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OPI NI ON O F THE COURT

A M B R O , C i r cui tJ udge W e cons i derunderw ha tc i r c u mst ance s a courtexer ci s i ng bankrupt cypow er s m ays ubs t ant i vel ycons ol i dat e af fi li at ed ent i t i es . A ppel l antC r edi tSui s s e Fi r s t B os t on ( “C SFB ”) i s the agentfora s yndi cat e of banks ( col l ect i vel y , the “Banks” ) that 1For eas e of r efe r ence , w e r efe rher ei naft ers ol el yt o O C D as 2 the b o rrow er. 8 ext ended i n 1997 a $2 bi l l i on uns ecur ed l oan t o O w ens C orni ng, a D el aw are co rporat i on (“O C D ”), and cert ai n o f i t s subsi diar i es. T hi s cr edi tw as enhanc ed in p artbyguar ant ees m ade byother O C D su b sid iar ies

. T h e D istric t C o u rt g ra n ted a m o tio n to cons ol i dat e the as s et s and l i abi l i t i es of the O C D borr ow er s and 2 g u a ra n to rs in a n tic ip a tio n o f a p la n o f

re o rg a n iz a tio n . T he B anks appea l and ar gue thatthe C o ur terr ed by gr ant i ng t he mot i on, as i tm i s under s t ood the r eas ons for , and s t andar ds forcons i der i ng, the extr aor di n aryr emedyof s ubs t ant i ve cons ol i dat i on, and i n any event di d notm ake f actual d e t e r mi n a t i o n s n e c e s s a r ye v e n t o c o n s i d e ri t s u s e . T h o u g h we re v e rse th e ru lin g o f

th e D is tr ic t C o u rt, w e d o so a w a re th a t it act ed on an i s s ue w i th n o opi ni on on poi ntbyourC our tand d if f e ri n g ra tio n a le s b yo th e r c o u rt s . W h ile this a re a o f

law is d if

f icu lt an d th is c a se im p o rta n t, i t s out come i s eas y w it h the fac t s befor e us . A m ong other p r o b l e ms , t h e c o n s o l i d a t i o n s o u g h ti s “ d e e me d

. ” S h o u l d we app rove t his no n-consen sual arr ang em ent, th e plan process w o u ld p ro c e e d a s th o u g h a ss e ts a n d li a b ili ties o f se p a ra te ent i t i es w er e mer ged, buti n fac ttheyr emai n s epar at e w i t h t he tw ist th a t th e g u a ra n tee s to th e B a n k s a re e lim in a ted . F ro m th is w e conc l ude thatt he pr oponent s of su b st ant i ve cons ol i dat i on req u est i tnott o r ect i fythe s el dom

- s een s i tuat i ons thatcal l forForexampl e, O w ens - C orni ng Fi ber gl as s T echnol ogy , I nc. 3 ( “O C FT ”) w as cr eat ed as an i nt el l ectual pr opertyhol di ng company t o w hi ch O C D as s i gned al l of i t s dom es t i c i nt el l ectual p r o p e r t y . OCF T l i c e n s e d t h i s i n t e l l e c tu a l p r o p e r t yb a c k t o OCD i n r etur n for r oy al t y paym ent s . O C FT al s o ent er ed i nt o l i cens i ng agr eement s w i t h p arti es out s i de of the O C D fami l yof compani es . T hi s s t ructur e s erved t o s hi el d O C D ’ s i nt el l ectual p r o p e r t y a s s e t s ( v a l u e d a to v e r$ 5 0 0 m i l l i o n ) f r o m l i a b i l i t y. 9 t hi s l as t
- r es or tr emedybutr atheras a pl oy t o depr i ve one gr oup of cr edi t or s of thei rr i ght s w hi l e pr ovi di ng a w i ndfal l t o other credi t ors. I . Fac t ualBackg r ound a nd Pr o c e du r a l H i s t o r y A . O w ens C orni ng G roup of C om pani es O C D and i t s s ubsidiari es (w h ich in clud e c o rpora t i ons and lim ited liab ili ty c o m p a n ies ) co m p rise a m u lti n a tio n a l co rp o ra te gr oup. D i ffe r entent i t ie s w i t hi n t he gr oup have di ffe r ent purpos es . Som e, fo rexampl e, exi s tt o l i m i tl i abi l i t yconce r ns (s uch as tho se r el at ed to asbestos) , other s t o g ai n tax ben efi t s, a n d o th e rs h a v e re g u la to ry re a s o n s f o r t h e irf o rm a tio n . E ach s ubs i di aryw as a s epar at e l egal ent i t ythatobs erved go vernan ce fo rm al i t i es. E ach h ad a spe ci fi c reas on t o ex i st s epar at el y , eac h m ai nt ai ned i t s ow n bus i nes s r ecor ds , and i nt er companyt r ans act i ons w er e r egul ar l ydocument ed. 3OC F T o p e r a t e d a s a n a u t o n o mo u s e n t i t y . I tp r e p a r e d i t s o wn acc ount i ng and fi nanci al r ecor ds and pai d i t s ow n expens es fr om i t s s epar at e bank a ccount s . O C FT had i t s ow n empl oy ees w or ki ng ati t s Sum m i t , I l l i noi s pl ant , w hi ch cont ai ned m a c h in e rya n d e q u ip m e n t f o r re se a rc h a n d d e v e lo p m e n t. I PM , I nc. ( “I PM ”) w as i ncorpo rat ed as a pas s i ve D e law a re in v e stm e n t h o ld in g c o m p a n yb yO C D to c o n so lid a te t he i nves t m ent s of i t s for ei gn s ubs i di ar i es . I PM s hi el ded the for ei gn s ubs i di ar i es ’ i nves t m ent s fr om O C D l iabi l i t yand l i kew i s e s hi el ded O C D fr om t he l i abi l i t y of t hos e f o rei gn s ubs i di ar i es . O C D tr ans ferr ed ow ner s h ip o f i t s for ei gn s ubs i di ar i es t o I PM and ent er ed i nt o a r evol vi ng l oan agr eement u n d e r w h ich IP M lo a n e d d iv id e n d s f ro m th o se su b sid iar ies to O C D

. O C D pai d i nt er es ton t h i s r evol vi ng l oan. I PM , l i ke O C FT , ent er ed i nt o ag r e e me n t s wi th part i es unaff i l i at ed w i t h t he O C D group and op erate d a s an autonom ou s ent i t y . IPM al so p re p a re d its o w n a c c o u n tin g a n d f in a n c ial re c o r d s a n d p a id its o w n ex p en ses fro m it s sep ara te b an k ac co u n ts. IP M ’s of fice rs oversa w al l i nves t m entact i vi t yand mai nt ai ned r ecor ds of i nv estm ent act i vityi n IPM subsi diar i es. B oth O C F T and IPM op erat ed o ut s i de of O C D ’s bu si ness u n it s. N ei t hercompanyr ece i ved admi ni s t r at i ve s uppor tfr om O C D a n d b o th p a id p a yro ll an d b u sin e ss e x p e n se s f ro m th e ir o w n ac co u n ts. A lth o u g h su m m aries o f th eir acc o u n ti n g ledg ers we r e e n t e r e d i n t o OCD’ s c e n tr a l i z e d c a s h ma n a g e me n ts y s t e m, t he under l y i ng r ecor ds w er e cr eat ed and mai ntai n ed bythe s u b s i d i a r i e s , n o t OC D. OC F T a n d I P M e v e n h a d t h e i r o wn c o m p a n ylo g o s a n d tr a d e n a m e s . In teg re x w a s f

o rm e d b yO C D a s a n a s b e s to s lia b ili ty 10m anage m ent company . ForO C D ’ s as bes t os l i abi l i t y , I nt egr ex ul t i m at el ypr oces s ed onl ys ett l ed as bes t os cl ai m s . T he company al s o pr ovi ded pr ofes s i onal s ervi ces (suc h as l i t i gat i on ma n a g e me n t a n d ma t e r i a l s t e s t i n g ) t o t h e p u b l i c . I t h a d i t s o wn tra d e n a m e a n d tra d e m a rk e d lo g o , its o w n b u sin e ss u n it an d its ow n fi nanci al t eam forbus i nes s pl anni ng, an d began s ever al s ta rt u p b u s in e s s e s th a t u ltim a te ly f a ile d

. As d i s c u s s e d a tS e c t i o n I ( B) , i n f r a , i n 1 9 9 7 OCD acqui r ed Fi br eboar d C orpor at i on. Subse quent l y , O C D form ed E xt er i orSy s t ems, I nc. ( “ES I ”) as a s epar at e ent i t yaft ers ever al s u b s id iar ies o f

F ib re b o a rd m e rg e d in 1 9 9 9 in o rd e r to sh ield i t sel f from successor l i abil i tyfo rFi br e bo a r d’ s a s be s t os produ ct s. Al t h o u g h t h e d i r e c t o r s a n d ma n a g e r s o f ES I a n d OCD o v e rla p p e d , E S I o b s e r v e d c o rp o ra te f o rm a lit ies in e lec tin g its d i r e c t o r s a n d a p p o i n t i n g i t s o f f i c e r s . I n a d d i t i o n , i t f

i l e d i t s o wn tax re tu rn s a n d k e p t it s o w n a c c o u n tin g re c o rd s. E S I h e ld s ubs t anti al as s et s , i ncl udi ng over$1 bi l l i on i n pr oper t y , 20 fact ori es, and betw een 1 50 and 18 0 d i stri bu t i on center s. 11 Al t h o u g h t h e r e ma yh a v e b e e n s o me “ s l o p p y ” b o o k k e e p i n g , two of O C D ’ s ow n offi cer s t es t i fi ed t hatt he fi nanci al s t at ement s of al l t he sub si diar i es w ere a ccurat e i n all m at eri al res pects
. F urther, t hroug h an exam i nati on o f t he sub si diar i es’ bo ok s, OC D’ s p o s tp e t i t i o n a u d i t o r s ( Ern s t& You n g ) h a v e e l i mi n at ed m os tfi nanci al di s cr epanc i es , par t i cul ar l yw i t h r es pectt o the la rg e r g u a ra n to r s u b s id ia ri e s .T hi s s t andard g u ara n tee t erm m eans s i m pl yt hat , once the 4 pr i ma r yo b l i g o r( h e r e OC D) d e f a u l t s , t h e Ba n k s c a n p r o c e ed a g a i nstt he g uarant ors di rect l yand i m m ediat el yw i t ho ut fi rs t obt ai ni ng a j udgm entagai ns tO C D and col l ect i ng ag ainstt hat j ud gm ent t o d et erm i ne if a short fal l from O C D exis t s. 12 B. The 19 97 C r e di t A gr e e m e nt In 1 9 9 7 O C D so u g h t a l o an to ac q u ir e F ibreb o ard C o rp o ra tio n . A t th is tim e O C D f a c e d g ro w in g a sb e sto s lia b ili ty a n d a p o o r c re d it ratin g th a t h in d e re d its a b ili tyto o b tain fi nanci ng. W hen C SFB w as i nvi t ed t o s ubm i ta bi d, i ti ncl uded s ubs i di aryguar ant ees i n t he t erm s of i ts p roposal

. T he g u ara n tees g av e the B an k s d ir ec t cl aim s ag ains t th e g u ara n tors f o r paym ent default s. T heyw ere a “cr editenh ance m e n t” wi t h o u twh i c h t h e Ba n k s wo u l d n o t h a v e ma d e t h e l o a n t o OC D. A ll d ra f t lo a n te rm s h e e ts in c lu d e d s u b s id ia ry g u a ra n te e s . A $2 bi l l i on l oan fr om t he B anks t o O C D cl os ed i n J une 1 9 9 7 . T h e lo a n ter m s w e re se t o u t p rim a rilyin a C re d it A gr eement
. A m ong t hos e t erm s w er e the guar ant ee pr ovi s i ons and r equi r ement s forguar ant or s , w ho w er e def i ned as “pr es ent orfutur e D om es t i c Subs i di ar [i es ]

