Case Name: U.S. BANK NATIONAL ASSOCIATION, Trustee, by and through CWCAPITAL ASSET MANAGEMENT LLC, Petitioner v. The VILLAGE AT LAKERIDGE, LLC
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 2018-03-05
Citations: 138 S. Ct. 960
Docket Number: No. 15-1509
Parties: U.S. BANK NATIONAL ASSOCIATION, Trustee, by and through CWCAPITAL ASSET MANAGEMENT LLC, Petitioner v. The VILLAGE AT LAKERIDGE, LLC.
Judges: KAGAN, J., delivered the opinion for a unanimous Court. KENNEDY, J., filed a concurring opinion. SOTOMAYOR, J., filed a concurring opinion, in which KENNEDY, THOMAS, and GORSUCH, JJ., joined.
Reporter: West's Bankruptcy Reporter
Volume: 581
Pages: 960–973

Head Matter:
U.S. BANK NATIONAL ASSOCIATION, Trustee, by and through CWCAPITAL ASSET MANAGEMENT LLC, Petitioner v. The VILLAGE AT LAKERIDGE, LLC.
No. 15-1509.
Argued Oct. 31, 2017.
Decided March 5, 2018.
KAGAN, J., delivered the opinion for a unanimous Court. KENNEDY, J., filed a concurring opinion. SOTOMAYOR, J., filed a concurring opinion, in which KENNEDY, THOMAS, and GORSUCH, JJ., joined.
Gregory A. Cross, Mitchell Y. Mirviss, Venable LLP, Baltimore, MD, Keith C. Owens, Jennifer L. Nassiri, Venable LLP, Los Angeles, CA, for Petitioner.
Alan R. Smith, Holly E. Estes, Law Offices of Alan R. Smith, Reno, NV, Daniel L. Geyser, Stris & Maher LLP, Dallas, TX, Peter K. Stris, Brendan S. Maher, Douglas D. Geyser, Stris & Maher LLP, Los Angeles, CA, for Respondent.

Opinion:
For U.S. Supreme Court briefs, see:
2017 WL 4054842 (Reply.Brief)
2017 WL 3485556 (Resp.Brief)
2017 WL 2610050 (PetJBrief)
JUSTICE KAGAN delivered the opinion of the Court.
The Bankruptcy Code places various restrictions on anyone who qualifies as an "insider" of a debtor. The statutory definition of that term lists a set of persons related to the debtor in particular ways. See 11 U.S.C. § 101(31). Courts have additionally recognized as insiders some persons not on that list—commonly known as "non-statutory insiders." The conferral of that status often turns on whether the person's transactions with the debtor (or another of its insiders) were at arm's length. In this case, we address how an appellate court should review that kind of determination: de novo or for clear error? We hold that a clear-error standard should apply.
I
Chapter 11 of the Bankruptcy Code enables a debtor company to reorganize its business under a court-approved plan governing the distribution of assets to creditors. See 11 U.S.C. § 1101 et seq. The plan divides claims against the debtor into discrete "classes" and specifies the "treatment" each class will receive. § 1123; see § 1122. Usually, a bankruptcy court may approve such a plan only if every affected class of creditors agrees to its terms. See § 1129(a)(8). But in certain circumstances, the court may confirm what is known as a "cramdown" plan—that is, a plan impairing the interests of some non-consenting class. See § 1129(b). Among the prerequisites for judicial approval of a cramdown plan is that another impaired class of creditors has consented to it. See § 1129(a)(10). But crucially for this case, the consent of a creditor who is also an "insider" of the debtor, does not count for that purpose. See ibid, (requiring "at least one" impaired class to have "accepted the plan, determined without including any acceptance of the plan by any insider").
The Code enumerates certain insiders, but courts have added to that number. According to the Code's definitional section, an insider of a corporate debtor "includes" any director, officer, or "person in control" of the entity. § 101(31)(B)(i)-(iii). Because of the word "includes" in that section, courts have long viewed its list of insiders as non-exhaustive. See § 102(3) (stating as one of the Code's "[rjules of construction" that " 'includes' and 'including' are not limiting"); 2 A. Resnick & H. Sommer, Collier on Bankruptcy ¶ 101.31, p. 101-142 (16th ed. 2016) (discussing cases). Accordingly, courts have devised tests for identifying other, so-called "non-statutory" insiders. The deci sions are not entirely uniform, but many focus, in whole or in part, on whether a person's "transaction of business with the debtor is not at arm's length." Ibid. (quoting In re U.S. Medical, Inc., 531 F.3d 1272, 1280 (C.A.10 2008)).
