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United States Bankruptcy Court for the Western District of Oklahoma
May 3, 2017, Decided
Case No. 15-12215-JDL, Ch. 7, Jointly Administered, ADV No. 16-1117-JDL
[*462] MEMORANDUM OPINION AND ORDER GRANTING MOTION TO DISMISS
This matter comes on for consideration upon the Motion to Dismiss and Brief in Support filed by Intervenor, Kirkpatrick Bank ("Kirkpatrick"), on January 29, 2017 (the "Motion") [Doc. 104], the Response to Motion to Dismiss and Brief in Support filed by SE Property Holdings, LLC ("SEPH") on February 13, 2017 ("Response") [Doc. 118], the Reply filed by Kirkpatrick on March 5, 2017 (the "Reply") [Doc. 130], and SEPH's Sur-Reply Brief Addressing Article III Jurisdiction Issue filed April 13, 2017 [Doc. 140].
David A. Stewart and Terry P. Stewart (individually and collectively referred to as the "Stewarts") are the debtors in these related cases which are jointly administered. By this adversary proceeding SEPH seeks to add nine (9) non-debtor entities (the "Non- Debtors") to the cases relying upon the theory of substantive consolidation. These are nine (9) entities in which Stewart acts in a managerial capacity, holds, or at one time held, an interest, or in the case of a Trust held an interest in the trust res.1 By [**3] its Motion, Kirkpatrick argues that the Complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim because substantive consolidation is not an appropriate cause of action against non-debtor entities. Kirkpatrick contends that (1) the Court cannot invoke its equitable powers under 11 U.S.C. § 105 to establish jurisdiction over a non-debtor entity not in bankruptcy, (2) SEPH as a non-creditor of the Non-Debtors does not have standing to force their assets into Stewarts' bankruptcy estate and (3) SEPH's failure to join indispensable parties, i.e. creditors of the Non-Debtors, constitutes a denial of due process to such creditors [*463] compelling dismissal.2
In response to Kirkpatrick's Motion, SEPH contends that (1) substantive consolidation is within the equitable powers of the court under §1053 where the assets of management of the Non-Debtors are so intermingled that the Non-Debtors are to be regarded as the alter ego of the Stewarts, (2) that an individual creditor, not only the Chapter 7 trustee, has standing to bring the Non-Debtors before the Court to effectuate a consolidation, (3) that Oklahoma law providing for a "charging order" to recover the interest of a limited liability company member does [**4] not prohibit a creditor's remedy of substantive consolidation for the "pooling" of the assets of the alleged alter ego entity and (4) at this early stage of the adversary proceeding creditors of the Non-Debtors are not indispensable parties requiring dismissal of the case. Pursuant to Federal Rule of Bankruptcy Procedure 7052, the Court makes the following findings of fact and conclusions of law which support its determination that Kirkpatrick's Motion should be granted.
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571 B.R. 460 *; 2017 Bankr. LEXIS 1225 **; 64 Bankr. Ct. Dec. 17
In re: DAVID A. STEWART and TERRY P. STEWART, Debtors.SE PROPERTY HOLDINGS, LLC, Plaintiff, v. DAVID A. STEWART, TERRY P. STEWART, et al., Defendants, KIRKPATRICK BANK, Intervenor.
Prior History: SE Prop. Holdings, LLC v. Stewart (In re Stewart), 2017 Bankr. LEXIS 878 (Bankr. W.D. Okla., Mar. 29, 2017)
consolidation, entities, Non-Debtors, allegations, equitable, fraudulent transfer, transfers, Abandon, motion to dismiss, bankruptcy court, courts, notice, cases, parties, due process, grounds, individual creditor, general creditor, sufficient facts, alter ego, post-petition, pre-petition
Bankruptcy Law, Commencement of Case, Joint Cases, Consolidation, Procedural Matters, Jurisdiction, Core Proceedings, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pleadings, Complaints, Requirements for Complaint, Bankruptcy, Case Administration, Bankruptcy Court Powers