FILED MAR 28 2014 1 NO FO PUBL A IO T R IC T N SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. SC-13-1206-JuKuPa ) 6 LIPPUNG AROONSAKOOL and ) Bk. No. 11-06927-LA7 VARATHIP AROONSAKOOL, ) 7 ) Adv. No. 11-90299-LA Debtors. ) 8 ______________________________) ) 9 LUXURY JEWELS, LLC, ) ) 10 Appellant, ) ) 11 v. ) M E M O R A N D U M* ) 12 GREGORY A. AKERS, ) ) 13 Appellee. ) ______________________________) 14 Argued and Submitted on March 20, 2014 15 at Pasadena, California 16 Filed - March 28, 2014 17 Appeal from the United States Bankruptcy Court for the Southern District of California 18 Honorable Louise de Carl Adler, Bankruptcy Judge, Presiding 19 _________________________ 20 Appearances: Douglas Jaffe, Esq. argued for appellant Luxury Jewels, LLC; William P. Fennel, Esq. argued for 21 appellee Gregory A. Akers, chapter 7 trustee. _________________________ 22 Before: JURY, KURTZ, and PAPPAS, Bankruptcy Judges. 23 24 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8013-1.
-1- 1 Chapter 71 trustee Gregory A. Akers filed a motion to 2 substantively consolidate the estate of debtors, Lippung and 3 Varathip Aroonsakool, with non-debtor entities Thai Export, LLC 4 (TE) and Luxury Jewels, LLC (LJ). The bankruptcy court found 5 that the requirements for substantive consolidation articulated 6 in Alexander v. Compton (In re Bonham), 229 F.3d 750 (9th Cir. 7 2000) were met and ordered the substantive consolidation nunc 8 pro tunc to debtors’ petition date. LJ appeals from this order. 9 Finding no error, we AFFIRM. 10 I. FACTS 11 A. Prepetition Facts 12 1. Debtors’ Jewelry Business 13 For many years, debtors owned and operated a family jewelry 14 business. Debtors’ sons, Nimit and Nakon, and their daughter, 15 Tarrah, worked at the business as did Loxunipan Pomsavanh (Lox) 16 and her brother, Tanasin “Bo” Panusith (Bo), who were part of 17 the Aroonsakool household.2 In February 2007, debtors entered 18 into a seven-year lease at the Grove Plaza Shopping Center 19 (Grove Plaza) in National City, California, where they operated 20 their jewelry business named TE. 21 In January 2010, Hieu, Inc. filed a complaint against TE 22 alleging breach of contract for debtors’ failure to return 23 24 1 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 25 “Rule” references are to the Federal Rules of Bankruptcy 26 Procedure and “Civil Rule” references are to the Federal Rules of Civil Procedure. 27 2 Both Lox and Bo lived with debtors for many years but were 28 not their biological children.
-2- 1 jewelry items. In June 2010, Hieu obtained a judgment against 2 TE and proceeded to collect its judgment by placing a keeper at 3 the Grove Plaza store. In October 2010, Lox accepted service on 4 behalf of TE for placement of a keeper. Donald Jaffee, counsel 5 for LJ in this matter, filed a third party claim in the case on 6 behalf of TE and submitted the declaration of Varathip in 7 opposition to the keeper. The declaration, signed under penalty 8 of perjury, stated that the market value of the property at the 9 Grove Plaza store was $1 million and that TE had been denied 10 access to its records. Ultimately, Jaffee represented TE in a 11 settlement between Hieu and TE. 12 Tax Returns for the year 2010 show that TE had a beginning 13 2010 inventory value of $677,725 and end of year 2010 inventory 14 value of $650,580. At some point in 2010, TE went out of 15 business. 16 2. LJ Is Formed And Opened For Business 17 On January 4, 2011, LJ was formed. Lox is the sole owner 18 and managing member of LJ. 19 Twenty days prior to debtors’ bankruptcy filing, Lox was 20 added as an additional tenant to the Grove Plaza lease based on 21 representations from debtors that she was going to operate the 22 store as her own business. At that time, Lox submitted an 23 application to the landlord containing information about her 24 financial condition. Lox stated that she was a current employee 25 of TE, held the position of manager, and that her salary was 26 $24,000 a year. Lox listed assets valued at $10,000, but at the 27 same time stated that she would spend $250,000 to acquire 28