. . . havi ng as s et s w it h an aggr egat e book val ue i n exce s s of $30, 000, 000. ” Sect i on 10. 07 o f th e A g re e m e n t p ro v id e d th a t th e g u a ra n tee s w e re “ a b so lu te and uncondi t i onal ” and e ach “ cons t i tu te[d ] a gua r ant [ee ] of pay m ent an d no t a gu arant [ee] o f coll ect i on . ” A “N o R el ease 4 of G uar ant or ” pr ovi s i on i n § 10. 8 s t at ed t hat“the obl i gat i ons of13 eac h guar ant or. . . s hal l notbe reduc ed, l i m i t ed ort erm i nat ed, nors hal l s uch guar ant orbe di s char ged fr om anys uch obl i gat i ons, fo r anyr eas on w hat s oever , ” exc eptpaym entand per form ance i n full o r thr ough w ai veroramendm entof the C re d it A g re e m e n t. U n d e r § 1 3 .0 5 o f th e C re d it A g re e m e n t, a guar ant orcoul d b e rel eas ed onl yt hr ough ( i ) t he unani m ous co n sen t o f th e B an k s fo r th e g u ara n tees o f F ibreb o ard s ubs i di ar i es ort hr ough the cons entof B anks hol di ng 51% of the debtforot hers ubs i di ar i es , o r (ii ) a fai rval ue s al e of the guar ant ori f i t s cumul at i ve as s et s t ot al ed l es s t h an 10% of the b o o k v a lu e o f

th e a g g re g a te O C D g ro u p o f e n titie s . C S F B n e g o tiate d th e C re d it A g re e m e n t ex p re ss lyto lim it t he w ay s in w h ich O C D coul d deal w i t h i t s s ubs i di ar i es . For ex am p le, itco u ld n o t enter into tran sac ti o n s w ith a su b sidia ry t ha t wou l d r e s u l t i n l o s s e s t o th a t s u b s i d i a r y . I mpo r t a n t l y , t he C r edi tA gr eementcont ai ned pr ovi s i ons des i gned t o pr ot ectt he s epar at enes s of O C D and i t s s ubs i di ar i es . T he s ubs i di ar i es a g r e e d e x p l i c i t l y t o ma i n t a i n t h e ms e l v e s a s s e p a r a t e e n t i t i e s . To fur thert hi s agr eement , theyagr eed t o keep se par at e books and fi nanci al r ecor ds i n or dert o pr epar e s epar at e fi n an ci al s t at ement s . T he B anks w er e gi ven the righ t t o vi s i teac h s ubs i di aryand di s cus s bus i nes s m att er s di r ect l yw i t h that s u b s i d i a ry ’ s ma nagement
. T he s ubs i di ar i es al s o w er e pr ohi bi t ed f ro m m e rg in g in to O C D b e c a u se b o th e n tit ies w e re re q u ire d to su rv iv e a tra n sa c tio n u n d e r § 8 .0 9 (a )(ii) ( A ) o f th e C re d it A gr eement
. T hi s pr o v isi on al s o pr ohi bi t ed guar ant or su b sidiari es f

rom m erg ing w ith o th er su b sidiari es u n less thereForconveni ence w e re ferher ei naft ers i m pl yt o “B ankrupt cy 5 C ode § ” w hen ci t i ng t o a C ode s ect i on. A s the P lan ’s c on sol i dati on provis i on s affect ed so 6 s i gni fi cant l y vot i ng on t he Pl an and t he mannerof pr ocee di ng at anyconfi r m at i on hear i ng, the P l an P r oponent s fi l ed a m ot i on for a ru lin g o n c o n so lid a tio n in a n ticip a tio n o f th o se e v e n ts. “ W h ile nota r out i ne pr ocedur e, it is n otatal l unus ual fora pl an p ro p o n e n t, or a p lan o p p o n e n t, to se e k a d e ter m in a tio n p rio r to t he pl an conf

i r m at i on hear i ng as t o the l egi t i m acyof a pa r t i cul ar pr ovi s i on of a pr opos ed pl an. ” I n r e St one & W ebs t er , I nc. , 286 B

. R

. 5 3 2 , 5 4 2 (B an k r. D

. D el. 2 0 0 2 ) (W alsh , J. ). 14 w oul d be no ef

fec ton the guar ant ees ’ val ue. C . P roce dural H i s t ory O n O ct ober 5, 2000, fac i ng m ount i ng as bes t os l i t i gat i on, O C D and s event een of i t s s ubs i di ar i es ( col l ect i vel y , t he “D ebt or s ”) fi l ed forr eor gani zat i on under C h apt er11 of the B ankrupt cyC o d e, 11 U

. S. C

. § 1101 ets eq. T w enty - s even 5 m ont hs l at er , t he D ebt or s and ce r t ai n uns ecur ed cr edi t orgr oups ( col l ect i vel y , t he “Pl an Pr oponent s ”) pr opos ed a r eor gani zat i on pl an ( as amended, t he “Pl an”) pr edi cated on obt ai ni ng “s ubs t ant i ve c o n s ol i dat i on” of the D ebt or s al ong w i t h t hr ee nonD e b to r O C D su b sid iar ies

. T yp ica lly th is a rra n g e m e n t p o o ls a ll 6 as s et s and l i abi l i t i es of the s ubs i di ari es i nt o t hei rpar entand t r eat s al l cl ai m s agai ns tt he s ubs i di ar i es as tr ans fe rr ed t o t he par ent
. I n fac t , how ever , t he Pl an Pr oponent s s ought a form of“ [ A ]l l a s s e ts a n d lia b iliti e s o f e a c h S u b s id ia ry D e b to r . . . 7 w i l lbe tr eat ed as though they w ere m er ged i nt o and w i t h t he a ss e ts a n d lia b ili ties o f O C D

. . . . ” P lan § 6 .1 (b ) (e m p h a sis ad d ed ). Pur s uantt o 28 U

. S. C

. § 157( d) , J udge W ol i n w i t hdr ew the 8 r ef ere nce of

, i nt eral i a, t he cons ol i dat i on m ot i on t o t he B ankrup t cyC our t , t hus m aki ng the D i s t r i ctC our tthe j udi ci al forum fort he mot i on t o pr ocee d. 15 w hati s know n as a “de emed cons ol i dat i o n, ” underw hi ch a cons ol i dat i on i s deem ed t o exi s t forpurpos es of val ui ng and 7 s at i s fy i ng cre d it o r cl ai m s , vot i ng fororagai ns tt he Pl an, and m aki ng di str ibu t i ons foral l ow ed cl ai m s underi t
. Pl an § 6. 1. Y et“the Pl an w oul d notr es ul ti n the merg er o f o r t he tr ans fer orcomm i ngl i ng of anyas s et s of anyof the D ebt or s orN onD ebt orSubsi di ar i es , . . . [w hi ch] w i l l cont i nue t o be ow ned by th e re sp e c tiv e D e b to rs o r N o n -D e b to rs.” P lan § 6 .1 (a ). D e sp ite this, o n the P lan’s ef

fe cti v e d ate “a ll g u ara n tees o f th e D eb tors of t h e o bl i gat i ons of anyot herD ebt orw i l l be dee m ed el i m ina t ed, s o t hatanycl ai m agai ns tanys uch D ebt orand any guar ant ee ther eof .

. . w i l l be dee m ed t o be one obl i gat i on of the D eb tors w ith resp ec t t o the c o n so li d ated estate.” P lan § 6

. 1 (b). Putanotherw ay , “the Pl an el i m i nat es t he sepa r at e obl i gat i ons of t he Subs i di ary D ebt or s ar i s i ng fr om t he guar ant [e] es of the 1997 C re d it A g re e m e n t.” P la n D is c lo s u re S ta te m e n t a t A -9 8 9 7

. T he B anks obj ect ed t o th e pr opos ed cons ol i dat i on. J udge A l fr ed W ol i n hel d a hea r i ng on t hi s obj ect i on. H e w as 816 s u b s e q u e n t l yr ecus ed fr om the D ebt or s ’ bankrupt cypr ocee di ngs in li g h t of

In re K en sing ton Int’l L td., 3 6 8 F

. 3 d 2 8 9 (3d C ir

. 2004) , and J udge J ohn Ful l am w as des i gnat ed byt he C hi ef J udge of our C our t t o r epl ace hi m . J udge Ful l am re vi ew ed the t r a n s c r i p t s a n d e x h i b i t s o f th e h e a r i n g , o r d e r e d a d d i t i onal br i efi ng and on O ctob er5, 2004, gr ant ed the cons ol i dat i on m o ti o n in an o rde r ac co m p an ied b ya sh o rt o p in ion

. In re O w e n s C o rn in g , 3 1 6 B .R . 1 6 8 (B a n k r. D . D e l. 2 0 0 4 ). J udge Ful l am concl uded thatther e exi s t ed “subs t ant i al id e n tity b e tw e e n . . . O C D a n d its w h o lly-o w n e d s u b s id ia ri e s .” I d. at171. H e furtherdet erm i ned that“ther e [w as ] s i m pl yno bas i s fora fi ndi ng t hat , i n exten d ing c r edi t , t he B anks r el i ed upon t he s epar at e cr edi tof any of t he s ubs i di aryguar ant or s . ” I d. at172. I n J udge Ful l am’s vi ew , i tw as “al s o cl earthat su b sta n tiv e c o n so lid a tio n w o u ld g re a tlysim p lifya n d e x p e d ite t he s ucce s s ful compl et i on of t hi s ent i r e bankrupt cypr ocee di ng. M o re im p o rta n tly , it w o u ld b e e x c e e d in g lyd if f icu lt t o u n tan g le t he fi nanci al aff

ai r s of t he var i ous ent i t i es . ” I d. at171. A s s uch, he hel d s ubs t ant i ve cons ol i dat i on s houl d be perm it ted, as not onl ydi d i tal l ow “obvi ous advant ages . . . [, b u t w as] a vi r tual nece s s i t y . ” I d. at172. I n anyevent , J udge Ful l am w r ot e, “[t ] he rea l is s u e is w h ethe r th e B an k s are en ti tl ed to p arti cipa te, p ari passu, w i t h o t her unsecu red cr edit o rs, orw hethert he B ank s’ c l a i m i s e n t i t l e d t o p r i o r i t y , i n wh o l e o ri n p a r t , o v e rt h e c l a i ms of otheruns ecur ed cr edi t or s . ” I d. B utthi s i s s ue, he s t at ed, “ca nnotnow be det erm i ned. ” I d.T hi s pr ovi s i on, r atherthan 28 U

. S. C

. § 158( d) , appl i es w hen 9 t he r efe r ence t o a bankrupt cycour ti s w i t hdr aw n. 17 C SFB appea l s on t he B anks ’ behal f.

I I . A ppel l at e Juri s di ct i on T he Pl an P r oponent s m oved t o di s m i s s t he appe al of the D i s t r i ctC our t ’ s or der gr ant i ng cons ol i dat i on on the gr ound t hat i ti s nota “f

i nal deci s i on” fr om w hi ch an a ppeal m aybe t ak en p u rsu a n t to 2 8 U .S .C

. § 1 2 9 1

. W e d e n ied th a t m o tio n p rio r to 9 o ra l ar g u m e n t in th is c a se a n d n o ted th a t o u r re a so n in g w o u ld f o llo w in th is o p in io n . R ecogni zi ng t he “pr otr act ed natur e of manybankrupt cy pr ocee d i n g s , a n d t h e was t e o f t i me a n d r e s o u r c e s th a tmi ght r es ul ti f i m m edi at e appe al [i s ] deni ed, ” U ni t ed St at es T rus t ee v. G ryp h o n at the S ton e M an sion , Inc

. , 1 6 6 F

. 3 d 5 5 2 , 5 5 6 (3d C ir

. 1999) , “[w ] e appl ya br oaderconce ptof ‘ fi n ali t y ’ w hen cons i der i ng bankrupt cyappea l s under § 1291 than w e do w hen co n side ri n g o ther civil o rde rs u n d er th e sam e sec ti o n .” In re M arv el E n tm ’t G rou p , Inc

. , 1 4 0 F

. 3 d 4 6 3 , 4 7 0 (3d C ir . 1 9 9 8 ). S ee also B u n ch er C o . v . O ff ici al C o m m . o f U n sec u red C red it o rs o f G en F arm L t d. P’ s hi p I V , 229 F. 3d 245, 250 ( 3d C i r . 2000) (not i ng t hat w e i m po se a “r el axed st and ard” of final i tybecau se o f u n i q u e c o n s i d e r a t i o n s i n b a n k ru p t c yc a s e s ) ; 1 6 Ch a r l e s A. W r i ght , A r t hur R

. M i l l er & E dw ar d H

. C ooper , Feder al Pr act i ce & P rocedur e § 3926. 2 at274 ( 2d ed. 1996) ( des cr i bi ng the18 “Thi r d C i r cui t ’ s es peci al ly fl exi bl e appr oach t o bankrupt cy fi n ali ty ”)

. Par t i cul ar l yr el evantt o ourcas e i s that“[t ] o del ay r es ol ut i on of di s cr et e cl ai m s unt i l aft er final appr oval of a reor gan i zat i on pla n . . . w ou l d w ast e t i m e and res ou rces , par t i cul ar l yi f the appe al r es ul t ed i n r ever s al of a ba nkrupt cy co u rt o rde r n ec essitat ing re-ap p raisal o f th e e n ti re p lan.” C lark v. Fi r s tSt at e B ank ( I n r e W hi t e B eautyV i ew , I nc. ) , 8 41 F. 2d 524, 5 2 6 (3d C i r . 1988)

. W e have al s o s t r es s ed that“i s s ues c e n tra l to th e p ro g re ss o f th e b a n k ru p tcy pe tit io n , t h o se ‘lik e ly t o aff ectt he di s t r i but i on of the debt or ’ s as s et s , orthe re la tio n s h ip a m o n g th e c re d ito rs ,’ sh o u ld b e re s o lv e d q u ic k ly.” C en turyG lov e, Inc

. v . F ir st A m . B an k , 8 6 0 F

. 2 d 9 4 , 9 8 (3d C ir

. 1 9 8 8 ) ( quot i ng Sout heas t ern Spr i nkl erC o. I nc. v. M ey ert ech C o rp. (I n re M ey ertech ), 8 3 1 F

