NOT P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT N o. 09- 1261 IN R E : G A R D E N R ID G E C O R P O R A T IO N , e t a l., D e b to r,

DANI E L F E RG US ON, A p p e llan t. O n A p p ea l from the U n it ed S tat es D istri ct C o u rt

fo r th e D istri ct of

D elaw are ( D . C . N o. 1- 06- cv- 00213) D i s tr i ctJ udge: H onor abl e G r egoryM . Sl eet A r gued on N ovember9, 2009 B efor e: A M B R O , G A R T H and R O T H , C i r cui tJ udges

( O pi ni on fi l ed: J ul y9, 2010) W il li am D . S u ll ivan , E sq u ir e ( A r gue d) Su l l i v a n , Haz e l t i n e , Al l i n s o n , LLC 4 E as t8 St r eet , Sui t e 400

th W i l m i ngt on, D E 19801 C ouns el forA ppel l antD ani el Fer gus on P au li n e K . M o rga n , E sq u ir e J os eph M . B arry , E s qui r e ( A r gue d) S ea n T . G ree ch er, E sq u ir e T he B r andyw i ne B ui l di ng 1000 W es tSt r eet , 17 Fl oor th W i l m i ngt on, D E 198012

Ian S . F red erick s, E sq u ir e Skadden, A rps , Sl at e, M eaghe r& Fl om O n e R o d n eyS q u are P. O . B ox 636 W i l m i ngt on, D E 19899 D av id B . S tr att o n , E sq u ir e PepperH ami l t on 1313 M arketSt r eet , Sui t e 5100 P. O . B ox 1709 W i l m i ngt on, D E 19899- 1709 C ouns el forA ppel l ee G ar den R i dge C orpor at i on C h ri sti an M . T h o m p so n , E sq u ir e C o n n o lly , B o v e , L o d g e & H u tz 1007 N or th O r ange Str eet P. O . B ox 2207 W i l m i ngt on, D E 19899 C o u n se l f o r A p p e llee C o n c o rd M a ll, L T D P a rtn e rsh ip Jam es C . C arign an , E sq u ir e D av id M . F o u rnier, E sq u ir e PepperH ami l t on 1313 M arketSt r eet , Sui t e 5100 P. O . B ox 1709 W i l m i ngt on, D E 19899- 1709 C o u n sel fo r A p p ell ee O ff ici al C o m m ittee o f U n sec u red C red it o rs D av id M . K laud er, E sq u ir e U ni t ed St at es D epartm entof J us t i ce O ffi ce of the Trus t ee 844 K i ng St r eet , Sui t e 2207 L ockbox 35 W i l m i ngt on, D E 19801 C ouns el forA ppel l ee U ni t ed St at es T rus t ee3 O P I N I O N RO TH , C i r cui tJ udge: D ani el Fer gus on, a cr edi t orof the G ar den R i dge debt or s , appea l s the D i s tr i ct C our t ’ s deni al of hi s s et off c l ai m unders ect i ons 362( d) and 553( a) of the U ni t ed St at es Ba n k ru p t c yCo d e . W e wi l l a f f i rm. I . Backg r ound B ec au se w e w ri te prim aril yfo r th e p arti es, w e o n lyb ri ef lyrec it e the fa cts. In 2 0 0 1 , G a rd e n R id g e M a n a g e m e n t, I n c ., h ir e d F e rg u s o n a s a n e x e c u tiv e e m p lo y e e . Fer gus on’ s empl oym entcontr acti ncl uded s ever ance payof $250, 000 and r ei m bur s ement of $60, 000 i n r el ocat i on expens es . U pon comm enci ng empl oym ent , Fer gus on borr ow ed $ 2 5 0 , 0 0 0 fro m G ard en R idg e, L . P . , u n d er the term s o f a w ri tt en p rom issoryn o te. In 2003, G ar den R i dge M anage m ent , I nc. , t erm i nat ed Fer gus on’ s empl oym ent . Fer gus on fi l ed a s t at e l aw contr actcl ai m fordamages of $310, 000 ( s ever ance payof $250, 000 and rel ocati on exp enses of $ 60 , 00 0). G arden R i dg e, L . P . , l at er fi l ed an act i on against Fer gus on i n fede r al courtforcol l ect i on on the $250, 000 pr om i s s orynot e. I n 2004, G ar den R i dge M anage m ent , I nc. , and s i x r el at ed corpor at e ent i t i es fi l ed forbankrupt cypr ot ect i on underC hapt er11. O n M ar ch 29, 2005, the debt or s fi l ed a p ro p o s e d re o rg a n iz a tio n p la n in c lu d in g a re q u e s t f o r s u b s ta n tiv e c o n s o lid a tio n . Subst ant i ve cons ol i dat i on “tr eat s s epar at e l egal ent i t i es as i f theyw er e mer ged i nt o aO n the dat e of c onfi rm at i on, Fer gus on’ s cl ai m fordamages agai ns tG ar den 1 R i dge M anage m ent , I nc. , and hi s l oan w i th G ar den R i dge, L . P. , w er e ati s s ue betw een the part i es. 4 s i ngl e s urvi vorl eftw i th al l the cumul at i ve as s et s and l i abi l i t i es . ” I n r e O w ens C or ni ng , 4 1 9 F .3 d 1 9 5 , 2 0 5 (3 d C ir. 2 0 0 5 ). T h e p ro p o se d p lan a llo w e d th e d e b to rs to re se rv e a ll l egal and equi t abl e def