-3- 1 inventory for her business.3 Later, in a deposition conducted 2 in connection with the substantive consolidation motion at issue 3 in this appeal, Lox explained away these facts by testifying 4 that she made them up. 5 Lox then proceeded to open LJ for business. A few days 6 before the landlord received notice of debtors’ bankruptcy 7 filing, the TE store sign was removed and a new sign installed 8 changing the name of the business to LJ.4 During the pendency 9 of the bankruptcy, the lease was amended to reflect Lox as the 10 sole tenant and guarantor of the lease as of June 1, 2011. The 11 record evidence shows LJ used the same computers, database, 12 furniture, fixtures, and equipment that TE had used. LJ also 13 used the same business forms and invoices that TE had used and, 14 in many cases, the name of TE was crossed out on the form and 15 the name of LJ substituted. As in the case of TE, workers at LJ 16 included Lox, Nimit, and Nakon. Nakon and Nimit both testified 17 that they “helped out” at LJ. Further, another employee who was 18 a jeweler worked at TE and then worked at LJ. 19 Lox admitted that TE left some jewelry at the Grove Plaza 20 store when it closed down, including brass, stainless steel and 21 silver items. In deposition testimony, Lox claimed that the 22 23 3 Lox listed Varathip as a reference in her application, 24 stating that Varathip was her mother. 25 4 According to the record, Nimit contacted Best Sign Company 26 to create a sign for a “new company” in January 2011. Trustee alleges that the “new company” was LJ, but in opposition to 27 trustee’s motion for summary judgment (MSJ) (described in further detail below), Nimit allegedly intended to open a company by the 28 name of Coast Gem USA, LLC.
-4- 1 remaining jewelry located at the Grove Plaza store was hers and 2 came from an entity called 99 Jewelry owned by her and her 3 brother Bo which operated between 2001 and 2005. However, the 4 record also indicates Varathip owned 50% of 99 Jewelry as 5 represented in a credit application for Mercedes-Benz. Lox 6 testified that when 99 Jewelry shut down in 2006, she stored the 7 jewelry in a safe deposit box at Union Bank. The record reveals 8 that Union Bank was unable to identify a safe deposit box in the 9 name of LJ or Lox.5 10 Moreover, the record contains no evidence that LJ or Lox 11 paid anything to debtors or TE for the business or the jewelry 12 other than Lox’s testimony that she paid TE for the computer, 13 furniture, safe and fixtures which were at the Grove Plaza 14 store. Although Lox testified that she never borrowed money 15 from anyone for the purpose of opening or operating LJ, her own 16 testimony shows that she did not have the financial wherewithal 17 to purchase any of TE’s assets. Contrary to the financial 18 information that she gave Grove Plaza when she was added to the 19 lease, she testified that prior to December 2010, she was not 20 employed anywhere other than as a caretaker for her grandmother 21 since 2000. Although she received $800-900 a month from the 22 state or federal government to care for her grandmother, Lox 23 testified that she received no other income. 24 B. Bankruptcy Events: Procedural History 25 On April 28, 2011, debtors filed a chapter 7 petition. 26 5 27 Bo also declared that his purchase and storage of jewelry from 99 Jewelry was placed with LJ for sale, but trustee did not 28 take his deposition.
-5- 1 Akers was appointed the trustee. At the time of their filing, 2 debtors owed over $1.3 million in unsecured debt. 3 Debtors stated in their petition that they formerly did 4 business as TE. Under personal property in Schedule B, they 5 listed TE as 70% owned by them jointly and described: 6 Wife owns 50%, Husband owns 20%, three children each own 10%. Consignment based jewelry business. Imports 7 and exports jewelry from Thailand to USA. Neither Debtors nor business have ownership interest in jewelry sold. 8 Debtors ceased operatio[n] (sic). 