This case came about because the Code's list of insiders placed an obstacle in the way of respondent Lakeridge's attempt to reorganize under Chapter 11. Lake-ridge is a corporate entity which, at all relevant times, had a single owner, MBP Equity Partners, and a pair of substantial debts. The company owed petitioner U.S. Bank over $10 million for the balance due on a loan. And it owed MBP another $2.76 million. In 2011, Lakeridge filed for Chapter 11 bankruptcy. The reorganization plan it submitted placed its two creditors in separate classes and proposed to impair both of their interests. U.S. Bank refused that offer, thus taking a fully consensual plan off the table. But likewise, a cramdown plan based only on MBP's consent could not go forward. Recall that an insider cannot provide the partial agreement needed for a cramdown plan. See supra, at 963; § 1129(a)(10). And MBP was the consummate insider: It owned Lakeridge and so was—according to the Code's definition—"in control" of the debt- or. § 101 (31)(B)(iii). The path to a successful reorganization was thus impeded, and Lakeridge was faced with liquidation. Unless .
Unless MBP could transfer its claim against Lakeridge to a non-insider who would then agree to the reorganization plan. So that was what MBP attempted. Kathleen Bartlett, a member of MBP's board and an officer of Lakeridge, approached Robert Rabkin, a retired surgeon, and offered to sell him MBP's $2.76 million claim for $5,000. Rabkin took the deal. And as the new. holder of MBP's old loan, he consented to Lakeridge's proposed reorganization. As long as he was not himself an insider, Rabkin's agreement would satisfy one of the prerequisites for a cramdown plan. See § 1129(a)(10); supra, at 963. That would bring Lakeridge a large step closer to reorganizing its business over U.S. Bank's objection.
Hence commenced this litigation about whether Rabkin, too, was an insider. U.S. Bank argued that he qualified as a non-statutory insider because he had a "romantic" relationship with Bartlett and his purchase of MBP's loan "was not an arm's-length transaction." Motion to Designate Claim of Robert Rabkin as an Insider Claim in No. 11-51994 (Bkrtcy. Ct. Nev.), Doc. 194, p. 11 (Motion). At an evidentia-ry hearing, both Rabkin and Bartlett testified that their relationship was indeed "romantic." App. 128, 142-143. But the Bankruptcy Court still rejected U.S. Bank's view that Rabkin was a non-statutory insider. See App. to Pet. for Cert. 66a. The court found that Rabkin purchased the MBP claim as a "speculative investment" for which he did adequate due diligence. Id., at 67a. And it noted that Rabkin and Bartlett, for all their dating, lived in separate homes and managed their finances independently. See id., at 66a.
The Court of Appeals for the Ninth Circuit affirmed by a divided vote. According to the court, a creditor qualifies as a non-statutory insider if two conditions are met: "(1) the closeness of its relationship with the debtor is comparable to that of the enumerated insider classifications in [the Code], and (2) the relevant transaction is negotiated at less than arm's length." In re Village at Lakeridge, LLC, 814 F.3d 993, 1001 (2016). The majority viewed the Bankruptcy Court's decision as based on a finding that the relevant transaction here (Rabkin's purchase of MBP's claim) "was conducted at arm's length." Id., at 1003, n. 15. That finding, the majority held, was entitled to clear-error review, and could not be reversed under that deferential standard. See id., at 1001-1003. Rabkin's consent could therefore support the cram-down plan. See id., at 1003. Judge Clifton dissented. He would have applied de novo review, but in any event thought the Bankruptcy Court committed clear error in declining to classify Rabkin as an insider. See id., at 1006.
This Court granted certiorari to decide a single question: Whether the Ninth Circuit' was right to review for clear error (rather than de novo) the Bankruptcy Court's determination that Rabkin does not qualify as a non-statutory insider because he purchased MBP's claim in an arm's-length transaction. 580 U.S. -, 137 S.Ct. 1372, 197 L.Ed.2d 553 (2017).
