1 Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is

not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

________________________

No. 97-20317

Summary Calendar

________________________

IN THE MATTER OF: 

SUPERIOR OILFIELD PRODUCTS, INCORPORATED,

Debtor.

___________________________________

JAMES P. SMITH, Disbursing Agent for Superior Oilfield Products, Incorporated,

Appellant,

v.

RICHARD CHURCH, 

Appellee.

_________________________________________________________________________________

Appeal from the United States District Court for the 

Southern District of Texas

(H-96-CV-1137)

________________________________________________________________________________

October 27, 1997

Before JOLLY, BENAVIDES, AND PARKER, Circuit Judges.

PER CURIAM:1

The appellant, James P. Smith, the disbursing agent for Superior Oilfield Products, Inc.

(“SOP”), appeals the bankruptcy court’s denial of his petition for the equitable subordination of

Richard Church’s claim. For the reasons set forth below, we AFFIRM.
2

I.

This action is the most recent event in an ongoing family saga involving Richard Church and

his son, Michael Church. In 1985, Richard Church and Michael Church formed Superior Oilfield

Services, Inc. (“SOS”). Although each owned fifty percent of the company, Richard Church

contributed almost all of initial capital. Shortly thereaft er, Richard Church and Michael Church

stopped speaking with one another, and Richard Church ceased active participation in SOS. 

Sometime after Richard Church ceased active participation in SOS, Michael Church

incorporated SOP, the debtor, using the location, business, employees, products, and other assets of

SOS. In 1989, upon learning of these events, Richard Church sued Michael Church, SOS, and SOP

in state court, alleging that MichaelChurch had converted the value of SOS by diverting its business,

assets, and employeesto SOP. The parties settled the state court suit on April 22, 1992. The written

settlement agreement required Richard Church to release any cause of action he might have against

Michael Church, SOS, or SOP, and to release all claims of ownership of shares in SOS or SOP. In

exchange, the settlement provided that SOP would transfer some equipment and make a series of

payments to Richard Church, beginning with a $5,000 lump sum payment, followed by monthly

payments of $500 for the next twelve months, $750 for the following twelve months, and $1,000 per

month for the remainder of Richard Church’s life.

On July 2, 1994, SOP filed a voluntary petition under Chapter 11 of the Bankruptcy Code.

On August 30, 1994, Richard Church filed his proof of claim, stating an unsecured claim for

$292,000. On the first page of the proof of claim, in the box requesting disclosure of the “Basis for

Claim,” the box titled “Other” is checked and the words “Original Stockholder” are typed into the

space allowed for a brief description. In the bench trial, Richard Church testified that he meant that
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he was an original stockholder in SOS.

On December 7, 1994, the debtor filed this complaint, objecting to Richard Church’s claim

on the groundsthat the claim should be subordinated to the claims of all other creditors, that Richard

Church’s proof of claim should be categorized as proof of an equity interest rather than a debt, and

that the claim originated from a fraudulent transfer. After conducting an evidentiary hearing on the

debtor’s complaint, the bankruptcy court, in a Memorandum Opinion dated February 6, 1996,

rejected each of the debtor’s claims. On appeal to the district court, the debtor primarily challenged

the bankruptcy court’s conclusion that equitable subordination did not apply. The district court

rejected the debtor’s claim, finding that there was no inequitable conduct byRichard Church and that

“no-fault” subordination was inapplicable to the facts of this case. 

II.

As an initial matter, we address the appellee’s argument that this appealshould be dismissed

because James P. Smith is not a proper party and, therefore, does not have standing to bring this

appeal. According to the appellee, the record does not establish any connection between Mr. Smith

and this case. This argument is entirely without merit. Mr. Smith was appointed by the bankruptcy

court as the disbursing agent for the debtor and, as such, has standing to bring this appeal.

Accordingly, we reject the appellee’s jurisdictional argument.

III.

Although the appellant has raised four issues on appeal, in reality, this appeal presents only

one issue: whether the bankruptcy court erred in concluding that equitable subordination did not
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apply. In reviewing a decision of a bankruptcy court, we review the bankruptcy court’s findings of

fact for clear error and the bankruptcy court’s conclusions of law de novo. In re United States

Abatement Corp., 79 F.3d 393, 397 (5th Cir. 1996). A finding of fact is clearly erroneous if, after

review of all the evidence, the court is left with a firm conviction that the bankruptcy court erred.

Fed. R. Bankr. P. 8013; In re McDaniel, 70 F.3d 841, 843 (5th Cir. 1995).