9 Debtors assigned a value of 0.00 to TE. Debtors listed 10 creditors who held judgments against TE alone or against both TE 11 and debtors in Schedule F.6 12 Prior to the initial meeting of creditors, a listed 13 creditor, Saif Siddiqui of Americans/Gold/Diamonds, contacted 14 trustee advising him that debtors were continuing to operate the 15 jewelry store through their children to “defraud creditors” and 16 that the “new” company existed at the same location (Grove 17 Plaza) with the same employees. Siddiqui also stated that he 18 spoke to other vendors with smaller debts and that they were 19 being paid with checks issued by LJ to pay debts owed by TE. 20 1. Trustee’s Lockdown Of The Grove Plaza Store 21 At the § 341(a) meeting of creditors on May 26, 2011, 22 debtors testified that all of the inventory of TE was 23 consignment jewelry of undisclosed wholesale sellers or other 24 jewelry proprietors and, prior to the bankruptcy filing, all 25 jewelry inventory of TE had been returned to the consigning 26 6 27 We take judicial notice of debtors’ petition and schedules. Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 28 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
-6- 1 parties. There is no documentation in the record showing that 2 all the jewelry located at the Grove Plaza store was consigned — 3 although some of it was — nor is there any documentation showing 4 that the jewelry was returned to the consigning parties. 5 On the same day, without the benefit of a court order, 6 trustee locked down the Grove Plaza store to protect the assets 7 for the benefit of creditors. 8 2. The Adversary Complaint 9 Less than a month later, on June 20, 2011, trustee filed an 10 adversary complaint against LJ, Lox, and the Aroonsakool 11 children (Nimit, Nakon and Tarrah) seeking declaratory and 12 injunctive relief and alleging claims for turnover and to avoid 13 and recover fraudulent transfers. Trustee sought a declaration 14 that the jewelry at the Grove Plaza store was property of 15 debtors’ estate.7 16 LJ and Lox filed answers to the complaint and a 17 counterclaim against trustee for damages arising from trustee’s 18 seizure of the business. In November 2011, LJ and Lox filed an 19 amended counterclaim alleging claims against trustee for 20 violation of duties, conversion, trespass and fraud, and seeking 21 declaratory and injunctive relief. A year later, in November 22 7 23 On September 29, 2011, trustee moved to sell the personal property at the Grove Plaza store. LJ and Lox opposed, 24 contending that the personal property was not part of the bankruptcy estate and that an adversary proceeding was required. 25 In November 2011, the bankruptcy court denied trustee’s motion on 26 the grounds that it could not allow a sale of property as “property of the estate” without first determining whether the 27 debtor in fact owned the property, see Moldo v. Clark (In re Clark), 266 B.R. 163, 172 (9th Cir. BAP 2001), and noted 28 that trustee had an adversary proceeding pending.
-7- 1 2012, trustee entered into an agreement with LJ, Lox, Bo and 2 Grove Plaza, LP, which settled, among other things, the 3 counterclaim. In exchange for Grove Plaza, LP withdrawing its 4 bankruptcy claim, trustee’s insurer paid Grove Plaza, LP $23,500 5 for unpaid rent and LJ $110,000 in damages.8 In December 2012, 6 the counterclaim was dismissed. 7 a. Motion For Summary Judgment 8 On December 4, 2011, trustee filed a MSJ seeking 9 judgment on all claims alleged in the complaint as a matter of 10 law. Trustee argued that debtors and TE were alter egos because 11 debtors did not observe any corporate formalities as shown by 12 the undisputed evidence. He further maintained that the 13 transfers of TE’s property to LJ were avoidable as fraudulent 14 transfers as a matter of law. 15 In opposition to the MSJ, Nimit submitted a declaration 16 stating that “[n]one of the assets of Thai Export were in any 17 way transferred to Luxury . . . [Lox] was the owner of Luxury 18 and I saw her purchasing inventory for Luxury and I assisted in 19 purchasing inventory for Luxury, using Luxury funds.” Debtors 20 each submitted declarations stating that at the time of their 21 bankruptcy filing, there was no property owned by them at the 22 23 8 It appears that after trustee locked down the premises, he 24 discovered that $10,000 worth of the jewelry actually belonged to LJ. Moreover, trustee held jewelry that was on layaway or in for 25 repairs. However, trustee continued to maintain that the total 26 value of jewelry at the store was $150,000. LJ argues in its reply brief on appeal that trustee’s settlement is evidence that 27 trustee seized property which did not belong to the bankruptcy estate. Therefore, according to LJ, the bankruptcy court should 28 not have ordered substantive consolidation.
