In re: William Kenneth Reimer, Debtor.
Gene W. Doeling, as Bankruptcy Trustee, Plaintiff,
v.
William Kenneth Reimer, Defendant.
Bankruptcy No.: 18-30752
Adversary No.: 19-7072
UNITED STATES BANKRUPTCY COURT DISTRICT OF NORTH DAKOTA
April 26, 2021
Chapter 7
MEMORANDUM AND ORDER
Plaintiff Gene W. Doeling, Chapter 7 Bankruptcy Trustee, filed an Amended Adversary Complaint seeking denial of Debtor/Defendant William Kenneth Reimer's bankruptcy discharge under 11 U.S.C. § 727(a)(2), (4) and (6). Doc. 47. In his Answer, Debtor denied the Trustee is entitled to the relief he seeks.
The Court tried this adversary proceeding on February 2 and 3, 2021. At the close of evidence, the Trustee moved to amend his Complaint to conform to the evidence under Rule 15(b)(2) of the Federal Rules of Procedure made applicable in this proceeding by Rule 7015 of the Federal Rules of Bankruptcy Procedure. Specifically, the Trustee seeks to add a cause of action under 11 U.S.C. § 727(a)(5), alleging Debtor failed to satisfactorily explain the disposition of a $35,765 withdrawal from Debtor's bank account. Debtor opposed the motion, arguing it is untimely.
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This adversary action is a core proceeding under 28 U.S.C. § 157(b)(2)(I). The Court has jurisdiction under 28 U.S.C. §§ 1334 and 157, and it has authority to enter a final order in this matter. This opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
I. FACTS
A. General Background
Debtor is a 68-year-old man, who worked in the railroad maintenance and construction industry most of his adult life. Except for a brief period when he worked as a "roughneck" on an oil rig, Debtor worked for Burlington Northern Railroad or its predecessor for approximately 19 years, beginning at age 19.
In 1988, while he was still working for Burlington Northern Railroad, Debtor formed R & R Contracting, Inc. He owned a 100% interest in this corporation at all relevant times. R & R performed railroad construction, design and repair. R & R completed three or four projects in its first year of business. R & R's business increased in the next few years, prompting Debtor to resign his position with Burlington Northern Railroad in 1990 and work full time for R & R.
Although R & R began by performing work in the Grand Forks, North Dakota, area, it eventually contracted for projects in Minneapolis, Denver, St. Louis, Alabama, Texas, Canada and Chile. R & R completed various projects for grain facilities, oil refineries, plastic companies and railroad companies, such as Amtrak, Canadian Pacific and Burlington Northern Railroad. Debtor testified that at its height, R & R realized gross receipts of approximately $50 million.
In 2015, R & R suffered several financial setbacks. Although R & R's "operations were doing really well," Debtor claims R & R was in "financial distress" because two
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shortline railroads failed to make the payments required under their contracts with R & R. At trial, Debtor estimated that R & R "lost $8 million" as a result of these contracts, ultimately leading to its downfall. Although Debtor sold "a lot of his assets to keep R & R going," it was "impossible" for R & R to obtain financing because of the "big loss." Debtor testified that he received his last check from R & R in May 2018. R & R stopped doing business in the summer of 2018.
At trial, Debtor characterized himself as a "serial entrepreneur." Beginning in the late 1990s, Debtor invested in various business ventures. At one point, he owned four or five laundromats and other small businesses. For example, in 2015, Debtor owned an interest in Legendary Motorsports, LLC, also known as Legendary Cycles, LLC, which sold recreational vehicles, including motorcycles, four-wheelers and snowmobiles. Debtor was not involved in the day-to-day operation of Legendary. According to Debtor, poor general managers and a downturn in the motorcycle business caused him to lose several hundred thousand dollars in this business. Legendary's owners closed the store and sold all its assets in late July 2018.
As part of the liquidation process, Legendary sold everything, including inventory and shelving. At trial, Debtor testified that he did not know the details of these transactions, including net sale proceeds, claiming he was "paying bills as [the liquidation] went and was making sure everything was cleaned up, things like that. So what the final number is, I am not sure." Debtor deposited his share of the sale proceeds from Legendary's inventory and "other items" in an account held by Blue Sky
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Development and Leasing, LLC, a business in which Debtor owned a 100% interest.1 On August 1, 2018, Blue Sky transferred $148,633.77 into Debtor's personal bank account.2 See T-9. When asked about the source of this fund transfer, Debtor testified, "I would assume that [money] is the proceeds from the other items that were sold in the store."
