U.S. Tax Court Opinion: OSGC’s Nature’s Way Tissue Corp. “Owned 100% Of Both Custom Paper Products, Inc. [&] Purely Cotton Products Corp.”; “Beginning in 2000 William Bain… Served As A Straw Borrower For Ronald H. [Van Den Heuvel]”; Nicolet Bank Asked Baylake Bank To Write Off $8 Million Loan To Ron During 2016 Merger; Van Den Heuvel Family VHC Inc.’s $92 Million Advances To Ron & His Companies “Did Not Represent Bona Fide Debt,” Thus “VHC Is Not Entitled To [Tax] Deductions”; POSTED: Ronald Hewry Van Den Heuvel & Kelly Yessman Van Den Heuvel Tax Court Orders

 

  • July 23, 2017 Order, U.S. Tax Court Docket No. 14370-17,  Ronald Hewry Van Den Heuvel & Kelly Y. Van Den Heuvel  v.  Commissioner of Internal Revenue

For cause, it is ORDERED that the caption of this case is amended to read,
Ronald Hewry Van Den Heuvel &
Kelly Y. Van Den Heuvel ,
Petitioner(s)
  v.
Commissioner of Internal Revenue,
Respondent
.”

  • October 20, 2017 Order, U.S. Tax Court Docket No. 14370-17,  Ronald Hewry Van Den Heuvel & Kelly Y. Van Den Heuvel  v.  Commissioner of Internal Revenue

ORDER

On October 17, 2017, respondent filed in the above-docketed matter a Motion for Entry of Order that Undenied Allegations Be Deemed Admitted Pursuant to Rule 37 (c) of the Tax Court Rules of Practice and Procedure.

Upon due consideration, it is ORDERED that, on or before November 13, 2017, petitioners shall file a reply, if any, to the answer in accordance with Rule 37 (a) and (b) of this Court’s Rules. Petitioners are advised that respondent’s just-referenced motion will be denied if such reply is filed as directed. Conversely, the motion will be granted if such reply is not filed as directed, thereby deeming admitted for purposes of this case the affirmative allegations set forth in the answer.

  • November 6, 2017 Order, U.S. Tax Court Docket No. 14370-17,  Ronald Hewry Van Den Heuvel & Kelly Y. Van Den Heuvel  v.  Commissioner of Internal Revenue

ORDER

On November 3, 2017, respondent filed in the above-docketed case a Motion To Dismiss for Lack of Jurisdiction as to Petitioner Kelly Y. Van Den Heuvel, on the ground that the petition was not executed or filed by Kelly Y. Van Den Heuvel or on her behalf by a party with proper authorization and capacity pursuant to the Tax Court Rules of Practice and Procedure. Rather, the petition had been signed only by Ronald Hewry Van Den Heuvel. If a petition has not been has not been properly signed by a petitioner personally or by a representative admitted to practice before this Court, then in order for the Court to acquire jurisdiction to consider the case as to that taxpayer, it is necessary to obtain a Ratification of Petition bearing the taxpayer’s original signature and ratifying the petition previously filed. The Tax Court, unlike the Internal Revenue Service (IRS), does NOT recognize powers of attorney.

Upon due consideration, it is ORDERED that, on or before November 27, 2017, Kelly Y. Van Den Heuvel shall file with the Court a Ratification of Petition, bearing her original signature (preferably in blue ink), in which petitioner states, if such be the case, that she has read the petition filed June 29, 2017, and ratifies and affirms the filing of said document. If no such Ratification of Petition is received by that date, the Court may dismiss this case for lack of jurisdiction. Petitioner should note that the Ratification of Petition may NOT be filed electronically.

It is further ORDERERED that the Clerk of the Court is directed to attach to the copies of this Order served on petitioners a form which may be used for the purpose of ratifying the petition. Respondent’s motion to dismiss shall be held in abeyance.

(Signed) L. Paige Marvel Chief Judge

  

  • November 7, 2017 Opinion,
    U.S. Tax Court
    Docket Nos. 4756-15, 21583-15,
    VHC Inc. and Subsidiaries  v.
    Commissioner of Internal Revenue [IRS]

 

T.C. Memo 2017-220

UNITED STATES TAX COURT

VHC, INC. AND SUBSIDIARIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 4756-15, 21583-15.                 Filed November 7, 2017.

  

MEMORANDUM FINDINGS OF FACT AND OPINION

KERRIGAN, Judge: In these consolidated cases, respondent determined the following deficiencies with respect to petitioner’s Federal income tax liabilities for tax years 2004-13 (tax years at issue):In these consolidated cases, respondent determined the following deficiencies with respect to petitioner’s Federal income tax liabilities for tax years 2004-13 (tax years at issue):

Year         Deficiency
2004        $2,507,262
2005        1,360,723
2006        1,462,854
2007        929,853
2008        5,393,079
2009        2,607,540
2010        3,437,475
2011        1,941,442
2012        8,593,094
2013        4,259,288

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the tax years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar.

The issues for consideration are: (1) whether petitioner is entitled to related-party bad debt deductions under section 166 for tax years 2004 and 2006- 13; (2) whether alternatively petitioner is entitled to business expense deductions under section 162 for the tax years at issue; (3) whether alternatively petitioner is entitled to recoup taxes paid for closed tax years on amounts it advanced to related parties; (4) whether alternatively petitioner is entitled to recoup taxes paid for closed tax years related to accrued interest; (5) whether alternatively petitioner is entitled to reduce income by the amount of interest income accrued but unpaid; (6) whether petitioner is entitled to an unrelated-party bad debt deduction under section 166 for tax year 2007; and (7) whether petitioner is entitled to interest expense deductions under section 163 for tax years 2009-13.

[Footnote: There are two computational issues: the amount of the charitable contribution deduction for 2006 and whether there was a net operating loss for 2006.]

    

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. We incorporate by this reference the stipulation of facts and the attached exhibits.

I.     Overview of VHC

VHC [Inc.] is a Wisconsin corporation with its principal place of business in Green Bay, Wisconsin, when it timely filed its petition. During the tax years at issue VHC was a holding company of five wholly owned subsidiaries (collectively, VHC or petitioner). VHC focused primarily on the paper industry.

During the tax years at issue VHC was a family-controlled company which Raymond Van Den Heuvel founded in 1985. Raymond started in the electrical business with his brothers. In 1982 he branched off and formed his own business, VDH Electric (VDHE). He started VHC in 1985. Raymond remained the president of VHC until he retired in 1992.

Raymond and Patricia [Van Den Heuvel] are the parents of eight children, including Ronald H., David, Steven, Timothy, and Raymond II. All the sons worked for VHC in different capacities.

[Footnote: Raymond was not living at the time of the trial.]

A.     VHC’s Corporate Structure

During the tax years at issue VHC was a holding company that owned commercial and residential properties and was the sole owner of the following five subsidiaries: VOS Electric, Inc. (VOS), Best Built, Inc. (Best Built), Spirit Fabs, Inc. (Spirit Fabs), Spirit Construction Services, Inc. (SCS), and VDH Electric, Inc. (VDHE). Three of the five presidents of the subsidiaries were either sons of Raymond and Patricia or sons-in-law. Since 1995 one of the SCS directors has been a son of Raymond and Patricia. At the time of trial VHC employed four people directly at its headquarters. VHC offered health insurance through a self-funded plan.

1.     VOS

VOS [Electric Inc.] was incorporated in September 1985 in Wisconsin. VOS operates primarily as a nationwide electrical general contractor, performing electrical hookups for paper machines or other industrial equipment. In March 1986 Ronald H. became president and director of VOS. He served as president until August 2002 when he became senior vice president in charge of sales. Since 2002 Timothy has been the president of VOS, which currently employs approximately 250 people at its headquarters. Ronald H. served as a director of VOS until September 2005 and received wages until December 2009.

2.     Best Built

Best Built was incorporated in August 1992 in Wisconsin. Best Built is a general contractor specializing in commercial and residential construction. Craig Kassner (C. Kassner), who is married to one of Raymond and Patricia’s daughters, served as president of Best Built from August 1992 until April 2015.

3.     Spirit Fabs

Spirit Fabs was incorporated in November 1993 in Wisconsin. Spirit Fabs provides structural steel and pipe fabrication services for customers throughout the United States and has approximately 50-99 employees. In 1995 the following directors were approved: Ronald H., David, and Doug Barone (D. Barone). Ronald H. was removed as a director of Spirit Fabs in 2005. David and D. Barone remained as directors.

4.     SCS

SCS operates in industrial construction, primarily serving the paper industry. In 1989 Spirit Industrial Contractors was incorporated in Georgia. In 1991 Spirit Industrial Contractors entered into a joint venture with the Boldt Group, forming Boldt/Spirit, Inc. VHC and the Boldt Group each purchased 100 shares of Boldt/Spirit, Inc., which then purchased the assets of Spirit Industrial Contractors. In 1992 Boldt/Spirit, Inc., changed its name to SCS, and in 1995 VHC bought out the Boldt Group’s stake, becoming the sole owner of SCS.

Ronald H. served as president and director of SCS from 1995 until August 2002, at which time he became senior vice president in charge of sales. Steven has been president of SCS since 2002. Ronald H. remained a director of SCS until 2005 and received wages from SCS until December 2009.

5.     VDHE

VDHE was incorporated in 1982 in Wisconsin and operates as an electrical contractor, performing mostly residential work. Ronald Lentz (R. Lentz) is the current president of VDHE, and he has been president since the 1990s.

B.     VHC Ownership and Employees

During the tax years at issue members of the Van Den Heuvel family (VDH family), including relatives by blood and marriage, had a controlling interest in VHC. In 1998 the following VDH family members collectively owned approximately 75% of the voting stock and 63% of the nonvoting stock of VHC: Ronald H., Steven, Raymond II, David, Guy Piontek (G. Piontek), Timothy, and C. Kassner. [VOS Electric Inc. VP] William Bain (W. Bain) was related to the VDH family by marriage until approximately 30 years ago. In 1998 W. Bain owned approximately 7% of the voting stock and 10% of the nonvoting stock – the same percentage of shares as David, Timothy, and Raymond II. G. Piontek is married to one of Raymond and Patricia’s daughters.

In 1998 Ronald H. owned 600 shares of voting stock and 500 shares of nonvoting stock. He owned the most voting stock of anyone, including family members. Ronald H.’s son Ronald A. became a shareholder in 2000, and his son Ryan became a shareholder in 2003. Ronald A. and Ryan remained shareholders through 2013. Raymond did not own any VHC stock in 1998. However, Raymond held himself out as a director or treasurer of VHC from 1996 through at least 2010.

From 1998 through 2007 Ronald H.’s stock ownership remained the same. In 2008 he owned the same total number of shares, but he owned less voting stock, 200 shares instead of 600 shares, and more nonvoting stock, 900 shares instead of 500 shares. His 200 voting shares were the second most voting shares owned by anyone, including VDH family members. His 1,100 total shares were tied for the most shares owned by anyone, including VDH family members. Ronald H.’s 2008 stock ownership remained the same through 2012. In 2013 Ronald H. owned no voting stock and only 690 shares of nonvoting stock.

After Ronald H.’s voting shares decreased to 200, his brother David became the owner of the most shares of voting stock. In 2008 David held 1,100 total shares – 400 voting and 700 nonvoting. David’s 2008 stock ownership remained the same through 2013.

