in re: the village at lakeridge, llc, fka magnolia village, llc, 9th cir. bap (2013)

7/25/2019 In re: The VILLAGE AT LAKERIDGE, LLC, Fka Magnolia Village, LLC, 9th Cir. BAP (2013)

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1 Thi s di sposi t i on i s not appr opr i at e f or publ i cat i on.Al t hough i t may be ci t ed f or whatever persuasi ve val ue i t may have( see Fed. R. App. P. 32. 1) , i t has no pr ecedent i al val ue. See 9t hCi r . BAP Rul e 8013- 1.

- 1-

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP Nos. NV- 12- 1456- PaKi Ta) NV- 12- 1474- PaKi Ta

THE VI LLAGE AT LAKERI DGE, LLC, f ka ) ( Cr oss - appeal s)Magnol i a Vi l l age, LLC, )

) Bk. No. 11- 51994- BTBDebt or . )

___________________________________))

THE VI LLAGE AT LAKERI DGE, LLC, f ka )Magnol i a Vi l l age, LLC; ROBERT )ALAN RABKI N, M. D. , )

)

Appel l ant s/ )Cr oss- appel l ees, ))

v. ) M E M O R A N D U M1

)U. S. BANK NATI ONAL ASSOCI ATI ON, AS )TRUSTEE, AS SUCCESSOR- I N- I NTEREST )TO BANK OF AMERI CA, N. A. , AS )SUCCESSOR BY MERGER TO LASALLE )BANK NATI ONAL ASSOCI ATI ON, AS )TRUSTEE, FOR THE REGI STERED )HOLDERS OF GREENWI CH CAPI TAL )COMMERCI AL FUNDI NG CORP. , )COMMERCI AL MORTGAGE TRUST 2005- )GG3, COMMERCI AL MORTGAGE PASS )THROUGH CERTI FI CATES, SERI ES )2005- GG3, BY AND THROUGH, )CWCAPI TAL ASSET MANAGEMENT LLC, )SOLELY I N I TS CAPACI TY AS SPECI AL )SERVI CER, )

)Appel l ee/ )Cr oss- appel l ant . )

___________________________________)

Ar gued and Submi t t ed on Mar ch 22, 2013,at Pasadena, Cal i f or ni a

Fi l ed - Apr i l 5, 2013

FILEDAPR 05 2013

SUSAN M SPRAUL, CLERKU.S. BKCY. APP. PANELOF THE NINTH CIRCUIT


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2 Unl ess ot her wi se i ndi cat ed, al l chapt er , sect i on and r ul er ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, andt o the Feder al Rul es of Bankrupt cy Pr ocedur e, Rul es 1001- 9037.The Feder al Rul es of Ci vi l Pr ocedur e ar e r ef er r ed t o as Ci vi lRul es.

3 For USB s f ul l aut hor i t y as t r ust ee, see capt i on.

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Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Di st r i ct of Nevada

Honor abl e Br uce T. Beesl ey, Bankrupt cy J udge, Presi di ng

Appear ances: Hol l y E. Est es of Law Of f i ces of Al an R. Smi t har gued f or appel l ant / cr oss- appel l ee The Vi l l age atLaker i dge, LLC; Kei t h Char l es Owens of Venabl e Ll par gued f or appel l ee/ cr oss- appel l ant U. S. BankNat i onal Associ at i on.

Bef ore: PAPPAS, KI RSCHER and TAYLOR, Bankr upt cy J udges.

Chapter 112 debt or The Vi l l age at Laker i dge, LLC

( Laker i dge) appeal s t he or der of t he bankrupt cy cour t gr ant i ngi n par t t he mot i on of U. S. Bank Nat i onal Associ at i on as Tr ust ee3

( USB) t o ( A) desi gnat e cl ai m of Rober t Rabki n and ( B) di sal l ow

such cl ai m f or pl an vot i ng pur poses ( Desi gnat i on Mot i on) . USB

cr oss- appeal s ( 1) t he par t of t he or der gr ant i ng t he Desi gnat i on

Mot i on hol di ng t hat Dr . Rober t Rabki n ( "Rabki n") was not a non-

st at ut or y i nsi der of Laker i dge and ( 2) an or der denyi ng r equest s

t o i nt er vene i n di scover y di sput es ( Di scover y Request s) . We

AFFI RM i n par t , REVERSE i n part , and VACATE i n part t he or der

r egardi ng t he Desi gnat i on Mot i on. We AFFI RM i n part and VACATE i n

part t he order denyi ng t he Di scover y Request s.

FACTS

Laker i dge f i l ed a chapt er 11 pet i t i on on J une 16, 2011. I t


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4 The schedul es al so l i st ed about $50, 000 i n t enant deposi t sas unsecur ed cl ai ms. Lat er , Lakevi ew wi t hdr ew cl assi f i cat i on oft hose deposi t s as unsecur ed cl ai ms when i t assumed t he l eases; USBhas not chal l enged Laker i dge s posi t i on.

5 None of t he paper s si gned by Bar t l et t i ndi cat e her t i t l e.We ar e unabl e t o det er mi ne f r om t he recor d t he pr eci se nat ur e ofher posi t i on and aut hor i t y i n Laker i dge ot her t han t hat she i s amember of t he boar d of managers. She descr i bed her posi t i on ather deposi t i on as r epr esent at i ve of bot h t he Vi l l age at

Laker i dge, LLC and t he equi t y owner s. Bar t l et t Dep. 9: 10- 11,Febr uar y 9, 2012. However , t he par t i es do not di sput e t hat shewas t he of f i cer of t he debt or r esponsi bl e f or i t s f i l i ngs or t hatshe i s an i nsi der of t he debt or .

6 Wi t h changes not r el evant i n t hi s appeal , t he Pl an ofReorgani zat i on was amended on November 4, 2011, and J anuary 12,2012.

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owned and operat ed a commerci al r eal est at e devel opment i n Reno,

Nevada ( t he Proper t y) . I t pur chased t he Pr oper t y i n J anuar y

2004 and f i nanced t he pur chase wi t h a l oan, evi denced by a

pr omi ssor y not e, f r om Gr eenwi ch Fi nanci al Pr oduct s, I nc.

Appar ent l y, USB now hol ds t he f ul l y secur ed cl ai m f or t he bal ance

due on t hi s l oan, whi ch amount s t o about $10 mi l l i on; t hi s i s t he

onl y secur ed cl ai m i n t he bankrupt cy case.

The sol e member of Laker i dge i s MBP Equi t y Par t ner s 1, LLC

( MBP) . Kat hi e Bar t l et t ( Bar t l et t ) i s a member of t he boar d of

manager s of MBP. The onl y unsecur ed cl ai m l i st ed i n Laker i dge s

bankr upt cy schedul es was one f or $2, 761, 000. 00 hel d by MBP ( t heMBP Cl ai m) . 4 Bar t l et t s i gned t he bankrupt cy pet i t i on and al l

r el ated document s on behal f of Laker i dge. 5

Laker i dge f i l ed a Di scl osure St at ement and Pl an of

Reor gani zat i on on September 14, 2011. 6 The onl y cl ai ms addr essed

i n t he Di scl osur e St at ement and Pl an wer e t he f ul l y secur ed cl ai m

of USB and the MBP Cl ai m.


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On Oct ober 27, 2011, Rabki n pur chased the MBP Cl ai m f or t he

sum of $5, 000. 00. A Not i ce of Assi gnment of t he MBP Cl ai m t o

Rabki n was f i l ed wi t h t he bankr upt cy cour t on November 4, 2011.

A hear i ng was hel d on the Di scl osur e St at ement on November 7,

2011. I t does not appear t hat t he Rabki n assi gnment was di scussed

at t he hear i ng. The bankrupt cy cour t appr oved t he Di scl osure

St at ement by order on November 23, 2011.

Bar t l et t was deposed by USB on Febr uary 9, 2012, i n her

capaci t y as a r epr esent at i ve of Laker i dge.

On J une 7, 2012, Rabki n t est i f i ed at a USB deposi t i on. Ear l y

i n hi s deposi t i on, Rabki n t est i f i ed t hat he had at t ended a meet i ngone hour bef or e t he deposi t i on wi t h hi s counsel and counsel f or

Laker i dge. When asked what he di scussed wi t h Laker i dge' s counsel ,

Laker i dge' s at t or ney obj ect ed, i nvoki ng t he "common i nt er est

pr i vi l ege. " Rabki n Dep. 11: 20- 2, J une 7, 2012. Rabki n' s counsel

j oi ned i n t he obj ect i on and ul t i mat el y di r ect ed Rabki n not t o

answer t he quest i on.