R & R's financial difficulties prompted Debtor to sell Blue Sky's assets, including the building Legendary leased in Fargo, North Dakota. According to a settlement statement dated July 31, 2018, Blue Sky sold this building for $725,000. The settlement statement also reveals that, after paying its loan to Bank Forward in the sum of $708,725.15, taxes, fees and other sale-related expenses, Blue Sky received no proceeds from the sale of this real estate. See T-8.
Debtor's wife, Rhonda Reimer, is also a business owner. She is the sole owner of Allrail Services, LLC. Debtor's and Rhonda Reimer's son, Reed Reimer, is Allrail's President. Debtor purchased Allrail—a preexisting company with headquarters, equipment, and a job site in Chicago—as a gift for Rhonda Reimer in 2010. Rhonda Reimer testified that Debtor is not involved in Allrail.
Allrail and R & R shared office space, some in Grand Forks and some in Minneapolis. The two companies also shared the services of a certified public
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accountant, who performed accounting work for both businesses. At trial, Reimer testified that he knew that "R & R borrowed money from Allrail at certain times to cover certain costs." R & R employed both Debtor and Rhonda Reimer.
In May 2018, Rhonda Reimer's health and safety position at R & R ended, so she increased her involvement with Allrail. According to Rhonda Reimer, she could not find Allrail's corporate documents. Consequently, she signed new Articles of Organization on June 19, 2018, and submitted the documents necessary to register Allrail as a corporation in North Dakota, Illinois and Michigan in July and August 2018.3
Initially, Allrail performed a large portion of its work in Illinois. At the time Debtor petitioned for bankruptcy relief in December 2018, Allrail performed work under two contracts. Under a contract with Union Pacific Railroad, Allrail performed maintenance at Union Pacific Railroad's yard in Chicago. Pursuant to its contract with Kellogg Company, Allrail moved railroad cars in Michigan. Before Allrail received its contract with Kellogg, R & R performed this work under a contract with Kellogg.4 In the summer or early fall of 2019, the contract with Union Pacific terminated. Currently, Allrail's only "business" is with Kellogg. Although it has "worked in a loss" for "the last year or so," Rhonda Reimer draws an income from Allrail every year.
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B. Bankruptcy
In the summer of 2018, Debtor contacted the Vogel Law Firm about the possibility of petitioning for bankruptcy relief. In November or December 2018, Debtor gathered documents and began completing bankruptcy schedules. On December 21, 2018, Debtor petitioned for bankruptcy relief under Chapter 7 of the Bankruptcy Code. Debtor testified that his personal liability for business debt resulting from guaranties led to his decision to file the petition.
Debtor filed his original bankruptcy schedules on January 4, 2019. He estimated that the value of his assets totaled $2,715,558.49 and his liabilities to dozens of business and personal creditors totaled $12,757,479.73. T-1. Debtor signed the schedules, swearing that the information in them was true and accurate under penalty of perjury. On February 4, 2019, Debtor amended his bankruptcy schedules because "some things were brought to [his] attention that he forgot in the first place." See D-101. The Trustee conducted the meeting of creditors on February 8, 2019. Following the meeting of creditors, Debtor amended his schedules on March 20, 2019. D-104. Debtor made no further amendments to his bankruptcy schedules.
C. Transfers
1. Transfer of $2,000 to Reed Reimer on December 25, 2017
Approximately one year before his bankruptcy, Debtor gave $2,000 to his son, Reed Reimer, on December 25, 2017. Debtor did not list this transfer in his original bankruptcy schedules. See T-1. According to Debtor, the gift was for his granddaughter's college education, and his failure to include this gift on his original
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schedules was an oversight. He listed the $2,000 gift on his amended schedules filed on February 4, 2019. D-103.
2. Transfer of $6,500 to Rhonda Reimer on June 4, 2018
On June 4, 2018, Debtor transferred $6,500 to Rhonda Reimer to "fund her retirement." At trial, the Trustee asked Debtor if there was a "reason you were transferring thousands of dollars to your wife when your source of income was drying up?" Debtor responded, "I didn't think about why I was doing it, I just did it. I mean, it's just what you do, transfer money back and forth for retirement." Debtor listed this transfer in his original bankruptcy schedules.5 T-1.
3. Transfer of $37,868.77 to Rhonda Reimer on August 2, 2018
As discussed above, Debtor deposited $148,633.77 in proceeds from the sale of Legendary inventory and other property in Blue Sky's account and then transferred this sum to a Bank Forward account in his name only on August 1, 2018.6 T-9. One day later, Debtor transferred $37,868.77 from this account to Rhonda Reimer.7
According to Debtor, he originally...
