The US Supreme Court [official website] heard oral argument [transcript, PDF] on Tuesday in US Bank National Association v. Village at Lakeridge [SCOTUSblog materials], in which the justices were tasked with determining the appropriate standard of review for determining whether a particular individual is or is not an “insider” for purposes of a bankruptcy proceeding.

The case involves a purchase of a claim against a debtor, Robert Rabkin, who had a romantic relationship with the principal individual of the bankrupt, Kathleen Bartlett, at the time of the transaction. The Bankruptcy Code [text] identifies groups of creditors (e.g. relatives, partners, officers, directors) as “insiders” [definitions] with whom the insolvent bankrupt may partake in transactions that favor those insiders and by extension, disadvantage other, less-favored creditors. Here, the bankruptcy court [materials] determined that the romantic relationship with Bartlett was not enough to make Rabkin an enumerated insider. The US Court of Appeals for the Ninth Circuit [official website] affirmed [opinion, PDF] the bankruptcy court, ruling that the review of the bankruptcy court’s definition of “non-statutory insider” is a purely factual question.

US Bank disagreed, arguing on appeal that a review of the bankruptcy court’s definition of “non-statutory insider” is a mixed question of law and fact. Now, the court is tasked with determining whether the standard of review of the bankruptcy court’s definition is the “de novo” [definition] standard of review, advocated by US bank, or the “clearly erroneous” [definition] standard of review, advocated by Rabkin and Lakeview.

However, there was an unforeseen issue in this case. The justices agreed to consider the standard of review but not the legal standard for determining if somebody is an insider, so the submitted briefs do not address this question. Without knowing exactly what the legal standard is, the justices are finding themselves unable to determine whether the review looks more like a factual or a legal question.

The court may either request briefs to be submitted on legal standard question and set the case for reargument, or the court may dismiss the case entirely.