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In re: Lehman Bros.

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 August Term, 2016

4 (Argued:  January 4, 2017 Decided:  May 4, 2017)

5 Docket Nos. 16‐1296‐bk, 16‐1304‐bk, 16‐1306‐bk, 16‐1360‐bk, 16‐1361‐bk, 16‐1363‐

6 bk, 16‐1365‐bk, 16‐1367‐bk

7

8 IN RE: LEHMAN BROTHERS HOLDINGS INC.,

9 Debtor.

10

11

12 Jennifer Adler, Ian Anderson, Jennifer Becker, Craig Benson, Paola Biraschi,

13 Karen Brewer, William Broadbent, David Brooks, Guillemette Callies, Patrick

14 Cremin, Michael Collier, Joseph DʹAmadeo, John Dmuchowski, Nestor De Jesus,

15 Steven Engel, Louise Goldberg, Michael Gran, Anshuman Goyal, Adrian Graves,

16 Sandra Hahn‐Colbert, Gregg Hawes, Nicholas Howard, Julian Iragorri, Harriet

17 Chan King, Karen Krieger, Tal Lev Ari, Yeruchim Levilev, Sarah Lewis, Patricia

18 Luken, Lawrence McCarthy, Michael McCully, Paul Shotton, Steven Schwab,

19 Colin S.A. Welch, Pierluigi Volini, Ian Neville, Sandy Fleischman Richman,

20 Jeffrey Wecker, Norman Siegel, Thomas OʹSullivan, Peter Ward, Timothy

21 Wilkinson, Milan Veleba, Andrea Sullivan, Hugh McGee, Judith Winchester,

22 Ross Shapiro, Stephen Snelling, Brian Seward, Margaret Smith, Alvaro

23 Santodomingo, Helmut Olivier, (Estate of) Michael Mullen, Jack Rivkin, Barry

24 Porter, Gregg Somma, Christiane Schuster, Michael Petrucelli, Martin Patterson,

25 Fabio Liotti, Mary Langevin, Amit K. Sarkar, Darian J. Cohen, Lars P. Jacobson,

26 Christian E. Stevens, Andrew Wideman, Madelyn Antoncic, Michele Bareggi,

27 Riccardo Banchetti, Timothy A. Burke, Nachiketa Das, Philippe Dufournier,

28 Brian Gross, Peter Hornick, Andrea Jao, Michael Lawsky, Alexandre Catalao

29 Maia, Nikki Marshall, Richard Noble, Anke Parr, Vincent Primiano, Giancarlo

30 Saronne, Johathan Sebiri, Charles Spero, Harshad Shah, Gordon Sweely, Rocco F.

31 Andriola, Morgan Lawrence, Nicole Lawrence, Marvin C. Schwartz, Stephanie
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In re: Lehman Bros.

2

1 Stiefel, Richard J. Glasebrook, II, Judith Ann Kenney, Richard Nackerson, Henry

2 Ramallo, Christian Reynolds, David I. Weiner, Richard Levine, Seth Finkel,

3 Claimants‐Appellants,

4

5 Virgilio Casuple, Donald Boughrum, Brian Monahan, Roger Saks,

6 Claimants,

7 v.

8 Lehman Brothers Holdings Inc.,

Debtor‐Appellee.

* 9

10

11 Before: JACOBS, SACK, AND CARNEY, Circuit Judges.

12 When Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy on

13 September 15, 2008, thousands of its employees held restricted stock units, i.e.,

14 compensatory awards that gave employees a contingent right to own Lehman

15 Brothers common stock at the conclusion of a five‐year holding period.  Because

16 these had been awarded between 2003 and 2008, the employees holding them at

17 the time Lehman Brothers filed for Chapter 11 did not receive common stock.  

18 The filing effectively rendered their restricted stock units worthless.  Many of the

19 affected employees filed proofs of claim in the bankruptcy proceeding seeking

20 cash payments in amounts reflecting the face value of the restricted stock units.  

21 Lehman Brothers filed omnibus objections to these claims, and the bankruptcy

                                                            

* The Clerk of Court is respectfully directed to amend the official caption in this case to

conform with the above caption.
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In re: Lehman Bros.

3

1 court (James M. Peck, Judge) sustained the objections on the ground, inter alia,

2 that the claims must be subordinated to the claims of general creditors pursuant

3 to 11 U.S.C. § 510(b) because the former arise from the purchase or sale of

4 securities.  The district court (Richard J. Sullivan, Judge) affirmed.  We conclude

5 that the claims at issue must be subordinated pursuant to 11 U.S.C. § 510(b)

6 because, within the meaning of that statute, (1) restricted stock units are

7 securities, (2) the claimants acquired them in a purchase, and (3) the claims for

8 damages arise from that purchase or the asserted rescission thereof.  

9 Accordingly, the district courtʹs judgment is  

10 AFFIRMED.  

11 RICHARD J. SCHAGER, JR. (Andrew R.

12 Goldenberg, on the briefs), Stamell &

13 Schager, LLP, New York, NY, for the

14 Claimant‐Appellants Jennifer Adler, Ian

15 Anderson, Jennifer Becker, Craig Benson, Paola

16 Biraschi, Karen Brewer, William Broadbent,

17 David Brooks, Guillemette Callies, Patrick

18 Cremin, Michael Collier, Joseph DʹAmadeo,

19 John Dmuchowski, Nestor De Jesus, Steven

20 Engel, Louise Goldberg, Michael Gran,

21 Anshuman Goyal, Adrian Graves, Sandra

22 Hahn‐Colbert, Gregg Hawes, Nicholas Howard,

23 Julian Iragorri, Harriet Chan King, Karen

24 Krieger, Tal Lev Ari, Yeruchim Levilev, Sarah

25 Lewis, Patricia Luken, Lawrence McCarthy,

26 Michael McCully, Paul Shotton, Steven
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In re: Lehman Bros.

4

1 Schwab, Colin S.A. Welch, Pierluigi Volini, Ian

2 Neville, Sandy Fleischman Richman, Jeffrey

3 Wecker, Norman Siegel, Thomas OʹSullivan,

4 Peter Ward, Timothy Wilkinson, Milan Veleba,

5 Andrea Sullivan, Hugh McGee, Judith

6 Winchester, Ross Shapiro, Stephen Snelling,

7 Brian Seward, Margaret Smith, Alvaro

8 Santodomingo, Helmut Olivier, (Estate of)

9 Michael Mullen, Jack Rivkin, Barry Porter,

10 Gregg Somma, Christiane Schuster, Michael

11 Petrucelli, Martin Patterson, Fabio Liotti, and

12 Mary Langevin.

13 LISA M. SOLOMON, Law Offices of Lisa M.

14 Solomon, New York, NY, for the Claimants‐

15 Appellants Madelyn Antoncic, Michele

16 Bareggi, Riccardo Banchetti, Timothy A. Burke,

17 Nachiketa Das, Philippe Dufournier, Brian

18 Gross, Peter Hornick, Andrea Jao, Michael

19 Lawsky, Alexandre Catalao Maia, Nikki

20 Marshall, Richard Noble, Anke Parr, Vincent

21 Primiano, Giancarlo Saronne, Johathan Sebiri,

22 Charles Spero, Harshad Shah, Gordon Sweely,

23 Rocco F. Andriola, Amit K. Sarkar, Darian J.

24 Cohen, Lars P. Jacobson, Christian E. Stevens,

25 and Andrew Wideman.

26 DEBORAH E. LANS, Cohen Clair Lans

27 Greifer Thorpe & Rottenstreich LLP, New

28 York, NY (Eugene Neal Kaplan, Kaplan

29 Landau, LLP, New York, NY, on the briefs),

30 for the Claimants‐Appellants Marvin C.

31 Schwartz, Stephanie Stiefel, Richard J.

32 Glasebrook, II, Judith Ann Kenney, Richard

33 Nackerson, Henry Ramallo, Christian

34 Reynolds, David I. Weiner, Richard Levine, and

35 Seth Finkel.
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In re: Lehman Bros.

5

1 RALPH I. MILLER, Weil, Gotshal & Manges

2 LLP, New York, NY, for Debtor‐Appellee

3 Lehman Brothers Holdings Inc.

4 SACK, Circuit Judge:

5 It is not uncommon for corporate employers to compensate their high‐

6 ranking employees not only with cash, but also with equity in the corporation.  

7 Such arrangements align the employeesʹ financial incentives with those of the

8 company:  If the company succeeds financially, so too do its stake‐holding

9 employees; but if the company falters—even to and beyond the point of

10 bankruptcy—its employees bear some of the loss.  Prior to its bankruptcy filing,

11 Lehman Brothers Holdings Inc. (ʺLehman Brothersʺ) adopted this approach,

12 compensating many of its employees in part with restricted stock units (ʺRSUsʺ),

13 which gave them a contingent right to own Lehman Brothers common stock at

14 the conclusion of a five‐year holding period.  The holder of an RSU had risk and

15 return expectations similar to those of a shareholder; he or she would ultimately

16 benefit from any increase in the stock price or suffer from any decline.  
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In re: Lehman Bros.

