FILED APR 05 2013 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP Nos. NV-12-1456-PaKiTa ) NV-12-1474-PaKiTa 6 THE VILLAGE AT LAKERIDGE, LLC, fka ) (Cross-appeals) Magnolia Village, LLC, ) 7 ) Bk. No. 11-51994-BTB Debtor. ) 8 ___________________________________) ) 9 THE VILLAGE AT LAKERIDGE, LLC, fka ) Magnolia Village, LLC; ROBERT ) 10 ALAN RABKIN, M.D., ) ) 11 Appellants/ ) Cross-appellees, ) 12 ) v. ) M E M O R A N D U M1 13 ) U.S. BANK NATIONAL ASSOCIATION, AS ) 14 TRUSTEE, AS SUCCESSOR-IN-INTEREST ) TO BANK OF AMERICA, N.A., AS ) 15 SUCCESSOR BY MERGER TO LASALLE ) BANK NATIONAL ASSOCIATION, AS ) 16 TRUSTEE, FOR THE REGISTERED ) HOLDERS OF GREENWICH CAPITAL ) 17 COMMERCIAL FUNDING CORP., ) COMMERCIAL MORTGAGE TRUST 2005- ) 18 GG3, COMMERCIAL MORTGAGE PASS ) THROUGH CERTIFICATES, SERIES ) 19 2005-GG3, BY AND THROUGH, ) CWCAPITAL ASSET MANAGEMENT LLC, ) 20 SOLELY IN ITS CAPACITY AS SPECIAL ) SERVICER, ) 21 ) Appellee/ ) 22 Cross-appellant. ) ___________________________________) 23 Argued and Submitted on March 22, 2013, 24 at Pasadena, California 25 Filed - April 5, 2013 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 28 Cir. BAP Rule 8013-1.
-1- 1 Appeal from the United States Bankruptcy Court for the District of Nevada 2 Honorable Bruce T. Beesley, Bankruptcy Judge, Presiding 3 4 Appearances: Holly E. Estes of Law Offices of Alan R. Smith argued for appellant/cross-appellee The Village at 5 Lakeridge, LLC; Keith Charles Owens of Venable Llp argued for appellee/cross-appellant U.S. Bank 6 National Association. 7 Before: PAPPAS, KIRSCHER and TAYLOR, Bankruptcy Judges. 8 9 10 Chapter 112 debtor The Village at Lakeridge, LLC 11 (“Lakeridge”) appeals the order of the bankruptcy court granting 12 in part the motion of U.S. Bank National Association as Trustee3 13 (“USB”) to (A) designate claim of Robert Rabkin and (B) disallow 14 such claim for plan voting purposes (“Designation Motion”). USB 15 cross-appeals (1) the part of the order granting the Designation 16 Motion holding that Dr. Robert Rabkin ("Rabkin") was not a non- 17 statutory insider of Lakeridge and (2) an order denying requests 18 to intervene in discovery disputes (“Discovery Requests”). We 19 AFFIRM in part, REVERSE in part, and VACATE in part the order 20 regarding the Designation Motion. We AFFIRM in part and VACATE in 21 part the order denying the Discovery Requests. 22 FACTS 23 Lakeridge filed a chapter 11 petition on June 16, 2011. It 24 25 2 Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 26 to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. The Federal Rules of Civil Procedure are referred to as Civil 27 Rules. 28 3 For USB’s full authority as trustee, see caption.
-2- 1 owned and operated a commercial real estate development in Reno, 2 Nevada (the “Property”). It purchased the Property in January 3 2004 and financed the purchase with a loan, evidenced by a 4 promissory note, from Greenwich Financial Products, Inc. 5 Apparently, USB now holds the fully secured claim for the balance 6 due on this loan, which amounts to about $10 million; this is the 7 only secured claim in the bankruptcy case. 8 The sole member of Lakeridge is MBP Equity Partners 1, LLC 9 (“MBP”). Kathie Bartlett (“Bartlett”) is a member of the board of 10 managers of MBP. The only unsecured claim listed in Lakeridge’s 11 bankruptcy schedules was one for $2,761,000.00 held by MBP (the 12 “MBP Claim”).4 Bartlett signed the bankruptcy petition and all 13 related documents on behalf of Lakeridge.5 14 Lakeridge filed a Disclosure Statement and Plan of 15 Reorganization on September 14, 2011.6 The only claims addressed 16 in the Disclosure Statement and Plan were the fully secured claim 17 of USB and the MBP Claim. 18 19 4 The schedules also listed about $50,000 in tenant deposits 20 as unsecured claims. Later, Lakeview withdrew classification of those deposits as unsecured claims when it assumed the leases; USB 21 has not challenged Lakeridge’s position. 22 5 None of the papers signed by Bartlett indicate her title. We are unable to determine from the record the precise nature of 23 her position and authority in Lakeridge other than that she is a member of the board of managers. She described her position at 24 her deposition as “representative of both the Village at Lakeridge, LLC and the equity owners.” Bartlett Dep. 9:10-11, 25 February 9, 2012. However, the parties do not dispute that she was the officer of the debtor responsible for its filings or that 26 she is an “insider” of the debtor. 27 6 With changes not relevant in this appeal, the Plan of Reorganization was amended on November 4, 2011, and January 12, 28 2012.
