In the
United States Court of Appeals
For the Seventh Circuit
No. 10-2780
IN RE:
L ONGVIEW A LUMINUM, L.L.C.,
Debtor,
A PPEAL OF:
D OMINIC F ORTE.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-00254—Samuel Der-Yeghiayan, Judge.
A RGUED JUNE 10, 2011—D ECIDED S EPTEMBER 2, 2011
Before B AUER, FLAUM and W ILLIAMS, Circuit Judges.
B AUER, Circuit Judge. Longview Aluminum, L.L.C.
(“Longview”) filed for Chapter 11 bankruptcy and its
trustee brought an adversary action to set aside and
recover payments made less than one year before the
bankruptcy filing to Dominic Forte, one of Longview’s
members. The bankruptcy court found that Forte
qualified as an “insider” of Longview and that the
trustee could void and recover the transfers. The dis-
2 No. 10-2780
trict court affirmed the bankruptcy court. For the fol-
lowing reasons, we affirm.
I. BACKGROUND
Longview is a limited liability company organized
under the laws of Delaware. Longview was formed
pursuant to the Amended and Restated Limited Liability
Company Agreement of Longview Aluminum, L.L.C.
(“Longview LLC Agreement”) by five members, who
made up a Board of Managers (the “Board”). The Board
consisted of Michael Lynch (50% interest), Michael J.
Ochalski (13% interest), John L. Kolleng (20% interest),
McCall Enterprises, L.L.C. (5% interest), and Forte
(12% interest).
From 2001 until June 2002, Forte requested that
Longview provide him with business records or allow
him to inspect all of Longview’s records; Forte’s
requests were repeatedly denied. On July 10, 2002,
Forte sued Lynch, the Board member with the highest
percentage interest in Longview, alleging that Lynch
had used his controlling interest to bar Forte from re-
viewing any of Longview’s business records and to
exclude Forte from participating in any management
decision. Longview, as well as Great Lakes Processing,
L.C.C. and Michigan Avenue Partners, L.C.C. (two other
aluminum companies with which Longview’s members
were involved or maintained ownership interests),
moved to intervene and were named as additional de-
fendants.
No. 10-2780 3
On August 20, 2002, the members of the Board other
than Forte executed a majority written consent, formally
suspending Forte’s right to access Longview’s informa-
tion and records until the conclusion of (1) Longview’s
investigation into whether Forte’s requests were made
for an improper purpose; (2) an audit of Longview’s
account; and (3) the discovery in an unrelated case in
which Longview was a party. On November 7, 2002,
Forte and the defendants to that lawsuit entered into
a settlement agreement under which $400,000, plus at-
torney’s fees and costs, would be paid to Forte in
exchange for Forte’s agreement to leave the Board. On
that same day, Longview delivered a $200,000 cashier’s
check to Forte as an initial payment. On January 16, 2003,
Longview delivered a second check to Forte in the
amount of $15,000, which represented payment for
Forte’s attorney’s fees and costs.
On March 4, 2003, Longview filed a Chapter 11 peti-
tion for bankruptcy relief. The trustee in the bankruptcy
proceedings filed the instant adversary action against
Forte, seeking to recover the settlement payments as
preferential transfers made to an insider within one
year of Longview’s bankruptcy petition. Forte conceded
that the $15,000 payment was a preferential transfer
made within three months of Longview’s bankruptcy
petition and returned the funds. However, Forte denied
that the $200,000 payment constituted a preferential
transfer. The bankruptcy court ruled in favor of the
trustee, finding that Forte was an insider as defined by
11 U.S.C. § 101(31) of the Bankruptcy Code, thereby
enabling the trustee to void and recover the $200,000
4 No. 10-2780
transfer. The district court affirmed the bankruptcy
court. Forte appealed.
II. DISCUSSION
The question of insider status is regarded as a mixed
question of law and fact. In re Krehl, 86 F.3d 737, 742
(7th Cir. 1996). We review mixed questions of law and
fact de novo. In re Ebbler Furniture and Appliances, Inc.,
804 F.2d 87, 89 (7th Cir. 1986).
Pursuant to 11 U.S.C. § 547(b), a bankruptcy trustee is
able to avoid certain transfers made by a debtor prior
to filing for bankruptcy. Generally, all transfers within
90 days of the debtor’s bankruptcy filing are con-
sidered preferential and subject to avoidance. 11 U.S.C.