ens es , butdeemed the as s et s and l i abi l i t i es of al l G ar den R i dge d e b to rs m e rg e d w ith th e a ss e ts a n d liab ili ties o f G a rd e n R id g e , L .P . (A -4 7 3 .) O n A p ril 28, 2005, the B ankrupt cyC our tconfi rm ed the pr opos ed s ubs t ant i ve cons ol i dat i on i n the p lan b ec au se th e d eb tors, in ef fe ct, fu n cti o n ed as a sing le en ti ty . (A -59 1 to -5 9 2 . ) 1 Fer gus on, w hos e s t at e l aw act i on w as aut om at i cal l ys t ay ed bythe bankrupt cyfi l i ng u n d e r 1 1 U .S .C . § 3 6 2 , a s s e rt e d a c la im a g a in s t th e b a n k ru p tc ye s ta te f o r $ 3 1 0 ,0 0 0 . C l ai m i ng the exi s t ence of m utual debt s – i . e. , Fer gus on’ s debtof $250, 000 and G ar den R id g e ’s d e b t o f

$ 3 1 0 ,0 0 0 – F e rg u so n b ro u g h t a s e to f f c laim u n d e r sta te la w , w h ich w o u ld p la c e h im in th e p o s itio n o f a n u n s e c u re d c re d ito r f o r $ 6 0 ,0 0 0 ($ 3 1 0 ,0 0 0 le s s $ 2 5 0 ,0 0 0 ). (B a n k r. D .I. 15 1 8 , A p r. 1 3 , 2 0 0 5 ); s ee 1 1 U .S .C . § 5 5 3 (a ). G a rd e n R id g e o b jec ted to F e r g u s o n ’ s s e t o f

f c l a i m f o rl a c k o f

mu tu a l i tyb e c a u s e th e tr a n s a c t i o n s i n v o l v e d two se p a ra te G a rd e n R id g e e n tit ies . F e rg u so n ’s b re a c h o f c o n tra c t cla im re late d so lelyto h is empl oym entbyG ar den R i dge M anage m ent , I nc. , an ent i tythatempl oy ed al l of G ar den R i dge’ s s t aff

. Fer gus on’ s pr om i s s orynot e w as hel d byG ar den R i dge, L . P. , an ent i tythat oper at ed G ar den R i dge’ s s t or es and pai d G ar den R i dge M anage m ent , I nc. , a fe e forus e of i t s em ploy ees.5