. 2 d 4 1 0 , 4 1 4 (3d C ir

. 1 9 8 7 )). We c o n s i d e rf

o u rf a c t o r s i n d e t e r mi n i n g wh e t h e rwe s houl d exer ci s e j ur i s di ct i on overa bankrupt cyappea l : “( 1) [t ] he im p a c t o n th e a ss e ts of th e b a n k ru p t es tate ; (2 ) [ th e ] [ n ]e c e ss ity for fur t her fac t
- fi ndi ng on r emand; ( 3) [t ] he pr ecl us i ve ef fec tof [the C our t ’ s ] deci s i on on t he m er i t s of fur t herl i t i gat i on; and ( 4) [t ] he i nt er es t of j udi ci al economy . ” B uncher , 229 F. 3d at250. A l l fou r fact ors w ei gh heav i l y i n favor of our j uri sdi ct i on to cons i dert he appe al of an or der gr ant i ng s ubs t ant i ve cons ol i dat i on. W e t hus j oi n t he four C our t s of A ppeal thathave ex erc ised juri sd ict ion in this c o n text. A lexa n d er v . C o m p ton (In r e B onham), 229 F. 3d 750, 762 ( 9th C i r . 2000) ; Fi r s tN at ’ l B ank o f E l D o ra d o v . G ill e r (In re G ill e r), 9 6 2 F .2 d 7 9 6 , 7 9 7 -9 8 (8 th C i r . 1992) ; E as t gr oup Pr ops . v. S. M ot el A s s ’ n. , 935 F. 2d 245,19 248 ( 11t h C i r . 1991) ; and U ni on Sav. B ank v. A ugi e/ R es t i vo B aking C o. , L t d. ( I n r e A ugi e/ R es t i vo B aki ng C o. , L t d. ) , 860 F

. 2 d 5 1 5 , 5 1 6 -17 (2d C ir

. 1 9 8 8 ). Fi r s t , s ubs t ant i ve cons ol i dat i on has a prof ound eff ecton the a ssets o f th e co n so li d ated en ti ti es. S ee , e.g., N esb itv . G ea rs U n lim ited , 3 4 7 F .3 d 7 2 , 8 6 -8 7 (3 d C ir. 2 0 0 3 ). S e c o n d , the re is no need f

oraddi t i onal fac t
- fi ndi ng t o as s es s t he pr opr i etyof an or dergr ant i ng s ubs t ant i ve c o n so li dat i on. I n t hi s cas e, for exampl e, J udge Ful l am re ache d hi s deci s i on aft er “[a ] four

- day evide n t i aryhear i ng . . . w as hel d by[hi s ] pr edec es s or , J udge W ol i n, ” and a ft erJ udge F ul l am r evi ew ed “t he tr ans cr i ptof the test im o n y , an d

. . . the v o lum in o u s d o cu m en taryrec o rd compi l ed i n t he cour s e of the hea r i ng, and [ha d ] th e b enef i tof pos t
- t r i al br i efi ng and ar gum en t. ” I n r e O w ens C orni ng, 316 B

. R

. at 169. T hi r d, a subs t ant i ve consol i dat i on or der cl ear l yhas a p re c lu s iv e e f

f e c t o n th e m e rits o f

f u rth e r liti g a tio n . In th is cas e, t he or derpr ecl udes atl eas tthe B an k s from as s ert i ng any r i ghtcompromi s ed orel i m i nat ed byvi r tue of the s ub sta nt i ve con sol i dati on . L ast , the int eres t s of j ud i ci al econ o m yare best s erved byan i m m edi at e r evi ew of a s ubs t ant i ve cons ol i dat i on or der

. A l at err ever s al of s uch an or d er ri s ks r ender i ng m eani ngl es s any pr ocee di ngs pr emi s ed on t he vi abi l i t yof a pl an that ca ll s fo r a c o n so li d ati o n (ev e n if fo r on lya tem p o rary p eriod ).
H a v in g c o n c lu d e d th a t w e g e n e ra lly h a v e ju risd ictio n to rev iew ap p ea ls o f su b stan ti v e c o n so li d ati o n o rde rs, w e inq u ir e20 w hetheran y thing i s “di ffe r ent ” aboutt hi s cas e. T he Pl an Pr oponent s ar gue that

[t ] he D i s t r ict C our tO r derl acks fi n a l i t y b e c a u s e i t w i l l be im p lem e nted, i f atal l , o n ly fo ll o w ing ap p rov al of

a d iscl o su re sta tem e n t, th e so licita tio n a n d v o te of cr edi t or s as t o the t erm s o f the Pr opos ed Pl an, and, as s um i ng the r equi s i t e vot e, fi nal confi r m at i on of t h e Pr o p o s e d Pl a n , b e f o r e whi ch cr edi t or s other t han t he B ank D ebt H ol der s s hal l be gi ven t he oppor tuni t yt o cont es ts ubs t ant i ve cons ol i dat i on. [B ankrupt cyC ode] § 1 1 2 9

. T h u s, the D istri ct C o u rt O r deri s condi t i oned upon pl an confi r m at i on . . . . T he D i s t r i ct C our tO r derhas no pr es enti m pact on t he D ebt or s ’ es t at es and does notchange the s t atus quo. P lan P ro p o n e n ts’ M o t. t o D ism iss a t 1 0 . In su p p o rt o f th is c o n t e n t i o n , t h e P l a n P r o p o n e n t s r e l yp r i ma r i l y o n I n r e A. S

. K. Pl as t i cs , I nc. , N o. C i v. A

. 04- 2701, 2004 W L 1903322 ( E

. D

. Pa. A u g . 24, 2004)

. Y ett he conc l us i on t hatt he C our tl acke d j ur i s di ct i on i n A

. S. K

. Pl as t i cs w as pr emi s ed on the fa ctthat21 “[ u ]nd er no rea so n ab le co n stru cti o n o f th e law co u ld the O rde r’s c o n d iti o n a l c o n s o l i d a t i o n b e v i e wed a s e f f e c t [ i n g ] a ‘ p r a c t i cal t erm i nat i on’ of anyt hi ng. ” I d. at*2 ( emphasi s i n or i gi nal )

. T hat or der“emphas i zed [ t hat ]

. . . [w ] hen a fi nal r eor gani zat i on pl an [w as ] s ubm i t t ed to t he B ankrupt cyC our t , [the part yappea l i ng th e o rd e r] [ w a s] f

re e to o b jec t to c o n so lid a tio n .” Id . In e f f e c t, t he A

. S. K

. Pl as t i cs or derw as des i gned t o pos tpone cons i der at i on of the s ubs t ant i ve cons ol i dat i on i s s ue unt i l the pl an conf

i r m at i on s t age. T h at i s n o t o u r c ase . F o r th e B an k s the D istri ct C o u rt ’s det erm i nat i on i s h ardl ycondi t i onal

. I tconcl uded “that s ubs t ant i ve cons ol i dat i on s houl d be perm i t t ed. ” I n r e O w ens C or ni ng, 316 B

. R

. at172. I tm ade no pr ovi s i on forthe B anks t o r eas s er tt hei robj ect i on t o s ubs t ant i ve cons ol i d a t i o n atthe pl an con fi rm at i on st age; t he order i s fi nal agai nstt hem and i s thu s a pr act i cal t erm i nat i on of t he subs t ant i ve cons ol i dat i on l i t i gat i on. L a stly , w e a d d re ss th e P lan P ro p o n e n ts’ a rg u m e n t th a t a su b sta n tiv e c o n so lid a tio n o rd e r m u st im m e d iate ly tak e e f f e c t in or dert o be fi nal forpurpos es of ourj ur i sd ict ion

. W hatt hey ig n o re is th a t th e o rd e r a p p ro v in g s u b sta n tiv e c o n so lid a tio n is t he founda t i on on w hi ch the Pl an i s bui l t
. T o as s ertt hatt he a c tu a l su b sta n tiv e c o n so lid a tio n c a n o n lyb e im p lem e n ted in c o n ju n c tio n w ith th e e f

f e c tiv e n e ss o f

a n a p p ro v e d p lan p u ts form overfunct i on. A s t he B anks poi ntout , “[t ] her e i s no su p p o rt f o r th e p ro p o sitio n th a t f in a l o rd e rs lo s e th e ir f

in a lity b e c a u se o f

a d e lay in im p lem e n tatio n .” C S F B O p p ’n to M o t. t o22 D i s m i s s at13. C er t ai nl y , deci s i ons r es ol v ing m os tdi s put es ( not abl y , di s put es over t he val i di t y and val ue of cl ai m s ) ar e not i m pl ement ed unt i l a pl an i s confi r m ed and pa ym entundert he pl an bec om es obl i gat or y . Y etw e exe r ci s e j ur i s di ct i on t o r evi ew m anyof thes e dec i s i ons befor e that“fi nal” o rde r i s s ues . See, e . g . , He f t a v . Of f i c i a l Co mm. o f Un s e c u r e d Cr e d i t o r s ( I n r e Am. C l as s i c V oy ages C o. ) , 405 F. 3d 127 ( 3d C i r . 2005)

. N o r eas on e x is ts f o r u s to v a ry th a t r o u tin e h e re . W e concl ude r eadi l ythatw e have appel l at e j ur i s di ct i on t o cons i dert he B anks ’ appea l under28 U

. S. C

. § 1291.

I I I . Sub s t ant i ve C onsol i dat i on Subst ant i ve c o n so li d ati o n , a c o n stru ct of feder al comm on law , em a n a tes f

ro m e q u ity . It “tre a ts s e p a ra te le g a l en tit ies a s if t heyw er e mer ged i n to a s i ngl e s ur vi vorl eftw i t h al l t he cum ulat i ve asset s and l i abil i t i es (s ave for i nter -ent i t yl i abil i t i es, w hich ar e eras ed). T he r esul t i s t hat cl ai m s of cr edit ors agai nst s epar at e debt or s m orph t o cl ai m s agai ns t t h e consol i dat ed su rv iv o r. ” G en esis H ea lth V en tures, Inc

. v . S tapleton (In re G enesi s H eal t h V entur es , I nc. ) , 402 F. 3d 416, 423 ( 3d C i r. 2005)

. C ons ol i dat i on r es t ructur es ( and t hus r eval ues ) r i ght s of c re d ito rs a n d f

o r c e rta in c re d ito rs th is m a y re su lt i n sig n if ica n tly l e s s r e c o v e r y. W hi l e w e have not fu l l ycons i der ed the cha r act erand sc o p e o f su b sta n tiv e c o n so lid a tio n , w e d isc u ss e d th e c o n c e p t inA t erm us ed byM aryE l i s abeth K or s i n hercompre hens i ve 10 and w el l

- or gani zed a r t i cl e ent i t l ed A l t er ed Egos: D eci pher i ng Subst ant i ve C ons ol i dat i on, 59 U

. Pi t t
. L

. R ev. 381, 383 ( 1998) (he reina fter “K o rs”). 23 N es bi t , 347 F. 3d at86- 88 ( s ur vey i ng s ubs t ant i ve cons ol i dat i on cas e l a w f

o r a p p l i c a t i o n b y a n a l o g y t o t h e Ti t l e VI I i n q u i r yof w hen t o cons ol i dat e employ ers f orthe purpos e of a s s es s i ng a d i s c r i mi n a t i o n c l a i m) , a n d I n r e Gen e s i s Hea l t h Ven tu r e s , 402 F. 3d at423- 24 ( exami ni ng, i nt eral i a, w heth er a “de emed” cons ol i dat i on forvot i ng i n connection w i t h, and di s t r i but i on under , a pr opos ed pl an of r eor gani zat i on is a s ubs t ant i ve c o n so lid a tio n f

o r p u rp o se s o f c a lcu latin g U .S . T ru ste e q u a rte rly fee s under28 U

. S. C

. § 1930( a) ( 6) )

. O t hercourt s , i ncl udi ng t he Supr eme C our ti t s el f i n an opi ni on t hat s paw ned the conc eptof cons ol i dat i on, have hol di ngs m or e on poi ntthan her et ofor e have w e. W e begi n w i t h a s ur veyof keyca ses, dra w i ng fr om them w hen s ubs t ant i ve cons ol i dat i on m ayappl ycons i s t en t w ith the pri ncipl es w e percei ve a s cabi ning i t s use, and app l ytho se p ri n c ip le s to th is c a s e . A . H i s t ory of Subst ant i ve C onsol i dat i on T h e c o n c e p t o f

su b sta n tiv e lyc o n s o lid a tin g se p a ra te e s tate s b e g in s w ith a c o m m o n se n se d e d u c tio n . C o rp o ra te d i sr egard as a faultm ayl ead to corporat e dis regar d as a

10 re m e d y .T he actual t erm w as not us ed unt i l 1967. I n r e C om m er ci al 11 E n v elop e M fg

. C o . , 3 B an k r. C t. D ec . 6 4 7 , 6 4 8 (B an k r. S

. D

. N

. Y

. 1 9 7 7 ) (B ab itt, J. ). 24 Pr i ort o s ubs t ant i v e cons ol i dat i on, otherr emedi es for corpor at e di s r egar d w er e ( and r emai n) i n pl ace . Forexampl e, w h e re a su b sid iar y is so d o m in a ted b y its c o rp o ra te p a re n t a s to b e the p are n t’ s “a lt er eg o , ” th e “co rpo rate v eil ” of the s u b sidiary can be i gnor ed ( or“pi er ced” ) unders t at e law

. K or s , s upr a, at 386- 90 ( ci t i ng as farback as I

. M aur i ce W or m s er , Pi er ci ng the V eil o f C o rpo rate E n ti ty , 1 2 C o lum

