In re LLS America, LLC

Doris Nelson started a payday-loan store called the Little Loan Shoppe and turned the business into a Ponzi scheme. Doris raised approximately $135 million from some 650 investors called “lenders” (creditors) by promising 40 to 60 percent returns. Doris split the business into dozens of entities including LLS America, LLC, and D&D and Associates, LLC (D&D) (debtors), which later filed separate bankruptcies. Other entities Doris created included Team Spirit America, LLC (TSA), and 10 others. Doris’s husband, Dennis Nelson, owned D&D, which purchased a building where LLS America and TSA leased offices. To finance the purchase and renovation, Doris withdrew funds from LLS America and TSA, then loaned it to D&D. Nelson shuffled funds freely among her businesses without keeping records as to which businesses had which investors’ money. Many investors actually authorized the shuffling in promissory notes that said Little Loan Shoppe America, LLC, could use the money in LLS America or “any other company that may be established from time to time,” specifying those companies would not automatically incur liability for the notes. When LLS America and D&D filed bankruptcy, sorting out which creditors could recover from which entities proved impossible. Meanwhile, some creditors sued D&D in state court, which found D&D was Doris’s agent or partner and thus responsible for repaying loans she made using LLS America and TSA funds. The bankruptcy trustee for LLS America moved to consolidate it with D&D and 11 non-debtor entities identified as possibly receiving the creditors’ money. After reviewing the state-court findings and the examiner’s report, the bankruptcy court substantively consolidated the two debtors and 11 nondebtors into one entity for the purposes of distributing their assets to creditors. LLS America and TSA appealed.