-8- 1 Grove Plaza store. They further declared that the only jewelry 2 left was costume brass jewelry that was on consignment from 3 Micron, a vendor in Thailand. 4 In January 2013, the bankruptcy court denied the MSJ, 5 noting that under the holdings in In re Wheeler, 444 B.R. 598, 6 607-10 (Bankr. D. Idaho 2011) and In re Wardle, 2006 WL 6811026 7 (9th Cir. BAP 2006), trustee’s request to treat the assets of a 8 non-debtor entity as the debtor’s assets for purpose of bringing 9 those assets into the bankruptcy estate, or to obtain standing 10 to assert fraudulent conveyance theories as to transfers of the 11 non-debtor’s assets, is tantamount to a request for substantive 12 consolidation. The court observed that trustee’s complaint had 13 not pled “reverse veil piercing” or “substantive consolidation” 14 theories, nor had he filed a motion for substantive 15 consolidation. However, the bankruptcy court noted that the 16 adversary proceeding had not yet gone to trial and, given the 17 strength of trustee’s evidence that TE was operated as a sole 18 proprietorship and that LJ was a sham, the court denied 19 trustee’s MSJ without prejudice. The court gave trustee thirty 20 days to amend his complaint or take whatever actions he deemed 21 necessary to place the issues properly before the court. 22 b. Motion For Substantive Consolidation 23 On February 22, 2013, trustee filed a motion to 24 substantively consolidate debtors’ estate with non-debtors, TE 25 and LJ, or, alternatively, for leave to file an amended 26 27 28
-9- 1 complaint.9 In support, trustee submitted more than a hundred 2 pages of exhibits and other evidence intended to show that 3 debtors and TE disregarded corporate formalities and that LJ 4 used the same premises, furniture, fixtures, and showcases 5 previously used by TE without paying TE or debtors a dime. In 6 addition, trustee included evidence that showed TE and LJ used 7 the same forms for jewelry consignments and invoices and other 8 matters, changing only the names on the forms. Finally, trustee 9 maintained that creditors of debtors, TE and LJ dealt with the 10 entities as a single economic unit. 11 On March 11, 2013, the date opposition was due, LJ filed an 12 ex parte application for a four-day extension of time to respond 13 to trustee’s motion. It argued that: the motion was 14 “voluminous” with more than a hundred pages of exhibits and 15 declarations; the pleading actually contained two motions - the 16 motion for substantive consolidation and a motion to amend; the 17 motion was in breach of the settlement agreement between trustee 18 and LJ on the counterclaim asserted in the complaint; and 19 counsel for LJ was engaged in post-trial proceedings in state 20 court which had a due date of March 8, 2013. In a supporting 21 declaration, Jaffee declared that he had been seriously ill from 22 March 8, 2013, to the date of the filing of the request for 23 continuance. 24 Trustee filed a limited opposition. Trustee maintained 25 that the motion for substantive consolidation did not violate 26 9 27 The motion was filed in the adversary proceeding. Notice was given to creditors listed on the creditor’s matrix and also 28 to creditors of TE and LJ.
-10- 1 the settlement agreement and noted that the exhibits submitted 2 in support of the motion were the same as those filed in 3 connection with trustee’s MSJ. In addition, if the bankruptcy 4 court granted LJ’s extension of time, trustee requested a 5 three-day extension to file his reply. 6 On March 13, 2013, the bankruptcy court denied the 7 application because LJ’s requested extension of time, followed 8 by a concomitant request for extension of time by trustee to 9 reply, left the court with an unacceptably brief period of time 10 to prepare for the motion. 11 Despite the bankruptcy court’s denial order, LJ filed an 12 opposition to trustee’s motion on March 15, 2013. LJ’s 13 opposition contained no substantive arguments. In oral argument 14 before this court, Jaffe maintained that he could not assert any 15 substantive arguments because the bankruptcy court had denied 16 his request for a continuance. Instead, LJ asserted in 17 opposition that a continuance should have been granted and that, 18 by not allowing the extension, it appeared the bankruptcy court 19 was going out of its way to assist trustee.10 LJ further argued 20 that any amendment to the complaint would be prejudicial due to 21 the passage of time. Finally, LJ complained that trustee had 22 failed to include an amended complaint. 23 On April 9, 2013, the bankruptcy court issued a tentative 24 25 10 To the extent Jaffe implies that the court’s denial of 26 his motion for a continuance evidences bias, this argument has no merit. Adverse rulings by themselves do not constitute the 27 requisite bias necessary to warrant recusal of a judge even if the rulings were erroneous. United States v. Nelson, 718 F.2d 28 315, 321 (9th Cir. 1983).