In 1992 Susan L. Bougie (S. Bougie) was elected VHC’s president, succeeding Raymond. In 1998 David was elected VHC’s president and director and remained in those positions at the time of trial. S. Bougie served as VHC’s bookkeeper from 1997 through 2001. She never served as a director of VHC or owned any stock in the company.

Nancy Stellpflug (N. Stellpflug) worked as VHC’s certified public accountant (C.P.A.) and corporate secretary from 1986 to 2006. She oversaw all the accounting functions at VHC and its subsidiaries and maintained VHC’s books and records. From 1999 through 2006 N. Stellpflug owned 3 voting shares and 27 nonvoting shares of VHC Stock.

In 2006 James Kellam (J. Kellam) became VHC’s bookkeeper and corporate secretary. He is the son-in-law of S. Bougie. In 2009 J. Kellam became a shareholder and owned a total of 22 shares – 2 voting and 20 nonvoting. His stock ownership increased gradually, and in 2013 he owned a total of 110 shares – 10 voting and 100 nonvoting. Before working for VHC he worked at a company Ronald H. owned from 1997 until 2006.

Shareholder voting generally took place at semiannual meetings held in April and September of each year. During the tax years at issue VHC held informal meetings on every other Friday with holders of 200 or more shares. Shareholders other than VDH family members who attended these informal meetings included R. Lentz, W. Bain, Jim Rottier (J. Rottier), Jim Thiry (J. Thiry),  and Doug Barrone (D. Barrone). These informal meetings were generallynot recorded.

    

II.     Background on VHC Business and Growth

When Raymond started VDHE in 1982 it had approximately 12 employees and operated only in Green Bay, Wisconsin. When Raymond started VHC in 1985 it had about 50 employees. In 1985 VHC, through VOS, began working on Fort Howard Paper Co.’s (Fort Howard) plant in Rincon, Georgia, and it grew to approximately 600 employees. The Fort Howard project was the main driver of this growth. Ronald H. supervised the Fort Howard project for VHC.

After successfully completing the Fort Howard project, VHC began working for major paper companies across the United States. In 1989 Ronald H., as part of a plan to expand VHC nationally, founded Goss Mechanical to augment VOS’ operations. VHC subsequently purchased Goss Mechanical’s assets a year later and started Spirit Industrial Contractors, which became SCS. SCS then began providing services to some of the largest manufacturing companies in the United States. SCS grew because of Ronald H. and his personal contacts with leaders within the paper industry.

SCS and VOS were the most successful subsidiaries. SCS and VOS worked frequently together to provide coordinated mechanical and electrical work on various projects. Since the Fort Howard project VHC’s numbers of employees and its revenue have grown steadily.

Before 1997 Ronald H. was known to VHC’s shareholders as a great salesman whose primary job functions included sales and working on jobsites. VHC credits Ronald H. for the company’s expansion from a local company to a national one, in particular because of his success in obtaining work from Fort Howard. He did significant work for VHC within plants owned by Fort Howard, and he brought the skills and knowledge of the paper-making process into VHC’s business. He was able to use the Fort Howard experience for VHC’s benefit, to make sales and supervise jobs for VHC with other paper companies.

As president of SCS and VOS Ronald H. obtained licenses and managed jobs on site. His duties included being in charge of sales, contracts, and customer relations. Ronald H.’s connections to major paper companies allowed SCS and VOS to either bid on jobs for those companies or be awarded jobs without the bidding process altogether.

During the tax years at issue VHC worked in approximately 20 to 30 States. Ronald H. held 28 licenses for approximately 20 States as a general contractor, HVAC contractor, electrical contractor, pipefitter, and millwright. As of 2002 VHC continued to use Ronald H.’s licenses for work in approximately 20 States.

VHC continued to use his licenses throughout the tax years at issue, and it still used his Oklahoma license in exchange for providing him health insurance.

  

III.     Ronald H.’s Related Companies

A.     Nonpaper Companies

In the early 1990s Ronald H. started several businesses outside of VHC, including a bank in Rincon, Georgia, and a plant in Pennsylvania called Clarion Fibre. The Clarion Fibre plant produced wood products, and SCS and VOS were given the contract to build the plant. The contract was profitable for SCS and VOS. Ronald H. also owned RVDH Development Corp., which owned a Lear jet, and Care for All Ages, Inc. (CFAA), which provided child and adult care services. CFAA and RVDH Development Corp. were dissolved in 2009 and 2015, respectively.

Before 1996 VHC’s officers knew that Ronald H. had started several ventures outside of VHC. William Bain, a former brother-in-law and major shareholder of VHC, managed or assisted in managing Ronald H.’s business ventures. He was also a part owner of CFAA.

In 1996 Raymond walked in on Ronald H. and W. Bain in VHC’s boardroom having a meeting about their outside ventures. At that time Ronald H. and W. Bain were operating four homes for the elderly together through CFAA, and it was taking significant time away from their duties at VHC. On July 19, 1996, VHC notified W. Bain by letter that his conduct was in violation of its amended bylaws and threatened to reduce his salary and convert his voting stock to nonvoting stock. The letter informed W. Bain that if within six months he decided to return to work full time he would return to the same status he had before the notification. W. Bain quit CFAA and went back to work for VHC. Ronald H. did not receive a similar letter from VHC.

In 1998 VHC discovered that Ronald H. had started a company called Patriot Contractors which competed with VHC and its subsidiaries. Ronald H. had previously won a project for VHC with Kimberly-Clark Corp. (Kimberly-Clark), but VHC was losing money from the job. After VHC told Kimberly-Clark that it could not continue to perform the job at the current rates, Patriot Contractors took over the job. In 1998 Patriot Contractors also won a contract from Kimberly- Clark to build a warehouse in Arkansas. The project began to fail and Patriot Contractors did not pay its subcontractors. Kimberly-Clark contacted VHC about the project and informed it that Ronald H. had represented that Patriot Contractors was part of VHC. According to notes of a board of directors meeting held on December 12, 1998, VHC decided to purchase the assets of the company that owned the warehouse in Arkansas for $10 million and lease it to Kimberly-Clark. Raymond and Ronald H. were present at this board of directors meeting.

B.     Paper Companies

At the same time Ronald H. started his nonpaper companies, he began to make plans to enter the paper mill business. Generally, Ronald’s H. companies were involved in the business of making and converting paper into tissue.

In 1997 Ronald H. formed Partners Concepts Development, Inc. (PCDI), in De Pere, Wisconsin. During the tax years at issue he owned a majority of PCDI shares and managed its business. He was PCDI’s president and chairman. In 2012 PCDI received a notice of administrative dissolution, but as of June 4, 2014, PCDI was a corporation in good standing with the State of Wisconsin.

James Kellam was PCDI’s vice president and worked for the company from June 1997 through May 2006. Since at least 1999 Raymond operated as PCDI’s chief financial officer (CFO) and held weekly PCDI-related meetings with Ronald H. at VHC’s headquarters.

In 1997 Ronald H. asked VHC to invest in PCDI. VHC did not invest in PCDI because of a potential conflict of interest with VHC’s other customers. At a VHC shareholders’ meeting on August 9, 1997, VHC decided that its shareholders could invest in PCDI. Ronald H. was not present at the meeting. The shareholders decided that Ronald H. could own at least 51% of PDCI, and that other VHC shareholders could purchase less than 5% of PCDI’s stock. The minutes from this meeting reported that Ronald H. would continue to procure work for SCS and VOS, but his wages would be cut in half. The minutes also indicated that the officers for SCS and VOS would change, but Ronald H. remained president of these companies until 2002.

In 2000 VHC placed VOS’ project manager, Jim Rottier, at PCDI’s operations and asked him to report back to VHC on his findings. J. Rottier was also a VHC shareholder with 220 total shares, 40 voting and 180 nonvoting. Once at PCDI he worked as the assistant plant manager, and he eventually became the plant manager at the Oconto Falls Tissue, Inc. (OFTI) mill. VOS paid J. Rottier while he was PCDI’s plant manager. He worked at the OFTI mill until 2006. He continued to attend VHC board meetings during the time he worked at the OFTI mill.

From 1998 through 2002 VHC shareholders that owned PCDI shares included all of the VDH brothers, as well as W. Bain, G. Piontek, C. Kassner, R. Lentz, N. Stellpflug, and J. Rottier. Raymond also owned shares of PCDI. Most of these shares were canceled in November of 2003. J. Kellam still owns his PCDI shares.

PCDI owned controlling interests in a number of companies that were involved in different aspects of the paper industry. In 1997 PCDI Oconto Falls Tissue, Inc., was incorporated in Wisconsin and later changed its name to Oconto Falls Tissue, Inc. (OFTI). Ronald H. was the sole director and president of OFTI. J. Kellam served as OFTI’s vice president. In 2001 Tissue Products Technology Corp. (TPTC) was incorporated in Wisconsin. After 2001 TPTC, which PCDI controlled at all times, owned 100% of OFTI. TPTC was administratively dissolved by the State of Wisconsin on December 13, 2011, but was restored to good standing in 2014. In 2005 PCDI owned a majority of TPTC shares.

From July 1997 to April 16, 2007, OFTI owned a tissue mill in Oconto Falls, Wisconsin (OFTI mill). Ronald H. purchased the OFTI mill from Kimberly-Clark in 1997. His plan was to install a paper machine that produced 106-inch rolls of tissue, which could then be delivered to customers to cut down to size for use as consumer products. SCS served as a subcontractor on some work for the first installation of the first paper machine at the OFTI mill.

In 1997 Re-Box Paper, Inc. (Re-Box), was incorporated in Wisconsin. It changed its name to Re-Box Packaging, Inc., then back to Re-Box Paper, Inc., and then to EcoFibre, Inc. (EcoFibre). EcoFibre received a notice of administrative dissolution from the State of Wisconsin in January 2012 but was restored to good standing in 2014. Ronald H. served as president and director of EcoFibre from its inception through at least 2006.

[Footnote: We use the term “EcoFibre” to include operations under previous names.]

PCDI owned 88% of EcoFibre. When Ronald H. acquired the EcoFibre facility it operated as a recycled pulp mill that converted recycled waste paper into paper pulp, which could then be used to make other paper products. Ronald H. intended to convert the EcoFibre facility into a liner-board facility – a paper mill that produced cardboard. According to a board of directors meeting on December 12, 1998, VHC agreed to purchase the EcoFibre real estate and equipment and then to lease the property to OFTI, with OFTI agreeing to purchase EcoFibre’s operations. Ronald H. was present at this meeting. VHC purchased the EcoFibre real estate for $6 million. VHC financed the purchase with a $6 million loan from Associated Bank, which carried a 7% fixed interest rate for three years. In 1999 VHC sold the EcoFibre facility to Ronald H. through an installment sale.

VHC involved itself with EcoFibre because of the potential to obtain significant construction projects. VHC believed potential customers included Fort  Howard, Green Bay Packaging, Inc. (Green Bay Packaging), and Procter & Gamble Corp. (P&G), and that Enron, Inc. (Enron), was a potential investor.

PCDI owned 67% of Custom Tissue, LLC (Custom Tissue), and the remaining portion was owned by employees or other related parties. Custom Tissue was incorporated in Wisconsin in 2003. Custom Tissue owned 49% of Nature’s Way Tissue Corp. (NWTC), a Wisconsin corporation that was majority owned by Native American investors. TPTC performed management functions for NWTC under a management agreement. NWTC converted tissue rolls into finished, packaged products. NWTC owned 100% of both Custom Paper Products, Inc. (CPPI), and Purely Cotton Products Corp. (Purely Cotton). CPPI was incorporated in 2000 in Wisconsin. It operated as a converting operation, which took large tissue rolls and cut them into consumer-size rolls. Purely Cotton owned the patents, technology, and intellectual property regarding a process for making tissue out of cotton. Custom Tissue, NWTC, CPPI, and Purely Cotton were administratively dissolved in 2012.