Rabki n t est i f i ed t o t he f ol l owi ng mat t er s i n t hat deposi t i on:

( 1) t hat he had bot h a busi ness and cl ose per sonal r el at i onshi p

wi t h Bar t l et t ; ( 2) t hat he saw Bar t l et t r egul ar l y, i ncl udi ng on

t he day of t he deposi t i on; and ( 3) t hat he pur chased t he MBP Cl ai m

f or $5, 000 as a busi ness i nvest ment and expected t o be pai d a pr o

r at a di vi dend of $30, 000 under t he Laker i dge pl an. As t o any

ot her i nt er est i n t he Laker i dge bankrupt cy case, Rabki n t est i f i ed

as f ol l ows:

USB COUNSEL: Ot her t han get t i ng pai d i n t hi s bankr upt cycase, do you have any ot her concer ns?

RABKI N: I m concer ned t hat I may run up a l ot ofexpenses and get pai d not hi ng.


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7 At a hear i ng on August 29, 2012, Rabki n i ndi cat ed t hat hef el t USB s counsel t ook advant age of a deponent who was under oat hby pr essur i ng hi m t o accept a cash of f er wi t hout an adequat echance t o r evi ew i t . The bankrupt cy cour t woul d l at er apol ogi zet o Rabki n on behal f of t he l egal pr of essi on f or t he of f ensi veconduct of USB s at t or ney i n t he deposi t i on. Hr g Tr . 21: 1- 2,August 29, 2012.

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USB COUNSEL: Ot her t han get t i ng pai d t he $30, 000, do youcar e whet her t he Vi l l age at Laker i dge pl an get sconf i r med? Set t i ng asi de t he payment , i f you wer e t oget pai d t he $30, 000, woul d you care i f t he pl an wasconf i r med?

RABKI N: I have no ot her i nt er est i n t he Vi l l age atLaker i dge.

Rabki n Dep. 82: 3- 14.

Near t he end of t he deposi t i on, USB, t hr ough counsel , of f er ed

t o pur chase t he MBP Cl ai m f r om Rabki n f or $50, 000; when he

decl i ned, counsel i ncr eased t he of f er t o $60, 000. Rabki n di d not

accept t he of f er . 7

Shor t l y af t er t he Rabki n deposi t i on, USB by l et t er r equest edt hat t he bankrupt cy cour t i nt er vene i n t wo di scover y di sput es i n

t he bankr upt cy case: ( 1) whet her t he common i nt er est pr i vi l ege

appl i ed so as t o pr ot ect di scl osure of communi cat i ons bet ween

Rabki n and Laker i dge s counsel ; and ( 2) t o compel Bar t l et t t o si t

f or a second deposi t i on, t hi s t i me i n her i ndi vi dual capaci t y as

opposed t o her f i r st deposi t i on as r epr esent at i ve of Laker i dge

( pr evi ousl y def i ned as t he Di scover y Request s) .

The bankrupt cy cour t hel d a hear i ng on J une 21, 2012, on

USB s Di scover y Request s. Af t er r evi ewi ng l et t er br i ef s f r om USB,

Laker i dge and Rabki n, and hear i ng f r om t hei r counsel , t he cour t

r ul ed on t he r ecor d t hat t he Ni nt h Ci r cui t s deci si on i n Uni t ed

St at es v. Gonzal ez, 669 F. 3d 974 ( 9t h Ci r . 2012) suppor t ed t he


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- 6-

appl i cat i on of t he common i nt er est pr i vi l ege i n t hi s case and

deni ed USB s r equest t o compel Rabki n t o di scl ose hi s

communi cat i ons wi t h Laker i dge s at t or neys. As t o USB s r equest

f or a second deposi t i on f or Bar t l et t , t he cour t r ul ed t hat she had

been ext ensi vel y exami ned al r eady and t he cour t woul d not r equi r e

a second exami nat i on.

On J ul y 1, 2012, USB f i l ed t he Desi gnat i on Mot i on. USB

cont ended i n t hat mot i on t hat Rabki n was a st at ut or y i nsi der by

vi r t ue of t he assi gnment of t he MBP i nsi der cl ai m t o hi m, and t hat

he was a non- st at ut or y i nsi der because of hi s r el at i onshi p wi t h

Bar t l et t . USB al so ar gued t hat t he assi gnment of t he cl ai m t oRabki n was i n bad f ai t h. Laker i dge r esponded, ar gui ng t hat Rabki n

was nei t her a st at ut or y nor a non- st at ut or y i nsi der , and t hat

t her e was no bad f ai t h i nvol ved i n Rabki n s acqui si t i on of t he

cl ai m.

The bankrupt cy cour t hel d an evi dent i ar y hear i ng on t he

Desi gnat i on Mot i on on August 1, 2012. USB, Laker i dge, and Rabki n

wer e r epr esent ed by counsel , and Rabki n and Bar t l et t t est i f i ed.

Af t er a r ecess, t he bankrupt cy cour t announced i t s deci si on

on t he r ecor d. I t gr ant ed t he Desi gnat i on Mot i on i n par t and

deni ed i t i n par t . The cour t ent er ed an or der t o memor i al i ze i t s

r ul i ng on August 20, 2012 ( t he Desi gnat i on Or der ) .

Fi r st , t he Desi gnat i on Or der r eci t ed t hat The cour t f i nds

and concl udes as a mat t er of l aw t hat Dr . Rabki n i s not a non-

st at ut or y i nsi der because, among ot her t hi ngs: ( a) Dr . Rabki n does

not exer ci se cont r ol over t he Debt or ; ( b) Dr . Rabki n does not

cohabi t wi t h Ms. Bar t l et t and does not pay Ms. Bar t l et t s bi l l s or

l i vi ng expenses; ( c) Dr . Rabki n has never pur chased expensi ve


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gi f t s f or Ms. Bar t l et t . Desi gnat i on Or der at 2, August 20,

2012. The bankr upt cy cour t al so concl uded t hat t he conver se was

t r ue: t hat Bar t l et t exer ci sed no such cont r ol or pr ovi ded gi f t s

t o Rabki n.

Next , t he bankrupt cy cour t deci ded that t he MBP Cl ai m was

not assi gned t o Dr . Rabki n i n bad f ai t h. Desi gnat i on Or der at

3. I t expl ai ned t hat Dr . Rabki n was not compel l ed t o sel l hi s

cl ai m t o USB, hi s pur chase of t he MBP cl ai m was a l egi t i mat e

i nvest ment , and t hat Bar t l et t never asked hi m t o vot e i n f avor of

t he pl an.

However , t he bankr upt cy cour t r easoned, Because [ MBP] i s ast at ut or y i nsi der , Dr . Rabki n, as t he assi gnee of t he cl ai m,

acqui r ed t he same st atus as a st atut ory i nsi der when he pur chased

t he cl ai m. Desi gnat i on Or der at 6. The cour t suppor t ed i t s

concl usi on wi t h ci t at i on t o sever al aut hor i t i es. The Desi gnat i on

Or der gave no ot her expl anat i on f or i t s r ul i ng t hat Rabki n was a

st at ut or y i nsi der . As a consequence, t he cour t deci ded t hat

[ b] ecause Dr . Rabki n s vot e cannot be consi der ed f or vot i ng

pur poses i n or der t o conf i r m t he Debt or s Pl an, t he Debt or does

not have an i mpai r ed, assent i ng cl ass of cl ai ms necessary t o

conf i r m hi s Pl an. Desi gnat i on Or der at 9.

Laker i dge and Rabki n bot h f i l ed t i mel y appeal s of t he

Desi gnat i on Or der . USB al so f i l ed a t i mel y cr oss- appeal

chal l engi ng t he pr ovi si on of t he Desi gnat i on Or der t hat Rabki n was

not a non- st at ut or y i nsi der , and al so seeki ng r evi ew of t he

bankrupt cy cour t s pr i or or der denyi ng t he Di scover y Request s.

JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on under 28 U. S. C. 1334


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and 157( b) ( 2) ( A) , ( L) and ( O) . We have j ur i sdi ct i on under

28 U. S. C. 158.

ISSUES

1. Whet her t he bankr upt cy cour t er r ed i n deci di ng t hat Rabki n

was an i nsi der of Laker i dge under 101( 31) .

2. Whet her t he bankr upt cy cour t er r ed i n deci di ng t hat Rabki n s

accept ance of t he Laker i dge pl an woul d be excl uded under

1129( a) ( 10) .