-11- 1 ruling granting trustee’s motion for substantive consolidation. 2 In the tentative, the court recited the Bonham factors, applied 3 them to the facts based on the evidence before it, and found 4 substantive consolidation was warranted. At the April 11, 2013 5 hearing on the matter, the bankruptcy court adopted its 6 tentative and directed counsel for trustee to file detailed 7 findings of fact and conclusions of law (FFCL). 8 On April 25, 2013, LJ filed a notice of appeal. On May 17, 9 2013, the bankruptcy court entered the FFCL and on May 23, 2013 10 entered the order granting trustee’s motion. On May 31, 2013, 11 LJ filed an amended notice of appeal.11 12 II. JURISDICTION 13 The bankruptcy court had jurisdiction over this proceeding 14 under 28 U.S.C. § 157(b)(1) and (b)(2)(A). We now address our 15 jurisdiction over this appeal. 16 Orders denying a motion for a continuance are generally 17 interlocutory. “Unlike final orders, interlocutory orders 18 decide merely one aspect of the case without disposing of the 19 case in its entirety on the merits.” See United States v. Real 20 Prop. Located at 475 Martin Ln., Beverly Hills, Cal., 545 F.3d 21 1134, 1141 (9th Cir. 2008). “A court’s ruling on a motion to 22 continue does not end the litigation.” Roque v. Ynguez 23 (In re Roque), 2014 WL 351424, at 5* (9th Cir. BAP 2014). 24 Nonetheless, an interlocutory order such as the order denying a 25 11 26 Subsequently, trustee obtained court orders authorizing him to employ an auctioneer and sell the personal property. The 27 jewelry and other personal property was sold at auction for $123,306.96. LJ appealed the court’s ruling authorizing the sale 28 of the personal property in BAP No. 13-1539.
-12- 1 motion to continue merges into the final order deciding the 2 merits. Real Prop. Located at 475 Martin Ln., Beverly Hills, 3 Cal., 545 F.3d at 1141 (interlocutory orders entered prior to 4 the judgment merge into the judgment and may be challenged on 5 appeal). Accordingly, the continuance order merged into the 6 final order granting trustee’s motion for substantive 7 consolidation. As such, it can be challenged on appeal. See 8 Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 9 861, 872 n.7 (9th Cir. 2004) (appeal of final judgment draws 10 into question all earlier, non-final orders and rulings which 11 produced the judgment). 12 With respect to the substantive consolidation order, the 13 Clerk’s Office issued an Order re Finality, requiring LJ to file 14 a response regarding the finality of the order. After LJ 15 responded, although the order appears final, the Panel granted 16 LJ leave to appeal to the extent it was necessary. Therefore, 17 we are satisfied that we have jurisdiction to decide this appeal 18 under 28 U.S.C. § 158. 19 III. ISSUES 20 A. Whether the bankruptcy court abused its discretion by 21 denying LJ’s ex parte application for an extension of time to 22 file its opposition; and 23 B. Whether the bankruptcy court erred by granting 24 trustee’s motion to substantively consolidate the estate of 25 debtors with the non-debtor entities TE and LJ nunc pro tunc. 26 IV. STANDARDS OF REVIEW 27 The bankruptcy court’s denial of an extension of time is 28 reviewed for abuse of discretion. Orr v. Bank of Am., 285 F.3d
-13- 1 764, 783 (9th Cir. 2002). The court abuses its discretion if it 2 applied the wrong legal standard or its findings were illogical, 3 implausible or without support in the record. 4 TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th 5 Cir. 2011). 6 Application of the factors for substantive consolidation in 7 Bonham to the underlying facts presents a mixed question of law 8 and fact, where factual determinations are reviewed under the 9 clearly erroneous standard, and determinations of law are 10 reviewed de novo. See Meyer v. Lepe (In re Lepe), 470 B.R. 851, 11 855 (9th Cir. BAP 2012) (citing Andrews v. Loheit 12 (In re Andrews), 155 B.R. 769, 770 (9th Cir. BAP 1993)); see 13 also Murray v. Bammer (In re Bammer), 131 F.3d 788, 792 (9th 14 Cir. 1997). 15 We review for abuse of discretion a bankruptcy court’s 16 entry of a nunc pro tunc approval of a motion. In re Bonham, 17 229 F.3d at 764. 18 V. DISCUSSION 19 A. The Bankruptcy Court Did Not Err In Denying LJ’s Request For An Extension Of Time 20 21 LJ’s main argument on appeal is that the bankruptcy court’s 22 error in denying its request for an extension of time to file 23 opposition to trustee’s motion warrants reversal of the 24 consolidation order. According to LJ, the bankruptcy court 25 should have granted its request under the holding in Ahanchian 26 v. Xenon Pictures, 624 F.3d 1253 (9th Cir. 2010) which discusses 27 the standards for extension requests under Civil Rule 6(b)(1). 28 There, the Ninth Circuit held that requests for extensions of