6

1 When Lehman Brothers filed for Chapter 11 bankruptcy on September 15,

2 2008—the largest bankruptcy filing in United States history1—thousands of its

3 employees were holding RSUs that had been awarded over the preceding five

4 years, but that had not yet vested and had therefore apparently been rendered

5 worthless by the bankruptcy filing.  Many of these employees filed proofs of

6 claim in the Chapter 11 proceeding seeking cash payments in the amounts of and

7 as substitutes for compensation they had been paid in RSUs.  Lehman Brothers

8 filed omnibus objections to the claims, and the United States Bankruptcy Court

9 for the Southern District of New York (James M. Peck, Judge) sustained these

10 objections on two alternative grounds.  First, it concluded that because the claims

11 arise from the purchase or sale of securities, they must be subordinated to the

12 claims of general creditors pursuant to section 510(b) of the Bankruptcy Code, 11

13 U.S.C. § 510(b).  Second, the court decided that because an RSU is an ʺequity

14 security,ʺ 11 U.S.C. § 101(16), the employeesʹ claims were disallowed insofar as

15 the claimants, as equity security holders, may assert only proofs of interest, not

                                                            

1 See ANZ Sec., Inc. v. Giddens (In re Lehman Bros. Inc.), 808 F.3d 942, 944 (2d Cir. 2015)

(ʺOn September 15, 2008, Lehman Holdings filed for Chapter 11 bankruptcy

protection—the largest bankruptcy filing in U.S. history.ʺ).
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In re: Lehman Bros.

7

1 proofs of claim.  The United States District Court for the Southern District of

2 New York (Richard J. Sullivan, Judge) affirmed on both grounds.

3 We note at the outset that we need not determine whether an RSU is an

4 ʺequity securityʺ pursuant to 11 U.S.C. § 101(16), because, even if it is, RSU

5 holders are not barred from asserting proofs of claim—such as the breach‐of‐

6 contract claims asserted here—inasmuch as at least some of their claims are not

7 duplicative of proofs of interest.  We conclude, however, that Lehman Brothersʹ 

8 omnibus objections must nonetheless be sustained on the alternative ground

9 that, pursuant to section 510(b), the claims must be subordinated to the claims of

10 general creditors because, for purpose of this statute, (1) RSUs are securities, (2)

11 the claimants acquired them in a purchase, and (3) the claims for damages arise

12 from those purchases or the asserted rescissions thereof.

13 BACKGROUND

14 Lehman Brothers paid many of its employees a portion of their

compensation in RSUs,2 15 equity awards that gave each of the recipient employees

16 a contingent right to own Lehman Brothers common stock five years after

                                                            

2 Lehman Brothers awarded RSUs to United States employees and contingent stock

awards to overseas employees.  These forms of equity, though different in name, were

identical in substance.
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In re: Lehman Bros.

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1 issuance of each RSU so long as certain employment‐related conditions were

2 met.  When Lehman Brothers filed for Chapter 11 bankruptcy on September 15,

3 2008, many of its employees were holding RSUs that had not yet vested.  They

4 filed proofs of claim in the bankruptcy proceedings for cash payments equivalent

5 to the amounts they had received in RSUs.

6 The Program

7 The RSUs were awarded in accordance with Lehman Brothersʹ Equity

8 Award Program (the ʺProgramʺ), which was administered by Lehman Brothersʹ 

9 Board of Directorsʹ Compensation and Benefits Committee (the ʺCommitteeʺ).  

10 The Programʹs purpose was to give Lehman Brothersʹ employees (1) a financial

11 stake in the company that aligned their interests with those of the company, and

12 (2) a financial incentive to remain with the company until the RSUs matured.

13 In accordance with those goals, the Program gave Lehman Brothers

14 discretion to pay some of its employees a portion of their compensation in

equity‐based awards, including RSUs.3 15   ʺAt [Lehman Brothersʹ] option, a portion

16 of [an employeeʹs] total compensation . . . may be payable in the form of

                                                            

3 Near the end of each fiscal year, employees received a brochure with a schedule

identifying the portion of their compensation they would be paid in RSUs, based on the

employeeʹs corporate title and compensation level.
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In re: Lehman Bros.

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1 conditional equity awards ([RSUs], stock options, or other equity awards)

2 pursuant to the [Program].ʺ  Joint Appʹx (ʺJAʺ) at 7 ¶ 2.  And where Lehman

3 Brothers had employment contracts with its employees, those contracts stated

4 that ʺ[a]t the Firmʹs discretion, a portion of [the employeesʹ] total . . .

5 compensation . . . will be [or may be] payable in conditional equity awards

6 ([RSUs] and/or other equity awards) pursuant to the [Program].ʺ  Id.  In practice,

7 RSUs were awarded near the end of each year to some employees.  These RSU

8 holders were entitled to Lehman Brothers common stock at the conclusion of a

9 five‐year holding period, assuming they met certain employment‐related

10 conditions.  Employees whose RSUs vested at the end of the five‐year holding

11 period could dispose of their shares of common stock as they saw fit.

12 The Program was governed by the terms of various documents, including

13 the Employee Incentive Plan (the ʺPlanʺ).  Section 8(b) of the Plan provides in

14 pertinent part that Lehman Brothersʹ RSU obligation is limited to delivery of the

15 stock, and does not include payment of cash:
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In re: Lehman Bros.

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1 With respect to any [RSUs] granted under the Plan, the obligations of the

2 Company or any Subsidiary are limited solely to the delivery of shares of

3 Common Stock on the date when such shares of Common Stock are due to

4 be delivered under each Agreement, and in no event shall the Company

5 or any Subsidiary become obligated to pay cash in respect of such

6 obligation (except that the Company or any Subsidiary may pay to [Plan]

7 Participants amounts in cash in respect of a restricted stock unit equal to

8 cash dividends paid to a holder of shares of Common Stock, for fractional

9 shares or for any amounts payable in cash upon the occurrence of a

10 Change in Control).

11 Id. at 2890.  Section 13(b) further provides that ʺ[t]he grant of an Award shall not

12 be construed as giving a Participant the rights of a stockholder of Common Stock

13 unless and until shares of Common Stock have been issued to Participants

14 pursuant to Awards hereunder.ʺ  Id.  Section 16 provides additional information

15 about the rights of Plan participants, and authorizes the creation of trusts to meet

16 Plan obligations:  

17 With respect to any payments not yet made to a Participant, . . . nothing

18 herein contained shall give any Participant any rights that are greater than

19 those of a general creditor of the Company.    In its sole discretion, the

20 Committee may authorize the creation of trusts or other arrangements to

21 meet the obligations created under the Plan to deliver Common Stock or

22 payments in lieu thereof . . . .

23 Id. at 2891.   

24 During the five‐year holding period, the common stock was held in a trust,

25 established and governed by a Trust Agreement, which provides that the

26 ʺassets[,] including [s]hares, that shall be held thereinʺ are ʺsubject to the claims
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In re: Lehman Bros.

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1 of the Companyʹs general creditors in the event the Company becomes

2 insolvent . . . until paid to Participants . . . in such manner and at such times as

3 the Company may specify to fulfill [its] obligations under the Plans.ʺ  Id. at 1835.  

4 Section 1(e) of the Trust Agreement subjects the trust assets to claims of general

5 creditors:

6 The principal of the Trust, and any earnings thereon, . . . shall be used

7 exclusively for the uses and purposes of Participants and general creditors

8 as herein set forth.  Participants shall have no preferred claim on, or any

9 beneficial ownership interest in, any assets of the Trust.    Any rights

10 created under the Plans and this Agreement shall be mere unsecured

11 contractual rights of Participants against the Company.  Any assets held

12 by the Trust will be subject to the claims of the Companyʹs general

13 creditors under federal and state law in the event the Company becomes

14 insolvent . . . .

15 Id. at 1836.  Section 3(b) reiterates that, ʺ[a]t all times during the continuance of

16 this Trust, . . . the principal and income of the Trust shall be subject to claims of

17 general creditors of the Company under federal and state lawʺ in accordance

18 with the provisions of the Trust Agreement.  Id. at 1838.

19 Program documents for the years 2003 and 2004 (but not after) included

20 provisions (ʺSubordination Provisionsʺ) explicitly stating that, ʺin the event of

21 bankruptcy,ʺ RSU‐holder claims would be ʺdeemed . . . claims for damages

22 arising from the purchase or sale of [Lehman Brothers c]ommon [s]tock[] within

23 the meaning of section 510(b) . .  and shall have in such bankruptcy the same
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In re: Lehman Bros.

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1 priority as, and no greater priority than, common stock interests in [Lehman

2 Brothers].ʺ  Id. at 52 ¶ 10, 57 ¶ 10.  The record on appeal does not appear to

3 disclose why, after 2004, the Program documents no longer included these

4 Subordination Provisions.

5 Employees received annual notice of the Programʹs terms by way of

6 information packets containing a summary of the Programʹs material terms and a

Program brochure.4 7   These brochures stated, inter alia, that an RSU ʺrepresents [a]

8 conditional right to receive one share of Lehman Brothers common stock,ʺ which

9 ʺthe firm holds on [an employeeʹs] behalf for five years, which [he or she] will be

10 entitled to receive at that time, provided [the employee] meet[s] certain terms

11 and conditions.ʺ  Id. at 36, 37.   

12 Although common stock was not issued until the completion of a five‐year

period, 13 5 RSU holders received benefits similar to those of shareholders.  They

14 were paid dividends in the form of additional RSUs during the five‐year period,

15 and Program documents indicate that they could direct the trusteeʹs votes on the

                                                            

4 Employees were also notified of the Programʹs terms via face‐to‐face

communications, conference calls, and e‐mail.

5 RSU holders did not incur income tax liability on the value of their RSUs until they

vested.
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In re: Lehman Bros.

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1 shares held in the trust in proportion to the number of RSUs each owned.  The

2 value of their RSUs, moreover, was directly tied to the value of Lehman Brothersʹ 

3 common stock:  If the stockʹs value increased during the five‐year holding

4 period, RSU holders would benefit from that increase; if the stockʹs value

5 decreased during that same period, they would ultimately bear the loss.

