Page 1 of 39

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

FORT LAUDERDALE DIVISION

In re:

 Case No. 21-12188-PDR

No Rust Rebar, Inc., 

 Chapter 7

Debtor. 

 / 

ORDER GRANTING TRUSTEE’S MOTION 

TO SUBSTANTIVELY CONSOLIDATE 

This matter came before the Court upon the Trustee’s Motion to Substantively 

Consolidate Raw Materials Corp. (“RMC”), Raw Energy Materials, Corp. (“REM”), 

Peter D. Russin, Judge

United States Bankruptcy Court

_____________________________________________________________________________

ORDERED in the Southern District of Florida on July 12, 2023.

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 1 of 39
Page 2 of 39

Global Energy Sciences, LLC (“GES”), and Raw, LLC (“Raw”) into the Debtor’s estate 

(the “Motion”).1 For the reasons that follow, the Court hereby grants the Motion. 

JURISDICTION & VENUE

The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b). The 

Court has statutory authority to hear and determine this case under 28 U.S.C. 

§157(b)(2)(A) and the general order of reference from the United States District Court 

for the Southern District of Florida. S.D. Fla. Local Rule 87.2(a). Venue is proper 

under 28 U.S.C. § 1409(a).

PROCEDURAL BACKGROUND AND FINDINGS OF FACT

Don Smith (“Smith”) is the founder and owner of No Rust Rebar, Inc., the 

Debtor. He is also the founder of RMC, REM, GES and Raw, the companies the 

Trustee seeks to substantively consolidate into the Debtor’s estate (the “Target 

Companies”). 

On March 5, 2021, No Rust filed a voluntary Chapter 11 bankruptcy petition. 

On August 5, 2021, Green Tech filed a Motion for Removal of No Rust as Debtor in 

Possession2 and, on November 21, 2021, filed its related Motion to Convert Chapter 

11 Case to Chapter 7.3 On May 23, 2022, after a four-day evidentiary hearing, the 

1 (Doc. 385).

2 (Doc. 70).

3 (Doc. 116).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 2 of 39
Page 3 of 39

Court entered an order converting the case from Chapter 11 to Chapter 7.4 In the 

Conversion Order5 the Court made the following relevant factual findings: 6

In the 1980s, while operating a boat manufacturing and design business, Don 

Smith came into the possession of a significant amount of basalt fibers. Smith became 

fascinated with the material and believed that he could use it to create a replacement 

for traditional structural reinforcement products, such as rebar, with the advantage 

that basalt does not rust. However, Smith never patented the process and chose to 

maintain it in his own head because he was worried that he did not have the means 

to defend a patent. When the idea of using basalt fibers as structural reinforcement 

became less financially viable due to the crash of the housing market in the mid 

2000s, Smith shifted his focus to the energy sector and founded Raw Energy 

Materials, Inc. (“REM”), which used basalt fibers to create products for the wind 

industry.7

REM struggled because it was unable to manufacture basalt fibers itself and 

its product was large, expensive, and time consuming to produce. Smith, therefore, 

turned his interest back to manufacturing and selling structural reinforcement 

products, particularly rebar, made from basalt fibers. At a Christmas party in 2014, 

Smith met Robert Bryan, who was fascinated by Smith’s idea. In January 2015, 

4 (Doc. 193).

5 (Doc. 193).

6 The Court adopts the relevant portion of its findings of fact from the Order Converting Case 

to Chapter 7 and restates them here. 

7 (Doc. 188 at 33:16–43:2, 45:2–18, 103:11–14).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 3 of 39
Page 4 of 39

following a $1.2 million investment from Bryan, No Rust Rebar, Inc. (“No Rust”) was 

born. Though Bryan put no specific restrictions on Smith’s use of the funds, he 

assumed they would be used exclusively for the benefit of No Rust and that the 

company’s additional funding needs for things like research and development would 

be minimal.8

No Rust initially needed to secure a manufacturing facility. Bryan suggested 

that No Rust buy a $3 million property he owned in Georgia. Smith declined. Instead, 

Smith was interested in a foreclosed industrial facility in Pompano Beach, Florida 

that contained office space, meeting rooms, and an industrial facility, but required 

significant repairs and maintenance (the “Property”). Bryan suggested he could 

purchase the Property and No Rust could lease it from him. Again, Smith declined. 

In July 2015, against the wishes of Bryan, No Rust contracted to purchase the 

Property for $450,000 and paid a non-refundable $50,000 deposit that allowed it to 

occupy the premises and begin maintenance and repairs immediately. Bryan, angry 

that he had been seemingly squeezed out of the deal for the Property, refused to 

provide No Rust with any further funding. Without additional investment from 

Bryan, No Rust lacked the funds to close and risked losing both the Property and its 

$50,000 deposit.9

8 (Docs. 1; 130-1; 130-2; 130-4; 138 at ¶ 1; 160 at 48:11–14; 170 at 52:4–56:4, 58:5–63:24, 81:4–

16; 188 at 43:3–44:20).

9 (Docs. 130-5; 160 at 15:18–24; 170 at 77:3–97:3, 106:16–110:11; 188 at 47:15–56:14, 78:9–

79:13).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 4 of 39
Page 5 of 39

Desperate for a solution, Smith turned to a friend, Joan Saperstein, for help. 

Saperstein created a new entity, Green Tech Development, LLC (“Green Tech”) to 

which No Rust agreed to assign its right to purchase the Property. No Rust contends 

that consideration for the assignment included an option to purchase the Property 

from Green Tech, but Green Tech contends there was no such option. Both parties 

agree that there is no signed written agreement memorializing the purported option. 

In January 2016, Green Tech bought the Property and No Rust remained in 

possession.10

No Rust needed permits and a business license before it could begin 

manufacturing operations on the Property. Though No Rust filled out the 

applications, it needed Green Tech, as the owner of the Property, to sign them. For 

reasons that remain unclear, Green Tech refused. According to Smith, Green Tech’s 

refusal was part of a concerted effort by associates of Green Tech to extort him into 

taking out a $10 million loan.11

In May 2016, No Rust executed, but never recorded, a $400,000 mechanics lien

against the Property in favor of another company Smith had recently created, Raw 

Materials Corp. (“RMC”). RMC was created by Smith in September 2015 to provide 

fiber and resin packages to his entities and also operated out of the Property. When 

pressed about why RMC received the mechanics lien, Smith acknowledged it was 

“protection” for his entities to make the Property “less enticing” to Green Tech. 

10 (Docs. 130-8; 188 at 63:14–66:2, 80:25–81:8).

11 (Doc. 188 at 81:9–85:18).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 5 of 39
Page 6 of 39

Shortly thereafter, Smith listed “No Rust Rebar, Inc.” both as a fictitious name of 

RMC and as a d/b/a on RMC’s bank account. Smith testified he did this so he could 

transfer checks made payable to No Rust to RMC when he, in his discretion, believed 

doing so was appropriate.12

In November 2016, Smith sought to exercise No Rust’s purported option by 

filing a Notice of Election to Purchase Real Property, but Green Tech refused to sell. 