-3- 1 On October 27, 2011, Rabkin purchased the MBP Claim for the 2 sum of $5,000.00. A Notice of Assignment of the MBP Claim to 3 Rabkin was filed with the bankruptcy court on November 4, 2011. 4 A hearing was held on the Disclosure Statement on November 7, 5 2011. It does not appear that the Rabkin assignment was discussed 6 at the hearing. The bankruptcy court approved the Disclosure 7 Statement by order on November 23, 2011. 8 Bartlett was deposed by USB on February 9, 2012, in her 9 capacity as a representative of Lakeridge. 10 On June 7, 2012, Rabkin testified at a USB deposition. Early 11 in his deposition, Rabkin testified that he had attended a meeting 12 one hour before the deposition with his counsel and counsel for 13 Lakeridge. When asked what he discussed with Lakeridge's counsel, 14 Lakeridge's attorney objected, invoking the "common interest 15 privilege." Rabkin Dep. 11:20-2, June 7, 2012. Rabkin's counsel 16 joined in the objection and ultimately directed Rabkin not to 17 answer the question. 18 Rabkin testified to the following matters in that deposition: 19 (1) that he had both a business and close personal relationship 20 with Bartlett; (2) that he saw Bartlett regularly, including on 21 the day of the deposition; and (3) that he purchased the MBP Claim 22 for $5,000 as a business investment and expected to be paid a pro 23 rata dividend of $30,000 under the Lakeridge plan. As to any 24 other interest in the Lakeridge bankruptcy case, Rabkin testified 25 as follows: 26 USB COUNSEL: Other than getting paid in this bankruptcy case, do you have any other concerns? 27 RABKIN: I’m concerned that I may run up a lot of 28 expenses and get paid nothing.
-4- 1 USB COUNSEL: Other than getting paid the $30,000, do you care whether the Village at Lakeridge plan gets 2 confirmed? Setting aside the payment, if you were to get paid the $30,000, would you care if the plan was 3 confirmed? 4 RABKIN: I have no other interest in the Village at Lakeridge. 5 6 Rabkin Dep. 82:3-14. 7 Near the end of the deposition, USB, through counsel, offered 8 to purchase the MBP Claim from Rabkin for $50,000; when he 9 declined, counsel increased the offer to $60,000. Rabkin did not 10 accept the offer.7 11 Shortly after the Rabkin deposition, USB by letter requested 12 that the bankruptcy court intervene in two discovery disputes in 13 the bankruptcy case: (1) whether the common interest privilege 14 applied so as to protect disclosure of communications between 15 Rabkin and Lakeridge’s counsel; and (2) to compel Bartlett to sit 16 for a second deposition, this time in her individual capacity as 17 opposed to her first deposition as representative of Lakeridge 18 (previously defined as the “Discovery Requests”). 19 The bankruptcy court held a hearing on June 21, 2012, on 20 USB’s Discovery Requests. After reviewing letter briefs from USB, 21 Lakeridge and Rabkin, and hearing from their counsel, the court 22 ruled on the record that the Ninth Circuit’s decision in United 23 States v. Gonzalez, 669 F.3d 974 (9th Cir. 2012) supported the 24 25 7 At a hearing on August 29, 2012, Rabkin indicated that he felt USB’s counsel took advantage of a deponent who was under oath 26 by pressuring him to accept a cash offer without an adequate chance to review it. The bankruptcy court would later apologize 27 to Rabkin “on behalf of the legal profession” for the offensive conduct of USB’s attorney in the deposition. Hr’g Tr. 21:1-2, 28 August 29, 2012.
-5- 1 application of the common interest privilege in this case and 2 denied USB’s request to compel Rabkin to disclose his 3 communications with Lakeridge’s attorneys. As to USB’s request 4 for a second deposition for Bartlett, the court ruled that she had 5 been extensively examined already and the court would not require 6 a second examination. 7 On July 1, 2012, USB filed the Designation Motion. USB 8 contended in that motion that Rabkin was a statutory insider by 9 virtue of the assignment of the MBP insider claim to him, and that 10 he was a non-statutory insider because of his relationship with 11 Bartlett. USB also argued that the assignment of the claim to 12 Rabkin was in bad faith. Lakeridge responded, arguing that Rabkin 13 was neither a statutory nor a non-statutory insider, and that 14 there was no bad faith involved in Rabkin’s acquisition of the 15 claim. 16 The bankruptcy court held an evidentiary hearing on the 17 Designation Motion on August 1, 2012. USB, Lakeridge, and Rabkin 18 were represented by counsel, and Rabkin and Bartlett testified. 19 After a recess, the bankruptcy court announced its decision 20 on the record. It granted the Designation Motion in part and 21 denied it in part. The court entered an order to memorialize its 22 ruling on August 20, 2012 (the “Designation Order”). 23 First, the Designation Order recited that “The court finds 24 and concludes as a matter of law that Dr. Rabkin is not a non- 25 statutory insider because, among other things: (a) Dr. Rabkin does 26 not exercise control over the Debtor; (b) Dr. Rabkin does not 27 cohabit with Ms. Bartlett and does not pay Ms. Bartlett’s bills or 28 living expenses; (c) Dr. Rabkin has never purchased expensive