3. Whet her t he bankr upt cy cour t er r ed i n decl i ni ng t o desi gnat e

t hat Rabki n s accept ance of t he pl an was not i n good f ai t h

f or pur poses of 1126( e) .4. Whet her t he bankr upt cy cour t abused i t s di scret i on i n

decl i ni ng t o or der t hat Bar t l et t submi t t o a second

deposi t i on.

5. Whet her t he bankr upt cy cour t er r ed i n r ef usi ng t o compel

Rabki n t o answer quest i ons dur i ng hi s deposi t i on based on t he

common i nt er est pr i vi l ege.

STANDARDS OF REVIEW

Whet her a par t y i s an i nsi der i n r el at i on t o a debt or i s a

quest i on of f act r evi ewed f or cl ear er r or . Fri edman v. Shei l a

Pl ot sky Br oker s, I nc. ( I n r e Fri edman) , 126 B. R. 63, 67 ( 9t h Ci r .

BAP 1991) . I n maki ng t hi s deter mi nat i on, t he bankrupt cy cour t

must det ermi ne, on a case- by- case basi s whet her t he r el at i onshi p

bet ween a cr edi t or and i t s debt or , consi der ed i n t he l i ght of t he

st at ut or y scheme, amount s t o an i nsi der r el at i onshi p. I d.

We r evi ew i ssues of st at ut or y const r uct i on, i ncl udi ng a

bankrupt cy cour t s i nt er pr et at i on of t he Bankrupt cy Code, de novo.

Samson v. W. Capi t al Par t ner s, LLC ( I n r e Bl i xset h) , 684 F. 3d 865,


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869 ( 9t h Ci r . 2012) . Const r uct i on and appl i cat i on of

1129( a) ( 10) i s revi ewed de novo. W. Real Est at e Equi t i es, LLC

v. Vi l l . at Camp Bowi e I , LP ( I n r e Vi l l age at Camp Bowi e I , LP) ,

___ F. 3d ___, 2013 U. S. App. LEXI S 3949 * 17 ( 5th Ci r . 2013) .

We revi ew good f ai t h deter mi nat i ons under 1126( e) f or cl ear

er r or . Fi gt er Lt d. v. Teacher s I ns. & Annui t y Ass n of Am.

( I n r e Fi gt er Ltd. ) , 118 F. 3d 635, 638 ( 9t h Ci r . 1997) .

The bankrupt cy cour t s deci si ons r esol vi ng deposi t i on

di sput es ar e r evi ewed f or an abuse of di scr et i on. Chi l dr ess v.

Dar by Lumber , I nc. , 357 F. 3d 1000, 1009 (9t h Ci r . 2004) .

A t r i al cour t s appl i cat i on of t he at t or ney- cl i ent pr i vi l egei s r evi ewed de novo. Uni t ed St at es v. Ri chey, 632 F. 3d 559,

563- 64 ( 9t h Ci r . 2012) . The common i nt er est pr i vi l ege i s an

ext ensi on of t he at t or ney- cl i ent pr i vi l ege. Uni t ed St at es v.

Gonzal ez, 669 F. 3d 974, 978 ( 9t h Ci r . 2012) .

De novo r evi ew r equi r es t he Panel t o revi ew an i ssue

i ndependent l y, wi t hout gi vi ng def er ence t o t he bankrupt cy cour t ' s

concl usi ons. Fi r st Ave. W. Bl dg. , LLC v. J ames ( I n r e Onecast

Medi a, I nc. ) , 439 F. 3d 558, 561 ( 9t h Ci r . 2006) ; Cal . Franchi se

Tax Bd. v. Wi l shi r e Cour t yar d ( I n r e Wi l shi r e Court yar d) , 459 B. R.

416, 423 ( 9t h Ci r . BAP 2011) .

Cl ear er r or i s f ound when t he r evi ewi ng cour t has a def i ni t e

and f i r m convi ct i on t hat a mi st ake has been commi t t ed. Lewi s v.

Ayer s, 681 F. 3d 992, 998 ( 9t h Ci r . 2012) .

We appl y a t wo- par t t est t o det er mi ne obj ect i vel y whet her t he

bankrupt cy cour t abused i t s di scr et i on. Uni t ed St at es v. Hi nkson,

585 F. 3d 1247, 1261- 62 ( 9t h Ci r . 2009) ( en banc) . Fi r st , we

"det er mi ne de novo whet her t he bankrupt cy cour t i dent i f i ed t he


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8 The def i ni t i on of cor por at i on i n t he Bankrupt cy Codei ncl udes uni ncor por at ed l i mi t ed l i abi l i t y compani es, such asLaker i dge. 101( 9) ( A) ( 4) ; I n r e Longvi ew Al umi num, LLC, 657 F. 3d507, 509 n. 1 ( 7t h Ci r . 2011) .

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cor r ect l egal r ul e t o appl y t o t he r el i ef r equest ed. " I d. Second,

we exami ne t he bankrupt cy cour t ' s f act ual f i ndi ngs under t he

cl ear l y er r oneous st andar d. I d. at 1262 & n. 20. We must af f i r m

t he bankr upt cy cour t ' s f act ual f i ndi ngs unl ess t hose f i ndi ngs ar e

"( 1) ' i l l ogi cal , ' ( 2) ' i mpl aus i bl e, ' or ( 3) wi t hout ' support i n

i nf er ences t hat may be dr awn f r om t he f act s i n t he r ecor d. ' " I d.

DISCUSSION

I.

Rabkin was neither a statutory nor a non-statutoryinsider of debtor Lakeridge under 101(31).

The f undament al i ssue r ai sed i n t hi s appeal i s whet her Rabki nwas an i nsi der as t o Laker i dge. I f he was an i nsi der , hi s vot e

t o accept t he Laker i dge pl an must be excl uded under 1129( a) ( 10) .

The Bankr upt cy Code def i ni t i on of an i nsi der i n 101(31) f or

a case i nvol vi ng a cor por at e debt or 8 pr ovi des:

The t er m " i nsi der " i ncl udes . . .

( B) i f t he debt or i s a cor por at i on- -

( I ) di r ector of t he debt or ; ( i i ) of f i cer of t he debt or ; ( i i i ) per son i n cont r ol of t he debt or ;

( i v) par t ner shi p i n whi ch t he debt or i s agener al par t ner ;

( v) gener al par t ner of t he debt or ; or ( vi ) r el at i ve of a gener al par t ner , di r ector ,

of f i cer , or per son i n cont r ol of t he debt or ; . . .

( F) managi ng agent of t he debt or .

I f a wor d or phr ase i s def i ned i n t he st at ut e, t hen t hat

def i ni t i on gover ns. Per r ot on v. Gr ay ( I n r e Per r ot on) , 958 F. 2d


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889, 894 ( 9t h Ci r . 1992) ( ci t i ng Col aut t i v. Frankl i n, 439 U. S.

379, 392 ( 1979) ) . A t er m appear i ng i n sever al pl aces i n t he

st at ut e i s or di nar i l y i nt er pr et ed as havi ng t he same meani ng each

t i me i t appear s. War f i el d v. Sal azar ( I n r e Sal azar ) , 465 B. R.

875, 879- 880 ( 9t h Ci r . BAP 2012) ( ci t i ng Rat zl af v. Uni t ed St at es,

510 U. S. 135, 143 ( 1994) ) .

I t i s not di sput ed t hat Rabki n woul d not be i ncl uded i n any

of t he cat egor i es of i nsi der s set f or t h expr essl y i n 101( 31) :

he i s not a di r ector , of f i cer , or a cont r ol l i ng par t y, r el at i ve of

a cont r ol l i ng par t y, or a managi ng agent of Laker i dge. However ,

t he st at ut or y l i st of i nsi der s i s not excl usi ve. See 11 U. S. C. 101( 31) ( The t er m i nsi der i ncl udes . . . . ) ; 102( 3)

( expl ai ni ng t hat , when used i n t he Code, t he t er m i ncl udes i s

not l i mi t i ng) ; I n r e Bonner Mal l P shi p, 2 F. 3d 899, 912 ( 9t h Ci r .

1993) ; Mi l l er Ave. Pr of l & Pr omot i onal Ser vs v. Br ady

( I n r e Ent er pr i se Acqui si t i on Par t ner s, I nc. ) , 319 B. R. 626, 631

( 9t h Ci r . BAP 2004) ( The def i ni t i on of i nsi der i n 11 U. S. C.

