Rahndee Indus. Servs., Inc. v. United States ex rel. Internal Revenue Serv. & RCB Bank (In re Rahndee Indus. Servs., Inc.)

• Decision Date: 18 September 2015
• Docket Number: Case No. 13-11210-M,Adv. No. 13-01050-M
• Parties: IN RE: RAHNDEE INDUSTRIAL SERVICES, INC., Debtor. RAHNDEE INDUSTRIAL SERVICES, INC., Plaintiff, v. UNITED STATES OF AMERICA ex rel. THE INTERNAL REVENUE SERVICE and RCB BANK, Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Northern District of Oklahoma

IN RE: RAHNDEE INDUSTRIAL SERVICES, INC., Debtor.

RAHNDEE INDUSTRIAL SERVICES, INC., Plaintiff,
v.
UNITED STATES OF AMERICA ex rel. THE INTERNAL REVENUE SERVICE
and RCB BANK, Defendants.

Case No. 13-11210-M
Adv. No. 13-01050-M

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF OKLAHOMA

September 18, 2015

Chapter 11

MEMORANDUM OPINION

"In this world nothing can be said to be certain, except death and taxes."¹

One could add a corollary to Dr. Franklin's words: the only thing as certain as death and taxes is most people's desire to avoid both. When it comes to taxes, an entire industry, ranging from accounting firms, to tax lawyers, to those people you see on late night television promising to smooth things over with the taxing authorities, has emerged over the years in order to minimize, compromise, or eliminate tax liability. Many creative strategies have been crafted to achieve these goals. Some are legitimate. Others are not. Every now and then, they are contested in a court of law.

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This case involves a transfer between corporations. The first company had a significant tax debt. The second company was brand new, created solely for the purpose of facilitating the acquisition. The transaction was structured as an asset purchase; however, a lot of things, like the nature of the business, its day-to-day management, its telephone number, and its customers, did not change. Other things, like its shareholder, did. The taxing authority cries foul, and says the second corporation should be made to pay the taxes. The second company, now a debtor in this Court, says the taxes are not its problem. They have left the matter for this Court to decide. The following findings of fact and conclusions of law are made pursuant to Federal Rule of Bankruptcy Procedure 7052.

Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409.² Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a). This is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(B) and (C). This Court has jurisdiction to determine the amount or legality of the taxes and penalties at issue in this proceeding pursuant to § 505.

Findings of Fact

Jeffery R. Reetz ("Reetz") and Joseph D. Grubb ("Grubb") have been business partners for 12 years. Grubb has almost 30 years' experience in foundry related businesses. Reetz has been in the foundry business for almost 44 years, and holds both MBA and J.D. degrees. One of the

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businesses owned by Reetz and Grubb was Beryllium Enterprises, Inc. ("Beryllium"), where each was a 50% shareholder. Beryllium was an Oklahoma corporation formed in 2005 that leased employees to various manufacturing companies. A second business owned by Reetz and Grubb was Finished Castings Inc. aka FCI, Ltd. ("FCI"), where each was also a 50% shareholder. FCI was an Oklahoma corporation involved in the processing of heavy iron and performing the finished grinding, sanding, and polishing of iron and steel castings. Beryllium and FCI operated out of the same location in Claremore, Oklahoma, in a building owned by Reetz and Grubb. For purposes of this litigation, the parties have agreed that Beryllium and FCI are alter egos, such that FCI may legally be held responsible for Beryllium's debts.

The Beryllium Tax Debt

Beryllium failed to properly pay its employment tax liabilities owed for certain quarters in 2008 and 2009 (the "Trust Fund Taxes"). This caused the IRS to assess penalties and interest in addition to the original employment tax debt (the "Tax Debt") against Beryllium.³ As the owners of Beryllium, Reetz and Grubb were, under U.S. tax law, personally liable for the Trust Fund Taxes. Beryllium, Reetz, and Grubb hired attorney Paul Tom ("Mr. Tom") to represent them before the IRS. Between January and October of 2011, Reetz and Grubb caused FCI to make payments of more than $59,000 to the IRS towards the Tax Debt.⁴ On August 31, 2012, Mr. Tom sent a letter to the IRS proposing a 42-month plan that would have resulted in FCI paying $10,000 per month to settle all of

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the remaining Tax Debt (the "Proposal").⁵ IRS Revenue Agent Olusola Dada ("Mr. Dada") was assigned to the Beryllium tax case. As part of the Proposal, Beryllium provided financial information regarding FCI to show that FCI was able to make the proposed payments. Mr. Dada later communicated to Mr. Tom that he was not inclined to accept the Proposal, and that the IRS needed more information regarding various business expenses reported by FCI before he would accept it.