Tissue Technology, LLC (TTL), was incorporated in 2006 in Wisconsin, and serves as a holding company. Ronald H. is one of its members and controls the company. In 2012 TTL received a notice of administrative dissolution, but it was restored to good standing in July 2014.

In 1998 VHC was losing customers to Ronald H.’s competing companies. VHC lost its work with Green Bay Packaging and Kimberly-Clark, which was potentially worth several hundred millions of dollars. Concerns about Ronald H.’s competing companies were addressed at a February 14, 1998, board of directors meeting. The directors agreed that Ronald H. would pay VHC $200,000 in exchange for continuing to work on his outside ventures without losing his stock or reducing his wages. Ronald H. was present at this meeting.

While Ronald H. began his paper companies and VHC provided work at the OFTI mill and EcoFibre facility, Ronald H. continued to serve as president and director of SCS and VOS. In 2002 he was replaced as president of SCS and VOS, but he remained vice president in charge of sales for both companies. His sales and customer relations role remained the same as when he was president. He remained in this role until December 1, 2009. His electrical licenses were useful to SCS and VOS for obtaining projects.

The minutes of a special meeting of the board of directors of VHC held on December 1, 2009, reported that Ronald H. resigned from his positions at SCS and VOS, but that he could return. He received a Form W-2, Wage and Tax Statement, from VOS covering the period through December 2009. Ronald H. was enrolled in VHC’s self-funded health plan during the tax years at issueand was enrolled in the plan at the time of trial.

On October 15, 2010, the board of directors of VHC agreed that Ronald H. is a key person and that it would be in VHC’s best interest to purchase keyman life insurance on his life. On October 22, 2010, David applied for a life insurance policy with John Hancock, Inc., on Ronald H.’s life, and on the application stated that VHC was Ronald H.’s employer. Attached to the application was a financial supplement stating that Ronald H. received as compensation $175,000 from VHC in 2010 and a total of $350,000 for the two preceding years.

On May 30, 2013, VHC entered into an agreement with Ronald H. to purchase some of his VHC shares that Manchester Mortgage held to secure a loan related to his primary residence. Manchester Mortgage held 1,100 shares. VHC purchased 410 shares of stock at a frozen value from Manchester Mortgage, and Manchester Mortgage agreed to return the remaining 690 shares to VHC. The value of these 690 shares was frozen, but if Ronald H. were to return to VHC or one of its subsidiaries full time, his stock would be unfrozen and going forward would be subject to the same increases or decrease in values determined by the shareholder.

  

IV.     Petitioner’s Advances to Ronald H. and His Related Companies

According to a spreadsheet created by J. Kellam summarizing VHC’s advances, VHC advanced $111,149,341 to Ronald H. or his related companies from 1997 to 2013. This amount included guaranties of Ronald H.’s and his related companies’ debts, lines of credit, nonguaranteed advances, and payments to Ronald H.’s and his related companies’ creditors.

[Footnote: VHC treated guaranties entered into, bank debt it absorbed, and payments to other creditors on behalf of Ronald H. and his related companies as advances on its spreadsheet. As petitioner did, we refer to these transactions as advances.]

A.     Petitioner’s Initial Advances

According to VHC’s spreadsheet it began advancing funds to Ronald H. and his related paper companies when they were first organized in 1997. VHC began advancing PCDI funds in December 1997. CPPI was incorporated on June 1, 2000, and on November 2, 2000, VHC advanced $1 million to CPPI. According to VHC’s records from 1997 through 2002 it advanced $45,553,961 to Ronald H. and/or his related companies but received payments of only $17,173,062.

From 1997 through 2002 VHC advanced funds to Ronald H.’s related companies in the belief that his various projects would be lucrative for VHC. Advances were made to assist EcoFibre and to help Ronald H. potentially sell the OFTI mill to United Arab Emirates, Inc. (UAEI). It advanced funds to finance the  installation of a second tissue machine at the OFTI mill, which was intended to make the purchase of the mill more attractive to UAEI. VHC expected UAEI to provide work for VHC. The potential work that VHC could obtain from Ronald H.’s projects would be profitable to VHC because it would not have to negotiate against other bidders and would be able to set the terms of its work.

In 2001 UAEI did not ultimately purchase the mill, and Enron’s bankruptcy ended its potential to invest in EcoFibre. Ronald H. was unable to make payments on bank loans or obtain additional paper supplies. Despite these events VHC continued to advance funds to Ronald H.

VHC advanced funds from 1997 through 2002, even though the advances created problems in obtaining surety bonds. Surety bonds are required for contractors working on public contracts and for some private contracts, and they ensure that the work for the project will be completed without bills for the obligee to pay after completion. The millions of dollars of receivables VHC had on its balance sheets attributable to the advances made to Ronald H. and his related companies affected its ability to obtain surety bonds. As VHC continued to advance funds to Ronald H., its ability to obtain bonding decreased. The difficulty in obtaining surety bonds damaged VHC’s ability to bid on public work or private contracts that required bonding.

Advances to Ronald H. and his related companies were discussed atmonthly meetings among the principals of VHC. Raymond, who did not own VHC stock in 1998 or throughout the years at issue, attended these meetings. David discussed new advances to Ronald H. and his related companies with VHC’s shareholders but did not discuss renewals of advances with the shareholders. According to David, the shareholders did not vote to approve the advances but there was unanimous approval after discussions regarding the advances. Shareholders discussed the advances without being privy to detailed financial information of Ronald H. and/or his related companies. VHC shareholders considered Raymond and David the ultimate decision makers on whether to advance funds to Ronald H. and his related companies.

Although retired from his position as president and director of VHC, Raymond continued to attend VHC directors meetings and sometimes called the meetings to order. Raymond continued to review VHC’s financial records. According to the minutes of a meeting called by the VHC directors on March 13, 1999, Raymond explained the profits and losses of the VHC group of companies. At a board of directors meeting in 1999 Raymond offered input as to why SCS was underperforming. In 2003 Raymond as CFO of EcoFibre, PCDI, and TPTC signed a loan modification agreement between Baylake Bank and VHC.

VHC advanced funds to Ronald H. and his related companies when thecompanies had more debt than equity on their financial statements. In specific instances VHC advanced funds because of its relationship with certain investors in Ronald H.’s related companies. For example, in 1998 VHC advanced funds to buy out Roy Stumpf, a family friend and businessman. VHC advanced the funds to buy out Roy Stumpf after it learned that Ronald H. had taken out for personal use money that R. Stumpf and his partners had invested in PCDI. In 1999 VHC advanced funds to PCDI to buy out Paul Schierl because he was a “good guy” in the community. In 1999 VHC also advanced funds for Ronald H. to pay his Federal and State income taxes.

From 1997 through 2002 VHC continued to make advances to Ronald H. and his related companies even though the companies were financially unstable. VHC advanced funds with the goal that Ronald H. would eventually be able to manage PCDI and EcoFibre independently. Even with the advances from VHC, PCDI was struggling financially and could not pay its bills.

Beginning in 2000 William Bain, a VHC shareholder and former brother-in-law, served as a straw borrower for Ronald H. by obtaining loans on behalf of Ronald H. at different banks. In 2000 he obtained a loan for $125,000 from Associated Bank and a loan for $250,000 through Nicolet Bank. In 2002 he used his personal credit to obtain a $500,000 loan of which Ronald H. used the proceeds to buy out an EcoFibre shareholder.

[SEE ALSO:  September 20, 2016 Superseding Indictment for ‘Straw Borrower’ Bank Fraud Scheme [19 Counts], U.S. District Court, WI Eastern District Docket No. 16-CR-064,  United States of America  v.  Ronald H. Van Den Heuvel, Paul J. Piikkila, and Kelly Y. Van Den Heuvel

In 2004 VHC advanced approximately $120,000 for Ronald H. to pay three years of past-due property taxes on his home. In 2005 VHC advanced funds for Ronald H. to reduce the principal owed on his home by $2 million.

Between 1998 and 2001 VHC began having conversations with Ronald H.’s banks, individual lenders, and investors on the status of his related companies. Local Green Bay bankers called David Van Den Heuvel to discuss their lending activities with the companies and whether there was a real prospect of repayment.

VHC negotiated with banks on behalf of Ronald H. and his related companies and agreed to pay his debts at banks and provide substitute collateral. David met with Associated Bank and told the bank that VHC would purchase a bankrupt steel company that Associated Bank held and that VHC would guarantee Ronald H.’s loans with the bank. In order for VHC to receive a long-term loan from Associated Bank, VHC agreed to guarantee Ronald H.’s and his related companies’ debts and to provide as collateral buildings that VHC owned.

B.     Petitioner’s Guaranties and Bank Loans

According to VHC’s records from 2002 through 2013 it made guaranty payments to banks of $18,667,560, made payments to banks on behalf of Ronald H. or his related companies on which VHC assumed the obligation to the banks of $16,050,809, made advances for Ronald H. and his related companies to pay bank debt of $3,224,149, and made advances for Ronald H. and his related companies to pay other creditors of $10,604,959.

1.     Associated Bank

Associated Bank provided loans both to VHC and to Ronald H. and his related companies. By late 2001 Associated Bank’s strategy was to reduce its overall exposure to Ronald H. and his related companies by shifting as much of his debt as possible to VHC. Before 2002 VHC agreed to guarantee approximately $27 million of Ronald H.’s and/or his related companies’ debt to Associated Bank.

In 2002 Associated Bank’s combined loan exposure between VHC and Ronald H.’s related companies was approximately $54 million, about $25 million of which was attributable to VHC. At this time VHC contacted Associated Bank to discuss a renewal of its working lines of credit, which was necessary for it to stay in business because it used the lines of credit to make weekly payroll and monthly payables. From 1999 through 2002 VHC’s working lines of credit were with Associated Bank and were generally on two-year terms. VHC was concerned that its lines of credit would not be renewed. VHC tried unsuccessfully to obtain lines of credit from other financial institutions. The agreement that was ultimately reached required VHC to subordinate any and all debts owed to it by PCDI, CPPI, OFTI, or TPTC to Associated Bank.

VHC received a call from Associated Bank’s special loan group in Milwaukee, Wisconsin, and was informed that VHC’s and Ronald H.’s loans would be grouped together. Associated Bank hired Silverman Consulting to perform a forensic review of its lien and collateral positions related to Ronald H. and his related companies and to evaluate its options with respect to VHC’s loan portfolio. The consultant in charge discovered that there were significant problems with Associated Bank’s collateral tied to Ronald H.’s related companies’ loan portfolio. He discovered that Ronald H. had pledged the same assets as collateral to obtain two different loans, without the knowledge of his lender, effectively avoiding Associated Bank’s liens on Ronald H.’s related companies’ property. The consultant discovered that Ronald H. had a practice of increasing the goodwill reflected on the companies’ balance sheets by selling assets between companies for successively higher values and recording the increases fictionally as goodwill. Associated Bank’s special loan officer conveyed a summary of the consultant’s findings to VHC.

