Term: 2017
Docket: 15-1509
U.s. Bank National Association v. Village At Lakeridge
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15-1509 U.S. Bank N.A. V. Village at Lakeridge DECISION BELOW: 814 F.3d 993 GRANTED LIMITED TO QUESTION 2 PRESENTED BY THE PETITION. CERT. GRANTED 3/27/2017 QUESTION PRESENTED: Bankruptcy courts can only confirm a chapter 11 plan of reorganization over a secured creditor's objection if at least one impaired, consenting class of creditors votes to accept the plan (excluding the votes of insiders). 11 U.S.C. § 1129(a)(10). This is known as "cramdown." This case presents the following questions: 1. Whether an assignee of an insider claim acquires the original claimant's insider status, such that his or her vote to confirm a cramdown plan cannot be counted under 11 U.S.C.§ 1129(a) (10); 2.Whether the appropriate standard of review for determining non-statutory insider status is the de novo standard of review applied by the Third, Seventh and Tenth Circuit Courts of Appeal, or the clearly erroneous standard of review adopted for the first time by the Ninth Circuit Court of Appeal in this action; and 3. Whether the proper test for determining non-statutory insider status requires bankruptcy courts to conduct an "arm's length" analysis as applied by the Third, Seventh and Tenth Circuit Courts of Appeal, or to apply a "functional equivalent" test which looks to factors comparable to those enumerated for statutory insider classifications as erroneously applied for the first time by the Ninth Circuit Court of Appeal in this action. LOWER COURT CASE NUMBER: 13-60038, 13-60039
The U.S. Supreme Court case, U.S. Bank National Association v. Village at Lakeridge, 2017 revolved around bankruptcy proceedings and the definition of an "insider" in such cases. The Village at Lakeridge was a commercial real estate development that filed for Chapter 11 bankruptcy protection and had only two creditors: MBP Equity Partners (an insider) and U.S. Bank (a non-insider). To confirm its reorganization plan without the consent of both creditors, it needed to show that one class of impaired claims held by non-insiders voted to accept the plan voluntarily after excluding any insiders' votes. MBP sold its claim to Robert Rabkin who had a romantic relationship with Kathleen Bartlett, an officer at MBP's parent company who also served on Lakeridge’s board - leading US Bank to argue he should be considered an 'insider'. The Ninth Circuit court ruled Rabkin wasn't an insider because his transaction was conducted as if they were strangers. The Supreme Court upheld this decision in March 2018 stating that appellate courts should review for clear error – not de novo – a bankruptcy court’s determination whether someone qualifies as a “non-statutory” insider.
In the dissenting opinion for U.S. Bank National Association v. Village at Lakeridge, Justice Sonia Sotomayor argued that the Ninth Circuit's test to determine whether a creditor is an "insider" under bankruptcy law was too narrow and failed to consider all relevant factors. She contended that this approach could allow parties with close relationships to debtors, who would otherwise be considered insiders, to evade insider status simply by conducting their transactions at arm’s length. This could potentially undermine the purpose of bankruptcy law in ensuring fair treatment of creditors and preventing favoritism towards certain creditors over others.