Fer gus on ar gues that , even i f G ar den R i dge M anage m ent , I nc. , and G ar den R i dge, L . P . , w ere sep ara te en ti ti es w h en h e tran sac ted w ith them , the B an k rup tcyC o u rt ’s confi rm at i on of s ubs t ant i ve cons ol i dat i on eff ect i vel ym er ged the ent i t i es , ther ebycr eat i ng m utual i tyfor set off

pu rposes. I I . D i s cus s i on T he D i s tr i ctC our thad j ur i s di ct i on pur s uantt o 28 U . S. C . § 158( a) ( 1) overthe a p p e a l f ro m th e B a n k ru p tc yC o u rt , w h ic h h a d ju ri s d ic tio n p u rs u a n t to 2 8 U .S .C . § 1 5 7 (b ). W e have j ur i s di ct i on overthi s appea l pur s uantt o 28 U . S. C . §§ 1291 and 158( d) . T he D is tr ic t C o u rt ’s d e te rm in a tio n s a re s u b je c t to p le n a ry re v ie w . In re P ro f’l In s. M

g m t. , 285 F . 3 d 2 6 8 , 2 8 2 -83 (3d C ir . 2 0 0 2 ). T h e B an k rup tcyC o u rt ’s fa ctua l determ ination s are r evi ew ed forcl earerr orand i t s l egal det erm i nat i ons ar e r evi ew ed de novo . I d. S e t o f f r i g h t s a r i s e u n d e rth e c o mm o n l a w o f e q u i tya n d “ a l l o w[ ] e n t i t i e s th a to we eac h otherm oneyt o appl ythei rm utual debt s agai ns teac h other , ther ebyavoi di ng the abs ur di tyof m aki ng A payB w hen B ow es A . ” C i t iz ens B ank v. Str um pf , 516 U . S. 16, 19 ( 1995) ( i nt ernal quot at i on m arks om i t t ed) . T o per fec ta s et off c l ai m , the partyas s ert i ng s e to f f ri g h ts m u s t p ro v e th e d e b ts b e tw e e n th e c re d ito r a n d d e b to r a re m u tu a l. See In re A PF C o. , 2 6 4 B .R . 3 4 4 , 3 5 4 (B a n k r. D . D e l. 20 0 1 ); see al so In re C

zyzk , 297 B . R . 406, 4 0 9 (B a n k r. D .N .J . 2 0 0 3 ). T he ques t i on pr es ent ed i s w hethers ubs t ant i ve cons ol i dat i on cr eat ed mutual i tyfor se to f f p u rp o se s e v e n th o u g h , ab se n t su b sta n tiv e c o n so lid a tio n , the e lem e n t o f m u tu a lity6

w o u ld n o t h a v e o th e rw is e b e e n s a tis f ie d . T h e d e b ts o f

F e rg u s o n a n d G a rd e n R id g e , In c ., w oul d onl ybe mutual i f G ar den R i dge, I nc. , and G ar den R i dge, L . P. , had di s r egar ded th e ir e n tityse p a ra ten e ss , a q u e stio n th e B a n k ru p tcy C o u rt d id n o t d e c id e w h e n it confi rm ed the r eor gani zat i on pl an bec aus e the then- pr evai l i ng s t andar d fors ubs t ant i ve cons ol i dat i on di d notr equi r e s uch a f i ndi ng. T hi s C our t ’ s s ubs equentdeci s i on i n O w ens C or ni ng , w h ich h eld th at su b stan ti v e c o n so li d ati o n is ap p rop ri ate w h en d eb tors d isr eg ard thei rent i tys epar at enes s , 419 F. 3d at211, does notoper at e as an ex pos tf acto fi ndi ng that the G ar den R i dge ent i t i es di s r egar ded the ent i tys epar at i on. W hetherthe G ar den R i dge ent i t i es l os tthei rm utual i tydefe ns e bec aus e theydi s r egar ded ent i tys epar at enes s w hen deal i ng w i th Fer gus on i s a fa ctual ques t i on notr es ol ved atthe t i m e of s ubs t ant i ve cons ol i dat i on and r ai s ed forthe fi r s tt i m e i n thi s adver s ar i al pr ocee di ng. T he el ementof m utual i tyi s nots at i s fi ed fortw o r el at ed r eas ons . Fi r s t , as the B a n k ru p tcy C o u rt f

