Bullivant Houser Bailey, PC

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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF OREGON
The dispute in this case is whether a claim for breach of a pre-petition contract obligating the debtor
to repurchase the creditor’s shares is allowable as a general unsecured claim or, instead, mandatorily
subordinated under § 510(b).2 For the reasons stated below, the court concludes that the claim is subject to
mandatory subordination under the Bankruptcy Code.
1 	This disposition is specific to this case and is not intended for publication or to have a controlling
effect on other cases. It may, however, be cited for whatever persuasive value it may have.
2 	Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C.
§ 101 et seq.
In re
BULLIVANT HOUSER BAILEY PC,
Debtor.
Case No. 26-30615-pcm11
MEMORANDUM DECISION1
Below is an opinion of the court.
_______________________________________
PETER C. McKITTRICK
U.S. Bankruptcy Judge
DISTRICT OF OREGON
F I L E D
July 02, 2026
Clerk, U.S. Bankruptcy Court
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FACTUAL BACKGROUND
Thomas Hutchinson (Creditor) filed Claim No. 25 (the Claim) on April 13, 2026, asserting that he is
owed $28,001.93 by the debtor, Bullivant Houser Bailey P.C. (Debtor).3 The basis of the Claim is a breach
of contract.4
Creditor is a former employee and shareholder of Debtor.5 As a shareholder, Creditor was a party to
a Buy-Sell Agreement with Debtor (the Agreement).6 The Agreement obligated Debtor to pay $100,000 for
Creditor’s shares if Creditor became disabled or retired.7 The Agreement provides that payment for the
shares will be made in twelve equal quarterly installments beginning sixty days after the date of retirement
or a determination of disability.8
Creditor claims that he became disabled on March 15, 2024.9 Debtor, however, commenced making
equal installment payments sixty days after Creditor retired on October 31, 2024.10 Creditor ultimately
received only three payments before Debtor filed bankruptcy in December of 2025.11 Creditor contends that
3 	Case No. 26-30615-pcm11, Claim No. 25-1.
4 	Id.
5 	Id., Ex. 2.
6 	Id., Ex. 1.
7 	Id.
8 	Id.
9 	ECF No. 202, p.2.
10 	Id., p. 3.
11 	Id., p. 10.
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three additional payments totaling $25,000 were due between the date payments should have commenced
and the date he received his first payment.12 Debtor maintains it complied with the Agreement by
commencing payments sixty days after Creditor’s retirement in October of 2024.13
In November of 2025, Creditor filed a breach of contract complaint in Multnomah County Circuit
Court, seeking recovery of the three payments.14 Shortly thereafter, Debtor filed its chapter 11 petition.15
Creditor, in the Claim, seeks recovery of the three payments plus interest.16
Debtor filed an objection to the Claim, arguing that it should be allowed only as a Class 4 former
shareholder claim under the Second Amended Plan of Liquidation because it is subject to mandatory
subordination under 11 U.S.C. § 510(b).17 Creditor filed a response to the objection, arguing that the Claim
is not subject to mandatory subordination because it “is not a claim for legal damages that the Court must
determine in terms of value or amount, it is for the payment of past due payments of fixed amounts.”18
Debtor filed a reply to Creditor’s response.19 The court held a preliminary hearing at which it indicated it
12 	Id., p. 11.
13 	ECF No. 178, Attachment A, p. 2.
14 	Claim No. 25-1, Ex. 3.
15 	ECF No. 1.
16 	Claim Nos. 25-1.
17 	ECF No. 178, Attachment A, p. 1.
18 	ECF No. 202, p.2.
19 	ECF No. 211.
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would either rule based on the record or set a further hearing. The court determines that a further hearing is
not necessary.20
JURISDICTION
Federal subject-matter jurisdiction exists under 28 U.S.C. § 1334. This is a core proceeding under
28 U.S.C. § 157(b)(2)(A) and (O).
ANALYSIS
The Bankruptcy Code provides for mandatory subordination of certain claims, causing the
subordinated claimant to receive a distribution junior in priority to its nominal class. 4 Collier on
Bankruptcy ¶ 510.01 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). Section 510(b) provides, in
relevant part:
For the purpose of distribution under this title, a claim . . . for damages arising from the purchase or
sale of . . . a security . . . shall be subordinated to all claims or interests that are senior to or equal to
the claim or interest represented by such security.
§ 510(b). The parties do not dispute that Creditor’s shares are “securities” for the purposes of § 510(b).
See § 101(49). The parties also do not dispute that the Agreement obligated Debtor to repurchase Creditor’s
shares and that the Claim is based upon Debtor’s alleged failure to make three installments due under the
Agreement. The principal dispute is whether the Claim is for “damages arising from the purchase or sale of
a security.”
