In re Kraus , Case No. 01-43609-7 (Bankr.Mont. 6/20/2008), Case No. 01-43609-7
| Decision Date | 20 June 2008 |
| Docket Number | Adv No. 07-00034.,Case No. 01-43609-7 |
| Court | U.S. Bankruptcy Court — District of Montana |
| Parties | In re KENNETH R KRAUS, and DONNA L KRAUS, Debtors. JAMES KRAUS, PATRICIA KRAUS, DEBRA PURTLE, and D-K RENTALS & CONTRACTING, INC., Plaintiffs v. KENNETH R KRAUS and DAVID J KRAUS, JR, Defendants. |
This adversary proceeding involves a family dispute1. Plaintiff Patricia Kraus ("Pat"), who is the mother of co-Plaintiff Debra Purtle ("Debra"), Debtor/Defendant Kenneth R. Kraus ("Ken") and Defendant David J. Kraus ("David"), seek judgment quieting title to approximately 45 acres of real property in Cascade County, Montana, on which Pat and Debra reside, and personal property, all of which is owned in the name of an involuntarily dissolved Montana corporation, the co-Plaintiff D-K Rentals & Contracting, Inc. ("D-K Rentals"), and seek damages for emotional pain and suffering and attorneys fees and costs. Defendants oppose Plaintiffs' claims for relief and counterclaim to award Ken and David each fifty percent (50%) of the real and personal property, and in addition seek an accounting for the property and damages for rent and conversion of real and personal property. Trial of this cause was held at Great Falls on March 14, 2008. Pat, Debra, David and Ken all appeared and testified, and exhibits were admitted2.
At the conclusion of the parties' cases-in-chief the Court took the matter under advisement after first holding that the subject real property is owned in the name of D-K Rentals based on Ken's admission at trial that a quitclaim deed which he recorded is invalid. After review of the record and applicable law, this matter is ready for decision. For the reasons set forth below, Judgment will be entered against the Defendants quieting title in the real and personal property of the dissolved corporation in the name of Debra Purtle, but dismissing Plaintiffs' claim for attorney fees and costs and emotional distress, and dismissing all of Defendants' counterclaims. This Memorandum of Decision includes the Court's findings of fact and conclusions of law pursuant to FED . R. BANKR . P. ("F.R.B.P.") 7052 (applying FED. R. CIV. P. 52) in adversary proceedings).
The Final Pretrial Order submitted by the parties and approved by the Court on March 7, 2008, provides that this Court has jurisdiction of this adversary proceeding pursual to 28 U.S.C. § 1334, and that this is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (E). In addition, at trial the Court asked Defendants whether they consent to this Court entering a decision on any non-core proceedings, and both Ken and David consented on the record. Plaintiffs Pat and Debra both appeared and testified at trial, and Plaintiffs were represented by attorney Lisa Swan Semansky ("Semansky") of Great Falls, Montana. Ken appeared and testified, represented by James A. Donahue ("Donahue") of Great Falls. David appeared and testified, represented by attorney Kirk D. Evenson ("Evenson") of Great Falls. David's spouse Charlotte Kraus ("Charlotte") testified. Brett Lund ("Lund") of Rocky Mountain Crime Consultants testified as a handwriting expert. Attorney William O. Bronson ("Bronson") and certified public accountant ("CPA") James R. Koontz ("Koontz"), also testified.
The following agreed facts are set forth in the Pretrial Order at pages 3-4:
1. All named parties in this action are residents of Cascade County, Montana.
2. Plaintiff, James Kraus, whose legal name is David James Kraus ["James"] died on February 20, 2007.
3. The real property at issue is particularly described in the amended complaint3 and located in Cascade County, Montana. It was transferred from Plaintiffs James and Patricia Kraus to the corporation D-K Rentals & Contracting, Inc., in 1988.
4. Any personal property at issue is located in Cascade County, Montana.
5. The corporation, D-K Rentals & Contracting, Inc. ["D-K Rentals"] was incorporated in Arizona in 1985, authorized to do business in Montana in 1985, and involuntarily dissolved in Arizona by the Arizona Secretary of State. D-K Rentals & Contracting, Inc., was incorporated in Montana on August 16, 1993, and involuntarily dissolved by the Montana Secretary of State in 1994.