6 The Dispute

7 When Lehman Brothers filed for Chapter 11 bankruptcy on September 15,

8 2008, thousands of Lehman Brothers employees were holding RSUs that had not

9 yet vested, having been granted for services performed between 2003 and 2008.  

10 Many RSU holders filed proofs of claim in the bankruptcy proceeding seeking

11 cash payments equivalent to the amounts previously paid to them in RSUs.  In

12 response, Lehman Brothers filed fourteen omnibus objections seeking to

13 reclassify over 3,000 RSU‐based claims as equity interests and to subordinate

14 them to the claims of general creditors.  Most of the claimants did not oppose

15 Lehman Brothersʹ objections, and accordingly, the United States Bankruptcy

16 Court for the Southern District of New York reclassified their claims as equity.   

17 But 222 of the claimants opposed the objections.  The bankruptcy court

18 therefore held a hearing on December 21, 2011, where it indicated that it would
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In re: Lehman Bros.

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1 follow the reasoning of In re Enron Corp., 341 B.R. 141 (Bankr. S.D.N.Y. 2006),

2 which held ʺthat claims for damages that arise from the ownership of employee

3 stock options . . . should be subordinated [to the claims of general creditors]

4 pursuant to section 510(b),ʺ id. at 144, unless the claimants could establish that

5 their RSUs were meaningfully different from the stock options at issue in Enron.  

6 The bankruptcy court directed the parties to develop a factual record in this

7 regard.  And in April 2014, at the conclusion of more than a year of discovery,

8 the bankruptcy court conducted a three‐day evidentiary hearing at which it

9 heard live testimony from six witnesses.  The parties then submitted

10 supplemental briefs.

On November 3, 2014, the bankruptcy court (Shelley C. Chapman, Judge)6 11

12 issued a decision sustaining Lehman Brothersʹ omnibus objections on two

13 alternative grounds.  See In re Lehman Bros. Holdings Inc., 519 B.R. 47, 67 (Bankr.

14 S.D.N.Y. 2014), affʹd, 548 B.R. 663 (S.D.N.Y. 2016).  First, it held that the RSU‐

15 based claims, like the claims at issue in Enron, must be subordinated pursuant to

16 section 510(b).  See id. at 59‐65.  Second, it held that because the RSUs are equity

                                                            

6 On February 1, 2014, these cases were transferred to Judge Chapman upon Judge

Peckʹs retirement from the bench.  See Lehman Bros., 519 B.R. at 51 n.4.
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In re: Lehman Bros.

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1 securities under section 101(16) of the Bankruptcy Code, the claimants may assert

2 only proofs of interest—not proofs of claim—against the debtor.  See id. at 65‐67.

3 Thereafter, some of the claimants appealed the bankruptcy courtʹs decision

4 to the United States District Court for the Southern District of New York.  And

5 on March 30, 2016, the district court issued an opinion and order affirming the

6 bankruptcy courtʹs decision on both grounds.  In re Lehman Bros. Holdings Inc.,

7 548 B.R. 663, 671, 673 (S.D.N.Y. 2016).  

8 Three sets of claimants, representing a portion of the remaining claimants

9 and each represented by different counsel, appealed from the judgment of the

district court:  (1) the Adler Claimants,7 (2) the Antoncic Claimants,8 10 and (3) the

                                                            

7 The Adler Claimants comprise: Jennifer Adler, Ian Anderson, Jennifer Becker, Craig

Benson, Paola Biraschi, Karen Brewer, William Broadbent, David Brooks, Guillemette

Callies, Patrick Cremin, Michael Collier, Joseph DʹAmadeo, John Dmuchowski, Nestor

De Jesus, Steven Engel, Louise Goldberg, Michael Gran, Anshuman Goyal, Adrian

Graves, Sandra Hahn‐Colbert, Gregg Hawes, Nicholas Howard, Julian Iragorri, Harriet

Chan King, Karen Krieger, Tal Lev Ari, Yeruchim Levilev, Sarah Lewis, Patricia Luken,

Lawrence McCarthy, Michael McCully, Paul Shotton, Steven Schwab, Colin S.A. Welch,

Pierluigi Volini, Ian Neville, Sandy Fleischman Richman, Jeffrey Wecker, Norman

Siegel, Thomas OʹSullivan, Peter Ward, Timothy Wilkinson, Milan Veleba, Andrea

Sullivan, Hugh McGee, Judith Winchester, Ross Shapiro, Stephen Snelling, Brian

Seward, Margaret Smith, Alvaro Santodomingo, Helmut Olivier, (Estate of) Michael

Mullen, Jack Rivkin, Barry Porter, Gregg Somma, Christiane Schuster, Michael

Petrucelli, Martin Patterson, Fabio Liotti, and Mary Langevin.

8 The Antoncic Claimants comprise: Madelyn Antoncic, Michele Bareggi, Riccardo

Banchetti, Timothy A. Burke, Nachiketa Das, Philippe Dufournier, Brian Gross, Peter
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In re: Lehman Bros.

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Neuberger Claimants.9 1   The pertinent facts are essentially the same with respect

2 to all three sets, with one exception:  The Neuberger Claimants became Lehman

3 Brothers employees (and RSU holders) when Lehman Brothers acquired

4 Neuberger Berman, an investment management firm.  As former managing

5 directors of Neuberger Bergman, they are subject to restrictive non‐compete

6 covenants.  They assert that they had no real choice but to accept RSUs as part of

7 their compensation because the acquisition forced them to become Lehman

8 Brothers employees, and the restrictive non‐compete covenants effectively forced

9 them to remain employed at Lehman Brothers.

10 DISCUSSION

11 The bankruptcy and district courts addressed the subordination issue

12 before considering whether the claims at issue here are disallowed because the

13 claimants are equity security holders.  We address these two issues in the reverse

14 order because we think it more appropriate to determine whether the asserted

                                                                                                                                                                                               

Hornick, Andrea Jao, Michael Lawsky, Alexandre Catalao Maia, Nikki Marshall,

Richard Noble, Anke Parr, Vincent Primiano, Giancarlo Saronne, Johathan Sebiri,

Charles Spero, Harshad Shah, Gordon Sweely, Rocco F. Andriola, Amit K. Sarkar,

Darian J. Cohen, Lars P. Jacobson, Christian E. Stevens, and Andrew Wideman.

9 The Neuberger Claimants comprise: Marvin C. Schwartz, Stephanie Stiefel, Richard J.

Glasebrook, II, Judith Ann Kenney, Richard Nackerson, Henry Ramallo, Christian

Reynolds, David I. Weiner, Richard Levine, and Seth Finkel.
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In re: Lehman Bros.

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1 claims are disallowed full stop, before considering whether they must be

2 subordinated; an affirmative answer to the first question could preclude the need

3 to answer the second.  We conclude, however, that the claims at issue are not

4 categorically disallowed because at least some of the claims are distinct from any

5 equity security interests the claimants may otherwise hold, but that the claims

6 must nonetheless be subordinated pursuant to section 510(b).

7 I. Standard of Review

8 ʺWe exercise plenary review over a district courtʹs affirmance of a

9 bankruptcy courtʹs decision, reviewing de novo the bankruptcy courtʹs conclusion

10 of law, and reviewing its findings of fact for clear error.ʺ  ANZ Sec., Inc. v. Giddens

11 (In re Lehman Bros. Inc.), 808 F.3d 942, 946 (2d Cir. 2015) (internal quotation marks

omitted).10 12   A finding of fact is clearly erroneous when ʺthe reviewing court on

13 the entire evidence is left with the definite and firm conviction that a mistake has

14 been committed.ʺ  Anderson v. City of Bessemer, 470 U.S. 564, 573 (1985) (internal

15 quotation marks omitted).  ʺWhere there are two permissible views of the

                                                            

10 Although Giddens also arose out of Lehman Brothersʹ bankruptcy proceedings and

involved the subordination of claims pursuant to section 510(b), the specific legal issues

there are not relevant here.
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In re: Lehman Bros.

18

1 evidence, the factfinderʹs choice between them cannot be clearly erroneous.ʺ  Id.

2 at 574.

3 II. Permissibility of the Claims

4 A debtor in bankruptcy may file an ʺomnibus objectionʺ to purported

5 claims on the ground they are ʺinterests, rather than claims.ʺ  Fed R. Bankr. P.

6 3007(d)(7).  The Bankruptcy Code defines a ʺclaimʺ as a ʺright to payment . . . or

7 . . . an equitable remedy,ʺ 11 U.S.C. § 101(5), whereas an ʺequity securityʺ is, as

8 relevant here, a ʺshare in a corporation, whether or not transferrable or

9 denominated ʹstock,ʹ or similar security,ʺ or a ʺwarrant or right, other than a right

10 to convert, to purchase, sell, or subscribe to [such an interest],ʺ id. § 101(16)(A),

11 (C).  Those with ʺclaimsʺ against a debtor are ʺcreditors,ʺ id. § 101(10), and those

12 with ʺequity securitiesʺ of the debtor are ʺequity security holders,ʺ id. § 101 (17).  

13 Thus, an interest in an equity security is distinct from a claim to a right to

14 payment or an equitable remedy.  See In re Pine Lake Vill. Apartment Co., 21 B.R.

