In re Treasure Valley Marine, Inc.
| Decision Date | 14 October 2020 |
| Docket Number | Bankruptcy Case No. 16-00927-JDP |
| Parties | In Re: Treasure Valley Marine, Inc., LLC, Debtor. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Appearances:
Jed D. Manwaring, Boise, Idaho, Attorney for Chapter 7 Trustee.
Adam B. Little, Boise, Idaho, Attorney for David McKitrick, Grant Lungren, Leland Spindler, and KeyBank National Association
William M. Humphries, Boise, Idaho, Assistant United States Attorney
Christopher Bohnenkamp, the principal of his company Treasure Valley Marine, Inc. ("Debtor"), built expensive custom-designed boats for his customers. Unfortunately for all, as things turned out, he also misappropriated large sums from the monies his customers paid him for the boats to spend on his other ventures. When funds to construct the boats ran short, and customers complained about inordinate delays in receiving their purchases, Bohnenkamp left town with many orders unfulfilled. Several frustrated customers and a lender retained counsel and pursued Bohnenkamp and others to recover assets he allegedly transferred to them. Eventually, the customers and lender forced Debtor into an involuntary chapter 7 bankruptcy case and helped authorities to indict and convict Bohnenkamp for his crimes. These customers now claim that most of their legal costs incurred pursuing Bohnenkamp and his transferred assets must be given priority over other creditors' claims and reimbursed from funds generated in the bankruptcy case. The bankruptcy case trustee, and the U.S. attorney on behalf of Bohnenkamp's victims, objected to the customers' asserted priority status. This decision addresses that dispute.
More specifically, customers/creditors Leland Spindler, David McKitrick, Grant Lungren, and lender KeyBank National Association ("KeyBank") (collectively, "Creditors"), filed Proof of Claim Numbers 12, 13, 14, and 15 in thebankruptcy case, seeking priority status for their claims under § 507(a)(2).1 The chapter 7 Trustee, Janine Reynard ("Trustee"), objected to those claims, Dkt. Nos. 88-91, and Creditors filed responses to those objections. Dkt. Nos. 96-99. Additionally, Creditors filed separate applications seeking allowance of their claims as administrative expenses in the bankruptcy case pursuant to § 503(b). Dkt. Nos. 102-105. The U.S. Attorney filed an objection to the applications for administrative expenses, Dkt. No. 112; Trustee also filed a response to the applications for administrative expenses consistent with her claim objections. Dkt. No. 114. Creditors filed a reply to the U.S. Attorney's objection. Dkt. No. 113. On July 21, 2020, the Court conducted a hearing where the parties presented oral arguments in support of their respective positions. Dkt. No. 115.
The Court has considered the facts appearing in the record and the parties' arguments. This Memorandum constitutes the Court's findings, conclusions, and reasons for its disposition of the objections. Rules 7052; 9014.
The undisputed facts appear in the Court's docket and records, and as acknowledged by the parties in their arguments.
Bohnenkamp owned and was the former president of Debtor. The Idaho Secretary of State dissolved Debtor on January 25, 2016. Bohnenkamp also owned Bohnenkamp's Whitewater Custom, Inc., and Devil's Hole Jetboat, LLC. Niagara Jet Adventures, LLC, is a New York limited liability company and a wholly owned subsidiary of Devil's Hole Jetboat. Niagara Jet Adventures provided guided trips on the Niagara River using Bohnenkamp's Whitewater Custom jetboats.
Debtor and Bohnenkamp's Whitewater Custom began manufacturing upscale jet boats for Devil's Hole Jetboats and Niagara Jet Adventures. At the time, Bohnenkamp did not own Devil's Hole Jetboats. Under the terms of their deal, in exchange for Debtor and Bohnenkamp's Whitewater Customs' services in manufacturing jet boats for Devil's Hole Jetboats at a substantial discount, Bohnenkamp acquired a 49% interest in Devil's Hole Jetboats. These jet boats were to be used to provide guided tours on the Niagara River. However, the financing used to construct these jetboats came from third-party customers whohad given Bohnenkamp deposits to buy their own jet boats, and who had no knowledge of Bohnenkamp's arrangements with Devil's Hole. In other words, Debtor, acting through Bohnenkamp, solicited and received numerous down payments from customers who believed they would receive their own custom jetboat, but instead, Bohnenkamp used those deposits to manufacture custom jet boats transferred to Devil's Hole. Devil's Hole used those boats to provide guided tours on the Niagara River. Of course, Debtor could not manufacture the custom jet boats promised to its customers because the deposits had been diverted by Bohnenkamp to his other ventures.