§ 547(b)(4)(A). When the creditor is an “insider” of the
debtor, however, the Bankruptcy Code enlarges the
time period for avoidance to one year before the bank-
ruptcy filing. 11 U.S.C. § 547(b)(4)(B). The Bankruptcy
Code defines an insider of a corporation as a: (i) director
of the debtor; (ii) officer of the debtor; (iii) person in
control of the debtor; (iv) partnership in which the
debtor is a general partner; (v) general partner of the
debtor; or (vi) relative of a general partner, director, officer,
or person in control of the debtor. 1 11 U.S.C. § 101(31)(B).
Courts regularly treat this definition as illustrative of
1
The Bankruptcy Code’s definition of a corporation includes
unincorporated limited liability companies, such as Long-
view. See 11 U.S.C. § 101(9)(A)(iv).
No. 10-2780 5
types of insider relationships and not as an exhaustive
list. In re Krehl, 86 F.3d at 741.
The insider analysis is a case-by-case decision based
on the totality of the circumstances, and bankruptcy
courts have used a variety of factors in their determina-
tions. One approach focuses on the similarity of the
alleged insider’s position to the enumerated statutory
categories, while another approach focuses on the
alleged insider’s control of the debtor. If the alleged
insider holds a position substantially similar to the posi-
tion specified in the definition, a court will often find
that individual to be an insider. But, based on the legisla-
tive history of the statute, our case law has also held
that the term insider can also encompass anyone with
a “sufficiently close relationship with the debtor that
his conduct is made subject to closer scrutiny than
those dealing at arm’s length with the debtor.” Id. at 741-
42 (citing S. Rep. No. 989, 95th Cong. 2d Sess., reprinted in
1978 U.S.C.C.A.N. 5787, 5810). For this second approach,
courts look to the closeness of the relationship between
the parties. Id.
Forte first argues that the district court erred when it
used the similarity approach to analogize a director of a
corporation to a member of an LLC and expanded the
term “director” in the definition to include members
and managers of an LLC. We disagree.
It is well established that the definition of insider is
not an exhaustive list; the definition has been expanded
by bankruptcy courts to include positions analogous to
those enumerated, including in the LLC context. See
6 No. 10-2780
In re Krehl, 86 F.3d at 741; In re Barman, 237 B.R. 342, 348-
49 (Bankr. E.D. Mich. 1999) (“[The LLC] is also within
the statutory definition of an ‘insider’ of [the LLC
member] because [the LLC member] is one of its three
members, and thus holds a position that is analogous
to that of a ‘director, officer or person in control’ of
[the LLC].”); In re Pearson, No. 1:10-bk-00946MDF,
2010 WL 3956762, at *3 (Bankr. M.D. Pa. 2010) (“In Pennsyl-
vania, members of limited liability companies are indi-
viduals with an ownership interest in the LLC and a
right to participate in the management of the busi-
ness. . . . Since [the LLC member] is a member of the LLC,
[the LLC] is an ‘insider’ of [the LLC member].”); In re
Die Fliedermaus LLC, 323 B.R. 101, 111 (Bankr. S.D.N.Y.
2005) (“[T]he [New York Limited Liability Company
Law] presumptively puts members in control of the LLC,
and as such they are in a position to exert influence
over the LLC. This sufficiently places them within the
parameters of the Bankruptcy Code’s definition of in-
sider.”). When the position held by the alleged insider
is not enumerated in the statute, the relevant inquiry
for the court is to consider whether the relationship at
issue is similar to or has characteristics of any of the
defined relationships.
The district court looked to both Delaware corporate
and LLC law to properly analogize a director of a corpora-
tion to a member of an LLC. Under Delaware law, a
corporation must “be managed by or under the direction
of a board of directors . . . .” 8 Del. C. § 141(a). With
respect to an LLC, Delaware law states that “[u]nless
otherwise provided in a limited liability company agree-
No. 10-2780 7
ment, the management of a limited liability company
shall be vested in its members . . . .” 6 Del. C. § 18-402.