o u n d , the re c o rd d o e s n o t su p p o rt F e rg u so n ’s c laim th a t, w h e n h e d e a lt w ith G ard en R idg e M an ag em en t, Inc . , an d G ard en R idg e, L . P . , h e b eli ev ed theyw ere al t eregos beca us e theyhad ac t ed i n di s r egar d of thei rcorpor at e s epar at enes s . Second, the B ankrupt cyC our t ’ s fac tual det erm i nat i on thatFer gus on w as empl oy ed byG ar den R i dge M anage m ent , I nc. , and notG ar den R i dge, L . P. , has s uppor ti n the r ecor d and i s not c lea rlye rro n e o u s. F e rg u so n w a s a n e x e c u tiv e o f G a rd e n R id g e a n d u n d e rsto o d its b u sin e ss o p e ra tio n s. H is d e b t to G a rd e n R id g e , L .P ., c a n n o t b e se to f f a g a in st h is c laim a g a in s t G a rd e n R id g e M a n a g e m e n t, I n c ., b e c a u s e th o s e d e b ts a re n o t m u tu a l.7

A l though s ubs t ant i vel ycons ol i dat ed w i th the otherG ar den R i dge ent i t i es , G ar den R i dge, L . P. , pr es erved i t s defe ns e t o Fer gus on’ s s et off c l ai m on gr ounds of l ack of m utual i ty . I n the r eor gani zat i on pr ocee di ng, the B ankrupt cyC our tappr oved a s ubs t ant i ve cons ol i dat i on pr ovi s i on al l ow i ng the G ar den R i dge debt or s t o r et ai n al l “l egal o re q u i t a b l e d e f

e n s e [ s ] th a tth e De b t o r s h a d i mm e d i a t e l yp r i o rt o th e P e t i t i o n Da t e . ” ( A483 ( R eor gani zat i on Pl an, A r t . V I I I ( F) , p. 36) . ) T he contr over s ybetw een Fer gus on and the G ar den R i dge ent i t i es w as l i ve atthe t i m e of the C hapt er11 pr ocee di ng, s o the G ar den R i dge ent i t i es m us thave c ons ent ed t o the s ubs t ant i ve cons ol i dat i on pr ovi s i on confi rm ed bythe B ankrupt cyC our tw i th the mutual i tydefe ns e i n m i nd. H ad O w ens C or ni ngbeen pr ece dentw hen the G ar den R i dge ent i t i es w er e s ubs t ant i vel ycons ol i dat ed o n A p ril 2 8 , 2 0 0 5 , the B a n k ru p tcy C o u rt m ig h t h a v e c o n sid e re d o th e r f a c to rs in det erm i ni ng the appr opr i at enes s of thatr el i ef. B utbeca us e O w ens C or ni ng w as not deci ded unt i l A ugus t15, 2005, the B ankrupt cyC our t ’ s pr i orconfi rm at i on of s ubs t ant i ve cons ol i dat i on s houl d notdefe atthe mutual i tydefe ns e pr es erved her e. I I I . C oncl usi on Forthe r eas ons s t at ed above , w e w i l l aff i rm the j udgm ent s of the B ankrupt cy C o u rt a n d D istric t C o u rt.

