US Bank v. The Village at Lakeridge, LLC, No. 13-60038 (9th Cir. 2016)Annotate this Case
Lakeridge has one member, MBP. MBP is managed by a board of five members, one of whom is Kathie Bartlett. Bartlett shares a close business and personal relationship with Dr. Robert Rabkin. Lakeridge filed for bankruptcy and US Bank held a fully secured claim worth about $10 million and MBP held an unsecured claim worth $2.76 million. After MBP's board decided to sell its unsecured claim, Rabkin purchased the claim for $5000. US Bank subsequently moved to designate Rabkin's claim and disallow it for plan voting purposes. The bankruptcy court held Rabkin was not a non-statutory insider and that Rabkin did not purchase MBP's claim in bad faith. However, the bankruptcy court designated Rabkin’s claim and disallowed it for plan voting, because it determined Rabkin had become a statutory insider by acquiring a claim from MBP. Lakeridge and Rabkin both appealed, and US Bank cross-appealed. The BAP reversed the finding that Rabkin had become a statutory insider as a matter of law by acquiring MBP’s claim and affirmed the findings that Rabkin was not a non-statutory insider and that the claim assignment was not made in bad faith. The BAP held that insider status cannot be assigned and must be determined for each individual “on a case-by-case basis, after the consideration of various factors.” Finally, the BAP held Rabkin could vote to accept the Lakeridge plan under 11 U.S.C. 1129(a)(10), because he was an impaired creditor who was not an insider. The court affirmed the BAP's decision.
Court Description: Bankruptcy. The panel affirmed the Bankruptcy Appellate Panel’s decision affirming in part, reversing in part, and vacating in part the bankruptcy court’s order regarding confirmation of a Chapter 11 plan of reorganization. Before a bankruptcy court may confirm a Chapter 11 plan, it must determine if any of the persons voting to accept the plan are insiders. The panel held that a creditor was not a statutory insider because he did not fall within one of the categories listed in 11 U.S.C. § 101(31). The panel held that the creditor did not become a statutory insider simply by receiving a claim from a statutory insider. In addition, the creditor was not a non-statutory insider because he did not have a close relationship with the debtor and negotiate the relevant transaction at less than arm’s length. 4 IN RE THE VILLAGE AT LAKERIDGE The panel held that the Bankruptcy Appellate Panel properly reversed the bankruptcy court’s holding as to the creditor’s statutory insider status and affirmed the bankruptcy court’s holding as to his non-statutory insider status. Because the creditor was neither a statutory nor a non-statutory insider, the Bankruptcy Appellate Panel properly reversed the portion of the bankruptcy court’s order that excluded the creditor’s vote for plan confirmation purposes. Concurring in part and dissenting in part, Judge Clifton agreed with the majority’s legal conclusion that a person does not necessarily become a statutory insider solely by acquiring a claim from a statutory insider. Judge Clifton dissented as to the holding that the creditor was not a non-statutory insider.