Bich v. WW3 LLC

• Decision Date: 30 December 2022
• Docket Number: 20-C-1016
• Parties: CHARLES BICH and BRUNO BICH TRUST, Plaintiffs, v. WW3 LLC and CURT D. WALDVOGEL, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

CHARLES BICH and BRUNO BICH TRUST, Plaintiffs,
v.
WW3 LLC and CURT D. WALDVOGEL, Defendants.

No. 20-C-1016

United States District Court, E.D. Wisconsin

December 30, 2022

DECISION AND ORDER

WILLIAM C. GRIESBACH, UNITED STATES DISTRICT JUDGE

This case arises out of a failed investment in an oil waste management treatment facility that was intended to service the oilfields in the Bakken formation in western North Dakota. The planned facility was the brainchild of Defendant Curt D. Waldvogel, who purchased the property on which the facility was to be built. Plaintiffs Charles Bich and Bruno Bich Trust made a series of investments in the planned operation totaling close to $1.8 million. The plaintiffs' investments were, for the most part, in the form of multiple loans given in return for notes issued by Branch Energy and Environmental Services, LLC (Branch), a Delaware limited liability company that was set up as the holding company for the waste management facility. Under the terms of the notes issued by Branch, the plaintiffs were given the option to convert their loans into an equity stake in Branch and thereby share in the profits. Despite the plaintiffs' substantial investment, Branch never became profitable, and the facility was leased to a third party and ultimately sold by Defendant WW3, a limited liability company Waldvogel owned and operated. None of the money

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realized from the lease or sale of the property was used to repay the plaintiffs' loans. The plaintiffs brought this action against Waldvogel and WW3 in an effort to recover their investment/loans.

The complaint asserts multiple state law claims against Waldvogel and WW3, including breach of contract, breach of the covenant of good faith and fair dealing, quantum meruit, unjust enrichment, conversion, and statutory theft. It also includes a claim for piercing the corporate veil between Waldvogel and WW3. The court has jurisdiction under 28 U.S.C. § 1332. Before the court are the parties' cross-motions for summary judgment. For the following reasons, both motions will be granted in part.

BACKGROUND

Waldvogel, a citizen of the State of Wisconsin, is the sole owner and operator of WW3, a Wisconsin limited liability company with its principal place of business located in Antigo, Wisconsin. Pls.' Proposed Findings of Fact (PPFOF) ¶¶ 6-7, Dkt. No. 27. On June 9, 2014, after discussing his plan with some of his associates-Jerry Campbell, Brian Bruns, and Al Markegard-Waldvogel purchased real property on the Fort Berthold Reservation in North Dakota (the Property) to serve as the location for a new oilfield waste management facility (the Facility). Id. at ¶¶ 13, 17-18. Waldvogel paid $300,000 for the Property. The Property was vacant at the time of the purchase, and Waldvogel sought out investors for the capital to construct and operate the Facility on the newly purchased Property. Id. at ¶¶ 19, 22. To that end, Waldvogel approached Plaintiff Charles Bich, a citizen of the State of New York, in the summer of 2014 to discuss his possible investment in the project. Id. at ¶¶ 1, 23.

Waldvogel told Bich that (1) the Facility would be the first and only transportation, reclamation, and disposal facility allowed to operate on the Fort Berthold Reservation; (2) all oil waste originating from reservation lands would be exclusively processed by the Facility; and (3)

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any permitting for the Facility and operator would be negligible. Id. at ¶ 26. Waldvogel further represented that his two partners, Bruns and Campbell, would each serve as officers for the new venture and would be actively involved in the management and operation of the Facility. Id. at ¶ 27. Bich asserts that Waldvogel promised him and other investors that, “regardless of the ultimate success of the venture, any investment made by them would be backed by the Property and facility that would subsequently be built on the Property.” Id. at ¶ 30. The asserted promise was never reduced to a written contract, and the defendants deny that such a promise was ever made. Resp. to PPFOF ¶ 30, Dkt. No. 36. Bich asserts that this promise made the opportunity appealing to him, and that, but for the promise, he would not have invested in the Facility. PPFOF ¶ 36.

Bich agreed to invest in the project through a series of convertible notes issued by the ultimate holding company of the operation. Id. at ¶ 37. That company, Branch, served as the holding company for Mandaree Project, LLC, the Facility's operating company. Id. at ¶¶ 38-40. After the creation of these entities, Bich consulted his father, Bruno Bich, also of New York, about investing in the project on the same terms. Bruno Bich authorized investments in the project through Bruno Bich Trust (BBT), which is organized under the laws of Delaware, where the trust is located. Id. at ¶¶ 45-46. Shortly thereafter, on September 28, 2014, Bich loaned Branch $250,000. Id. at ¶ 50.