After the consultant’s review Associated Bank asked VHC to furtherguarantee Ronald H.’s and his related companies’ debt, and on September 30, 2002, VHC agreed because of concerns about its lines of credit with the bank. Also on September 30, 2002, VHC signed a loan extension agreement with Associated Bank, extending various credit lines and loans between VHC and Associated Bank. The 2002 VHC loan extension agreement required Raymond to use his best efforts to cause TPTC to replace a $2,400,000 letter of credit from Associated Bank with a letter of credit from a different financial institution, provide a backup letter of credit, or pledge cash collateral regarding that letter of credit by December 31, 2002.

After 2002 Associated Bank’s special loan officer spoke only with David about Ronald H.’s loans. From 2003 to 2013 Associated Bank continuously discussed with David the source of repayment for Ronald H.’s loans, specifically the potential repayment of Ronald H.’s loans through the sale of his several paper companies. Since 2002 Associated Bank has not lent any funds to Ronald H. or his related companies. Nicolet Bank

2.     Nicolet Bank

Nicolet Bank began its lending relationship with VHC in 2001 and with Ronald H.’s related companies around 2001 or 2002. Nicolet Bank discussed Ronald H.’s related companies’ loans with VHC in or around 2007. The cofounder of Nicolet Bank asked to meet with David and Timothy to discuss guaranteeing some of Ronald H.’s debts. The bank asked VHC to provide a guaranty for Ronald H.’s debts because they were “problem loans; if VHC did not provide the guaranty, it would prevent the bank from being able to extend credit to borrowers, including VHC. On March 16, 2007, VHC guaranteed $1 million of TTL indebtedness at Nicolet Bank. The agreement required VHC to subordinate any and all debts owed to it by TTL to Nicolet Bank. On August 14, 2009, VHC guaranteed $4,600,000 of TTL indebtedness at Nicolet Bank. This agreement also required VHC to subordinate any and all debts owed to it by TTL to Nicolet Bank.

Nicolet Bank merged with Baylake Bank in 2016. As part of the due diligence process, it discovered that Baylake Bank had an $8 million loan with Ronald H. on its books. Nicolet Bank requested that Baylake Bank write off the loan with Ronald H., which it did, before the merger. There had been no source of repayment or collateral for that loan. In 2008 or 2009 Nicolet Bank also wrote off loans with Ronald H. and his related companies because there was no source of repayment.

3.     Baylake Bank

VHC and EcoFibre were coborrowers on a loan, dated September 1, 2000, for $5,500,000 with Irwin Union Bank & Trust. The promissory note to Irwin Union Bank was subsequently assigned to Baylake Bank on March 5, 2003. On that date, EcoFibre, PCDI, TPTC, and VHC executed an agreement that removed VHC as coborrower and made it guarantor of $3,424,550, the remaining balance of the loan. Raymond signed this modification agreement as CFO of EcoFibre, PCDI, and TPTC.

On August 16, 2004, VHC provided Baylake Bank a guaranty of all debts of EcoFibre, PCDI, and TPTC at Baylake Bank. On September 10, 2004, VHC executed a monthly payment guaranty, agreeing to make monthly payments of up to $69,758 on amounts owed by EcoFibre, PCDI, and TPTC at Baylake Bank.

In August 2006 the chief executive officer (CEO) and president of Baylake Bank met with VHC to discuss its lending relationship with Ronald H.’s related companies. Baylake Bank had approximately $13 million of direct exposure to Ronald H. and his related companies. The CEO met with David and Timothy. He also met with other bankers in the Green Bay community together with David and Timothy to discuss Ronald H.’s and his related companies’ outstanding loans to the banking institutions, including Nicolet Bank and Johnson Bank. Baylake Bank’s CEO believed that VHC was the more credible source of repayment for Ronald H.’s debts.

On November 16, 2006, VHC agreed to guarantee the unpaid real estate taxes and special assessments that constituted a lien against EcoFibre, which Baylake Bank had intended to pay pursuant to a re-advancement clause in its mortgage and real estate security agreement for certain real estate owned by EcoFibre. In 2008 VHC restructured a portion of Ronald H.’s debt at Baylake Bank whereby VHC assumed a portion of the indebtedness as a direct loan from Baylake Bank to SCS. Baylake Bank made only one loan to Ronald H. after 2008 in the range of $300,000 to $600,000 with operating companies related to Ronald H. serving as guarantors. The bank viewed that loan as a “problem loan, advanced to protect the bank’s collateral position.

4.     Johnson Bank

Johnson Bank had a lending relationship with Ronald H. and his related companies and VHC since at least 2003. In 2007 or 2008 a member of its loan committee reviewed VHC’s financial statements and determined that its loans to Ronald H. and his related companies were uncollectible. Most of VHC’s advances were unsecured. Johnson Bank discovered through discussions with VHC that Ronald H. had pledged the same asset to more than one bank.

Johnson Bank discussed collection activity directed towards Ronald H. and his related companies with David and Timothy. In 2007 or 2008 Johnson Bank foreclosed on a property Ronald H. owned, which VHC purchased ultimately at a sheriff’s sale. Johnson Bank’s loan committee member was not aware of any other banks making new loans to Ronald H. during his time at the bank in 2007-08, with the exception of Horicon Bank.

5.     Other Banks

F&M Bank, which became Citizens Bank in 2004, did not lend funds to Ronald H. after 2003. On September 10, 2004, VHC agreed to guarantee Ronald H.’s debts at F&M Bank for a total value of up to $2 million. On February 11, 2009, Citizens Bank contacted VHC regarding VHC shares that Ronald H. had pledged in 2000 to secure a mortgage. In a letter addressed to David at VHC, the bank stated that Ronald H. had irrevocably appointed Citizens Bank with the power to transfer his 1,100 VHC shares to Citizens Bank. Citizens Bank’s letter requested that VHC update its books to reflect that Citizens Bank was the holder of and owner of Ronald H.’s 1,100 shares as of February 12, 2009, or that VHC pay the full approximately $3 million owed to Citizens Bank by Ronald H. VHC did not comply with Citizen’s Bank’s demand, and litigation ensued. To resolve the matter Citizens Bank sold its mortgage loan to Manchester Mortgage Co., LLC (Manchester Mortgage). On May 30, 2013, VHC agreed to purchase from Ronald H. 410 common shares out of the 1,100 shares that Ronald H. had previously pledged to secure a mortgage for $1,094,290, in order to stop further legal proceedings by Manchester Mortgage.

C.     Petitioner’s Continued Advances

While VHC guaranteed Ronald H.’s debts to banking institutions and subordinated any potential repayments from Ronald H. to those institutions, it continued to advance funds to Ronald H. It continued to advance funds in 2003 and 2004 to assist Ronald H. in an effort to sell the OFTI mill to Wausau Paper.

VHC continued to advance funds to Ronald H. and his related companies while the companies had large amounts of debt. In 2004 after Ronald H. failed to sell the OFTI mill, VHC began claiming bad debt deductions on its Federal income tax returns. Even after beginning to claim bad debt deductions in 2004, VHC continued to advance funds. For example, according to its spreadsheet, VHC advanced $1,900,000 to PCDI to buy out PCDI shareholders and $19,065 to pay the City of De Pere, Wisconsin, for outstanding water and sewer payments due for the EcoFibre facility.

VHC became aware of a potential sale of the OFTI mill to ST Paper, LLC (ST Paper), in 2005. ST Paper and Ronald H. and his related companies planned to enter into a joint venture to construct three tissue mills at the EcoFibre facility, at the OFTI mill, and in Utah. SCS was expected to work on these projects. The proposal was for Ronald H. to sell ST Paper 50% of his stake in the existing EcoFibre facility and 50% of the permitted six-acre parcel with utility rights on the OFTI mill and to contribute the EcoFibre facility and the OFTI mill as equity for ST Paper’s bid to finance the three tissue mills with lending institutions.

The negotiations with ST Paper continued into 2006, with the proposed sale to be executed in phases. Phase 1 was the proposed purchase of the OFTI facility, and phase 2 was the proposed purchase of the EcoFibre facility with the subsequent construction of additional tissue mills. Ronald H. and Sharad Tak, the CEO and chairman of ST Paper, signed a memorandum of understanding agreeing to close the transaction on May 5, 2006, but the transaction did not occur. At VHC’s September 9, 2006, shareholders meeting, David provided the shareholders an update on the potential ST Paper sale. According to the minutes of that meeting David reported that the deal would probably close by the end of October 2006. Ronald H. and Raymond attended this meeting. The sale did not take place in 2006.

On March 5, 2007, VHC held a special meeting of shareholders to address advances made to Ronald H. According to the minutes of the meeting David noted that as of March 5, 2007, Ronald H. and his related companies owed VHC approximately $72 million, including $8.9 million that represented EcoFibre’s debts to Associated Bank. He stated that the financing for the sale of the OFTI mill was not complete, but that if the sale occurred only approximately $9 million would come back to VHC. After considering the debt and the likelihood that VHC would be paid back, David estimated the current value of VHC stock was approximately 56% of full value. Ronald H. attended this meeting.

On April 16, 2007, ST Paper purchased the OFTI mill. ST Paper agreed to a purchase price of $86,400,000, consisting of $55,811,000 in cash used to pay closing costs, superior debts, and inventory, and $30,589,000 in subordinated promissory notes (seller notes) payable to OFTI by ST Paper. To finance the purchase, Tak Investments, Inc. (a company managed by Sharad Tak), and PCDI would be coborrowers on a $20 million note, $7 million of which VHC guaranteed in order to provide the private equity capital for ST Paper to use in the acquisition of OFTI. Other financing for the transaction was arranged by Goldman Sachs Credit Partners, L.P. (GSCP).

The seller notes were each subordinated to GSCP. Sharad Tak Investments, LLC (Tak), and Ronald H. executed a business agreement; Tak executed promissory notes. Ronald H.’s company TPTC pledged two side notes. The side notes were payable only if phase 2 of the acquisition occurred. Phase 2, which would have included the building of additional tissue mills and the sale of the EcoFibre facility, did not take place and VHC did not receive any side notes. Nearly all the assets of OFTI were sold to ST Paper, but VHC did not receive any cash from the sale.

D.     Documentation of Advances

VHC recorded the advances to Ronald H. and his related companies as notes receivable in its books and records. J. Kellam, VHC’s bookkeeper from 2006 to the present, prepared a spreadsheet which details the advances from 1997- 2013 from VHC to Ronald H. and/or his related companies. According to VHC’s spreadsheet VHC recorded that from 1997-2013 it advanced $111,149,341 to Ronald H. and/or his related companies and received payments of only $28,570,453. VHC recorded that it had accrued interest income of $20,849,843 and it received interest payments of $10,314,693. The calendar year totals shown on the spreadsheet were derived from VHC’s tax workpapers.

Discrepancies between VHC’s spreadsheet and other exhibits in the record include the following. For 2001 VHC’s spreadsheet reports two advances of $1 million each – one from SCS to TPTC and the other from VOS to PCDI. The spreadsheet details these advances as funds used to “Pay Other Creditors”. Documents in the record do not support the labels of these advances. On July 18, 2001, Ronald H. on behalf of PCDI executed a promissory note to pay an amount not to exceed $1 million to VOS. The note has handwritten markings that describe monetary amounts of $125,000, $225,000, $300,000, and $100,000 next to July 18, 19, and 31 and August 1, 2001, respectively. The note does not include the purpose of the advance or explain the handwritten amounts. The spreadsheet reports that VHC did not receive payments for this advance. The only other supporting documentation of a $1 million advance in 2001 is a promissory note to pay SCS signed by Ronald H. and Raymond on behalf of VHC and including the handwritten statement “paid in full through note renewal”. VHC’s spreadsheet does not report a $1 million advance in 2001 for which it received payments.