15 478, 480 (Bankr. S.D.N.Y. 1982) (distinguishing an interest in an equity security

16 from ʺa claim against the debtor for which the equity holder may assert a right to

17 paymentʺ).
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1 But under some circumstances, an equity security holder may assert both

2 an interest and a claim relating to that interest.  See 2 COLLIER ON BANKRUPTCY

3 ¶ 101.16 (Alan N. Resnick & Henry J. Sommer eds., 16 ed.) (explaining that ʺthe

4 holder of an equity security may also hold a claim that relates to or arises out of

5 an equity securityʺ).  If an equity security holder, ʺout of confusion,ʺ ʺfile[s] [a]

6 proof[] of claimʺ—instead of a proof of interest—the claim is ʺproperly

7 disallowedʺ as ʺduplicativeʺ of a proof of interest.  USA Capital Realty Advisors,

8 LLC v. USA Capital Diversified Trust Deed Fund, LLC (In re USA Commercial Mortg.

9 Co.), 377 B.R. 608, 615 (B.A.P. 9th Cir. 2007).  But where an equity security holder

10 asserts ʺ[a] proof of claim . . . for breach of contract [or] fraud relating to the

11 purchase of a security,ʺ that claim ʺis . . . not duplicative of the equity holderʹs

12 proof of interestʺ and may therefore be allowed, notwithstanding the claimantʹs

13 status as an equity security holder.  Id. (distinguishing between equity security

14 holdersʹ proofs of interest and proofs of claim).

15 Here, the bankruptcy court determined that an RSU constitutes an ʺequity

16 securityʺ pursuant to section 101(16); on this basis alone, it held that the

17 claimantsʹ proofs of claim must be disallowed.  See Lehman Bros., 519 B.R. at 65‐67

18 (ʺ[T]he [claimants] assert an interest based on equity securities, and, accordingly
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In re: Lehman Bros.

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1 do not assert a ʹclaimʹ at all under the Bankruptcy Code.ʺ).  This reasoning skips a

2 step:  Even assuming that RSU holders do have the right to assert proofs of

3 interest insofar as RSUs constitute equity securities, it does not necessarily follow

4 that the proofs of claim asserted by the claimants must be disallowed.  They

5 might be allowed if they are not duplicative of an asserted interest in an equity

6 security.  See USA Commercial Mortg., 377 B.R. at 615.  And in our view, at least

7 some of the breach‐of‐contract claims at issue here fall into this category.

8 The claimants assert, for example, that Lehman Brothers breached its

9 contractual obligation to compensate them insofar as it did not pay them the cash

10 value of the RSUs that never vested.  This breach‐of‐contract claim, whatever its

11 merits, is analytically distinct from any equity interest the claimants may or may

12 not have in the RSUs.  Thus, we need not resolve whether an RSU is an ʺequity

13 securityʺ pursuant to section 101(16) because, regardless of how we answer that

14 question, the claimants are permitted to bring at least some of the claims at issue

15 here.

16 III. Subordination of Claims

17 Although equity security holders may assert claims related to, but distinct

18 from, their equity security interests, such claims are not necessarily on a par with
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In re: Lehman Bros.

21

1 other claims against the debtor.  They must be subordinated if they are governed

2 by section 510(b), which provides:

3 For the purpose of distribution under this title, a claim arising from

4 rescission of a purchase or sale of a security of the debtor or of an affiliate

5 of the debtor, [or] for damages arising from the purchase or sale of such a

6 security, . . . shall be subordinated to all claims or interests that are senior

7 to or equal the claim or interest represented by such security, except that if

8 such security is common stock, such claim has the same priority as

9 common stock.

10 11 U.S.C. § 510(b).

11 Section 510(b) safeguards the absolute priority rule, a bedrock principle of

12 bankruptcy law, under which creditors are entitled to be paid ahead of

13 shareholders in the distribution of corporate assets.  See Motorola, Inc. v. Official

14 Comm. of Unsecured Creditors and JPMorgan Chase Bank, N.A. (In re Iridium

15 Operating LLC), 478 F.3d 452, 463 (2d Cir. 2007) (explaining that, under the

16 absolute priority rule, ʺany plan of reorganization in which stockholders are

17 preferred before the creditor is invalidʺ (internal quotation marks and brackets

18 omitted)); Elizabeth Warren, Bankruptcy Policy, 54 U. Chi. L. Rev. 775, 793 (1987)

19 (explaining that ʺ[t]he [Bankruptcy] Code provides that the equity owners

20 participate in distributions or maintain ownership interests following

21 reorganization only if the creditors have been paid in full or . . . consent to their
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In re: Lehman Bros.

22

1 continued ownership[,]ʺ in accordance with the ʺalmost axiomatic principle . . .

2 that, because equity owners stand to gain the most when a business succeeds,

3 they should absorb the costs of the businessʹs collapse—up to the full amount of

the investmentʺ).11 4   Section 510(b) preserves the absolute priority rule by

5 ensuring that security holders may not gain parity with creditors simply by

6 alleging claims that arise from the purchase of their securities.  See 4 COLLIER ON

7 BANKRUPTCY ¶ 510.04 (ʺThe clear mandate of section 510(b) is that shareholder

8 claimants will not be permitted to elevate their interests from the level of equity

9 to general claims.ʺ).

10 To that end, we construe section 510(b) broadly.  See Rombro v. Dufrayne (In

11 re Med Diversified, Inc.), 461 F.3d 251, 255‐59 (2d Cir. 2006).  We do so in light of

12 the statuteʹs legislative history, specifically the House Report on the 1978

13 Bankruptcy Reform Act, H. Rep. No. 95‐595, Bankruptcy Reform Act of 1978

14 (1977) (ʺHouse Reportʺ), which, in adopting the language contained in the Act,

                                                            

11 Although various Bankruptcy Code provisions reflect the absolute priority rule, it is

particularly prominent in 11 U.S.C. § 1129(b)(2)(B), which ʺprovides that a

reorganization plan may not give ʹpropertyʹ to the holders of any junior claims or

interests ʹon account ofʹ those claims or interests, unless all classes of senior claims

either receive the full value of their claims or give their consent.ʺ  DISH Network Corp. v.

DBSD North America, Inc. (In re DBSD N. Am., Inc.), 634 F.3d 79, 88 (2d Cir. 2011)

(quoting 11 U.S.C. § 1129(b)(2)(B)).
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1 relied on an article by John J. Slain and Homer Kripke, The Interface Between

2 Securities Regulation and Bankruptcy—Allocating the Risk of Illegal Securities Issuance

3 Between Securityholders and the Issuerʹs Creditors, 48 N.Y.U. L. Rev. 261 (1973)

(ʺSlain and Kripkeʺ).12 4   See House Report at 196 (explaining that ʺ[t]he bill

5 generally adopts [the] Slain[ and ]Kripke positionʺ); see also Med Diversified, 461

6 F.3d at 255‐56.  The House Report reflects Congressʹs apparent view that claims

7 should be subordinated where, inter alia, the claimant ʺtook on the risk and

return expectations of a shareholder, rather than a creditor.ʺ  Id. at 256.13 8   Thus

9 we held in Med Diversified that section 510(b) required subordination of fraud

                                                            

12 Slain and Kripke conceptualized the subordination principle ultimately adopted in

section 510(b) in terms of the absolute priority rule:

In theory, the general creditor asserts a fixed dollar claim and leaves the

variable profit to the stockholder; the stockholder takes the profit and

provides a cushion of security for payment of the lenderʹs fixed dollar

claim.    The absolute priority rule reflects the different degree to which

each party assumes a risk of enterprise insolvency; no obvious reason

exists for reallocating that risk.

Slain and Kripke, supra, at 286‐87.

13 The House Report also suggests that Congress sought to subordinate claims

ʺseek[ing] to recover a contribution to the equity pool presumably relied upon by

creditors in deciding whether to extend credit to the debtor.ʺ  Med Diversified, 461 F.3d

at 256.
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In re: Lehman Bros.

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1 and breach‐of‐contract claims arising from a debtorʹs alleged failure to issue

2 common stock in the debtor in exchange for the claimantʹs shares in another

3 company inasmuch as the claimant had taken on the ʺrisk and return

4 expectations of a shareholderʺ by ʺbargain[ing] not for cash but to become a

5 stockholder in the debtorʺ; we explained that he ʺbecame bound by the choice he

6 made to trade the relative safety of cash compensation for the upside potential of

7 shareholder status—the very choice highlighted by Slain and Kripke.ʺ  Id.

8 In Med Diversified, we also cited with approval In re Enron Corp., 341 B.R.

9 141 (Bankr. S.D.N.Y. 2006), a thorough and well‐reasoned bankruptcy court

10 decision applying section 510(b) to fraud and breach‐of‐contract ʺclaims by

11 employees for damages they allegedly suffered when, due to the debtorʹs fraud,

12 they chose not to exercise stock options immediately when they vested but to

13 hold onto the options with hopes for future higher returns.ʺ  Med Diversified, 461

14 F.3d at 257 (ʺHelpful too is the recent and extraordinarily thorough decision in In

15 re Enron[.]ʺ).  Adopting a broad construction of section 510(b) premised on Slain

16 and Kripke, Enron, 341 B.R. at 163‐65, the Enron court concluded, inter alia, that

17 (1) a stock option is a ʺsecurityʺ within the meaning of section 510(b) insofar as it

18 meets the definition of that term set forth in 11 U.S.C. § 101(49)(A)(xv) (providing
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In re: Lehman Bros.

