for excluded evidence, he mostly objects to the exclusion of 

evidence related to his already-discredited attempts to value and apportion 

the Settlement Payments. The only other evidence he argues that the 

bankruptcy court should not have excluded consisted of “direct evidence 

[in his declarations] of the purpose and intent of the Settlement Payments.” 

But this evidence was also irrelevant. Kurtin’s statements regarding his 

personal, subjective intent in entering into the Settlement Agreement is 

immaterial to the proper construction of the parties’ mutually manifested 

objective intent in entering into the Settlement Agreement. See In re Italiane, 

632 B.R. at 674.

In sum, Kurtin has not persuaded us that the bankruptcy court 

abused its discretion by denying Kurtin’s supplemental Civil Rule 56(d) 

motion or by excluding certain parts of Kurtin’s evidence.

CONCLUSION

For the reasons set forth above, we affirm both the bankruptcy 

court’s summary judgment in favor of Ehrenberg on his § 510(b) claims for 

relief and its subsequent order clarifying that its summary judgment ruling 

subordinated Kurtin’s lien rights as well as his claim.