Janssen v. Reschke
| Decision Date | 11 March 2020 |
| Docket Number | No. 17 cv 08625,17 cv 08625 |
| Parties | ASH JANSSEN, Plaintiff, v. MICHAEL RESCHKE and BOBB/AAR INVESTMENTS, LLC, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM ORDER AND OPINION
In September 2014, Plaintiff Ash Janssen and a partner sold a portion of their business to BRI Holding, LLC, extending a $2.5 million loan to BRI for part of the purchase price. BRI failed to make quarterly payments on the loan as required, and Janssen obtained a judgment against BRI Holding in an earlier lawsuit before Judge Blakey in this district (No. 16 C 10098). In this lawsuit, Janssen seeks to collect the debt from BRI Holding's owners, Defendants Michael W. Reschke and Bobb/AAR Investments, LLC ("Bobb"). In addition to a veil-piercing argument, Janssen contends Reschke and Bobb received fraudulent transfers from BRI Holding. (See Am. Compl. [13] ¶¶ 1-2.) Defendants move for summary judgment on all counts [73]. For the reasons explained below, Defendants' motion for summary judgment is denied.
This dispute originated in the sale of an ownership interest in All Around Roustabout, LLC ("AAR"), a limited liability company that provides storage and sanitation services in support of oil-drilling operations in Colorado. (Defs.' Resp. to Pl.'s Local Rule 56.1 Statement of Additional Facts ( ) [81] ¶ 5.) Several limited liability companies were involved in the transaction, so the court includes an organization chart for convenience, below. (See Figure 1, infra, Organization Chart, Ex. 1 to Janssen Dep. [75-1].) On September 30, 2014, Plaintiff Ash Janssen, AAR's then-CEO, and his business partner, Josh Wells, transferred their 100 percent membership interest in AAR to a holding company, AAR Parent, LLC, via another limited liability company in which AAR Parent had a 100 percent interest, AAR Intermediate Holding, LLC. AAR Parent was managed by a board consisting of the parties on either side of the "v." in this case: Plaintiff Janssen, Defendant Reschke, and Robert J. Bobb, who owns and controls Defendant Bobb/AAR Investments, LLC.1 (Id. ¶ 10.) As a result of this sale, Janssen and Wells together received $100 million in cash ($50 million each), and each received a 15 percent membership interest in AAR Parent. (Id. ¶ 7.) The cash distribution was funded with a $100 million loan to AAR Intermediate (guaranteed by AAR Parent) from Medley Capital Corporation, an unrelated bank. (Id. ¶¶ 7, 10; see also Manning Dep. [76-9] 21:3-6; Bobb Dep. [76-5] 25:14-22.) AAR Parent paid $20 million on the loan before defaulting in late 2015. (Pl.'s SOF Resp. ¶ 26.)
Also on September 30, 2014, BR Investment Partners, LLC ("BRIP"), an Illinois limited liability company, acquired as its sole asset a 70 percent membership interest in AAR Parent. (Id. ¶¶ 5, 8, 17.) BRIP is wholly-owned by BRI Holding, LLC, an Illinois limited liability company founded on September 18, 2014, which is controlled by the Defendants in this case: Defendant Michael W. Reschke owns a 49.9 percent interest and Defendant Bobb/AAR Investments, LLC owns a 50 percent interest. (Id. ¶¶ 1-2; Defs.' SOF Resp. ¶ 1.) Defendant Reschke's son, Michael W. Reschke, Jr., owns the remaining 0.1 percent interest in BRI Holding, LLC. (Pl.'s SOF Resp. ¶ 6.) BRI Holding's sole asset was its 100 percent ownership interest in BRIP; and distributions from BRIP, via the 70 percent interest in AAR Parent, was BRI Holding's only source of revenue. (Pl.'s SOF Resp. ¶¶ 17-18.) BRI Holding was initially capitalized with $1.498 million from Reschke, $1,500 from Michael Reschke, Jr., and $1.5 million from Bobb. Reschke and Bobb contributed additional cash to fund BRIP's purchase of a 70 percent interest in AAR Parent, bringing their total cash contributions to $2.25 million each, and Janssen contributed $2.5 million to BRIP via BRI Holding in the form of an unsecured loan. (Defs.' SOF Resp. ¶ 11.) BRI Holding's funds were contributed to BRIP along with $8 million from outside investors (unidentified third parties who are not involved in this litigation), for a total of $15 million. (Id.) This $15 million was then used to acquire BRIP's 70 percent interest in AAR Parent, LLC, and indirectly, a 70 percent interest in AAR. (Id. ¶ 6.) BRIP was required to pledge its 70 percent interest in AAR Parent as collateral to secure the $100 million loan from Medley Capital.2 (Id. ¶ 7.)