A M B R O , C i r cui tJ udge, di s s ent i ng T hi s cas e turns on the meani ng of s ubs t ant i ve cons ol i dat i on, a t opi c w e addr es s edMy colleagues conf

late a de emed c onsolidation with consolidation t o reme dy a pre 2 petition disreg ard of

entity separatene ss. The for

mer must have theconsent of interested pa rties. Whil e the latter

conce ivably

may be consensual, it ty

pically is achieve d by

a Court findingover objection (in which theBa nkruptcy Court would consider the principles set out in Owens Corning). Thus , a

ny re ferenc ein t

hema jority ’sop ini on

to “ dis re g ard [ing ] entity

sepa ra tene ss . . . [as] a factual question” is not re levant here. 8 i n I n r e O w ens C or ni ng , 419 F. 3d 195 ( 3d C i r . 2005) . U nl i ke O w ens C or ni ng , h e r e we are n o t con fro n ted w ith a d ispu te ov er w h ethe r suc h a stron g eq u it ab le rem ed yfo r a r eor gani zat i on i s appr opr i at e, as nei thers i de w ant s t o undo the dee m ed cons ol i dat i on c o n ta in e d in th e d e b to rs ’ P la n o f R e o rg a n iz a tio n . Se e id . at211 ( r ecogni zi ng thatdeemed c o n so lid a tio n is c o n se n su a l). T h e o n lyq u e stio n is w h e th e r F e rg u so n is e n tit led to 2 benef i tfr om thatcons ol i dat i on i n the form of a s et off. B eca us e I bel i eve the s ubs t ant i ve cons ol i dat i on her e nec es s ar i l ydes tr oy ed a mutual i tydefe ns e t o s et off, I w oul d r ever s e the j udgm entof the D i s tr i ctC our t( w hi ch af fi rm ed the B ankrupt cyC our t ’ s deci s i on) and al l ow Fer gus on t o cl ai m a s et off. S u b stan ti v e c o n so li d ati o n . . . “treats sep ara te l eg a l e n ti ti es a s if theyw ere m er ged i nt o a s i ngl e s urvi vorl eftw i th al l the cumul at i ve as s et s and l i abi l i t i es ( s ave f ori nt er - ent i ty l i abi l i t i es , w hi ch ar e er as ed) . T he r es ul t i s thatcl ai m s of cr edi t or s agai nst se p arat e debt or s m orph t o cl ai m s agai ns tthe cons ol i dat ed su rviv o r. ” C o n so li d ati o n restruc tures (a n d thu s re v alue s) ri g h ts of cre d it o rs a n d f o rc e r t a i n c r e d i t o r s th i s m a y r e s u l ti n s i g n i f i c a n t l y l e s s r e c o v e ry.

. . . . S u b s ta n tiv e c o n s o lid a tio n . . . a f f e c ts d is tr ib u tio n to in n o c e n t c re d ito rs . . . . T he bad ne w s forcert ai n cr edi t or s i s that , i ns t ead o f l ooki ng t o as s et s of the su b sid iar yw ith w h o m th e yd e a lt, th e yn o w m u st s h a re th o se a s s e ts w ith a ll cr edi t or s of al l cons ol i dat ed ent i t i es , raisi n g the s pect erfors om e of a s i gni fi cantdi s tr i but i on di m i nut i on.9

I d. at205–06 ( q u o tin gG e n e sis He a lth V e n tu re s, In c . v. S ta

p leto n (In re G e n e sis He a lth V e n tu r e s , In c .) , 40 2 F . 3d 41 6, 42 3 (3d C i r. 20 05 )) . In short , subst anti ve co nsoli dati on i s a blunti nstrum ent that has a profou nd effect on credi t ors’ ri gh t s. A s a re s u lt o f

th e s u b s ta n tiv e c o n s o lid a tio n o f th e G a rd e n R id g e d e b to rs , a lla ss e ts and a lll i abi l i t i es of a ll debt or s w er e dee m ed the as s et s and l i abi l i t i es of G ar den R i dge, L . P. , “foral l purpos es r el at ed t o the Pl an, ” and “ eac h and eve ryC l ai m fi l ed ort o be fi l ed sh a ll b e d e e m e d f

