Court Subordinates Claim for Contribution


The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

In re Feneis, 2010 WL 2620126 (Bankr. D. Minn. 6/24/10) (O’Brien, J.).

Case Summary:

Court Subordinates Claim for Contribution

The debtor-in-possession sought subordination under 11 U.S.C. § 509(c) of a claim filed by Murray Mack. Section 509(c) provides: “The court shall subordinate to the claim of a creditor and for the benefit of such creditor an allowed claim, by way of subrogation under this section, or for reimbursement or contribution of an entity that is liable with the debtor on, or that has secured, such creditor’s claim, until such creditor’s claim is paid in full, either through payments under this title or otherwise.”

Feneis and Mack jointly and severally guaranteed a Northern National Bank Debt to COG Partners, LLC, for approximately $1.8 million. Mack and Feneis are both members of COG Partners, LLC, and Feneis holds a 40% membership. Mack entered into a settlement with the Bank, and paid $350,000 for the release of his guarantees. Mack’s claim of $140,000 is based on 40% of the $350,000 he paid to the Bank.

The court overruled its previous dicta in In re Friendship Child Development Center, Inc., 164 B.R. 625 (Bankr. D. Minn. 1992), where it had said that a claim allowed under § 502 would not be subordinated under § 509(c). The court held that regardless of whether the claim was allowed under § 502 or 509, it must be subordinated to the Northern National Bank debt until the Bank’s claim is paid in full.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

Leave a Public Comment