As the district court correctly noted, in this circuit, there is a well-established three- pronged

test for determining whether equitable subordination is appropriate. In re Cajun Elec. Power Coop.,

Inc., 119 F.3d 349, 357 (5th Cir. 1997) (citing In re United States Abatement Corp., 39 F.3d 556,

561 (5th Cir. 1994)). First, the claimant must have engaged in some type of inequitable conduct.

Second, the conduct must have resulted in injury to the creditors or conferred an unfair advantage

on the claimant. Third, the invocation of equitable subordination must not be inconsistent with the

provisions of the Bankruptcy Code. In re Cajun Elec., 119 F.3d at 357. “While our three-pronged

test appears to be quite broad, we have largely confined equitable subordination to three general

paradigms: (1) when a fiduciary of the debtor misuses his position to the disadvantage of other

creditors; (2) when a third party controls the debtor to the disadvantage of other creditors; and (3)

when a third party actually defrauds other creditors.” In re United States Abatement Corp., 39 F.3d

at 561; accord In re Cajun Elec., 119 F.3d at 357. 

After reviewing the record in this case, we find no basis for overturning the bankruptcy

court’s finding that there was no evidence of inequitable conduct on behalf of Richard Church. In

particular, we note that there is no evidence of collusion between the debtor and Richard Church.

On the contrary, as the bankruptcy court noted, the uncontroverted evidence shows that Richard

Church and Michael Church had not spoken for years prior to the filing of Richard Church’s state
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lawsuit. 

In anticipation ofthisrather unremarkable conclusion, the appellant urges usto adopt the “nofault” doctrine of equitable subordination. Under this doctrine, a court can subordinate a claim

without first finding inequitable conduct on behalf of the claimant. See In re Envirodyne Indus., Inc.,

79 F.3d 579, 581-82 (7th Cir.), cert. denied, 117 S. Ct. 77 (1996); In re Virtual Network Servs.

Corp., 902 F.2d 1246, 1250 (7th Cir. 1990) (“In sum, we conclude that [11 U.S.C.] § 510(c)(1)

authorizes courts to equitably subordinate claims to other claims on a case-by-case basis without

requiring in every instance inequitable conduct on the part ofthe creditor claiming parity among other

unsecured general creditors.”). Instead, the court “look[s] to the origin and nature of the unsecured

claim and decide[s] whet her equity requires that it be subordinated to claims of other general

unsecured creditors.” In re Evirodyne Indus., 79 F.3d at 582.

Even if we were inclined to adopt this doctrine, and we express no opinion on the issue today,

we would not apply the rule to the facts of this case. As the district court correctly noted, the cases

that the appellant cites in support of its argument are limited to tax penalty cases, punitive damages

cases, and claims originating from a stock redemption or similar transaction. See, e.g., In re

Envirodyne Indus., 79 F.3d 579 (treating a short-form merger like a stock redemption); Burden v.

United States (In re Burden), 917 F.2d 115, 116-18 (3d Cir. 1990) (tax penalty); Robinson v.

Wangeman, 75 F.2d 756 (5th Cir. 1935) (stock redemption); In re New Era Packaging, Inc., 186

B.R. 329 (Bankr. D. Mass. 1995) (stock redemption); In re Colin, 44 B.R. 806, 810 (Bankr.

S.D.N.Y. 1984) (punitive damages). 

Although the appellant, relying on our decision in Robinson, argues that Richard Church’s

state court claim should be viewed as a redemption of stock in SOP in exchange for debt, the facts
2

 The appellant contends that Richard Church judicially admitted that he had an equity interest in SOP.

Upon reviewofthe testimony, we find theRichard Church’sstatements are, at most, equivocal. Moreover, irrespective

of what he thought he may have owned, the record is clear that Richard Church never acquired an equity interest in

SOP. Accordingly, we find the appellant’s judicial admission arguments to be without merit.

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of this case do not support this analogy. In this case, unlike Robinson, Richard Church never held

stock in the debtor company—SOP. Instead, Richard Church held stock in SOS and his state court

suit was, in essence, an action to recover his fifty-percent interest in that company. Indeed, in the

state court suit, Richard Church argued t hat Michael Church and SOP had appropriated and

converted SOS’s assets and business opportunities.2 Accordingly, we find that, even if we were

inclined to adopt the “no-fault” doctrine of equitable subordination, we would not extend its

application to the facts of this case.

IV.

For the reasons set forth above, we AFFIRM.