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 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE THE VILLAGE AT LAKERIDGE, No. 13-60038
LLC, FKA Magnolia Village, LLC,
Debtor, BAP No.
12-1456
U.S. BANK N.A., Trustee, et al., by
and through CWCapital Asset
Management LLC, solely in its
capacity as Special Servicer,
Appellant,
v.
THE VILLAGE AT LAKERIDGE, LLC,
Appellee,
ROBERT ALAN RABKIN,
Real Party in Interest.
2 IN RE THE VILLAGE AT LAKERIDGE
IN RE THE VILLAGE AT LAKERIDGE, No. 13-60039
LLC, FKA Magnolia Village, LLC,
Debtor, BAP No.
12-1474
U.S. BANK N.A., Trustee, et al., by
and through CWCapital Asset OPINION
Management LLC, solely in its
capacity as Special Servicer,
Appellant,
v.
THE VILLAGE AT LAKERIDGE, LLC,
Appellee,
ROBERT ALAN RABKIN,
Real Party in Interest.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Kirscher, Pappas, and Taylor, Bankruptcy Judges,
Presiding
Argued and Submitted
October 22, 2015—San Francisco, California
Filed February 8, 2016
IN RE THE VILLAGE AT LAKERIDGE 3
Before: Richard R. Clifton and N. Randy Smith, Circuit
Judges, and Robert S. Lasnik,* Senior District Judge.
Opinion by Judge N.R. Smith;
Partial Concurrence and Partial Dissent by Judge Clifton
SUMMARY**
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.
*
The Honorable Robert S. Lasnik, Senior District Judge for the U.S.
District Court for the Western District of Washington, sitting by
designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
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.
COUNSEL
Gregory A. Cross, Keith C. Owens (argued), Jennifer L.
Nassiri (argued), Venable LLP, Los Angeles, California, for
Appellant.
Alan R. Smith (argued), Holly E. Estes, Law Offices of Alan
R. Smith, Reno, Nevada, for Debtor/Appellee.
IN RE THE VILLAGE AT LAKERIDGE 5
OPINION
N.R. SMITH, Circuit Judge:
Before a bankruptcy court may confirm a reorganization
plan in a Chapter 11 bankruptcy, it must determine if any of
the persons voting to accept the plan are insiders.1 Insiders are
either statutory or non-statutory. To be a “statutory insider,”
a creditor must fall within one of the categories listed in
11 U.S.C. § 101(31). A creditor does not become an insider
simply by receiving a claim from a statutory insider. To be a
non-statutory insider, the creditor must have a close
relationship with the debtor and negotiate the relevant
transaction at less than arm’s length. Thus, Dr. Robert Rabkin
does not qualify as a statutory or non-statutory insider.2
I. Factual Proceedings
A. The Parties
The debtor, Village at Lakeridge, LLC (“Lakeridge”), has
only one member: MBP Equity Partners 1, LLC (“MBP”).
MBP is managed by a board of five members, one of whom
1
11 U.S.C. § 1129(a)(10) (“The court shall confirm a plan only if all of
the following requirements are met: . . . If a class of claims is impaired
under the plan, at least one class of claims that is impaired under the plan
has accepted the plan, determined without including any acceptance of the
plan by any insider.”).
2
In this opinion, we address only Rabkin’s statutory and non-statutory
insider status. We resolve the remaining claims in a memorandum
disposition filed concurrently with this opinion.
6 IN RE THE VILLAGE AT LAKERIDGE
is Kathie Bartlett.3 Bartlett shares a close business and
personal relationship with Rabkin, which is unrelated to
Bartlett’s position with MBP.
U.S. Bank National Association (“U.S. Bank”) is
successor trustee to Greenwich Financial Products, Inc., the
company through which Lakeridge financed a property
purchase. At the time Lakeridge filed for bankruptcy, U.S.
Bank was one of two creditors holding a claim on
Lakeridge’s assets. U.S. Bank held a fully secured claim
worth about $10 million, and MBP held an unsecured claim
worth $2.76 million.
B. Bankruptcy Court Proceedings
Lakeridge filed for Chapter 11 relief on June 16, 2011. On
September 14, Lakeridge filed a Disclosure Statement and an
initial Plan of Reorganization. Shortly thereafter, MBP’s
board decided to sell MBP’s unsecured claim.4 Bartlett, on
behalf of MBP’s board, approached Rabkin with an offer to
sell the claim. On October 27, Rabkin purchased the claim for
$5,000. In its Disclosure Statement, Lakeridge classified
Rabkin’s claim as a “Class 3 general unsecured claim.”
On June 7, 2012, U.S. Bank deposed Rabkin, questioning
him about his relationship with Lakeridge, MBP, and Bartlett.
3
Although Bartlett signed Lakeridge’s bankruptcy petition and all
related documents on behalf of Lakeridge, she testified that she did not
have authority to make decisions for MBP—or Lakeridge—on her own.
4
Bartlett testified that MBP’s board decided to sell its claim for two
reasons: (1) the claim was useless to MBP because it could not vote the
claim in favor of its reorganization plan; and (2) the board believed there
“may be a tax advantage in selling [the] claim.”