In an effort to override Mr. Dada's assessment of the Proposal, Mr. Tom requested a meeting with Mr. Dada's supervisor, Ms. Tanya Quisenberry ("Ms. Quisenberry"), to be held on September 27, 2012, to discuss the Tax Debt, the Proposal, and to address Mr. Dada's concerns regarding FCI's expenses. Reetz and Grubb were expected to attend that meeting, since 1) it was being held at their request; and 2) they were the only parties with working knowledge of FCI's operations. Mr. Tom, Mr. Dada, and Ms. Quisenberry attended the meeting; Reetz and Grubb did not.⁶ Mr. Dada testified that at the September 27, 2012, meeting, he told Mr. Tom that he intended to make a recommendation to the IRS general counsel that FCI be held responsible for Beryllium's Tax Debt as its alter ego and successor in interest. Based on these facts, as well as the testimony outlined in the following paragraph, the Court finds that Mr. Tom, Reetz, and Grubb were well aware in September 2012 that the IRS planned to look to FCI for further payment of the Tax Debt.

Beryllium had no significant assets upon which the IRS could levy to recover the Tax Debt. On approximately September 14, 2012, the IRS levied on personal bank accounts of Reetz and Grubb, as parties responsible for the Trust Fund Taxes, and garnished 100% of their wages. Grubb testified

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that this seizure convinced him that the September 27, 2012, meeting would be futile, and that the IRS would not accept the Proposal. Instead of attending the meeting, Grubb and Reetz came up with "Plan B." Plan B was to sell FCI's assets—the only unencumbered assets under their control that had not been previously levied by the IRS—in order to pay the Trust Fund Taxes, i.e., only that portion of the Tax Debt for which Reetz and Grubb were personally liable. Reetz and Grubb emphatically deny that they were aware in September 2012 that the IRS planned to hold FCI responsible for the entire Tax Debt. The Court gives their testimony in this regard little weight.

Plan B: The Formation of RahnDee

Grubb testified that on the same day his personal bank accounts were seized by the IRS, he began working on Plan B, i.e., looking for a buyer for the assets of FCI to generate funds to pay off the Trust Fund Taxes. He approached a single individual, Jeffrey Losornio ("Losornio") about the deal. Losornio was a long-time family friend of Grubb, with whom Grubb had been engaged in a previous small business venture. Losornio was a local small businessman involved in screen printing and embroidery, advertising, and marketing. He had absolutely no experience in the foundry, manufacturing, iron, or steel casting businesses. What Losornio did have was good credit. Grubb offered to sell FCI's accounts receivable and equipment to Losornio for $155,000, and do it quickly. Losornio agreed without further negotiation. Losornio was fully aware that FCI, Grubb, and Reetz had "trouble" with the IRS, and that the motivation for the quick sale lie therein.

As soon as Losornio agreed to the purchase, a flurry of activity began—the entire deal was completed within five days.⁷ An entity named RahnDee Industrial Services, Inc. ("RahnDee") was

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incorporated with the State of Oklahoma on September, 25, 2012, naming Losornio as the initial director.⁸ All matters relating to the incorporation were handled by Reetz, including drafting the articles of incorporation and corporate by-laws. RahnDee adopted by-laws on September 25, 2012, signed by Grubb as President.⁹

Two separate documents were produced purporting to be the "Minutes of First Meeting of Board of Directors of RahnDee Industrial Services."¹⁰ They tell markedly different stories. The first, dated September 25, 2012, names Reetz as Chairman, CEO, and Secretary; and names Grubb as President.¹¹ It indicates that RahnDee would issue 50,000 shares with par value of $1 each. Five hundred shares were issued to Losornio "upon payment to the Corporation [RahnDee] of the subscription price of $1.00 per share, for a total amount of $500.00." These minutes were signed by Losornio as "Director."¹² The second set of first meeting minutes is dated November 8, 2012. This document indicates that Reetz was elected to the Board of Directors and as its Chairman, and designated as Secretary and CEO. Grubb was also elected to the Board of Directors, and designated the Treasurer and Chief Operating Officer. Finally, Losornio was elected to the Board of Directors. No president was named. This document was signed by Reetz, Grubb, and Losornio.¹³

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Losornio never paid the $500 for the RahnDee stock, although he was issued a stock certificate for the 500 shares.¹⁴ The November 8, 2012, minutes authorized the directors "to issue the shares of the Corporation to the full extent authorized by the Certificate of Incorporation in such amounts and for such consideration as from time to time shall be determined by the Directors, and as may be permitted by law."¹⁵ As of December 3, 2014, there were 49,500 shares in RahnDee that have been issued but not yet sold or transferred by RahnDee to anyone.¹⁶

Grubb testified that RahnDee took possession of FCI's assets and receivables, i.e., the "deal was done," on September 23, 2012, or perhaps earlier. Reetz has submitted inconsistent declarations to this Court regarding whether RahnDee took over operations on September 24 or September...