-6- 1 gifts for Ms. Bartlett.” Designation Order at ¶ 2, August 20, 2 2012. The bankruptcy court also concluded that the converse was 3 true: that Bartlett exercised no such control or provided gifts 4 to Rabkin. 5 Next, the bankruptcy court decided that the MBP Claim “was 6 not assigned to Dr. Rabkin in bad faith.” Designation Order at 7 ¶ 3. It explained that Dr. Rabkin was not compelled to sell his 8 claim to USB, his purchase of the MBP claim was a legitimate 9 investment, and that Bartlett never asked him to vote in favor of 10 the plan. 11 However, the bankruptcy court reasoned, “Because [MBP] is a 12 statutory insider, Dr. Rabkin, as the assignee of the claim, 13 acquired the same status as a statutory insider when he purchased 14 the claim.” Designation Order at § 6. The court supported its 15 conclusion with citation to several authorities. The Designation 16 Order gave no other explanation for its ruling that Rabkin was a 17 statutory insider. As a consequence, the court decided that 18 “[b]ecause Dr. Rabkin’s vote cannot be considered for voting 19 purposes in order to confirm the Debtor’s Plan, the Debtor does 20 not have an impaired, assenting class of claims necessary to 21 confirm his Plan.” Designation Order at ¶ 9. 22 Lakeridge and Rabkin both filed timely appeals of the 23 Designation Order. USB also filed a timely cross-appeal 24 challenging the provision of the Designation Order that Rabkin was 25 not a non-statutory insider, and also seeking review of the 26 bankruptcy court’s prior order denying the Discovery Requests. 27 JURISDICTION 28 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334
-7- 1 and 157(b)(2)(A),(L) and (O). We have jurisdiction under 2 28 U.S.C. § 158. 3 ISSUES 4 1. Whether the bankruptcy court erred in deciding that Rabkin 5 was an insider of Lakeridge under § 101(31). 6 2. Whether the bankruptcy court erred in deciding that Rabkin’s 7 acceptance of the Lakeridge plan would be excluded under 8 § 1129(a)(10). 9 3. Whether the bankruptcy court erred in declining to designate 10 that Rabkin’s acceptance of the plan was not in good faith 11 for purposes of § 1126(e). 12 4. Whether the bankruptcy court abused its discretion in 13 declining to order that Bartlett submit to a second 14 deposition. 15 5. Whether the bankruptcy court erred in refusing to compel 16 Rabkin to answer questions during his deposition based on the 17 common interest privilege. 18 STANDARDS OF REVIEW 19 Whether a party is an insider in relation to a debtor is a 20 question of fact reviewed for clear error. Friedman v. Sheila 21 Plotsky Brokers, Inc. (In re Friedman), 126 B.R. 63, 67 (9th Cir. 22 BAP 1991). In making this determination, the bankruptcy court 23 must determine, “on a case-by-case basis whether the relationship 24 between a creditor and its debtor, considered in the light of the 25 statutory scheme, amounts to an ‘insider’ relationship.” Id. 26 We review issues of statutory construction, including a 27 bankruptcy court’s interpretation of the Bankruptcy Code, de novo. 28 Samson v. W. Capital Partners, LLC (In re Blixseth), 684 F.3d 865,
-8- 1 869 (9th Cir. 2012). Construction and application of 2 § 1129(a)(10) is reviewed de novo. W. Real Estate Equities, LLC 3 v. Vill. at Camp Bowie I, LP (In re Village at Camp Bowie I, LP), 4 ___ F.3d ___, 2013 U.S. App. LEXIS 3949 * 17 (5th Cir. 2013). 5 We review good faith determinations under § 1126(e) for clear 6 error. Figter Ltd. v. Teachers Ins. & Annuity Ass’n of Am. 7 (In re Figter Ltd.), 118 F.3d 635, 638 (9th Cir. 1997). 8 The bankruptcy court’s decisions resolving deposition 9 disputes are reviewed for an abuse of discretion. Childress v. 10 Darby Lumber, Inc., 357 F.3d 1000, 1009 (9th Cir. 2004). 11 A trial court’s application of the attorney-client privilege 12 is reviewed de novo. United States v. Richey, 632 F.3d 559, 13 563-64 (9th Cir. 2012). The common interest privilege is an 14 extension of the attorney-client privilege. United States v. 15 Gonzalez, 669 F.3d 974, 978 (9th Cir. 2012). 16 De novo review requires the Panel to review an issue 17 independently, without giving deference to the bankruptcy court's 18 conclusions. First Ave. W. Bldg., LLC v. James (In re Onecast 19 Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006); Cal. Franchise 20 Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 21 416, 423 (9th Cir. BAP 2011). 22 Clear error is found when the reviewing court has a definite 23 and firm conviction that a mistake has been committed. Lewis v. 24 Ayers, 681 F.3d 992, 998 (9th Cir. 2012). 25 We apply a two-part test to determine objectively whether the 26 bankruptcy court abused its discretion. United States v. Hinkson, 27 585 F.3d 1247, 1261-62 (9th Cir. 2009)(en banc). First, we 28 "determine de novo whether the bankruptcy court identified the
-9- 1 correct legal rule to apply to the relief requested." Id. Second, 2 we examine the bankruptcy court's factual findings under the 3 clearly erroneous standard. Id. at 1262 & n.20. We must affirm 4 the bankruptcy court's factual findings unless those findings are 5 "(1) 'illogical,' (2) 'implausible,' or (3) without 'support in 6 inferences that may be drawn from the facts in the record.'" Id. 7 DISCUSSION 8 I. 9 Rabkin was neither a statutory nor a non-statutory insider of debtor Lakeridge under § 101(31). 10 11 The fundamental issue raised in this appeal is whether Rabkin 12 was an “insider” as to Lakeridge. If he was an insider, his vote 13 to accept the Lakeridge plan must be excluded under § 1129(a)(10). 14 The Bankruptcy Code definition of an insider in § 101(31) for 15 a case involving a corporate debtor8 provides: 16 The term "insider" includes– . . . 17 (B) if the debtor is a corporation-- 18 (I) director of the debtor; (ii) officer of the debtor; 19 (iii) person in control of the debtor; (iv) partnership in which the debtor is a 20 general partner; (v) general partner of the debtor; or 21 (vi) relative of a general partner, director, officer, or person in control of the debtor; . . . 22 (F) managing agent of the debtor. 23 24 If a word or phrase is defined in the statute, then that 25 definition governs. Perroton v. Gray (In re Perroton), 958 F.2d 26 8 The definition of “corporation” in the Bankruptcy Code 27 includes unincorporated limited liability companies, such as Lakeridge. § 101(9)(A)(4); In re Longview Aluminum, LLC, 657 F.3d 28 507, 509 n.1 (7th Cir. 2011).