IN RE THE VILLAGE AT LAKERIDGE 7
In his testimony, Rabkin indicated he had little knowledge of,
and no relationship with, Lakeridge or MBP before he
acquired MBP’s claim. However, Rabkin testified that he had
a close relationship with Bartlett, that he saw her regularly,
including the day of the deposition, and that he had attended
a meeting with his counsel and Lakeridge’s counsel one hour
before the deposition. Rabkin testified that he purchased
MBP’s unsecured claim as a business investment, that he had
not known how much his claim was worth before the
deposition, and that he knew the claim was a risky
investment. Rabkin further testified that, prior to the
deposition, he had not known his distribution under the
proposed reorganization plan was $30,000. Rabkin claimed
to have no interest in Lakeridge other than receiving a return
on his investment.
U.S. Bank, through counsel, offered to purchase Rabkin’s
claim for $50,000 at the deposition. Rabkin said he would
consider the offer. U.S. Bank, in an attempt to compel an
immediate answer, increased its offer to $60,000. Rabkin
again agreed to consider the offer, refusing to provide an
answer on the spot. After Rabkin consulted with counsel, he
did not respond to the offer. The offer lapsed. At a hearing on
August 29, 2012, Rabkin stated he had felt pressured to
accept U.S. Bank’s cash offer while he was under oath,
without having time to review it first.5
5
The district court judge explained that he “underst[ood] the doctor or
many people would have been put off by [U.S. Bank’s approach to
acquiring Rabkin’s claim] and [he didn’t] think it[ was] at all surprising
that [Rabkin] would reject it and not really be interested in dealing with
the people who made the offer to him thereafter.”
8 IN RE THE VILLAGE AT LAKERIDGE
On July 1, 2012, U.S. Bank moved to designate Rabkin’s
claim and disallow it for plan voting purposes (“Designation
Motion”). U.S. Bank contended Rabkin was both a statutory
and non-statutory insider, and that the assignment to Rabkin
was made in bad faith. The bankruptcy court held an
evidentiary hearing on the Designation Motion on August 1,
2012. In its subsequent order (“Designation Order”), the court
held Rabkin was not a non-statutory insider, because:
(a) Dr. Rabkin does not exercise control over
[Lakeridge;] (b) Dr. Rabkin does not
cohabitate with Ms. Bartlett, and does not pay
[her] bills or living expenses; (c) Dr. Rabkin
has never purchased expensive gifts for Ms.
Bartlett; (d) Ms. Bartlett does not exercise
control over Dr. Rabkin[;] (e) Ms. Bartlett
does not pay [Dr.] Rabkin’s bills or living
expenses; and (f) Ms. Bartlett has never
purchased expensive gifts for Dr. Rabkin.
The court also held that Rabkin did not purchase MBP’s
claim in bad faith. However, the 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. In other words, the bankruptcy court determined
that, when a statutory insider sells or assigns a claim to a non-
insider, the non-insider becomes a statutory insider as a
matter of law.
Lakeridge and Rabkin both timely appealed the
Designation Order, challenging the court’s finding that
Rabkin was a statutory insider for purposes of plan voting.
U.S. Bank cross-appealed, challenging the findings that
IN RE THE VILLAGE AT LAKERIDGE 9
Rabkin was not a non-statutory insider and had not purchased
MBP’s claim in bad faith.
C. Bankruptcy Appellate Panel
The United States Bankruptcy Appellate Panel for the
Ninth Circuit (“BAP”) affirmed in part, reversed in part, and
vacated in part the Designation Order. 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.6 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. U.S. Bank appealed. We have
jurisdiction under 28 U.S.C. § 158(d),7 and we affirm.
6
The question of bad faith is addressed in the memorandum disposition
filed concurrently with this opinion and will not be addressed here.
7
Under 28 U.S.C. § 158(d), we “have jurisdiction of appeals from all
final decisions, judgments, orders, and decrees” of the BAP. A decision
is considered “final and . . . appealable where it 1) resolves and seriously
affects substantive rights and 2) finally determines the discrete issue to
which it is addressed.” Dye v. Brown (In re AFI Holding, Inc.), 530 F.3d
832, 836 (9th Cir. 2008) (quoting Schulman v. California (In re Lazar),
237 F.3d 967, 985 (9th Cir. 2001)). When the BAP “affirms or reverses a
bankruptcy court’s final order,” the BAP’s order is also final. Vylene
Enters., Inc. v. Naugles, Inc. (In re Vylene Enters., Inc.), 968 F.2d 887,
895 (9th Cir. 1992). However, if the BAP “remands for factual
determinations on a central issue, its order is not final and we lack
jurisdiction to review the order.” Id.
10 IN RE THE VILLAGE AT LAKERIDGE
II. Standard of Review
We review the bankruptcy court’s decision independent
of the BAP’s decision. See Boyajian v. New Falls Corp. (In
re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009). Whether
an insider’s status transfers when he sells or assigns the claim
to a third party presents a question of law. Miller Ave. Prof’l
& Promotional Servs., Inc. v. Brady (In re Enter. Acquisition
Partners), 319 B.R. 626, 630 (B.A.P. 9th Cir. 2004).
Establishing the definition of non-statutory insider status is
likewise a purely legal inquiry. We review questions of law
de novo. Stahl v. Simon (In re Adamson Apparel), 785 F.3d
1285, 1289 (9th Cir. 2015).