II
To decide whether a particular creditor is a non-statutory insider, a bankruptcy judge must tackle three kinds of issues— the first purely legal, the next purely factual, the last a combination of the other two. And to assess the judge's decision, an appellate court must consider all its component parts, each under the appropriate standard of review. In this case, only the standard for the final, mixed question is contested. But to resolve that dispute, we begin by describing the unalloyed legal and factual questions that both kinds of courts have to address along the way, as well as the answers that the courts below provided.
Initially, a bankruptcy court must settle on a legal test to determine whether someone is a non-statutory insider (again, a person who should be treated as an insider even though he is not listed in the Bankruptcy Code). But that choice of standard really resides with the next court: As all parties agree, an appellate panel reviews such a legal conclusion without the slightest deference. See Highmark, Inc. v. Allcare Health Management System, Inc., 572 U.S. -, -, 134 S.Ct. 1744, 1748, 188 L.Ed.2d 829 (2014) ("Traditionally, decisions on questions of law are reviewable de novo " (internal quotation marks omitted)); Tr. of Oral Arg. 29-30, 33. The Ninth Circuit here, as noted earlier, endorsed a two-part test for non-statutory insider status, asking whether the person's relationship with the debt- or was similar to those of listed insiders and whether the relevant prior transaction was at "less than arm's length." 814 F.3d, at 1001; see supra, at 964 - 965. And the Ninth Circuit held that the Bankruptcy Court had used just that standard—more specifically, that it had denied insider status under the test's second, transactional prong. See 814 F.3d, at 1002-1003, and n. 15; supra, at 964-965. We do not address the correctness of the Ninth Circuit's legal test; indeed, we specifically rejected U.S. Bank's request to include that question in our grant of certiorari. See 580 U.S. -, 137 S.Ct. 1372, 197 L.Ed.2d 553; Pet. for Cert. i. We simply take that test as a given in deciding the standard-of-review issue we chose to resolve.
Along with adopting a legal standard, a bankruptcy court evaluating insider status must make findings of what we have called "basic" or "historical" fact— addressing questions of who did what, when or where, how or why. Thompson v. Keohane, 516 U.S. 99, 111, 116 S.Ct. 457, 133 L.Ed.2d 383 (1995). The set of relevant historical facts will of course depend on the legal test used: So under the Ninth Circuit's test, the facts found may relate to the attributes of a particular relationship or the circumstances and terms of a prior transaction. By well-settled rule, such factual findings are reviewable only for clear error—in other words, with a serious thumb on the scale for the bankruptcy court. See Fed. Rule Civ. Proc. 52(a)(6) (dear-error standard); Fed. Rules Bkrtcy. Proc. 7052 and 9014(c) (applying Rule 52 to various bankruptcy proceedings). Accordingly, as all parties again agree, the Ninth Circuit was right to review deferentially the Bankruptcy Court's findings about Rabkin's relationship with Bartlett (e.g., that they did not "cohabitate" or pay each other's "bills or living expenses") and his motives for purchasing MBP's claim (e.g., to make a "speculative investment"). App. to Pet. for Cert. 66a-67a; see Tr. of Oral Arg. 8, 39.
What remains for a bankruptcy court, after all that, is to determine whether the historical facts found satisfy the legal test chosen for conferring non-statutory insider status. We here arrive at the so-called "mixed question" of law and fact at the heart of this case. Pullman-Standard v. Swint, 456 U.S. 273, 289, n. 19, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982) (A mixed question asks whether "the historical facts . satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated"). As already described, the Bankruptcy Court below had found a set of basic facts about Rabkin; and it had adopted a legal test for non-statutory insider status that requires (as one of its two prongs) a less-than-arm's-length transaction. See supra^ at 964, 965. As its last move, the court compared the one to the other—and determined that the facts found did not show the kind of preferential transaction necessary to turn a creditor into a non-statutory insider. For that decisive determination, what standard of review should apply?