. L

. R ev . 4 9 6 (19 1 2 )). O r a c o u rt m ig h t m a n d a te th a t th e a ss e ts tra n sf e rre d to a c o rp o ra te s ubs i di arybe tur ned over t o i t s par ent ’ s t rus t ee i n bankrupt cyfor w ro n g s s u c h a s f

ra u d u len t tran sf

e rs, K o rs, s u p r a , a t 3 9 1 , in e f f e c t b rin g in g b a c k to th e b a n k ru p tcy es tate a ss e ts w ro n g f u lly convey ed t o an affi l i at e. I f a c orpor at e par enti s bot h a cr edi t or o f a su b sid iar ya n d so d o m in a te s th e a f f a irs o f th a t en titya s to pr ej udi ce unf

ai r l yi t s ot hercr edi t or s , a courtm ay pl ace paym ent pr i or i t yt o t he par ent bel ow t hat of t he othercr edi t or s , a r emedy k n o w n a s e q u itab le s u b o rd in a tio n , w h ich is n o w c o d if ied in § 510( c) of the B ankrupt cyC ode. See gene r al l yi d. at394- 95. A d d ing to the se re m ed ies, the S u p rem e C o u rt , li tt le m o re t han s i x deca des ago, appr oved ( at l eas t i ndi r ect l y and perhaps i n ad v erten tl y ) w hat beca m e know n as s ubs t ant i ve cons ol i dat i on. Sam ps el l v. I m per i al Paper & C ol orC orp. , 313 11 U

. S. 215 ( 1941)

. I n Sam ps el l an i ndi vi dual in ba nkrupt cyhad t r ans ferr ed as s et s pr epet i t i on to a corpor at i on he contr ol l ed.25 ( A ppar ent l yt hes e bec ame t he corpor at i on’ s s ol e as s et s . ) W hen t he bankrupt cyr efe ree or der ed thatt he tr ans ferr ed as s et s be tur ned overby t he corpor at i on t o t he i ndi vi dual debt or ’ s t rus t ee, a cr edi t or of t he non- debt or corpor at i on s ou g h t di s t r i but i on pr i or i t yw i t h r es pect t o t hat ent i ty ’ s as s et s . I n deci di ng t hatt he cr edi t ors houl d notbe ac cor ded pr i or i t y( t hus aff i r m i ng the bankrupt cyr efe r ee) , t he Supr eme C our tturned a t ypi cal turn o v er/frau d u lent tr an sfe r ca se in to the fo reb ea r of tod ay ’s su b stan ti v e c o n so li d ati o n b yterm ing the b an k rup tcyref ere e’s or der( m ar s hal i ng t he corpor at i on’ s as s et s for t he bene fi tof the debt or ’ s es t at e) as “cons ol i dat i ng the es t at es . ” I d. at219. E ach of t hes e re m edi es has s ubt l e di ffe r ence s . “Pi er ci ng th e c o rp o ra te v e il” m a k e s sh a re h o ld e rs lia b le f o r c o rp o ra te w ron g s. E q u it ab le su b o rdin atio n p lace s b ad -ac ti n g cre d it o rs behi nd ot hercr edi t or s w hen di s t r i b u ti o n s ar e made. T urnover a n d f ra u d u len t tran sf

e r b rin g b a c k to th e tra n sf e ro r d e b to r a ss e ts im p rop erlytr an sfe rred to an o ther (o ften an af fil iat e ). S u b sta n tiv e c o n so lid a tio n g o e s in a d ire c tio n d if f e re n t (a n d in m os tcas es fur t her ) t han anyof thes e r emedi es ; i ti s notl i m i t ed t o s har ehol der s , i t aff

ect s di s t r i but i on t o i nnocentcr edi t or s , and i tm andat es m or e than the r eturn of s peci fi c as s et s t o t he pr edec es s orow ner . I t br i ngs al l t he as s et s of a gr oup of ent i t i es i nt o a s i ngl e s ur vi vor . I ndeed, i tm er ges l i abi l i t i es as w el l

. “The re su lt, ” to re p e a t, “is t h a t cla im s o f c re d ito rs a g a in st s e p a ra te d eb tors m o rph to claim s ag ains t th e c o n so li d ated su rviv o r. ” In r e G enes i s H eal t h V entur es , 402 F. 3d at 423. T he bad new s for cert ai n cr edi t or s i s t hat , i ns t ead of l ooki ng t o as s et s of theA n o th e r c a se o f t-m e n tio n e d , an d p re c e d in g b o th S a m p se ll 12 an d S ton e, i s F ish v

. E ast, 1 1 4 F

. 2 d 1 7 7 (10 th C ir

. 1 9 4 0 ). D eterm ining that a c o rpo rate su b sidiary w as si m p lythe p are n t’ s “i ns t rum ent al i t y , ” i d. at191, t he Tent h C i r cui taff i r m ed the tur nover o f the s ubs i di ary ’ s as s et s t o the par ent
. T hough as s er t i ng t hata “c orpor at e ent i t ym aybe di s r egar ded w her e not t o do s o w i l l defe at publ i c conveni ence , j us t i fyw r ong orpr ot ect fr aud , ” i d. , “cons ol i dat i on” w as notm ent i oned. I ndeed, as c re d ito rs o f

th e su b sid iar yin F ish w e re g iv e n f irst p rio rity a s to it s ass ets, id., a c o m p le te co n so li d ati o n d id n o t occ u r. A cc o rd K or s , s upr a, at391 ( “t rue co ns ol i dat i on” occ ur s onl yw hen cre d it o rs of

co n so li d ated en ti ti es sh are p ari pa ssu ).

26 subsi diaryw i t h w ho m t heydealt , t heyno w m ustshare tho se as s et s w i t h al l cr edi t or s of all co n sol i dat ed ent i t i es , r ai s i ng t he s pect erfors om e of a s i gni fi cantdi s t r i but i on di m i nut i on. Th o ug h the c on c e ptof

c on s ol i da t i ng e s t a t e s h a dS u p r e me C o u rtap p rov al, C o u rt s o f A p p ea l ( w ith o n e e x ce p ti o n ) w ere slow to f o ll o w su it

. S ton e v. E ac h o (In r e T ip T o p T ail o rs, Inc

. ), 1 2 7 F

. 2 d 2 8 4 (4th C ir

. 1 9 4 2 ), ce rt
. d en ied, 3 1 7 U

. S

. 6 3 5 (19 4 2 ), w a s th e f

irst to p ick u p o n S a m p s e ll ’s n e w re m e d y . L itt le 12 occurr ed ther eaf

t erform or e than t w o deca des , unt i l t he Second C i r cui t iss ued s ever al deci s i ons

— Sovi er o v. N at i onal B ank of L ong I s l and, 328 F. 2d 446 ( 2d C i r . 1964) ; C hemi cal B ank N ew Y or k T rus t C o. v. K heel ( I n r e Seatr ade C orp. ) , 3 6 9 F

. 2 d 8 45 ( 2d C i r . 1966) ; Fl or a M irC andyC orp. v. R

. S. D i cks on & C o. (In re F lora M irC an d yC o rp.), 4 3 2 F .2 d 1 0 6 0 (2d C ir

. 1 9 7 0 ); and T al cot t v. W har t on ( I n r e C ont i nent al V endi ng M ac hi ne27 C orp. ) , 517 F. 2d 997 ( 2d C i r . 1975)

— t hatbr oughts ubs t ant i ve c o n so lid a tio n a s a re m e d yb a c k in to p lay an d p re m ise its m o d e rn -d a yu n d e rs ta n d in g . O t herC i r cui tC o u rt s fel l i n l i ne i n acknow l edgi ng su b stan ti v e co n so li d ati o n as a po ssible r em ed y . S ee , e.g., F D IC v . H o g a n (In re G u lf

c o In v . C o rp .), 59 3 F .2 d 9 2 1 , 9 2 7 -2 8 (1 0 th C i r . 1 9 79) ; Pens i on B enef i tG uar . C orp. v. O ui m et , 711 F. 2d 1085, 1092- 93 ( 1s t C i r . 1983) ; D r abki n v. M i dl and- R os s C orp. (In re A u to-T rain C o rp.), 8 1 0 F

. 2 d 2 7 0 , 2 7 6 (D .C

. C ir

. 1 9 8 7 ); E ast group , 93 5 F. 2d at 25 2; In re G i l l er, 96 2 F

. 2d at79 9; Fi rs t N at ’ l B ank of Bar nes vil l e v. R afoth ( I n r e B aker& G ett yFi n. S erv s. , Inc

. ), 9 7 4 F

. 2 d 7 1 2 , 7 2 0 (6th C ir

. 1 9 9 2 ); R eide r v. F D IC (In re R eide r), 3 1 F

. 3 d 1 1 0 2 , 1 1 0 6 -07 (11 th C ir

. 1 9 9 4 ); an d In r e B onham, 229 F. 3d at771. T he r eas ons of these court s foral l ow i ng s ubs t ant i ve cons ol i dat i on as a pos s i bl e r emedy s pan t he s pectrum and oft en over l ap. For exampl e, St one and Sovi er o fol l ow ed the w el l

- t r od p a th o f a lte r e g o a n a ly sis in sta te “ p ier c e -th e -c o rp o ra te- v e il” cas es . St one, 127 F. 2d at 287- 89; Sovi er o, 328 F. 2d at447- 48. A ccor d I n r e G i l l er , 962 F. 2d at798; I n r e G ul fco I nv. , 593 F. 2d at 928- 29. K heel deal tw i t h, i nt eral i a, t he net

- negat i ve pr act i cal eff ect s of a tt empt i ng t o t hr ead ba ck the t angl ed af fai r s of e n titie s , s e p a ra t e i n n a m e o n ly, w ith “ in te rr e la tio n s h ip s . . . h o p elesslyo b scu red

. ” 3 6 9 F

. 2 d at 84 7

. S ee also , e.g., In re A ugi e/ R es t i vo, 860 F. 2d at 518- 19. I n r e C ont i nent al V endi ng M achi ne bal ance d t he “i nequi t i es ” i nvol ved w hen s ubs t ant i ve28 ri gh t s are a ffected againstthe “p ract i cal con si derat i on s” s paw ned by“ac count i ng di ffi cul t i es ( and expe ns e) w hi ch may o cc u r w h ere the in terrel ati o n sh ips o f t h e co rpo rate g rou p are hi ghl ycompl ex, orperhaps unt r ace abl e. ” 517 F. 2d at 1001. See al s o, e. g. , I n re A ut o- T r ai n, 810 F. 2d at276; E as t gr oup, 935 F. 2d at249; I n r e G i l l er , 962 F. 2d at799; I n r e R ei der , 31 F. 3d at1108. See gene r al l yK or s , s upr a, at402- 06. Ul t i ma t e l ymo s tc o u r t s s l i p s t r e a me d b e h i n d t wo r at i onal es

— t hos e of the Second Ci r cui ti n A ugi e/ R est i vo and t he D

. C

. C i r cui ti n A u to-T rain. T he form erfound thatt he compet i ng “cons i der at ions a r e mer el yvar i ant s on t w o cr i t i cal f a c to rs: (i) w h e th e r c re d ito rs d e a lt w ith th e e n tit ies a s a sin g le e c o n o m ic u n it a n d d id n o t re lyo n th e ir se p a ra te id e n tityin ex tend ing cre d it , . . . o r (ii ) w h ethe r th e af fa ir s o f th e d eb tors are so en tang led th at co n so li d ati o n w il l ben ef itall cre d it o rs . . . . ” In r e A ugi e/ R es t i vo, 860 F. 2d at 518 ( i nt ernal quot at i on m arks and c i t a t i o n s o mi t t e d )

. Au t o - Tr a i n t o u c h e d ma n yo f th e s a me anal yt i cal bas es as t he pri orSecond C i r cui tcas es , buti n t he end chos e a s it s over ar chi ng t es tthe “s ubs t ant i al i dent i t y ” of the ent i t i es and m ade a l l ow ance forcons ol i dat i on i n s pi t e of cr edi t orr el i ance on s epar at enes s w hen “the demonstr at ed b en ef it s o f c o n s o lida ti o n ‘he av il y ’ ou tw eigh the h arm . ” In re A u to-T rain, 81 0 F

. 2 d at 27 6 (cit ati o n o m itted). W hat evert he r at i onal e, court s h a v e p e rmi tt e ds u b s t ant i veIndeed , t heyhav e n o t r e stri ct ed the r em edyt o d ebtor s, 13 a llo w in g th e co n so li d ati o n o f d e b to rs w ith n o n -d e b to rs , s e e , e .g ., I n r e B onham, 229 F. 3d at 7 6 5 ( expl ai ni ng t hat“[c ] our t s have p e rm itt e d th e c o n so lid a tio n o f n o n -d e b to r a n d d e b to r e n tit ies in fur ther ance of t he equi t abl e goal s of s ubs t ant i ve cons ol i dat i on”) ( ci t i ng I n r e A ut o- T r ai n, 810 F. 2d at 275- 77; I n r e Ture aud, 59 B. R. 9 7 3 , 9 7 4 , 9 7 8 ( N. D. Ok l a . 1 9 8 6 ) ; I n r e M u n f o r d , 1 1 5 B. R. 390, 395- 96 ( B ankr