Whether a specific person qualifies as a non-statutory
insider is a question of fact. Friedman v. Sheila Plotsky
The bankruptcy court issued two orders: (1) the Designation Order
(finding that Rabkin was not a non-statutory insider and had not acted in
bad faith, but nevertheless designating his claim and disallowing it for
plan voting purposes because he had acquired the claim from a statutory
insider) and (2) the Discovery Order (denying U.S. Bank’s Discovery
Motions). Both bankruptcy court orders “finally determine[d]” Rabkin’s
right to vote on Lakeridge’s reorganization plan and were therefore final
orders. See In re AFI Holding, Inc., 530 F.3d at 836.
However, the BAP’s decision as issued was not final, because,
although it affirmed and reversed portions of the bankruptcy court orders,
it also remanded for discovery to allow factual determinations central to
Rabkin’s non-statutory insider status and ability to vote on Lakeridge’s
reorganization plan.
To make the BAP’s decision final, U.S. Bank withdrew its arguments
concerning the Discovery Order at oral argument, removing the need for
remand. Because U.S. Bank withdrew its appeal concerning the Discovery
Order, we will not discuss it in this opinion. Nor may U.S. Bank seek to
enforce the BAP’s holding on that issue at the bankruptcy court level.
IN RE THE VILLAGE AT LAKERIDGE 11
Brokers, Inc. (In re Friedman), 126 B.R. 63, 70 (B.A.P. 9th
Cir. 1991), overruled on other grounds by Zachary v. Cal.
Bank & Tr., No. 13-16402, 2016 U.S. App. LEXIS 1368 (9th
Cir. Jan. 28, 2016). We review factual findings for clear error.
In re Adamson Apparel, 785 F.3d at 1289.
III. Discussion
“An insider is one who has a sufficiently close
relationship with the debtor that his conduct is made subject
to closer scrutiny than those dealing at arms [sic] length with
the debtor.” S. Rep. No. 95-989, at 25 (1978), as reprinted in
1978 U.S.C.C.A.N. 5787, 5810; H.R. Rep. No. 95-595, at 312
(1977), as reprinted in 1978 U.S.C.C.A.N. 5963, 6269. We
recognize two types of insiders: statutory insiders and non-
statutory insiders. Statutory insiders, also known as “per se
insiders,” are persons explicitly described in 11 U.S.C.
§ 101(31), such as “person[s] in control of the debtor.”
§ 101(31). As a matter of law, a statutory insider has a
sufficiently close relationship with a debtor to warrant special
treatment. In re Enter. Acquisition Partners, 319 B.R. at 631.
No one suggests Rabkin qualifies as a statutory insider in his
own right.
A non-statutory insider is a person who is not explicitly
listed in § 101(31), but who has a sufficiently close
relationship with the debtor to fall within the definition. See
Schubert v. Lucent Techs. Inc. (In re Winstar Commc’ns,
Inc.), 554 F.3d 382, 395 (3d Cir. 2009) (“[I]n light of
Congress’s use of the term ‘includes’ in § 101(31), courts
have identified a category of creditors, sometimes called
‘non-statutory insiders,’ who fall within the definition but
outside of any of the enumerated categories.”); see also
§ 101(31) (stating that “[t]he term ‘insider’ includes” the
12 IN RE THE VILLAGE AT LAKERIDGE
listed categories (emphasis added)); § 102(3) (explaining that
“includes” is “not limiting”).
A. Statutory Insider Status
U.S. Bank asserts that Rabkin became a statutory insider
when he acquired a claim from MBP. We disagree. A person
does not become a statutory insider solely by acquiring a
claim from a statutory insider for two reasons. First,
bankruptcy law distinguishes between the status of a claim
and that of a claimant. Insider status pertains only to the
claimant; it is not a property of a claim. Because insider
status is not a property of a claim, general assignment
law—in which an assignee takes a claim subject to any
benefits and defects of the claim—does not apply. Second, a
person’s insider status is a question of fact that must be
determined after the claim transfer occurs. See Concord
Square Apartments of Wood Cty., Ltd. v. Ottawa Props., Inc.
(In re Concord Square Apartments), 174 B.R. 71, 75 (Bankr.
S.D. Ohio 1994). This determination does not ignore the
public policy behind protecting secured creditors’ interests in
bankruptcy cases, as explained below.
The term “insider,” as used in the bankruptcy code, is a
noun, referring to a person (as defined at § 101(41)). See, e.g.,
§ 101(31) (defining “insider” as a person with a particular
relationship with the debtor); see also § 1129(a)(10)
(explaining that a court can cram down a reorganization plan
when at least one class of impaired claims has voted to accept
the plan, not including “any acceptance of the plan by an
IN RE THE VILLAGE AT LAKERIDGE 13
insider”). The term “insider” is not, as U.S. Bank argues, an
adjective used to describe the property of a claim.8
Whether a creditor is an insider is a factual inquiry that
must be conducted on a case-by-case basis. See, e.g., In re
Friedman, 126 B.R. at 67, 70–71 (describing in detail the
alleged insiders’ relationships with the debtor); Miller v.