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1 that the term ʺsecurityʺ includes a ʺwarrant or right to subscribe to or purchase

2 or sell[] a securityʺ), id. at 149‐50; and (2) the employees ʺpurchase[d]ʺ the stock

3 options within the meaning of section 510(b) inasmuch as they ʺwillingly

4 accepted [them] in return for their labor,ʺ even though they ʺwere required to

5 receive [them as] a portion of their compensation,ʺ id. at 151.  The court therefore

6 held that the breach‐of‐contract claim arising from their stock options must ʺbe

7 subordinated under section 510(b).ʺ  Id. at 161.  In reaching that result, it

8 explained that allowing parties to ʺrecharacterizeʺ equity‐based claims as breach‐

9 of‐contract claims of a creditor would undermine the purpose of section 510(b):

10 ʺto prevent shareholders and other securityholders from bootstrapping their

11 equity interests to a level on [a] par with general creditors and thus sharing

12 equally in the distribution of the bankrupt estate.ʺ  Id.

13 In light of the analysis set forth in Med Diversified and Enron, the claims at

14 issue here must be subordinated pursuant to section 510(b) if each of the

15 following three conditions is met: (1) RSUs are securities, (2) the claimants

16 acquired them in a purchase, and (3) the claims for damages arise from that

17 purchase or the asserted rescission of it.  We address each in turn, and ultimately

18 conclude that subordination is appropriate.
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1 A. RSUs as Securities

2 At the threshold lies the question whether an RSU of the sort at issue here

3 constitutes a ʺsecurity,ʺ as that term is defined by the Bankruptcy Code.  See 11

4 U.S.C. § 101(49).  We conclude that it does.

5 Section 101(49) contains two subsections.  Subsection (A) enumerates

6 fifteen interests ʺinclude[d]ʺ in the definition of a ʺsecurityʺ:  Fourteen of these

are specific examples, see id. § 101(49)(A)(i)‐(xiii), (xv);14 7 the fifteenth is a residual

8 clause that covers any ʺother claim or interest commonly known as ʹsecurity,ʹʺ id.

9 § 101(49)(A)(xiv).  Subsection (B) enumerates seven items excluded from the

                                                            

14 The enumerated examples of a ʺsecurityʺ are:

(i) note; (ii) stock; (iii) treasury stock; (iv) bond; (v)

debenture; (vi) collateral trust certificate; (vii) pre‐

organization certificate or subscription; (viii) transferable

share; (ix) voting‐trust certificate; (x) certificate of deposit;

(xi) certificate of deposit for security; (xii) investment

contract or certificate of interest or participation in [certain

types of] profit‐sharing agreement[s] or [leases for] oil, gas,

or mineral royalt[ies] . . . ; (xiii) interest of a limited partner

in a limited partnership; . . . [and] (xv) certificate of interest

or participation in, temporary or interim certificate for,

receipt for, or warrant or right to subscribe to or purchase or

sell, a security[.]

11 U.S.C. 101(49)(A).
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definition of a security, see id. § 101(49)(B)(i)‐(vii);15 1 it does not include a residual

2 clause.

3 As a practical matter, some interests will not perfectly match any of the

4 specific examples in either list, and it will not immediately be clear whether they

5 are ʺsecurities.ʺ  On these occasions, it should be borne in mind that the interests

6 specifically enumerated in subsection (A) do not exhaust the universe of

7 securities within the meaning of the Bankruptcy Code.  This is clear from the text

8 of subsection (A), which provides that ʺ[t]he term ʹsecurityʹ . . . includesʺ the items

9 listed, id. § 101(49)(A) (emphasis added), where the term ʺʹincludesʹ . . . [is] not [a]

10 limitingʺ term, id. § 102(3).  Thus, as other courts have recognized, the statutory

                                                            

15 The specific examples expressly excluded from the definition of ʺsecurityʺ are:

(i) currency, check, draft, bill of exchange, or bank letter of

credit; (ii) leverage transaction, as defined in section 761 of

this title; (iii) commodity futures contract or forward

contract; (iv) option, warrant, or right to subscribe to or

purchase or sell a commodity futures contract; (v) option to

purchase or sell a commodity; (vi) contract or certificate of a

kind specified in subparagraph (A)(xii) of this paragraph

that is not required to be the subject of a registration

statement filed with the Securities and Exchange

Commission and is not exempt under section 3(b) of the

Securities Act of 1933 from the requirement to file such a

statement; or (vii) debt or evidence of indebtedness for

goods sold and delivered or services rendered.

11 U.S.C. § 101(49)(B).
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1 list of securities set forth in subsection (A) is ʺnon‐exclusive.ʺ  OʹDonnell v. Tristar

2 Esperanza Props., LLC (In re Tristar Esperanza Props., LLC), 488 B.R. 394, 399 (B.A.P.

3 9th Cir. 2013) (concluding that a membership interest in an LLC is a ʺsecurityʺ),

4 affʹd, 782 F.3d 492 (9th Cir. 2015); see also OʹCheskey v. Templeton (In re Am. Hous.

5 Found.), No. 09‐20232‐RLJ‐11, Adv. No. 10‐02016, 2013 WL 1316723, at *18, 2013

6 Bankr. LEXIS 1449, at *50‐51 (Bankr. N.D. Tex. Mar. 30, 2013) (concluding that the

7 enumerated list in section 101(49) is not exhaustive and that securities are not

8 limited to the items specifically identified), affʹd in part, revʹd in part on other

9 grounds, 785 F.3d 143 (5th Cir. 2015).  Indeed, the residual clause set forth in

10 subsection (A)(xiv) clearly opens the door to securities not specifically listed.  See

11 11 U.S.C. § 101(49)(A)(xiv) (providing that the term ʺsecurityʺ includes any ʺother

12 claim or interest commonly known as [a] ʹsecurityʹʺ); see also SeaQuest Diving, LP

13 v. S&J Diving, Inc. (In the matter of SeaQuest Diving, LP), 579 F.3d 411, 418 (5th Cir.

14 2009) (observing that subsection (A)(xiv) is a ʺbroad residual categoryʺ).

15 An argument can be made that an RSU of the sort at issue qualifies as a

16 security pursuant to one of the specific examples enumerated in subsection (A),

17 namely that it is a ʺcertificate of interest or participation in, temporary or interim

18 certificate for, receipt for, or warrant or right to subscribe to or purchase or sell, a
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In re: Lehman Bros.

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1 security.ʺ  11 U.S.C. § 101(49)(A)(xv); see also id. § 101(49)(A)(ii) (identifying

2 ʺstockʺ as a ʺsecurityʺ).  As the bankruptcy court explained, ʺa grant of an RSU

3 constitutes a contingent right to participate in, receive [or] purchase [Lehman

4 Brothers] common stockʺ ʺonce certain employment‐related conditions have been

5 satisfied.ʺ  Lehman Bros., 519 B.R. at 60 (citing various Program documents).  But

6 even assuming that the claimantsʹ RSUs do not fall squarely within subsection

(A)(xv) 7 16—or any of the other enumerated examples in subsection (A)—we think

8 that they nevertheless qualify as securities pursuant to the residual clause.  See

9 101 U.S.C. § 101(49)(A)(xiv).

10 We reach this conclusion on the ground that, in certain important respects,

11 the claimantsʹ RSUs resemble other securities specifically enumerated in

12 subsection (A), see United States v. Amato, 540 F.3d 153, 160 (2d Cir. 2008)

13 (explaining that, under the canon of construction ejusdem generis, ʺgeneral terms

14 that follow specific ones are interpreted to embrace only objects of the same kind

                                                            

16 The claimants contend that subsection (A)(xv) does not cover an RSU because an

RSU merely grants its holder a contingent or conditional right to receive stock upon the

occurrence of certain events rather than an absolute right to participate in or subscribe

to a stock.  We do not find this argument persuasive because subsection (A)(xv) makes

no distinction between conditional rights and absolute rights; nor have the claimants

made any persuasive showing why we should read such a distinction into the text of

the statute.
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1 or class as the specific onesʺ), cert denied, 556 U.S. 1138 (2009).  Indeed, these

2 RSUs bear many of the hallmark characteristics of a security.  Like many security

holders, the RSU holders had limited voting rights17 3 and received any declared

dividends in the form of additional RSUs.18 4   And of most significance, they had

5 the same risk and benefit expectations as shareholders because the value of their

6 RSUs was tied to the value of Lehman Brothersʹ common stock.  Each RSU holder

7 therefore had ʺgreater financial expectations than [a] creditorʺ inasmuch as a

8 ʺcreditor can only recoup her investment,ʺ whereas an RSU holder ʺexpect[ed] to

                                                            

17 The claimants assert that they did not have voting rights, but fail to cite any record

evidence supporting their assertion.  The documentary evidence on which the

bankruptcy court relied, see Lehman Bros., 519 B.R. at 56, reflects that Lehman Brothers

established a trust, funded with shares to be issued upon the conversion of RSUs to

common stock, that gave RSU holders the ability to direct voting on those shares based

on the proportion of the number RSUs held by the employees.  See, e.g., JA at 2616 (2003

Program); id. at 2862 (2005 Program).

