In re Cam Recycling & Materials, Inc., Case No. 09-25303-mdm (Bankr. E.D. Wis. 4/6/2010), Case No. 09-25303-mdm.
| Decision Date | 06 April 2010 |
| Docket Number | Case No. 09-25303-mdm. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
| Parties | In re: CAM RECYCLING & MATERIALS, INC., Chapter 7, Debtor. |
The debtor, CAM Recycling & Materials, Inc., filed a chapter 11 petition on April 18, 2009, and the case was converted to chapter 7 on September 22, 2009. The debtor's majority owner and president, Heidi Brandt, filed a proof of claim for $199,854.19 and the debtor's former employee, Mike Brandt, filed a proof of claim for $152,287.61. Joe's Crushing, LLC — the landlord of certain premises formerly leased to the debtor, the lessor of certain equipment leased to the debtor, and the minority owner and major creditor of the debtor — objected to both claims.
Evidentiary hearings were held on December 7, 2009, and December 18, 2009, and the parties submitted briefs on their respective positions. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B), and the Court has jurisdiction under 28 U.S.C. § 1334. This decision constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.
In 2005 Heidi Brandt formed the debtor, CAM Recycling & Materials, Inc., primarily for the purpose of recycling and disposing of concrete and asphalt. In January 2007, Joseph Tate formed Joe's Crushing, LLC, as an angel investor to the debtor and in turn was given a 40% interest in CAM. As part of its investment, Joe's Crushing purchased equipment and real estate at auction from the secured lender of Heidi Brandt's defunct business, HMB Contractors, Inc., and a crusher from a third party, for a total of $2,000,000. Joe's Crushing then leased the equipment and real estate to the debtor, as well as provided a line of credit to the debtor. The debtor was able to make only a few payments on the real estate lease and none on the equipment leases.
From 2007 until the filing of the bankruptcy, Heidi Brandt worked between 40 and 60 hours per week for CAM Recycling. She performed administrative duties for CAM and managed the debtor's payroll, employees, bidding, contracts, and projects. Mike Brandt, Heidi's spouse, solicited business and provided supervisory services for CAM Recycling.
Heidi Brandt's claim is described in the attachment to the proof of claim as follows:
1. Salary — Heidi Brandt's salary claim is based on her course of dealing with her partner, Joseph Tate, as memorialized in a spreadsheet prepared by Ed Scaro (upon information and belief prepared at the direction of Joseph Tate). In that spreadsheet, it is indicated that Heidi Brandt is assumed to have a $75,000 salary. The claim is based upon the uncollected salary from May 2007 (the reference in the spreadsheet) to September 21, 2009 (the date of the conversion hearing). The total salary claim is $179,250.
2. Money loaned to CAM: As indicated in the Chapter 11 petition, Heidi Brandt loaned CAM $604.19. Documentation for this is in possession of CAM, and Ms. Brandt has been unable to access it as of the time of this filing.
3. Property Loaned to CAM: Heidi and Mike Brandt loaned property to CAM during its operation [list attached, plus two servers and battery backup] and whose total value is estimated at $20,000. Note: because the Brandts have been married since 1997 for purposes of this claim and for simplicity they are considering it all marital property (even though[] there are some exceptions — to the extent the court wants the claim separated, the Brandts are willing to attempt to do so; in other words, there is overlap between the two claims, which is why the appropriate box is checked on the Proof of Claim form.
(Amended Proof of Claim No. 12, p. 3).
Similarly, Mike Brandt's claim is described in the attachment to the proof of claim as follows:
1. Salary — Mike Brandt's salary is based on his course of dealings with Heidi Brandt and her partner, Joseph Tate, as memorialized in a spreadsheet prepared by Ed Scaro (upon information and belief prepared at the direction of Joseph Tate). In that spreadsheet, it is indicated that Mike Brandt is assumed to have a $55,000 salary. The claim is based upon the uncollected salary from May 2007 (the reference in the spreadsheet) to September 21, 2009 (the date of the conversion hearing). The total salary claim is $131,450.
2. Money loaned to CAM: As indicated in the Chapter 11 petition, [Mike] Brandt loaned CAM $837.61. Documentation for this is in possession of CAM, and [Mr.] Brandt has been unable to access it as of the time of this filing.
3. Property Loaned to CAM: Heidi and Mike Brandt loaned property to CAM during its operation [list attached, plus two servers and battery backup] and whose total value is estimated at $20,000. Note: because the Brandts have been married since 1997 for purposes of this claim and for simplicity they are considering it all marital property (even though[] there are some exceptions — to the extent the court wants the claim separated, the Brandts are willing to attempt to do so; in other words, there is overlap between the two claims, which is why the appropriate box is checked on the Proof of Claim form.