Schuman (In re Schuman), 81 B.R. 583, 586–87 (B.A.P. 9th
Cir. 1987) (per curiam) (analyzing facts to determine whether
the debtor and alleged insider had a sufficiently close
relationship to warrant finding insider status). Courts may not
bypass this intensive factual analysis by finding that a third
party became an insider as a matter of law when he acquired
a claim from an insider. If so, a third-party assignee could be
foreclosed from voting a claim acquired from an insider, even
if the entire transaction was conducted at arm’s length. The
bankruptcy code did not intend this result.
Further, if a third party could become an insider as a
matter of law by acquiring a claim from an insider,
bankruptcy law would contain a procedural inconsistency
wherein a claim would retain its insider status when assigned
from an insider to a non-insider, but would drop its non-
insider status when assigned from a non-insider to an insider.
See In re Applegate Prop., Ltd., 133 B.R. 827, 833 (Bankr.
W.D. Tex. 1991) (holding that an insider of a Chapter 11
debtor may never vote a claim toward plan confirmation,
even if the insider acquired the claim from a non-insider); In
re Holly Knoll P’ship, 167 B.R. 381, 385 (Bankr. E.D. Pa.
1994) (same).
8
If U.S. Bank’s argument were true, we would expect to find references
to “the holder of an insider claim” rather than “an insider” in the
bankruptcy code.
14 IN RE THE VILLAGE AT LAKERIDGE
Section 1129 of Title 11 contains a number of safeguards
for secured creditors who could be negatively impacted by a
debtor’s reorganization plan. A court may confirm a plan only
if, among other requirements: (1) the plan and plan proponent
comply with the bankruptcy code; (2) the plan is proposed in
good faith; (3) the plan proponent has disclosed the identity
of all insiders and potential insiders; (4) at least one class of
impaired claims has accepted the plan (and no insider can
vote); and (5) the plan “is fair and equitable, with respect to
each class of claims or interests that is impaired under, and
has not accepted, the plan.” § 1129. In addition, a court “may
designate any entity whose acceptance or rejection of [a] plan
was not in good faith, or was not solicited or procured in
good faith.” § 1126(e). Therefore, U.S. Bank overstates its
argument that, unless we reverse the BAP, debtors will begin
assigning their claims to third parties in return for votes in
favor of plan confirmation.9 We fail to see how establishing
a rule that insider status transfers as a matter of law would
9
For this assertion, U.S. Bank cites In re Heights Ban Corp., 89 B.R.
795 (Bankr. S.D. Iowa 1988). There, the court concluded insider status
must transfer with a claim upon assignment, otherwise “the operation of
section 1129(a) would be seriously undermined. Debtors unable to obtain
the acceptance of an impaired creditor simply could assign insider claims
to third parties, who in turn could vote to accept.” Id. at 799. Although the
language in that case supports U.S. Bank’s position, the facts do not. The
assignor in In re Heights Ban Corp. transferred more than his claim; he
and his co-shareholders also transferred their shareholder interests in the
debtor to the assignee. Id. The court concluded that the assignors’ and
assignee’s interests were “so interlocked . . . [as to be] indistinguishable
with respect to the debtor for purposes of section 1129(a)(10).” Id. Thus,
the assignee became an insider by becoming a shareholder of the debtor,
not simply by acquiring a claim from a statutory insider.
IN RE THE VILLAGE AT LAKERIDGE 15
better protect the creditors’ rights than the current factual
inquiry.10
In conducting a factual inquiry for insider status, courts
should begin with the statute. If the assignee fits within a
statutory insider classification on his own, the court’s review
ends; it need not examine the nature of the statutory insider’s
relationship to the debtor. See In re Enter. Acquisition
Partners, 319 B.R. at 631. Because Rabkin did not become a
statutory insider by way of assignment and was not a
statutory insider in his own capacity, we must determine
whether the bankruptcy court erred in finding that Rabkin
was not a non-statutory insider.
B. Non-Statutory Insider Status
Non-statutory insiders are the functional equivalent of
statutory insiders and, therefore, must fall within the ambit of
§ 101(31). See In re Winstar Commc’ns, Inc., 554 F.3d at
395. A creditor is not a non-statutory insider unless: (1) the
closeness of its relationship with the debtor is comparable to
that of the enumerated insider classifications in § 101(31),
and (2) the relevant transaction is negotiated at less than
10
U.S. Bank correctly points out that this court previously determined
insider status does transfer with a claim under the general law of
assignment. See Greer West Inv. Ltd. P’ship v. Transamerica Title Ins. (In
re Greer West Inv. Ltd. P’ship), No. 94-15670, 1996 WL 134293 (9th Cir.
Mar. 25, 1996) (unpublished). However, Ninth Circuit Rule 36-3 prohibits
parties from citing “[u]npublished dispositions . . . of this Court issued
before January 1, 2007 . . . to the courts of this circuit.” Thus, U.S. Bank
should not have relied upon, or cited, In re Greer West in its arguments,
and we are not bound by the decision.
16 IN RE THE VILLAGE AT LAKERIDGE
arm’s length.11 See Anstine v. Carl Zeiss Meditec AG (In re
U.S. Med., Inc.), 531 F.3d 1272, 1277 (10th Cir. 2008). A
court cannot assign non-statutory insider status to a creditor
simply because it finds the creditor and debtor share a close
relationship. See id. at 1277–78.