101( 31) i s not l i mi t i ng: t he use of t he wor d i ncl udes i s

i ndi cat i ve of Congr ess' s i nt ent not t o l i mi t t he cl assi f i cat i on of

i nsi der s t o t he st at ut or y def i ni t i on. ) . I n ot her wor ds, Rabki n

coul d be deemed an i nsi der as t o Laker i dge even i f he di d not f al l

i nt o one of t he cl assi f i cat i ons l i st ed i n t he st at ut e. The

par t i es i n t hi s appeal and ot her s somet i mes r ef er t o such par t i es

as non- st at ut or y i nsi der s.

A. The bankruptcy court did not err in determining thatRabkin was not a non-statutory insider of Lakeridge.

Because t he Code s def i ni t i on of an i nsi der i s not excl usi ve,

cour t s must necessar i l y devel op t he f act or s t hat may render a


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par t y a non- st at ut or y i nsi der . As expl ai ned by t he Panel , at

bot t om, t hi s cat egor y i ncl udes t hose i ndi vi dual s or ent i t i es whose

busi ness or pr of essi onal r el at i onshi p wi t h t he debt or compel s t he

concl usi on t hat t he i ndi vi dual or ent i t y has a r el at i onshi p wi t h

t he debt or , cl ose enough t o gai n an advant age at t r i but abl e si mpl y

t o af f i ni t y rat her t han t o t he cour se of busi ness deal i ngs bet ween

t he par t i es. I n r e Fr i edman, 126 B. R. at 70. Put anot her way, a

non- st at ut or y i nsi der i s one who has a suf f i ci ent l y cl ose

r el at i onshi p wi t h t he debt or t hat hi s conduct i s made subj ect t o

cl oser scr ut i ny t han t hose deal i ng at ar ms l engt h wi t h t he

debt or . I d. ( quot i ng S. Rep. No. 95989, 95t h Cong. , 2nd Sess.25 (1978) and H. R. Rep. No. 95595, 95t h Cong. 1st Sess. 312

( 1977) , r epr i nt ed i n U. S. CODE CONG. & ADMI N. NEWS, 1978, pp. 5787,

5810, 6269) . I n det er mi ni ng whet her a cr edi t or qual i f i es as a

non- st at ut or y i nsi der , cour t s l ook at t he cl oseness of t he

par t i es, and t he degr ee t o whi ch t he cr edi t or i s abl e t o exer t

cont r ol or i nf l uence over t he debt or . I n r e Ent m t Acqui si t i on

Par t ner s, I nc. , 319 B. R. at 626; Mi l l er v. Schuman

( I n r e Schuman) , 81 B. R. 583, 586 ( 9t h Ci r . BAP 1987) . The

pr i mar y t est of a non- st at ut or y i nsi der i s whet her t he cr edi t or

exer ci ses such cont r ol or i nf l uence over t he debt or as t o r ender

t hei r t r ansact i on not ar ms- l engt h. I d. I n t he cont ext of

debt or - credi t or r el at i ons, [ a] n ar m' s- l engt h t r ansact i on i s [ a]

t r ansact i on i n good f ai t h i n t he or di nar y cour se of busi ness by

par t i es wi t h i ndependent i nt er est s. . . . The st andar d under

whi ch unr el at ed par t i es, each act i ng i n hi s or her own best

i nt er est , woul d car r y out a par t i cul ar t r ansact i on. Anst i ne v.

Car l Zei ss Medi t ec AG ( I n r e U. S. Medi cal , I nc. ) , 531 F. 3d 1272,


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1277 n. 4 ( 10t h Ci r . 2008) ( quot i ng BLACK S LAW DI CTI ONARY 109 (6th ed.

1990) ) .

Besi des t he cont r ol t est and exami nat i on f or an ar ms- l engt h

t r ansact i on, ot her cour t s have expanded t he non- st at ut or y i nsi der

gr oup t o i ncl ude those wi t h a cl ose per sonal or r omant i c

r el at i onshi p wi t h t he debt or . Kai sha v. Dodson, 423 B. R. 888, 901

( N. D. Cal . 2010) ( woman who was r omant i cal l y i nvol ved wi t h debt or

consi der ed an i nsi der f or st ock t r ansf er pur poses) ; I n r e Demko,

264 B. R. 404, 408 ( Bankr . W. D. Pa. 2001) ( cohabi t at i on may r ender

i ndi vi dual an i nsi der ) ; I n r e McI ver , 177 B. R. 366 ( Bankr. N. D.

Fl a. 1995) ( l i ve- i n gi r l f r i end may be i nsi der ) ; but seeI n r e Rei nbol d, 182 B. R. 244, 246 ( D. S. D. 1995) ( hol di ng t hat

mer e cohabi t at i on i s i nsuf f i ci ent and t hat a de f act o or de j ur e

f ami l y r el at i onshi p i s requi r ed. ) .

I n sum, t hen, t o f i nd t hat a par t y i s a non- st at ut or y i nsi der

as t o a debt or , t he bankrupt cy cour t must consi der : ( 1) t he

cl oseness of t he par t i es and t he r el at i ve cont r ol each has over

t he ot her , and ( 2) whet her t he degr ee of cont r ol i s such t hat i t

woul d r ender i t s t r ansact i on wi t h t he debt or not ar ms- l engt h.

Her e, t he bankrupt cy cour t f ound t hat , despi t e hi s per sonal

r el at i onshi p wi t h Bar t l et t , t her e was no cont r ol exer t ed by Rabki n

over Laker i dge and/ or Bar t l et t , and vi ce ver sa. Hr g Tr .

77: 2578: 6. The cour t al so i ndi cat ed i n i t s comment s on t he

r ecor d that i t had revi ewed the case l aw concer ni ng per sonal

r el at i onshi ps and det er mi ned that t hey woul d not suppor t USB s

argument t hat t he r el at i onshi p between Rabki n and Bart l et t was

such as t o conf er non- st at ut or y i nsi der st at us on Rabki n:

The cases t hat have f ound non- st at utor y i nsi der s have


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i nvol ved gener al l y cohabi t at i on, l onger per i ods ofassoci at i on, associ at i ons i n whi ch t he pr oper t y t hat t hepar t i es become economi cal l y ent wi ned, t hey shar echecki ng account s or si gn on each ot her s checki ngaccount s. They use each ot her s cr edi t car ds. Theyshar e each ot her s pr oper t y. Ther e was not any of t hatsor t of act i vi t y i n t hi s case.

Hr g Tr . 77: 14- 24.

The bankrupt cy cour t hear d t est i mony f r om Rabki n and Bar t l et t

concer ni ng Rabki n s mot i vat i ons f or pur chasi ng t he MBP Cl ai m, t he

l ack of cont r ol exer t ed by ei t her Rabki n or Bar t l et t over each

ot her s act i ons, and t he nat ur e of t hei r r el at i onshi p. The cour t

concl uded i n i t s Desi gnat i on Or der :

The cour t f i nds and concl udes as a mat t er of l aw t hatDr . Rabki n i s not a non- st at ut or y i nsi der because, amongot her t hi ngs: ( a) Dr . Rabki n does not exer ci se cont r olover t he Debt or ; ( b) Dr . Rabki n does not cohabi t wi t hMs. Bar t l et t and does not pay Ms. Bar t l et t ' s bi l l s orl i vi ng expenses; ( c) Dr . Rabki n has never pur chasedexpensi ve gi f t s f or Ms. Bar t l et t .

Desi gnat i on Or der at 2, August 20, 2012. As noted above,

whet her a par t y i s an i nsi der i s a quest i on of f act we r evi ew f or

cl ear er r or . The bankrupt cy cour t s det er mi nat i on i n t hi s case

was consi st ent wi t h case l aw and support ed by the test i mony of t he

wi t nesses and ot her evi dence pr esent ed at t he hear i ng. Whi l e

ot her s mi ght come t o a di f f er ent concl usi on, wher e t wo per mi ssi bl e

vi ews of t he evi dence exi st , t he f act f i nder ' s choi ce bet ween t hem

cannot be cl ear l y er r oneous. Ander son v. Ci t y of Bessemer Ci t y,

N. C. , 470 U. S. 564, 573- 74 ( 1985) .

We concl ude t hat t he bankrupt cy cour t di d not cl ear l y er r i n

deci di ng t hat Rabki n was not a non- st at ut or y i nsi der as t o

Laker i dge. We t her ef or e r ej ect USB s cont ent i on i n t he cr oss

appeal t hat Rabki n was a non- st at ut or y i nsi der and AFFI RM t hi s

por t i on of t he bankrupt cy cour t s deci si on.