. N

. D

. G a. 1990) ) ; Sovi er o, 328 F. 2d 446, and i n s o m e ca s es cons ol i dat i on r etr oact i vel y( know n al s o as n u n c p ro tu n c c o n s o lid a tio n ), se e , e.g ., In re B a k e r & G e tty F inan cial S er v ices, 97 4 F

. 2 d at 72 0 -21 ; K roh B roth ers D evel opm entC o. v. K r oh B r other s M anage m entC o. ( I n r e K r oh B r ot her s D evel opm entC o . ), 1 17 B

. R

. 499, 502 ( W

. D

. M o. 1989) ; I n r e Ture aud, 59 B

. R

. at 977- 78; s ee a l s o A ut o- T r ai n, 810 F. 2d at277 ( acknow l edgi ng thatnunc pr o tunc co n so li d ati o n s ca n o cc u r, tho u g h n o t i n that ca se). I n a d d i t i o n , t h o u g h we d o n o tp e r mi tt h e c o n s o l i dat i on s oughti n t hi s cas e, no r eas on ex ist s to l i m i ti tundert he r i ght ci rcum st ances t o any part i cular form of enti t y . (I nd eed, this case inv o lves co rpo rati o n s an d li m it ed li ab il ity co m p an ies. ) A cc o rd 2 C o ll ier on B an k rup tcy¶ 1 0 5

. 0 9 [1 ][c ] (15 th rev

. ed

. 2 0 0 5 ). See I n r e B onh am, 229 F. 3d at765 ( expl ai ni ng that“the 14 e q u itab le p o w e r [ o f

su b sta n tiv e c o n so lid a tio n ] u n d o u b ted ly s ur vi ved ena ctm entof t h e B ankrupt cyC ode” a nd not i ng t hat “[ n ]o c ase h a s h eld to the c o n tr ary ”); bu t see In re F as M art 29 con sol i dati on as an equ i t able r em edyi n cert ai n cir cum st ances. 13 N o cour thas hel d thats ubs t ant i ve cons ol i dat i on i s not a u t h o r i zed, t h o u g h ther e app ears ne a rly 1 4Co n v e n i e n c e St o r e s , I n c . , 3 2 0 B. R. 5 8 7 , 5 9 4 n . 3 ( Ba n k r . E

. D. V a. 2004) ( not i ng “ther e i s per s uas i ve ac ademi c ar gum entthat t here is no a ut hor i tyi n bankrupt cyl aw fors ubs t ant i ve cons ol i dat i on”) ( ci t i ng D ani el B

. B ogar t , R es i s t i ng t he E xpans i on of B ankrupt cy C our t Pow er U nder Sect i on 105 of the B ankrupt cy C ode: T he A l l W r i t s A ctand an A dm oni t i on fr om C hief J ust i ce M ars hall , 35 A ri z. S t
. L

. J. 79 3, 81 0 (200 3); J. M axw el l T ucker , G rupo M exi cano a nd t he D eath of Subst ant i ve C ons ol i dat i on, 8 A m . B ankr

. I ns t
. L

. R ev. 427 ( 2000) (he reina fter “T u ck er” )). Si nce the Supr eme C our t ’ s deci s i on i n G rupo M exi cano D es arr ol l o, S. A

. v. A l l i ance B ond Fund, I nc. , 527 U

. S. 308 (1 9 9 9 ) (f e d e ra l d istric t co u rts la c k th e e q u itab le p o w e r to e n jo in p re ju d g m e n t tran sf

e rs o f a ss e ts, a s su c h a n e q u itab le re m e d yd id notexi s tatt he t i m e f eder al cour t s w er e cr eat ed undert he Judi ci aryA ctof 1789) , s om e ar gue thats ubs t ant i ve cons ol i dat i on, j udge- m ade l aw notexpr es s ly codi fi ed i n the B ankrupt cyC ode adopt ed i n the l at e 1970s , does notqual i fyas an avai l abl e equi t abl e re m edy

. See, e. g. , T ucker , s upr a at442- 45. T hi s ar gum ent has t w o fac et s . T he fi r s ti s t hatbankrupt cy cour t s ar e l i m i t ed t o exer ci s i ng onl yt he equi t abl e rem ed i es ext ant at t he t i m e of t he adopt i on of the J udi ci aryA ctof 1789. A s s ubs t ant i ve cons oli d at i on i s a r el at i vel yr ece ntr emedy now her e cont empl at ed i n 1789, G rupo M exi cano byanal o gy bar s s ubs t ant i ve cons ol i dat i on j us t as i t does p r ej udgm ent pr el i m i naryi nj unct i ons forbi ddi ng as s ettr ans fer s . I d. T he s econd ( a n d c o r o l l a ry ) f a c e t o f t h e a r g u me n t i s t h a t , as s ubs t ant i ve cons ol i dat i on i s nots peci fi cal l yauthor i zed i n the B a n k ru p tcy C o d e , au th o rityto c o n f e r it ca n e x ist, if a t all, o n ly 30i n § 105( a) of the B ankrupt cyC ode ( bankrupt cycourt s “may i s s ue anyor der , pr oces s orj udgm entthati s nece s saryor a p p ro p ria te to c a rryo u t th e p ro v isio n s o f th is titl e ” ). E v e n if § 105( a) “cons t i tut es a di r ect , fr es h gr antof s uppl ement al pow er to th e b a n k ru p tcy co u rts, in d e p e n d e n t o f th e p o w e r g r a n ted to t he fe der al cour t s undert i t l e 28 [of t he U ni t ed St at es C ode] , ” i d. at 4 4 7 , i tcan onl yi m pl ementpow er s al r eadyexpr es s ed i n the p rov isi o n s o f

the B an k rup tcyC o d e. Id. at4 4 7 -48

. S ee In re C om bus t i on E ng’ g, I nc. , 391 F. 3d 190, 236 ( 3d C i r . 2004) ( “The gen eral grantof eq uit able pow er cont ai ned i n § 10 5(a)

. . . m ust b e e x erc ised w ith in th e p a ram eters o f th e C o d e it self.”); In re K m ar t C o rp. , 359 F. 3d 866, 871 ( 7th C i r . 2004) ( “The pow er c o n f e rre d b y§ 1 0 5 is o n e to im p lem e n t ra th e r th a n to overr i de. ”)

. B utforj oi nts pous e es t at es i n B ankrupt cyC ode § 302( a) , cons ol i dat i on i s perm i t t ed onl yi n t he con text o f a co n f i r me d p l a n o f r e o r g a n i z a t i o n a n d t h e r e q u i r e me n t s t hat ent ai l s . T ucker , s upr a, at449 ( ci t i ng t o, i nt eral i a, B ankrupt cy C o d e § 1 1 2 3 (a)(5)(C )). T h e f irst f a c e t o f th e a rg u m e n t is, at th e o u tse t, pr ematur e. C ons ol i dat i ng es t at es ( i ndeed, cons ol i dat i ng debt or a n d n o n -d e b to r e n tit ies ) tra c e s to th e S u p re m e C o u rt’s S a m p se ll deci s i on i n 1941. 313 U

. S. at219. W hatthe C our thas gi ven as an equi t abl e r emedyr emai ns unt i l i tal one r em o ves i tor C ongr es s decl ar es i tr emoved as an opt i on. See I n r e St one & W ebs t er , 286 B

. R

. at540 ( quot i ng O ffi ci al C om m . of A s bes t os C l ai m ant s v. G

- I H ol di ngs , I nc. ( I n r e G

- I H ol di ngs , I nc. ) , A dv. N o . 0 1 -30 6 5 (R G ) (B an k r. D

. N

. J. M arc h 1 2 , 2 0 0 1 ) (H ea ri n g T r. a t 7 1 -2 ))

. I n addi t i on, att he cor e of G rupo M exi cano w as t he ext ent 31o f g e n e ra l, un a rticu la ted e q u itya u th o rityin th e f e d e ra l co u rts (w h ich , the C o u rt h e ld , ca n o n lyb e ju stif ied b yre f

e re n c e to 17 89 equ i t y authori ty ). It w as nota bankrupt cycas e. T he ext ens i ve hi s t or yof bankrupt cyl aw and j udi ci al pr ece dent r ender s the i s s ue of e qui t yauthor i t yi n the bankrupt cycont ext di ffe r entt o s uch a de gr ee a s t o m ake i tdi ffe r ent in ki nd. N o tab ly, in the o n lytw o instan ce s in w h ich th e w o rd

“ b a n k ru p tc y ” a p p e a rs in Ju stic e S c a lia’s m a jo rityo p in io n in G rupo M exi cano, he us es t he exis t ence of courtauthor i t yi n the bankrupt cycont extas a r eas on t o s uppor t t he conc l us i on t hatt he d istric t co u rt d id n o t h a v e th e a u th o rityu n d e r g e n e ra lize d e q u ity pow er s t o i m pl ementt he r emedyi t im p o sed

. Fi r s t , he poi nt ed o u t th a t “ [t

] he l aw of

f r audul ent conve

yance s andb a n kr upt cy w as deve l oped t o pr eve nt [the] conduct [ atis s ue] ; a n e q u itab le p o w e r t o re stric t a d e b to r' s u se o f h is un e n c u m b e re d p r o p e rty be f o r e j u d g me n t was n o t
. ” Gr u p o M e x i c a n o , 5 2 7 U. S. at 322 (e m p h a sis a d d e d ). S e c o n d , h e stre ss e d th a t f in d in g th e a u th o rity to ju stif yth e D istric t C o u rt ’s r e m e d yin g e n e ra lize d e q u ity pow er w oul d “add[ ] , t hr ough j udi ci al fi at , a new and pow er ful w e a p o n to th e c re d ito r’s a rse n a l[ ;] th e n e w ru le c o u ld ra d ica lly a lt er the b al ance b et w een d ebtor ’s and credi t or’ s r i gh t s w hi ch h a s been d evel op ed o ver centuri es throu gh m any law s– i ncludi ngtho se relati ngt o b an kruptcy, f raud ulentcon veyan ces, and pr ef er ence s . ” Id

. at 33 1 (em p h asis ad d ed ). I n s hor t , t he C ou rt ’s opi ni on i n G rupo M exi cano a c kn owl e dg e d tha tba nk rup t c yc ou rt s do h a v e th e a u th o rityto d e a l w ith th e p r o b le m s p re se n ted b yth a t ca se . O n e w a yto c o n c e p tu a lize th is id e a is to re c o g n ize th a t, ha d th e c o m p a n yin G rup o M ex ican o b ee n in b an k rup tcy , the b an k rup tcyco u rt 32w oul d have ha d t he author i t yt o i m pl ementthe r emedythe d istric t c o u r t la c k e d a u th o rityto o rd e r u n d e r g e n e ra l eq u ity p o w e r o u ts id e th e b a n k ru p tc yc o n te x t. A s fort he ar gum ent ’ s s eco nd fac et , i tbegi ns w i t h a conce ssion

. B ankrupt cyC ode § 1123( a) ( 5) ( C ) ’ s veryw or ds al l ow for “con sol i dati on of the deb t or w i t h o ne o r m ore persons” p u rsu a n t to a p lan “ [ n ]o tw ith sta n d in g a n yo th e rw ise a p p lica b le non- bankruptcyl aw . ” A ccor d T ucker , s upr a, at448- 49. See al s o I n r e St one & W ebs t er , 2 8 6 B

. R

. at 540- 43. W hether § 105( a) al l ow s cons ol i dat i on out s i de a pl an i s an i s s ue w e nee d n o t ad d re ss

— th o u g h th a t ar g u a b ly is w h a t th e P lan P ro p o n e n ts pr opos e bym ovi ng fora “de emed” cons ol i dat i on— beca us e, as w e not e bel ow , cons ol i dat i on, no m att erhow i ti s packa ged, cannotpas s m us t eri n thi s cas e. In th i s context , w e al so need no tadd res s the argu m en t, m ade i n t he A m i cus C ur i ae Bri ef of the C om m er cial Fi nance A ssoci at i on , t hat s ub st anti ve co nsoli dati on fai l s the “b est i nt er es t s t es t ” of Bankrupt cy C ode § 1129( a) ( 7) ( a r equi r ement f o r p lan c o n f

irm a ti o n th a t ea c h c re d ito r th a t d o e s n o t v o te to acc eptt he pl an mustr ece i ve orr et ai n pr oper t yunder t he pl an at least eq u al t o it s rec o v eryin a B an k rup tcyC o d e C h ap ter 7 l i qui dat i on)

. See gene r al l yI n r e St one & W ebs t er , 286 B

. R

. at 544- 46. 33 u n a n im o u s c o n s e n s u s th a t it is a re m e d yto b e u s e d “ s p a ri n g ly.” I n r e A ug i e / Re s t i v o , 8 6 0 F

. 2 d a t5 1 8 ; s e e a l s o I n r e Bo n h a m, 229 F. 3 d a t 7 6 7 ( e x p l a i n i n g t h a t “ a l mos t e v e r y o t h e r c o ur t has not ed [th at s ubs t ant i ve cons ol i dat i on] s houl d be us edT hus w e di s agr ee w i t h the as s ert i on of a “l i ber al tr end” 15 tow ard incre ase d u se o f su b stan ti v e c o n so li d ati o n

