Parkinson Seed Farm, Inc. v. Arlo Weeks & Brookside, LLC (In re Parkinson Seed Farm, Inc.)
| Decision Date | 18 February 2022 |
| Docket Number | Bankruptcy Case No. 18-40412-JMM,Adv. Proceeding No. 20-08039-JMM |
| Parties | IN RE: PARKINSON SEED FARM, INC., Debtor. Parkinson Seed Farm, Inc., Plaintiff, v. Arlo Weeks and Brookside, LLC, Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Idaho |
William Stuart Tabard Wood, Portland, Oregon, Attorney for Plaintiff.
Matthew Todd Christensen, Boise, Idaho, Attorney for Defendants.
JOSEPH M. MEIER, CHIEF U. S. BANKRUPTCY JUDGE
Parkinson Seed Farm, Inc. ("PSF" or "Plaintiff"), by and through Matthew McKinlay, its Plan Administrator (the "Plan Administrator"), commenced this adversary proceeding on May 14, 2020. Dkt. No. 1.1 Arlo Weeks and Brookside, LLC (collectively, "Defendants") filed an answer on June 10, 2020. Dkt. No. 4. The trial was held on July 14 and 15, 2021, and the parties provided oral closing arguments. Dkt. Nos. 45, 46, and 49. The Court subsequently deemed the matter under advisement. Having now considered the extensive record, applicable law, and parties’ arguments, the Court makes the following findings of fact and conclusions of law. Rules 7052; 9014.
Dirk Parkinson was PSF's president and CEO from its inception in 1996 up to and through part of the company's chapter 11 bankruptcy. Mr. Parkinson was in charge of all farm operations and finances. At times, although there was no formal method for determining when to do so, Mr. Parkinson used PSF funds for his own personal expenses.
PSF filed a chapter 11 bankruptcy petition on May 15, 2018. In re Parkinson Seed Farm, Inc. , 18-40412-JMM (Bankr. D. Idaho 2018), Dkt. No. 1.2 At the time, PSF was represented by the Robinson & Cotten law firm. On June 6, 2019, creditor Compeer Financial filed a motion to dismiss the case or, in the alternative, appoint a chapter 11 trustee. 18-40412-JMM, Dkt. No. 249. Other creditors objected to the motion to dismiss, but requested the appointment of a chapter 11 trustee under § 1104(a) as an alternative remedy pursuant to § 1112(b)(1). During a hearing on the matter on June 21, 2019, PSF, Compeer Financial, and other creditors agreed to the appointment of a chapter 11 trustee and the motion to dismiss was deemed moot. 18-40412-JMM, Dkt. No. 269. On June 24, 2019, this Court, for good cause shown, entered an order appointing the chapter 11 trustee, Gary Rainsdon ("Trustee"). 18-40412-JMM, Dkt. No. 272.
On March 3, 2020, this Court entered an order confirming a chapter 11 plan submitted by creditor SummitBridge National Investments VI, LLC. 18-40412-JMM, Dkt. No. 603. That plan provided for the appointment of Matthew McKinlay as the Plan Administrator.
Mr. McKinlay was also certified as an expert witness in this case, and while he testified at trial as a lay witness as a representative of PSF, he also provided expert testimony on the accounting software, systems, and processes PSF used in its operations, as well as its insolvency. See Dkt. Nos. 26, 28, and 31. Shortly after his appointment, Mr. McKinlay requested and was granted access to PSF's financial records. He reviewed numerous documents related to PSF's financial status and discovered several discrepancies.
In Mr. McKinlay's expert opinion, PSF was insolvent under a "cash flow insolvency" standard, meaning it could not pay its bills as they became due, no later than April 2016 and for all periods thereafter, and PSF was insolvent under a "balance sheet standard," meaning that PSF's liabilities exceeded its assets, no later than the fourth quarter of 2016 and for all periods thereafter. Moreover, Mr. McKinlay testified that Defendants received more than they would have received had this case been filed under chapter 7 of the Code.
In addition, Mr. McKinlay testified that Arlo Weeks ("Weeks") and Brookside, LLC ("Brookside") received higher compensation than they should have received for the type of work they performed, a description of which is discussed below. Mr. McKinlay, in his expert opinion and as one who has experience hiring and staffing financial controllers and business administrators, estimated Weeks should have received $60,000–75,000 per year for the type of work he performed. Mr. McKinlay testified that the payments to Defendants between 2014 and 2018 caused PSF to become insolvent and that payments were made at the expense of other creditors.
