In Re: Lisanti Foods , 241 F. App'x 1 ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
8-2-2007
In Re: Lisanti Foods
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-3912
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007
Recommended Citation
"In Re: Lisanti Foods " (2007). 2007 Decisions. Paper 634.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/634
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-3912
IN RE: LISANTI FOODS INC.;
LISANTI FOODS OF TEXAS, INC.;
LISANTI FOODS OF ARIZONA, INC.
JOSEPH M. LISANTI, JR.; ROSEMARIE LISANTI; LISANTI REALTY OF
ARIZONA, INC.; LISANTI REALTY CORP; LISANTI ENTERPRISES, LLC; TEXAS
TRUCKING CORP.; JL TRUCKING, LLC; NEW JERSEY TRUCKING CORP.;
ARIZONA FREIGHT HAULERS, INC.,
Appellants.
On Appeal from the United States District Court
for the District of New Jersey
(04-cv-03868)
District Judge: Honorable John C. Lifland
Submitted pursuant to Third Circuit LAR 34.1(a)
June 28, 2007
Before: BARRY, FUENTES and GARTH, Circuit Judges.
(Filed: August 2, 2007)
OPINION OF THE COURT
FUENTES, Circuit Judge.
In this bankruptcy appeal, appellants argue that the Bankruptcy Court erred in
“substantively consolidating” three debtors in confirming a bankruptcy plan. Applying
the standard laid out in In re: Morfesis, 270 B.R. 28 (Bankr. D.N.J. 2001), the Bankruptcy
Court concluded that the debtors could be consolidated on account of their “substantial
identity.” The District Court affirmed. After we decided In re: Owens Corning, 419 F.3d
195 (3d Cir. 2005), articulating our standard for substantive consolidation, the District
Court reconsidered the issue, and concluded that consolidation was still appropriate. We
will affirm.
I.
Substantive consolidation is a “construct of federal common law” that “‘treats
separate legal entities as if they were merged into a single survivor with all the cumulative
assets and liabilities.’” Owens Corning, 419 F.3d at 205 (quoting Genesis Health
Ventures, Inc. v. Stapleton (In re Genesis Health Ventures, Inc.), 402 F.3d 416, 423 (3d
Cir. 2005)). In this case, the Bankruptcy Court confirmed a liquidation plan proposing to
substantively consolidate three debtors (former wholesale distributors of Italian specialty
-2-
food products) into a single entity for subsequent distribution to creditors. (A-108) In
approving consolidation, the Court considered, inter alia, “whether there is a substantial
identity between the entities to be consolidated.” (A-604)1
In making its determination, the Court heard testimony from two witnesses, which,
in the Court’s view, established substantial identity among the debtors. Specifically,
these witnesses testified that “all three debtors have the same officers, same directors and
shareholders. They conducted the same general business operations under very similar
names. . . . [I]ntercompany dealings were done without the usual corporate formalities. . .
. [Moreover,] the debtors did not charge each other for all services which they rendered to
one another” (A-604) and they were “moving profits between and among the debtors.”
(A-605) The witnesses also testified that “for the purposes of . . . secured lending, the
debtors were viewed as a single entity,” and that “the unsecured creditors likewise viewed
the debtors as a single entity when extending credit terms.” (A-605-06) Relying on this
testimony, the Bankruptcy Court held that, “through the witnesses, the proponents have
established that both debtors and creditors viewed the debtors as a single enterprise.” (A-
606 (emphasis added))
II.
In this appeal, appellants challenge whether the Bankruptcy Court’s findings are
1
The Court also considered whether consolidation would benefit or harm
creditors, concluding that the benefits of consolidation would heavily outweigh any harm
to a creditor.
-3-
sufficient to support substantive consolidation under the standard articulated in In re:
Owens Corning, 419 F.3d 195 (3d Cir. 2005), a decision we announced after the
Bankruptcy Court rendered its decision. Under Owens Corning, a proponent of
substantive consolidation must demonstrate one of two rationales for its application:
“that (i) prepetition [the entities for whom substantive consolidation is sought]
disregarded separateness so significantly their creditors relied on the breakdown of entity
borders and treated them as one legal entity, or (ii) postpetition their assets and liabilities
are so scrambled that separating them is prohibitive and hurts all creditors.” 419 F.3d at
211.
The application of Owens Corning was directly at issue before the District Court,
which, in a thorough and carefully reasoned opinion, concluded that “the evidence
presented in the bankruptcy hearings . . . provides ample support for granting substantive
consolidation under the first prong (creditor reliance on pre-petition disregard of
separateness) of the newly articulated Owens Corning standard.” (SA20-21) We fully
agree with this conclusion. The findings of the Bankruptcy Court, which may only be
disturbed if clearly erroneous, In re: Am. Pad & Paper Co., 478 F.3d 546, 551 (3d Cir.
2007), comfortably support a conclusion that the “creditors relied on the breakdown of
entity borders and treated them as one legal entity,” Owens Corning, 419 F.3d at 211. As
the District Court recognized, “[a]lthough the Bankruptcy Court used creditors’ reliance
on Debtor unity as evidence of ‘substantial identity,’ it also speaks directly to, and
-4-
satisfies, the first prong of the Owens Corning test.” (SA21)
Therefore, and for substantially the reasons set forth in the District Court’s
opinion, we will affirm.
-5-