Monarch Transp., LLC v. FKMT, LLC

• Decision Date: 17 August 2012
• Docket Number: No. 105,487.,105,487.
• Citation: 283 P.3d 249
• Parties: MONARCH TRANSPORT, LLC, Appellee, v. FKMT, LLC, Scot Crader, and Troy Renkemeyer, Appellants, and Renkemeyer Campbell & Weaver, LLP, Defendant. Peoples Bank, Plaintiff, v. United States of America, State of Kansas Department of Revenue, Monarch Transport, LLC, and FKMT, LLC, Defendants. SMR Holdings, LLC, Appellant, v. David Kleinbeck and Thomas Kleinbeck, Appellees.
• Court: Kansas Court of Appeals

283 P.3d 249

MONARCH TRANSPORT, LLC, Appellee,

v.FKMT, LLC, Scot Crader, and Troy Renkemeyer, Appellants,andRenkemeyer Campbell & Weaver, LLP, Defendant.

Peoples Bank, Plaintiff,

v.United States of America, State of Kansas Department of Revenue, Monarch Transport, LLC, and FKMT, LLC, Defendants.

SMR Holdings, LLC, Appellant,

v.David Kleinbeck and Thomas Kleinbeck, Appellees.

No. 105,487.

Court of Appeals of Kansas.

Aug. 17, 2012.

Appeal from Johnson District Court; Kevin P. Moriarty, Judge.

Scott A. Hunter, of Hunter Law Office, LLC of Kansas City, Missouri, for appellants FKMT, LLC; Scot Crader; Troy Renkemeyer; and SMR Holdings, LLC.

Thomas M. Franklin, of The Franklin Law Firm of Kansas City, Missouri, for appellees David Kleinbeck; Thomas Kleinbeck; and Monarch Transport, LLC.

Before MALONE, P.J., MARQUARDT, J. and KNUDSON, S.J.

MEMORANDUM OPINION

PER CURIAM.

This appeal arises from claims surrounding the sale and subsequent failure of a trucking company known as Monarch Transport. The litigation before the district court involved three different cases that were consolidated for trial, many parties, and a host of claims and counterclaims. The main parties to this appeal are appellants FKMT, LLC (Old Monarch) and its principals, Troy Renkemeyer and Scot Crader, on the one side, and appellees Monarch Transport, LLC (New Monarch) and its principals, Thomas Kleinbeck and David Kleinbeck, on the other. SMR Holdings, LLC, a separate company owned by Renkemeyer, is also a party to this appeal.

Factual and Procedural Background

Renkemeyer and Crader are childhood friends. Renkemeyer is a lawyer and a certified public accountant, and Crader has a background in business and management. In 2004, Renkemeyer and Crader decided to start a trucking company, although neither had experience in the trucking industry. The company—Old Monarch—was incorporated under the name “Monarch Transport, LLC.” Crader handled the day-to-day operations, while Renkemeyer secured financing and handled some tax issues.

In late 2006, Renkemeyer and Crader decided to sell the company. According to Renkemeyer, he would start or acquire a business, grow it, and then sell it for a profit. He testified that the company had grown significantly and that he and Crader believed it was a good time to list it for sale. But as New Monarch later alleged, the real reason for the sale was because the trucking company was in serious financial trouble.

Regardless of the reasons motivating the sale, Crader and Renkemeyer listed the trucking company with Sunbelt Realtors, a business broker. Brothers Thomas Kleinbeck and David Kleinbeck were looking for business opportunities and were interested in the trucking company's listing. In August 2007, Thomas contacted Sunbelt and asked for financial information about the company, which Sunbelt provided. The Kleinbecks set up a meeting with Renkemeyer to obtain further information and discuss the possible sale of the company. According to Thomas, Renkemeyer lied about or failed to disclose vital information during this meeting. Renkemeyer denied lying about or withholding information. He further testified that the Kleinbecks were not interested in the trucking company's liabilities because any sale would be an asset sale only and thus they would not be assuming the trucking company's liabilities.

In mid-September 2007, the Kleinbecks toured the trucking company's facilities along with their banker at UMB Bank. During the tour, the Kleinbecks met with Crader and asked him to stay on as general manager after the sale. The Kleinbecks believed Crader would be able to handle many issues related to the sale, such as making sure that insurance was available and registering with tax authorities.

The Kleinbecks had a second meeting with Renkemeyer, during which they discussed the possibility of buying the name “Monarch Transport, LLC” from Old Monarch in order to maintain customer relationships and business goodwill. The Kleinbecks expressed concern that the name purchase could cause confusion and result in payments owing to New Monarch to be paid to Old Monarch, and vice versa, but the parties ultimately agreed to the name purchase. It is undisputed that the parties agreed to periodically get together and “settle up” any misdirected payments. According to David Kleinbeck, the reconciliation could be easily accomplished because Crader, who was staying on as the general manager for New Monarch, would have access to the accounting systems for both Old Monarch and New Monarch.