For 2002 VHC’s spreadsheet reported that SCS advanced $510,000 to PCDI. A discrepancy exists between a summary sheet J. Kellam prepared reflecting VHC’s 2002 transactions and VHC’s spreadsheet for 2002: The summary reflects an advance by SCS to PCDI for $644,943, not $510,000.

For 2005 VHC’s spreadsheet reported that it received payments of principal of $5,659,401. In 2005 VHC received six checks issued by Ronald H. or his related companies totaling $1,089,214. There are no other documents to support the $5,659,401 reported as payments received on the spreadsheet.

VHC had in its possession numerous promissory notes which purported to reflect advances to Ronald H. and/or his related companies. Not all the promissory notes were signed by Ronald H. Individuals would sign notes imitating Ronald H.’s signature. Some notes were signed by other individuals, and other notes had Ronald H.’s stamped signature. According to VHC’s bookkeeper, from 2006 to the present VHC accepted stamped signatures. According to Nancy Stellpflug, VHC’s C.P.A. and corporate secretary from 1986 to 2006, if VHC was going to advance funds to Ronald H., he had to sign the promissory note before the funds were released and VHC did not take anybody’s signature other than Ronald H.’s. Some promissory notes were not signed.

Most of the promissory notes had fixed schedules for repayment, and renewed promissory notes were renewed without VHC’s receiving payments of principal or interest. Many of the renewed promissory notes indicated that the original note was paid in full through the execution of a renewal note. Often promissory notes were renewed when maturity dates arose and were consolidated routinely into new larger amounts. VHC did not increase interest rates onnotes that were renewed. For example, a promissory note dated April 16, 1998, to pay VHC $2 million was signed by Ronald H. with interest set at the rate that Associated Bank charged VHC. This promissory note was renewed six times, without the payment of principal or interest and with the same interest rate, on April 16 of every year from 1999 to 2004. On October 30, 2005, Ronald H. signed a promissory note that consolidated the $2 million note into a $4,592,743 promissory note to pay VHC.

On September 18, 1998, Ronald H., R. Stumpf, and W. Bain signed a promissory note on behalf of PCDI Oconto Falls to pay $3,500,000 to VHC, payable on September 18, 2001, and bearing an interest rate of 15%. This note was renewed on October 1, 2002, for $2,126,466, extending the maturity date to January 15, 2005, and bearing interest at the rate Associated Bank charged VHC plus an additional 1%. The October 1, 2002, renewal note was subsequently consolidated along with other promissory notes into an October 1, 2004, note on behalf of TPTC and OFTI to pay $22,517,254 to VHC.

VHC continued to make advances without receiving principal payments or interest after it began claiming bad debt deductions in 2004. A promissory note on behalf of PCDI dated May 3, 2004, for $600,000 was made payable to SCS with a maturity date of May 3, 2005, bearing interest at the rate Associated Bank charged VHC. On and after May 3, 2005, the note was renewed three times without SCS’ receiving payments on principal or interest, ultimately extending the maturity date to January 15, 2009.

VHC sometimes borrowed funds to make advances to Ronald H. or his related companies. For example, in 1998 VHC borrowed $2 million from Associated Bank to advance funds to Ronald H. and his wife to pay their Federal and State tax liabilities for tax year 1997 and for other personal debt. The promissory notes from Ronald H. and/or his companies included interest, but that interest was not always above the rates that VHC paid when it borrowed the funds to advance to Ronald H. VHC borrowed $1 million from Bank One to advance to PCDI, and on December 3, 1997, Ronald H. on behalf of PCDI signed a promissory for $1 million payable to VOS with an interest rate equal to the rate Bank One charged VHC. VOS borrowed $90,000 from Associated Bank to advance to RVDH Development, and on November 5, 2000, Ronald H. on behalf of RVDH Development executed a promissory note for $90,000 with interest at the rate charged by Associated Bank to VOS.

According to VHC’s spreadsheet, it received interest payments. VHC had in its possession the following checks from Ronald H. or his related companies:

Date                     Amount
Aug. 29, 2002    $160,000
Sept. 3, 2002       170,197
Dec. 30, 2002      170,279
Jan. 17, 2005       354,147
Feb. 4, 2005        155,067
Feb. 8, 2005        200,000
Feb. 9, 2005        280,000
Sept. 16, 2005       50,000
Sept. 19, 2005       50,000
Feb. 3, 2006          69,758
Feb. 3, 2006          40,000
Mar. 3, 2006          69,758
Mar. 3, 2006          40,000

The August 29 and September 3, 2002, checks did not specify whether the amounts represented payment for interest, principal, or services or whether they were delivered timely in accordance with schedules of repayment. The December 30, 2002, check included a notation that $279 of the $179,279 represented interest but did not describe what the remaining amount represented. The January 17 and February 4, 2005, checks do not state what the amounts represented. The February 8 and 9 and the September 16 and 19, 2005, checks included notations that the amounts represented loan payments but did not specify whether the payments represented principal or interest or for which advances therepayments were intended.

The two checks dated February 3, 2006, and the two checks dated March 3, 2006, did specify the purpose. Petitioner’s deposit summary indicates that the payments represented principal but does not explain on which advances the principal was paid.

For 2002 VHC produced three checks from Ronald H.’s related companies totaling $500,476. For 2002 VHC’s spreadsheet reported it received interest payments of $1,549,751. For 2005 VHC produced six checks from the companies totaling $1,089,214. Its spreadsheet reported that it received interest payments of $1,378,709. For 2006 VHC had four checks totaling $219,516 from the companies, but its spreadsheet reported that it received interest payments of $410,547.

E.     Collection Efforts

From 2002 to 2004 VHC held daily meetings with Ronald H. at VHC’s offices, but with one exception it never formally wrote him requesting repayment for the outstanding advances. VHC sent Ronald H. one demand letter at the beginning of 2002 when he and his wife [Jan Marie Summers] were in the process of a divorce. On January 14, 2002, VHC’s lawyer sent Ronald H. and his wife separate demand letters to inform them that VHC was attempting to a collect a debt onpersonal loans made to Ronald H. The letter specified that on April 15, 1998, Ronald H. and his wife borrowed $2 million from VHC to pay Federal and State tax liabilities for tax year 1997 and other personal debt. The letter further explained that in order to provide Ronald H. and his wife the money, VHC had obtained a $2 million loan from Associated Bank, which was due and owing as of January 14, 2002. VHC did not seek collection or pursue litigation or force foreclosure.

In 2008 VHC stopped accruing interest income and paying tax on it. VHC did not pursue other avenues of collection. It failed to collect through liquidating Ronald H.’s VHC shares or to demand repayment when the OFTI mill was eventually sold in 2007. Because VHC had subordinated any rights to repayments to third-party creditors, it was unable to enforce repayment.

  

V.     SCS Dispute With Jedson Engineering

In August 2005 SCS entered into an agreement with P&G to build, install, and commission for operation a paper-making machine for P&G (Wildfire project). Jedson Engineering (Jedson) and Pine Ridge are engineering firms that provide professional design and engineering services for the construction of paper-making machines.

In August 2005 SCS and Pine Ridge entered into a written agreement under which Pine Ridge agreed to perform engineering services required or requested by SCS on the Wildfire project. Pursuant to SCS’ approval Pine Ridge entered into a written agreement with Jedson on October 17, 2005, whereby Jedson agreed to provide engineering services for the Wildfire project.

In February 2007 SCS and P&G entered into a written change order related to the Wildfire project, wherein P&G requested that SCS perform additional startup engineering support services. On the basis of this change order, SCS entered into an agreement with Jedson whereby Jedson agreed to provide certain startup engineering services related to the Wildfire project.

SCS believed that Jedson’s failure to meet or perform its responsibilities and duties throughout the Wildfire project resulted in significant cost overruns to SCS. SCS incurred costs to complete the startup and engineering services. On November 16, 2006, SCS issued an invoice for a back charge to Jedson for $203,036, and on September 5, 2007, SCS issued a second invoice and notice of back charge to Jedson of $889,453. SCS’ total charges issued to Jedson were $1,092,489.

Jedson did not pay the invoiced amounts and sued SCS in 2007. On April 10, 2008, SCS filed a counterclaim and third-party complaint against Jedson and Pine Ridge alleging that SCS had suffered damages in relation to Jedson’s performance on the Wildfire project. On March 23, 2011, SCS and Jedson settled the case, and SCS agreed to pay Jedson $280,000 by March 25, 2011, in exchange for the release of its suit against Jedson and Jedson’s release of its suit against SCS.

  

VI.     VHC’s Purchase of Apartments

On November 26, 1997, VHC offered to purchase Raymond and Patricia’s 65% interest in a 36-unit apartment building in Green Bay. The net purchase offer totaled $750,000. The offer was accepted.

On December 1, 1997, VHC executed a promissory note for $750,000, promising to pay Raymond and/or Patricia the principal sum, with interest on the unpaid principal balance from the date of the note, until paid, at a 10% rate. S. Bougie, president, and N. Stellpflug, secretary, signed the note. Interest was to be paid monthly, commencing on January 10, 1998, with the full principal sum due on December 1, 2002. This promissory note was secured by the 36-unit apartment building.

VHC executed a renewal of the December 1, 1997, promissory note on December 1, 2002, November 15, 2005, and November 15, 2010, ultimately extending the maturity date to November 15, 2015. VHC made no principal payments before execution of the renewal promissory notes. On December 4, 2012, VHC paid the renewed promissory note in full.

  

VII.     Petitioner’s Tax Returns

Petitioner is an accrual method taxpayer and filed consolidated Federal income tax returns for the tax years at issue. It timely filed its 2004-13 Forms 1120, U.S. Corporation Income Tax Return.

Petitioner retained Schenk SC (Schenk), a professional accounting firm, for the preparation of its yearly consolidated tax returns. Schenk reviewed petitioner’s financial statements yearly but did not perform audits. Schenk’s review entailed assembling petitioner’s work papers, analysis of annual sales and costs of goods sold, and calculations of gross profit margins. Schenk did not express an opinion with regard to petitioner’s financial statements and did not perform valuations of the underlying assets of Ronald H.’s companies. Petitioner did not provide Schenk with formal valuations of Ronald H.’s related companies or assets.

For the tax years at issue petitioner claimed deductions on its Forms 1120 for partially worthless bad debts that it asserts were owed to it by Ronald H. and/or his related companies as follows:

Year       Partially worthless bad debt deduction
2004      $5,889,650
2005      -0-
2006      10,039,574
2007      1,642,373
2008      15,448,547
2009      7,562,648
2010      10,175,075
2011      29,182,217
2012      1,229,017
2013      10,907,594
2014      92,076,695

For tax year 2007 petitioner claimed a bad debt deduction of the $1,092,489 that it asserts was owed to it by Jedson. For tax years 2009-12 petitioner claimed interest expense deductions of $75,000, $75,000, $75,000, and $69,000, respectively, arising from its purchase of Raymond and Patricia’s 36-unit apartment building in Green Bay. For tax years 1999-2013 petitioner reported taxable interest income.

