In re Mihranian

          Argued and Submitted August 13, 2019 Pasadena, California

          Appeal from the Ninth Circuit Bankruptcy Appellate Agency No. 17-1048 Panel Kurtz, Spraker, and Alston, Bankruptcy Judges, Presiding

          Robert M. Aronson (argued), Law Office of Robert M. Aronson APC, Los Angeles, California, for Appellant.

          David B. Golubchik (argued) and John-Patrick M. Fritz, Levene Neale Bender Yoo & Brill LLP, Los Angeles, California, for Appellees.

          Before: Mary M. Schroeder and Susan P. Graber, Circuit Judges, and Michael H. Watson, ^[*] District Judge.

         SUMMARY^[**]

         Bankruptcy

         The panel affirmed a decision of the Bankruptcy Appellate Panel affirming the bankruptcy court's denial of a Chapter 7 trustee's motion to substantively consolidate a debtor's estate with the estates of various non-debtors.

         The panel held that a party moving for substantive consolidation must give notice of the motion to creditors of a putative consolidated non-debtor. Because no such notice was given, the panel affirmed.

          OPINION

          WATSON, DISTRICT JUDGE

         Sam S. Leslie, the Chapter 7 Trustee, appeals the decision of the Bankruptcy Appellate Panel for the Ninth Circuit ("BAP") affirming the bankruptcy court's denial of a motion to substantively consolidate ("SubCon Motion") Debtor Mardiros Mihranian's estate with the estates of various non-debtors. We affirm.

         Beyond the Debtor, the pertinent parties in this case, whom we collectively refer to as the "Non-Debtors," include Debtor's ex-wife, Susan Chobanian; Debtor's and Susan's two sons, Michael and Haig Mihranian; Debtor's medical business, Medical Clinic and Surgical Specialties of Glendale, Inc. ("MCSSG"); and MCSSG's long-time office manager, Takouhie Bartamian. Two years after Debtor initiated his bankruptcy case, Trustee filed separate adversary actions to recover fraudulent transfers allegedly made to Susan, Haig, Michael, and Bartamian. Adv. No. 2:15-ap-01667-BR (Susan); Adv. No. 2:15-ap-01668-BR (Haig); Adv. No. 2:15-ap-01666-BR (Michael); Adv. No. 2:15-ap-01665-BR (Bartamian). While the adversary actions were pending, Trustee filed the SubCon Motion in the bankruptcy action, seeking to substantively consolidate Debtor's estates with the estates of Susan, Haig, Michael, Bartamian, and MCSSG. Essentially, Trustee sought the same relief-recovery of Debtor's assets that allegedly were kept from judgment creditors through fraudulent transfers-in both the adversary actions and through the SubCon Motion. After permitting Trustee to amend the complaints in the adversary actions three times, the bankruptcy court granted the adversary defendants' motions to dismiss for failure to establish that Debtor was the initial transferor of the alleged fraudulent transfers, and those dismissals were upheld on appeal.

         Later, the bankruptcy court denied the SubCon Motion, providing its reasoning on the record at the hearing. During the hearing, the bankruptcy court asked Trustee's counsel several times whether he had given notice of the SubCon Motion to Non-Debtors' creditors. Additionally, the bankruptcy court concluded that the information Trustee needed to disentangle Debtor's assets from MCSSG's or Susan's assets was likely available through proper discovery, which Debtor had not sought to obtain until after the SubCon Motion was filed. Accordingly, the bankruptcy court concluded that Trustee had not proved that Debtor's assets were entangled with Non-Debtors' assets to such an extent as would justify substantive consolidation.

         Trustee appealed the denial to the BAP, which affirmed because Trustee failed to serve the SubCon Motion on Non-Debtors' creditors. Leslie v. Mihranian (In re Mihranian), No. CC-17-1048-KuSA, 2017 WL 6003345, at *1 (B.A.P. 9th Cir. Dec. 4, 2017). Trustee appeals to us, arguing that the law does not require a moving party to give notice of a SubCon Motion to a putative consolidated ...