Johnson v. Amerbank, LLC (In re Miles)
| Docket Number | 19bk32352,Adv. Pro. 20ap00386 |
| Decision Date | 24 May 2023 |
| Parties | In re: Charles V. Miles, Debtor. Cindy M. Johnson, not individually, but as chapter 7 trustee, Plaintiff, v. Amerbank, LLC n/k/a Dolare, LLC and Miles Technology Solutions, LLC n/k/a Inventous, LLC, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
This matter is before the Court for ruling after a trial on the amended adversary complaint filed by plaintiff Cindy M Johnson, not individually, but as chapter 7 trustee ("Trustee") of the bankruptcy estate of debtor Charles V. Miles ("Debtor"), against defendants Amerbank, LLC ("Amerbank") n/k/a Dolare, LLC ("Dolare") and Miles Technology Solutions, LLC ("MTS") n/k/a Inventous, LLC ("Inventous"), (collectively "Defendants").[1] In the complaint, Trustee seeks both a determination that certain state law causes of action for unpaid compensation are property of the estate under 11 U.S.C. § 541 and a judgment against Defendants on such causes of action for turnover of the unpaid compensation under 11 U.S.C. § 542.
For the following reasons, the Court concludes that the causes of action are property of the estate, but Trustee has failed to establish that she is entitled to judgment on any of them. Accordingly, judgment will be entered for Trustee and against Defendants on Counts I and II, and judgment will be entered against Trustee and for Defendants on Counts III through X.
Debtor filed a voluntary petition for chapter 7 relief in November 2019. Trustee timely commenced this adversary proceeding by filing a one-count complaint seeking turnover of alleged unpaid compensation owed by Defendants to Debtor. (Compl Dkt. No. 1). The Court granted Defendants' motion to dismiss the initial complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6), with leave to amend. (Order Granting Mots. to Dismiss, Dkt. No. 30). Trustee then filed a ten-count amended complaint, which included state common law claims for breach of express contract (Counts III-IV), and, alternatively, breach of implied in fact contract (Counts V-VI), unjust enrichment (Counts VII-VIII), or quantum meruit (Counts IX-X). (Am. Compl., Dkt. No. 31). Counts I and II asserted that those causes of action belong to the estate. (Id.)
After another round of briefing, the Court dismissed Counts III through VI, in part, and allowed Counts I, II, VII, VIII, IX, and X to stand in their entirety. (Am. Order Granting In Part and Denying In Part Mot. to Dismiss, Dkt. No. 51). As the Court summarized in its order, (Id. at 5). Specifically with respect to Counts III and IV, the Court stated that the allegations were "sufficient to put Defendants on notice of each claim of breach arising from the time periods when Debtor worked for the respective entity and did not receive any corresponding compensation." (Id. at 7). As to Counts V and VI, the Court concluded that "the only plausible express or implied in fact contract theory Debtor can raise is failure to pay according to the agreement, not that what he ultimately received was inadequate." (Id. at 8). With the "not enough pay" theory excluded from Counts III through VI, Trustee proceeded to trial on the surviving portions of the amended complaint.
The Court held a combined trial in this turnover action and two related adversary complaints objecting to Debtor's discharge, from November 28-30, 2022.[2] (Am. Final Pretrial Order, Dkt. No. 81). The following witnesses offered testimony at the trial: (1) Debtor; (2) Debtor's ex-wife, Amanda Jeane Patterson ("A.J."); (3) Debtor's sister and the legal owner of Defendants, Audra Jentel ("Audra"); (4) Debtor's mother, Jane Miles ("Jane"); and (5) Richard Ehrenreich ("Ehrenreich"), who served as in-house and outside counsel to Defendants. At the conclusion of the trial, the parties were permitted to submit proposed findings of fact and post-trial briefs in lieu of closing arguments. (Order Concluding Trial & Scheduling Post-Trial Briefing, Dkt. No. 97). This decision constitutes the Court's findings of fact and conclusions of law under Fed.R.Civ.P. 52(a), made applicable by Fed.R.Bankr.P. 7052.
FINDINGS OF FACT[3]
The facts are derived from the pretrial stipulations, trial testimony, and admitted evidence. The Court also takes judicial notice of the dockets in the relevant bankruptcy case and the adversary proceedings. See Inskeep v. Grosso (In re Fin. Partners), 116 B.R. 629, 635 (Bankr. N.D.Ill. 1989).