— e.g ., E a stg ro u p , 9 3 5 F .2 d a t 2 4 8 (d e sc rib in g “ a ‘m o d e rn ’ o r ‘lib e ra l’ tr en d tow ard all o w ing su b stan ti v e co n so li d ati o n ”) (cit ing In re M u r r a yI n d u s . , I n c . , 1 1 9 B. R. 8 2 0 , 8 2 8 ( Ba n k r . M

. D. Fl a. 1990) ) ; I n r e V ecc o C ons t ruct i on I ndus t r i es , I nc. , 4 B

. R

. 407, 4 0 9 (B a n k r. E .D . V a . 1 9 8 0 ). 34 ‘spa ri n g ly ’”) (cit ing In re F lora M ir , 4 3 2 F

. 2 d at 10 6 2 -63 ). 15
B . O ur V i ew of

Sub s t ant i ve C onsol i dat i on S u b s t a n t i v e c o n s o l i d a t i o n e x i s t s a s a n e q u i t a b l e r e m e d y. B ut w hen shou l d itbe av ai l able and b y w hat t est shou l d it s use be meas ur ed? A s alread ynot ed, w e have comm ent ed on s ubs t ant i ve cons ol i dat i on onl ygener al l yi n N es bi t , 347 F. 3d at 86- 88, and I n r e G enes i s H eal t h V entur es , 402 F. 3d at423- 24. T he lat ternonethel es s l eftl i t t l e doubtt hat , i f pr es ent ed w i t h a choi ce of

anal yt i cal avenue s , w e fa vores s ent i al l ythatof A ugi e/ R es t i vo. I d. at 423. T he A ut o- T r ai n appr oach ( r equi r i ng “s ubs t ant i al i dent i t y ” of en ti ti es t o be cons ol i dat ed, pl us t hat c o n s o l i d a t i o n i s “ n e c e s s a r y t o a v o i d s o me h a r m o rr e a l i z e s o me benef i t , ” 810 F. 2d at 2 7 6 ) adopt s , w e pr es um e, one of the A u g ie/R e stiv o to u c h sto n e s f o r su b sta n tiv e c o n so lid a tio n w h ile a d d i n g t h e l o w b a ro f

a v o i d i n g s o me h a r m o rd i s c e r n i n g s o me b e n e f it b y c o n so lid a tio n . T o u s th is f a ils to c a p tu re c o m p lete ly t he fe w t i m es s ubs t ant i ve consol i dat i on m aybe cons i der ed and t hen, w hen i tdoes hi tone chor d, i t all o w s a thr es hol d notT hi s opens t he ques t i on w hethera courtcan or derpar t i al 16 c o n s o lid a tio n (s u c h a c o n s o lid a tio n o rd e r “ c o u ld p ro v id e th a t
. . . [a cr edi t or r el y i ng on s epar at enes s ] w oul d r ece i ve a di s t r i but i on equal t o w hat [i t ] w oul d have r ece i ved abs entcons ol i dat i on and t hatt he r emai nderof the as s et s and l i abi l i t i es be cons ol i dat ed. ”) K or s , supr a, at450- 51. B eca us e thi s theor et i cal i s s ue i s not b ef o re u s— an d in an yev en t ( i) fa cts b ri n g ing itto the fo re a re unl i kel y , i d. at 451 ( “I f ci r cumst ance s l ead one part yt o r el yon t he s i ngl e s t atus o f the one debt or , i ti s unl i kel ythatot her credi t ors ar e rel y i ng o n th e j ointst atus of the t w o en t i t i es, es peci al l yas r el i ance m us tbe r eas onabl e. ”) , and (i i ) m aypr es ent pr act i cal conce r ns dependi ng on the fa ct s of a pa r t i cul ar cas e— w e do notdeci de i ti n t hi s cas e. 35 s uffi ci ent l y egr egi ous and t oo i m pr eci s e foreas ym eas ur e. For exampl e, w e di s agr ee t hat“[i ] f a c r edi t orm akes [a s how i ng of re lia n c e o n s e p a ra te n e s s ], t h e c o u rt m a yo rd e r c o n s o lid a tio n . . . i f i tdet erm i nes t hatt he demonstr at ed bene fi t s of cons ol i dat i on
‘ heavi l y ’ out w ei gh t he har m . ” Id. at276 ( ci t at i on om i t t ed) ; s ee al s o E as t gr oup, 935 F. 2d at249. I f an obj ect i ng cr edi t orr el i ed on t he s epar at enes s of the ent i t i es , cons ol i dati on cannotbe justi fied v is- à-v is th e c lai m s o f th at cred it o r. 16
I n as s es s i ng w hether t o or ders ubs t ant i ve cons ol i dat i on, c o u rts c o n sid e r m a n yf a c to rs ( so m e o f

w h ich a r e n o ted in N es bi t , 347 F. 3d at86- 88 nn. 7 & 9)

. T heyvary( w i t h degr ees of over l ap) fr om cour tt o court
. R atherthan endor s i ng any pr efi xed fac t or s , i n N es bi t w e “adopt [ed] an i nt ent i onal l yopene n d e d , eq u itab le in q u iry

. . . to d e ter m in e w h e n su b sta n tiv e lytoT h e y a re R o b e rt K . R a sm u ss e n o f V a n d e rb iltL a w S c h o o l, 17 B arr yA dl erof the N Y U School o f L aw , Susa n B l ock- L ei b of F o rdh am U n iversityS ch o o l of L aw , G

. M arc u s C o le of S tanf o rd L a w S c h o o l, M a rc e l K a h a n o f th e N Y U S c h o o l o f L a w , R o n a ld J

. M a n n o f

t h e Un i v e r s i t yo f

T e x a s L a w S c h o o l , a n d Da v i d A. S k e e l , J r . o f

t h e Un i v e r s i t yo f

P e n n s y l v a n i a S c h o o l o f L a w. 36 cons ol i dat e tw o ent i t i es . ” I d. at87. W hi l e w e m ent i oned that “i n t he bankrupt cycont extt he i nqui r yfocus es p ri m ar i l yon f in a n c ial e n tan g lem e n t,” id ., th is co m m e n t p rim a rilyre late d to t he hopel es s comm i ngl i ng t es tof s ubs t ant i ve cons ol i dat i on. B ut w h e n c r e d i t o r s d e a l w i t h e n t i t i e s a s a n i n d i v i s i b l e , s i n g l e p a r t y, “the l i ne betw een ope r at ion al and f i nanci al [fa ct or s ] m aybe bl ur r ed. ” I d. at88. W e re i t er at e t hat bel i ef her e. T oo oft en the fac t or s i n a che ck l i s tfai l t o s epar at e t he uni m por t antfr om the im p o rta n t, or e v e n to se t o u t a s ta n d a rd to m a k e th e a ttem p t. A c c o rd B r. o f

L a w P ro f

e ss o rs a s A m ici C u ria e a t 1 1 -1 2 . T h is

17 o ften re s u lts in rote f

o ll o w ing o f a fo rm co n tai n ing fa ctors w her e court s t al l yup and s pi t out a s cor e w i t hout an ey e on the pr i nci pl es t hatgi ve the r at ion al e fors ubs t ant i ve cons ol i dat i on ( and w hy , as a r es ul t , i ts houl d s o s el dom be i n pl ay )

. I d. ( “[D ] i ffe r i ng t es t s w i t h .

. . agr eed .

. . fac t or s ru n the r i s k that co u rt s w il l m iss th e f

o rest fo r th e trees. R u n n ing d o w n fa ctors as a che ck l i s tcan l ead a cour tt o l os e s i ghtof w hy w e have s ubs t ant i ve consol i dat i on i n t he fi r s t i ns t ance . . . and oft en [t o] fai l [t o] i dent i fya met r i c byw hi ch [i t] ca n . . . [as s es s ] the relati v e im p o rt an ce am o n g the f ac tors. T h e . . . [re su ltis] reso rt t o ad ho c balanci ng w i t ho ut a st eady ey e on t he .

. . [pri ncipl es]T h o u g h c re d ito rs c o n c e iv a b ly c a n c a u se d e b to rs to c o n f late 18 se p a ra te o rg a n iza tio n a l f o rm s, th e sp e c ter o f

len d e r liab ili ty (w h ich c a m e to th e f

o re in o n ly th e las t tw o d e c a d e s) m a k e s th is t heor et i cal pos s i bi l i t yal l the more r emot e. 37 to b e a d v a n c e d . . . .” ). W hat , t hen, ar e thos e pr i nci pl es ? W e per cei ve them t o be as fol l ow s. (1 ) L im iti n g th e c ro ss -c re e p o f liab ili ty b yre sp e c tin g e n tity separat eness i s a “fun dam ental groun d rul e [ ].” K ors, s upr a, at 410. A s a r es ul t , t he gener al expect ati o n of s t at e l aw an d of the B ankrupt cyC ode, and thus of c o m m e rc ial m a rk e ts, is th a t co u rts re sp e c t en tity s epar at enes s abs entcompel l i ng ci r cumst ance s cal li ng equi t y( and eve n then onlypos s i bl ys ubs t ant i ve c o n s o lid a tio n ) i n to p la y . ( 2 ) T h e h a r m s s u b s ta n ti v e c o n s o li d a ti o n a d d r e s s e s a re n e a rly a l w a ys t h o s e c a u s e d b y deb t ors (a n d e nti t i e s th e yc o n tro l) w h o d isr eg ard sep ara tene ss. H arm s ca u sed b ycre d it o rs 18 t ypi cal l y ar e r emedi ed by pr ovi s i ons found i n the B ankrupt cyC ode ( e. g. , fr audul entt r ans fer s , §§ 548 and 5 4 4 (b )( 1 ), a n d e q u ita b le s u b o rd in a tio n , § 5 1 0 (c ))

. ( 3 ) M e r e b e n e f

i t t o t h e a d mi n i s t r a t i o n o f t h e c a s e ( for exampl e, al l ow i ng a court t o s i m pl i fy a cas e byavoi di ngT hi s r at i onal e i s m eantt o p rotec t i n bankrupt cyt he 19 pr epet i t i on expec t at i ons of thos e cr edi t or s . A ccor d K or s , s upr a, 38 o ther issu es o r t o m ak e p o stpe ti ti o n ac co u n ti n g m o re conveni ent ) i s h ardl ya harm cal l i ng s ubs t ant i ve c o n s o lid a tio n in to p la y . (4 ) In d e e d , b e c a u se su b sta n tiv e c o n so lid a tio n is e x tre m e (it m ayaffect pr ofo un dlycredi t ors’ ri gh t s a n d recoveri es) an d im p rec ise, this “rou g h justi ce ” re m ed y sh o u ld be ra re and, i n anyevent , one of l as t r es or t aft ercons i der i ng and r ej ect i ng ot herr emedi es ( for exampl e, t he poss i bi l i t yof m or e pr eci s e r emedi es confe r r ed byt he B ankrupt cy C o d e). (5 ) W h ile s u bst antiv e c o n so lid a tio n m a yb e u se d d e f e n siv e ly to r emedyt he i dent i fi abl e harm s caus ed byent angl ed af fa ir s , i tm aynotbe us ed off ens i vel y( forexampl e, h a v i n g a p r i m a r y p u rp o s e t o d i s a d v a n t a g e t a c t i c a l l y a gr oup of cr edi t or s i n the pl an pr oces s or t o al t ercr edi t or ri g h ts)

. T he ups hoti s t hi s . I n ourC ou rt w hatm us tbe pr oven ( abs ent c o n s ent ) conce r ni ng t he ent i t i es forw hom s ubs t ant i ve cons ol i dat i on is s oughti s that( i ) pr epet i t i on theydi s r egar ded s epar at enes s s o s i gni fi cant l ythei rcr edi t or s r eli ed on the br eakdow n of ent i t ybor der s and tr eat ed them as one l egal enti t y , or ( i i ) postpeti t i on t heirasset s and li abil i t i es ar e so

19at419. T he usual s cena r i o i s thatcr edi t or s have be en mi s l ed by d eb tors’ ac ti o n s (reg ard less w h ethe r th o se a cti o n s w ere i nt ent i onal or i nadvert ent ) and t hus per cei ved i ncorr ect ly( and re lie d o n th is p e rc e p tio n ) t h a t m u ltip le e n titie s w e re o n e . T hi s r at i onal e i s atbot t om o n e o f p r act i cal i t yw hen the 20 e n titie s’ a ss e ts a n d liab ili ties h a v e b e e n “ h o p e les sly comm i ngl ed. ” I n r e G ul fco I nv. , 593 F. 2d at 929; I n r e V ecc o, 4 B

. R

. at 41 0

. W ith o u t sub stan ti v e c o n so lid ati o n all cre d it o rs w il l b e w o rse o ff

(as H u m p tyD u m p tyca n n o t be re asse m b led o r, even i f s o, t he ef

for tw i l l t hr eat en t o r eprise J arndy ce v. Ja rn d y c e , the f

ictio n a l su it i n D ick e n s’ B lea k H o u se w h e re o n ly t he pr ofes s i onal s pr ofi t ed)