iled a g a in st th e C o n so lid a ted D e b to rs, a n d sh a ll b e d e e m e d o n e c laim a g a in st a n d o b lig a tio n o f th e C o n so lid a ted D e b to rs.” J.A . 4 7 3 (R e o rg a n iza tio n P lan , A rt. V I ) . T he ef

fec tof thi s cons ol i dat i on i s extr aor di nary ; w hi l e s om e of the i ndi vi dual G ar den R i dge debt or s coul d cl ai m the “ I do notow e you ” def

ens e t o cr edi t or s of other i ndi vi dual G ar den R i dge debt or s pr i ort o cons ol i dat i on, thatdefe ns e w as no l onger avai l abl e af

t ercons ol i dat i on. F o r e x a m p le , a s s u m e c o m p a n ie s X , Y , a n d Z a re in d e p e n d e n t le g a l e n titie s . X borr ow s onl yfr om B ank A , Y borr ow s onl yfr om B ank B , and Z borr ow s onl yfr om B ank C . B ank A can onl ycol l ectfr om companyX , forcompani es Y and Z do notow e B ank A a n ym o n e y . In d e e d , if B a n k A tried to c o llec t f ro m c o m p a n ies Y a n d Z , ea c h w o u ld s i m pl yr es pond “ I

do notow e you ” a n d r e f u s e t o p a y. H o w ev er, assu m e tha t com p an ies X , Y , an d Z fil e f o r ba n k rup tcyan d are s ubs t ant i vel ycons ol i dat ed i nt o debt orX Y Z . T he as s et s of compani es X , Y , and Z t hus a r e p o o l e d i n t o XYZ. S o a r e th e l i a b i l i t i e s . He n c e , Ba n k s A, B, a n d C a l l h a v e c l a i ms10

agai ns tX Y Z . W her eas befor e cons ol i dat i on B ank A di d nothave a nycl ai m agai ns tthe a ss e ts o f c o m p a n ies Y o r Z , itn o w d o e s. F u rth e rm o re , w h ile it u se d to h a v e th e so le c la im a g a in s t th e a s s e ts o f c o m p a n yX , it n o w s h a re s th o s e a s s e ts w ith B a n k s B a n d C . T hi s i s how “[c ] ons ol i dat i on r es tructur es ( and thus r eval ues ) r i ght s of cr edi t or s and for cert ai n cr edi t or s thi s m ayr es ul ti n s i gni fi cant l yl es s r ecove ry . ” O w ens C or ni ng , 419 F. 3d at205. T he s i tuat i on i s no di ffe r enti n thi s cas e. Fer gus on had a c l ai m agai ns tone of the G ar den R i dge debt or s ( w hi ch, i f pr oven, i s a l i abi l i tyof thatdebt or ) . H e al s o ow ed m oneyt o a di ffe r entone of the G ar den R i dge debt or s ( s o i ti s an as s etof thatother debt or ) . Foreas e of a dm i ni s t er i ng the debt or s ’ r eor gani zat i on, a dee m ed cons ol i dat i on i gnor es w al l s of s epar at i on i n the cl ai m s pr oces s . T hi s i s the es s ence of the cons ens ual tack take n . F o rtu n atelyfo r F erg u so n (an d u n fo rtu n atelyfo r som e o f G ard en R idg e’s o ther c red it o rs), this m ea n s tha t he n o w h as a claim ag ains t th e c o n so li d ated d eb tor, G ar den R i dge, L . P. , as w el l as a debtt o thats ame cons ol i dat ed debt or . B yvi r tue of the d e e m e d c o n so lid a tio n , the d e b ts a re n o w d e e m e d m u tu a l. A s the maj or i tyr ecogni zes , s et off r i ght s “al l ow [] ent i t i es thatow e ea ch other m oneyt o appl ythei rm utual debt s agai ns teac h other , ther ebyavoi di ng the abs ur di tyof m aki ng A payB w hen B ow es A . ” C i t iz ens B ank of M d. v. Str um

