In re S & G Financial Services of South Florida, Inc.

S & G Financial Services of South Florida, Inc. (SGFS) (debtor) made short-term mortgage loans that were financed by investors. In March 2009, an SGFS investor obtained a judgment against SGFS and caused writs of garnishment to be served on two banks, freezing SGFS’s accounts at those banks. SGFS’s sole officer, director, and shareholder, Jorge Galceran, subsequently opened an account at another bank in the name of S & G Financial Services, LLC (S&G) (defendant) and began depositing checks payable to SGFS into the S&G account. Galceran also instructed some of SGFS’s mortgagors to make checks payable to Merrick Financial Group, LLC (Merrick) (defendant), another entity managed by Galceran, to get around the writs of garnishment. SGFS subsequently filed a Chapter 7 bankruptcy petition, and Chapter 7 trustee Soneet Kapila (plaintiff) commenced an adversary proceeding against S&G and Merrick, seeking to substantively consolidate those entities with SGFS for purposes of the bankruptcy case. Kapila asserted that Galceran was the sole shareholder of S&G and Merrick and that the entities’ assets were so intermingled with SGFS’s assets that equity required consolidation. S&G and Merrick moved to dismiss, asserting that consolidation was inappropriate because S&G and Merrick were not debtors. S&G and Merrick also argued that involuntary bankruptcy petitions or fraudulent-transfer-avoidance actions could be filed against S&G and Merrick in lieu of consolidation.