In ruling that appellate courts should defer to a bankruptcy court’s factual findings when hearing challenges over a creditor’s insider relationship to a debtor, the U.S. Supreme Court refused to endorse an “arm’s length” test used in bankruptcies, suggesting other evaluative standards may be better, according to experts. The high court unanimously affirmed in U.S. Bank NA v. The Village at Lakeridge LLC that the federal circuits should only review challenges over nonstatutory insider determinations in a Chapter 11 case for “clear error” instead of reviewing the entire dispute from scratch, or de novo.
RK&O partner Gregory Plotko spoke with Law 360 about this decision and predicted that the concurring decisions will influence judges and allow lawyers to craft better arguments when trying to prove the existence of a nonstatutory insider relationship. “It seems to me that some of the justices went out of the way to suggest a better standard of who a non-enumerated insider might be," he said. “That’s a little bit of giving direction to bankruptcy judges.”
"High Court Ruling Questions Ch. 11 'Insider' Status Test" - Law 360 (subscription required)