Less than a month later, No Rust sued Green Tech for specific performance; Green 

Tech countered seeking No Rust’s ejectment and damages for civil trespass (the 

“Property Dispute”).13

In December 2016, Smith founded Raw, LLC (“Raw”), which served as a 

holding company. Then, in January 2017, Smith reinstated an older entity, Global 

Energy Sciences, LLC (“GES”), to hold his intellectual property, including the 

trademark and brand licenses associated with his basalt rebar product. However, it 

appears No Rust paid the bills for at least some of GES’s intellectual property and, 

at least once, transferred a patent to GES for no consideration. No Rust is obligated 

to pay GES $200/day ($73,000 annually) for a license to produce basalt rebar, though 

Smith testified that payment has not been required recently given No Rust’s financial 

situation.14

12 (Docs. 130-7; 130-20; 131-9; 138; 160 at 50:21–54:22, 134:23–155:19; 162 at 107:13–108:4; 

170 at 25:4).

13 (Doc. 160 at 63:3–65:7); see No Rust Rebar, Inc. v. Green Tech Dev., LLC (In re No Rust 

Rebar, Inc.), No. 21-01111-PDR (Bankr. S.D. Fla.); Green Tech Dev., LLC v. No Rust Rebar, Inc. (In re 

No Rust Rebar, Inc.), No. 21-01112-PDR (Bankr. S.D. Fla.).

14 (Docs. 130-7; 130-13; 130-14; 160 at 58:8–64:17, 80:3–85:23, 177:18–179:9).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 6 of 39
Page 7 of 39

In February 2017, Smith used various entities to complete a deal with 

PayMeOn, Inc. (“PayMeOn”), a publicly traded company interested in the sale of 

Smith’s basalt rebar (the “PayMeOn Deal”). Under the agreement, PayMeOn received 

an exclusive license to sell basalt rebar in Florida and the Caribbean. No Rust 

provided two machines, basalt fibers, and finished inventory to help close the deal, 

but in return received no consideration. RMC, however, received $2.4 million in cash 

and Raw received 10 million shares in PayMeOn.15 In short, in exchange for No Rust’s 

assets and No Rust losing its right to sell basalt rebar in Florida and the Caribbean, 

RMC received millions of dollars, Raw received millions of shares in a publicly traded 

company, and No Rust received nothing. Smith, however, contends that No Rust lost 

nothing because it was not presently selling product anyway and ultimately received 

reasonably equivalent value for the transaction in the form of new equipment and 

machinery.16

In 2019, the electric company cut the Property’s power due to a split of the 

power source from the contiguous property; power has not been restored but a 

generator has provided some power. Since then, No Rust and the other entities 

operating from the Property have been severely limited in their ability to conduct any 

business at all.17 Given that the Property is presently unusable for manufacturing 

15 Raw was also supposed to receive a consulting fee, but the testimony suggests that Raw 

received no cash and never held any assets other than the shares of PayMeOn stock. See (Docs. 131-

18; 131-19; 160 at 62:8–64:17).

16 (Docs. 131-18; 131-19; 160 at 62:8–64:17, 69:12–15, 93:24–95:10, 99:19–102:9, 105:6–108:12, 

116:1–120:3, 121:11–127:25, 154:1–5; 162 at 39:21–49:12; 188 at 87:4–93:25).

17 (Doc. 162 at 63:20–64:11).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 7 of 39
Page 8 of 39

and No Rust’s rights to it were in dispute, No Rust could have chosen to lease another 

Property or take some other action to ramp up its prospective core business. However, 

Smith testified, in his business judgment, that was too expensive and not in No Rust’s 

best interests.18

In September 2020, RMC registered “Raw, LLC” as a fictitious name. No 

explanation has been provided for this action. On March 5, 2021, No Rust registered 

“Raw, LLC” as a fictitious name. No explanation has been provided for this action 

either.19

Smith routinely transferred money amongst the Family20 at his sole discretion, 

his bookkeeper served as the bookkeeper for the whole Family, and whenever assets 

appeared commingled amongst the Family, Smith would simply rely on his financial 

professionals to sort out any issues or confusion that might arise. Smith also used the 

same emblem on every Family member’s checks. Smith explained that the Family 

failed to maintain corporate formalities largely because the Family included closely 

held companies that he personally controlled, he lacked clerical help to separate the 

Family’s assets and liabilities, and “things began to get mixed up” once he “began to 

spend huge amounts of legal fees.”21

18 (Doc. 160 at 176:22–177:10).

19 (Docs. 130-21; 131-6; 160 at 193:25–194:20). 

20 Smith used the “Family” to refer to No Rust, RMC, REM, and GES, but not Raw. For the 

Court’s purposes, the “Family” or “Family Members” refers to all of Smith’s related entities, including 

Raw and the Debtor. See (Docs. 138; 160 at 31:3–7; 50:21–55:22, 192:21–193:4, 198:13–17).

21 (Docs. 130-20; 130-21; 131-6; 134-20; 160 at 16:18–17:1, 54:23–55:12, 87:25–93:5, 123:23–

125:1, 128:21–133:11, 193:25–194:20, 207:7–209:10).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 8 of 39
Page 9 of 39

On March 5, 2021, No Rust filed a voluntary bankruptcy petition under 

Subchapter V of Chapter 11 of the Bankruptcy Code.22 There are irregularities in No 

Rust’s Schedules, including:23

1. RMC’s checking account is not listed in the Schedules even 

though “No Rust Rebar, Inc.” is listed as a d/b/a on the account 

and the account was open on the Petition Date. According to 

Smith, the failure to include the account was not a mistake 

because, despite being listed as a d/b/a on the account, No Rust 

has no interest in the account.24

2. The 2020 tax returns provide that No Rust is due nearly $492,000 

from RMC, but No Rust did not list that accounts receivable as an 

asset in the Schedules. When pressed, Smith was unable to 

provide a sufficient explanation for what the debt due to No Rust 

is for or why it was not included in the Schedules but did 

acknowledge it should have been.25

3. The 2020 tax returns showed that No Rust had no inventory, but 

No Rust scheduled some inventory on the Schedules. Smith 

explained that the inventory was not listed based on any

consideration of corporate documentation but was rather 

determined by walking around the building (which holds other 

corporate entities’ assets) and identifying certain pieces of 

inventory to include.26

4. No Rust scheduled a $129,250 debt owed to Smith’s sister 

resulting from a loan she gave to Smith personally in 2005, 

roughly a decade before No Rust was incorporated. Smith states 

he agreed to carry the debt into No Rust because No Rust “is the 

entity that came to fruition out of [her] original seed monies.”27

22 (Docs. 1; 130-21).

23 (Docs. 19; 133-16; 173).

24 (131-9; 160 at 144:10–155:19; 170 at 25:4).

25 (Docs. 131-25; 160 at 199:16–203:9).

26 (Doc. 188 at 210:8–25). 

27 (Docs. 19 at 16; 160 at 191:21–193:4).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 9 of 39
Page 10 of 39

Shortly after the Petition Date, on March 29, 2021, No Rust removed several 

actions from state court to this Court, including the Property Dispute.28 The Court 

denied cross motions for summary judgment in the Property Dispute and the matter 

remains pending.29

There are only six total claims in this case. Two are related to the Property 

Dispute: (1) Green Tech asserts a $1.95 million claim arising from damages related 

to the Property Dispute,30 and (2) Pet Star Corp. asserts a $1.05 million conditional 

claim arising from its mortgage on the Property.31 No Rust objects to both claims as 

contingent, unliquidated, and disputed.32 The other claims in this case include, (1) a 

$12,559.49 claim by the U.S. Small Business Administration,33 (2) an $11,750.40 

claim by Broward County for 2020 and 2021 tangible property taxes,34 and (3) two 

claims by Broward County Water and Wastewater Services totaling $52,669.83 for 

services to the Property.35 

28 See No Rust Rebar, Inc. v. Green Tech Dev., LLC (In re No Rust Rebar, Inc.), No. 21-01111-

PDR (Doc. 1) (Bankr. S.D. Fla. Mar. 29, 2021) (the “Property Dispute”); Green Tech Dev., LLC v. No 

Rust Rebar, Inc. (In re No Rust Rebar, Inc.), No. 21-01112-PDR (Doc. 1) (Bankr. S.D. Fla. Mar. 29, 

2021).

