The U.S. Supreme Court will hear oral argument today in U.S. Bank National Association v. Village at Lakeridge (15-1509). At issue in the case is whether the appropriate standard of review for determining non-statutory insider status is the de novo standard of review applied by the U.S. Courts of Appeals for the 3rd, 7th and 10th Circuits, or the clearly erroneous standard of review adopted for the first time by the U.S. Court of Appeals for the 9th Circuit in Village at Lake Ridge.

The matter carries special importance for debtors seeking to reorganize in bankruptcy, who need the support of a non-insider class of creditors to confirm a reorganization plan.

The case reached the Supreme Court after US Bank argued that a split Ninth Circuit panel erred by failing to reassess the facts when considering the insider status of individual creditor Robert Rabkin who, like the bank, holds a claim against Village at Lakeridge LLC, a bankrupt commercial real estate owner based in Reno, Nevada.

U.S. Bank argues that Rabkin, who purchased the only other claim against the company from an insider allegedly for the sole purpose of voting in the plan over the bank’s disapproval, does not meet the statutory definition of an insider — but fits the bill nonetheless because he is romantically involved with a member of the company’s sole shareholder and failed to thoroughly vet the investment.