On September 27, 2007, an asset purchase agreement was executed. New Monarch agreed to purchase the assets of Old Monarch, excluding Old Monarch's accounts receivable for loads shipped on or before September 30, 2007, the closing date of the sale. The total purchase price was $2.5 million, with $2.1 million to be paid at closing. New Monarch financed this portion of the purchase price through a loan with UMB Bank. The remaining $400,000 was financed through a promissory note, personally guaranteed by the Kleinbecks, which was held by SMR Holdings, LLC, a separate company owned by Renkemeyer.

On September 28, 2007, the parties executed an addendum to the asset purchase agreement, agreeing to the sale of the name “Monarch Transport, LLC.” On October 4, 2007, Old Monarch filed with the Kansas Secretary of State, officially changing its name from “Monarch Transport, LLC” to “FKMT, LLC.” The next day, New Monarch officially changed its name from “Osage Holdings, LLC” to “Monarch Transport, LLC.”

On October 3, 2007, 1 day before the official name change, Old Monarch set up a new deposit account (Account 347) at Peoples Bank under the name “Monarch Transport, LLC” and using Old Monarch's taxpayer identification number. Renkemeyer and Crader were signatories on the account, and the contact information for the account was soon thereafter switched to Renkemeyer's law offices (RCW law offices) rather than the headquarters of the trucking company. Renkemeyer testified that they “didn't really think about” the fact that Account 347 was opened under the name “Monarch Transport, LLC”—it was simply quicker and easier to use that name because Peoples Bank already had all the relevant paperwork and organizational documents. Furthermore, invoices were sent to Old Monarch's customers under the name “Monarch Transport, LLC,” and Renkemeyer believed that any incoming checks made out to “Monarch Transport, LLC” could only be deposited into Account 347 under that name.

According to Renkemeyer, the reason for closing Old Monarch's existing deposit account at Peoples Bank and opening Account 347 was to prevent unwanted automatic withdrawals from Old Monarch's previous vendors. Account 347 would also receive payments for Old Monarch's remaining accounts receivable. It was set up as a lockbox account, meaning that customers would remit their payments to a P.O. Box, which was located in Overland Park and rented by Peoples Bank. Employees of Peoples Bank would collect the payments from the P.O. Box and deposit them into the account on the day they were received. Evidently, the P.O. Box used for Account 347 was the same P.O. Box used to receive payments into Old Monarch's old deposit account.

Account 347 was subject to a special arrangement between Peoples Bank and Bank of the West. After the sale closing, Old Monarch used the $2.1 million in immediate proceeds to pay off many of its debts, including the equipment loans owed to Bank of the West. But Old Monarch still owed Bank of the West approximately $1.4 million on the line of credit secured by Old Monarch's accounts receivable. Renkemeyer thus authorized Peoples Bank to wire all payments made into Account 347 directly to Bank of the West. The payments were to be applied toward the outstanding balance of Old Monarch's line of credit.

On October 10, 2007, Crader filed an electronic funds transfer (EFT) form with Delphi, Old Monarch's largest customer representing about 25 percent of Old Monarch's business, instructing them to make payments owing to “Monarch Transport, LLC”—the name by this time owned by New Monarch—into Account 347. The EFT form also used the address and telephone number, formerly belonging to Old Monarch, that had been assumed by New Monarch. Payments from Delphi to Old Monarch had previously been made by EFT rather than paper check, and according to Crader this new EFT form was filed simply to ensure that payments owing to Old Monarch were deposited into the new Account 347 rather than Old Monarch's old deposit account. When asked why he used New Monarch's name, address, and phone number on the form, Crader stated that he “[didn't] recall his thought process ..., I filled it out and I signed it.”

According to Thomas Kleinbeck, he had instructed Crader at the very beginning of October—before Crader filed the EFT form—to contact Delphi and switch Delphi's payment method to paper check rather than EFT. The purpose of the switch was to ensure that Delphi's payments to Old Monarch and New Monarch were kept separate. Crader denied that Kleinbeck ever instructed him to work with Delphi to switch their payment method; rather, he assumed Kleinbeck would be responsible for that task.

Also on October 10, 2007, New Monarch opened a deposit account at UMB Bank with a similar lockbox arrangement. Since UMB Bank had extended New Monarch a line of credit, secured by New Monarch's accounts receivable, UMB Bank wanted payments owing to New Monarch to be funneled directly into UMB Bank's P.O. Box located in Kansas City, Missouri.

In the weeks after the sale, Crader and other New Monarch employees implemented a system for keeping Old Monarch and New Monarch invoicing (both outgoing invoices as well as incoming payment receipts) separate. Old Monarch had used accounting software, McLeod, which was also used by New Monarch after the sale. Each company had different ledgers within the program in order to keep invoicing...