The entities involved in this dispute are limited liability companies that are taxed as partnerships, meaning that business income is not taxed at the entity level, but instead all tax liability is passed through to the individual members. (Defs.' SOF Resp. ¶ 11.) Accordingly, each member pays income tax attributable to AAR's income on his individual tax return. (Id.) To offset their members' tax burdens, AAR Parent, BRIP, and BRI Holding each have tax distribution policies that permit the LLC to distribute to its members an amount of money equal to the estimated taxes each member will have to pay. (Id. ¶ 12.) AAR Parent's tax distribution policy simply authorizes quarterly tax distributions to its members. (See Ex. C to Answer to Am. Compl. [14].) BRIP's policy permits quarterly tax distributions "to each Member in proportion to their Percentage Interests, in an aggregate amount equal to the tax distribution received from the Company's membership interest in AAR Parent, LLC." Local Rule 56.1 Statement of Facts ( ) [75].) These distributions are permitted "to the extent cash is available after the payment or reserve for principal and interest on the Senior Notes and any other obligations of the Company." (Id.) BRI Holding has a similar tax distribution policy: "To the extent cash is available after the payment or reserve for obligations of the Company, the Managing Members shall cause the Company to make quarterly tax distributions to each Member in proportion to their Percentage Interests, in an aggregate amount determined by the Managing Members." (BRI Holding Operating Agreement § 5.4, Ex. 6 to Reschke Decl.)
In January 2015, AAR Parent made a tax distribution to its members based on AAR's estimated fourth-quarter 2014 taxable income of $12,059,548. (Pl.'s SOF Resp. ¶ 13.) The tax distribution was $2,718,159 and Janssen and Wells each received 15 percent while BRIP received 70 percent. (Id.) In January 2015, BRIP distributed $1,089,034 of this tax distributionto BRI Holding, which in turn transferred the tax distribution to its members on January 12, 2015—$480,554 to Reschke and $481,517 to Bobb. (Id. ¶ 15.) It is these transfers that Janssen contests in this lawsuit.
After January 12, 2015, AAR made no further distributions to its members. (Defs.' SOF Resp. ¶ 22.) Reschke testified that AAR's board of directors, then Reschke, Robert Bobb, and Janssen, agreed in April 2015 that it would not be prudent to make distributions to investors due to the drop in AAR's business related to a decline in the oil drilling activity of AAR's customers. (Id. ¶ 25; Reschke Dep. 60:16-23; Bobb Dep. 25:1-3.) Richard W. Manning, AAR's Chief Financial Officer from September 2014 until April 2016, testified that AAR's decision whether to make distributions to its members depended on AAR's revenue and profitability. (Defs.' SOF Resp. ¶ 25.) He noted that if AAR failed to comply with certain covenants in its loan from Medley Capital, Medley Capital could prevent AAR from making any distributions to investors. (Id.) AAR's revenue and profitability were correlated with its customers' oil drilling activity, and as a general matter, that activity increases as oil prices rise and decreases as the price of oil drops. (Id. ¶ 23.) The parties disagree about how, precisely, to characterize the trend in oil prices between 2014 and 2015, but both rely on data from the U.S. Energy Information Administration showing that the spot price of oil declined starting in the summer of 2014, rebounded slightly between January and June 2015, and then bottomed out in January 2016. (Id. (citing U.S. Energy Info. Admin., Cushing, OK WTI Spot Price FOB, http://www.eia.gov/dnav/pet/hist/RWTCD.htm (last visited Feb. 11, 2020)).) In 2014, Manning told Reschke and Bobb that in his (Manning's) opinion, a decline in oil prices would pose a risk to the value of an investment in AAR. (Defs.' SOF Resp. ¶ 24.)
The $2.5 million loan from Janssen to BRI Holding is at the heart of this dispute. Janssen agreed to loan $2.5 million to BRI Holding as part of BRIP's larger acquisition of a 70 percent interest in AAR Parent from Janssen and Wells. Janssen's loan was evidenced by a five-year promissory note, maturing on September 30, 2019 and requiring quarterly interest payments at arate of 20 percent per annum. (Id. ¶ 13; Pl.'s SOF Resp. ¶ 9.) This promissory note was unsecured, and neither Reschke nor Bobb personally guaranteed the debt. (Pl.'s SOF Resp. ¶ 9.) The first interest payment, for interest accrued during the fourth quarter of 2014, was due on January 15, 2015. (Id.) On January 12, 2015, BRI Holding paid Janssen $125,000. (Id. ¶ 16; Defs.' SOF Resp. ¶ 18.) Plaintiff disputes that $125,000 was the full amount that he was due in interest, but does not dispute receiving the check. (Pl.'s SOF Resp. ¶ 16.)
As of July 2016, BRI Holding had made no further payments on Plaintiff's promissory note aside from the disputed January 2015 payment, and Plaintiff,...
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