6. On June 30, 2005, Defendant David Kenneth R. Kraus quitclaimed the real property in this lawsuit to himself by executing a quit claim deed as the purported president of D-K Rentals. The deed was recorded with the Cascade County Clerk and Recorder as Document R0107447.4
Additional and supplemental facts were developed by the testimony and exhibits admitted at trial. Ex. G are survey maps showing the subject real property located off of Montana Highway 226. All of the parties live5 in homes on or near the real property6. Debra testified that James refused to pay property taxes on certain parcels of the real property owed to Cascade County, and that issue persisted over several years.
Pat and James were married for 57 years. Ken, David and Debra are their children. James was a skilled mechanic who bought equipment, repaired it and put it to use in his business enterprises including road contracting. However, Pat testified that James was headstrong, and others described him as foolish with respect to safety7. David testified that he was cleaning up James' messes since he was young.
Ken testified that James put him to work at a young age in James' construction company operating a D-8 Caterpillar, and that he worked in construction whenever he was not in school. David testified that he operated heavy equipment and provided labor for James. In the early to mid 1980's James was engaged in subcontractor work in Arizona.
D-K Rentals was formed in 1984 or 1985, and named by combining "David" and "Kenneth." D-K Rentals was in the business of dirt excavation, crushing gravel, and surfacing and building roads. David testified that D-K Rentals incorporated in Arizona because of tax advantages, and they were finishing up a road surfacing job in Arizona. Ken and Debra lived in Arizona, and David resided there full or part time for 5 years before returning to Montana.
Debra testified that when D-K Rentals was first incorporated Ken was its president David was vice president and she was the secretary treasurer. No share certificates were issued for D-K Rentals. David testified that he and Ken each owned 45 percent of the shares of D-K Rental stock from its incorporation, and that Debra owned 10 percent. Debra testified that she did not contribute capital to D-K Rentals, but that neither did Ken and David because all the capital was contributed by James and Patricia. Pat testified on cross examination that she has never had an ownership interest in D-K Rentals.
Debra testified that the corporation held meetings, but not regularly. She described D-K Rentals as a family corporation in which the money earned benefitted all family members. Pat testified that times occurred when she and James both worked for D-K Rentals without pay, and later she was paid $150 per week while working 12 hours per day for D-K Rentals. David described James as more an advisor than an employee.
Debra testified that David signed all the D-K Rentals corporate tax returns which she saw, that David had possession of all the corporate books and ledgers, and that some corporate documents in their office were thrown away during a remodel. Pat testified that she disclosed all corporate records in her possession and produced them. Bronson testified that he provided legal services to D-K Rentals. Koontz performed accounting services for D-K Rentals, for James and Pat personally, and for Ken.
Debra testified that Pat and James both worked for D-K Rentals for several years without compensation. David testified that Debra took care of D-K Rentals' paperwork and Arizona taxes. Pat and Ken testified that Pat worked for D-K Rentals as office bookkeeper8, secretary and parts chaser in charge of the yard from 1988 to 1993. Ken operated equipment in the field and was a supervisor for D-K Rentals.
Debra admitted that she filed some of the corporate reports required by law at first, but that as time went on she failed to file reports when due. While D-K Rentals was operating in Arizona, Debra testified, she had signatory rights to the corporate bank account but she relinquished those rights. After the State of Arizona dissolved D-K Rentals for failure to file an annual report, Ex. P, on January 10, 1987, Debra testified that she stayed in Arizona to wrap things up, and that nothing was done to reinstate D-K Rentals in Arizona because its operations had moved to Montana.
D-K Rentals was incorporated in Montana with the same name and federal tax ID number as when it operated in Arizona, 81-0428279. Koontz testified that the stock in D-K Rentals in Montana was owned by Ken, David and Debra. Pat testified that she and James owned no stock in D-K Rentals prior to 1993.
Pat testified that the corporate bank account at first had David's name on it, and later Ken's name was added. Ken testified that he, David and Pat were signatories on the account, but he admitted that Debra's name "possibly" was on the account. Debra testified that, at first, she did not have authority to write corporate checks on the D-K Rentals' corporate account in Montana, but later recalled that she did sign checks for purchasing and later for payroll. David testified that early on he and Ken were issued corporate credit cards, and that later Pat and Debra got corporate credit cards and ran up more than $16,000 in credit card debt.
Pat admitted that she could have signed James' names to documents, but could not recall any instances and testified that she usually does not do things like that. Pat admitted that she could have signed payroll checks in Dave's or Ken's names, but only if they called her and told her to. Ken disagreed that Pat signed checks only with permission.
James and Patricia filed...
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