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B. The bankruptcy court erred in determining that, byacquiring MBPs insider claim, Rabkin also automatically

became a statutory insider of Lakeridge.

As not ed above, none of t he part i es assert ed t hat Rabki n was

a st at ut or y i nsi der of Laker i dge as speci f i ed i n t he st at ut e,

because he was cl ear l y not a member of one of t he enumerat ed

cat egor i es i n 101( 31) ( B) . Despi t e t hi s, however , i n i t s or der ,

t he bankrupt cy cour t r easoned, " [ b] ecause [ MBP] i s a st at ut or y

i nsi der , Dr . Rabki n, as t he assi gnee of t he cl ai m, acqui r ed t he

same st at us as a st at ut or y i nsi der when he pur chased t he cl ai m. "

Desi gnat i on Or der at 6. I n shor t , t he bankrupt cy cour t

appar ent l y rul ed t hat , as a mat t er of l aw, a non- i nsi der becomes ast at ut or y i nsi der aut omat i cal l y by acqui r i ng an i nsi der cl ai m. I n

maki ng t hi s deci si on, t he cour t di d not r el y upon any f act s other

t han t he exi st ence of t he assi gnment of Bar t l et t s cl ai m t o

Rabki n.

The bankrupt cy cour t s concl usi on i s not suppor t ed i n t he

case l aw i t ci t ed f or t he pr oposi t i on and, i ndeed, i t i s

i nconsi st ent wi t h t he Panel s publ i shed deci si ons. The Panel has

on mul t i pl e occasi ons expl ai ned t hat i nsi der det er mi nat i on . . .

i s made on a case- by- case basi s, af t er t he consi der at i on of

var i ous f act or s. I n r e Fr i edman, 126 B. R. at 70 ( quot i ng

I n r e Schuman, 81 B. R. at 586 n. 1) . That t he i nqui r y as t o

i nsi der st at us i s f act - i nt ensi ve, and made on a case- by- case

basi s, i s gener al l y suppor t ed i n t he case l aw. Br owni ng I nt er est s

v. Al l i son, 955 F. 2d 1008, 1011 ( 5t h Ci r . 1992) ( hol di ng t hat a

non- st at ut or y i nsi der st at us must be det er mi ned by a f act ual

i nqui r y i nt o t he Debt or ' s r el at i onshi p wi t h t he al l eged i nsi der ) ;

Hyman v. Kor shak & Assocs. ( I n r e I sl and One, I nc. ) , 2013 Bankr .


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LEXI S 662 *6 (Bankr . M. D. Fl a. 2013) ( Thi s more nebul ous

non- st at ut or y i nsi der st at us must be det er mi ned by a f act ual

i nqui r y i nt o t he Debt or ' s r el at i onshi p wi t h t he al l eged i nsi der .

The det er mi nat i on i s f act - i nt ensi ve and must be made on a

case- by- case basi s. ) ; I n r e Vel o Hol di ngs, 472 B. R. 201, 208

( Bankr . S. D. N. Y. 2012) ( i nsi der st at us can be be det er mi ned on a

case- by- case basi s f r om t he t ot al i t y of t he ci r cumst ances) .

Accord I n r e Smi t h, 415 B. R. 222, 233 ( Bankr . D. Haw. 2009) ;

Rai nsdon v. Far son ( I n r e Far son) , 387 B. R. 784, 792 ( Bankr . D.

I daho 2008) .

Two of t he t hree cases ci t ed by t he bankrupt cy cour t i n i t sr ul i ng do not suppor t i t s concl usi on t hat when, by pur chase or

assi gnment , a non- i nsi der acqui r es a cl ai m f r om an i nsi der , t he

new hol der of t he cl ai m al so assumes i nsi der s t at us. One case

ci t ed by t he cour t , I n r e Appl egat e Pr op. , Lt d. , 133 B. R. 827

( Bankr . W. D. Tex. 1991) does not deal wi t h t he pur chase of an

i nsi der cl ai m by a non- i nsi der . I nst ead, t hat case deal t wi t h t he

pur chase of a non- i nsi der cl ai m by an i nsi der , as t he r esul t of

whi ch t he bankr upt cy cour t deemed t he i nsi der s accept ance of a

pl an excl uded f or pur pose of vot i ng under 1129( a) ( 10) because

t he cl ai mant was, i ndependent of t he cl ai m, an i nsi der . The ot her

case ci t ed by t he bankrupt cy cour t , I n r e Hol l y Knol l P shi p,

167 B. R. 381, 386 ( Bankr . E. D. Pa. 1994) , i s near l y i dent i cal , i n

t hat i t al so deal t wi t h an i nsi der pur chasi ng a non- i nsi der cl ai m.

I n t hat case, t he cour t al so conduct ed an i nqui r y t hat consi der ed

mor e t han t he si mpl e t r ansf er of t he cl ai m i n exami ni ng t he

cl ai mant s i nsi der st at us. I d. at 798- 99. As can be seen, i n

bot h of t hese cases, t he bankr upt cy cour t s under st ood t hat t he


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t r ansf er or assi gnment of a cl ai m di d not al one change t he st at us

of t he cl ai mant , and t hat f ur t her i nqui r y was necessar y t o

det er mi ne t hat st at us.

The one case ci t ed by t he bankrupt cy cour t t hat par t l y

suppor t s i t s concl usi on t hat a non- i nsi der who acqui r es an i nsi der

cl ai m st eps i nt o t he shoes of t hat cl ai mant i s t he unpubl i shed

deci si on of our Cour t of Appeal s, I n r e Gr eer W. I nvest ment Lt d.

P shi p, 81 F. 3d 168, 1996 WL 134293 ( 9t h Ci r . Mar . 25, 1996) .

However , even t hi s case does not t i e t he st at us of t he cl ai mant

sol el y t o t he st at us of t he cl ai m he acqui r ed. Af t er agr eei ng

wi t h t he bankrupt cy cour t t hat t he non- i nsi der assumed t he cl ai msubj ect t o i t s i nsi der st at us, t he Ni nt h Ci r cui t cont i nued i t s

anal ysi s wi t h we next addr ess whet her [ cl ai mant ] i s an i nsi der .

1996 WL 134293 at *3. Upon f ur t her exami nat i on, t he Ni nt h Ci r cui t

det er mi ned t hat t he cl ai mant was i n f act an i nsi der wher e t he

debt or exer ci sed consi der abl e cont r ol over t he cr edi t or or vi ce

ver sa. We t ake both of t hese obser vat i ons t o mean t hat t he

assi gnment or pur chase of a cl ai m does not by i t sel f change the

i nsi der st at us of t he cl ai mant wi t hout f ur t her i nqui r y and f act ual

f i ndi ngs t o suppor t desi gnat i ng a cr edi t or as an i nsi der .

Ther e i s al so a l ogi cal and l egal i nconsi st ency i n t he

bankrupt cy cour t s r easoni ng t hat t he assi gnment of a cl ai m by

i t sel f may change t he i nsi der st at us of t he cl ai mant . I f

assi gnment of an i nsi der cl ai m t o a non- i nsi der al one changes t he

non- i nsi der s st at us t o i nsi der , t hen i t woul d f ol l ow t hat an

assi gnment or pur chase of a non- i nsi der cl ai m by an i nsi der woul d

change t he i nsi der i nt o a non- i nsi der . As bot h t he Appl egat e and

Hol l y Knol l cour t s observed, t hat cannot be al l owed because, bot h


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9 Sect i on 1129 pr ovi des ( a) The cour t shal l conf i r m a pl anonl y i f al l of t he f ol l owi ng r equi r ement s ar e met : . . . ( 10) I f acl ass of cl ai ms i s i mpai r ed under t he pl an, at l east one cl ass ofcl ai ms t hat i s i mpai r ed under t he pl an has accept ed t he pl an,determi ned wi t hout i ncl udi ng any accept ance of t he pl an by anyi ns i der .

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bef or e and af t er t he assi gnment , t he i nsi der i s st i l l an i nsi der .

The bankrupt cy cour t appl i ed an er r oneous l egal r ul e i n t hi s

case when i t determi ned t hat Rabki n, who was ot herwi se a non-

i nsi der , became an i nsi der i n t he Laker i dge bankr upt cy case by

mer el y pur chasi ng an i nsi der s cl ai m. Thi s por t i on of t he

bankrupt cy cour t s deci si on i s t her ef or e REVERSED.