-14- 1 time made before the applicable deadline has passed should 2 normally be granted in the absence of bad faith or prejudice to 3 the adverse party. LJ asserts that there is no evidence it 4 acted in bad faith nor would there have been prejudice to 5 trustee had the continuance been granted. 6 We have previously noted that the standards in Ahanchian 7 are not applicable to requests for an extension of time: 8 A careful reading of the Bankruptcy Rules shows that Civil Rule 6(b)(1) does not apply in adversary 9 proceedings. Unlike many other Civil Rules, the Rules do not incorporate Civil Rule 6. Instead, portions of 10 Civil Rule 6 are adopted via Rule 9006, which governs, generally, “enlargement” of time periods. And while 11 some of the language of Civil Rule 6(b)(1) is similar to that in Rule 9006(b), the provisions of Civil 12 Rule 6(b)(1) establishing the “good cause” standard for granting extensions of time are not adopted in the 13 Rules. 14 N. Cal. Small Bus. Fin. Dev. Corp. v. Arnold Bellow 15 (In re Bellow), 2011 WL 4502916, at *5 (9th Cir. BAP 2011), 16 aff’d, In re Bellow, 544 Fed.Appx. 732 (9th Cir. 2013). Because 17 Rule 9006(b) controls all motions for extensions of time in the 18 bankruptcy courts (whether made in an adversary proceeding or 19 not), Civil Rule 6(b)(1) standards for extensions of time do not 20 apply. Therefore, LJ’s reliance on Ahanachian is misplaced. 21 Rule 9006(b)(1) states that a bankruptcy court may at any 22 time in its discretion enlarge the time period in which an act 23 is required or allowed to be done. A bankruptcy court has 24 substantial discretion to control its own calendar. Danjaq LLC 25 v. Sony Corp., 263 F.3d 942, 960–61 (9th Cir. 2001). Four 26 factors are relevant to our inquiry into whether the court 27 abused its discretion in denying a continuance: (1) whether the 28 requesting party has been diligent; (2) whether there is a
-15- 1 genuine need for the continuance; (3) whether the continuance 2 will inconvenience the Court and the opposing party including 3 its witnesses; (4) whether the requesting party will suffer 4 prejudice if the request is denied. Absent a showing of 5 prejudice suffered by LJ, we will not disturb the bankruptcy 6 court’s ruling. Danjaq, 263 F.3d at 961; see also Berry v. U.S. 7 Trustee (In re Sustaita), 438 B.R. 198, 210-11 (9th Cir. BAP 8 2010), aff’d, 460 Fed. Appx. 627 (9th Cir. 2011). 9 LJ points to no prejudice arising from the denial of its 10 request for an extension of time other than a generalized 11 assertion that had the bankruptcy court allowed the short 12 extension of time, it would have been able to present the court 13 with the facts and arguments against ordering the substantive 14 consolidation of LJ with debtors. This vague allegation is not 15 adequate to satisfy the prejudice requirement. See United 16 States v. LaRouche, 896 F.2d 815, 825 (4th Cir. 1990) (observing 17 that “[m]ore than a general allegation of ‘we were not prepared’ 18 is necessary to demonstrate prejudice”). Indeed, on appeal LJ 19 identifies no arguments it would have made had it more time to 20 prepare nor does it rebut trustee’s evidence with its own offer 21 of proof. 22 At oral argument, the Panel questioned counsel for LJ about 23 how its arguments or evidence would differ from that presented 24 in opposition to trustee’s MSJ. Counsel maintained that the 25 evidence in opposition to substantive consolidation would be 26 “significantly different” from evidence submitted in opposition 27 to the MSJ. This argument is not persuasive. Trustee’s MSJ 28 raised the issue of whether debtors and TE were alter egos.