29 See No Rust Rebar, Inc. v. Green Tech Dev., LLC (In re No Rust Rebar, Inc.), No. 21-01111-

PDR, 2021 WL 4314221 (Bankr. S.D. Fla. Sept. 22, 2021). 

30 (Claim 4-1).

31 (Claim 3-1). 

32 (Docs. 123; 125).

33 (Claim 1-1).

34 (Claim 2-2). 

35 (Claim 5-1; 6-1).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 10 of 39
Page 11 of 39

On April 14, 2021, as part of a litigation settlement agreement related to the 

PayMeOn Deal, Raw agreed to sell its 10 million shares in PayMeOn to Basanite, Inc. 

for $1.2 million.36 The deal was not disclosed, and no Court approval was sought for 

the transaction. Because Raw does not have its own bank account, the funds were 

remitted to Smith. Smith contends that, even though Raw is No Rust’s fictitious 

name, the settlement was unrelated to No Rust and there was not a need to disclose 

the settlement or seek court approval for it.37

On August 5, 2021, Green Tech filed its Motion for Removal of Debtor as Debtor 

in Possession and, on November 21, 2021, filed its related Motion to Convert Chapter 

11 Case to Chapter 7.38 No Rust opposed the motions.39 The Court set an evidentiary 

hearing40 and heard the Motion for Removal, the Motion to Convert, and the Motion 

for Sanctions on December 8, 2021, December 21, 2021, January 4, 2022, and January 

10, 2022.41 No Rust, Green Tech, and the Subchapter V Trustee submitted final briefs 

following the hearings.42

36 Basanite appears to be a successor entity to PayMeOn.

37 (Doc. 133-9; 133-10; 133-11; 160 at 55:8–18, 62:8–64:17, 70:19–23, 204:11–16; 162 at 49:13–

53:23).

38 (Docs. 70; 116).

39 (Doc. 75).

40 (Docs. 86; 141).

41 (Docs. 160; 162; 170; 188).

42 (Docs. 175; 176; 180).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 11 of 39
Page 12 of 39

Following the evidentiary hearing, No Rust amended its schedules. The only 

change in the Amended Schedules appeared to be that No Rust scheduled a $9,500 

forklift that had previously been undisclosed.43

On May 23, 2022, after the four-day evidentiary hearing, the Court entered its

Conversion Order.44 The Trustee now seeks to substantively consolidate the various 

Family Members,45 arguing that the Conversion Order finds all necessary facts to 

support the relief. In opposition, the Target Companies argue: (i) The allegations46 in 

the Motion are insufficient to establish entitlement to the extraordinary remedy of 

substantive consolidation; (ii) The Court lacks personal jurisdiction over the Target 

Companies; (iii) The relief sought by Motion lacks procedural due process; and (iv) 

The Target Companies have factual and legal defenses to the relief sought.

ANALYSIS

A. Substantive Consolidation.

Although the Code itself does not expressly allow for substantive consolidation, 

a bankruptcy court has the power to substantively consolidate various estates under 

its general equitable powers contained in § 105(a). In re Reider, 31 F.3d 1102 (11th 

Cir. 1994); FDIC v. Colonial Realty, 966 F.2d 57, 59 (2d Cir. 1992); In re Bonham, 229 

F.3d 750, 764 (9th Cir. 2000); In re Giller, 962 F.2d 796, 799 (8th Cir. 1992). However, 

43 (Doc. 173 at 7).

44 (Doc. 193).

45 (Doc. 385).

46 While referred to as allegations, the Motion is relying solely upon the findings of fact in the 

Court’s Conversion Order.

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 12 of 39
Page 13 of 39

because substantive consolidation usually harms some creditors, courts apply the 

doctrine sparingly and only when the proponent can show that it is necessary to 

achieve a fair and equitable distribution of the debtors' collective assets. See generally 

In re Archdiocese of Saint Paul & Minneapolis, 888 F.3d 944, 950 (8th Cir. 2018).

Substantive consolidation can be applied to non-debtor third parties, and such 

a scenario was implicitly recognized by the Supreme Court in In re Sampsell v. 

Imperial Paper Corp.,313 U.S. 215 (1941), and has been expressly approved by many 

other courts. See e.g. In re United Stairs Corp,176 B.R. 359 (Bankr. D. N.J. 1995); In 

re Tureaud, 59 B.R. 973 (N.D. Okla. 1986); In re Crabtree, 39 B.R. 718 (Bankr. E.D. 

Tenn. 1984); In re 1438 Meridian Place N.W., Inc., 15 B.R. 89 (Bankr. D. D.C. 1981).

In Federal Deposit Ins. Corp. v. Hogan (In re Gulfco Invest. Corp.),593 F.2d 921 

(10th Cir.1979) the court found consolidation of a debtor and non-debtor was 

appropriate and held: 

The power to consolidate authorizes the court to pierce the several 

corporate veils and to disregard the existence of the separate corporate 

entities. Thus, where a corporation is a mere instrumentality or alter 

ego of the bankrupt corporation, with no independent existence of its 

own, equity would favor disregarding the separate corporate entities. It 

is, of course, proper to disregard a separate legal entity when such action 

is necessary to avoid fraud or injustice.

Gulfco, 593 F.2d at 928. The court in Gulfco further stressed that for substantive 

consolidation to be appropriate, the assets of the debtor and non-debtor entities must 

be "hopelessly commingled." Id. at 929.

The Trustee’s Motion for Substantive Consolidation primarily relies upon 

Eastgroup Properties v. Southern Motel Association Ltd., 935 F.2d 245 (11th Cir. 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 13 of 39
Page 14 of 39

1991) as setting the standard for substantive consolidation. Eastgroup itself relies 

upon the seven factors set forth in re Vecco Const. Indus., Inc., 4 B.R. 407 (Bankr. 

E.D. VA. 1980), while introducing five additional considerations. 

The Vecco factors are: 

(1) The degree of difficulty in segregating and ascertaining individual assets and 

liabilities; 

(2) The presence or absence of consolidated financial statements; 

(3) The profitability of consolidation at a single physical location; 

(4) The commingling of assets and business functions; 

(5) The unity of interests and ownership between the various corporate entities; 

(6) The existence of parent and intercorporate guarantees on loans; and 

(7) The transfer of assets without formal observance of corporate formalities. 

The additional factors enumerated by in Eastgroup are:

(1) the parent owning the majority of the subsidiary's stock; 

(2) the entities having common officers or directors; 

(3) the subsidiary being grossly undercapitalized; 

(4) the subsidiary transacting business solely with the parent; and 

(5) both entities disregarding the legal requirements of the subsidiary as a 

separate organization.

Eastgroup 935 F.2d at 249-250. The Court applies the factors as follows:

1. Difficulty In Segregating and Ascertaining Individual Assets and Liabilities 

and The Commingling of Assets and Business Functions. 