(Amended Proof of Claim No. 13, p. 3).
On August 13, 2007, Heidi Brandt, Mike Brandt and Joe Tate all signed a written Memorandum of Understanding regarding the development of a new venture. The agreement provided, in relevant part:
The purpose of this memorandum is to summarize the primary concepts of how the new demolition company (DEMOCO, official name to be determined [subsequently named Cream City Wrecking & Dismantling, LLC]) will work between the parties. Important issues for all participants needs to be outlined in this memorandum.
1. Joe Tate will invest up to $650,000 towards the development of a new company, DEMOCO, which will focus on demolition work. This investment will consist of a maximum of $550,000 towards equipment and $100,000 for a line of credit.
2. DEMOCO will be managed by Joe Tate, Mike Brandt and Ed Scaro.
3. DEMOCO will be a separate entity owned through Joe Tate. This company will purchase the equipment necessary for DEMOCO to operate per the equipment list developed jointly by Heidi, Mike, Ed and Joe. After 2 years of successful operation — DEMOCO may wish to own — Price × .08 for 5 years.
4. DEMOCO will utilize LCD and CAM as much as possible in bidding all work projects. ...
6. Heidi Brandt will continue to facilitate the development of CAM. Get $1,000.00 per month to CAM for Heidi.
7. Mike Brandt will be the primary manager of DEMOCO and CAM. Mike will coordinate, manage and market all projects for DEMOCO. Mike will meet on a weekly basis (at a minimum) with Ed Scaro to coordinate development of DEMOCO and CAM. Weekly meetings regarding CAM will include Roger (who will be the on-site manager for CAM) and Heidi (owner).
8. Mike and Heidi Brandt will be paid $80,000 per year (on a combined basis, exact breakout for each to be determined) ($68,000 Mike DEMOCO, $12,000 Heidi CAM). This compensation is for Mike's day to day management of CAM and DEMOCO and Heidi's needed consulting time for each entity. Mike will be eligible for a possible year end bonus based on DEMOCO meeting the projections developed by Heidi. If the projection of $148,500 in net income is achieved, Mike will receive a $20,000 year end bonus. Compensation will be reviewed annually, starting December 31, 2007. ...
(Exh. JC10, Memorandum of Understanding, August 13, 2007).
As is set forth above, it was initially agreed by the Brandts and Joe Tate that Cream City Wrecking would pay the Brandts annual compensation of $80,000, with $68,000 paid to Mike and $12,000 paid to Heidi. (Exh. JC10, ¶ 8). Subsequently, the parties agreed that Cream City would pay the entire $80,000 in compensation to Mike. Heidi Brandt, Mike Brandt, Joe Tate and Ed Scaro, a special project manager for various companies related to Joe Tate, later met to discuss modifications to the Brandts' compensation. At or around that time, Heidi suggested her salary should be $75,000 per year and Mike's should be $55,000 per year, and those figures were noted by Mr. Tate in the debtor's adjusted profit and loss summary for May 2007. (Exh. JC8).
Ms. Brandt never actually received any compensation from CAM Recycling. According to Ms. Brandt, the Memorandum of Understanding was not a final agreement between the parties regarding the compensation of Mike and herself. On the other hand, Mr. Tate thought the issue regarding the Brandts' compensation had been fully and finally resolved by the written Memorandum of Understanding (Exh. JC10). Messrs. Tate and Scaro both testified that Cream City paid the Brandts on the debtor's behalf for the Brandts' services to the debtor because the debtor did not have any resources to do so. Mr. Brandt's pay statements from Cream City disclose that he received salary based on $80,000 per year up until the time his employment was terminated.
According to Mr. Tate, after the Brandts' personal guarantees to Mr. Tate and/or entities owned by him were discharged in the Brandts' individual bankruptcy in 2008, the parties' attempts to negotiate a different agreement were unsuccessful. Mr. Brandt's employment with Cream City was terminated shortly thereafter.
The Brandts argue Mike is entitled to receive annual compensation of $55,000 for services rendered as an employee of the debtor, and Heidi is entitled to annual compensation of $75,000, as an officer and employee of the debtor, under the doctrine of quantum meruit. See Linquest Ford, Inc. v. Middleton Motors, Inc., 557 F.3d 469 (7th Cir. 2009). As a corporate officer, Heidi obtained employee status by performing day to day functions of the business. See Continental Cas. Co. v. Industrial Comm'n, 26 Wis. 2d 470, 132 N.W.2d 584 (1965). According to the Brandts, the written Memorandum of Understanding...
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