-10- 1 889, 894 (9th Cir. 1992) (citing Colautti v. Franklin, 439 U.S. 2 379, 392 (1979)). A term appearing in several places in the 3 statute is ordinarily interpreted as having the same meaning each 4 time it appears. Warfield v. Salazar (In re Salazar), 465 B.R. 5 875, 879-880 (9th Cir. BAP 2012) (citing Ratzlaf v. United States, 6 510 U.S. 135, 143 (1994)). 7 It is not disputed that Rabkin would not be included in any 8 of the categories of insiders set forth expressly in § 101(31): 9 he is not a director, officer, or a controlling party, relative of 10 a controlling party, or a managing agent of Lakeridge. However, 11 the statutory list of insiders is not exclusive. See 11 U.S.C. 12 § 101(31) (“The term insider includes . . . .”); § 102(3) 13 (explaining that, when used in the Code, the term “includes” is 14 not limiting); In re Bonner Mall P’ship, 2 F.3d 899, 912 (9th Cir. 15 1993); Miller Ave. Prof’l & Promotional Servs v. Brady 16 (In re Enterprise Acquisition Partners, Inc.), 319 B.R. 626, 631 17 (9th Cir. BAP 2004) (“The definition of ‘insider’ in 11 U.S.C. 18 § 101(31) is not limiting: the use of the word ‘includes’ is 19 indicative of Congress's intent not to limit the classification of 20 insiders to the statutory definition.”). In other words, Rabkin 21 could be deemed an insider as to Lakeridge even if he did not fall 22 into one of the classifications listed in the statute. The 23 parties in this appeal and others sometimes refer to such parties 24 as “non-statutory insiders.” 25 A. The bankruptcy court did not err in determining that Rabkin was not a non-statutory insider of Lakeridge. 26 27 Because the Code’s definition of an insider is not exclusive, 28 courts must necessarily develop the factors that may render a
-11- 1 party a non-statutory insider. As explained by the Panel, at 2 bottom, this category includes those individuals or entities whose 3 business or professional relationship with the debtor “compels the 4 conclusion that the individual or entity has a relationship with 5 the debtor, close enough to gain an advantage attributable simply 6 to affinity rather than to the course of business dealings between 7 the parties.” In re Friedman, 126 B.R. at 70. Put another way, a 8 non-statutory insider is one “who has a sufficiently close 9 relationship with the debtor that his conduct is made subject to 10 closer scrutiny than those dealing at arms length with the 11 debtor.” Id. (quoting S. Rep. No. 95–989, 95th Cong., 2nd Sess. 12 25 (1978) and H. R. Rep. No. 95–595, 95th Cong. 1st Sess. 312 13 (1977), reprinted in U.S. CODE CONG. & ADMIN. NEWS, 1978, pp. 5787, 14 5810, 6269). In determining whether a creditor qualifies as a 15 non-statutory insider, courts look at the closeness of the 16 parties, and the degree to which the creditor is able to exert 17 control or influence over the debtor. In re Entm’t Acquisition 18 Partners, Inc., 319 B.R. at 626; Miller v. Schuman 19 (In re Schuman), 81 B.R. 583, 586 (9th Cir. BAP 1987). The 20 primary test of a non-statutory insider is whether the creditor 21 “exercises such control or influence over the debtor as to render 22 their transaction not arms-length.” Id. In the context of 23 debtor-creditor relations, “[a]n arm's-length transaction is ‘[a] 24 transaction in good faith in the ordinary course of business by 25 parties with independent interests. . . . The standard under 26 which unrelated parties, each acting in his or her own best 27 interest, would carry out a particular transaction.’” Anstine v. 28 Carl Zeiss Meditec AG (In re U.S. Medical, Inc.), 531 F.3d 1272,
-12- 1 1277 n.4 (10th Cir. 2008) (quoting BLACK’S LAW DICTIONARY 109 (6th ed. 2 1990)). 3 Besides the control test and examination for an arms-length 4 transaction, other courts have expanded the non-statutory insider 5 group to include those with a close personal or romantic 6 relationship with the debtor. Kaisha v. Dodson, 423 B.R. 888, 901 7 (N.D. Cal. 2010) (woman who was romantically involved with debtor 8 considered an insider for stock transfer purposes); In re Demko, 9 264 B.R. 404, 408 (Bankr. W.D. Pa. 2001)(cohabitation may render 10 individual an insider); In re McIver, 177 B.R. 366 (Bankr. N.D. 11 Fla. 1995)(live-in girlfriend may be insider); but see 12 In re Reinbold, 182 B.R. 244, 246 (D. S.D. 1995) (holding that 13 mere cohabitation is insufficient and that “a de facto or de jure 14 family relationship is required.”). 15 In sum, then, to find that a party is a non-statutory insider 16 as to a debtor, the bankruptcy court must consider: (1) the 17 closeness of the parties and the relative control each has over 18 the other, and (2) whether the degree of control is such that it 19 would render its transaction with the debtor not arms-length. 20 Here, the bankruptcy court found that, despite his personal 21 relationship with Bartlett, there was no control exerted by Rabkin 22 over Lakeridge and/or Bartlett, and vice versa. Hr’g Tr. 23 77:25–78:6. The court also indicated in its comments on the 24 record that it had reviewed the case law concerning personal 25 relationships and determined that they would not support USB’s 26 argument that the relationship between Rabkin and Bartlett was 27 such as to confer non-statutory insider status on Rabkin: 28 The cases that have found non-statutory insiders have
-13- 1 involved generally cohabitation, longer periods of association, associations in which the property that the 2 parties become economically entwined, they share checking accounts or sign on each other’s checking 3 accounts. They use each other’s credit cards. They share each other’s property. There was not any of that 4 sort of activity in this case. 5 Hr’g Tr. 77:14-24. 6 The bankruptcy court heard testimony from Rabkin and Bartlett 7 concerning Rabkin’s motivations for purchasing the MBP Claim, the 8 lack of control exerted by either Rabkin or Bartlett over each 9 other’s actions, and the nature of their relationship. The court 10 concluded in its Designation Order: 11 The court finds and concludes as a matter of law that Dr. Rabkin is not a non-statutory insider because, among 12 other things: (a) Dr. Rabkin does not exercise control over the Debtor; (b) Dr. Rabkin does not cohabit with 13 Ms. Bartlett and does not pay Ms. Bartlett's bills or living expenses; (c) Dr. Rabkin has never purchased 14 expensive gifts for Ms. Bartlett. 15 Designation Order at ¶ 2, August 20, 2012. As noted above, 16 whether a party is an insider is a question of fact we review for 17 clear error. The bankruptcy court’s determination in this case 18 was consistent with case law and supported by the testimony of the 19 witnesses and other evidence presented at the hearing. While 20 others might come to a different conclusion, where two permissible 21 views of the evidence exist, the fact finder's choice between them 22 cannot be clearly erroneous. Anderson v. City of Bessemer City, 23 N.C., 470 U.S. 564, 573-74 (1985). 24 We conclude that the bankruptcy court did not clearly err in 25 deciding that Rabkin was not a non-statutory insider as to 26 Lakeridge. We therefore reject USB’s contention in the cross 27 appeal that Rabkin was a non-statutory insider and AFFIRM this 28 portion of the bankruptcy court’s decision.