In the context of § 510(b), the term “damages arising from the purchase or sale of a security” has
broader application than compensation for an injury or some other actionable wrongdoing. In re Tristar
Esperanza Props., LLC, 782 F.3d 492, 495 (9th Cir. 2015). It “sweeps broadly” and includes “ordinary
20 	LBR 7007-1(d), made applicable to contested matters by LBR 9013-1(a)(5).
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breach of contract claims so long as there is a sufficient nexus between the claim and the purchase [or sale]
of securities.” Id.
In Tristar, the creditor, O’Donnell, exercised her right to withdraw her interest in Tristar, and Tristar
elected to repurchase her interest pursuant to the terms of its operating agreement. Id. at 494. The parties
disagreed about the value of the interest and proceeded to arbitration. Id. When Tristar failed to pay the
arbitration award, O’Donnell obtained a state-court judgment against Tristar. Id. Tristar then filed for
chapter 11 bankruptcy and commenced an adversary proceeding to subordinate O’Donnell’s claim under §
510(b).
The Ninth Circuit rejected O’Donnell’s argument that her claim was not subject to subordination
because it had been reduced to judgment, stating that “the status of the claim on the date of the petition does
not end the § 510(b) inquiry.” Id. at 497. It reasoned that O’Donnell’s “basic claim is that Tristar failed to
pay her the amount she was due under Tristar’s operating agreement for the purchase of her membership
interest. This is a claim for damages for Tristar’s breach of contract.” Id. at 495. Therefore, O’Donnell’s
claim was for “damages arising out of” Tristar’s obligation to purchase her shares and was subject to
mandatory subordination under § 510(b). Id. at 498.
Like O’Donnell’s claim in Tristar, Creditor’s claim in this case arises “from the firm’s subsequent
failure to perform a contractual duty”21 to pay Creditor for his shares. Therefore, the Claim is for damages,
and the damages arise out of a purchase or sale of a security.
Claims for damages caused by events unrelated to the purchase or sale of securities, on the other
hand, are not subordinated under § 510(b). In re Khan, 846 F.3d 1058, 1065 (9th Cir. 2017). 	In Khan, the
21 	ECF No. 202, p. 7.
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creditor, Barton, a former employee and shareholder of the debtors’ company, had obtained a state court
judgment against two debtors for conversion of the creditor’s company shares. Id. at 1061. Barton filed
claims in the debtors’ chapter 13 bankruptcy cases for the damages awarded by the state court. Id. at 1062.
The debtors objected to Barton’s claims, arguing that the damages award arose from the sale or purchase of
securities under § 510(b). Id.
The Ninth Circuit agreed with the bankruptcy court’s decision to overrule the objection, stating that
the “separate wrongdoing of the Debtors had no connection to the purchase or sale of [the creditor’s] shares
of stock. . . .” Id. at 1065. It reasoned that no connection existed because the creditor’s state court action
“did not arise out of the purchase of the securities and the risks that the purchase might entail.” Id. Citing
In re Betacom of Phx., Inc., 240 F.3d 823, 829 (9th Cir. 2001), the court in Khan held that subordination of
the creditor’s claim would not align with the policy rationale of § 510(b). In Betacom, the Ninth Circuit
stated that “dissimilar expectations of investors and creditors should be taken into account in setting a
standard for mandatory subordination.” 240 F.3d at 829.
Unlike in Khan, Creditor’s claim here is based on his bargained-for rights under the Agreement. The
origin of Creditor’s claim is related to his risk as a shareholder. Indeed, in state court, Creditor asserted a
claim for breach of contract, not for an unrelated tort.
Creditor attempts to distinguish this case on the basis that his shares in Debtor did not have a profit-
and-loss component.22 The statute makes no such distinction; “[s]ection 510(b) does not ask what the claim
is, but what it arises from.” Tristar, 782 F.3d at 497 (emphasis in original). Here, Creditor’s claim for
breach of contract arose from Creditor’s equity position in Debtor and Debtor’s contractual obligation to
22 	ECF No. 202, p. 7.
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compensate Creditor for that equity. Therefore, the substance of the Claim is a request for a distribution on
account of an equity interest. The Claim must be subordinated under § 510(b) to “‘effectuate[] one of the
general principles of corporate and bankruptcy law: that creditors are entitled to be paid ahead of
shareholders in the distribution of corporate assets.’” In re Del Biaggio, 834 F.3d 1003, 1008 (9th Cir.
2016) (quoting In re Am. Wagering, Inc., 493 F.3d 1067, 1071 (9th Cir. 2007)).
CONCLUSION
For the reasons stated above, the court concludes that the Claim is subject to mandatory
subordination under § 510(b). Debtor’s counsel must submit an order within 14 days of entry of this
decision.
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