18 The record reflects that (1) RSU dividends accrued quarterly and were reinvested as

additional RSUs; (2) upon the issuance of common stock, the RSU holder received

additional common stock in proportion to the dividend equivalents that had accrued

during the five‐year period; and (3) any additional RSUs awarded for dividend

equivalents were not treated as income by Lehman Brothers or accounted for as a

compensation expense of Lehman Brothers.
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1 participate in firm profits.ʺ  Med Diversified, 461 F.3d at 257 (internal quotation

marks omitted).19 2

3 Several courts have similarly defined ʺsecurityʺ in section 510(b) in terms

4 of an interest tied to a firmʹs overall success.  See, e.g., KIT digital, Inc. v. Invigor

5 Grp. Ltd. (In re KIT digital, Inc.), 497 B.R. 170, 183 (Bankr. S.D.N.Y. 2013) (treating

6 a debtorʹs obligation to pay stock to a claimant as a security under section 510(b)

7 because, ʺby agreeing to accept stock instead of cash[,] . . . [the claimant]

8 subjected itself to the greater risk that the price of the stock it would then receive

9 might go downʺ while ensuring that it ʺwould get the benefits if the price of the

10 stock went upʺ);  In re Club Ventures Inv. LLC, No. 11‐10891 (ALG), 2012 WL

11 6139082, at *5, 2012 Bankr. LEXIS 5742, at *20 (Bankr. S.D.N.Y. Dec. 11, 2012)

12 (holding that unissued membership units representing a future interest in an

13 LLC after certain conditions were met constituted ʺsecuritiesʺ subject to section

14 510(b) because the units ʺwould have given [the claimant] certain rights to share

15 in the [d]ebtorʹs profits[] and . . . the risk and reward expectations of an equity

                                                            

19 The fact that RSUs were not taxed as ordinary income until the end of the five‐year

holding period, when the vested common stock was taxed according to its market value

at the time of vesting, further supports the conclusion that RSUs were equity interests

without a fixed valued.  
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1 holderʺ); Aristeia Capital, L.L.C. v. Calpine Corp. (In re Calpine Corp.), No. 05‐60200

2 (BRL), 2007 WL 4326738, at *13, 2007 U.S. Dist. LEXIS 86514, at *38 (Bankr.

3 S.D.N.Y. Nov. 21, 2007) (ʺThe value of the [convertible notes] var[ies] with the

4 value of the common stock of [the debtor], and therefore resemble[s] an equity

interest to which [s]ection 510(b) is applicable.ʺ).20 5

6 We therefore conclude that the claimantsʹ RSUs are securities within the

7 meaning of section 510(b) because they meet the definition of that term set forth

8 in section 101(49)(xiv) insofar as they bear hallmarks of interests commonly

known as securities.21 9

                                                            

20 The claimants rely on three cases in which claims were not subordinated under

section 510(b), but they are inapposite because here, unlike in those cases, the value of

RSUs rose and fell with the value of common stock.  See Racusin v. Am. Wagering, Inc. (In

re Am. Wagering, Inc.), 493 F.3d 1067, 1071 (9th Cir. 2007) (involving a claim arising from

a pre‐bankruptcy money judgment against the debtor, which resulted from the debtorʹs

failure to fulfill its obligation to pay the claimant cash in the fixed amount of ʺ4% of the

final evaluation of the [companyʹs] IPOʺ (internal quotation marks omitted)); Raven

Media Invs., LLC v. DirecTV Latin America, LLC (In re DirecTV Latin America, LLC), No. 03‐

10805 (PJW), Civ. 03‐981‐SLR, 2004 WL 302303, at *4, 2004 U.S. Dist. LEXIS 2425, at *13

(D. Del. Feb. 4, 2004) (involving a claim arising out of a ʺ[p]ut [a]greementʺ that

effectively gave the claimant the benefits of holding stock without ʺexpos[ing] [it] to any

risk of lossʺ); In re NationsRent, Inc., 381 B.R. 83, 86, 91‐93 (Bankr D. Del. 2008) (involving

claims based on a ʺ[m]ake‐[w]holeʺ agreement to pay cash in the fixed amount of the

stock price at a particular date).

21 We pause to emphasize that we should not be understood to conclude that any

interest called an ʺRSUʺ is necessarily a security within the meaning of section 510(b),

let alone any other statute.  As our analysis indicates, the requisite inquiry in each case
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1 B. Purchase of Security

2 We must next decide whether the claimants received the RSUs through a

3 ʺpurchase or sale.ʺ  11 U.S.C. § 510(b).  We think they did insofar as Lehman

4 Brothers awarded the claimants the RSUs as compensation for their labor.

5 The term ʺpurchaseʺ in section 510(b) is properly construed broadly to

6 include circumstances where a claimant has received equity securities in

7 exchange for labor.  See Enron, 341 B.R. at 151 (ʺWhile it is true that the

8 [c]laimants did not purchase the stock options on the open market, they

9 nonetheless exchanged value for the options: here, their labor.  Such exchange

10 falls under a broad reading of the term ʹpurchase.ʹʺ); see also Med Diversified, 461

11 F.3d at 258 (noting that the rationale for mandatory subordination ʺapplies even

12 if there is no actual sale or purchaseʺ of securities (internal quotation marks

13 omitted)); Liquidating Trust v. Wax (In re U.S. Wireless Corp.), 384 B.R. 713, 719

14 (Bankr. D. Del. 2008) (ʺ[T]he Equity Package [the claimant] received as a portion

15 of his compensation, i.e., in exchange for his labor, constitutes a purchase and

16 sale of a security for the purpose of section 510(b).ʺ); In re Touch Am. Holdings,

                                                                                                                                                                                               

is likely to be fact‐intensive, and the result will turn on the substance of the particular

ʺRSUʺ and the relevant legal definition of ʺsecurityʺ—and that definition is likely to

vary from statute to statute.
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1 Inc., 381 B.R. 95, 104 (Bankr. D. Del. 2008) (broadly interpreting ʺpurchaseʺ and

2 noting that ʺ[s]tock given to an employee as compensation nonetheless involves

a bargain and exchange of valueʺ (internal quotation marks omitted)).22 3

4 The claimants ʺpurchasedʺ RSUs within the meaning of section 510(b) by

5 agreeing to receive them, in lieu of cash, in exchange for a portion of their labor.  

6 As the bankruptcy court determined, ʺalthough the RSU [c]laimants had the

7 option to leave employment at Lehman, they elected voluntarily not to do so

8 primarily because of the high cost associated with leaving—i.e., leaving unvested

9 equity awards ʹon the tableʹ [and] the inability to make as much money

10 anywhere else.ʺ  Lehman Bros., 519 B.R. at 60‐61.  By agreeing to work for Lehman

11 Brothers, the claimants voluntarily accepted that Lehman Brothers had the

                                                            

22 The proposition that a security can be purchased with an employerʹs labor also

accords with the Bankruptcy Codeʹs expansive definition of ʺpurchaserʺ as a ʺtransferee

of a voluntary transfer,ʺ 11 U.S.C. § 101(43), where ʺtransferʺ is to be construed as

ʺbroad[ly] as possible.ʺ  S. Rep. No. 95‐989, at 27 (1978); see also 11 U.S.C. § 101(54)

(defining ʺtransferʺ as, among other things, ʺeach mode, direct or indirect, absolute or

conditional, voluntary or involuntary, of disposing of or parting with . . . an interest in

propertyʺ).  Similarly, the Uniform Commercial Code, on which section 101(43) is based,

broadly defines ʺpurchaseʺ as ʺtaking by sale, discount, negotiation, mortgage, pledge,

lien, security interest, issue or re‐issue, gift or any other voluntary transaction creating an

interest in property.ʺ  2 COLLIER ON BANKRUPTCY ¶ 101.43 (emphasis added) (quoting

U.C.C. § 1‐201(29)).
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discretion to pay part of their total compensation in RSUs.23 1   Cf. Enron, 341 B.R. at

2 151 (concluding that the claimants purchased securities insofar as they ʺwillingly

3 accepted,ʺ as ʺa condition of [their] employment,ʺ ʺa portion of their

4 compensation as [stock] options . . . in return for their laborʺ).

5 In arguing otherwise, the claimants point to International Brotherhood of

6 Teamsters, Chauffeurs, Warehousemen and Helpers of America v. Daniel, 439 U.S. 551

7 (1979), in which the Supreme Court held that participation in a compulsory and

8 noncontributory pension plan does not constitute an investment decision within

9 the meaning of the Securities Act or the Securities Exchange Act, id. at 559‐60.  

10 Other courts, also in the context of federal securities law, have extended Daniel to

11 compulsory and involuntary employee stock option plans.  See, e.g., McLaughlin

12 v. Cendant Corp. (In re Cendant Corp. Sec. Litig.), 76 F. Supp.2d 539, 545 (D. N.J.

13 1999) (holding that the ʺ[p]laintiff did not receive her options as part of a

14 bargained‐for exchange that required her to make an affirmative investment

                                                            

23 The claimants were on notice that they could be compensated in part with RSUs.  

The employee handbooks reflect that ʺ[a]t the Firmʹs option, a portion of [an

employeeʹs] total compensation . . . may be payable in the form of conditional equity

awards ([RSUs], stock options, or other equity awards) pursuant to the [Program].ʺ  JA

at 7 ¶ 2.  And where Lehman Brothers had employment contracts with its employees,

those contracts stated that ʺ[a]t the Firmʹs discretion, a portion of [the employeesʹ] total

compensation . . . will be payable in conditional equity awards ([RSUs] and/or other

equity awards) pursuant to the [Program].ʺ  Id.
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1 decisionʺ where her ʺparticipation in the option plan was an incident of

2 employment and [her] only [other] choice would have been to [forgo] the receipt

3 of benefits entirelyʺ (internal quotation marks omitted) (second brackets in

4 original)).