After his appointment, Mr. McKinlay retained the law firm Sussman Shank to represent PSF. On May 13, 2020, Mr. McKinlay, on behalf of PSF, filed numerous adversary proceedings, including the immediate case.
Weeks, who has about sixteen- or seventeen-years of financial experience, began working for PSF around 2003. At first, Weeks handled a limited set of duties, such as keeping checkbook balances, organizing information submitting it to others for review, and working collaboratively with PSF's Certified Public Accountant ("CPA"). No one at PSF worked with the finances more closely than Weeks with the exception of Mr. Parkinson. In fact, throughout his employment at PSF, Weeks did not report to anyone other than Mr. Parkinson because, according to Weeks, Mr. Parkinson was "a one man show."
PSF's relationship with Weeks was never reduced to a written employment agreement. In Weeks’ early days with PSF, he collected around $100,000 per year in compensation. Weeks’ role eventually expanded to include a broader array of responsibilities. While PSF had other farm managers, there were no other administrative managers that filled the same role that Weeks would eventually occupy.
Sometime around 2012, Weeks and PSF agreed that Weeks’ compensation would increase to $135,000 per year and, again, there was no written employment agreement defining the parties’ relationship. The agreed-upon increase in compensation was a reflection of Weeks’ quality and quantity of work. The checks to Weeks, however, reflect a different amount. Even though Weeks and PSF agreed that Weeks would receive $135,000 per year, Weeks actually continued to receive only about $100,000 annually, approximately $8,333 per month. Weeks issued his paycheck on behalf of PSF, and said he issued the lesser amount to ensure his pay was always below the agreed-upon amount. He was concerned that he might make an error with respect to his salary and wanted to make sure that, should any error occur where he took more money from PSF, there was a buffer between the amount he had actually received and the agreed-upon amount. Mr. Parkinson believes the amount paid to Weeks was fair based on the services provided. Mr. Parkinson authorized Weeks to distribute such checks and knew the amount that was being disbursed each month.
Around the time Weeks and PSF agreed to the increased salary, Weeks’ scope of work broadened. For example, he added more tools to the database to manage the farm and aid in crop planning and management. He also improved and expanded the services he provided PSF related to both the spatial and nonspatial databases.
Weeks testified that he may have been a W-2 employee in his first year with PSF but since then has not received a W-2. In other words, Weeks was an independent contractor that provided services to PSF, although he also testified that he has never received a 1099 Form from PSF. Weeks has no professional degrees but does possess a Master's in Business Administration.
As stated above, Weeks’ initial responsibilities were fairly limited, but eventually he was performing a broad array of tasks for PSF, such as business administration, management, finances, human resources, and information technology management. Weeks was also tasked with entering information into PSF's QuickBooks account but, ultimately, Mr. Parkinson was in charge of the QuickBooks. In fact, while Weeks was the one who entered all information into QuickBooks, in his opinion, that data was not, and should not be considered, accurate until it was reviewed by Mr. Parkinson. Weeks would also generate the QuickBooks reports that were sent to lenders, sometimes on a regular basis, such as monthly, and other times on demand. Mr. Parkinson reviewed these reports before they were sent to lenders or banks.
Weeks also maintained PSF's budget, which PSF tracked through either Microsoft Excel or Microsoft Access. After 2015, most of the company's finances were tracked through Excel. Weeks testified Excel was used for "number crunching." For example, the main report delivered to KeyBank3 for review was created via Excel; the company kept track of its fertilizer quantities through Excel, and Excel tracked the company's potato inventories. PSF used Access as a crop management system to track receivables from vendors as well as the company's grain inventories.
Access served other purposes, for which Weeks was in charge. For example, he created and maintained numerous tables in Access, which pulled information from thousands of data entries input by Weeks, to generate functional, collated reports, work orders, or purchase orders that allowed PSF to more accurately conduct crop planning thus giving greater control over what was going on at the farm. The information input into the system rolled over from year to year, thereby enabling the system to utilize larger data pool sets for each year that PSF used Access in its operations.
Weeks was also in charge of printing and "stamping" checks with Mr. Parkinson's signature. Weeks never issued any check that Mr. Parkinson did not previously authorize. Mr. Parkinson authorized Weeks to print and stamp the checks for regular, ongoing expenses such as payroll and power bills, although Mr. Parkinson would not necessarily review every check before it was delivered to the payee. If there was a check being issued for an expense that was not regular, Weeks would still print and stamp the check, but Mr. Parkinson would review the expense either in Excel or in QuickBooks before the...
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