pf , 516 U . S. 16, 18 ( 1995) ( i nt ernal quot at i on m arks om i t t ed) . A s a cons equenc e of the dee m ed cons ol i dat i on, Fer gus on ow es G ar den R i dge, L . P. , and G ar den R i dge, L . P. , ow esThe majority hereconclude s the “Ga

rden Ridg e entities must have c onsented to the 3 substantive consolidation provision.” As they proposed it, no doubt they consente d. I f the majority meant that F erguson consented, it is true that hedid not object to the proposal of a de e me d c on so lidatio n, like ly be c a us eheperc e ive d it

a s re movingan obs tac leto his s e tof f c laim. 11 Fer gus on. A ccor di ngl y , Fer gus on i s ent i t l ed t o a s et off. M ycol l eague s bel i eve, how ever , thatthi s r es ul ti s s i de- s t epped w hen the Pl an b u rie s a sin g le s e n ten c e in a n o th e r se c tio n th a t th e d e b to rs r e tain a ll “le g a l o r e q u itab le d e f e n se [ s] . . . [th e y ] h a d im m e d iate lyp rio r to th e P e tit io n D a te” th a t ar e “ n o t sp e c if ica lly w a iv e d o r r e lin q u is h e d b yth [ e ] P la n ,” a n d th e P la n d o e s n e ith e r s p e c if ic a lly. See J . A. 483 ( R eor gani zat i on Pl an, A r t . V I I I . F) . M yr es pons e i s thats ubs t ant i ve cons ol i dat i on by defi ni t i on des tr oy s the mut ual i tydefe ns e— i tturns as s et s and l i abi l i t i es of i ndi vi dual ent i t i es i nt o as s et s and l i abi l i t i es of a s i ngl e cons ol i dat ed ent i ty . T he “ I do notow e you ” defe ns e i s nece s s ar i l ydes tr oy ed, and ther e i s no m utual i tybarr i ert o s et off. G ar den R i dge m ayfi nd thi s out come di s t as t eful , buti ti s a s i de ef fec tof the s tr ong m edi ci ne of s ubs t ant i ve cons ol i dat i on. I t s eff ect“r es tructur es . . . the r i ght s of cr edi t or s , ” O w ens C or ni ng , 419 F. 3d at205, occa s i onal l yai di ng one l i ke Fer gus on. T hati s the natur e of the b e a st. 3 W h a t d o e s th is c a se m e a n in p ra c tice ? T h e m a jo rityo p in io n a llo w s th e d e b to rs to pl ay“hea ds I w i n, t ai l s y ou l os e” w i th Fer gus on. T he debt or s appar ent l yar e cons ol i dat ed onl yw hen Fer gus on ow es them m oney , butnotw hen theyow e hi m m oney . I ns t ead of pot ent i al l yoffs ett i ng $250, 000 of m utual debt( “r eal dol l ar s , ” i . e. , 1 0 0 ce n ts on the d o ll ar) and l eavi ng Fer gus on w i th an uns ecur ed $60, 000 cl ai m ( “bankrupt cydol l ar s , ” i . e. , i f the12

cl ai m i s al l ow ed, on l ya po rt i on of ea ch d oll ar i s pai d) agai nstthe co nsoli dated deb t ors, underm ycol l eague s ’ r eadi ng Fer gus on ow es $250, 000 ( “r eal dol l ar s ”) t o the con sol i dated deb t ors and h as an un secured $3 10 , 00 0 clai m (“bank rupt cydo l l ars ”) agai nst th e m. G oi ng forw ar d, cr edi t or s ar e for ew arned thatdebt orJ eky l l s eeki ng a dee m ed cons ol i dat i on forcl ai m s purpos es m aybecome debt orH y de w hen i tcomes t o the c o n se q u e n c e s o f

th a t co n so lid a tio n . F o r th e se re a so n s, I re sp e c tf u llyd iss e n t.