Oklahoma Department of Securities Ex Rel. Faught v. Seabrooke Investments, LLC, 403 P.3d 6

Wayne Doyle invested with Tom Seabrooke in Bricktown Capital, LLC (owner of the Bricktown Hotel); Doyle advanced funds, personally guaranteed a bank loan, and received a $228,894 distribution funded by partial insurance proceeds for storm damage.
Doyle caused Bricktown Capital to execute an April 2014 promissory note and mortgage in his favor reflecting roughly $3.29 million of aggregated payments and expenditures; the trial court later reclassified that asserted debt as capital contributions.
The Oklahoma Department of Securities (DOS) brought a receivership under the Oklahoma Uniform Securities Act; a receiver liquidated assets, including sale proceeds from the Bricktown Hotel, producing limited funds to pay claims.
Claims totaled over $15 million; available assets were about $1.736 million. After hearings the trial court reduced Doyle’s claim, reclassified it as a capital contribution, and then applied equitable subordination to subordinate Doyle’s entire claim beneath other creditors and capital contributors.
Doyle appealed, arguing (1) the record does not support designation as an insider or inequitable conduct sufficient to subordinate his claim, (2) some expenditures predated any insider status and should not be subordinated, and (3) he was treated inequitably compared to similarly situated capital contributors.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Can equitable subordination be applied in an OUSA receivership?	DOS: Equity powers permit equitable subordination as a remedy in receivership under OUSA.	Doyle: Doctrine derives from bankruptcy and should not apply here.	Court: Yes; equity jurisdiction under OUSA permits equitable subordination as a remedial tool.
Was Doyle an "insider" subject to heightened scrutiny?	DOS/Receiver: Doyle had a close, controlling relationship with Bricktown Capital and treated expenditures as part of the company.	Doyle: He was not always an insider; some payments predated control and served other purposes.	Court: Doyle was an insider; the finding is supported by the evidence.
Did Doyle engage in inequitable conduct causing harm or unfair advantage?	DOS/Receiver: Doyle diverted insurance proceeds, sought preferential security, and otherwise acted inequitably, harming other investors.	Doyle: Challenges specific fact findings and scope of misconduct.	Court: Evidence supports inequitable conduct and resulting harm/unfair advantage; subordination appropriate.
Was subordinating Doyle’s entire claim disproportionate or disparate treatment?	DOS/Receiver: Subordination follows from Doyle’s insider misconduct and is remedial, not punitive.	Doyle: He should share pro rata with other capital contributors; full subordination is excessive.	Court: Subordination of Doyle’s entire claim is justified and not disparate treatment given his conduct.

Morris v. Pierce, 110 P.2d 294 (Okla. 1940) (equitable receivership proceedings reviewed for clear weight of evidence)
Hitt v. Hitt, 258 P.2d 599 (Okla. 1953) (trial court determines witness credibility and weight of testimony in equity cases)
State ex rel. Day v. Southwest Mineral Energy, Inc., 617 P.2d 1334 (Okla. 1980) (district courts have equity power in securities actions to fashion remedies including disgorgement)
Pepper v. Litton, 308 U.S. 295 (U.S. 1939) (sets out equitable subordination principles in bankruptcy as exercise of equity powers)
In re Autostyle Plastics, Inc., 269 F.3d 726 (6th Cir. 2001) (three-part equitable subordination test and heightened scrutiny for insiders)
In re Hedged-Investments Associates, Inc., 380 F.3d 1292 (10th Cir. 2004) (discusses reclassification and standards for subordinating insider claims)
In re Mobile Steel Co., 563 F.2d 692 (5th Cir. 1977) (equitable subordination should be limited to offset the harm caused and is not intended as a penalty)