In re: Betacom of Phoenix, Inc, Debtor, KVVA-AM
| Citation | 240 F.3d 823 |
| Decision Date | 24 January 2001 |
| Docket Number | No. 98-17142,KVVA-AM,No. 98-17133,No. 98-17289,KVVA-FM,No. 98-17282,98-17133,98-17282,98-17142,98-17289 |
| Parties | (9th Cir. 2001) In re: BETACOM OF PHOENIX, INC. Debtor. AMERICAN BROADCASTING SYSTEMS, INC., a Delaware Corporation; BETA COMMUNICATIONS, INC., an Arizona Corporation; BETACOM OF PHOENIX, INC., an Arizona corporation, Plaintiffs-Appellants, v. F. PATRICK NUGENT; ANITA NUGENT, Defendants-Appellees. In re: BETACOM OF PHOENIX, INC. Debtor. AMERICAN BROADCASTING SYSTEMS, INC., a Delaware Corporation; BETA COMMUNICATIONS, INC., an Arizona Corporation; BETACOM OF PHOENIX, INC., an Arizona Corporation, Plaintiffs-Appellees, v. F. PATRICK NUGENT; ANITA NUGENT, Defendants-Appellants. In re: BETACOM OF PHOENIX, INC., dba; In re: BETACOM COMMUNICATIONS, INC., dba; AMERICAN BROADCASTING SYSTEMS, INC., Appellees-Appellants Cross-Appellees. BETACOM OF PHOENIX, INC., dba; BETACOM COMMUNICATIONS, INC., dba; AMERICAN BROADCASTING SYSTEMS, INC., Appellants, v. SCOTT BURTON; EDWARD KNIGHT, movants, Appellees. In re: BETACOM COMMUNICATIONS, INC., dba; In re: BETACOM OF PHOENIX, INC., dba; In re: AMERICAN BROADCASTING SYSTEMS, INC., Debtors. EDWARD KNIGHT, movant; SCOTT BURTON, movant, Appellants-Appellees Cross-Appellants, v. In re: BETACOM OF PHOENIX, INC., dba; In re: BETACOM COMMUNICATIONS, INC., dba; AMERICAN BROADCASTING SYSTEMS, INC., Appellees-Appellants Cross-Appellees |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
COUNSEL: James E. Cross, Dillingham Cross, P.L.C., Phoenix, Arizona, for the appellants.
Michael E. Gottfried, Jaburg & Wilk, P.C., Phoenix, Arizona, for appellees; Scott Burton, Scottsdale, Arizona, and Edward J. Knight, Chandler, Arizona, for the appellees/cross appellants.
Appeal from the United States District Court for the District of Arizona Bruce M. Van Sickle, Senior District Judge, Presiding
Before: Mary M. Schroeder, Chief Judge, Cynthia Holcomb Hall and William A. Fletcher, Circuit Judges.
Appellants Patrick and Anita Nugent ("the Nugents"), claimants in the bankruptcy proceedings of Betacom of Phoenix, Inc., Beta Communications, Inc. (collectively, the "Betacom Entities"), and American Broadcasting Systems, Inc. ("ABS"), seek parity with the general unsecured creditors of the Betacom Entities and ABS. The bankruptcy court granted partial summary judgment to the Betacom Entities and ABS (collectively, the "Debtors") and subordinated the Nugents' breach of contract claim under 11 U.S.C. S 510(b). The district court reversed the decision of the bankruptcy court to subordinate the claim. The district court held that an actual purchase or sale of securities is necessary to trigger mandatory subordination under S 510(b) and that there was an issue of material fact as to whether there had been an actual purchase or sale of securities.
The Debtors appeal the decision of the district court. 28 U.S.C. S 158(d) gives this Court jurisdiction over final orders of the district court rendered in its bankruptcy appellate capacity. See In re Adams Apple, Inc., 829 F.2d 1484, 1487 (9th Cir. 1987) ().
The Nugents cross-appeal the bankruptcy court's grant of partial summary judgment. The decision of the bankruptcy court is a final order as to the claims that were subordinated. See Christian Life Ctr. Litig. Defense Comm. v. Silva (In re Christian Life Ctr.), 821 F.2d 1370, 1373 (9th Cir. 1987).Under 28 U.S.C. S 158(d) and 28 U.S.C. S 1291, this Court has jurisdiction over the final orders of a bankruptcy court.
The Nugents were shareholders in Betacom, Inc. Betacom owned all of the outstanding stock of debtor Betacom of Phoenix, Inc., and 80 percent of the outstanding stock of debtor Beta Communications, Inc. The Betacom Entities owned two radio stations.
