Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-13-60039/USCOURTS-ca9-13-60039-0/pdf.json

Parties Involved:
Robert Alan Rabkin
Real Party in Interest
The Village at Lakeridge, LLC

U.S. Bank N.A.
Appellant

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE THE VILLAGE AT LAKERIDGE,

LLC, FKA Magnolia Village, LLC,

Debtor,

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.

No. 13-60038

BAP No.

12-1456

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2 IN RE THE VILLAGE AT LAKERIDGE

IN RE THE VILLAGE AT LAKERIDGE,

LLC, FKA Magnolia Village, LLC,

Debtor,

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.

No. 13-60039

BAP No.

12-1474

OPINION

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

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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.

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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 BankruptcyAppellate 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.

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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.

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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.”

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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.”

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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 noninsider, 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

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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.

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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 withdrewits 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.

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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 nonstatutory 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

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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

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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 noninsider 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.

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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.

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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 (9thCir.

Mar. 25, 1996) (unpublished). However, NinthCircuit 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.

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16 IN RE THE VILLAGE AT LAKERIDGE

arm’s length.11See 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 nonstatutory 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.”

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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.13In 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.

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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 bankruptcycourt 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.

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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, whyRabkin 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

bankruptcycourt’s explanation that Rabkinmade a speculative investment

at a relatively low cost and with the potential for a big payoff is equally

logical.

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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 nonstatutory 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 nonstatutory 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

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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

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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.

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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.

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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 nonstatutory 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

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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

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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

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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,2but 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)

(citingNational BankruptcyConference,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)”)).

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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.

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