The parties, after traveling so far together, part ways at this crucial point. U.S. Bank contends that the Bankruptcy Court's resolution of the mixed question must be reviewed de novo. That is because, U.S. Bank claims, application of the Ninth Circuit's "very general" standard to a set of basic facts requires the further elaboration of legal principles—a fysk primarily for . appellate courts. Brief for Petitioner 35; see id., at 53 (The "open-ended nature of the Ninth Circuit's standard" compels courts to "develop the norms and criteria they deem most appropriate" and so should be viewed as "quasi-legal"). By contrast, Lakeridge (joined by the Federal Government as amicus curiae) thinks a clear-error standard should apply. In Lakeridge's view, the ultimate law-application question is all "bound up with the case-specific details of the highly factual circumstances below"—and thus falls naturally within the domain of bankruptcy courts. Brief for Respondent 17; see Brief for United States 21 (similarly describing the mixed question as "fact-intensive").
For all their differences, both parties rightly point us to the same query: What is the nature of the mixed question here and which kind of court (bankruptcy or appellate) is better suited to resolve it? See Miller v. Fenton, 474 U.S. 104, 114, 106 S.Ct. 445, 88 L.Ed.2d 405 (1985) (When an "issue falls somewhere between a pristine legal standard and a simple historical fact," the standard of review often reflects which "judicial actor is better positioned" to make the decision). Mixed questions are not all alike. As U.S. Bank suggests, some require courts to expound on the law, particularly by amplifying or elaborating on a broad legal standard. When that is so—when applying the law involves developing auxiliary legal principles of use in other cases—appellate courts should typically review a decision de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231-233, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991) (discussing appellate courts' "institutional advantages" in giving legal guidance). But as Lakeridge replies, other mixed questions immerse courts in case-specific factual issues—compelling them to marshal and weigh evidence, make credibility judgments, and otherwise" address what we have (emphatically if a tad redundantly) called "multifarious, fleeting, special, narrow facts that utterly resist generalization." Pierce v. Underwood, 487 U.S. 552, 561-562, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988) (internal quotation marks omitted). And when that is so, appellate courts should usually review a decision with deference. See Anderson v. Bessemer City, 470 U.S. 564, 574-576, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (discussing trial courts' "superiority" in resolving such issues). In short, the standard of review for a mixed question all depends— on whether answering it entails primarily legal or factual work.
Now again, recall the mixed question the Bankruptcy Court confronted in this case. See supra, at 966. At a high level of generality, the court needed to determine whether the basic facts it had discovered (concerning Rabkin's relationships, motivations, and so on) were sufficient to make Rabkin a non-statutory insider. But the court's use of the Ninth Circuit's legal test for identifying such insiders reduced that question to a more particular one: whether the facts found showed an arm's-length transaction between Rabkin and MBP. See ibid. And still, we can further delineate that issue just by plugging in the widely (universal ly?) understood definition of an arm's-length transaction: a transaction conducted as though the two parties were strangers. See, e.g., Black's Law Dictionary 1726 (10th ed. 2014). Thus the mixed question becomes: Given all the basic facts found, was Rabkin's purchase of MBP's claim conducted as if the two were strangers to each other?
That is about as factual sounding as any mixed question gets. Indeed, application of the Ninth Circuit's arm's-length legal standard really requires what we have previously described as a "factual inference[ ] from undisputed basic facts." Commissioner v. Duberstein, 368 U.S. 278, 291, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960) (holding that clear-error review applied to a decision that a particular transfer was a statutory "gift"). The court takes a raft of case-specific historical facts, considers them as a whole, balances them one against another—all to make a determination that when two particular persons entered into a particular transaction, they were (or were not) acting like strangers. Just to describe that inquiry is to indicate where it (primarily) belongs: in the court that has presided over the presentation of evidence, that has heard all the witnesses, and that has both the closest and the deepest understanding of the record—ie., the bankruptcy court.
And we can arrive at the same point from the opposite direction—by asking how much legal work applying the arm's-length test requires. Precious little, in our. view—as shown by judicial opinions addressing that concept. Our own decisions, arising in a range of contexts, have never tried to elaborate on the established idea of a transaction conducted as between strangers; nor, to our knowledge, have lower courts. See, e.g., Jones v. Harris Associates L. P., 559 U.S. 335, 346, 130 S.Ct. 1418, 176 L.Ed.2d 265 (2010); Commissioner v. Wemyss, 324 U.S. 303, 307, 65 S.Ct. 652, 89 L.Ed. 958 (1945); Pepper v. Litton, 308 U.S. 295, 306-307, 60 S.Ct. 238, 84 L.Ed. 281 (1939). The stock judicial method is merely to state the requirement of such a transaction and then to do the fact-intensive job of exploring whether, in a particular case, it occurred. See, e.g., Wemyss, 324 U.S., at 307, 65 S.Ct. 652. Contrary to U.S. Bank's view, there is no apparent need to further develop "norms and criteria," or to devise a supplemental multi-part test, in order to apply the familiar term. Brief for Petitioner 53; see Tr. of Oral Arg. 18; supra, at 966. So appellate review of the arm's-length issue—even if conducted de novo—will not much clarify legal principles or provide guidance to other courts resolving other disputes. And that means the issue is not of the kind that appellate courts should take over.