II.

Since the bankruptcy court failed to make appropriatefindings regarding the insider status of Rabkin, it waserror to exclude Rabkins acceptance of the plan ofreorganization under 1129(a)(10).

Sect i on 1129 pr ovi des t he requi r ement s f or conf i r mat i on of achapt er 11 pl an of r eor gani zat i on. Of i nt er est i n t hi s appeal i s

one such r equi r ement , 1129( a) ( 10) . Thi s pr ovi si on di ct at es

t hat , i f a chapt er 11 pl an pr oposes t o i mpai r a cl ass or cl asses

of cl ai ms, t o be conf i r med at l east one i mpai r ed cl ass must

af f i r mat i vel y accept t he pl an, and t hat cl ass accept ance must be

det er mi ned wi t hout i ncl udi ng the accept ance of t he pl an by any

i ns i der . 9

I n t hi s case, Laker i dge has j ust t wo credi t or s. I t s pr oposed

pl an separ at el y cl assi f i ed each credi t or : Cl ass 1 f or secur ed

cr edi t or USB and Cl ass 3 f or Rabki n, t he sol e unsecur ed cr edi t or .

Because t he pl an does not pr ovi de f or f ul l payment t o Cl ass 3

credi t or s, t hat cl ass i s i mpai r ed. 1124( 1) ( pr ovi di ng t hat a

cl ass i s i mpai r ed unl ess, as t o each cl ai m i n t he cl ass, t he pl an


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10 At or al ar gument bef or e t he Panel , counsel f or USBsuggest ed t hat Rabki n pl aced a condi t i on on hi s accept i ng vot e,t hat he r ecei ve mor e money. We have exami ned t he r ecor d andf i nd no suppor t f or t hi s al l egat i on. I ndeed, a copy of Rabki n sbal l ot i s i ncl uded i n t he bankrupt cy docket at no. 240, Exhi bi t B,at t ached t o Laker i dge s Cer t i f i cat e of Accept ance and Rej ect i on ofChapt er 11 Pl an [ Bal l ot Summar y] . The bal l ot cont ai ns onl y acheck mar k af t er accept s and i s s i gned by Rabki n wi t h hi saddr ess. Ther e ar e no i ndi cat i ons of a condi t i on on t he bal l ot .

11 A l eadi ng t r eat i se has descr i bed t he t est under 1129( a) ( 10) as somewhat mechani cal on i t s f ace, and thus woul dnot under a pl ai n meani ng anal ysi s per mi t an i nqui r y i nt o mot i veof t he accept i ng credi t or . 7 COLLI ER ON BANKRUPTCY 1129. 02[ 10] ( Al anN. Resni ck & Henr y J . Somer, eds. 16t h ed. 2009) . Some cour t shave suggest ed t hat at t empt s t o ar t i f i ci al l y manuf act ur e cl asses

t o obt ai n an accept i ng i mpai r ed non- i nsi der cl ass r ai se quest i onsunder 1129( a) ( 10) . Wi ndsor on t he Ri ver Assocs. v. Bal cor RealEst at e Fi n. ( I n r e Wi ndsor on t he Ri ver Assocs) , 7 F. 3d 127, 183( 8t h Ci r . 1993) . We decl i ne t o i mpor t an i nt ent or pur poser equi r ement i nt o 1129( a) ( 10) . I n r e Hot el Assocs. of Tucson,165 B. R. at 474. However , we not e t hat , i n 1129( a) ( 3) , t he Codeal so r equi r es, as a condi t i on of conf i r mat i on, t hat t he pl anpr oponent pr ove t hat t he pl an has been pr oposed i n good f ai t h.

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l eaves unal t er ed t he cont r act ual r i ght s of t he cl ai m) . Accor di ng

t o a bal l ot summary submi t t ed t o t he bankr upt cy cour t on J ul y 30,

2012 by Laker i dge s counsel , Cl ass 1 ( USB) vot ed t o rej ect t he

pl an. However , Cl ass 3 ( Rabki n) vot ed t o accept t he pl an. 10 Thus,

i f Rabki n s accept i ng vot e i s count ed, Cl ass 3 has accept ed t he

pl an, and Laker i dge has sat i sf i ed 1129( a) ( 10) .

Si nce t he bankr upt cy cour t determi ned t hat Rabki n was an

i nsi der , t hough, hi s vot e woul d necessar i l y be excl uded i n

determi ni ng whether Cl ass 3 had accept ed t he pl an. We concl ude

t he bankr upt cy cour t s deci si on t hat hi s vote must be excl uded was

i ncor r ect because Rabki n was not an i nsi der , and 1129( a) ( 10)does not r equi r e t hat hi s accept ance of t he Laker i dge pl an be

excl uded i n determi ni ng whether Cl ass 3 accept ed t hat pl an. 11 We

t her ef or e REVERSE t hat por t i on of t he bankrupt cy cour t s order


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12 On r equest of a par t y i n i nt er est , and af t er not i ce and ahear i ng, t he cour t may desi gnate any ent i t y whose accept ance orr ej ect i on of such pl an was not i n good f ai t h, or was not sol i ci t edor pr ocur ed i n good f ai t h or i n accor dance wi t h t he pr ovi si ons oft hi s t i t l e. 1126( e) .

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det er mi ni ng t hat Rabki n s vote t o accept t he pl an must be

excl uded.

III.

The bankruptcy court did not err in declining to designatethat Rabkins acceptance of the plan was not in good faithfor purposes of 1126(e).

Even i f Rabki n i s not an i nsi der and hi s cl ai m i s not

excl uded under 1129( a) ( 10) , USB argues t hat hi s accept ance of

t he Laker i dge pl an shoul d be desi gnated under 1126( e) . That

Code pr ovi si on per mi t s t he bankrupt cy cour t , on r equest of a par t y

i n i nt er est , t o di squal i f y any pl an vot e t hat was not made i n good

f ai t h, or t hat was not sol i ci t ed i n good f ai t h or i n accor dancewi t h t he pr ovi si ons of t he Bankrupt cy Code. 12 The bankr upt cy cour t

decl i ned t o desi gnate Rabki n s accept ance here, and we percei ve no

er r or i n t hi s deci s i on.

I n t hi s cont ext , good f ai t h does not r equi r e a credi t or t o

act wi t h sel f l ess di s i nt er est :

I f a person seeks t o secure some untoward advant age overot her credi t or s f or some ul t er i or mot i ve, t hat wi l li ndi cat e bad f ai t h. See I n r e Mar i n Town Ct r . , 142 B. R.374, 378- 79 ( N. D. Cal . 1992) . But t hat does not meant hat cr edi t or s ar e expect ed t o appr oach r eor gani zat i onpl an vot es wi t h a hi gh degr ee of al t r ui sm and wi t h t hedesi r e t o hel p t he debt or and t hei r f el l ow credi t or s.Far f r om i t .

I n r e Fi gt er Lt d. , 118 F. 3d at 638- 39. Put anot her way, a

cr edi t or act i ng out of sel f - i nt er est i s not t o be condemned

si mpl y because i t f r ust r at ed [ some ot her credi t or s] desi r es.


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I d. at 639. On t he ot her hand, i f a per son seeks t o secur e some

unt owar d advant age over ot her cr edi t or s f or some ul t er i or mot i ve,

t hat wi l l i ndi cat e bad f ai t h f or pur poses of 1126( e) . I d. at

639.

Rabki n t est i f i ed t hat he pur chased t he MBP Cl ai m as a

busi ness i nvest ment wi t h t he expect at i on of r ecei vi ng a $30, 000

r etur n t hr ough t he Laker i dge pl an on a $5, 000 i nvest ment . Rabki n

Dep. 82: 3- 14. USB cont ends t hat Rabki n was i nvol ved i n a r omant i c

r el at i onshi p wi t h Bar t l et t , a pr i nci pal of Laker i dge, and

conspi r ed wi t h her t o acqui r e t he MBP cl ai m sol el y t o accept

Laker i dge s pl an of r eor gani zat i on. On t he one hand, Rabki n sargument t hat he was i nterest ed i n maki ng money i s not an exampl e

of bad f ai t h. I n r e Fi gt er , 118 F. 3d at 638. On t he ot her hand,

t he acqui si t i on of a cl ai m sol el y t o creat e an i mpai r ed assent i ng

cl ass may const i t ut e bad f ai t h under 1129( a) ( 3) . I n r e Hot el

Assocs. Of Tucson, 165 B. R. 470, 475 ( 9t h Ci r . BAP 1994) .