In Vecco the court looked to the difficulty in segregating assets of the individual 

entities, namely considering “whether the individual assets of the corporate entities 

were so unascertainable and hopelessly obscured as to entail substantial expense in 

segregating such assets and liabilities, as to threaten the realization of net assets for 

the benefit of creditors.” Vecco 4 B.R. at 410. Based on the Court’s findings in the 

Conversion Order, it is impossible to objectively discern with reasonable certainty 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 14 of 39
Page 15 of 39

what assets actually belong to the Debtor or the other Family Members. The Court 

found that Smith is the principle, majority shareholder, and president of each of these 

entities. The “bookkeeper served as the bookkeeper for the whole Family”.47 “Smith 

listed ‘No Rust Rebar, Inc.’ both as a fictitious name of RMC and as a d/b/a on RMC’s 

bank account. Smith testified he did this so he could transfer checks made payable to 

No Rust to RMC when he, in his discretion, believed doing so was appropriate.”48 And 

“Smith also commingled No Rust’s assets with the assets of other Family Members’ 

through his unusual and improper practice of listing the formal name of one entity 

as the d/b/a or fictitious name of another.”49

Further, each of the Family Members operated out of the same location, and 

physical assets of the Debtor were only identified by Smith “walking around the 

[Property] (which holds other corporate entities’ assets) and identifying” inventory 

personally.50 As “Smith commingled No Rust’s assets with those of the Family and 

possibly himself, regularly transferred assets between No Rust and other Family 

Members at his sole discretion and failed to maintain sufficient records showing the 

nature of those transfers and transactions,”51 the Court finds that segregating and 

ascertaining the individual assets of the Debtor and other Family Members is

47 (Doc. 193 at 11).

48 (Doc. 193 at 4-5).

49 (Doc. 193 at 20).

50 (Doc. 193 at 8).

51 (Doc 193 at 22).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 15 of 39
Page 16 of 39

sufficiently difficult, and the assets and business functions of the Family Members 

are “hopelessly comingled,” thereby supporting substantive consolidation. 

2. The presence or absence of consolidated financial statements. 

In Vecco, the court relied upon Soviero v. Franklin Nat'l Bank in determining 

that consolidated financial statements could be considered in deciding whether to 

substantively consolidate. Notably, Soviero considered both consolidated financial 

statements and the comingling of funds in its analysis. 328 F.2d 446, 448 (2d Cir. 

1964). 

In this case, while no findings were made with respect to the presence or 

absence of consolidated financial statements, the Court did make findings as to the 

comingling of funds. When Raw sold its ten million shares in PayMeOn, “[b]ecause 

Raw does not have its own bank account, the funds were remitted to Smith 

[individually]”52 and Smith listed “No Rust Rebar, Inc.” both as a fictitious name of 

RMC and as a d/b/a on RMC’s bank account so he could deposit checks made out to 

No Rust into RMC’s account.53 Thus, while the Court lacks evidence with respect to 

the Family Member’s financial statements, the finances of the various Family 

Members were comingled, and so even if the financial statements themselves were 

not consolidated, that fact alone is insufficient to overcome the remaining factors 

which overwhelmingly support substantive consolidation.

3. The profitability of consolidation at a single physical location. 

52 (Doc. 193 at 9).

53 (Doc 193 at 4; 21).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 16 of 39
Page 17 of 39

While mainly relevant in cases where a reorganization is possible, the 

“continued profitability of corporate entities operating on a consolidated basis” is 

relevant where the continued operation of the businesses depends on their operating 

at a single physical location. Vecco 4 B.R. at 411 (Citing Commercial Envelope 

Manufacturing Co., Inc., 3 BCD 647, 650 (S.D.N.Y. 1977)). Accordingly, this factor is 

not directly applicable where, as was the case in Vecco, each of the Family Members 

already operates from the same business location, and where the Trustee is pursuing 

liquidation rather than reorganization. 

4. The unity of interests and ownership between the various corporate entities. 

Each of the Family Members operates from the same location;54 Smith listed 

“No Rust Rebar, Inc.” both as a fictitious name of RMC and as a d/b/a on RMC’s bank 

account so he could deposit checks made out to No Rust into RMC’s account;55 Raw

does not have its own bank account, and so funds from the PayMeOn deal were 

remitted to Smith directly;56 Smith used the same corporate emblem on the checks 

for the entire Family;57 and Smith is the principle, majority shareholder, president, 

and representative of each of the Family Members. Accordingly, the Court funds that 

there exists a unity of interest and ownership common to all the Family Members. 

Vecco 4 B.R. at 411.

54 (Doc. 193 at 8).

55 (Doc 193 at 4; 21).

56 (Doc. 193 at 9).

57 (Doc. 193 at 20).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 17 of 39
Page 18 of 39

5. The existence of parent and intercorporate guarantees on loans. 

The Family members effectively made loans to one another. The 2020 tax 

returns provide that No Rust is due nearly $492,000 from RMC, but No Rust did not 

list that account receivable as an asset in the bankruptcy schedules. When pressed, 

Smith was unable to provide a sufficient explanation for what the debt due to No Rust 

is for or why it was not included in the schedules but did acknowledge it should have 

been.58

In addition, No Rust executed, but never recorded, a $400,000 mechanics lien 

against the Property in favor of RMC,59 and while doing so may have been, according 

to Smith for the purpose of “protection” for his entities to make the Property “less 

enticing” to Green Tech, it shows that Smith used the Family Members in concert to 

achieve their strategic financial goals, a fact supporting substantive consolidation. 

6. The transfer of assets without formal observance of corporate formalities. 

The Court has found, and the facts readily support that the Family Members 

failed to maintain corporate formalities.60 Further, the “companies were engaged in 

numerous inter-company activities which resulted in frequent transfers of assets.” 

Vecco 4 B.R. at 411. Namely, No Rust paid the bills for at least some of GES’s 

intellectual property and, at least once, transferred a patent to GES for no 

consideration. No Rust is also obligated to pay GES for a license to produce its basalt 

58 (Docs. 131-25; 160 at 199:16–203:9).

59 (Doc. 193 at 4).

60 (Doc. 193 at 11).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 18 of 39
Page 19 of 39

rebar product;61 Smith listed “No Rust Rebar, Inc.” both as a fictitious name of RMC 

and as a d/b/a on RMC’s bank account so he could deposit checks made out to No Rust 

into RMC’s account;62 Raw does not have its own bank account, and so funds from the 

PayMeOn deal were remitted to Smith directly;63 Smith used the same corporate 

emblem on the checks for the entire Family;64 and Smith commingled No Rust’s 

assets with those of the Family and possibly himself. Smith regularly transferred 

assets between No Rust and other Family members at his sole discretion and failed 

to maintain sufficient records showing the nature of those transfers and 

transactions.65 Accordingly, this factor weighs heavily in support of consolidation.

7. Commonality of officers and directors.

Smith is the principle, majority shareholder, president, and representative of 

each of the Family Members. 

8. The parent owning the majority of the subsidiary's stock; the subsidiary being 

grossly undercapitalized; the subsidiary transacting business solely with the 

parent.

The Family Members do not have a parent-subsidiary relationship. However, 

the Court found that Raw has no bank account and its only business has ever been to 

61 (Doc. 193 at 5).

62 (Doc 193 at 4; 21).

63 (Doc. 193 at 9).

64 (Doc. 193 at 20).

