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In Re: Raejean Bonham, AKA Jean Bonham, AKA Jeannie Bonham, Dba World Plus, Inc., an Alaska Corporation and Atlantic Pacific Funding Corporation, a Nevada Corporation, Debtors. Thomas Alexander Gay Alexander Alexander Rentals Debbie Bailey Wayne Bailey Sondra Baker Harry Baker Lisa Baker Lloyd Beadle James Bennett Maria Bennett Thomas Boyd Sheila Boyd Leslie Boyd Jeremy Boyd Jill Cameron Raymond Cameron Joseph Campbell Dennis Cary Marvel Cary Gene McClanahan Farrell Christensen Brent Cook Jolanda Cook Heather Cook Melanie Cook Jim Davis Roxie Davis Roger Delaney Dorothy Delaney Mary Beth Diethelm Nathan Diethelm Robert Dunn Nancy Dutton Linette Finstad Richard Kedrowski Mary Flickinger Allen Fuss Rayette Fuss Ignatius Fuss Julia Fuss Tom Fuss Arbara Fuss Velesta Fusco Pauline Fusco Teo Fusco Jacqueline Goldrick Victor Gunn Mary Gunn Cynthia Hachez Mike Hachez Gary Halmstad Rayna Hamm John R. Hiltenbrand, Jr. George R. Horner Joann Horner George L. Horner Judith Horner Horner Trust Russ Johnson Becky Johnson R

Citation: 229 F.3d 750Docket: 98-36091

Court: Court of Appeals for the Ninth Circuit; October 4, 2000; Federal Appellate Court

Narrative Opinion Summary

The case involves multiple creditors appealing against the trustee, Larry D. Compton, in the bankruptcy proceedings of Raejean Bonham and her associated corporations, World Plus, Inc. (WPI) and Atlantic Pacific Funding Corp. (APFC). At the heart of the dispute is the bankruptcy court's order for the substantive consolidation of these entities with Bonham's estate following the unearthing of a Ponzi scheme operated by Bonham. The Ninth Circuit reviewed whether such consolidation was permissible and final under the bankruptcy code, ultimately affirming its legitimacy based on the equitable powers of the bankruptcy courts. The appellate court held that the consolidation order was final and appealable, reversing the district court's ruling of non-finality. The consolidation was deemed necessary due to the commingling of assets between Bonham and the corporations, facilitating the trustee's ability to pursue avoidance actions against investors who had benefited from fraudulent transfers. The court also addressed the timeliness of the appeals, clarifying that the lack of a separate judgment by the district court delayed the appeal period. The decision underscores the court's authority to ensure equitable distribution among creditors in complex bankruptcy cases.

Legal Issues Addressed

Appeal Timeliness and Separate Judgment Requirement

Application: The appeals were considered timely due to the district court's failure to issue a separate judgment, which delayed the start of the appeal period.

Reasoning: Appeals were deemed timely as they were filed 30 days post the district court's dismissal and remand order, with the clock for filing not starting until a separate judgment was entered, as established in McCalden v. Calif. Library Ass'n.

Equitable Powers of Bankruptcy Courts

Application: The court affirmed that bankruptcy courts possess the equitable power to order substantive consolidation, derived from general equity powers under Section 105 of the Bankruptcy Code.

Reasoning: Substantive consolidation, while not explicitly codified in the Bankruptcy Reform Acts of 1978 or 1994, is recognized by courts and bankruptcy rules as a valid practice, derived from the general equity powers of bankruptcy courts under Section 105 of the Bankruptcy Code.

Jurisdiction and Finality of Substantive Consolidation Orders

Application: The court concluded that substantive consolidation orders are final and appealable under § 158(a) as they significantly impact the rights of the parties involved.

Reasoning: Following the precedent of these sister circuits, it is concluded that substantive consolidation orders are indeed final and appealable under § 158(a). Such orders significantly impact the rights of the parties involved, as they influence the distribution of assets and liabilities among creditors, making them more than mere procedural tools.

Nunc Pro Tunc Substantive Consolidation

Application: The court supported the bankruptcy court's decision to order substantive consolidation nunc pro tunc, allowing the trustee to pursue avoidance actions for fraudulent transfers made prior to the consolidation order.

Reasoning: The court emphasized that denying Compton's avoidance powers would defeat the purpose of consolidation. The bankruptcy court acted correctly by ordering substantive consolidation nunc pro tunc, as without it, the trustee would be barred from seeking to avoid fraudulent transfers made before the consolidation order.

Substantive Consolidation in Bankruptcy

Application: The court addressed the issue of whether a bankruptcy court can order substantive consolidation of two non-debtor corporations with the bankruptcy estate of a Chapter 7 debtor.

Reasoning: The U.S. Court of Appeals for the Ninth Circuit addressed the issue of whether a bankruptcy court can order substantive consolidation of two non-debtor corporations, World Plus, Inc. (WPI) and Atlantic Pacific Funding Corporation (APFC), with the bankruptcy estate of Chapter 7 debtor Raejean Bonham, effective as of the filing date of the involuntary Chapter 7 petition.