U.S. Bank N.A. v. Village at Lakeridge, LLC

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It’s been an interesting couple of weeks for bankruptcy at the United States Supreme Court with two bankruptcy-related decisions released in back-to-back weeks. Last week, the Supreme Court issued an important decision delineating the scope of section 546(e) of the Bankruptcy Code (discussed here [1] for those who missed it). Then again, this week, on March 5, 2018, the Supreme Court issued a somewhat strange (in the authors’ view) decision involving “non-statutory insider” determinations in the Bankruptcy Code context. See U.S. Bank Nat’l Ass’n v. Village at Lakeridge, LLC, No. 15-1509, 2018 WL 1143822, at *1 (U.S. Mar. 5, 2018).[2]  The Lakeridge opinion purports to address only a narrow legal question: whether the Ninth Circuit Court of Appeals applied the proper standard of review in analyzing a bankruptcy court’s determination that a creditor was not a non-statutory insider. On that narrow question, the Court concluded that the Ninth Circuit appropriately reviewed the mixed question of law and fact on a “clearly erroneous” basis given the test articulated by the Ninth Circuit for determining non-statutory insider status.  More interestingly, as highlighted by two concurrences, Lakeridge raises further questions as to how lower courts should evaluate whether a person qualifies as a non-statutory insider under the Bankruptcy Code, an issue that could have implications in various contexts in chapter 11 cases where insider status matters. These include plan voting (at issue here), fraudulent transfer and preference analyses, severance payments, and KERPs. And from a purely entertainment perspective, the facts of the case are somewhat fun and juicy.

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