65 (Doc. 193 at 22).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 19 of 39
Page 20 of 39

hold the PayMeOn stock for the Debtor,66 and GES exists for the purpose of holding 

the Debtor’s intellectual property.67 Accordingly, the Court considers factors one, 

three, and four implicated by the facts of this case. For example, without a bank 

account of its own, the Court is unable to see how Raw could be adequately capitalized 

as an independent entity. Further, the fact that Smith is the sole shareholder of each 

Family Member, and the fact that the majority of the Family Members primarily, if 

not solely engage in business with one another all tend to support that Eastgroup

factors one, three, and four would weigh in favor of consolidation if they are applicable 

outside of a strictly parent-subsidiary type business relationship. The court in 

Eastgroup indicated that the five additional factors they set forth (themselves from 

Pension Benefit Guar. Corp. v. Ouimet Corp., 711 F.2d 1085, 1093 (1st Cir.1983)) 

“could be presented in some cases” and so, naturally, may not apply in all cases. 

However, the court explained that the factors in Vecco and Ouimet were only 

“examples of information that may be useful to courts charged with deciding whether 

there is a substantial identity between the entities to be consolidated and whether 

consolidation is necessary to avoid some harm or to realize some benefit.” Eastgroup

935 F.2d at 250.

Ouimet was itself analyzing a ‘brother-sister’ relationship (as defined under 

I.R.C. § 1563(a)(2)) rather than a ‘parent-subsidiary’ relationship (also defined in the 

same statute). Here, the relationship between the Family Members is quite similar 

66 (Doc 193 at 21).

67 (Doc 193 at 5)

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 20 of 39
Page 21 of 39

to that of the Ouimet companies as Smith is the sole shareholder of each Family 

Member which by definition makes them brother-sister entities. 

As a specifically parent-subsidiary relationship is not the only applicable form 

by which a group of related companies may be judged in the substantive consolidation 

context, the Court finds, considering the facts set forth above, that the Family 

Members share a substantial identity and thus these factors weigh in favor of 

consolidation. 

9. Both entities disregarding the legal requirements of the subsidiary as a 

separate organization.

The Debtor’s transactions with the Family Members were one sided, in that 

the Debtor transferred assets to them for no consideration, and this Court specifically 

found that the Debtor failed to observe corporate formalities in several respects. “[A]t 

least once, [No Rust] transferred a patent to GES for no consideration. No Rust is 

obligated to pay GES $200/day ($73,000 annually) for a license to produce basalt 

rebar” 68

“Under the agreement, PayMeOn received an exclusive license to sell basalt 

rebar in Florida and the Caribbean. No Rust provided two machines, basalt fibers, 

and finished inventory to help close the deal, but in return received no consideration. 

RMC, however, received $2.4 million in cash and Raw received ten million shares in 

PayMeOn. In short, in exchange for No Rust’s assets and No Rust losing its right to 

sell basalt rebar in Florida and the Caribbean, RMC received millions of dollars, Raw 

68 (Doc. 193 at 5).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 21 of 39
Page 22 of 39

received millions of shares in a publicly traded Company, and No Rust received 

nothing.” 69

“Smith explained that the Family failed to maintain corporate formalities 

largely because the Family included closely held companies that he personally 

controlled, he lacked clerical help to separate the Family’s assets and liabilities, and 

things began to get mixed up.”70

Accordingly, the Court finds that the majority of the Vecco and Eastgroup

factors weigh heavily in favor of substantive consolidation. Nevertheless, Eastgroup 

envisions that, even when the various factors weigh in favor of consolidation, there 

should be an opportunity for an interested party to rebut the conclusion that 

consolidation is warranted by allowing a creditor of one of the entities that is the 

target of the consolidation motion to show that (1) that creditor has relied on the 

separate credit of one of the entities to be consolidated; and (2) that the creditor will 

be prejudiced by substantive consolidation. Eastgroup 935 F.2d at 251.

The function of the rebuttal described in Eastgroup is to provide evidence that 

(1) a creditor recognized (or was perhaps duped into believing) that the specific entity 

to be consolidated was a separate entity from the other consolidation targets, and this 

also serves as evidence that the entities did not in fact share a substantial identity; 

and (2) that the consolidation would harm the objecting creditor by preventing it from 

69 (Doc. 193 at 6).

70 (Doc. 193 at 11) (internal quotations omitted).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 22 of 39
Page 23 of 39

being able to pursue greater recovery against the entity individually, than it could 

against the consolidated entities. 

Here, although properly noticed by first class US mail as required under FRBP 

7004(b),71 none of the twenty plus creditors of any of the Target Companies has 

stepped forth to argue under the rebuttal permitted by Eastgroup. The Target 

Companies have not argued themselves that they do not in fact share a substantial 

identity, or that consolidation would not be beneficial to the estate. Further, the 

Target Companies’ objection does not allege that their creditors will be unduly 

prejudiced by consolidation. In fact, the Target Companies only make procedural 

arguments, despite the Court specifically requesting and providing opportunity for 

them to submit supplemental briefing on any and all of their substantive arguments 

against consolidation.

At the March 2, 2023 hearing, after a discussion of the substance of the Motion 

and response, counsel indicated that the Target Companies’ response was 

particularly brief as he had only been afforded one day to prepare it after being 

retained. Placing a strong emphasis on ensuring that procedural due process is

afforded, the Court requested further briefing by both parties. The Court made it

abundantly clear that the Target Companies response needed to be fulsome, and it 

was specifically discussed that such a response would likely need to address the Vecco

and Eastgroup analyses, among other questions raised by the Court during the 

hearing. While the Court desired to limit the volume of the supplemental briefing, it 

71 (Doc. 389).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 23 of 39
Page 24 of 39

was made clear that requests for additional time, extensions of page limits, or other 

accommodations would be afforded upon request by either party. Thus, despite being 

provided ample opportunity, the Target Companies raised no substantive arguments 

in opposition to consolidation or to contest the applicability the Vecco and Eastgroup

factors. 

B. Substantive Consolidation by Motion. 

The Trustee seeks substantive consolidation of non-debtor entities with the 

Debtor. The due process rights of those non-debtor entities must be preserved. Courts 

have addressed substantive consolidation in a variety of procedural settings, 

including by motion in the main case, as here, and through the commencement of an 

adversary proceeding.

The Target Companies argue that, under FRBP 7001, the pursuit of 

substantive consolidation by motion is improper, as it seeks “equitable relief” under 

FRBP 7001(7) and so must be conducted by adversary proceeding. Alternatively, the 

Target Companies argue that, under FRBP 7001(8), since their claims against the 

debtor will be subordinated because of consolidation, this matter must be conducted 

by adversary proceeding. The Court disagrees with both arguments.

1. Federal Rule of Bankruptcy Procedure 7001(7).

FRBP 7001 provides the “following are adversary proceedings: ... (7) a 

proceeding to obtain an injunction or other equitable relief, except when a chapter 9, 

chapter 11, chapter 12, or chapter 13 plan provides for the relief.” The Target 

Companies argue that because FRBP 7001 defines “adversary proceeding” to include 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 24 of 39
Page 25 of 39

“a proceeding to obtain an injunction or other equitable relief,” and because 

substantive consolidation is a form of equitable relief such relief can only be sought 

by adversary proceeding.

