In re: JAY P. CLARK v. JEREMY J. GUGINO, Chapter 7 Trustee

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: JAY P. CLARK,
Debtor,
______________________________
CLARK’S CRYSTAL SPRINGS
RANCH, LLC and CLARK FARMS
FAMILY TRUST,
Appellants,
v.
JEREMY J. GUGINO, Chapter 7 Trustee,
Appellee.
No. 16-60025
BAP No. 15-1010
MEMORANDUM*
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Jury, Kirscher, and Faris, Bankruptcy Judges, Presiding
Submitted July 10, 2017**
Portland, Oregon
FILED
JUL 12 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
* 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).

-- 1 of 3 --

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.

-- 2 of 3 --

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.

-- 3 of 3 --