ANZ Securities Inc. v. Giddens, 808 F.3d 942

Lehman Brothers Holdings issued unsecured notes; Lehman Brothers Inc. (LBI), its affiliate and underwriter, entered SIPA liquidation while the parent entered Chapter 11.
Junior Underwriters (co-underwriters to LBI) defended and settled securities fraud suits by noteholders and sought contribution/reimbursement claims against LBI under their Master Agreement and § 11(f) of the Securities Act.
The SIPA Trustee objected, arguing those contribution claims must be subordinated under 11 U.S.C. § 510(b) because they arise from securities of an affiliate.
Bankruptcy Court (Peck, J.) subordinated the Junior Underwriters’ claims; District Court (Scheindlin, J.) affirmed but framed the issue by matching the affiliate security type to a corresponding tier in the debtor’s waterfall (here, general unsecured).
The Second Circuit affirmed, adopting the district court’s approach: claims arising from affiliate securities are subordinated to claims in the debtor’s estate that are of the same type as the affiliate’s securities (e.g., unsecured debt), preserving bankruptcy courts’ flexibility to classify tiers.

Issue	Plaintiffs' Argument	Defendant's Argument	Held
Whether § 510(b) subordinates contribution/reimbursement claims in the debtor’s (LBI’s) SIPA liquidation that arise from securities issued by the debtor’s affiliate	Junior Underwriters: § 510(b) applies only if the affiliate security itself gives rise to a claim or interest in the debtor’s own estate; because LBI did not have the parent’s securities in its waterfall, § 510(b) cannot subordinate their claims	SIPA Trustee / Courts: § 510(b) includes affiliate securities and “the claim or interest represented by such security” refers to the same type of claim or interest as the underlying security (e.g., unsecured debt), so contribution claims are subordinated to claims of that type in the debtor’s estate	The Second Circuit affirmed: § 510(b) applies to affiliate securities and subordinations are to the tier in the debtor’s waterfall that corresponds to the type of the affiliate’s security (here, general unsecured claims)

In re Med Diversified, Inc., 461 F.3d 251 (2d Cir. 2006) (endorses broad reading of § 510(b))
In re Telegroup, Inc., 281 F.3d 133 (3d Cir. 2002) (interprets § 510(b) coverage of securities claims)
In re Betacom of Phoenix, Inc., 240 F.3d 823 (9th Cir. 2001) (discusses § 510(b) subordination principles)
Bustamante v. Napolitano, 582 F.3d 403 (2d Cir. 2009) (statutory interpretation starts with plain text)
In re AppliedTheory Corp., 493 F.3d 82 (2d Cir. 2007) (standard of appellate review for bankruptcy decisions)
In re Enron Corp., 341 B.R. 141 (Bankr. S.D.N.Y. 2006) (policy rationales and application of § 510(b) in large corporate bankruptcies)