The Court disagrees. The “other equitable relief” under 7001(7) generally 

refers to relief “consistent with the nature of an injunction.” In re Protea Biosciences, 

Inc., 17-BK-1200, 2018 WL 5734464, at *4 (Bankr. N.D.W. Va. Oct. 30, 2018). The 

mere fact that a bankruptcy court is providing some form of equitable relief does not 

mandate an adversary proceeding where the equitable relief is not based upon 

conduct that might be remedied by an injunction as contemplated by FRBP 7001(7). 

To argue that Rule 7001(7) requires every form of equitable relief that may be 

pursued in a bankruptcy court be conducted by adversary proceeding cannot be the 

law since that would require commencing an adversary proceeding for even mundane 

equitable matters commonly brought by motion. The Target Companies offer no 

support for such a proposition.

2. Federal Rule of Bankruptcy Procedure 7001(8).

While not addressed in the Target Companies’ Objection72 or Response,73

counsel suggested at the hearing that consolidation must be pursued by adversary 

proceeding under Rule 7001(8), which includes as an adversary proceeding: “a 

proceeding to subordinate any allowed claim or interest, except when a chapter 9, 

chatper11, chapter12, or chapter 13 plan provides for subordination.” The Target 

72 (Doc. 391).

73 (Doc. 395).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 25 of 39
Page 26 of 39

Companies argue that creditors’ claims against the Target Companies would 

effectively be “subordinated,” presumably to the claims against the Debtor. However, 

counsel cited no case law in support of this position. 

The Target Companies misunderstand the concept of substantive 

consolidation. If the Target Companies are substantively consolidated with the 

Debtor, they will become as one, in which case all of their assets will be deemed owned 

by the consolidated entity, and all of the claims against all of the entities would be 

against the consolidated entity. None of the claims will have been subordinated to 

any other claims by virtue of the consolidation. 

3. Substantive Consolidation by motion is generally proper.

The 11th Circuit has found that consolidation may be properly sought by 

motion. In Eastgroup the court stated "[the] standard, which we adopt today, [is used] 

to determine whether to grant a motion for substantive consolidation." Eastgroup, 

935 F.2d 245 at 249. Applying the applicable case law, the Court finds it may 

substantively consolidate a non-debtor with a bankruptcy debtor by motion. See e.g., 

In re Notez, LLC (Case No. 18-19109-RAM) (Bankr. S.D. Fla.) [Doc. 102]; In re Puig, 

Case No. 07-14026-RAM (Bankr. S.D. Fla.) [Doc. 2139]; In re Rollaguard Security, 

LLC., et al., Case No. 14-38071-EPK (Bankr. S.D. Fla.) [Doc. 857]; In re CLSF III IV, 

Inc., et al., Case No. 12-30081-EPK (Bankr. S.D. Fla.) [Doc. 857]; see also In re Alico 

Mining, Inc., 278 B.R. 586 (Bankr. M.D. Fla. 2002); Munford, Inc. v. TOC Retail, Inc., 

(In re Munford, Inc.), 115 B.R. 390 (Bankr. N.D. Ga. 1990); In re Crabtree, 39 B.R. 

718 (Bankr. E.D. Tenn. 1984); Matter of New Center Hospital, 187 B.R. 560 (E.D. 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 26 of 39
Page 27 of 39

Mich. 1995); In re DRW Property Co. 82, 54 B.R. 489 (Bankr. N.D. Tex.1985); In re 

United Stairs Corp., 176 B.R. 359 (Bankr. D.N.J. 1995). Courts have reliably held 

that an adversary proceeding is not necessary when pursuing consolidation.

With exceptions, Bankruptcy Rule 7001(1) requires an adversary 

proceeding in order to recover money or property. Substantive 

consolidation, however, is not tantamount to turnover. Instead, 

substantive consolidation is an equitable, judicial remedy that is distinct 

from the express, statutory remedies of turnover or other recovery 

actions. Substantive consolidation is traditionally sought by motion. 

In re Archdiocese of St. Paul & Minneapolis, 553 B.R. 693, 699 (Bankr. D. Minn. 

2016).

C. Notice. 

When substantive consolidation is sought by motion, notice to the Target 

Companies must be adequate to satisfy due process concerns. Courts have stated 

that, at minimum, due to the nature of substantive consolidation of debtor and nondebtor entities, notice must be provided to all creditors, and such creditors must have 

an opportunity to be heard. See Drabkin v. Midland-Ross Corp. (In re Auto-Train 

Corp.), 810 F.2d 270, 279 ((D.C. Cir. 1987)); United States v. AAPC, Inc. (In re AAPC, 

Inc.), 277 B.R. 785, 789-90 (Bankr. D. Utah 2002); Morse Operations, Inc. v. Robins 

Le-Cocq, Inc. (In re Lease-A-Fleet, Inc.), 141 B.R. 869, 873 (Bankr. E.D. Penn. 1992). 

With respect to substantive consolidation hearings, "the notice must be given in such 

a manner that is likely to reach its intended audience. [T]he content of the notice 

must reasonably inform the recipient of the nature of the upcoming proceeding." AutoTrain, 810 F.2d at 278. “The important thing, for due process purposes, is notice and 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 27 of 39
Page 28 of 39

an opportunity to be heard. In re Bonham, 226 B.R. 56, 94 (Bankr. D. Alaska 1998), 

subsequently aff'd, 229 F.3d 750 (9th Cir. 2000).

As a contested matter, the Motion falls within the scope of FRBP 9014, which 

makes the 7000 series of rules applicable, as in an adversary proceeding. In this case, 

the Trustee has served the Motion and Notice of Hearing by first class mail,74 in 

compliance with Rule 7004, upon “all of the Debtor’s creditors, all known creditors of 

[Target Companies], and potential interested parties”75 as well as each of the Target 

Companies themselves, and Don Smith personally. The Trustee also served76 the 

Order Continuing the Hearing,77 and the Amended Notice of Hearing78 upon some 

twenty-plus creditors, consistent with the Trustee’s service of the original Motion. 

Further, the Target Companies have all responded and were represented at each of 

the several hearings on this Motion. Neither Smith nor the Target Companies have 

argued that they or any creditors or equity holders of the Target Companies did not 

receive adequate notice.

Additionally, the Motion and notice of hearing were served upon Don Smith, 

and the various Target Companies by First Class Mail approximately three weeks 

before the Court’s initial hearing on the Motion, the same manner of personal service 

74 (Doc. 389).

75 (Doc. 385 at 15).

76 (Doc. 392).

77 (Doc. 393).

78 (Doc. 424).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 28 of 39
Page 29 of 39

applicable to an adversary complaint as required by FRBP 7004, albeit without a 

formal summons.79 

The Court finds that the Trustee has adequately served the Motion and notices 

of hearing upon the Target Companies as well as every other conceivably interested 

party. Indeed, other than a lack of a summons, service was equivalent to that which 

would have been required in an adversary proceeding under Rule 7004(a).

Further, the Target Companies were afforded an adequate opportunity to be 

heard as the Court conducted two hearings on the Motion80 and provided the Target 

Companies an additional opportunity to brief any substantive arguments they had in 

opposition. Furthermore, the Trustee was ordered to provide additional detail as to 

the facts supporting consolidation prior to the Target Companies’ response. 

Accordingly, the Court finds that notice of these proceedings was adequate.

D. Substantive Consolidation of a non-debtor third party.

More than 80 years ago the Supreme Court found consolidation of a debtor and 

non-debtor was appropriate in Sampsell v. Imperial Paper and Color Corp., 313 U.S. 