In 1991, Betacom entered into a Merger Agreement with debtor ABS. The parties entered into a superseding amendment dated February 6, 1992. The Merger Agreement, as amended, provided that ABS was to acquire Betacom in exchange for ABS stock. ABS was to assume certain Betacom liabilities and agreed to use its best efforts to use the proceeds of a future registration or offering to retire the Betacom debts, including debts owed to the Nugents. The Merger Agreement called for an audit to determine the value of the liabilities assumed by ABS. For 45 days after the completion of the audit, the ABS shares would be held in escrow, after which they would be delivered to the Betacom shareholders. The audit was never performed, and ABS never paid the Nugents any cash or stock. In July 1992, the Nugents filed suit in federal district court against ABS and the Betacom Entities for breach of the Merger Agreement and breach of an alleged oral consultancy agreement between the Nugents and ABS (the "District Court Litigation"). In their Fourth Amended Complaint, filed on July 1, 1996, the Nugents asked for damages in lieu of the promised ABS stock. In their original and first three amended complaints, the Nugents had asked for declaratory relief in the form of a determination of the number of ABS shares to which they were entitled under the Merger Agreement as well as damages for unpaid consulting fees.
In May 1995, the Debtors filed Chapter 11 bankruptcy petitions (Nos. B95-04510 B95-01511, and B95-04599). The three bankruptcy cases are being jointly administered. On January 10, 1996, the Nugents filed three proofs of claim in the bankruptcy case. The first was an unsecured claim for $168,365 allegedly owed by Betacom pursuant to a promissory note dated May 1, 1989 in the principal amount of $68,000. The second was a secured claim for $693,785 pursuant to a promissory note from Betacom also dated May 1, 1989 in the principal amount of $159,000. The Nugents' third proof of claim alleges an unsecured, non-priority claim against ABS in the amount of $4,190,428 for ABS's alleged breach of contract and fraud, which was being litigated in the District Court Litigation. The Nugents obtained an order modifying the automatic stay to allow the District Court Litigation to proceed to final liquidation.
The Debtors filed a complaint in the bankruptcy court against the Nugents and two other Betacom shareholders, Scott Burton and Ed Knight, seeking mandatory subordination of their claims ("the Subordination Litigation"). Section 510(b) of the Bankruptcy Code mandates the subordination of damages claims "arising from the purchase or sale of a security."1 On September 30, 1997, the bankruptcy court entered the order at issue in the Nugents' cross-appeal and granted partial summary judgment in favor of the Debtors on the issue of whether the Nugents' claims were subordinated. A similar order was issued against Burton and Knight on April 24, 1998. The bankruptcy court reasoned that the language of the statute is "plain" and that the merger of Betacom into ABS was a "purchase or sale of securities of the Debtor." It added that a literal reading of the statute was not at odds with the statute's legislative history, which expressed a concern with adapting bankruptcy distribution to the differing expectations of shareholders and general creditors. The bankruptcy court found, however, that there was a material issue of fact whether some of the Nugents' other claims (e.g., a claim for back wages on the alleged consultation agreement with ABS) were related to the purchase or sale of securities. On these claims, the bankruptcy court denied summary judgment.
On September 24, 1998, the district court, acting in its capacity as a bankruptcy appellate court, reversed the decision of the bankruptcy court to subordinate the Nugents' breach of contract claims. In re Betacom of Phoenix, Inc. , 225 B.R. 703 (D. Ariz. 1998) (the "1998 Van Sickle Order"). The district court held that: 1) an actual purchase or sale of stock is required to trigger mandatory subordination underS 510(b); and 2) when the evidence was construed in the light most favorable to the Nugents, the Debtors had not met their burden of proof in showing that there was no material issue of fact as to whether the merger had closed. In a separate appeal, a different district court judge found the 1998 Van Sickle Order to be controlling and vacated the bankruptcy court's order granting summary judgment for the Debtors against Knight and Burton. The Debtors appeal the 1998 Van Sickle Order as well as the order reversing summary judgment against Knight and Burton. The Nugents and Knight cross appeal the bankruptcy court decision.2
This Court reviews the district court's decision on an appeal from a bankruptcy court de novo. See Preblich v. Battley, 181 F.3d 1048, 1051 (9th Cir. 1999). The bankruptcy court's grant of summary judgment is also reviewed de novo. See In re Bakersfield Westar Ambulance Inc., 123 F.3d 1243, 1245 (9th Cir. 1997). The bankruptcy court's findings of fact are reviewed for clear error. See In re Weisman , 5 F.3d 417, 419 (9th Cir. 1993).
Debtors argue that the district court's determination that the bankruptcy court erred in finding that the Merger Agreement had closed is a finding of fact subject only to review for clear
error. The Nugents contend that the district court made no finding of fact and accepted no evidence on the issue so its determination should be reviewed de novo. As the district court explained, this was not "a purely factual question." Accordingly, its determination should be reviewed de novo. See In re Chang, 163 F.3d 1138, 1140 (9th Cir. 1998) ().
The Nugents raise three arguments for why their claim should not be subordinated to the claims of the Debtors' unsecured creditors: 1) S 510(b) only applies to...
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