  

OPINION

I.     Burden of Proof

Generally, the taxpayer has the burden of proving that the determinations in the notice of deficiency are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). As an exception Rule 142(a)(1) provides that the burden of proof lies with the Commissioner “in respect of any new matter, increases in deficiency, and affirmative defenses pleaded in the answer”. Petitioner contends that the burden of proof should lie with respondent with regard to any requirement to substantiate the underlying amounts associated with the related party bad debt deductions because it represents a new matter. Substantiation of the amounts related to petitioner’s claimed related-party bad debt deductions does not represent a new matter because it neither alters the original deficiency nor requires the presentation of different evidence. See Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989). Deductions are a matter of legislative grace, and a taxpayer must prove its entitlement to deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1991); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). To that end a taxpayer is required to substantiate each claimed deduction by maintaining records sufficient to establish the amount of the deduction and to enable the Commissioner to determine the correct tax liability. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs.

  

II.     Related-Party Bad Debt Deductions

Section 166(a) provides as a general rule that a deduction shall be allowed for “any debt which becomes worthless within the taxable year.” Section 166 distinguishes bad debts from nonbusiness bad debts. Sec. 166(d); sec. 1.166-5(b), Income Tax Regs. Business bad debts may be deducted against ordinary income whether wholly or partially worthless during the year (to the extent of the amount that becomes worthless). Sec. 1.166-3, Income Tax Regs. A nonbusiness bad debt may be deducted, but only when it becomes completely worthless in the year for which it is claimed, and then only as a short-term capital loss. Sec. 166(d). Section 166 limits the deduction for bad debt losses to the amounts actually paid by a guarantor regardless of the guarantor’s method of accounting.

A.     Positions of Parties

Petitioner contends that it is entitled to business bad debt deductions for the tax years at issue for the advances to or for the benefit of Ronald H. and/or his related companies that became partially worthless during the years at issue. Respondent contends that petitioner has failed to establish that claimed advances were debt in substance. Respondent further contends that petitioner’s motivation for advancing the funds appears to have been to provide capital injections or gifts to assist in forming new companies associated with Ronald H., to provide disguised dividends for the use of Ronald H.’s licenses, or to provide compensation for work contracts Ronald H.’s related companies sent to VHC, for services Ronald H. provided to VHC, or for allegedly exchanging Ronald H.’s VHC voting shares into nonvoting shares.

B.     Bona Fide Debt

There is no bad debt deduction without bona fide debt. See sec. 1.166-1(c), Income Tax Regs. The regulations define a bona fide debt as one “which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money.” Id. A gift or contribution to capital is not considered to create a debt for purposes of section 166. Kean v. Commissioner, 91 T.C. 575, 594 (1988); sec. 1.166-1(c), Income Tax Regs. We determine whether a purported debt is in substance and fact a debt for tax purposes from the facts and circumstances of each case, with the taxpayer bearing the burden of proof. Arlington Park Jockey Club, Inc. v. Sauber, 262 F.2d 902, 905 (7th Cir. 1959); Dixie Dairies Corp. v. Commissioner, 74 T.C. 476, 493 (1980).

Intrafamily transactions, such as those in this case, are subject to rigid scrutiny and are particularly susceptible to a finding that a transfer was intended as a gift rather than a debt. See Estate of Van Anda v. Commissioner, 12 T.C. 1158, 1162 (1949), aff’d per curiam, 192 F.2d 391 (2d Cir. 1951). This presumption may be rebutted by an affirmative showing that there existed at the time a real expectation of repayment and intent to enforce the collection of indebtedness. Id.

The advances to Ronald H. and his related companies began in 1997 and continued until 2013. Petitioner began claiming related-party bad debt deductions in 2004. We must first determine whether the advances represented bona fide debt. For a bona fide debt to exist the parties to a transaction must have had an actual, good-faith intent to establish a debtor-creditor relationship at the time the funds were advanced. Beaver v. Commissioner, 55 T.C. 85, 91 (1970). An intent to establish a debtor-creditor relationship exists if the debtor intends to repay the loan and the creditor intends to enforce repayment. Id.; Fisher v. Commissioner, 54 T.C. 905, 909-910 (1970).

Objective factors are considered to determine the parties’ intent and whether a bona fide loan occurred, and no single factor is dispositive. See Frierdich v. Commissioner, 925 F.2d 180, 182 (7th Cir. 1991), aff’g T.C. Memo. 1989-393. Factors we ordinarily consider in our analysis include, but are not limited to: (1) the name given to the certificates evidencing the indebtedness, (2) the presence or absence of a fixed maturity date, (3) the source of payments, (4) the right to enforce repayment, (5) participation in management as a result of the advances, (6) the status of the advances in relation to debts owed to regular corporate creditors, (7) thin or adequate capitalization, (8) the risk involved in making the advances, (9) the identity of interest between creditor and shareholder, (10) the use to which the advances were put, (11) the ability to obtain loans from outside lending institutions, (12) failure to repay advances on the due date, (13) the intent of the parties, and (14) the payment and accrual of interest. Dixie Dairies Corp. v. Commissioner, 74 T.C. at 493; see also Am. Offshore, Inc. v. Commissioner, 97 T.C. 579, 602-606 (1991); Goldstein v. Commissioner, T.C. Memo. 1980-273. Factors which are relevant to the facts in these cases are discussed.

1.     Factors Analysis

a.  Name Given to Certificates Evidencing Indebtedness

The issuance of promissory notes may suggest that advances are debt. See Estate of Mixon v. United States, 464 F.2d 394, 403 (5th Cir. 1972). VHC produced promissory notes dating from April 1998 through December 31, 2013, for most of the advances. Formal documentation, however, is not controlling. Calumet Indus., Inc. v. Commissioner, 95 T.C. 257, 288 (1990); Litton Bus. Sys., Inc. v. Commissioner, 61 T.C. 367, 376-377 (1973). A genuine debtor-creditor relationship must be accompanied by “more than the existence of corporate paper encrusted with the appropriate nomenclature captions.” Tyler v. Tomlinson, 414 F.2d 844, 850 (5th Cir. 1969).

Not all the promissory notes that VHC produced were signed by Ronald H. Some were signed by other individuals, and some had Ronald H.’s stamped signatures. J. Kellam, a PCDI employee from June 1997 until May 2006, testified that individuals would sign notes imitating Ronald H.’s signature. N. Stellpflug, VHC’s C.P.A. and corporate secretary from 1986 to 2006, testified that VHC would not accept signatures other than Ronald H.’s.

We recognize that many of VHC’s advances were supported by promissory notes. Family members are free to document a transaction among themselves in any manner they choose. Therefore, the form selected has little probative force. See Shaw v. Commissioner, T.C. Memo. 2013-170, at *13, aff’d, 623 F. App’x 467 (9th Cir. 2015). Petitioner, a family controlled corporation, was free to document the advances in any manner it chose with Ronald H. and his related companies. Petitioner’s promissory notes have little probative force.

Petitioner recorded the advances on its books as accounts receivable and contends that Ronald H. and his related companies recorded them as accounts payable. Ronald H.’s records are not part of the record. The promissory notes and  bookkeeping entries should be given little weight unless supported by someother objective evidence showing the advances to be loans, especially on account of the familial relationship. See Dixie Dairies Corp. v Commissioner, 74 T.C. at 495; see also Alterman Foods, Inc. v. United States, 505 F.2d 873, 879 (5th Cir. 1974) (“[A]llegedly objective economic indicia of debt such as consistent bookkeeping and consistent financial reporting on balance sheets are * * * little more than additional declarations of intent, without any * * * objective economic indicia of debt.”). Petitioner has not introduced objective evidence establishing the advances as loans.

b.  Presence or Absence of a Fixed Maturity Date/Failure to Pay on the Due Date

The presence of a fixed maturity date may indicate a fixed obligation to repay, a characteristic synonymous with debt. See Estate of Mixon, 464 F.2d at 404. The presence of a fixed maturity date on promissory notes, however, does not preclude a finding that the parties failed to create a genuine indebtedness. See Arlington Park Jockey Club, 262 F.2d at 906.

Many of the promissory notes have fixed maturity dates, but VHC’s actions suggested that the maturity dates were meaningless. VHC routinely renewed advances without receiving payments of principal or interest. Many of the promissory notes included notations that the original promissory note was “paid in full” by a renewal promissory note without supporting evidence as to whether VHC received principal or interest. Promissory notes were renewed when maturity dates arose and consolidated into new notes with greater amounts.

VHC continued to renew advances after it began claiming bad debt deductions in 2004. For example, on May 3, 2004, SCS advanced $600,000 to PCDI, which was evidenced by a promissory note payable on May 3, 2005, and bearing interest at the rate Associated Bank charged VHC. On and after May 3, 2005, the note was renewed three times without VHC’s receiving payments on principal, ultimately extending the maturity date to January 15, 2009. VHC routinely executed renewals without the receipt of payment on principal or interest. The fixed maturity dates for the most part were meaningless.

c.  The Source of Payments

A bona fide debt cannot exist for purposes of section 166 where the obligation to repay the debt is subject to a contingency that has not occurred. Zimmerman v. United States, 318 F.2d 611, 612 (9th Cir. 1963); see also Frierdich v. Commissioner, 925 F.2d at 185 (finding that the repayment of advances must be unconditional and cannot be contingent on some future event).

The sources of Ronald H.’s and his related companies’ repayments were contingent on several events that had not occurred at the time VHC made the advances. VHC, in part, made advances to Ronald H.’s companies because of Ronald H.’s personal history of success. VHC generally credited Ronald H. with the expansion of VHC’s business from a local company to a national one and believed that his companies would be successful.

Repayment hinged on Ronald H.’s potential closings, expansion plans, and receipt of funds from additional investors. From 1997 to 2001 VHC advanced funds to help Ronald H. potentially sell the OFTI mill to UAEI. At the same time VHC advanced funds to assist Ronald H. in obtaining financing for EcoFibre. VHC contends that potential institutional investors, such as Enron, made Ronald H.’s projects attractive. Part of VHC’s motivation to advance funds was the potential of lucrative projects for SCS and VOS.

The UAEI deal collapsed in 2001 and Enron declared bankruptcy, forcing Ronald H. and his companies to seek new sources of financing. Ronald H. never obtained alternative sources of financing. Despite these major setbacks VHC continued to advance funds. It contends that it believed it would recover additional money through anticipated profits from the sale of the OFTI mill and from future work related to the expansion of the OFTI mill and the EcoFibre facilities. It continued to advance funds in 2003 and 2004 to assist Ronald H. in selling the OFTI mill to Wausau Paper, but that deal never closed. In 2005 VHC became aware of a potential buyer of the OFTI mill, ST Paper, and continued to advance funds to Ronald H. to help him get to the closing. In 2007 when Ronald H. finally sold the OFTI mill, VHC did not receive cash or any other form of repayment.