-14- 1 B. The bankruptcy court erred in determining that, by acquiring MBP’s insider claim, Rabkin also automatically 2 became a statutory insider of Lakeridge. 3 As noted above, none of the parties asserted that Rabkin was 4 a statutory insider of Lakeridge as specified in the statute, 5 because he was clearly not a member of one of the enumerated 6 categories in § 101(31)(B). Despite this, however, in its order, 7 the bankruptcy court reasoned, "[b]ecause [MBP] is a statutory 8 insider, Dr. Rabkin, as the assignee of the claim, acquired the 9 same status as a statutory insider when he purchased the claim." 10 Designation Order at § 6. In short, the bankruptcy court 11 apparently ruled that, as a matter of law, a non-insider becomes a 12 statutory insider automatically by acquiring an insider claim. In 13 making this decision, the court did not rely upon any facts other 14 than the existence of the assignment of Bartlett’s claim to 15 Rabkin. 16 The bankruptcy court’s conclusion is not supported in the 17 case law it cited for the proposition and, indeed, it is 18 inconsistent with the Panel’s published decisions. The Panel has 19 on multiple occasions explained that “insider determination . . . 20 is made on a case-by-case basis, after the consideration of 21 various factors.” In re Friedman, 126 B.R. at 70 (quoting 22 In re Schuman, 81 B.R. at 586 n.1). That the inquiry as to 23 insider status is fact-intensive, and made on a case-by-case 24 basis, is generally supported in the case law. Browning Interests 25 v. Allison, 955 F.2d 1008, 1011 (5th Cir. 1992) (holding that a 26 non-statutory insider status must be determined by a factual 27 inquiry into the Debtor's relationship with the alleged insider); 28 Hyman v. Korshak & Assocs. (In re Island One, Inc.), 2013 Bankr.
-15- 1 LEXIS 662 *6 (Bankr. M.D. Fla. 2013) (“This more nebulous 2 ‘non-statutory’ insider status must be determined by a factual 3 inquiry into the Debtor's relationship with the alleged insider. 4 The determination is fact-intensive and must be made on a 5 case-by-case basis.”); In re Velo Holdings, 472 B.R. 201, 208 6 (Bankr. S.D.N.Y. 2012) (insider status can be “be determined on a 7 case-by-case basis from the totality of the circumstances”). 8 Accord In re Smith, 415 B.R. 222, 233 (Bankr. D. Haw. 2009); 9 Rainsdon v. Farson (In re Farson), 387 B.R. 784, 792 (Bankr. D. 10 Idaho 2008). 11 Two of the three cases cited by the bankruptcy court in its 12 ruling do not support its conclusion that when, by purchase or 13 assignment, a non-insider acquires a claim from an insider, the 14 new holder of the claim also assumes insider status. One case 15 cited by the court, In re Applegate Prop., Ltd., 133 B.R. 827 16 (Bankr. W.D. Tex. 1991) does not deal with the purchase of an 17 insider claim by a non-insider. Instead, that case dealt with the 18 purchase of a non-insider claim by an insider, as the result of 19 which the bankruptcy court deemed the insider’s acceptance of a 20 plan excluded for purpose of voting under § 1129(a)(10) because 21 the claimant was, independent of the claim, an insider. The other 22 case cited by the bankruptcy court, In re Holly Knoll P’ship, 23 167 B.R. 381, 386 (Bankr. E.D. Pa. 1994), is nearly identical, in 24 that it also dealt with an insider purchasing a non-insider claim. 25 In that case, the court also conducted an inquiry that considered 26 more than the simple transfer of the claim in examining the 27 claimant’s insider status. Id. at 798-99. As can be seen, in 28 both of these cases, the bankruptcy courts understood that the
-16- 1 transfer or assignment of a claim did not alone change the status 2 of the claimant, and that further inquiry was necessary to 3 determine that status. 4 The one case cited by the bankruptcy court that partly 5 supports its conclusion that a non-insider who acquires an insider 6 claim “steps into the shoes of that claimant” is the unpublished 7 decision of our Court of Appeals, In re Greer W. Investment Ltd. 8 P’ship, 81 F.3d 168, 1996 WL 134293 (9th Cir. Mar. 25, 1996). 9 However, even this case does not tie the status of the claimant 10 solely to the status of the claim he acquired. After agreeing 11 with the bankruptcy court that the non-insider “assumed the claim 12 subject to its insider status,” the Ninth Circuit continued its 13 analysis with “we next address whether [claimant] is an insider.” 14 1996 WL 134293 at *3. Upon further examination, the Ninth Circuit 15 determined that the claimant was in fact an insider where the 16 debtor exercised considerable control over the creditor or vice 17 versa. We take both of these observations to mean that the 18 assignment or purchase of a claim does not by itself change the 19 insider status of the claimant without further inquiry and factual 20 findings to support designating a creditor as an insider. 21 There is also a logical and legal inconsistency in the 22 bankruptcy court’s reasoning that the assignment of a claim by 23 itself may change the insider status of the claimant. If 24 assignment of an insider claim to a non-insider alone changes the 25 non-insider’s status to insider, then it would follow that an 26 assignment or purchase of a non-insider claim by an insider would 27 change the insider into a non-insider. As both the Applegate and 28 Holly Knoll courts observed, that cannot be allowed because, both
-17- 1 before and after the assignment, the insider is still an insider. 2 The bankruptcy court applied an erroneous legal rule in this 3 case when it determined that Rabkin, who was otherwise a non- 4 insider, became an insider in the Lakeridge bankruptcy case by 5 merely purchasing an insider’s claim. This portion of the 6 bankruptcy court’s decision is therefore REVERSED. 7 II. 8 Since the bankruptcy court failed to make appropriate findings regarding the insider status of Rabkin, it was 9 error to exclude Rabkin’s acceptance of the plan of reorganization under § 1129(a)(10). 10 11 Section 1129 provides the requirements for confirmation of a 12 chapter 11 plan of reorganization. Of interest in this appeal is 13 one such requirement, § 1129(a)(10). This provision dictates 14 that, if a chapter 11 plan proposes to impair a class or classes 15 of claims, to be confirmed at least one impaired class must 16 affirmatively accept the plan, and that class acceptance must be 17 determined without including the “acceptance of the plan by any 18 insider.”9 19 In this case, Lakeridge has just two creditors. Its proposed 20 plan separately classified each creditor: Class 1 for secured 21 creditor USB and Class 3 for Rabkin, the sole unsecured creditor. 22 Because the plan does not provide for full payment to Class 3 23 creditors, that class is impaired. § 1124(1) (providing that a 24 class is impaired unless, as to each claim in the class, the plan 25 9 Section 1129 provides ”(a) The court shall confirm a plan 26 only if all of the following requirements are met: . . . (10) If a class of claims is impaired under the plan, at least one class of 27 claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any 28 insider.”
