U.S. Bank N.A. Ex Rel. CWCapital Asset Management LLC v. Village at Lakeridge, LLC (In Re Village at Lakeridge, LLC)
814 F.3d 993
9th Cir.2016Background
- Debtor Village at Lakeridge, LLC (Lakeridge) filed Chapter 11; sole member MBP Equity Partners 1, LLC (MBP). MBP board member Kathie Bartlett had a close personal/business relationship with Dr. Robert Rabkin.
- MBP held an unsecured claim (~$2.76M) and sold that claim to Rabkin for $5,000; U.S. Bank held a fully secured ~$10M claim against Lakeridge.
- Lakeridge’s proposed plan required acceptance by an impaired class; U.S. Bank sought to disallow/designate Rabkin’s claim for voting on grounds he was an insider (statutory and/or non‑statutory) and that the sale was in bad faith.
- Bankruptcy Court found Rabkin was not a non‑statutory insider and did not buy in bad faith but held Rabkin was a statutory insider as a matter of law because he acquired the claim from a statutory insider, and disallowed his vote.
- The BAP reversed that statutory‑insider holding, affirmed the non‑insider factual findings, and allowed Rabkin to vote; Ninth Circuit affirms the BAP: insider status does not automatically transfer with assignment and Rabkin is not a non‑statutory insider.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether acquiring a claim from a statutory insider makes the assignee a statutory insider per se | U.S. Bank: assignment transfers "insider" status to assignee; otherwise insiders could evade §1129(a)(10) limits | Rabkin/Lakeridge: insider status pertains to the person, not the claim; must be determined case‑by‑case | No; insider status does not automatically transfer with a claim; court must determine claimant’s status individually (de novo review of law) |
| Whether Rabkin is a non‑statutory insider | U.S. Bank: close relationship with Bartlett and circumstances of sale show less‑than‑arm’s‑length transaction making Rabkin an insider | Rabkin: purchase was an at‑arm’s‑length speculative investment; lacked control or access to inside information | Rabkin is not a non‑statutory insider; factual finding by bankruptcy court was not clearly erroneous (deferential review) |
| Whether assignment was made in bad faith (affecting §1126(e) designation) | U.S. Bank: sale was intended to create an eligible insider vote and thus lacked good faith | Rabkin: bona fide purchase; no evidence of ulterior motive beyond profit | Bankruptcy court found no bad faith; BAP affirmed on that point (not addressed in detail in majority opinion) |
| Proper standard of review for defining non‑statutory insider status | U.S. Bank: contended legal standard should preclude deference and treat as mixed question | Rabkin: statutory definition legal; whether facts meet it is factual (clear error) | Definition of non‑statutory insider is legal (de novo); whether facts meet it is factual (clear error). Court applied those standards |
Key Cases Cited
- Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088 (9th Cir. 2009) (appellate review of bankruptcy decisions and standards)
- Miller Ave. Prof'l & Promotional Servs., Inc. v. Brady (In re Enter. Acquisition Partners), 319 B.R. 626 (9th Cir. BAP 2004) (insider status inquiry and distinction between statutory and non‑statutory insiders)
- Stahl v. Simon (In re Adamson Apparel), 785 F.3d 1285 (9th Cir. 2015) (standard of review for legal questions in bankruptcy appeals)
- Schubert v. Lucent Techs. Inc. (In re Winstar Commc'ns, Inc.), 554 F.3d 382 (3d Cir. 2009) (recognizing non‑statutory insiders and functional equivalence to statutory list)
- Anstine v. Carl Zeiss Meditec AG (In re U.S. Med., Inc.), 531 F.3d 1272 (10th Cir. 2008) (two‑part test for non‑statutory insider: relationship comparable to §101(31) and less‑than‑arm’s‑length transaction)
- United States v. U.S. Gypsum Co., 333 U.S. 364 (U.S. 1948) (standard for clear‑error review)