Debtor is a college graduate from a family with a history in the banking business. (Tr. 1 at 186:19-21).[4] Debtor branched out of banking and into real estate around 2004, but those ventures failed, leaving him with judgments totaling over $5 million hanging over his head by 2013. (Tr. 2 at 371:1-3). Not one to give up, Debtor then played a role in the formation and operation of several technology and financial services companies.
From 2012 through 2018, Debtor was involved with the following entities where he served as CEO: (1) Miles Technology Services LLC, which was later known as Black Stone Security LLC and is now known as Inventous LLC, (Tr. 2 at 381:1-18); (2) Goldfish Brain LLC, (Tr. 2 at 377:1-3); and (3) Amerbank LLC, which is now known as Dolare LLC (Tr. 2 at 401:1-23). Except for a brief period in 2012 when Debtor held a minority share in MTS, these companies were always owned on paper by Debtor's close relatives or by companies owned by Debtor's close relatives. (See Sept. 10, 2012 MTS Operating Agreement, Pl.'s Ex. 39 at 23; Nov. 19, 2012 MTS Operating Agreement, Pl.'s Ex. 40 at 27; Inventous Operating Agreement, Pl.'s Ex. 28 at 26; Tr. 1 at 50:12-16, 57:4-6; Tr. 3 at 465:14-23; Amerbank Operating Agreement, Pl.'s Ex. 27 at 24).
Specifically, Debtor's then-wife A.J. was sole owner of the companies starting in late 2012, and two years thereafter, she sold the entities to Debtor's sister Audra in late 2014 as part of her divorce settlement from Debtor. On multiple occasions since 2008, Debtor has admitted that it would be "illogical" to have assets in his name with creditors chasing him. (Tr. 2 at 382:15-19). From 2015 through 2018, the only active companies were Amerbank and Inventous, Amerbank's owner. Amerbank was in the business of facilitating transfers of money into the United States from outside the United States. (Tr. 3 at 394:25-395:2). At its height, Amerbank employed teams in the United States, Central America, and Europe, and held over $10 million in customer funds. Eventually, however, Amerbank halted operations sometime in 2018 after receiving multiple cease and desist letters from state government regulators because it lacked the proper licenses to conduct its business. (Tr. 3 at 556:20-23). Amerbank was later renamed Dolare LLC in late 2018. (Tr. 2 at 240:4, 401:1-3).
Throughout the relevant period, Debtor received money from his family to pay for his living expenses. For a brief period in 2012 and 2013, Debtor earned a salary of approximately $75,000 from an unrelated company called Lets Corp. (Tr. 1 at 62:13-63:23; Tr. 3 at 466:7-15). Subsequently, despite providing services to Defendants, Debtor did not receive any payments directly from Defendants until 2018. All the while, however, Debtor received money routed from the companies through his family for personal use and reimbursement of business expenses. (Tr. 2 at 242:08-09, 244:06-09, 270:05-271:06). In 2018, Debtor received $27,800 from Dolare. (Tr. 3 at 422:11-423:8). Also in 2018, Debtor received approximately $4,200 from his mother, at least some of which had been transferred from Defendants' accounts. (Tr. 3 at 424:4-425:7). All the while, Debtor lived in the United States, visited Europe, and traveled around the Caribbean, on behalf of Defendants. (Tr. 1 at 194:2-7; Tr. 2 at 254: 14-17; Tr. 3 at 560:15-16, 563:11-13, 578:3-15).
Debtor and Audra testified that there was no agreement for his compensation. (Tr. 1 at 203:7-13; Tr. 3 at 515:2-16, 539:21-540:3). Beyond that, Audra and Debtor recall that he refused compensation and intended to provide services gratuitously. (Tr. 1 at 203:14-22; Tr. 3 at 515:2-16, 538:25-539:14, 540:23-541:6). Debtor testified that he might have been motivated to provide services for free, in part, due to his guilt over losing over $900,000 Audra had invested in his unsuccessful real estate businesses. (Tr. 1 at 203:7-22, 203:23-205:23; Tr. 3 at 541:15-23). He also admitted, though, that "it would be great to receive compensation" if ever the company were successful, his sister paid back, and his family financially healthy. (Tr. 3 at 540:14-18). Defendants do not dispute that Debtor received a small salary as an employee of Amerbank in 2018 but maintain that it was paid unilaterally by Audra in order to get Debtor on the health insurance plan. (Tr. 1 at 166:2-11, 206:2-19, 206:2-19; Tr. 3 at 567:13-22).
The Court has jurisdiction over this matter under 11 U.S.C § 1334, 28 U.S.C. § 151, and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Specifically, Counts I and II fall within the Court's purview because the determination of whether a cause of action is property of the estate...
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