-16- 1 Alter ego doctrine and substantive consolidation overlap when 2 the second factor under Bonham is at issue. “Entanglement can 3 be shown where there is a unity of interest and common ownership 4 between the debtor and the target entities, the target entities 5 were ‘but instrumentalities of the bankrupt with no separate 6 existence,’ there was commingling of assets and no clear 7 demarcation between the affairs of the debtor and the target 8 entities, and adhering to the separate corporate entities theory 9 would result in an injustice to the bankrupt’s creditors.” 10 Sharp v. Salyer (In re SK Foods, Ltd.), 499 B.R. 809, 833-34 11 (Bankr. E.D. Cal. 2013) (citing In re Bonham, 229 F.3d at 767). 12 Thus, the presence of traditional “alter ego” factors may 13 provide a basis to find that the affairs of the debtor are so 14 entangled such that consolidation will benefit all creditors. 15 In re SK Foods, 499 B.R. at 833 (citing Meruelo Maddux 16 Props.–760 S. Hill Street, LLC v. Bank of Am., N.A. 17 (In re Meruelo Maddux Props., Inc.), 667 F.3d 1072, 1075 n.1 18 (9th Cir. 2012) (“Appellate courts have ratified substantive 19 consolidation orders when, for example, the debtors have abused 20 corporate formalities, or creditors have treated the separate 21 entities as a single unit and the business affairs of the 22 consolidated entities were hopelessly entangled.”). 23 In addition, two of the other three factors in Danjaq weigh 24 against LJ. The record shows that the requested extension would 25 not have served any legitimate need of LJ. In opposing 26 trustee’s MSJ, LJ submitted the testimony of Lox to support its 27 ownership claim to the jewelry. However, in concluding that 28 substantive consolidation was warranted, the bankruptcy court
-17- 1 relied on trustee’s evidence which impeached Lox’s credibility 2 as a witness. There is no indication in the record or in LJ’s 3 brief on appeal that an extension of time would have assisted LJ 4 in refuting the trustee’s evidence to support its ownership 5 claim. Further, the bankruptcy court specifically found that an 6 extension of time would be inconvenient for the court as it 7 would not have adequate time to prepare. Under these 8 circumstances, LJ was not prejudiced and we will not disturb the 9 court’s ruling denying its request for an extension of time. 10 B. The Bankruptcy Court Did Not Err When It Granted the Substantive Consolidation Motion Nunc Pro Tunc 11 12 Substantive consolidation is an uncodified, equitable 13 doctrine allowing the bankruptcy court, for purposes of the 14 bankruptcy, to “combine the assets and liabilities of separate 15 and distinct—but related—legal entities into a single pool and 16 treat them as though they belong to a single entity.” 17 In re Bonham, 229 F.3d at 764. The doctrine “enables a 18 bankruptcy court to disregard separate corporate entities, to 19 pierce their corporate veils in the usual metaphor, in order to 20 reach assets for the satisfaction of debts of a related 21 corporation.” Id. The essential purpose behind the doctrine 22 is one of fairness to all creditors, but it is a doctrine to be 23 used sparingly. Id. at 764, 768. 24 In Bonham, the Ninth Circuit adopted a disjunctive two- 25 factor test for determining whether application of the 26 substantive consolidation doctrine is warranted. In applying 27 the test, courts consider whether creditors dealt with the 28 entities as a single economic unit and did not rely on their
-18- 1 separate identity in extending credit or whether the affairs of 2 the debtor are so entangled that consolidation will benefit all 3 creditors. 229 F.3d at 766. “In either case, the bankruptcy 4 court must in essence determine that the assets of all of the 5 consolidated parties are substantially the same.” Bonham, 6 229 F.3d at 771. Ultimately, the decision to apply the 7 substantive consolidation doctrine stems from a weighing of the 8 equities and must be tailored to meet the needs of each 9 particular case. Id. 10 Trustee, as the moving party, has the initial burden of 11 showing either one of the Bonham factors are met. Reider v. 12 Fed. Deposit Ins. Corp. (In re Reider ), 31 F.3d 1102, 1107 13 (11th Cir. 1994). Once trustee establishes a close 14 interrelationship between debtors and the non-debtor entities, 15 there is a presumption that creditors did not rely on their 16 separate credit. The burden of proof then shifts to the parties 17 opposing substantive consolidation to show otherwise. Bonham, 18 229 F.3d at 767. 19 We begin by reviewing the evidence regarding the 20 interrelationship between debtors and TE. At the outset, we 21 observe that there is some question whether TE had a signed and 22 dated operating agreement; there was no agreement in the 23 record.12 Moreover, there is no evidence in the record that TE 24 25 12 Cal. Corp. Code § 17701.10 entitled “Operating agreement; 26 scope; limitations, variations, and modifications; fiduciary duty; indemnification and damages” provides: 27 (a) Except as otherwise provided in this section, the 28 continue...