215, 218-19 (1941) (finding consolidation of a non-debtor proper where the purpose of 

a transfer of property to the non-debtor was to hinder, delay or defraud the debtor’s 

creditors). Since then, several courts have indirectly acknowledged, or at least have 

not rejected, the concept that bankruptcy courts have the power to substantively 

consolidate a debtor with a non-debtor entity. In re Auto-Train Corp., Inc., 810 F.2d 

79 (Doc. 389).

80 (Docs. 388; 392)

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 29 of 39
Page 30 of 39

270, 279 (D.C. Cir. 1987), a case relied upon by the Eleventh Circuit in Eastgroup, 

the court assumed the propriety of substantive consolidation of a non-debtor 

subsidiary into its debtor parent. See also, Kapila v. S & G Fin. Servs., LLC (In re 

S&G Fin. Servs.), 451 B.R. 573, 580 (Bankr. S.D. Fla. 2011) (finding consolidation of 

a non-debtor proper upon findings that corporate formalities were not observed, 

assets and business functions were comingled, and common sole principals between 

the entities). Further, nothing in Eastgroup itself suggests that substantive 

consolidation of a debtor and non-debtor entity would be inappropriate. 

Indeed, bankruptcy courts in Florida and in numerous other states have 

expressly recognized the bankruptcy court's ability to substantively consolidate a 

debtor with a non-debtor and have done so consistently and reliably. See, e.g., In re 

Alico Mining, Inc., 278 B.R. 586 (Bankr. M.D. Fla. 2002); Munford, Inc. v. TOC Retail, 

Inc. (In re Munford, Inc.), 115 B.R. 390 (Bankr. N.D. Ga. 1990); In re Crabtree, 39 

B.R. 718, 721 (Bankr. E.D. Tenn. 1984); Matter of New Center Hospital, 187 B.R. 560 

(E.D. Mich. 1995); In re United Stairs Corp., 176 B.R. 359 (Bankr. D.N.J. 1995); In re 

1438 Meridian Place, N.W., Inc., 15 B.R. 89 (Bankr. D.C. 1981).

E. Collateral estoppel as applied to the non-debtor target companies.

To claim the benefit of collateral estoppel the party relying on the doctrine 

must show that: (1) the issue at stake is identical to the one involved in the prior 

proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the 

determination of the issue in the prior litigation must have been "a critical and 

necessary part" of the judgment in the first action; and (4) the party against whom 

collateral estoppel is asserted must have had a full and fair opportunity to litigate 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 30 of 39
Page 31 of 39

the issue in the prior proceeding. Christo v. Padgett, 223 F.3d 1324, 1339 (11th Cir. 

2000); Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008, 1036 (11th Cir. 

2014); see also In re MSR Resort Golf Course LLC, 515 B.R. 36, 49-50 (Bankr. S.D.N.Y. 

2014). 

1. The issue at stake is identical to the one involved in the prior proceeding. 

In this case, the matter of substantive consolidation was not directly raised 

during the conversion proceedings. However, the Trustee argues that the facts found 

in the Conversion Order are identical to those which would need to be found for 

consolidation to be appropriate. 

Once a court decides an issue of fact or law necessary to its judgment, that 

decision precludes re-litigation of the same issue on a different cause of action 

between the same parties. Kremer v. Chem. Constr. Corp., 456 U.S. 461, 466 n.6 

(1982). The doctrine of collateral estoppel can apply to preclude re-litigation of both 

issues of law and issues of fact if those issues were conclusively determined in a prior 

action. United States v. Stauffer Chemical Co., 464 U.S. 165, 170 (1984). 

The court in Winn-Dixie provides that courts should “consider factors like those 

elaborated in the Restatement comments when determining the identity of issues.” 

746 F.3d at 1036-37. Here the Court considers the following question laid out in WinnDixie as determinative: Is there a substantial overlap between the evidence or 

argument to be advanced in the second proceeding and that advanced in the first?

Issues are identical for collateral estoppel purposes where "the issues presented by 

[the current] litigation are in substance the same as those resolved" in the previous 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 31 of 39
Page 32 of 39

litigation. Montana v. United States, 440 U.S. 147, 155 (1979). However, the facts of 

the two cases do not need to be identical so long as any factual differences have no 

legal significance in resolving the issues presented in both cases. Nat'l Med. Imaging, 

LLC v. Ashland Funding LLC, 648 F. App'x 251, 256 (3d Cir. 2016) (internal 

quotation marks omitted). Thus, if the facts which were necessary to the Conversion 

Order are identical to those necessary to order consolidation, collateral estoppel may 

apply. 

Although the legal theory of consolidation is different than conversion, the two 

actions involve identical issues of fact, and the Conversion Order contains the Court’s 

factual findings on those issues. A bankruptcy court may rely on collateral estoppel 

to reach conclusions about certain facts, foreclose re-litigation of those facts, and then 

consider those facts as evidence in support of another legal issue with an identical 

factual predicate. see Thomas v. Loveless (In re Thomas), 288 F. App'x 547, 548 (11th 

Cir. 2008) (citation omitted); see also Kane v. Stewart Tilghman Fox & Bianchi, P.A., 

485 B.R. 460, 473 (S.D. Fla. 2013) (finding proper the bankruptcy court’s application 

of collateral estoppel to certain factual findings in an order dismissing a Chapter 11 

proceeding for bad faith as to the issue of non-dischargeability in an adversary

proceeding, as both were premised on the same factual issues). Accordingly, it is 

proper for the Court to rely upon those findings now. Tugz Intern., L.L.C. v. Canaveral 

Port Auth., No. 6:03-cv-1782-Orl-22JGG, 2005 WL 6046066, at *6 (M.D. Fla. Feb. 2, 

2005).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 32 of 39
Page 33 of 39

The Court finds that no new evidence or argument is necessary to adjudicate 

the issue of substantive consolidation. All of the essential factual findings in support 

of consolidation have already been found, the questions presented under the 

consolidation analysis are identical to those already decided in the Conversion Order, 

and so the issues at stake are identical to those previously decided. 

2. The issue was actually litigated in the prior proceeding. 

"[W]hen an issue is properly raised, by the pleadings or otherwise, and is 

submitted for determination, and is determined, the issue is actually litigated." 

Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1359 (11th Cir.1998) (quoting 

Restatement (Second) of Judgments § 27 cmt. d (1982)). Intrinsically, when the 

factual issues involved in each proceeding are identical, then those factual issue were 

actually litigated in the prior proceeding. Further, there is no distinguishing element 

in play, such as the standard or burden of proof being elevated in this second 

proceeding. The factual findings of the Conversion Order are merely being applied to 

another legal question. Further, unlike in the case of a judgment entered by 

confession, consent, or default, where the issues are not actually litigated, there was 

a multi-day trial held upon the conversion motion, evidence was presented, and 

primarily as a result of Smith’s own testimony with respect to factual matters based 

on his knowledge as a representative of the Target Companies, the Court made the 

factual findings which support the Conversion Order and which the Trustee now 

seeks to apply to consolidation. Accordingly, the Court may apply collateral estoppel 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 33 of 39
Page 34 of 39

to bar relitigating those issues now. Bush v. Balfour Beatty Bahamas (In re Bush), 62 

F.3d 1319, 1323 (11th Cir. 1995).

3. The determination of the issue in the prior litigation must have been "a critical 

and necessary part" of the judgment in the first action. 