-18- 1 leaves unaltered the contractual rights of the claim). According 2 to a ballot summary submitted to the bankruptcy court on July 30, 3 2012 by Lakeridge’s counsel, Class 1 (USB) voted to reject the 4 plan. However, Class 3 (Rabkin) voted to accept the plan.10 Thus, 5 if Rabkin’s accepting vote is counted, Class 3 has accepted the 6 plan, and Lakeridge has satisfied § 1129(a)(10). 7 Since the bankruptcy court determined that Rabkin was an 8 insider, though, his vote would necessarily be excluded in 9 determining whether Class 3 had accepted the plan. We conclude 10 the bankruptcy court’s decision that his vote must be excluded was 11 incorrect because Rabkin was not an insider, and § 1129(a)(10) 12 does not require that his acceptance of the Lakeridge plan be 13 excluded in determining whether Class 3 accepted that plan.11 We 14 therefore REVERSE that portion of the bankruptcy court’s order 15 16 10 At oral argument before the Panel, counsel for USB 17 suggested that Rabkin placed a condition on his accepting vote, “that he receive more money.” We have examined the record and 18 find no support for this allegation. Indeed, a copy of Rabkin’s ballot is included in the bankruptcy docket at no. 240, Exhibit B, 19 attached to Lakeridge’s Certificate of Acceptance and Rejection of Chapter 11 Plan [Ballot Summary]. The ballot contains only a 20 check mark after “accepts” and is signed by Rabkin with his address. There are no indications of a condition on the ballot. 21 11 A leading treatise has described the test under 22 § 1129(a)(10) as “somewhat mechanical on its face, and thus would not under a plain meaning analysis permit an inquiry into motive” 23 of the accepting creditor. 7 COLLIER ON BANKRUPTCY § 1129.02[10] (Alan N. Resnick & Henry J. Somer, eds. 16th ed. 2009). Some courts 24 have suggested that attempts to artificially manufacture classes to obtain an accepting impaired non-insider class raise questions 25 under § 1129(a)(10). Windsor on the River Assocs. v. Balcor Real Estate Fin. (In re Windsor on the River Assocs), 7 F.3d 127, 183 26 (8th Cir. 1993). We decline to import an intent or purpose requirement into § 1129(a)(10). In re Hotel Assocs. of Tucson, 27 165 B.R. at 474. However, we note that, in § 1129(a)(3), the Code also requires, as a condition of confirmation, that the plan 28 proponent prove that the plan has been proposed in good faith.
-19- 1 determining that Rabkin’s vote to accept the plan must be 2 excluded. 3 III. 4 The bankruptcy court did not err in declining to designate that Rabkin’s acceptance of the plan was not in good faith 5 for purposes of § 1126(e). 6 Even if Rabkin is not an insider and his claim is not 7 excluded under § 1129(a)(10), USB argues that his acceptance of 8 the Lakeridge plan should be “designated” under § 1126(e). That 9 Code provision permits the bankruptcy court, on request of a party 10 in interest, to disqualify any plan vote that was not made in good 11 faith, or that was not solicited in good faith or in accordance 12 with the provisions of the Bankruptcy Code.12 The bankruptcy court 13 declined to designate Rabkin’s acceptance here, and we perceive no 14 error in this decision. 15 In this context, “good faith” does not require a creditor to 16 act with selfless disinterest: 17 If a person seeks to secure some untoward advantage over other creditors for some ulterior motive, that will 18 indicate bad faith. See In re Marin Town Ctr., 142 B.R. 374, 378-79 (N.D. Cal. 1992). But that does not mean 19 that creditors are expected to approach reorganization plan votes with a high degree of altruism and with the 20 desire to help the debtor and their fellow creditors. Far from it. 21 22 In re Figter Ltd., 118 F.3d at 638-39. Put another way, a 23 creditor acting out of self-interest “is not to be condemned 24 simply because it frustrated [some other creditor’s] desires.” 25 26 12 “On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or 27 rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of 28 this title.” § 1126(e).
