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

Debtor Village at Lakeridge, LLC filed for Chapter 11 bankruptcy owing $10 million to U.S. Bank. The bank sold the claim to Boardwalk, an unrelated third party. Robert Rabkin, the debtor's manager, later arranged for an entity he controlled to purchase the claim from Boardwalk. U.S. Bank objected, arguing the purchasing entity was a non-statutory insider whose vote should not count toward plan confirmation. The bankruptcy court held a trial and found the entity was not an insider, a decision the Ninth Circuit affirmed under the deferential "clearly erroneous" standard. U.S. Bank appealed to the Supreme Court, contending that non-statutory insider status presented a mixed question of law and fact requiring de novo review. The Court unanimously held that the determination is a factual finding, reviewable only for clear error, and affirmed the judgment.

The Supreme Court ruled that non-statutory insider status is a factual determination entitled to deference under the clearly erroneous standard, and affirmed the Ninth Circuit’s decision upholding the bankruptcy court’s finding.

Whether a bankruptcy court’s determination that a creditor is a non-statutory insider is a factual finding reviewed for clear error or a mixed question of law and fact subject to de novo review.

The decision reinforces the deference appellate courts must give to bankruptcy courts on fact-intensive insider inquiries, promoting finality in Chapter 11 restructurings. It clarifies the boundary between legal and factual questions in bankruptcy litigation and makes it more difficult for creditors to challenge plan votes based on alleged insider relationships.