A court must conduct a fact-intensive analysis to
determine if a creditor and debtor shared a close relationship
and negotiated at less than arm’s length. Having—or being
subject to—some degree of control is one of many indications
that a creditor may be a non-statutory insider, but actual
control is not required to find non-statutory insider status.12
See id. at 1277 n.5. Likewise, access to the debtor’s inside
information may—but not shall—warrant a finding of non-
statutory insider status. See id. at 1277.
11
An “arm’s length transaction” is: “1. A transaction between two
unrelated and unaffiliated parties. 2. A transaction between two parties,
however closely related they may be, conducted as if the parties were
strangers, so that no conflict of interest arises.” Transaction, Black’s Law
Dictionary (10th ed. 2014). The dissent quotes both definitions, but
interprets them to mean that any affinity between two parties renders a
transaction less than arm’s length rather than returning to the definition in
§ 101(31) for guidance. See Dissent at 23.
12
As noted by the Tenth and Third Circuits, if actual control were
required for non-statutory insider status, all non-statutory insiders would
also be statutory insiders under 11 U.S.C. § 101(31). § 101(31)(A)(iv)
(defining “insider” as a “corporation of which the debtor is a director,
officer, or person in control” (emphasis added)); § 101(31)(B)(iii), (C)(v)
(defining “insider” as a “person in control of the debtor”); In re Winstar
Commc’ns, Inc., 554 F.3d at 396; In re U.S. Med., Inc., 531 F.3d at 1279.
Such construction of § 101(31) would render meaningless the language:
“the term ‘insider’ includes.”
IN RE THE VILLAGE AT LAKERIDGE 17
U.S. Bank asserts the bankruptcy court erred in holding
Rabkin was not a non-statutory insider. We review the
bankruptcy court’s factual finding for clear error.13 In re
Friedman, 126 B.R. at 70; Fed. R. Civ. P. 52(a)(6). “A
finding is ‘clearly erroneous’ when[,] although there is
evidence to support it, the reviewing court on the entire
evidence is left with the definite and firm conviction that a
mistake has been committed.” United States v. U.S. Gypsum
Co., 333 U.S. 364, 395 (1948). We apply this highly
deferential standard to findings of fact, because “[f]indings of
fact are made on the basis of evidentiary hearings and usually
involve credibility determinations.” Rand v. Rowland,
154 F.3d 952, 957 n.4 (9th Cir. 1998) (en banc); see also Fed.
R. Civ. P. 52(a)(6) (“[T]he reviewing court must give due
regard to the trial court’s opportunity to judge the witnesses’
credibility.”). Therefore, so long as the bankruptcy court’s
findings are “plausible in light of the record viewed in its
entirety,” we cannot reverse even if we “would have weighed
the evidence differently.” Anderson v. City of Bessemer,
470 U.S. 564, 574 (1985).
13
The dissent argues that “Rabkin’s status [is] a mixed question of law
and fact, subject to de novo review.” Dissent at 25. Stating that an issue
is a “mixed question” is simply the dissent’s backdoor to reassessing the
facts. As stated in Section II, we have two distinct issues in question, each
with a different standard of review. First, we reviewed de novo the
bankruptcy court’s definition of non-statutory insider status, which is a
purely legal question. Now, we must analyze whether the facts of this case
are such that Rabkin met that definition, which is a purely factual inquiry
and properly left to clear error review.
18 IN RE THE VILLAGE AT LAKERIDGE
The bankruptcy court’s finding that Rabkin does not
qualify as a non-statutory insider is not clearly erroneous.14
U.S. Bank presents no evidence that Rabkin had a
relationship with Lakeridge comparable to those listed in
§ 103(31). Rather, the evidence shows Rabkin had little
knowledge of Lakeridge—or its sole member MBP—prior to
acquiring MBP’s unsecured claim, much less access to inside
information. Rabkin does not control MBP or Lakeridge, nor
does Lakeridge or MBP have any control over Rabkin. U.S.
Bank has shown that Rabkin had a close personal and
business relationship with Bartlett, and that Bartlett
approached Rabkin, and only Rabkin, with an offer to sell
MBP’s claim. However, Bartlett does not control MBP or
Lakeridge. Rather, Bartlett was one of MBP’s five managing
members, all of whom discussed potential buyers and agreed
to offer the claim to Rabkin. Rabkin did not know, and had no
relationship with, the remaining four managing members of
MBP.
U.S. Bank has not shown that Rabkin’s relationship with
Bartlett—who is indisputably a statutory insider of MBP and
Lakeridge—is sufficiently close to compare with any
category listed in § 103(31). Rabkin had no control over
Bartlett, and Bartlett had no control over Rabkin. Rabkin and
Bartlett kept separate finances, lived separately, and
conducted business separately. The bankruptcy court properly
evaluated these factors to determine whether Rabkin’s
14
The dissent explains how it would have decided this case had it been
sitting as the bankruptcy court judge. However, it was not the bankruptcy
court judge. The dissent did not preside over the evidentiary hearing and
did not hear the evidence in person. This court cannot substitute its
judgment for that of the bankruptcy court “simply because it is convinced
that it would have decided the case differently.” Anderson, 470 U.S. at
573.
IN RE THE VILLAGE AT LAKERIDGE 19
relationship with Bartlett was close enough to make him an
insider who was conducting business at less than arm’s length
with MBP.15 Nothing in § 101(31) or case law indicates it
would be improper for a debtor to sell, or even give, a claim
to a friend if the friend is acting of his own volition and
neither party is engaged in bad faith. See In re Friedman, 126
B.R. at 70 (“The case law that has developed . . . indicates
that not every creditor-debtor relationship attended by a
degree of personal interaction between the parties rises to the
level of an insider relationship.”).