-20- 1 Id. at 639. On the other hand, if a person seeks to secure some 2 untoward advantage over other creditors for some ulterior motive, 3 that will indicate bad faith for purposes of § 1126(e). Id. at 4 639. 5 Rabkin testified that he purchased the MBP Claim as a 6 business investment with the expectation of receiving a $30,000 7 return through the Lakeridge plan on a $5,000 investment. Rabkin 8 Dep. 82:3-14. USB contends that Rabkin was involved in a romantic 9 relationship with Bartlett, a principal of Lakeridge, and 10 conspired with her to acquire the MBP claim solely to accept 11 Lakeridge’s plan of reorganization. On the one hand, Rabkin’s 12 argument that he was interested in making money is not an example 13 of bad faith. In re Figter, 118 F.3d at 638. On the other hand, 14 the acquisition of a claim solely to create an impaired assenting 15 class may constitute bad faith under § 1129(a)(3). In re Hotel 16 Assocs. Of Tucson, 165 B.R. 470, 475 (9th Cir. BAP 1994). 17 USB insists that Rabkin did not act in accordance with his 18 financial interests, and as evidence, it points to his deposition 19 where counsel for USB offered Rabkin $50,000, and then $60,000, to 20 acquire his claim, which would generate an immediate profit of 21 $20,000-30,000 above what Rabkin expected to gain through the 22 plan. According to USB, Rabkin’s refusal to take the bait clearly 23 demonstrated his motive in the case was something other than 24 financial gain. When a creditor appears to act against 25 self-interest, that may be an indication of bad faith. 26 In re Hotel Assocs. Of Tucson, 165 B.R. at 475. 27 The bankruptcy court addressed this argument both at the 28 hearing on August 29, 2012, and in the order denying USB’s
-21- 1 motions. At the hearing, Rabkin expressed outrage that he was 2 pressured to make a deal in the context of a deposition hearing. 3 The court agreed that USB’s tactic was “appalling” and apologized 4 “on behalf of the legal profession” for USB’s counsel’s behavior. 5 Hr'g Tr. 21:1-2. In the order, the court characterized USB’s ploy 6 during the deposition as “offensive” and noted that Rabkin was 7 under no obligation to accept the offer. Designation Order at 8 ¶ 3. The court also decided in the order that Rabkin’s purchase 9 of a $2,671,000.00 unsecured claim under these circumstances for 10 $5,000, with a $30,000 expected gain, was an example of a 11 speculative investment and that no special due diligence was 12 required by Rabkin. Id. 13 As to USB’s arguments concerning the Rabkin-Bartlett personal 14 relationship, the bankruptcy court made several findings on the 15 record, discussed above, indicating that the evidence presented to 16 him did not support insider standing on the basis of a putative 17 romantic relationship between Rabkin and Bartlett. Designation 18 Order at ¶ 2. In addition, in the order, the court found that, on 19 the evidence before it, “Ms. Bartlett did not ask Dr. Rabkin to 20 vote in favor of the Debtor’s Plan.” Designation Order at ¶ 3(c). 21 In general, bad faith solicitation of a vote requires a “specific 22 request” for a creditor’s official vote. In re Bataa/Kierland, 23 LLC, 476 B.R. 558, 565 (Bankr. D. Ariz. 2012) (citing Century 24 Glove v. First Am. Bank of New York, 860 F.2d 94, 102-03 (3d Cir. 25 1988). 26 Whether Rabkin’s vote on the Lakeridege plan should be 27 designated as “not in good faith” under § 1126(e) is a question of 28 fact reviewed for clear error. In re Figter, 138 F.3d at 638.
-22- 1 The bankruptcy court considered the testimony and evidence on this 2 question and made adequate findings on the record and in the order 3 to support its conclusions. Anderson, 470 U.S. at 573-74 (Where 4 two permissible views of the evidence exist, the fact finder's 5 choice between them cannot be clearly erroneous.). The bankruptcy 6 court did not clearly err in declining to designate that Rabkin’s 7 acceptance of the plan was not in good faith for purposes of 8 § 1126(e). We AFFIRM the bankruptcy court’s decision in this 9 respect. 10 IV. 11 The bankruptcy court did not abuse its discretion in refusing to order that Bartlett submit to a second deposition. 12 13 Rules 9014 and 7030 incorporate Civil Rule 30 in contested 14 matters. Civil Rule 30 states, “Unless otherwise stipulated or 15 ordered by the Court, a deposition is limited to 1 day of 7 16 hours.” Civil Rule 26, also incorporated in this context by 17 Rules 9014 and 7026, provides in relevant part, 18 When Required. On motion or on its own, the court must limit the frequency or extent of discovery otherwise 19 allowed by these rules or by local rule if it determines that: 20 (I) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some 21 other source that is more convenient, less burdensome, or less expensive; 22 (ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in 23 the action; or (iii) the burden or expense of the proposed 24 discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the 25 parties' resources, the importance of the issues at stake in the action, and the importance of the discovery 26 in resolving the issues. 27 Civil Rule 26(b)(2)(C). 28 USB contends that Bartlett was originally deposed only in her
-23- 1 capacity as representative of Lakeridge, and not in her personal 2 capacity. Lakeridge and Rabkin counter that USB did indeed have 3 the opportunity in the first deposition to question Bartlett about 4 personal matters, including her relationship with Rabkin. At the 5 hearing on June 12, 2012, the bankruptcy court declined to order 6 Bartlett to appear at a second deposition because USB already had 7 the opportunity to question Bartlett in the deposition on personal 8 matters as part of an “extensive” discussion. The record on 9 appeal supports this conclusion: 10 Q: When was that ([MBP Claim] transferred to Mr. Rabkin? 11 BARTLETT: I believe it was in October. October 17th, 12 something like that. In 2011. 13 Q: And . . . that’s after the Village filed for bankruptcy? 14 BARTLETT: Yes. 15 Q. The most recent time? 16 BARTLETT: Yes. . . . 17 Q. Okay. Did you know Mr. Rabkin before? 18 BARTLETT: I did. . . . 19 Q: Did you know him personally? Were you guys 20 friends? 21 BARTLETT: Yes. 22 Bartlett Dep. 55:14–20, February 9, 2012. 23 The bankruptcy court’s ruling that USB had ample opportunity 24 to obtain the information it needed at the original deposition is 25 consistent with Civil Rules 30 and 26, and is not (1) illogical, 26 (2) implausible, or (3) without support in inferences that may be 27 drawn from the facts in the record. The bankruptcy court did not 28 abuse its discretion in refusing to order that Bartlett submit to