USB i nsi st s t hat Rabki n di d not act i n accor dance wi t h hi s

f i nanci al i nt er est s, and as evi dence, i t poi nt s t o hi s deposi t i on

where counsel f or USB of f ered Rabki n $50, 000, and then $60, 000, t o

acqui r e hi s cl ai m, whi ch woul d gener at e an i mmedi at e pr of i t of

$20, 000- 30, 000 above what Rabki n expect ed t o gai n t hr ough the

pl an. Accor di ng t o USB, Rabki n s ref usal t o t ake t he bai t cl ear l y

demonst r at ed hi s mot i ve i n t he case was somethi ng other t han

f i nanci al gai n. When a cr edi t or appear s t o act agai nst

sel f - i nt er est , t hat may be an i ndi cat i on of bad f ai t h.

I n r e Hot el Assocs. Of Tucson, 165 B. R. at 475.

The bankrupt cy cour t addr essed t hi s ar gument bot h at t he

hear i ng on August 29, 2012, and i n t he order denyi ng USB s


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mot i ons. At t he hear i ng, Rabki n expr essed out r age t hat he was

pr essur ed t o make a deal i n t he cont ext of a deposi t i on hear i ng.

The cour t agr eed t hat USB s t act i c was appal l i ng and apol ogi zed

on behal f of t he l egal pr of essi on f or USB s counsel s behavi or .

Hr ' g Tr . 21: 1- 2. I n t he or der , t he cour t char act er i zed USB s pl oy

dur i ng t he deposi t i on as of f ensi ve and not ed t hat Rabki n was

under no obl i gat i on t o accept t he of f er . Desi gnat i on Or der at

3. The cour t al so deci ded i n t he or der t hat Rabki n s pur chase

of a $2, 671, 000. 00 unsecur ed cl ai m under t hese ci r cumst ances f or

$5, 000, wi t h a $30, 000 expect ed gai n, was an exampl e of a

specul at i ve i nvest ment and t hat no speci al due di l i gence wasr equi r ed by Rabki n. I d.

As t o USB s ar gument s concer ni ng the Rabki n- Bar t l et t per sonal

r el at i onshi p, t he bankrupt cy cour t made sever al f i ndi ngs on t he

r ecor d, di scussed above, i ndi cat i ng t hat t he evi dence pr esent ed t o

hi m di d not suppor t i nsi der st andi ng on t he basi s of a put at i ve

r omant i c r el at i onshi p bet ween Rabki n and Bar t l et t . Desi gnat i on

Or der at 2. I n addi t i on, i n t he or der , t he cour t f ound t hat , on

t he evi dence bef or e i t , Ms. Bar t l et t di d not ask Dr . Rabki n t o

vot e i n f avor of t he Debt or s Pl an. Desi gnat i on Or der at 3( c) .

I n gener al , bad f ai t h sol i ci t at i on of a vot e r equi r es a speci f i c

r equest f or a credi t or s of f i ci al vot e. I n r e Bat aa/ Ki er l and,

LLC, 476 B. R. 558, 565 ( Bankr . D. Ar i z. 2012) ( ci t i ng Cent ur y

Gl ove v. Fi r st Am. Bank of New Yor k, 860 F. 2d 94, 102- 03 ( 3d Ci r .

1988) .

Whether Rabki n s vot e on the Laker i dege pl an shoul d be

desi gnat ed as not i n good f ai t h under 1126( e) i s a quest i on of

f act r evi ewed f or cl ear er r or . I n r e Fi gt er , 138 F. 3d at 638.


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The bankr upt cy cour t consi der ed t he t est i mony and evi dence on t hi s

quest i on and made adequate f i ndi ngs on t he recor d and i n t he or der

t o suppor t i t s concl usi ons. Ander son, 470 U. S. at 573- 74 ( Wher e

t wo per mi ssi bl e vi ews of t he evi dence exi st , t he f act f i nder ' s

choi ce between t hem cannot be cl ear l y er r oneous. ) . The bankrupt cy

cour t di d not cl ear l y er r i n decl i ni ng t o desi gnat e t hat Rabki n s

accept ance of t he pl an was not i n good f ai t h f or pur poses of

1126( e) . We AFFI RM t he bankrupt cy cour t s deci si on i n t hi s

r espect .

IV.

The bankruptcy court did not abuse its discretion in refusingto order that Bartlett submit to a second deposition.

Rul es 9014 and 7030 i ncorpor at e Ci vi l Rul e 30 i n cont est ed

mat t er s. Ci vi l Rul e 30 st at es, Unl ess ot her wi se st i pul at ed or

or der ed by the Cour t , a deposi t i on i s l i mi t ed t o 1 day of 7

hour s. Ci vi l Rul e 26, al so i ncor por at ed i n t hi s cont ext by

Rul es 9014 and 7026, pr ovi des i n r el evant par t ,

When Requi r ed. On mot i on or on i t s own, t he court mustl i mi t t he f r equency or ext ent of di scover y ot her wi seal l owed by these r ul es or by l ocal r ul e i f i t det er mi nesthat: ( I ) t he di scover y sought i s unr easonabl ycumul at i ve or dupl i cat i ve, or can be obt ai ned f r om someother sour ce t hat i s more conveni ent , l ess bur densome,or l ess expensi ve; ( i i ) t he par t y seeki ng di scover y has had ampl eoppor t uni t y t o obt ai n t he i nf or mat i on by di scover y i nt he act i on; or ( i i i ) t he bur den or expense of t he pr oposeddi scover y out wei ghs i t s l i kel y benef i t , consi der i ng t he

needs of t he case, t he amount i n cont r over sy, t hepar t i es' r esour ces, t he i mpor t ance of t he i ssues atst ake i n t he act i on, and t he i mpor t ance of t he di scover yi n r esol vi ng t he i ssues.

Ci vi l Rul e 26( b) ( 2) ( C) .

USB cont ends t hat Bar t l et t was or i gi nal l y deposed onl y i n her


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capaci t y as r epr esent at i ve of Laker i dge, and not i n her per sonal

capaci t y. Laker i dge and Rabki n count er t hat USB di d i ndeed have

t he oppor t uni t y i n t he f i r st deposi t i on t o quest i on Bar t l et t about

per sonal mat t er s, i ncl udi ng her r el at i onshi p wi t h Rabki n. At t he

hear i ng on J une 12, 2012, t he bankrupt cy cour t decl i ned t o or der

Bart l et t t o appear at a second deposi t i on because USB al r eady had

t he oppor t uni t y t o quest i on Bar t l et t i n t he deposi t i on on per sonal

mat t er s as par t of an ext ensi ve di scussi on. The r ecor d on

appeal suppor t s t hi s concl usi on:

Q: When was t hat ( [ MBP Cl ai m] t r ansf er r ed t oMr . Rabki n?

BARTLETT: I bel i eve i t was i n Oct ober . Oct ober 17t h,somet hi ng l i ke t hat . I n 2011.

Q: And . . . t hat s af t er t he Vi l l age f i l ed f orbankr upt cy?

BARTLETT: Yes.

Q. The most r ecent t i me?

BARTLETT: Yes. . . .

Q. Okay. Di d you know Mr . Rabki n bef or e?

BARTLETT: I di d. . . .

Q: Di d you know hi m per sonal l y? Wer e you guysf r i ends?

BARTLETT: Yes.

Bar t l et t Dep. 55: 1420, Febr uar y 9, 2012.

The bankrupt cy cour t s r ul i ng t hat USB had ampl e oppor t uni t y

t o obt ai n t he i nf or mat i on i t needed at t he or i gi nal deposi t i on i s

consi st ent wi t h Ci vi l Rul es 30 and 26, and i s not ( 1) i l l ogi cal ,

( 2) i mpl ausi bl e, or ( 3) wi t hout suppor t i n i nf er ences t hat may be

dr awn f r om t he f act s i n t he r ecor d. The bankrupt cy cour t di d not

abuse i t s di scret i on i n r ef usi ng t o or der t hat Bar t l et t submi t t o


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a second deposi t i on.

V.

The bankruptcy court made insufficient findings in support ofits ruling concerning the application of the common interest

privilege.

Whether t he bankrupt cy cour t cor r ect l y det ermi ned t hat t he

common i nt er est pr i vi l ege appl i ed t o pr ot ect Rabki n s di scussi ons

wi t h Laker i dge s at t or ney i s an i ssue of l aw we r evi ew de novo.