Both Rabkin and Bartlett testified that, although Rabkin
knew Lakeridge was in bankruptcy and that purchasing the
claim was a risky investment, when Rabkin purchased the
claim he did not know about Lakeridge’s plan of
reorganization or that his vote would be required to confirm
it. Although Rabkin did not conduct an extensive inquiry into
the claim’s value prior to purchasing it, Rabkin explained that
it was a small investment upon which Bartlett had indicated
he could make a profit and “due diligence would have been
very expensive.”16 Although Rabkin allowed U.S. Bank’s
15
The dissent asserts that the bankruptcy court applied the wrong legal
standard because it did not state the words “arm’s length transaction” in
its final order. Dissent at 25. The court’s failure to use the words “arm’s
length transaction” is irrelevant. The court’s entire explanation is a
description of why the transaction was conducted at arm’s length and,
hence, why Rabkin was not an insider. The court should not be discredited
for listing the specific facts that made the transaction arm’s length rather
than merely stating a conclusion.
16
The dissent argues that “the only logical explanation for Rabkin’s
actions” is that “[h]e did a favor for a friend.” Dissent at 23. However, the
bankruptcy court’s explanation that Rabkin made a speculative investment
at a relatively low cost and with the potential for a big payoff is equally
logical.
20 IN RE THE VILLAGE AT LAKERIDGE
offer to purchase the claim for $50,000 to lapse and
subsequently voted in favor of Lakeridge’s reorganization
plan, he did so on the understanding that Lakeridge would
amend the reorganization plan to increase his payout to an
amount comparable to that offered by U.S. Bank.
These facts do not leave us with a “definite and firm
conviction that a mistake has been committed.” See U.S.
Gypsum Co., 333 U.S. at 395. Rather, the bankruptcy court’s
finding that, on the record presented, Rabkin was not a non-
statutory insider is entirely plausible, and we cannot reverse
even if we may “have weighed the evidence differently.” See
Anderson, 470 U.S. at 574.
IV. Conclusion
The BAP properly reversed the bankruptcy court’s
holding as to Rabkin’s statutory insider status and affirmed
the bankruptcy court’s holding as to Rabkin’s non-statutory
insider status. Because Rabkin is neither a statutory nor non-
statutory insider, the BAP properly reversed the portion of the
bankruptcy court’s order that excluded Rabkin’s vote for plan
confirmation purposes. Therefore, the judgment of the BAP
is AFFIRMED.
CLIFTON, Circuit Judge, concurring in part and dissenting
in part:
I agree with the legal conclusion that a person does not
necessarily become a statutory insider solely by acquiring a
claim from a statutory insider, as discussed in section III.A of
the majority opinion. As long as the interest previously
IN RE THE VILLAGE AT LAKERIDGE 21
owned by a statutory insider was acquired by an independent
party, for bona fide reasons, uninfected with the unique
motivations of the insider, there is no reason that the insider
taint should always be unshakeable. The consideration of
whether the insider status should stick to the interest properly
depends on the particular circumstances and is appropriately
treated as something to be determined based on the facts of
the situation. But it is clear to me, based on the facts of this
case, that Robert Rabkin should be viewed as a non-statutory
insider, and the bankruptcy court should treat his claim as
such. I respectfully dissent as to Section III.B.
The majority opinion, at 15–16, defines a creditor as a
non-statutory insider when “(1) the closeness of its
relationship with the debtor is comparable to that of the
enumerated insider classifications in § 101(31), and (2) the
relevant transaction is negotiated at less than arm’s length.”
I agree.
The facts make it clear that this transaction was
negotiated at less than arm’s length. Rabkin paid $5,000 to
MBP (the sole member of the debtor, Lakeridge), for an
unsecured claim against Lakeridge nominally worth $2.76
million. MBP did not offer the interest to anyone else. The
purchase was not solicited by Rabkin. It was proposed to
Rabkin by Kathie Bartlett, a member of the MBP board.
There was no evidence of any negotiation over price —
Rabkin didn’t offer less, and MBP didn’t ask for more.
Rabkin knew little if anything about Lakeridge (or, for that
matter, MBP) before he bought the claim, nor did he conduct
any investigation to ascertain the current value of that
unsecured claim. Even after he purchased the claim, he did
not bother to find out more about what it might be worth.
Prior to his deposition Rabkin did not even know what the
22 IN RE THE VILLAGE AT LAKERIDGE
proposed plan of reorganization would pay him for the claim.
After he learned that the payment under the plan would be
$30,000, he was offered as much as $60,000 for his interest,
but he declined that offer.1
The motives of MBP and Bartlett are clear and not
denied. MBP is the sole member of Lakeridge. The
Lakeridge reorganization plan cannot be approved unless
there is a class of creditors willing to vote to approve it.
