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Factors for bankruptcy court to consider when deciding whether to transfer venue of bankruptcy case to another judicial district on interests-of-justice theory include whether transferring venue will promote efficient administration of bankruptcy estate, judicial economy, timeliness, and fairness. Interests of justice compelled change of venue of Chapter 11 cases filed by individual debtor and his wholly-owned limited liability company (LLC) from state of Ohio where they were currently pending, based on debtors' status as affiliates of Ohio debtor, to Florida, as state in which debtors' principal creditors were located, where key lawsuits involving debtors were pending, and where key parties and witnesses were located, where both cases were still in their early stages and there would be no significant learning curve for judge in transferee court, and where neither the individual debtor, a citizen of Australia, nor LLC, which was not organized in Ohio and whose property had been reduced to money in trust account and potential avoidance actions, had any significant connection with Ohio and had apparently filed for bankruptcy there chiefly as litigation tactic, in attempt to punish their principal creditors.
ii. In re SK Foods, LP, 499 B.R. 809 (Bankr. E.D. Calif 2013)
Issue: Chapter 11 trustee brought adversary proceeding in which it sought, inter alia, substantive consolidation of related entities with estates of corporate debtor and debtor-limited partnership. Trustee moved for default judgment, or, alternatively, for summary judgment on claim for substantive consolidation.
Holdings: The Bankruptcy Court, Robert S. Bardwil, J., held that substantive consolidation based upon entanglement of debtor's affairs is justified where the time and expense necessary even to attempt to unscramble debtor's affairs is so substantial as to threaten the realization of any net assets for all the creditors, or where no accurate identification and allocation of assets is possible; one or the other circumstance, great expense or impossibility, is sufficient, and it is not necessary to establish both. In this case, substantive consolidation of related entities with estates of Chapter 11 debtors was warranted on ground that affairs of debtors and related entities were so entangled that consolidation would benefit all creditors, where it was impossible to identify accurately and segregate assets of debtors and related entities, which engaged in thousands of prepetition intercompany transactions but did not keep adequate records from which nature and purpose of transactions could be ascertained, thereby preventing determination of respective assets and liabilities of debtors and related entities, related entities were mere alter egos of debtors under California law, such that debtors' creditors had claims against related entities, and consolidation would promote fairness to creditors and cost savings. Under California law, related entities were alter egos of corporation and limited partnership, where owners of corporation and partnership, as well as related entities, shared common management under ultimate control of single individual, related entities were undercapitalized, related entities did business almost exclusively with, and shared assets with, corporation and partnership and other affiliated entities, corporation and partnership essentially served as "bank" for related entities and
©2014 William L. Norton III
