557 B.R. 788
Bankr. C.D. Cal.2016Background
- Rexford Properties, LLC filed a motion asking the bankruptcy court to declare that two creditors — the 1979 Ehrlich Investment Trust (the Trust) and Lurline Gardens Limited Housing Partnership (Lurline) — are not "insiders" for purposes of plan-vote counting under 11 U.S.C. § 1129(a)(10).
- The Trust filed an unsecured claim (~$9.74M) supported by a 2009 installment note (Trust Note) and an unrecorded deed of trust; supporting exhibits show loans to Rexford dating from 2000–2009.
- Lurline filed an unsecured claim (~$651k) supported by a 2009 note (Lurline Note) and unrecorded deed of trust; supporting exhibits show loans made in 2001 with little or no repayment.
- Corporate/ownership ties: Lisa Ehrlich is Rexford’s managing member (38%); Q‑Tip Trust (co‑trustees Lisa and Stephen Ehrlich) owns ~30.5% of Rexford; the Trust is a 1% Rexford interest holder with Lisa and Stephen as income beneficiaries; Q‑Tip Trust is general partner of Lurline (49%).
- After evidentiary hearing, the court found (i) the Trust is a non‑statutory insider of Rexford, and (ii) Lurline is a statutory insider of Rexford (or alternatively a non‑statutory insider). The debtor’s motion was denied.
Issues
| Issue | Rexford's Argument | USF&G's Argument | Held |
|---|---|---|---|
| Whether the Trust is a statutory insider | Insider status should be assessed at the time of voting (petition date), and the Trust was not a statutory insider then | The Trust was Rexford’s majority shareholder when the debt arose (1999) so it should be a statutory insider | Trust is not a statutory insider (status assessed as of petition date) |
| Whether the Trust is a non‑statutory insider | The Trust lacks control and is only a 1% holder; not an insider | The Trust is closely connected (family beneficiaries, shared personnel, historical control) and transactions were not arm’s length | Trust is a non‑statutory insider (close affinity + non‑arm’s‑length loans) |
| Whether Lurline is a statutory insider | No concession at hearing; argued it is not a statutory insider | Lurline is an insider via affiliation with Q‑Tip Trust and shared ownership/management ties | Lurline is a statutory insider as an insider of an affiliate (Q‑Tip Trust), alternatively a non‑statutory insider |
| Whether Lurline is a non‑statutory insider | Transactions not arm’s length and close relationships are insufficient to create insider status | (USF&G advocated insider status) | Alternatively, Lurline is a non‑statutory insider (affinity + non‑arm’s‑length loans) |
Key Cases Cited
- In re The Vill. at Lakeridge, LLC, 814 F.3d 993 (9th Cir. 2016) (two‑step test for non‑statutory insiders; insider status judged by closeness and whether transaction was arm’s length)
- Stern v. Marshall, 564 U.S. 462 (U.S. 2011) (constitutional limits on bankruptcy adjudicative authority cited for jurisdictional discussion)
- In re Longview Aluminum, LLC, 657 F.3d 507 (7th Cir. 2011) (treats LLCs as within §101(9) definition of corporation for insider analysis)