Without the sale of this claim to Rabkin and his anticipated
vote to approve the plan, that plan is dead in the water,
Lakeridge will be liquidated, and there will be no hope for
MBP to obtain anything for either the unsecured claim or,
more importantly, its ownership of Lakeridge. It may have
wanted to recover something from its unsecured claim, but it
did not look for the best possible price because its Lakeridge
ownership was far more important. MBP was primarily
motivated to place the unsecured claim in the hands of a
friendly creditor who could be counted on to vote in favor of
the reorganization plan, opening the door to the possibility of
obtaining approval of the proposed plan of reorganization.
Rabkin’s motivation is a bit murkier, but it is clear that
the transaction cannot be understood as a primarily economic
1
The offer was made in a crude manner at Rabkin’s deposition by the
attorney for U.S. Bank. The manner in which the offer was presented and
the demand for an immediate response weighs against putting much
weight on Rabkin’s rejection of the offer. Even after reflection and
consultation with his counsel, however, Rabkin declined the offer and did
nothing to pursue any opportunity to realize more than $30,000 for his
interest. That behavior does not support the view that his motivations
were purely economic or that his decision-making was that of a party
acting at arm’s length without regard for his personal relationship with an
insider.
IN RE THE VILLAGE AT LAKERIDGE 23
proposition on his part. There was no evidence that he had a
habit of making blind bets, say by helping out Nigerian
princes or buying the Brooklyn Bridge. There is an
alternative explanation that makes a lot more sense. As the
majority opinion acknowledges, at 6, Rabkin had a “close
business and personal relationship” with Bartlett, the person
who proposed this transaction to him. I don’t have to know
the precise details of the relationship between Rabkin and
Bartlett to conclude that it offers the only logical explanation
for Rabkin’s actions here. He did a favor for a friend, and if
it made some money for himself, so much the better.
Rabkin may not have been setting out to lose money or
planning simply to give $5,000 to Bartlett, but that is not the
standard. Black’s Law Dictionary (10th ed. 2014) defines
“arm’s length transaction” as follows:
1. A transaction between two unrelated and
unaffiliated parties. 2. A transaction between
two parties, however closely related they may
be, conducted as if the parties were strangers,
so that no conflict of interest arises.
Rabkin and Bartlett were not “unrelated and unaffiliated
parties.” The transaction was not conducted “as if the parties
were strangers.” It was not an arm’s length transaction. As
a result, under the definition recognized by the majority,
Rabkin was a “non-statutory insider” because “the relevant
transaction [was] negotiated at less than arm’s length.”
Rabkin at no point attempted to negotiate the price of his
purchase, research the value of the claim that was offered to
him, or otherwise behave in a manner that suggests that he
took his acquisition seriously as an economic investment.
24 IN RE THE VILLAGE AT LAKERIDGE
This “compels the conclusion” that Rabkin and Bartlett’s
relationship was “close enough to gain an advantage
attributable simply to affinity rather than to the course of
dealings between the parties.” In re Kunz, 489 F.3d 1072,
1079 (10th Cir. 2007) (quoting In re Enter. Acquisition
Partners, Inc., 319 B.R. 626, 631 (B.A.P. 9th Cir. 2004)); see
also, Matter of Holloway, 955 F.2d 1008, 1011 (5th Cir.
1992).
Moreover, though the majority opinion treats the
bankruptcy court’s determination that Rabkin was not a non-
statutory insider as a factual finding subject to review only
for clear error, I do not think that reflects a correct
understanding of what the bankruptcy court decided. The
specific facts of the episode were not seriously contested.
Rather, the majority simply accedes to the bottom-line
adjudication that, based on those facts, Rabkin was not an
insider.
But that finding turns at least as much on the legal
standard that defines a non-statutory insider as it does on the
facts. Look at what the bankruptcy court said in explaining
its conclusion that Rabkin was not a non-statutory insider,
quoted by the majority opinion, at 8:
(a) Dr. Rabkin does not exercise control over
[Lakeridge; ] (b) Dr. Rabkin does not
cohabitate with Ms. Bartlett, and does not pay
[her] bills or living expenses; (c) Dr. Rabkin
has never purchased expensive gifts for Ms.
Bartlett; (d) Ms. Bartlett does not exercise
control over Dr. Rabkin[;] (e) Ms. Bartlett
does not pay [Dr.] Rabkin’s bills or living
IN RE THE VILLAGE AT LAKERIDGE 25
expenses; and (f) Ms. Bartlett has never
purchased expensive gifts for Dr. Rabkin.
This list of facts would support a finding that Rabkin and
Bartlett are separate financial entities, but it does not show
that this transaction was conducted as if they were strangers.
At no point does the bankruptcy court mention or refer to an
“arm’s length transaction” at all, let alone provide a sufficient
basis for a finding that Rabkin and Bartlett were unrelated or
dealt with each other as strangers. That is the standard the
majority opinion and I both agree should apply, but it was not
the standard actually applied by the bankruptcy court. The
majority disagrees, stating, at 19 n.15, that the bankruptcy
court’s order “is a description of why the transaction was
conducted at arm’s length,” but the majority opinion is
conspicuously silent in explaining how the facts actually
justify any such finding.
That tells me that the problem here is not with the facts as
found by the bankruptcy court but with the legal test that the
bankruptcy court applied. What standard did the bankruptcy
court apply to determine whether this transaction was
conducted at arm’s length, by parties acting like they were
strangers? We don’t know, because the bankruptcy court
order never discussed the concept. At a minimum, this makes
Rabkin’s status a mixed question of law and fact, subject to
de novo review. See In re Bammer, 131 F.3d 788, 792 (9th
Cir. 1997) (“Mixed questions presumptively are reviewed by
us de novo because they require consideration of legal
concepts and the exercise of judgment about the values that
animate legal principles.”).