The district court concluded that directors generally
have the authority to manage a corporation and mem-
bers generally have the authority to manage an LLC, and
thus found a member analogous to a director. Forte,
however, argues that because an LLC manager’s
powers can be specified by an LLC agreement, an
LLC manager’s authority can be vastly different from
that of a director of a corporation, depending on the
LLC agreement. This argument is unpersuasive. By
default, under Delaware law, authority is vested in the
members of an LLC. Furthermore, in this case Longview’s
own LLC agreement specifically provided its members
with authority analogous to that of a director of a corpora-
tion, stating that “the authority, power, and responsi-
bility to manage the operations and affairs of [Longview]
shall be vested in the Board of Managers and the Mem-
bers.” The district court did not err in concluding that
a member of an LLC can be a statutory insider within
the meaning of 11 U.S.C. § 101(31)(B).
Notwithstanding the foregoing, we also recognize, as
the bankruptcy court and the district court did, that “it
is not simply the title ‘director’ or ‘officer’ that renders
an individual an insider; rather, it is the set of legal
rights that a typical corporate director or officer holds.”
In re Longview Aluminum, LLC, 419 B.R. 351, 355 (Bankr.
N.D. Ill. 2009). We thus not only look to the individual’s
title, but also his relationship to the company.
Here, Forte argues that because he was prevented
from managing or participating in a meaningful way
8 No. 10-2780
in some of Longview’s affairs, he was in no way in
control of Longview. Forte points out that as early as
2001, he was denied access to Longview’s books and
records, and that in August 2002, before the $200,000
transfer was made, the majority of the Board executed a
formal written consent excluding him from viewing
Longview’s books and records. Longview responds that
although the majority written consent removed Forte’s
unfettered access to the books and records, this was
merely a temporary suspension, and, moreover, did not
remove Forte from his position as a member of Longview
on the Board. The district court did not find the effect
of the majority written consent to be enough to remove
Forte’s status as an insider, and neither do we. There
was never a formal vote or document executed
that removed Forte’s member status. Forte’s surviving
member status caused him to retain meaningful rights
and control given to members under Longview’s LLC
Agreement; significantly, Forte still retained voting
rights in the company. At the time of the $200,000 trans-
fer in November, Forte still held a formal position on
the Board and did not resign until after he received
the transferred funds.
Forte directs our attention to several non-precedential
cases he argues are similar to his own and cites them
for the proposition that an individual in a position akin
to a director was found not to have insider status
because he did not actively participate in corporate man-
No. 10-2780 9
agement.2 However, those cases are entirely distinguish-
able from the one before us. In the cited cases, the
officer, director, or member completely relinquished,
either by sale, ouster, or otherwise, all their rights and
authority in the respective corporation or LLC, but their
resignation or departure was not formalized until later
in time. The courts found that each of those individuals
did not have insider status because the individual was
not “in control of” the company well before the formal
resignation or departure. Forte’s case is unlike those
cases where each individual surrendered all his rights
in the company before his formal resignation or
departure; here, we reiterate that Forte still had rights
and control over Longview as a member on the Board.
Finally, Forte argues that because members and man-
agers are not contemplated within the definition in
the statute, they can only be considered insiders if they
fall within the non-statutory criteria, and here, there was
no close relationship or less than arm’s-length transac-
tion. We acknowledge that courts consider those factors
and often use the control approach, but in this situation,
where the court is determining whether a member or
manager of an LLC is a statutory insider, the similarity
approach yields a better interpretation of the statute.
2
Forte cites to Butler v. Shaw, 72 F.3d 437 (4th Cir. 1996); In
re Carr & Porter, LLC, 416 B.R. 239 (Bankr. E.D. Va. 2009);
In re Babcock Dairy Co. of Ohio, 70 B.R. 662 (Bankr. N.D. Ohio
1986); In re Guardian Equip. Corp., 20 B.R. 824 (Bankr. S.D.
Fla. 1982).
10 No. 10-2780
The bankruptcy and district courts applied the sim-
ilarity approach, and we find that the court did not err
in doing so.
III. CONCLUSION
For the foregoing reasons, we A FFIRM the judgment of
the district court.
9-2-11