Ri chey, 632 F. 3d at 563- 64; Gonzal ez, 669 F. 3d at 978.

The bankrupt cy cour t announced i t s deci si on on t he r ecor d of

t he hear i ng on J une 21 r egar di ng t he Di scover y Request s, i ncl udi ng

i t s r ul i ng t hat t he common i nt er est pr i vi l ege appl i ed and Rabki nwas not r equi r ed t o respond t o quest i ons f r om USB' s counsel about

hi s di scussi ons wi t h Laker i dge' s l awyer . The bankrupt cy cour t was

appar ent l y unawar e t hat t he Ni nt h Ci r cui t had j ust i ssued a

publ i shed opi ni on r el at i ng t o t he common i nt er est pr i vi l ege a f ew

weeks ear l i er , on May 10, 2012, i n Pac. Pi ct ur es Cor p. v. U. S.

Di st . Ct . , 679 F. 3d 1121 ( 9t h Ci r . 2012) .

The Common I nter est Pr i vi l ege ( al so known as J oi nt Def ense

Pr i vi l ege) has l ong been r ecogni zed i n t he Ni nt h Ci r cui t .

Gonzal ez, 669 F. 3d at 978 ( 9t h Ci r . 2012) ; Cont i nent al Oi l Co. v.

Uni t ed St at es, 330 F. 2d 347, 350 ( 9t h Ci r . 1964) . The bankrupt cy

cour t r el i ed on Gonzal ez i n whi ch t he Ni nt h Ci r cui t hel d t hat t he

pr i vi l ege was appl i cabl e i n bot h ci vi l and cr i mi nal pr oceedi ngs,

and was based on the pr i nci pl e t hat per sons who shar e a common

i nt er est i n l i t i gat i on shoul d be abl e t o communi cat e wi t h t hei r

r espect i ve at t or neys and wi t h each ot her t o mor e ef f ect i vel y

pr osecut e or def end t hei r cl ai ms. Gonzal ez, 669 F. 3d at 978.

Thi s pr i vi l ege appl i es i n bankr upt cy proceedi ngs. I n r e Mor t g. &


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Real t y Tr ust , 212 B. R. 649, 653 ( Bankr . C. D. Cal . 1997) . The

pr i vi l ege does not r equi r e a wr i t t en agr eement , and i t s

appl i cat i on may be i mpl i ed by conduct and si t uat i on. Gonzal ez,

669 F. 3d at 978 ( quot i ng Cont i nent al Oi l , 330 F. 2d at 350) .

The bankrupt cy cour t r ecei ved a l et t er f r om Rabki n s at t or ney

descr i bi ng t he natur e and scope of t he communi cat i ons at i ssue:

I n advance of hi s [ schedul ed] Deposi t i on, Rabki n and[ hi s counsel ] met wi t h [ Laker i dge s counsel at t hei rof f i ce] t o di scuss i n gener al t er ms t he t ypes ofquest i ons t o expect at t he deposi t i on. The meet i ngl ast ed f or 40 mi nut es and Rabki n ant i ci pat ed t hat t hedi scussi ons wer e bei ng hel d i n conf i dence. Lat er , att he deposi t i on, counsel f or l ender [ USB] asked deponentRabki n what had been di scussed at t he meet i ng [ ] . Smi t h

and Har t man each asser t ed t he common i nt erest pr i vi l egeand Har t man di r ect ed Rabki n not t o answer any quest i onsr el at i ng t o t he meet i ng at [ Laker i dge Counsel s Of f i ce] .

Laker i dge and Rabki n shared a common i nt erest i n t hat t hey

bot h want ed t o obt ai n conf i r mat i on of t he pl an of r eor gani zat i on,

Laker i dge as t he debt or and pl an pr oponent , and Rabki n f or hi s

f i nanci al i nt er est s. As a r esul t , whi l e t hey had separ at e

counsel , t hey were engaged i n f ur t herance of a common l egal

ent er pr i se. Gonzal es, 669 F. 3d at 981 ( I n t he cont ext of t he

j oi nt def ense pr i vi l ege, onl y communi cat i ons made i n cour se of

ongoi ng common ent er pr i se and i nt ended to f ur t her t hat ent er pr i se

ar e pr ot ect ed. ) . Rabki n bel i eved t hat hi s communi cat i ons wi t h

Laker i dge s at t or ney wer e pr ot ect ed as conf i dent i al , and asser t ed

t he common i nt er est pr i vi l ege bef or e t he bankrupt cy cour t .

Gonzal ez, 669 F. 3d at 981 ( The common i nt erest r ul e r equi r es

communi cat i on to be gi ven i n conf i dence and that t he cl i ent

r easonabl y under st ood i t t o be so gi ven. ) .

The bankrupt cy cour t noted t hat I bel i eve t her e i s a Common

I nt er est Pr i vi l ege. I bel i eve t he Ni nt h Ci r cui t has def i ned


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i t . . . So your mot i on i s deni ed. Hr g Tr . 9: 7- 11, J une 21,

2012.

However , because t he bankr upt cy cour t was not aware of t he

newer , Pac. Pi ct ur es opi ni on, i t di d not make t he necessary

f i ndi ng t hat , i n addi t i on t o al l t he f actor s di scussed above, i t

was necessar y t o det er mi ne i f t her e was an expr ess or i mpl i ed

agr eement bet ween t he par t i es t o pur sue a j oi nt st r at egy:

Rat her t han a separ at e pr i vi l ege, t he "common i nt er est "or "j oi nt def ense" r ul e i s an except i on t o or di nar ywai ver r ul es desi gned t o al l ow at t or neys f or di f f er entcl i ent s pur sui ng a common l egal st r ategy t o communi catewi t h each other . See Hunydee v. Uni t ed St ates, 355 F. 2d183, 185 ( 9t h Ci r . 1965) ; see al so I n r e Gr and J ur y

Subpoenas, 902 F. 2d 244, 249 ( 4t h Ci r . 1990) ( col l ect i ngcases) . However , a shar ed desi r e t o see t he sameout come i n a l egal mat t er i s i nsuf f i ci ent t o br i ng acommuni cat i on between t wo part i es wi t hi n t hi s except i on.I d. I nst ead, t he par t i es must make t he communi cat i on i npur sui t of a j oi nt st r at egy i n accor dance wi t h some f or mof agr eement whet her wr i t t en or unwr i t t en. Cf .Cont i nent al Oi l Co. v. Uni t ed St at es, 330 F. 2d 347, 350( 9t h Ci r . 1964) .

Pac. Pi ct ur es Cor p. , 679 F. 3d at 1130 ( emphasi s added) .

Because t he bankr upt cy cour t di d not make t he necessary

f i ndi ng t hat , i n addi t i on t o shar i ng a common i nt er est i n t he

out come of t he l i t i gat i on, an expr ess or i mpl i ed agr eement exi st ed

between Rabki n and Laker i dge t o pur sue a j oi nt st r ategy, we must

VACATE t hat port i on of t he or der denyi ng t he Di scovery Request s

r el at i ng t o t he common i nt er est pr i vi l ege.

CONCLUSION

We AFFI RM t hat par t of t he bankrupt cy cour t s or der denyi ng

t he Di scover y Request s t hat Bar t l et t need not submi t t o a second

deposi t i on. We VACATE t he par t of t hat order t hat t he common

i nt er est pr i vi l ege appl i ed t o Rabki n s di scussi ons wi t h

Laker i dge' s at t or ney.


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As t o t he Desi gnat i on Or der , we AFFI RM t he bankrupt cy cour t s

deci si on t hat Rabki n i s not a non- st at ut or y i nsi der , and AFFI RM

i t s deci si on decl i ni ng t o desi gnat e t hat Rabki n' s accept ance of

t he pl an was not i n good f ai t h f or pur poses of 1126( e) . We

REVERSE the bankrupt cy cour t s deci si on t hat Rabki n i s a st at ut or y

i nsi der , and REVERSE the deci si on excl udi ng Rabki n s vot e t o

accept t he pl an. We VACATE t hat par t of t he order deci di ng t hat

t he Debt or does not have an i mpai r ed, assent i ng cl ass of cl ai ms

necessary t o conf i r m t he pl an, and t he deci si on denyi ng

conf i r mat i on of t he Laker i dge pl an of r eor gani zat i on. We REMAND

t hese mat t er s t o the bankrupt cy cour t f or f ur t her pr oceedi ngsconsi st ent wi t h t hi s deci si on.

in re: the village at lakeridge, llc, fka magnolia village, llc, 9th cir. bap (2013)

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