IN RE: LONGVIEW ALUMINUM, L.L.C. (September 2, 2011)
Dominic Forte was one of five members of Longview Aluminum's Board of Managers. His relationship with the rest of the board was strained, however. In 2001 and 2002, his requests to inspect records were all denied. He actually sued the majority interest board member, alleging that he used his interest to prevent Forte from looking at records or participating in any decisions. The Board formally suspended Forte’s right to view any records in mid-2002. In November of 2002, Forte agreed to leave the Board in return for a $400,000 payment. Longview paid Forte $200,000 on November 7, 2002. In January of 2003, it paid him an additional $15,000 in attorneys fees. Longview filed for Chapter 11 bankruptcy relief in March 2003. The bankruptcy trustee sought the return of both payments. Forte conceded that the $15,000 payment was a preferential transfer since it occurred within 90 days prior to the bankruptcy filing. He resisted the demand for the $200,000, however. He challenged the trustee's application of the one-year preferential transfer window for an "insider." The bankruptcy court concluded that Forte was an insider and held for the trustee. Judge Der-Yeghiayan (N.D. Ill.) affirmed. Forte appeals.
In their opinion, Seventh Circuit Judges Bauer, Flaum, and Williams affirmed. The Court noted that the Bankruptcy Code defines an insider as a director, officer, person in control, partnership of a general partner debtor, general partner, or any relative of them. Courts have generally held that the list is not exhaustive and that the relevant inquiry is whether the relationship at issue has the same characteristics or is similar to the listed relationships. Under Delaware law, the members of a limited liability company are responsible for its management. The Court concluded that the district court did not err in finding that Forte, as an L.L.C. member, is akin to a director and thus qualifies as an insider. The Court cautioned, however, that one’s title is not dispositive if it does not reflect the reality of the individual’s relationship to the organization. The Court rejected Forte's argument that his inability to access the company's records or participate in any meaningful way in the company's management meant that he was not an insider. Forte had meaningful rights, including voting rights, until he received the first payment. He qualifies as an insider and the payment is a preferential transfer.