-19- 1 ever held formal meetings, took minutes or conducted an election 2 of officers. The record also establishes that TE was never 3 capitalized by debtors or debtors’ children, who were also 4 listed as members of TE. Further, although family members 5 testified13 that they “helped out” at TE, the evidence shows that 6 they were not paid as employees. Even debtors did not receive 7 any wages, or guaranteed payments from TE, per their 1040 tax 8 returns. These facts, which are not contested, show that 9 debtors operated TE as a sole proprietorship and, with no source 10 of any other income, took money from the business as needed, 11 treating the assets as their own. 12 The line of corporate separateness between TE and LJ is 13 more blurry. As noted by the bankruptcy court, LJ was formed 14 when debtors/TE were facing litigation and post-judgment 15 collection activities from creditors. Moreover, as the record 16 indicates, LJ was in reality simply a continuation of TE’s 17 18 12 ...continue 19 operating agreement governs all of the following:
20 (1) Relations among the members as members and between the members and the limited liability company. 21 22 (2) The rights and duties under this title of a person in the capacity of manager. 23 (3) The activities of the limited liability company and 24 the conduct of those activities. 25 (4) The means and conditions for amending the operating 26 agreement. 13 27 Trustee deposed some of the family members and included portions of these depositions as evidence in support of the 28 consolidation motion.
-20- 1 business. Family members who worked for TE also worked for LJ. 2 LJ occupied the same space as TE, engaged in the same business 3 and used the same equipment and business forms as TE, sometimes 4 just striking out the name of TE. Payment for debtors’ 5 bankruptcy attorneys and other personal payments came from LJ 6 accounts. Further, Lox admitted that some of the jewelry left 7 at the Grove Plaza store belonged to debtors/TE. After months 8 of discovery, however, the record shows that LJ still did not 9 accurately identify and segregate the jewelry that belonged to 10 debtors/TE from that of LJ. 11 The commingling of assets, the difficulty in segregating 12 and ascertaining debtors’ assets and liabilities from those of 13 TE and LJ, and the transfer of TE’s assets to LJ without any 14 corporate formality demonstrate the type of close 15 interrelationship between debtors and the non-debtor entities 16 which warrants substantive consolidation. Accordingly, the 17 bankruptcy court’s decision to apply the substantive 18 consolidation doctrine nunc pro tunc was appropriate. 19 In the end, the bankruptcy court also considered evidence 20 submitted by LJ in opposition to trustee’s MSJ which allegedly 21 showed that LJ owned the jewelry found at the Grove Plaza store. 22 In this regard, Lox testified in opposition to trustee’s MSJ 23 that the jewelry came from 99 Jewelry, a business that she owned 24 with her brother. Trustee’s evidence shows however that debtor, 25 Varathip Arronsakool, held herself out as a 50% owner of 26 99 Jewelry. Further, trustee’s expert, Alan Myers, testified 27 that there were no bank statements, cancelled checks, income tax 28 returns or sales tax returns that support or document that Lox
-21- 1 or 99 Jewelry paid for any of the items. In addition, there 2 were no sales records for 99 Jewelry nor was there proof that 3 Lox had stored the items in a safe deposit box in the National 4 City Branch of Union Bank or anywhere else despite the fact that 5 she testified to the same. Finally, as already noted, Lox’s own 6 testimony was that she was unemployed and thus did not have the 7 financial means to purchase any of the jewelry.14 8 To the extent the bankruptcy court was required to make 9 credibility determinations or make inferences from these facts, 10 its determination that LJ did not own the jewelry found at the 11 Grove Plaza store is reviewed under the clearly erroneous 12 standard. We cannot conclude that the bankruptcy court’s 13 findings were clearly erroneous when they are based on a 14 plausible view of the evidence as a whole. “Where there are two 15 permissible views of the evidence, the factfinder’s choice 16 between them cannot be clearly erroneous.” Anderson v. City of 17 Bessemer City, N.C., 470 U.S. 564, 574 (1985). These factual 18 findings, unchallenged by LJ on appeal, lend additional support 19 to the bankruptcy court’s legal conclusion that application of 20 the substantive consolidation doctrine nunc pro tunc15 was 21 warranted because the assets of debtors, TE and LJ are 22 14 23 There is also no written agreement with debtors/TE that shows Lox paid anything to purchase TE. At the continued 341(a) 24 meeting of creditors held on June 29, 2011, debtors testified that they had no written agreement with Lox to sell her jewelry. 25 15 26 LJ makes no argument on appeal that the nunc pro tunc aspect of the bankruptcy court’s decision was an abuse of 27 discretion. “[O]n appeal, arguments not raised by a party in its opening brief are deemed waived.” Smith v. Marsh, 194 F.3d 1045, 28 1052 (9th Cir. 1999).
-22- 1 substantially the same. 2 VI. CONCLUSION 3 For the reasons stated, we AFFIRM. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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