Although this "critical and necessary" element has not been well-defined, it 

appears to mean that the factual finding was essential to the ultimate decision in the 

prior case, and that the judgment could not have been entered without it. Dimmitt & 

Owens Fin., Inc. v. Green (In re Green), 262 B.R. 557, 567 (Bankr. M.D. Fla. 2001). 

The factual issues the Trustee is relying upon in support of consolidation are the same 

findings that the Court explicitly relied upon in entering the Conversion Order and

were undeniably “critical and necessary” or “essential” to the resolution of the

conversion proceedings.

4. Common identity of the parties.

The Eleventh Circuit will not bind a non-party to a prior decision "unless he 

had sufficient identity of interest with a party that his interests are deemed to have 

been litigated." Herman v. South Carolina Nat'l Bank, 140 F.3d 1413, 1424 (11th Cir. 

1998) (quoting In re Birmingham Reverse Discrimination Employment Litigation, 833 

F.2d 1492, 1498 (11th Cir. 1987)). Relevant case law suggests that, under certain 

circumstances, a judgment may bar a subsequent action by a person who was not a 

party to the original litigation. See, e.g., Meza v. General Battery Corp., 908 F.2d 1262, 

1265 (5th Cir. 1990); Kaiser Aero. & Elecs. Corp. v. Teledyne Indus., Inc., 229 B.R. 

860, 872 (S.D. Fla. 1999).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 34 of 39
Page 35 of 39

For the reasons set forth above, the Court has already found that the Target 

Companies and the Debtor share a substantial, common identity of interests and so 

this prong of the collateral estoppel analysis is satisfied.

5. Opportunity to be heard. 

Smith and GES were parties in interest to the conversion proceedings, as both 

were listed on the creditor matrix on the date of filing,81 and they were provided with 

formal notice.82 While the other Target Companies had not yet formally appeared in 

the case, Smith personally attended and testified at the hearings on the Motion to 

Convert. Smith is the principle, majority shareholder, and president of each of the 

Family Members and necessarily serves as their representative. Service upon each of 

the Target Companies is delivered to Smith as their representative and is sent to the 

same address for each entity.83 Practically speaking, additional service on the Target 

Companies at the time of the Conversion Proceedings would have amounted to little 

more than Smith receiving another envelope with identical materials. As the 

principal, majority shareholder, president, and representative of each of the Family 

Members, Smith is in the best (and possibly only) position to understand and 

represent the interests of the Family Members. To the extent that conversion may 

have had an impact on any of their interests as creditors, related entities doing 

81 (Doc. 6).

82 (Docs. 70 at 11; 116 at 6-7).

83 (Docs. 389; 393; 424). 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 35 of 39
Page 36 of 39

business with the Debtor, or otherwise, it was Smith’s duty to represent those 

interests, or hire counsel to do so, and he chose to take no action.84

While the Target Companies may not have formally appeared or filed claims 

at the time of the hearings on the Motion to Convert, they were in fact represented 

by Smith at the hearings, and so not only had notice of the conversion hearings but 

were actually in attendance (although not represented by counsel) as Smith was in 

in attendance and testified at those hearings with respect to factual matters based 

on his knowledge as the representative of each of the Target Companies. It is 

incumbent upon Smith to represent the interests of the Family Members, and his 

failure to engage counsel for the specific purpose of representing the various Target 

Companies was at his own peril. See Kaiser Aero. & Elecs. Corp. v. Teledyne Indus., 

Inc., 229 B.R. 860, 873 (S.D. Fla. 1999).

The Target Companies now assert that they have factual and legal defenses, 

but they have not set forth anything in support of this claim. While their 

supplemental filing claims that there are ‘developments’ that are relevant to 

consolidation, and that they “look forward to presenting defenses to substantive 

consolidation,”85 no specific details, by way of affidavit or otherwise, of the 

foreshadowed defenses were provided. Indeed, the Target Companies’ argument is 

84 At a minimum, the various Target Companies share, among other things, an interest in that 

the conversion to Chapter 7 would result in liquidation of the Debtor, and as each of these entities 

existed essentially for the sole purpose of conducting business with the debtor, any pecuniary interests 

they held in the Debtor’s reorganization, rather than liquidation, was clearly at stake.

85 (Doc. 395 at 9).

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 36 of 39
Page 37 of 39

little more than a single paragraph which cites no record evidence, no case law, and 

no statute or other authority in support of the Target Companies’ position.86 At the 

first hearing on the Motion, on March 2, 2023, the Court ordered the Trustee to 

amend the Motion to provide specificity as to the basis for consolidation, entity by 

entity, and afforded the Target Companies an additional opportunity to fully brief 

their defenses and to oppose the Eastgroup and Vecco analyses. The Court even made 

clear that additional time or pages would be provided to the Target Companies upon 

request, yet the Target Companies’ ‘factual and legal defenses’ are no more than bare 

assertions that:

Trustee’s wholesale abandonment of all of the tangible assets of the 

Debtor proves that the tangible assets of the Debtor have no value 

without the knowledge and expertise of Don Smith. As another example, 

in the Conversion Order, the Court does not specify which patent was 

transferred. One patent was abandoned after transfer, and the other 

was a patent application, in which the Debtor had no vested interest as 

a matter of law.87

Without further support, these statements hold little weight, but even considering 

them in a light most favorable to the Target Companies, the Court is mystified as to 

how these assertions serve to counter the Court’s prior factual findings in the 

Conversion Order which overwhelmingly support substantive consolidation pursuant 

to the factors set forth in Eastgroup and Vecco.

86 (Doc. 395 at 9).

87 (Doc. 395 at 9). 

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 37 of 39
Page 38 of 39

The Court’s prior factual findings in the Conversion Order are clear and were 

not appealed, the Trustee is seeking a judgment purely upon those facts found in the 

Conversion Order, the facts found in the Conversion Order satisfy the requirements 

under the various case law and their articulated tests for substantive consolidation, 

and the Target Companies have not presented any significant arguments, sufficiently 

disputed the facts or case law, or presented any additional evidence to the contrary. 

Instead, they have elected to make only procedural arguments which, for the reasons 

stated, are not persuasive. 

The Target Companies have had a full and fair opportunity to participate in 

the conversion hearings and their representative, Smith, was, in fact, in attendance

and testified at those hearings with respect to factual matters based on his knowledge 

as a representative of the Target Companies. Further, the Target Companies have 

been afforded more than a full and fair opportunity to present substantive argument 

in opposition to consolidation and have failed or refused to do so.

Thus, for the purposes of applying collateral estoppel principles in this case, 

the Court concludes that there was a sufficient identity of the parties and opportunity 

to be heard. Accordingly, each prong of the collateral estoppel analysis is satisfied 

with respect to the Target Companies. 

CONCLUSION

For the foregoing reasons the Court GRANTS the Trustee’s Motion to 

Substantively Consolidate Raw Materials Corp., Raw Energy Materials, Corp., 

Global Energy Sciences, LLC), and Raw, LLC into the Debtor’s estate and ORDERS:

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 38 of 39
Page 39 of 39

Effective upon entry of this Order, the assets and liabilities of Raw Materials 

Corp., Raw Energy Materials, Corp., Global Energy Sciences, LLC, and Raw, LLC are 

substantively consolidated with the bankruptcy estate of No Rust Rebar, Inc. (the 

“Debtor”), with Sonya Salkin Slott as Chapter 7 Trustee over each of the consolidated 

entities.

# # #

Copies to:

All parties in interest.

Case 21-12188-PDR Doc 441 Filed 07/12/23 Page 39 of 39