. W i t h s ubs t ant i ve consol i dat i on t he l otof al l cr edi t or s w i l l be i m prov ed, as cons ol i dat i on “adva nce[ s ] one of the pr i m ary goal s of bankrupt cy–enhanc i ng the v alue o f th e asse ts av ail ab le to cred it o rs . . . – o ften in a v ery m a te ri a l r e s p e c t.” K o rs , s u p ra , a t 4 1 7 (c ita tio n o m itte d ). 39 sc ra m b led th a t se p a ra tin g th e m is p ro h ib iti v e a n d h u rts a ll credi t ors. 20
Pr oponent s of s ubs t ant i ve cons ol i dat i on have the bur den of s how i ng one or the otherr at i onal e forcons ol i dat i on. T he se c o n d ra tio n a le n e e d s n o e x p lan a tio n . T h e f ir s t, h o w e v e r, is m or e nuanc ed. A pr i m a fa ci e ca s e fori ttypi cal l yexi s t s w hen, bas ed on the pa rt ie s ’ pr epet i t i on deal i ngs , a pr oponentpr oves corpor at e di s r egar d cr eat i ng contr actual expect at i ons of“[ T ]ort an d statu tory claim an ts, w h o , a s inv o lun tary 21 cr edi t or s , bydefi ni t i on di d notr el yon anyt hi ng i n b ec om i ng credi t ors, ” K ors, supra, at41 8, are excl ud ed, l eaving o nlytho se c re d ito rs w h o c o n tra c t w ith a n e n tity f o r w h o m c o n so lid a tio n is so u g h t. A s n ot ed al r eady , s upr a n. 16, w e do notdeci de her e 22 w h e th e r su c h a sh o w in g b y a n o p p o sin g c re d ito r d e f e a ts to tally t he ques tforcons ol i dat i on o r m er el ycons ol i dat i on as t o that cre d it o r. 40 cr edi t or s t hatt h ey w er e dea l i ng w i t h debt or s as one

21 i n d i s t i n g u i s h a b l e e n t i ty . K o r s , s u p r a , a t4 1 7

- 1 8 ; C h r i s t o p h e rW. Fr os t , O r gani zat i onal For m , M i s appr opr i at i on R i sk and the Subst ant i ve C ons ol i dat i o n of C orpor at e G r oups , 44 H as t i ngs L

. J. 44 9, 45 7 (1 9 9 3 ). Propo nen t s w ho are cr edit ors m ustal so sh o w th a t, in th e ir p re p e tit io n c o u rse o f d e a lin g , the ya c tu a lly and r eas onabl yr el i ed on debt or s ’ s uppos ed uni t y . K or s , s upr a, at41 8-19. C redi t or opp on ents of conso l i dati on can n on et heles s defe ata pr i m a fa ci e s how i ng underthe fi r s t r at i onal e i f t heycan prove t hey are ad versel y affected and actuall yrel i ed o n d ebtor s’ s epar at e exi s t ence . 22
C . A p p li ca ti o n o f S u b sta n ti v e C o n so li d a ti o n to O u r C ase W i t h t he pr i nci pl es w e per cei ve under l i e us e of s ubs t ant i ve cons ol i dat i on, the out come of t hi s appea l i s appar ent at t h e o u t s e t
. Su b s t a n t i v e c o n s o l i d a t i o n f a i l s t o f i t t h e f a c t s ofT h e b o n d h o ld e rs d o c laim c e r ta in B a n k s m isle d th e m in 23 p u r c h a s i n g O C D d e b t s u b s e q u e n t t o t h e 1 9 9 7 l o a n . B u t we know of no cl ai m of w r ong by the B anks i n connec t i on w i t h the 1997 t r ans act i on. 41 o u r ca se a n d , in a n y e v e n t, a “ d e e m e d ” c o n so lid a tio n c u ts againstt he g rai n o f al l the p ri ncipl es. T o begi n , t he B anks di d the “de al w or l d” equi val entof “Lendi ng 101. ” T hey l oaned $2 bi l l i on t o O C D and enhance d the c red ito f th at un sec u red loan ind ir ec tl yb ysu b sidiary guar ant ees cover i ng l es s t han hal f the i ni t i al debt

. W hatthe B anks got i n l endi ng l i ngo w as “s t ructur al s eni or i t y ”— a di r ect cl ai m agai ns tt he guar ant or s ( and t hus agai ns t t hei r as s et s l evi ed o n o n c e a ju d g m e n t is o b tain e d ) th a t o th e r c re d ito rs o f O C D d id n ot have. T h i s k i n d o f

l e n d i n g o c c u r s e v e r yb u s i n e s s d a y . To u n d o th is b a rg a in is a d e m a n d in g ta s k

.

1. N O P R EP ETI TI ON D I SR EGA R D O F C ORPO RATE S EPARATENE SS D esp it e the P lan P rop o n en ts’ p leas to the c o n tr ary , there i s no evidence of the prepet i t i on dis regar d o f the O C D enti t i es’ s e p a r a t e n e s s . To t h e c o n t r a r y , OCD ( n o l e s s th a n CS F B) negot i at ed the 1997 l endi ng t r ans act i on pr emi s ed on the s epar at enes s of al l O C D aff i l i at es . E ven t odayno al l egat i on e x ists o f b a d f a ith b ya n yo n e c o n c e rn in g th e lo a n . In th is 23 cont ext , O C D and the otherPl an Pr oponent s cannotnow i gnor e,42 orhave us i gnor e, t he verygr ound rul es O C D puti n pl ace . Pl ay i ng byt hes e rul es m eans thatobt ai ni ng the guar ant ees of s e p a r a te e n tit ies , m a d e se p a ra te b yO C D ’s c h o ice o f h o w to s t ructur e the af

fai r s of i t s aff

i l i at e group of compani es , ent i t l es a l end er, i n b ank rupt cyor ou t , t o l oo k t o any (oral l ) guarant or( s) fo r pa ym en t w h en the tim e c o m es. A s su ch , the D istri ct C o u rt ’s c o n c lu sio n s o f

“ su b sta n tial id e n tity ” o f O C D a n d its s ubs i di ar i es , and the B anks ’ r el i ance t her eon, ar e i ncorr ect
. For ex am p le, test im o n yp rese n ted b yb o th the B an k s an d the D eb tors m a k e s p l a i n t h e p a r t i e s ’ i n t e n t i o n t o t r e a tth e e n t i t i e s s e p a r a t e l y. C SFB pr es ent ed t es t i m onyfr om att orney s and banke r s i nvol ved in n e g o tiatin g th e C r e d it A g re e m e n t th a t re f lec ted th e ir as s es s m entof the val ue of the guar ant ees as par t i al l yder i ved from t he sepa rat eness of the enti t i es. A s O C D con cedes, t hese r epr es ent at i ves “t es t i fi ed thatthe guar ant [e] es w er e . . . i nt ended t o pr ovi de ‘ s t ructur al s eni or i t y ’ t o t he banks , ” and w er e thus fun dam ental l yprem i sed on an assum pti on of sep a rat eness. D e b to rs A n s . B r. a t 2 6

. In the fa c e of

thi s t est i m on y , P l an P ropon ents no nethel ess ar gue thatt he B anks i nt ended t o i gnor e the s epar at enes s of the ent i t i es . I n s uppor tof thi s cont ent i on, t hey as s ert , i nt eral i a, t hat beca us e the B anks di d notr ece i ve i ndepe n d en tfi nanci al s t at ement s foreac h of the ent i t i es dur i ng t he nego ti at i ng pr oces s , t hey m us t have i nt ended t o deal w i t h t hem as a uni fi ed w h o le. B e c a u se th e B a n k s w e re u n a w a re o f th e se p a ra te fi nanci al m akeup of

the s ubs i di ar i es , the ar gum entgoes , theyD ebtor s m ake a si m i l ar ar gu m ent on t he b asi s of t he B ank s’ 24 fail u r e t o exer ci s e thei rr i ghtt o m oni t ort he ent i t i es i ndepende nt l y . Form uch the s ame r eas oni ng thatfol l ow s i n t he tex t, w e re

jec t th a t ar g u m e n t as w e ll. W e re j ect out r i ght D ebt or s ’ cl ai m t hatt he B anks ’ al l eged r el i ance on corpor at e s epar at enes s fai ls be caus e theydi d not obt ai n a t hi r d- par t y l egal opi ni on fr om couns el t hats ubs t ant i ve co n so li d ati o n w as un li k ely to occ u r w ere O C D o r th e g u ara n tors s ubj ectt o bankrupt cy . B ycus t o m an d p r act i ce thi s t ype of couns el opi ni on i s r eques t ed and gi ven fornew l yform ed ent i t i es w h o s e “ s p e c ia l p u rp o s e ” is to o b ta in s tru c tu re d f in a n c in g (i .e ., w her e “a defi ned gr oup of as s et s . . . [ar e] s t ructur al l yi s ol at ed, and thus s erve as t he bas i s of a fi nanci ng . . . . ” C om m i t t ee on B ankrupt cyand C orpor at e R eor gani zat i on of The A s s oci at ion of the B arof the C i t yof N ew Y o rk, S t ructur ed Fi nanci ng T e c h n iq u e s, 5 0 B u s. L a w . 5 2 7 , 5 2 9 (1 9 9 5 ) )

. It is c u sto m a rily notgi ven ( noreven r eq ues t ed) forent i t i es i n exi s t ence forany s i gni fi cantper i od of t i m e ors etup forot hert han a s t ructur ed fi nanci ng t r ans act i on . Se e Tri barO pi ni on C om m i tt ee, O pi ni ons i n t he B ankrupt cy C ont ext : R at i ng A gency , St ructur ed Fi nanci ng, and C hapt er 11 T r ans act i ons , 46 B us . L aw , 717, 726 & n . 4 2 (19 9 1 ). 43 cou l d n ot have rel i ed o n thei r s eparat eness. 24
T hi s ar gum enti s over l ys i m pl i s t i c. A s s um i ng t he B anks d i d n o to b t a i n s e p a r a t e f i n a n c i a l s t a t e m e n t s f

o re a c h s u b s i d i a r y, t heynonethel es s obt ai ned det ai l ed i nform at ion abouteac h s ubs i di aryguar ant orfr om O C D , i ncl udi ng i nform at i on aboutF u rth e r, a c re d ito r’s lac k o f d ili g e n c e is re le v a n t o n ly 25 i ns ofar as i t bear s on t he cr edi bi l i t yof i t s as s ert i on of r el i ance on separat eness. 44 t h a ts u b s i d i a r y ’ s a s s e t s a n d d e b t
. M o r e o v e r , t h e Ba n k s k n e w a gr eatdeal about t hes e s ubs i di ar i es . For exampl e, t heyknew t hat eac h s ubs i di aryguar ant orhad as s et s w i t h a book val ue of a t l eas t$30 m i l l i on as per t he t erm s of t he C r edi tA gr eement , t hat t he aggr egat e val ue of t he guar ant ors ubs i di ar i es w as over$900 m ill io n a n d th a t th o se su b sid iar ies h a d little o r n o d e b t. A ddi t i onal l y , t he B anks knew t hatFi br eboar d’ s s ubs i di ar i es ( i ncl udi ng t he ent i t i es t hatbeca m e partof ES I ) had no as bes t os l i abi l i t y , w oul d be debt

- fr ee pos t
- acqui s i t i on and had a s s et s of appr oxi m at el y$700 m i l l i on. E ven as s um i ng t he Pl an Pr oponent s coul d pr o ve pr epet i t i on di s r egar d of D ebt or s ’ corpor at e form s, w e ca nnot conce i ve of a j us t i fi cat i on fori m pos i n g the rul e thata cr edi t or m u st o b tain f

in a n c ial s tate m e n ts f

ro m a d e b to r in o rd e r to r e ly r eas onabl yon t he s epar at enes s of t hat debt or . C r edi t or s ar e fr ee t o empl oyw hat ever m etr i cs t hey bel i eve appr opr i at e i n deci di ng w h e th e r to e x ten d c re d it f re e o f c o u rt o v e rsig h t. W e a g re e w ith th e B a n k s th a t “t h e r e lian c e in q u iryis n o t an in q u iryin to l ender s ’ i nt ernal cr edi tm etr i cs . R ather , i ti s aboutt he f act that t he cr edi tdeci s i on w as m ade i n rel i ance on t he exi s t ence of se p a ra te e n tit ies

. . . . ” C S F B O p e n in g B r . a t 3 1 (e m p h a sis in o rig in a l). H e re th e re is n o se rio u s d isp u te a s to th a t f a c t. 2545 2. N O H OPEL ESS C OMM ING L ING E XI ST S P OS TP ETI TI ON T her e al s o is no meani ngful evi dence pos tpet i t i on of hopel es s c om m i ngl i ng of D ebt or s ’ as s et s and l i abi l i t i es . I ndeed, th e re is n o q u e stio n w h ich e n tity o w n s w h ich p rin c ip a l as se ts a n d h a s w h ich m a ter ial lia b ili ties . L ik e lyf o r th is re a so n little t i m e i s s pentbyt he part i es on t hi s al t ernat i ve t es tfors ubs t ant i ve co n so li d ati o n . Itis si m il arly lik e lythat the D istri ct C o u rt f o llo w e d s u it.
T h e Cou r tn o n e t h e l e s s e r r e d i n c o n c l u d i n g t h a tt he comm i ngl i ng o f ass et s w i l l j us t i fycons ol i dat i on w hen “the aff ai r s of the tw o compani es ar e so ent angl ed t hatcons ol i dat i on w i l l be b enef

i ci al

. ” I n r e O w ens C orni ng, 316 B

. R

. at171 ( emphasi s added)