-24- 1 a second deposition. 2 V. 3 The bankruptcy court made insufficient findings in support of its ruling concerning the application of the common interest 4 privilege. 5 Whether the bankruptcy court correctly determined that the 6 common interest privilege applied to protect Rabkin’s discussions 7 with Lakeridge’s attorney is an issue of law we review de novo. 8 Richey, 632 F.3d at 563-64; Gonzalez, 669 F.3d at 978. 9 The bankruptcy court announced its decision on the record of 10 the hearing on June 21 regarding the Discovery Requests, including 11 its ruling that the common interest privilege applied and Rabkin 12 was not required to respond to questions from USB's counsel about 13 his discussions with Lakeridge's lawyer. The bankruptcy court was 14 apparently unaware that the Ninth Circuit had just issued a 15 published opinion relating to the common interest privilege a few 16 weeks earlier, on May 10, 2012, in Pac. Pictures Corp. v. U.S. 17 Dist. Ct., 679 F.3d 1121 (9th Cir. 2012). 18 The Common Interest Privilege (also known as Joint Defense 19 Privilege) has long been recognized in the Ninth Circuit. 20 Gonzalez, 669 F.3d at 978 (9th Cir. 2012); Continental Oil Co. v. 21 United States, 330 F.2d 347, 350 (9th Cir. 1964). The bankruptcy 22 court relied on Gonzalez in which the Ninth Circuit held that the 23 privilege was applicable in both civil and criminal proceedings, 24 and was based on the principle that “persons who share a common 25 interest in litigation should be able to communicate with their 26 respective attorneys and with each other to more effectively 27 prosecute or defend their claims.” Gonzalez, 669 F.3d at 978. 28 This privilege applies in bankruptcy proceedings. In re Mortg. &
-25- 1 Realty Trust, 212 B.R. 649, 653 (Bankr. C.D. Cal. 1997). The 2 privilege does not require a written agreement, and its 3 application may be implied by “conduct and situation.” Gonzalez, 4 669 F.3d at 978 (quoting Continental Oil, 330 F.2d at 350). 5 The bankruptcy court received a letter from Rabkin’s attorney 6 describing the nature and scope of the communications at issue: 7 In advance of his [scheduled] Deposition, Rabkin and [his counsel] met with [Lakeridge’s counsel at their 8 office] to discuss in general terms the types of questions to expect at the deposition. The meeting 9 lasted for 40 minutes and Rabkin anticipated that the discussions were being held in confidence. Later, at 10 the deposition, counsel for lender [USB] asked deponent Rabkin what had been discussed at the meeting []. Smith 11 and Hartman each asserted the common interest privilege and Hartman directed Rabkin not to answer any questions 12 relating to the meeting at [Lakeridge Counsel’s Office]. 13 Lakeridge and Rabkin shared a common interest in that they 14 both wanted to obtain confirmation of the plan of reorganization, 15 Lakeridge as the debtor and plan proponent, and Rabkin for his 16 financial interests. As a result, while they had separate 17 counsel, they were engaged in furtherance of a common legal 18 enterprise. Gonzales, 669 F.3d at 981 (“In the context of the 19 joint defense privilege, only communications made in course of 20 ongoing common enterprise and intended to further that enterprise 21 are protected.”). Rabkin believed that his communications with 22 Lakeridge’s attorney were protected as confidential, and asserted 23 the common interest privilege before the bankruptcy court. 24 Gonzalez, 669 F.3d at 981 (“The common interest rule requires 25 communication to be given in confidence and that the client 26 reasonably understood it to be so given.”). 27 The bankruptcy court noted that “I believe there is a Common 28 Interest Privilege. I believe the Ninth Circuit has defined
-26- 1 it. . . So your motion is denied.” Hr’g Tr. 9:7-11, June 21, 2 2012. 3 However, because the bankruptcy court was not aware of the 4 newer, Pac. Pictures opinion, it did not make the necessary 5 finding that, in addition to all the factors discussed above, it 6 was necessary to determine if there was an express or implied 7 agreement between the parties to pursue a joint strategy: 8 Rather than a separate privilege, the "common interest" or "joint defense" rule is an exception to ordinary 9 waiver rules designed to allow attorneys for different clients pursuing a common legal strategy to communicate 10 with each other. See Hunydee v. United States, 355 F.2d 183, 185 (9th Cir. 1965); see also In re Grand Jury 11 Subpoenas, 902 F.2d 244, 249 (4th Cir. 1990) (collecting cases). However, a shared desire to see the same 12 outcome in a legal matter is insufficient to bring a communication between two parties within this exception. 13 Id. Instead, the parties must make the communication in pursuit of a joint strategy in accordance with some form 14 of agreement — whether written or unwritten. Cf. Continental Oil Co. v. United States, 330 F.2d 347, 350 15 (9th Cir. 1964). 16 Pac. Pictures Corp., 679 F.3d at 1130 (emphasis added). 17 Because the bankruptcy court did not make the necessary 18 finding that, in addition to sharing a common interest in the 19 outcome of the litigation, an express or implied agreement existed 20 between Rabkin and Lakeridge to pursue a joint strategy, we must 21 VACATE that portion of the order denying the Discovery Requests 22 relating to the common interest privilege. 23 CONCLUSION 24 We AFFIRM that part of the bankruptcy court’s order denying 25 the Discovery Requests that Bartlett need not submit to a second 26 deposition. We VACATE the part of that order that the common 27 interest privilege applied to Rabkin’s discussions with 28 Lakeridge's attorney.
-27- 1 As to the Designation Order, we AFFIRM the bankruptcy court’s 2 decision that Rabkin is not a non-statutory insider, and AFFIRM 3 its decision declining to designate that Rabkin's acceptance of 4 the plan was not in good faith for purposes of § 1126(e). We 5 REVERSE the bankruptcy court’s decision that Rabkin is a statutory 6 insider, and REVERSE the decision excluding Rabkin’s vote to 7 accept the plan. We VACATE that part of the order deciding that 8 the Debtor does not have an impaired, assenting class of claims 9 necessary to confirm the plan, and the decision denying 10 confirmation of the Lakeridge plan of reorganization. We REMAND 11 these matters to the bankruptcy court for further proceedings 12 consistent with this decision. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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