5 Here, however, Daniel is a glove that does not fit.  It focused on whether

6 employees made an investment decision that could be influenced by fraud or

7 manipulation; the present case poses the distinct question whether equity was

8 purchased through labor for purposes of subordination in bankruptcy.  No case

9 has been cited by the parties—nor have we found one—in which a court has

10 applied the Daniel principle to section 510(b).  And the claimants fail to make a

11 compelling argument why the holding of Daniel should be extended beyond the

12 context of federal securities laws so as to contravene the lesson of Med Diversified

13 and Enron:  Section 510(b) should be broadly construed in light of its purpose, see

14 Med Diversified, 461 F.3d at 255‐59, to include circumstances where a claimant has

received a security in exchange for labor, Enron, 341 B.R. at 150‐51.24 15   

                                                            

24 Even if we were to apply Daniel and Cendant here, it is far from clear that those cases

would help the claimants.  Both involved retirement plans offered to employees who

were already compensated for their labor.  See Daniel, 439 U.S. at 553‐54 (explaining that

the pension plans were part of a collective bargaining agreement and were separate and

independent from the plaintiffsʹ compensation); Cendant, 76 F. Supp.2d at 544
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1 The Neuberger Claimants argue that, whatever can be said of the means

2 by which the other claimants acquired RSUs, they did not voluntarily purchase

3 them.  They urge that when Lehman Brothers acquired Neuberger Berman, they

4 had no realistic choice but to continue employment with Lehman Brothersʹ 

5 subsidiary because not doing so would have required them to forfeit their

6 previously earned equity in Neuberger Berman, and to abandon their careers in

7 light of pre‐existing non‐compete covenants imposed by Neuberger Berman.  We

8 do not find this argument persuasive.  As the bankruptcy court reasoned,

9 ʺbeginning with the merger and every day thereafter, the Neuberger []

10 Claimants,ʺ exactly like the other claimants, ʺhad the choice to ʹvote with their

11 feetʹ against the terms of the Program by leaving Lehman [Brothers].ʺ  Lehman

12 Bros., 519 B.R. at 62.  That they considered this option to be less rewarding than

13 remaining employed by Lehman Brothers does not mean that they had no choice

                                                                                                                                                                                               

(explaining that the ʺplaintiff acquired her options when she was already employed by

Cendant under a plan that offered the options not to her as an individual, but as a

member of an employee groupʺ).  By contrast, in Yoder v. Orthomolecular Nutrition

Institute, Inc., 751 F.2d 555 (2d Cir. 1985) (Friendly, J.), we held that an employee

ʺpurchasedʺ stock options within the meaning of the federal securities laws where she

accepted employment in return for a salary of $40,000 plus options to purchase up to

30,000 shares of the employerʹs stock.  Id. at 560.  The case at bar more closely resembles

Yoder than it does Daniel or Cendant because the RSUs at issue here were not mere

benefits, but instead were a significant portion of the claimantsʹ bargained‐for

compensation.
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1 in the matter; it means that they ʺmade an economic decision based on rational

2 self‐interest.ʺ  Id.

3 Nor can the Neuberger Claimants successfully argue economic duress

4 under New York law, a doctrine ʺreserved for extreme and extraordinary cases,ʺ 

5 VKK Corp. v. NFL, 244 F.3d 114, 123 (2d Cir. 2001), where the party asserting

6 economic duress can show ʺ(1) threats of an unlawful act by one party [that] (2)

7 compel[] performance by the other party of an act [that] it had a legal right to

8 abstain from performing,ʺ Chase Manhattan Bank v. New York, 13 A.D.3d 873, 874,

9 787 N.Y.S.2d 155, 157 (3d Depʹt 2004).  And even in the unlikely event that they

could meet these requirements,25 10 the Neuberger Claimants have waived any

11 economic duress argument by failing to seek prompt repudiation of the terms of

12 their 2003 agreement with Lehman Brothers.  See VKK Corp., 244 F.3d at 123

13 (explaining that ʺit is well established under New York law that a party asserting

14 duress must do so promptlyʺ and that ʺ[d]elays as short as six months have been

                                                            

25 Indeed, the Neuberger Claimants have failed to show anything unlawful about their

arrangement with Lehman Brothers, including their non‐compete agreements, which

had limited one‐ to three‐year restriction periods and were applicable only to Lehman

Brothersʹ market.  See Cardwell v. Thermo Fischer Scientific, No. 09 Civ. 7809 (DAB), 2010

WL 3825711, at *7, 2010 U.S. Dist. LEXIS 108302, at *20 (S.D.N.Y. Sept. 23, 2010) (stating

that ʺNew York Courts have held restrictions of up to five years to be reasonable

depending on the circumstances,ʺ and holding that a one‐year non‐compete covenant

was reasonable).  
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In re: Lehman Bros.

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1 held to constitute forfeiture of the claimʺ) (internal quotation marks and citation

2 omitted)).  The Neuberger Claimantsʹ assertion of economic duress many years

3 after entering the agreement is untimely.

4 Thus, within the meaning of section 510(b), we conclude that all the

5 claimants purchased their RSUs by voluntarily cho0sing to receive them in

6 exchange for a portion of their labor.

7 C. Arising from the Purchase of a Security   

8 Finally, we must address whether the claims at issue are claims for

9 damages arising from the purchase of a security pursuant to section 510(b).  We

10 conclude that they are.

11 Section 510(b) provides that claims ʺarising fromʺ a securities transaction

12 must be subordinated.  In light of the well‐settled principle that this provision is

13 to be interpreted broadly, see Med Diversified, 461 F.3d at 257‐58, courts have

14 concluded that section 510(b) covers ʺa wide variety of causes of action arising

15 out of securities transactions.ʺ  4 COLLIER ON BANKRUPTCY ¶ 510.04 (collecting

16 cases).  A claim (no matter how it is characterized by the claimant) arises from a

17 securities transaction so long as the transaction is part of the causal link leading

18 to the alleged injury.  See, e.g., Med Diversified, 461 F.3d at 257‐59 (holding that
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1 section 510(b) applies to a claim arising from a failed securities transaction even

2 though the claimant never received shares in the debtor); Baroda Hill Invs., Ltd. v.

3 Telegroup, Inc. (In re Telegroup, Inc.), 281 F.3d 133, 143‐44 (3d Cir. 2002)

4 (concluding that section 510(b) applied to a claim arising from the debtorʹs failure

5 to register shares after the securities transaction had been completed); In re

6 Worldcom, Inc., 329 B.R. 10, 14 (Bankr. S.D.N.Y. 2005) (ʺSo long as the nature of

7 the damage or harm complained of by a shareholder can be said to result as a

8 consequence of his having purchased or sold shares of stock or other securities of

9 the debtor, the claimant falls within the scope of [s]ection 510(b)[.]ʺ); Queen v.

10 Official Comm. of Unsecured Creditors (In re Response U.S.A., Inc.), 288 B.R. 88, 94

11 (D. N.J. 2003) (concluding that breach‐of‐contract claims must be subordinated

12 where ʺthey would not exist but for the [purchase of the security],ʺ despite the

13 claimantsʹ attempt to characterize themselves as ʺcreditors who seek payment

14 based on a contractʺ).

15 We think section 510(b) applies to all claims asserted here—and

16 characterizations thereof—because they would not have arisen but for the

17 claimantsʹ agreement with Lehman Brothers to receive part of their

18 compensation in the form of RSUs.
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1 The claimants advance a variety of theories in opposition to this

2 conclusion.  We find none of them to be persuasive.

3 1. Alternative Performance

4 The claimants first assert that they have alternative‐performance claims

5 against Lehman Brothers to be paid in cash in exchange for their labor because

6 the RSUs they received never vested.  These claims, they contend, do not arise

7 from the purchase of a security within the meaning of section 510(b), but are

8 instead general‐creditor claims for cash owed in exchange for services rendered.   

9 This theory finds no support in the Program documents under the terms of

10 which Lehman Brothers had the discretion to pay a portion of the claimantsʹ 

11 compensation with RSUs; those documents also make clear that once Lehman

12 Brothers chose to award RSUs in this manner, it had no further obligation to pay

cash for that same portion of compensation.26 13   Its only remaining obligation was

                                                            

26 As noted above, the employee handbooks provide that ʺ[a]t the Firmʹs option, a

portion of [an employeeʹs] total compensation . . . may be payable in the form of

conditional equity awards ([RSUs], stock options, or other equity awards) pursuant to

the [Program],ʺ JA at 7 ¶ 2; and where Lehman Brothers had employment contracts

with its employees, those contracts made clear that ʺ[a]t the Firmʹs option, a portion of

[the employeeʹs] total compensation (combined base salary, bonus and other

compensation) may be payable in the form of restricted stock units pursuant to . . . the

standard terms and provisions of the Program[,]ʺ id. at 2596; see also id. at 2575‐76 ¶ 2

(same).   
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1 to deliver stock to the RSU holders at the conclusion of the five‐year period,

2 assuming the specified conditions were met.  In this regard, the Plan provides:

3 With respect to any [RSUs] granted under the Plan, the obligations of the

4 Company or any Subsidiary are limited solely to the delivery of shares of

5 Common Stock on the date when such shares of Common Stock are due to

6 be delivered under each Agreement, and in no event shall the Company

7 or any Subsidiary become obligated to pay cash in respect of such

obligation . . . .

27 8

9 JA at 2890 § 8(b); see also id. at 3505 § 8(b) (same).  The Trust Agreement further

10 reflects that RSU holders are distinct from general creditors insofar as the assets

11 held in the trust, including the shares held for RSU holders, are ʺsubject to the

12 claims of the Companyʹs general creditors in the event the Company becomes

13 insolvent.ʺ  Id. at 1835, 1838.

