In re Raejean S. Bonham dba World Plus
Bankruptcy No. F95-00897
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U.S. District Judge James K. Singleton, Jr., the judge hearing the appeal by a number of the BRA defendants from Judge Ross' Order for Substantive Consolidation, has issued an order asking the BRA defendants to show cause why the appeal should not be dismissed as untimely. In effect, Judge Singleton proposes to have all of the BRA cases reach a final judgment before he would hear the appeals. A copy of his decision entered September 11, 1998 follows.
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In re |
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RAJEAN BONHAM et al., Debtors. |
) Case No. A98-0167 CV (JKS) |
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RICHARD K. ALFORD et al., Appellants, |
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LARRY D. COMPTON, TRUSTEE, Appellee. |
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This court has consolidated fourteen separate notices of appeal challenging a single order of Judge Ross of the Bankruptcy Court working a substantive consolidation of two non-debtor corporations, World Plus, Inc. and Atlantic Pacific Funding Corporation, with a Chapter 7 bankruptcy estate of the individual debtor, Raejean Bonham ("Bonham"). Essentially, Judge Ross found that Bonham had constructed a Ponzi scheme wherein she purportedly trafficked in airline frequent flier miles to defraud gullible investors. Like all Ponzi schemes, the success of the venture turned on compensating initial investors to get them to spread the word and this entrap subsequent investors. Judge Ross concluded that World Plus, Inc. and Atlantic Pacific Funding Corporation were simply vehicles Bonham used to perpetrate her fraud. Judge Ross further found that to nullify the Ponzi scheme effectively and assure that the overcompensated initial investors would share in the losses suffered by the investors defrauded later, all three organizations should be consolidated so that dividends paid out by the corporations to investors could be recaptured under the court's fraudulent conveyance powers. Understandably, the investors object to such consolidation and have brought these appeals.
The appellants ask this Court to accept an over-length brief. See Docket No. 19. The Court agrees that one brief is better than fourteen and will grant the motion. There is, however, a more significant problem with this case.
This Court's jurisdiction to hear appeals from the bankruptcy court is found in 28 U.S.C. §158(a), which in essence permits this Court to consider final orders, judgments, and decrees of the bankruptcy court or, on a discretionary basis, certain interlocutory orders. The Court recognizes that "finality" is more flexible in bankruptcy appeals than under the standards governing appeals and interlocutory appeals in non-bankruptcy matters under 28 U.S.C. §§1291 and 1292. See, e.g., In re Mason, 709 F.2d 1313, 1316 (9th Cir. 1983). Nevertheless, there are limitations. See In re Frontier Properties, 979 F.2d 1358, 1362-63 (9th Cir. 1992).
Clearly, consolidation of the three "Debtors" does not bring this convoluted and complicated case to an end. Further, it wold not appear that the "collateral order doctrine," see Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 547 (1949), would apply because there is no reason why an unhappy investor in one of the two corporations who was forced by the bankruptcy court to pay back dividends which the bankruptcy [court] considers to have been fraudulently obtained could not appeal and question consolidation at the same time he or she challenged the finding of fraudulent conveyance. Requiring the debtors to wait and bring one appeal would seem the most expeditious way to handle this appeal. See Catlin v. United States, 324 U.S. 229. 233-34 (1945). In addition, this Court doubts that this would be an appropriate case for an interlocutory appeal.
The propriety of substantive consolidation will turn in part upon testing Judge Ross's conclusion that the business of Bonham was fraud and that the various corporations were simply instrumentalities of that fraud. Rendering a determination on that issue will be far more appropriate on a developed record, a record that would consider the bankruptcy court's evidence of fraud in the transfers. See Mary Elizabeth Kors, Altered Egos: Deciphering Substantive Consolidation, U. Pitt. L. Rev. 381 (1998). In sum, there seems to be no good reason for entertaining an appeal at this juncture and very good reason for sending this matter back to Judge Ross so that Bonham's bankruptcy can be brought to a quick and hopefully fair resolution.
In reaching this conclusion, the Court has carefully considered the Ninth Circuit's so-called "pragmatic approach" that permits some otherwise interlocutory orders in bankruptcy courts to be deemed final when they "effectively determine the outcome of the case." See In re Frontier Properties, 979 F.2d at 1363 (citation omitted). Consolidation does not effectively determine the outcome of this case unless it is conceded tup front that significant fraudulent conveyances took place. In fact, it is impossible to meaningfully address the substantive consolidation issue without knowing whether Bonham's business was fraud and whether the two corporations consolidated into her bankruptcy were instruments of that fraud. See, e.g., In re New Life Health Ctr Co., 102 F.3d 428 (9th Cir. 1996). The Court recognizes that a number of district courts have, apparently in ignorance or disregard of §158, heard appeals from bankruptcy orders granting or denying substantive consolidation.The Court also recognizes that the Second Circuit, again without discussion of the finality rule, has permitted such an appeal. See In re Augie/Restivo Baking Co., Ltd., 850 F.2d 515 (2nd Cir. 1992); see also Federal Deposit Ins. Corp. v. Colonial Realty Co., 966 F.2d 57, 58-59 (2nd Ci. 1992). These decisions seem incompatible with the Ninth Circuit’s view of finality, including pramatic finality, in bankruptcy cases.
IT IS THEREFORE ORDERED:
The motion to accept an over-length brief (Docket No. 19) is GRANTED. Appellants are ordered to show cause in writing served and filed on or before September 28, 1998, why these appeals should not be dismissed for lack of finality and returned to the bankruptcy court so the Bonham bankruptcy may be brought to a final end and orders issued, which the parties can, should they wish to do so, appeal to this Court and thereafter to the Court of Appeals for the Ninth Court.
Dated at Anchorage, Alaska this 11th day of September, 1998.
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/s/ James K. Singleton, Jr. |
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