. A s w e have expl ai ned, comm i ngl i ng j us t i fi es cons ol i dat i on o n l ywhe n s epar at el yacc ount i ng forthe as s et s and l i abi l i t i es of the di s t i nct en t i t i es w i l l r educe t he r ecove r yof every cr edi t or

— t hati s , w he n everycr edi t orw i l l benef i tfr om the cons ol i dat i on. M or eover , the bene fi tt o cr edi t or s s houl d be fr om cos ts avi ngs t hatm ake a s s et s avail ab le r athert han fr om t he shi ft i ng of asset s t o b enef i ton e group of cr edit ors at t he ex pen se of another

. M er e bene fi tt o s om e cr edi t or s , oradmi ni s t r at i ve benef i tt o t he C our t , fal l s fars hor t
. T he D i s t r i ctC our t ’ s t es tnot on l yfai l s t o ad here t o the theo ret i cal j ust i fi cat i on for “ho peles s comm i ngl i ng” con s ol i dat i on— t hatno cr edi t or ’ s r i ght s w i l l be i m pair ed— bu tal so suffers fr om the infi rm i t y that i t w i l l al m ost a lw a y s b e m e t. T h a t is, su b sta n tiv e c o n so lid a tio n w ill n e a rly46 al w ay s p r oduce s om e bene fi tt o s om e i n t he form of si m pli fi cat i on and / or avoidance o f cost s. A m on g o t her things, fo ll o w ing su ch a p ath m isap p re h e n d s the d eg ree o f h arm r equi r ed t o or ders ubs t ant i ve cons ol i dat i on. B ut no m at t er the leg a l test , a case for ho peles s comm i ngl i ng cannotbe made. A r gui ng nonethel ess t o the c o n tra ry , D e b to rs a ss e rt th a t “it w o u ld b e p ra c tica llyim p o ss ib le and pr ohi bi t i vel yexpens i ve in t i m e and r es our ces ” t o acc ount forthe vol unt arybankrupt ci es of the s epar at e ent i t i es O C D has cr eat ed and m ai nt ai ned. D ebt or s A ns . B r . at63. I n s uppor tof t hi s cont ent i on, D ebt or s r el y al m os t excl us i vel y on t he D i s t r i ct C our t ’ s fi ndi ngs t hat

it w o u ld b e e x c e e d in g lyd if f icu lt t o unt angl e the fi nanci al aff ai r s of the v ariou s en ti ti es . . . [a n d ] th e re a re

. . . m anyr eas ons forchal l engi ng t he ac cur acy of t he r es ul t s achi eved [i n acc ount i ng eff

or t s t hus far ]

. For exampl e, tr ans fer s of ca s h betw een s ubs i di ar i es and par entdi d not in c lu d e a n yp a ym e n t o f in ter e st; an d ca lculati o n s o f ro y alt ies are s ubj ectt o ques t i on. I n r e O w ens C or ni ng, 316 B

. R

. at 171. A s s um i ng ar guendo that th e se f in d in g s a re c o rre c t, th e ya re sim p lyn o t en o u g h to47 e s ta b lis h th a t s u b s ta n tiv e c o n s o lid a tio n is w a rr a n te d

. N ei t hert he i m pos s i bi l i t yof per fec t i on i n unt angl i ng t he a f f a irs o f th e e n tit ies n o r th e lik e lih o o d o f so m e in a c c u ra c ies in eff or t s t o do s o i s s uffi ci ent t o j us t i fy cons ol i dat i on. W e fi nd R 2 Invest m ents , L D C v. W orl d A ccess, Inc. (I n re W orl d A ccess, In c .), 30 1 B .R . 2 1 7 (B a n k r. N .D . Ill . 2 0 0 3 ), in stru c tiv e o n th is poi nt
. In W or l d A cce s s the C our tnot ed thatt he contr ol l i ng ent i t y“ha d n o uni form gui del i nes forthe r ecor di ng of in ter c o m p a n yin ter e st c h a rg e s” a n d th a t th e d e b to rs f a iled to “al l ocat e o v erhead c har ges amongstthemsel ves . ” I d. at234. T he C our thel d, how ever , t hatt hos e a cc o unt i ng s hor t comi ngs w er e “mer el yi m per fec t i ons i n a s ophi s t i cat ed s y s t em of acc ount i ng r ecor ds t hatw er e cons ci ent i ous l ym ai nt ai ned. ” I d. at279. I t ul t i m at el y concl uded t hat “al l t he re l evantacc ount i ng dat a . . . s t i l l exi s t [ed] , ” t hat onl y a “r eas onabl e r evi ew t o m ake any nece s s ary adj us t m ent s [w as ] r equi r ed, ” and, t hus , t hat s u b s ta n tiv e c o n s o lid a tio n w a s n o t w a rr a n te d . Id

. T h e r e c o r d i n o u r c a s e c o mp e l s th e s a me c o n c l u s i o n . At i t s cor e, D ebt or s ’ ar gum entamount s t o the cont ent i on that beca us e i nt er companyi nt ere st a nd r oy al t ypaym ent s w er e not per fec t l yacc ount ed for , unt angl i ng the fi nance s of thos e ent i t i es i s a hopel es s endea vor . Y eti m perfect i on i n i nt er company acc ount i ng i s as s ur edl y not atypi cal i n l ar ge, compl ex company s t ructur es . See, e. g. , L y nn M

. L oPucki , T he M yt h of the R esid u al O w n er, 1 6 n . 5 0 (20 0 4 ) , ht t p: / / paper s . s s r n . c o m/ s o l 3 / p a p er s . cfm? abs t r act_i d=401160.F or exam ple, w e si m ply cann ot i m agine t hat i tw ou l d co st 26 D e b to rs e v e n 1 % o f

th e B a n k s’ a ss e rte d $ 1 .6 b il li o n c laim to acc ountfort he al l egedl yi ncal cul abl e i nt er companyi nt er es tand roy al t ypay m ents
. 48 For obvi ous r eas ons , w e ar e l oathe t o ent ert ai n the ar gum entt hat compl ex corpor at e fa m i l i es s houl d have a n expanded s ubs t ant i ve cons ol i dat i on opt i on i n bankrupt cy . A nd w e fi nd no r eas on t o doubtt hat“per fec t i on is n ott he s t andar d i n t he s ubs tantive consol i dat i on cont ext
. ” I n r e W or l d A cce s s , 301 B

. R

. at 279. W e ar e confi dentt hata courtcoul d pr oper l yor der a n d o v e rse e a n a c c o u n tin g p ro c e ss th a t w o u ld su f f icie n tly acc oun tfort he i nt er es tand r oy al t ypaym ent s ow ed among t he O C D gr oup of compani es forpurpos es of eva l uat i ng i nt er companycl ai m s— d ea li n g w ith inac cu rac ies and di ffi cul t i es a s th e ya ri s e a n d n o t in h yp o th e tic a l a b s tr a c tio n s . O n th e b a sis o f

th e re c o rd b e f

o re u s, th e P lan P ro p o n e n ts ca n n o t fu lfi ll their bu rde n o f d em o n str at i ng that D eb tors’ af fa ir s are even tangl ed, l etal on e t hat t he cost of u ntangl i ng them i s so hi gh r el at i ve t o t hei r as s et s t hat t he B anks , amon g o t her cr edi t or s , w i l l benef

i tfr om a cons ol i dat i on. 26
3. O THER C ONSI DERATI ONS D O O M C ONSOL I DATI ON AS W E LL O t hercons i der at i ons dr aw n fr om the pr i nci pl es w e s et o u t als o c o u n se l stro n g lya g a in st c o n so lid a tio n . F ir s t o f a ll,Th e s a me s e n t i me n t a p p l i e s t o t h e a r g um ent of t he 27 bondhol der s t hat , subse quentt o t he 1997 l oan t o O C D , t he B anks defr auded them in connec t i on w i t h a pr os pectus di s t r i but ed w i t h r es pect t o a s al e of O C D bonds underw r i t t en by s om e of the B anks

. I f t he bondhol der s have a val i d cl ai m , t hey n e e d to p ro v e it i n th e D istric t C o u rt a n d n o t u se th e ir al l egati on s as m eans t o g errym and er consoli dati on of est at es. 49 hol di ng outt he pos s i bi l i t yof l ater g ivi ng pr i or i t yt o t he B anks on t hei rcl ai m s does notcur e an i m pr ovi dentg r antof s ubs t ant i ve cons oli d ati o n . A m o n g o ther thin g s, the p r er equi s i t es f o r th is las t-re so rt re m e d y m u st still b e m e t n o m a tter th e p rio rity o f th e B a n k s ’ c la im s . Secondl y , s ubs t ant i ve cons ol i dat i on s houl d be used d e f e n s iv e lyto re m e d yid e n tifia b le h a rm s, n o t o f f e n siv e lyto achi eve advant age over one gr oup i n t he pl an n egot i at i on p ro c e ss (f

o r e x a m p le, b y d e e m in g a ss e ts re d istrib u ted to n e g a te plan vot i ng r i ght s ) , nora “f r ee pa s s ” t o s par e D ebt or s orany ot hergr oup fr om pr ovi ng chal l enges , l i ke fr audul entt r ans fer c laim s, th a t ar e lib e ra llyb ra n d ish e d to sc a re y e t ar e h a rd to s how

. I f the B anks ar e s o vul ner abl e t o t he fr audul enttr ans fer chall eng es D ebtors hav e t eed u p (but have n ot s w un g at for s o l ong) , then t he game s houl d be pl ay ed t o t he fi ni s h i n t hat ar ena. 27
B ut perhap s the fl aw m ost fat al t o t he P l an P ropon ents ’ p ro p o s a l is th a t th e c o n s o lid a tio n s o u g h t w a s “ d e e m e d ” (i .e ., a50 pret end c on sol i dati on for al l bu tt he B ank s)

. If D ebtor s’ corpo rat e and f

i nanci al s t ructur e w as s uch a s ham befor e the fi l i ng of the mot i on t o cons ol i dat e, then how i s i tth at p o st the Pl an’ s eff

ect i ve dat e thi s s t ructur e s t ay s l ar gel yundi s turbed, w i t h the D ebt or s r eapi ng al l t he l i abi l i t y - l i m i t i ng, t ax and regul at oryben efi t s achi eved by form i ng subsi diar i es i n the fi rs t pl ace ? In e ffe ct , t he Pl an Pr oponent s s eek t o r emake s ubs t ant i ve c o n s o l i d a t i o n n o t a s a r e me d y , b u tr a t h e ra s t r a t a g e m t o “ d e e m” s epar at e r es our ces r eal l ocat ed to O C D t o s t r i p the B anks of r i ght s undert he B ankrupt cyC ode, favorot hercr edi t or s , and y et t rum p pos s i bl e Pl an obj ect i ons byt he B anks

. Such “dee m ed” s chemes w e dee m notH oy l e. I V . C oncl usi on S u b sta n tiv e c o n so lid a tio n a t its c o re is eq u ity

. I ts e x e rc ise m u st le a d to a n e q u itab le r e su lt. “ C o m m u n izin g ” a ss e ts o f a f f ili a ted c o m p a n ies to o n e su rv iv o r to f e e d a ll cre d ito rs o f

a ll c o m p a n ies m a yto so m e b e e q u a l (a n d h e n c e e q u itab le) . B u t it i s har dl y s o fort hos e cr edi t or s w ho have l aw ful l ybar gai ned pr epet i t i on forunequal tr eatm en t byobt ai ni ng guar ant ees of s e p a ra te e n t i t i e s . A c c o rd K h e e l, 3 6 9 F .2 d a t 8 4 8 (F ri e n d ly, J., c o n c u rrin g ) (“ E q u a litya m o n g c re d ito rs w h o h a v e law f u lly b a rg a in e d f

o r d if f e re n t trea tm e n t is n o t eq u ityb u t it s o p p o site

. . . . ”)

. N o pr i nci pl ed, or even pl aus i bl e, r eas on exi s t s t o undo O C D ’ s and the B anks ’ arm s - l ength negot i at i on and l endi ng arr angement , es peci al l yw hen t o do s o puni s hes t he verypar t i es t hatconfe r r ed the pr epet i t i on benef i t

— a $2 bi l l i on l oan51 u n s e c u r e d b yOC D an d g u a r a n t e e d b yo t h e r s o n l yi n p a r t
. To over tur n t hi s bar gai n , set i n pl ace byO C D ’ s ow n pr e- l oan choi ces of or gani zat i onal form , w oul d cau s e cha os i n t he m arketpl ace , as i tw oul d m ake thi s cas e the B anquo’ s ghos tof b a n k ru p t c y. W ith n o m e a n in g f

u l ev id e n c e su p p o rtin g e ith e r te st to a p p lysu b sta n tiv e c o n s o li d a tio n , the re is s im p lyn o t th e n e a rly

“ p e rf e c t s to rm ” n e e d e d to in v o k e it. E v e n if th e re w e re , a “dee m ed” cons ol i dat i on— “s ever al zi p ( i f notar ea) codes aw ay fro m an ything rese m b ling su b stan ti v e c o n so li d ati o n , ” In re G enes i s H eal th V entur es , 402 F. 3d at424— fai l s even t o qual i fy f o r c o n sid e ra tio n . It i s h e r e a ta c ti c u se d a s a sw o rd a n d n o t a s h ie ld

. W e thus r ever s e and r emand t hi s case t o the D i s t r i ct C o u rt.