14 The claimants point to the following language of the Plan as evidence that

15 RSU holders are to be treated as general creditors:  ʺWith respect to any

16 payments not yet made to a [p]articipant, . . . nothing herein contained shall give

17 any [p]articipant any rights that are greater than those of a general creditor . . . .ʺ  

                                                            

27 There is a discretionary exception to this limited obligation to deliver stock to RSU

holders, but it is not applicable here.  See JA at 2890 § 8(b) (explaining that, ʺupon the

occurrence of a Change in Control,ʺ Lehman Brothers ʺmay pay to Participants amounts

in cash in respect of a[n RSU] equal to cash dividends paid to a holder of shares of

Common Stock, for fractional shares or for any amounts payable in cashʺ).
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1 Id. at 2891 § 16.  But this provision does not support the claimantsʹ assertion.  Its

2 plain language reflects no more than that the participantsʹ rights may not be

3 greater than those of general creditors, not that they may not be less than—or

4 subordinate to—the rights of general creditors.  The provision, moreover, applies

5 by its own terms only to ʺany payments not yet made to a [p]articipant,ʺ id.,

6 which, in light of the other Program documents already described, clearly refers

7 to circumstances where Lehman Brothers has not yet paid its employees—either

8 in cash or in RSUs—for services rendered.  The provision does not apply where,

9 as here, Lehman Brothers has already made payments to the claimants for all

10 services rendered, either in the form of cash or RSUs.

11 In sum, we conclude that the claimants cannot assert claims arising from

12 anything other than the purchase of RSUs because they have already been paid

13 the compensation they were due in the form of RSUs and, as a result, have no

14 right to any other mode of performance.  Once they received RSUs, their only

15 right vis‐à‐vis Lehman Brothers was for the delivery of stock at the conclusion of

16 the five‐year holding period, assuming the specified employment‐related
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1 conditions were met.  They therefore cannot avoid subordination of their claims

under section 510(b).28 2

3 2. Restitution

4 Nor can the claimants circumvent section 510(b) by asserting restitution

5 claims.  In light of the failure of their alternative‐performance theory, their

6 strongest argument for restitution appears to be that:  (1) Lehman Brothers, by

7 filing for bankruptcy, repudiated its contractual condition to issue stock to RSU

8 holders (who presumably satisfied their own employment‐related conditions);

9 and (2) as a result, RSU holders are entitled to recover in restitution for the

10 reasonable value of the services they rendered to Lehman Brothers.  Yet, under

11 Delaware law, which governs the construction of the Program documents, see JA

12 at 68, a breach‐of‐contract claim requires ʺdamage to the plaintiffʺ resulting from

                                                            

28 The alternative‐performance theory could also be characterized as an argument that

the award of RSUs did not constitute a payment in exchange for the claimantsʹ labor,

despite the Program documents.  Such an argument, however, is effectively a

contention to rescind the contractual arrangement to which the claimants agreed so that

they may be paid in cash—and only cash—for the services they rendered.  Whatever the

merits of this argument, it does not change the outcome here because a claim for

rescission—like a claim for damages—is subject to section 510(b).  See 11 U.S.C. § 510(b)

(ʺ[A] claim arising from rescission of a purchase or sale of a security of the debtor . . .

shall be subordinated to all claims or interests that are senior to or equal the claim or

interest represented by such security . . . .ʺ).
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1 the breach, VLIW Tech., L.L.C. v. Hewlett‐Packard Co., 840 A.2d 606, 612 (Del.

2 2003).  Although the claimants were theoretically wronged by not receiving the

3 Lehman Brothers shares they were owed, those shares became worthless once

4 Lehman Brothers filed for bankruptcy.  They therefore suffered no actual injury

5 because the only thing to which they were contractually entitled—shares of

6 Lehman Brothers common stock—had no value.  This defeats their breach‐of‐

contract claim and, thus, their right to restitution.29 7

                                                            

29 Even if the claimants could allege an actual injury, their restitution claims might

nonetheless be subordinated under section 510(b) inasmuch as those claims are

functionally equivalent to a claim for rescission or a claim for damages, both of which

are expressly covered by section 510(b).  ʺAs a remedy for [a] breach [of contract],

ʹrestitutionʹ means either the restoration of a specific thing or the payment in money of

the value of a contractual performance by [the claimant].ʺ  Henry Mather, Restitution as

a Remedy for Breach of Contract: The Case of the Partially Performing Seller, 92 YALE L. J. 14,

14 n.1 (1982) (citing Restatement of Contracts § 326(b) (1932)).  In the former sense, a

ʺplea for restitution is merely the remedial flip side of [a] rescission claim; rescission

will unwind or avoid the transaction, and restitution will put the parties back in their

original positions.ʺ  Tekinsight.Com, Inc. v. Stylesite Mktg., Inc. (In re Stylesite Mktg., Inc.),

253 B.R. 503, 510‐11 (Bankr. S.D.N.Y. 2000).  A claim for restitution in this sense may

well be subject to section 510(b), broadly interpreted, insofar as it is functionally

equivalent to a claim for rescission.  See id. at 511 (explaining that a claim that

ʺdepend[s] on [the claimantʹs] purchase of the [debtorʹs] stock . . . arise[s] from that

purchaseʺ regardless of whether the claimant ʺchooses to call itʺ rescission or

restitution).  Similarly, the second sense in which the term ʺrestitutionʺ can be used as a

breach‐of‐contract remedy—payment measured in terms of the defendantʹs gain rather

than the claimantʹs loss—might sometimes (though not always) be functionally

equivalent to a claim for damages.  Restitution, of course, provides for a measure of

recovery that is analytically distinct from that of damages.  See In re Gartenberg, 636 F.2d

16, 17 (2d Cir. 1980) (ʺRestitution is a remedy distinct from damages and requiring
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1 3. Subordination Provisions

2 Finally, the claimants contend that the deletion of the Subordination

3 Provisions in the Program documents evidences the partiesʹ intention to treat the

4 claimants as general creditors in the event of bankruptcy.

5 As we have noted, Program documents for 2003 and 2004 included

6 Subordination Provisions explicitly stating that in the event of bankruptcy,

7 claims of RSU holders would be deemed to be claims for damages arising from

8 the purchase or sale of a security pursuant to section 510(b); Program documents

9 for subsequent years, however, did not contain Subordination Provisions.  The

                                                                                                                                                                                               

different proof.ʺ); see also Douglas Laycock, Restoring Restitution to the Canon, 110 MICH.

L. REV. 929, 938 (2012) (ʺThe fundamental question in damages . . . is how much a

plaintiff lost . . . .  But in restitution, . . . [it] is how much [the] defendant was unjustly

enriched.ʺ).  But ʺ[w]hen the restitutionary claim leads to the same recovery as the . . .

claim [for damages], there is little reason to distinguish between them.ʺ  Douglas

Laycock, The Scope and Significance of Restitution, 67 TEX. L. REV. 1277, 1286 (1989).  

Indeed, ʺ[w]hen the underlying wrong is the same and the remedy is the same,

important collateral issues,ʺ such as whether to subordinate claims pursuant to section

510(b), ʺshould not be left open to the option of the clever pleader.ʺ  Id.  Here, it appears

that the claimantsʹ remedy would be the same whether awarded as damages or as

restitution.  Indeed, in making their restitution argument, the claimants contend that the

proper measurement for recovery is the amount of cash that Lehman Brothers could

have paid them in lieu of RSUs, the very same amount they seek in damages by means

of their alternative‐performance theory.  See supra.  In this regard, the restitution theory

seems to be merely a new bottle for old vinegar; the two theories appear to be

functionally the same.  To be clear, though, this is not the basis on which we reject the

claimantsʹ restitution argument; we reject it because the claimants are unable to allege

an injury.
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1 claimants assert that this history supports a conclusion that (at least after 2004)

2 the parties intended for the claimants to be treated as general creditors.  But this

3 assertion rests entirely on speculation.  The claimants cite, and we ourselves see,

4 no record evidence establishing the reason for the removal of the Subordination

Provisions.30 5   There is thus no basis to conclude that the removal of these

6 provisions reflects the partiesʹ intention to treat RSU holders as general creditors

7 in the event of insolvency.

8 * * *

9 In sum, we conclude that the claimantʹsʹ RSU‐based claims—no matter

10 how they are characterized—must be subordinated pursuant to section 510(b)

11 because they arise from the purchase or sale of securities.  The claimants ʺtook on

12 the risk and return expectations of . . . shareholder[s], rather than . . . creditor[s],ʺ 

13 Med Diversified, 461 F.3d at 256, by agreeing to be paid a portion of their

                                                            

30 As the bankruptcy court found at the evidentiary hearing, the parties adduced: (1)

ʺno evidence as to why the Subordination Provisions are not contained in the Program

Documents after 2004ʺ; (2) ʺno evidence that the decision to omit [them] arose from any

intent by [Lehman Brothers] to declare that [RSU‐based claims] would cease to be

subject to . . . section 510(b) . . . if a Chapter 11 proceeding should ever ariseʺ; and (3) ʺno

evidence that the [claimants] relied upon the omissions of the Subordination Provisions

when making the choice to continue employment at Lehman [Brothers].ʺ  Lehman Bros.,

519 B.R. at 64.
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1 compensation in RSUs.  They are thus ʺbound by the choice [they] made to trade

2 the relative safety of cash compensation for the upside potential of shareholder

3 status,ʺ id., and the risk of loss—even bankruptcy—that accompanies that status.

4 CONCLUSION

5 For the foregoing reasons, we AFFIRM the judgment of the district court.