VHC could be repaid only through the financial well-being of Ronald H.’s companies. A taxpayer willing to condition repayment of an advance on the financial well-being of the receiving company does not act “as a creditor expecting to be repaid regardless of the company’s success or failure.” Calumet Indus., Inc. v. Commissioner, 95 T.C. at 287-288 (quoting In re Larson, 862 F.2d 112, 117 (7th Cir. 1988)). If repayment does not depend upon earnings, the transaction has the indication of being a loan to the corporation. Estate of Mixon, 464 F.2d at 405; Am. Offshore, Inc. v. Commissioner, 97 T.C. at 602. In this case payment depended on the success of Ronald H.’s companies or a future event occurring such as the sale of the OFTI mill to UAEI.

d.  Right To Enforce Payments

A taxpayer’s right to enforce repayment of an advance suggests that the advances were loans. See Estate of Mixon, 464 F.2d at 405. There is no evidence that VHC had any right to enforce repayment of the claimed advances. Whether an advance is subordinate to obligations of other creditors bears on whether the taxpayer advancing the funds acted as a creditor. See id. at 406. VHC subordinated its rights to repayment under the promissory notes with Ronald H. and his related companies to those of banks and other creditors starting in the early 2000s.

e.  Increased Management Participation

The right of the entity advancing funds to participate in the management ofa business demonstrates that the advance may not have been bona fide debt. Am. Offshore, Inc. v. Commissioner, 97 T.C. at 603. Although VHC was not a shareholder in Ronald H.’s related companies, it was inextricably linked to them. At a VHC shareholders meeting on August 9, 1997, VHC determined that its shareholders could invest in PCDI. According to the minutes of that meeting, VHC shareholders interested in investing in PCDI could purchase less than 5% of the company. From 1998 through 2002 VHC shareholders that owned PCDI shares included Raymond and all of the VDH brothers, as well as W. Bain, G. Piontek, C. Kassner, R. Lentz, and N. Stellpflug. David owned stock in PCDI while he was president of VHC.

VHC participated in the management of Ronald H.’s outside ventures. Raymond, although he retired from VHC as president and director in 1992, continued to attend VHC shareholders meetings and to review VHC’s financial records. He was present at meetings in which advances to Ronald H. were approved. Raymond did not own VHC stock during the tax years at issue, yet he attended and voted at VHC shareholders and directors meetings. At the same time that Raymond influenced VHC, he served as PCDI’s CFO. He signed promissory notes between VHC and PCDI as PCDI’s CFO and maintained an office at VHC where he held weekly meetings with Ronald H. related to PCDI’s business. Raymond’s immediate successor at VHC, S. Bougie, VHC’s bookkeeper, never was a VHC shareholder or director. Raymond played a major role in VHC and PCDI at the same time.

After Ronald H. started the OFTI mill, VHC placed its employees, including J. Rottier, VOS’ project manager and a major VHC shareholder, at the mill for the purpose of knowing the activities taking place at the mill and assessing additional needs of the mill. He worked as the assistant plant manager and eventually became the plant manger of the mill. He worked at OFTI until 2006, and his paychecks always came from VOS.

VHC and Ronald H. and his related companies were intertwined. Not only did VHC shareholders also own shares in Ronald H.’s companies, but some VHC employees worked for both companies over the years. Throughout the years at issue Raymond and David negotiated with banks on Ronald H.’s behalf, agreeing to pay his debts at other banks and even providing substitute collateral. VHC influenced the management of Ronald H.’s companies.

f.  Thin Capitalization/Insolvency/Risk Involved in Making the Advances

Thin capitalization – a high ratio of debt to equity – may suggest that an advance is not a loan. Estate of Mixon, 464 F.2d at 408. The purpose of examining the debt-to-equity ratio in characterizing an advance is to determine whether a corporation is so thinly capitalized that it would be unable to repay an advance. CMA Consol., Inc. & Subs. v. Commissioner, T.C. Memo. 2005-16.

By 1999 PCDI and its affiliates were operationally in trouble. Advances made by VHC did not remedy Ronald H.’s problems, as PCDI continued to struggle and in 2001 could not pay its bills. Timothy testified that if VHC had not guaranteed Ronald H.’s and his related companies’ debts in 2002, the companies would have gone into bankruptcy. VHC continued to make advances to Ronald H. and his related companies throughout the years at issue knowing that they would not be repaid.

Ronald H. and his related companies were insolvent from as early as 1999. Petitioner did not provide evidence establishing that Ronald H.’s related companies ever became profitable. Despite the vast sums that Ronald H. and his related companies owed third-party creditors, VHC continued to advance funds knowing that there were no reasonable prospects of repayment. It disregarded clear signs that Ronald H. and his related companies were financially unstable and even negotiated on behalf of him and his related companies at banking institutions.

Petitioner contends that amounts lent to an insolvent investor should be treated as bona fide debt. While amounts advanced to an insolvent debtor alone may constitute debt, advances made to an insolvent or unprofitable debtor where there is no reasonable prospect of repayment are not debts for tax purposes. See Dixie Dairies Corp. v. Commissioner, 74 T.C. at 497. Petitioner made advances without reasonable expectation of repayment throughout the years at issue.

A related consideration includes the risk involved in making the advances. The risks that VHC would not be repaid were substantial. Its routine renewal of promissory notes without the receipt of principal or interest, as well as its paying for Ronald H. and his related companies to stay financially afloat, establishes that it knew repayment on its advances was speculative. While the repayment of advances depends in part on the financial success of the receiver of the advances, the risks involved in this case were more speculative than what a third-party creditor would deem acceptable. See Fin Hay Realty Co. v. United States, 398 F.2d 694, 697 (3d Cir. 1968). A third-party creditor would not have made these advances. The amounts advanced to Ronald H.’s insolvent or unprofitable related companies cannot be characterized as bona fide debt.

g.  Use of Advances

The use of advances to finance initial business operations when repayment of the advances is contingent on future events suggests the advances are not debt. See id. at 698. VHC extended many of its advances when Ronald H.’s related companies were first organized, suggesting that the advances represented funds to meet initial operating expenses. PCDI was incorporated on June 6, 1997, and by December 3, 1997, VHC had advanced $1 million to PCDI. CPPI was incorporated on June 1, 2000, and on November 2, 2000, it received a $1 million advance from VHC. According to VHC’s records from 1997 through 2000, it advanced approximately $25 million to Ronald H. and his related companies.

VHC contends that it made advances to help Ronald H. obtain financing for the EcoFibre project and to sell the OFTI mill. VHC advanced funds to allow Ronald H. to pay overdue water bills to the City of De Pere. VHC even advanced funds to Ronald H. personally to pay his Federal and State income taxes.

VHC advanced funds knowing that Ronald H. and his related companies were unable to repay. Advancing funds to meet initial operating expenses is akin to making a capital contribution. See Slappey Drive Indus. Park v. United States, 561 F.2d 572, 583 (5th Cir. 1977). The use of advances does not support a conclusion that the advances were loans.

h.  Success in Obtaining Loans From Outside Lending Institutions

“[T]he touchstone of economic reality is whether an outside lender would have made the payments in the same form and on the same terms.” Segel v. Commissioner, 89 T.C. 816, 828 (1987) (citing Sciptomatic, Inc. v. United States, 555 F.2d 364, 367 (3d Cir. 1977)); see also Calumet Indus., Inc. v. Commissioner, 95 T.C. at 287. A corporation’s success in borrowing funds from outside sources may give the transactions at issue the appearance of bona fide indebtedness and may indicate that the advances were made in a manner similar to those that would be extended by reasonable creditors. See Estate of Mixon, 464 F.2d at 410.

From as early as 2000 the record establishes that Ronald H. could not obtain loans from some outside lending institutions. Starting in 2000 William Bain served as a straw borrower for Ronald H. because he was unable to obtain loans himself. Between 1998 and 2001 VHC began having conversations with Ronald H.’s banks, individual lenders, and investors on the status of his companies and whether there was a real prospect of repayment.

VHC continued to advance funds to Ronald H. and his related companies despite knowing that by 2000 banking institutions and other third-party creditors were no longer lending to him and the companies. VHC recorded on its spreadsheet that from 2000 through 2013 it continued making substantial advances to Ronald H. and his related companies. The financial institutions that made loans to Ronald H. sought guaranties from VHC whereas VHC had no guaranties, collateral, or recourse for failure to repay. This factor suggests that the advances were not debt.

i.  Intent of the Parties

No single factor is determinative, and we must decide whether there “[w]as * * * a genuine intention to create a debt, with a reasonable expectation of repayment, and * * * [whether] that intention comport[ed] with the economic reality of creating a debtor-creditor relationship”. Litton Bus. Sys., Inc. v. Commissioner, 61 T.C. at 377. Petitioner contends that the funds advanced to Ronald H. and his related companies were at all times intended to be loans. Respondent contends that contemporaneous documents indicate that petitioner’s advances were not loans and that instead petitioner infused capital, invested, or distributed funds to Ronald H.

The objective facts in the record establish that VHC did not intend to create a debt between itself and Ronald H. and/or his related companies. VHC’s actions reflect that there was not a true debtor-creditor relationship. The advances were made over a long period. The economic circumstances of later years must be considered when analyzing the character of advances in earlier years. See Alterman Foods, Inc. v. United States, 611 F.2d 866, 872 (Ct. Cl. 1979). Ronald H. and his related companies routinely failed to comply with the terms of the promissory notes and VHC failed to enforce the terms, indicating that it did not intend that the advances be loans.

By the mid to late 1990s, the millions of dollars of receivables VHC had on its balance sheets attributable to advances made to Ronald H. and his related companies affected its ability to obtain surety bonds. This reduction in surety bonds limited VHC’s revenue, yet it continued to advance funds. VHC lost work because of Ronald H.’s companies’ competing with its customers, yet it continued to advance funds.

Other objective facts establish that the parties did not intend to enter into a debtor-creditor relationship. VHC advanced funds for payments that were without any business purpose, including covering Ronald H.’s Federal and State income tax liabilities, reducing the principal owed on his home, and paying past-due property taxes on his home. The promissory notes did not specify the purposes of the advances. Petitioner’s spreadsheet included some descriptions of the purposes of the advances, but a number of discrepancies exist between the spreadsheet and other parts of the record.

Even if VHC might have intended to create bona fide debt, economic circumstances at the time it made the advances suggest that VHC did not have a reasonable expectation of repayment. As explained above, VHC made advances and continued to advance funds even though it knew Ronald H. could not repay them.

VHC and Ronald H. and his related companies were interrelated. Ronald H. remained involved with VHC even after he began his own companies. There was no clear dividing line for the roles of Ronald H. and Raymond. VHC contends that Ronald H. was no longer involved with it, but he was a presence at VHC and continued to receive benefits from it throughout the tax years at issue.

Ronald H.’s actions establish that he never intended to create a debtor-creditor relationship with VHC. In 1998 one of Ronald H.’s companies, Patriot Contractors, held itself out as part of VHC. Patriot Contractors failed to properly complete a contract, and VHC rescued it. Ronald H.’s related companies’ competition for some of VHC’s customers eventually caused problems for VHC. Ronald H. leaned on VHC to support his companies. VHC was well aware of Ronald H.’s business practices and had rescued Ronald H. and his related companies in the past. There was no reason to believe that he would not require assistance again.

VHC contends that Ronald H. or his related companies paid back some of its advances and that therefore its expectation of repayment was reasonable. Repayment was speculative, but VHC still continued to make advances. The outstanding balance of funds it advanced constantly increased without any guaranty of repayment. These economic circumstances establish that Ronald H. never intended to create a debtor-creditor relationship with VHC.

j.  Payment or Accrual of Interest

According to its spreadsheet for the tax years at issue, VHC reported receiving interest payments of $10,314,694 and interest income of $20,849,843 from 1997 through 2013. VHC provided checks from 2002, 2005, and 2006 as support for the underlying amount of interest payments it reported receiving. For 2002 petitioner offered three checks from Ronald H.’s related companies totaling $500,476, yet for 2002 VHC’s spreadsheet states that it received interest payments of $1,549,751. For 2005 VHC offered six checks totaling $1,089,214, but its spreadsheet indicates that it received interest payments of $1,378,709. For 2006 it provided four checks totaling $219,516, but its spreadsheet shows that it received interest payments of $410,547. There is no evidence that interest was paid regularly and consistently. VHC accrued interest only until 2007 because after that it did not have a reasonable expectation of being repaid. This factor suggests that the advances were not debt.