The Court of Appeals therefore applied the appropriate standard in reviewing the Bankruptcy Court's determination that Rabkin did not qualify as an insider because his transaction with MBP was conducted at arm's length. A conclusion of that kind primarily rests with a bankruptcy court, subject only to review for clear error. We accordingly affirm the judgment below.
It is so ordered.
. U.S. Bank also contended that Rabkin automatically inherited MBP's statutory insider status when he purchased its loan. See Motion, p. 10 ("[A]n entity which acquires a claim steps into the shoes of that claimant" (internal quotation marks omitted)). We did not grant review of that question and therefore do not address it in this opinion.
. Perhaps Bartlett expressed some ambivalence on that score. The transcript of her direct examination reads:
"Q. Okay. And I think the term has been a romantic relationship—you have a romantic relationship?
A. I guess.
Q. Why do you say I guess?
A. Well, no—yes." App. 142-143.
One hopes Rabkin was not listening.
. In selecting standards of review, our decisions have also asked whether a "long history of appellate practice" supplies the answer. Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). But we cannot find anything resembling a "historical tradition" to provide a standard for reviewing the mixed question here. Ibid.
. Usually but not always: In the constitutional realm, for example, the calculus changes. There, we have often held that the role of appellate courts "in marking out the limits of [a] standard through the process of case-by-case adjudication" favors de novo review even when answering a mixed question primarily involves plunging into a factual record. Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 503, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984); see Ornelas v. United States, 517 U.S. 690, 697, 116 S.Ct. 1657, 134 L.Ed.2d 911 (1996) (reasonable suspicion and probable cause under the Fourth Amendment); Hurley v. Irish-American Gay, Lesbian and Bisexual Group of Boston, Inc., 515 U.S. 557, 567, 115 S.Ct. 2338, 132 L.Ed.2d 487 (1995) (expression under the First Amendment); Miller v. Fenton, 474 U.S. 104, 115-116, 106 S.Ct. 445, 88 L.Ed.2d 405 (1985) (voluntariness of confession under the Fourteenth Amendment's Due Process Clause).
.A bankruptcy court applying the Ninth Circuit's test might, in another case, reach its separate, non-transactional prong: whether "the closeness of [a person's] relationship with the debtor is comparable to that of the enumerated insider classifications" in the Code. In re Village at Lakeridge, LLC, 814 F.3d 993, 1001 (2016); see supra, at 964. We express no opinion on how an appellate court should review a bankruptcy court's application of that differently framed standard to a set of established facts.
. Or, to use the more abundant description we quoted above, "multifarious, fleeting, special, narrow facts that utterly resist generalization." Pierce, 487 U.S., at 561-562, 108 S.Ct. 2541 (internal quotation marks omitted); see supra, at 967.
. That conclusion still leaves some role for appellate courts in this area. They of course must decide whether a bankruptcy court committed clear error in finding that a transaction was arm's length (or not). (We express no view of that aspect of the Ninth Circuit's decision because we did not grant certiorari on the question. See supra, at 965.) In addition, an appellate court must correct any legal error infecting a bankruptcy court's decision. So if the bankruptcy court somehow misunderstood the nature of the arm's-length query—or if it devised some novel multi-factor test for addressing that issue—an appellate court should apply de novo review. And finally, if an appellate court someday finds that further refinement of the arm's-length standard is necessary to maintain uniformity among bankruptcy courts, it may step in to perform that legal function. By contrast, what it may not do is review independently a garden-variety decision, as here, that the various facts found amount to an arm's-length (or a non-arm's-length) transaction and so do not (or do) confer insider status.