Luxury Jewels, LLC v. Akers (In re Aroonsakool)

No. SC-13-1206-JuKuPa (9th Cir. BAP March 28, 2014)
Affirms the bankruptcy court's order for substantive consolidation nunc pro tunc to the debtors' petition date.
Procedural context:
The Chapter 7 trustee filed a motion to substantively consolidate the debtors' estate with two non-debtor entities.
Debtors operated a jewelry business named TE. No evidence in the record showed that TE held formal meetings, took minutes, conducted an election of officers, that it was ever capitalized by debtors or their children all of whom were members, or that the debtors or their children were paid as employees when they "helped out." Twenty days prior the debtors' petition date, Lox, a close acquaintance of debtors who had recently formed and was the sole owner and managing member of LJ, was added to the lease for the TE store. LJ occupied the same space as TE, engaged in the same business as TE, used the same equipment and business forms as TE. The same family members of debtors who worked at TE worked at LJ. Debtors' bankruptcy attorneys were paid out of LJ accounts. LJ did not identify or segregate its own inventory from that of debtors/TE. Furthermore, even the inventory Lox provided to LJ was from another business in which one of the debtors had a 50% ownership stake and likely funded entirely.
Jury, Kurtz, and Pappas.

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