When he grew frustrated and suspicious, one of the customers, David McKitrick, around February 2015, retained the law firm Eberle Berlin to prosecute an action in state court against Debtor for its failure to deliver the boat he had purchased, and to recover Bohnenkamp's transfers of Debtor's assets to Devil's Hole. Grant Lungren, another customer who deposited funds with Debtor but never received his boat, retained law firm Hawley Troxell around the same time for a similar purpose. McKitrick and Lungren later agreed that Eberle Berlin would jointly represent them in state court. Around October 2015, LelandSpindler, yet another victim of the scheme, entered a joint representation agreement with Eberle Berlin to litigate the fraudulent transfers in state court.
The McKitrick, Lungren, and Spindler complaints were consolidated into one case in in the Fourth Judicial District for the State of Idaho, Ada County. See David McKitrick, Grant Lungren and Anne Lungren, Leland Spindler v. Treasure Valley Marine, Inc., Bohnenkamps Whitewater Customs, Inc., Christopher L. Bohnenkamp, Rachel Bohnenkamp, Niagara Jet Adventures, LLC, Devil's Hole Jetboat, LLC, Michael Fox and John Doe, Ada County Case No. CV OC 15-02174 (). Around February 2016, KeyBank, one of Debtor's lenders, entered into a joint representation agreement with McKitrick, Lungren, and Spindler to assist in financing the state court lawsuit litigation. KeyBank filed a complaint on February 10, 2016, and a motion to consolidate the KeyBank complaint into the other state court action was filed, but as of May 22, 2020, it had not yet been heard because of the automatic stay. The same creditors seeking administrative fees in the bankruptcy case, David McKitrick, Grant Lungren, Leland Spindler, and KeyBank, were also plaintiffs in the state court lawsuit. The attorneys representing Creditors, from Eberle, Berlin, as well as Hawley Troxell,represented the plaintiffs in the state court lawsuit. The defendants in the state court lawsuit were Bohnenkamp, his spouse Rachel Bohnenkamp, Debtor, Whitewater Customs, Inc., Niagara Jet Adventures, LLC, Devils Hole Jetboat, LLC, and Michael J. Fox.
The plaintiffs alleged various causes of action against the defendants, including breach of contract, breach of the covenant of good faith and fair dealing, conversion, unjust enrichment, and fraudulent transfer claims under Idaho Code § 55-913, fraud, as wells as Idaho Consumer Protection Act violations. At bottom, the plaintiffs were attempting to recover the money they had paid to Debtor because they did not receive a custom jet boat in exchange, and to recover the valuable boats allegedly fraudulently transferred by Bohnenkamp.
Creditors' attorneys performed services in the state court lawsuit, including researching the various entities owned by Bohnenkamp, researching the various causes of action available to them, serving the complaint, serving discovery requests, and conducting depositions. Creditors' attorneys later turned over much of the information they had assembled to the FBI, which at the time was investigating Bohnenkamp's activities.
In addition to the state court action, Creditors filed a chapter 7 involuntary petition commencing this bankruptcy case on July 19, 2016. Dkt. No. 1. Creditors' attorneys provided services in preparation of filing the involuntary petition, including research about involuntary bankruptcy, conferencing with the creditors committee, and preparing and filing the petition. In response to the involuntary petition, Debtor filed a motion to dismiss the case. Dkt. No. 10. Creditors' attorneys provided services to oppose the motion to dismiss, including research, drafting opposition memoranda, and attending the motion to dismiss hearing, and a response brief to the motion to dismiss, Dkt. No. 13. This Court denied the motion to dismiss on August 24, 2016. Further, Creditors also provided information gleaned during the pendency of the state court lawsuit to the bankruptcy trustee, as well as to Trustee's counsel. As they described their work, "[c]ounsel for the State Court Plaintiffs shared documents, cooperated with, and encouraged [Trustee] to bring her own lawsuit for fraudulent conveyance claims based upon the same theories as the State Court Case." Trustee's Motion for Approval of Compromise, Dkt. No. 69.
Trustee filed an adversary complaint against Bohnenkamp, Niagara Jet Adventures, Devil's Hole Jetboats, and Michael Fox on October 5, 2017. Reynard v. Bohnenkamp, et al. (In re Treasure Valley Marine, Inc), ADV 17-06023-JDP (Bankr. D. Idaho 2017). Trustee sought to avoid several alleged fraudulent transfers of Debtor's assets to the defendants pursuant to § 544, as well as Idaho Code §§ 55-913 and 55-914. The factual circumstances serving as the basis for the adversary proceeding were identical to the state court lawsuit.
Around April 2015, Creditors began providing information and assistance to the FBI in its criminal investigation regarding Debtor's business. Hawley Troxell initiated conversations with...
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