On October 1, 2014, Waldvogel transferred ownership of the Property to WW3. Id. at ¶ 51. The following months saw a flurry of investment activity from Bich and BBT: (1) on October 10, 2014, Bich loaned Branch an additional $250,000; (2) on November 11, 2014, Bich loaned Branch an additional $125,000; and (3) in December 2014, BBT loaned Branch $625,000. Id. at ¶¶ 53

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55. Using these funds, the parties constructed a state-of-the-art oilfield waste management facility. Id. at ¶ 56.

Unfortunately, Branch and Mandaree did not perform as expected. It turned out that the Facility was not an exclusive servicer for oil waste originating from the reservation and that many customers refused to utilize the Facility because it did not have the proper permits. Id. at ¶ 58. By the middle of 2015, Branch was in need of additional capital, leading Waldvogel to contact Bich. Id. at ¶ 59. Bich and BBT each loaned Branch an additional $175,000 to keep the project afloat. Id. at ¶ 60. Around the same time, the parties were in the process of executing a lease of the Property between WW3 and Branch/Mandaree. Id. at ¶ 63. In an email to Bich with the subject line “land lease” and a date of April 1, 2015, Waldvogel wrote, “Charles[:] This is the start of what I have. Know there's more needed. Add as you think needed.” Dkt. No. 30-1 at 95. The email then provided the following:

Branch Energy - Land Lease/Purchase Agreement

1. Curt Waldvogel will lease 20 acre property to Branch Energy for 50.00/acre annually

2. Branch Energy will purchase the Property from at a time that suits Branch. Land purchase will be set at total costs Curt has into property plus 10% annual interest.

3. In the event of a land sale, Curt and Branch investor(s) will recapture investment first. Monies in excess of that will be distributed to owners of Branch based on their percentage ownership at time of sale.

Id. at 96; PPFOF ¶ 64.

Despite this second round of cash infusion, Branch and Mandaree continued to perform poorly throughout 2015. PPFOF ¶ 65. Still, Bich continued to loan money to Waldvogel. Indeed, when Branch required equipment, including a centrifuge and effluent tank, Bich loaned Waldvogel $30,000 by wiring it to WW3's bank account. Id. at ¶¶ 67, 70. Even with the purchase of

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additional equipment, Branch continued to falter, leading creditors to seek payment and file lawsuits. Id. at ¶ 72.

As things headed south, Bich emailed Waldvogel to discuss the Property. In the email, dated January 28, 2016, Bich stated:

We have discussed many times that we need to put our agreement in writing. As we provided the vast majority of the funding to build the facility on your land owned through WW3 LLC. The money was placed in the operating company as we thought it best to keep the land in a separate LLC for liability reasons. If there is a need to shut down branch energy or mandaree project we will still be partners on anything done with the land. We have discussed possibly leasing the land to an operator and we would split the rent based on each person's capital contribution including what you paid for the land. When we have all recovered our capital we can split the rent differently. Please let me know what else you would like in this agreement as we discussed that we would not need lawyers to draw up a contract but that we would have our agreement in writing.

Dkt. No. 30-1 at 100; PPFOF ¶ 75. In response, Waldvogel wrote:

I agree with this as we have spoke about this much in the past. The only thing that concerns me are the outstanding debts that are tied to either WW3, LLC or myself personally from the operations of Branch. All factors need considered when determining how/what we do to come out of this whole, if it comes to that. Needless to say, the people who put the capital in to get this built and keep operating will be first in line to get repaid, if at all possible.

Dkt. No. 30-1 at 100; PPFOF ¶ 76.

As 2016 progressed, the downturn continued. First, Bich and Waldvogel learned that Bruns had been irresponsibly handling Branch and Mandaree's money, leading to the removal of Bruns from his position as an officer of those entities. PPFOF ¶¶ 77-78. Second, by the middle of 2016, Waldvogel resigned from Branch and left the project altogether. Id. at ¶ 79. Soon thereafter, Waldvogel learned that the Property had been abandoned and left in a state of disrepair. Id. at ¶¶ 80-81. At this point, it became apparent that the project was a failure, and Bich and Waldvogel determined that it would be prudent to cease Branch and Mandaree's operations and

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explore leasing the Facility to a third party. Id. at ¶¶ 82-83. Around this time, Bich loaned Waldvogel an additional $45,000. Id. at ¶ 86.

On February 1, 2017, WW3 entered into a lease agreement with Little Knife Disposal LLC for use of the Property. Id. at ¶ 87. Little Knife is a single-member LLC wholly owned by Shawn Kluver. Id. at ¶ 88. Under the terms of the lease...