I do not need to pursue that question further here, though,
because even if the clear error standard applies, the finding
26 IN RE THE VILLAGE AT LAKERIDGE
that Rabkin was not a non-statutory insider cannot survive
scrutiny. The majority opinion states three separate times, at
17, 18 n.14 & 20, that we cannot reverse under the clear error
standard simply because we would have decided the case
differently, a telling sign that even the majority recognizes
that support for the finding is thin at best. It even suggests,
at 18 n.14, that this dissent presents nothing more than a
statement of how I would have decided the case sitting as a
bankruptcy judge. But my dissent is based on far more than
a mere alternative view of the evidence. I cannot fathom how
anyone could reasonably conclude that this transaction was
conducted as if Rabkin and Bartlett were strangers. The clear
error standard is not supposed to provide carte blanche
approval of whatever the bankruptcy court might have found.
That is especially true here, where the bankruptcy court never
actually stated a finding that the transaction was at arm’s
length or that the parties conducted the transaction as if they
were strangers. Under the proper definition of “arm’s length
transaction,” Rabkin’s acquisition of the claim was a
transaction “negotiated at less than arm’s length.” He was a
non-statutory insider, and his claim should be treated as such.
The majority’s holding also has the troubling effect of
creating a clear path for debtors who want to avoid the
limitations the Bankruptcy Act places on reorganization
plans. The Act allows courts to confirm bankruptcy plans if
each class of claims or interests impaired under the plan votes
to accept the plan. 11 U.S.C. § 1129(a)(8). Perhaps
recognizing that unanimous agreement on a given bankruptcy
plan would sometimes prove impossible, Congress also
created an exception to § 1129(a)(8) allowing debtors to
“cram down” a bankruptcy plan over the objections of some
debtor classes. The cramdown provision allows courts to
approve a bankruptcy plan so long as all provisions of
IN RE THE VILLAGE AT LAKERIDGE 27
§ 1129(a) are met except for § 1129(a)(8), and the proposed
plan is fair, equitable, and does not discriminate unfairly.
11 U.S.C. § 1129(b)(1). Even in the case of a cramdown,
though, “at least one class of claims that is impaired under the
plan [must have] accepted the plan, determined without
including any acceptance of the plan by any insider.”
11 U.S.C. § 1129(a)(10).
The legislative history on § 1129 is sparse and provides
little insight into Congress’s motives,2 but in accordance with
one of the most basic tenets of statutory interpretation, we
must “interpret statutes as a whole, giving effect to each word
and making every effort not to interpret a provision in a
manner that renders other provisions of the same statute
inconsistent, meaningless or superfluous.” Boise Cascade
Corp. v. U.S. E.P.A., 942 F.2d 1427, 1432 (9th Cir. 1991).
Here, we are obligated to interpret § 1129 as a whole and in
a way that gives each of its provisions meaning. A cramdown
plan cannot be approved unless it is accepted by at least one
class of impaired creditors.
Yet the majority opinion effectively renders that statutory
requirement meaningless. Under the holding here, insiders
are free to evade the requirement simply by transferring their
2
As the Fifth Circuit has noted, “the scant legislative history on
§ 1129(a)(10) provides virtually no insight as to the provision’s intended
role.” In re Vill. at Camp Bowie I, L.P., 710 F.3d 239, 246 (5th Cir. 2013)
(citing National Bankruptcy Conference, Reforming the Bankruptcy Code:
The National Bankruptcy Conference’s Code Review Project 277 (1994)
(noting that the legislative history of § 1129(a)(10) “is murky, shedding
little light on its intended role”); Scott F. Norberg, Debtor Incentives,
Agency Costs, and Voting Theory in Chapter 11, 46 U. Kan. L.Rev. 507,
538 (1998) (noting that “[t]he legislative history . . . sheds little light on
the rationale for section 1129(a)(10)”)).
28 IN RE THE VILLAGE AT LAKERIDGE
interest for a nominal amount (perhaps a few peppercorns) to
a friendly third party, who can then cast the vote the insider
could not have cast itself.
Contrary to the majority’s assurances, the requirement
that all votes be cast in good faith is not a check on this
behavior. In the memorandum disposition issued alongside
this opinion, we conclude that Rabkin’s vote for the plan was
cast in good faith because Appellants had not proven that he
had “ulterior motives” for his vote to approve the plan beyond
personal enrichment. By this standard, a savvy debtor can
comply with the good faith requirement by following a
simple formula: develop a reorganization plan that would
provide a payout on the insider claim if approved, and then
sell the claim to a friendly third party for a price lower than
the payout. This enables the debtor to maneuver the third
party into a position where it would be foolish not to vote for
approval of the reorganization plan, ensuring a “yes” vote and
thereby allowing the debtor to effectively avoid the
requirement under § 1129(a)(10) that at least one non-insider
must approve the plan.
Congress cannot have intended this outcome. If it had, it
would not have required that at least one class of impaired
creditors — excluding insiders — vote for a plan before it can
be approved. Our holding here effectively negates that part
of the statute.
I respectfully dissent.