Court Opinion

ID: 4185662
Source: CourtListenerOpinion
Date Created: 2017-07-12 20:01:26.674783+00
Date Added: 2024-06-11T07:47:21.184585
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                            JUL 12 2017
                    UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

In re: JAY P. CLARK,                             No.     16-60025

          Debtor,                                BAP No. 15-1010
______________________________

CLARK’S CRYSTAL SPRINGS                          MEMORANDUM*
RANCH, LLC and CLARK FARMS
FAMILY TRUST,

              Appellants,

 v.

JEREMY J. GUGINO, Chapter 7 Trustee,

              Appellee.

                          Appeal from the Ninth Circuit
                            Bankruptcy Appellate Panel
              Jury, Kirscher, and Faris, Bankruptcy Judges, Presiding

                             Submitted July 10, 2017**
                                Portland, Oregon

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
                                                                            Page 2 of 3
Before: WATFORD and OWENS, Circuit Judges, and CHHABRIA,*** District
Judge.

      1. Under well-settled Ninth Circuit law, the bankruptcy court had the power

to enter a substantive consolidation order. See In re Bonham, 229 F.3d 750, 763

(9th Cir. 2000). The Supreme Court’s decision in Law v. Siegel, 134 S. Ct. 1188

(2014), does not compel a different result. There, the Court held that “a

bankruptcy court may not contravene specific statutory provisions” of the

Bankruptcy Code. Id. at 1194. Ordering substantive consolidation, however, does

not contravene specific provisions of the Bankruptcy Code. While the Code does

not explicitly authorize substantive consolidation, neither does the Code forbid it.

That there are other ways to bring non-debtors into a bankruptcy case also does not

render substantive consolidation in conflict with express provisions of the Code.

Bankruptcy courts retain equitable power to grant substantive consolidation

notwithstanding Congress’s amendment of the Code without codifying that power.

Bonham, 229 F.3d at 765.

      2. The bankruptcy court did not err in ordering substantive consolidation.

Under Bonham, substantive consolidation is appropriate if the bankruptcy court

determines either that (1) creditors dealt with the consolidated entities as a single

      ***
            The Honorable Vince G. Chhabria, United States District Judge for
the Northern District of California, sitting by designation.
                                                                            Page 3 of 3
economic unit or (2) the debtor’s affairs were so entangled that consolidation

would benefit all creditors. Id. at 766. Sufficient evidence supports the

bankruptcy court’s finding under the first prong that creditors dealt with Jay P.

Clark, Clark’s Crystal Springs Ranch, LLC (the LLC), and the Clark Farms Family

Trust (the Trust) as a single economic unit. That evidence included Clark’s

exclusive control over the LLC and the Trust; Clark’s personal liability for the

LLC’s liabilities; the lack of records tracking the LLC’s distributions to Clark; and

the LLC’s payments for Clark’s student loans, his children’s housing, and his then-

girlfriend’s personal expenses. Additionally, the bankruptcy court did not clearly

err in determining that the evidence on the separateness of the entities was

conflicting, inconclusive, and not credible. Because the Bonham test is disjunctive,

we need not reach its second prong, including the question whether substantive

consolidation benefitted all creditors.

      Contrary to defendants’ arguments, the bankruptcy court did not err by

failing to consider Idaho law. The law of substantive consolidation is governed by

federal bankruptcy law, not state law.

      AFFIRMED.