2.      Conclusion

After consideration of the circumstances of VHC’s advances to or for the benefit of Ronald H. and/or his related companies, and in the light of the factors set forth above, we conclude that the advances did not represent bona fide debt. VHC did not intend to create a bona fide debtor-creditor relationship, and the economic circumstances that existed during the time VHC made itsadvances establish that it did not reasonably expect repayment. VHC is not entitled to related-party bad debt deductions for the advances it made to Ronald H. and his related companies during the tax years at issue. Because we conclude that the advances do not constitute bona fide debt, we need not address whether VHC established that the advances became partially worthless during the tax years at issue.

  

III.     VHC’s Alternative Arguments

Because we conclude that VHC’s advances do not constitute bona fide debt, we address its alternative arguments.

A.      Section 162 Deductions

VHC contends that if the advances did not represent bona fide debt, then, alternatively, it is entitled to business expense deductions under section 162 for the advances and payments it made on guaranties of Ronald H.’s and his related companies’ debts. VHC argues that it is entitled to a deduction under section 162 because it made the advances and payments on guaranties to protect its own business reputation and access to credit. Respondent contends that VHC has neither substantiated the amounts of its expenses nor established that its expenses were ordinary and necessary.

Section 162(a) allows deductions for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. An ordinary expense is one that commonly or frequently occurs in the taxpayer’s business, Deputy v. duPont, 308 U.S. 488, 495 (1940), and a necessary expenses is one that is appropriate and helpful in carrying on the taxpayer’s business, Welch v. Helvering, 290 U.S. at 113.

A taxpayer must substantiate the expenses underlying each deduction. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. An entry on a taxpayer’s books generally will not suffice to substantiate an expense unless corroborated by other evidence. See, e.g., Olive v. Commissioner, 139 T.C. 19, 32-33 (2012) (finding that general ledgers alone did not suffice to substantiate the taxpayer’s cost of goods sold), aff’d, 792 F.3d 1146 (9th Cir. 2015). Petitioner argues that its spreadsheet, books and records, and self-prepared summaries are sufficient to substantiate the amounts of expenses. We disagree.

VHC’s records are riddled with inconsistencies. Its spreadsheet is inconsistent with documentary evidence supporting the entries. It did not introduce evidence of receipts, bank statements, contracts for services rendered, or documents establishing funds paid on guaranties. It contends that its C.P.A. attested to the reliability of its books and records, but its C.P.A. did not audit those books and records. Its C.P.A. did not reconcile the general ledgers with the underlying source documentation to determine their accuracy. It has failed to substantiate the amounts of expenses, including payments on guaranties of Ronald H.’s and his related companies’ debts, underlying its claimed section 162 deductions.

Even if VHC did substantiate some of the advances or payments made on guaranties, it has not established that these expenses were ordinary and necessary. It relies on Lutz v. Commissioner, 282 F.2d 614 (5th Cir. 1960), rev’g and remanding T.C. Memo. 1959-32, to support its contention that the amounts it advanced and, specifically, the amounts it paid on guaranties represented ordinary and necessary expenses because they were made in furtherance of its own business. In Lutz v. Commissioner, 282 F.2d at 620, the court allowed the taxpayer to deduct the expenses at issue because it found that the payments were made to protect the existing goodwill of his individual business and to prevent the loss of earnings that might result from destroying such goodwill.

Unlike the expenses in Lutz, many of the guaranties that VHC entered into harmed it. The advances and guaranty agreements limited its ability to obtain surety bonds, causing it to lose revenue by not being able to bid on public work. The guaranties also affected its lines of credit and other financing ability with other banks. Two of its major customers stopped conducting business with it because of Ronald H.’s competing ventures, yet it continued to advance funds and guarantee his debts at banks.

VHC contends that the $11 million advanced to fund the second tissue machine at the OFTI mill should be treated as an ordinary and necessary expense because this amount was lent for its benefit. It argues that it obtained expertise on a new type of machine that it subsequently installed in several other places. The record does not establish that VHC obtained expertise in the machine or that it subsequently installed the machine for other customers. It failed to introduce invoices or work contracts for these subsequent jobs.

VHC further contends that it was forced to guarantee Ronald H.’s and his related companies’ debts at banks in order to preserve its own lines of credit. It specifically argues that Associated Bank forced it to guarantee Ronald H.’s debts in 2002 in order to extend its lines of credit. While we acknowledge that VHC was concerned about its lines of credit, it had entered into substantial guaranties with Associated Bank before 2002, and it provided guaranties at numerous other banks without providing explanations for entering into those guaranties. It did not show the advances were necessary to protect its business. The motive for the advances seemed to be more about helping Ronald H. than protecting its business. Therefore, the advances are not deductible under section 162.

B.     Equitable Recoupment

VHC contends that if its advances are not considered bona fide loans and are payments of ordinary and necessary business expenses, then under a theory of equitable recoupment it is entitled to recoup taxes paid on the interest accrued on the amounts it advanced to Ronald H. and his related companies from 1999 through 2003. Because we determined that VHC’s advances and payments on guaranties did not constitute ordinary and necessary expenses under section 162, we need not address this argument.

VHC also contends that under a theory of equitable recoupment it is entitled to recoup taxes paid for closed tax years related to the following: (1) interest and services income accrued, but not received, from Ronald H. and his related companies, because these amounts should have been excluded from income and (2) to the extent that we determine that the advances represented equity investments, interest and services income accrued and received during the tax years, because such amounts would constitute nontaxable returns of capital.

Additionally, VHC has failed to establish that the application of equitable recoupment is appropriate. Pursuant to section 6214(b), this Court has jurisdiction to apply the doctrine of equitable recoupment in appropriate cases. The doctrine of equitable recoupment is a judicially created doctrine that, under certain circumstances, allows a litigant to avoid the bar of an expired statutorily limited period. Menard, Inc. v. Commissioner, 130 T.C. 54, 62 (2008). The doctrine prevents an inequitable windfall to a taxpayer or to the Government that would otherwise result from the inconsistent tax treatment of a single transaction, item, or event affecting the same taxpayer or a sufficiently related taxpayer. Id.; see also Estate of Mueller v. Commissioner, 101 T.C. 551, 552 (1993). Equitable recoupment operates as a defense that may be asserted by a taxpayer to reduce the Commissioner’s timely claim of a deficiency, or by the Commissioner to reduce the taxpayer’s timely claim for a refund. O’Brien v. United States, 766 F.2d 1038, 1049 (7th Cir. 1985); Menard, Inc. v. Commissioner, 130 T.C. at 62.

Generally, the party claiming the benefit of an equitable recoupment defense must establish that it applies. Menard, Inc. v. Commissioner, 130 T.C. at 62; Estate of Mueller v. Commissioner, 101 T.C. at 556. In order to establish that equitable recoupment applies, a party must prove the following elements: (1) the overpayment or deficiency for which recoupment is sought by way of offset is barred by an expired period of limitation; (2) the time-barred overpayment or deficiency arose out of the same transaction, item, or taxable event as the overpayment or deficiency before the Court; (3) the transaction, item, ortaxable event has been inconsistently subjected to two taxes; and (4) if the transaction, item, or taxable event involves two or more taxpayers, there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be treated as one. Menard, Inc. v. Commissioner, 130 T.C. at 62-63.

VHC has failed to establish that it has been inconsistently subjected to two taxes. The doctrine of equitable recoupment is generally applied in the limited circumstances where a transaction has been subjected to two taxes on inconsistent legal theories, and the tax that was mistakenly paid can be recouped against what was correctly due. See Rothensies v. Elec. Storage Battery Co., 329 U.S. 296, 300 (1946). Our determination regarding whether VHC’s advances represented bona fide debt does not automatically establish that taxes it paid for closed tax years were erroneously applied. Application of the equitable recoupment doctrine would require the Court to make further determinations regarding the amount and character of VHC’s purported accrued interest payments from 1997 through 2003. It is outside the scope of the equitable recoupment doctrine for this Court to make such determinations for taxes collected 20 years ago. VHC is not entitled to recoup taxes paid for closed tax years related to interest and services incomeaccrued but not received from Ronald H. or his related companies.

C.     Accrued Interest

VHC argues alternatively that to the extent we determine that amounts owed by Ronald H. and his related companies do not constitute bona fide debt, it is entitled to reduce income accrued for interest reported on its returns. It also argues that it is entitled to reduce income for tax years 2005-07 and 2009-13 by the amount of interest accrued but unpaid from Ronald H. and his related companies. VHC accrued interest until 2007 when it determined the probability of payment was not sufficient to warrant accrual.

An accrual method taxpayer includes an item of gain, profit, or income in its gross income for the taxable year in which (1) all events have occurred that fix its right to receive income and (2) the amount can be determined with reasonable accuracy. Secs. 1.451-1(a), 1.446-1(c)(1)(ii), Income Tax Regs. Because VHC is an accrual method taxpayer, it included in income interest accrued on advances made to Ronald H. and his related companies. Interest must be accrued until there is a reasonable doubt as to the collectability of the notes. Jones Lumber Co v. Commissioner, 404 F.2d 764, 766 (6th Cir. 1968), aff’g. T.C. Memo. 1967-81. Since VHC accrued interest on the notes only until 2007, only income for tax years 2005-07 should be reduced by amounts accrued as interest for advances made to Ronald H. and his related companies. VHC has not substantiated any amount of interest accrued but unpaid for tax years 2009-13.

  

IV.     Jedson Dispute

VHC accrued income related to invoices it issued to Jedson of $203,036 and $889,453 for 2006 and 2007, respectively. For tax year 2007 it claimed a bad debt deduction of $1,092,489, which respondent disallowed in full. VHC’s position is that it should not have accrued income related to the Jedson invoices and that its gross income should be reduced by $203,036 and $889,453 for tax years 2006 and 2007, respectively. In the alternative it contends that it is entitled to a bad debt deduction for these amounts on its 2007 tax return.

A.     Accrual of Income

Generally, a taxpayer is required to include gains, profits, and income in gross income for the taxable year in which he or she actually or constructively received them unless they are otherwise includible for a different year in accordance with the taxpayer’s method of accounting. Sec. 451(a); sec. 1.451- 1(a), Income Tax Regs. An accrual method taxpayer includes an item of gain, profit, or income in its gross income for the taxable year in which (1) all events have occurred that fix its right to receive income and (2) the amount can be determined with reasonable accuracy. Secs. 1.451-1(a), 1.446-1(c)(1)(ii), Income Tax Regs. All events have occurred that fix the taxpayer’s right to receive income when (1) the required performance takes place, (2) the payment is due, or (3) the payment is made, whichever comes first. Johnson v. Commissioner, 108 T.C. 448, 459 (1997), aff’d in part, rev’d in part on other grounds, 184 F.3d 786 (8th Cir. 1999).

VHC contends that it should not have accrued the Jedson-related income because the “all events” test was not met in either 2006 or 2007. It argues that the “all events” test was not satisfied because Jedson initiated a lawsuit against SCS in 2007 disputing the invoiced amounts. Respondent contends that SCS’ performance of the work, for which it back-charged Jedson, and the invoices issued to Jedson representing that payment for the work was due satisfied the “all events” test, and that VHC therefore properly accrued income in 2006 and 2007.

The “all events” test is based on the existence or nonexistence of legal rights or obligations at the close of a particular accounting period. Hallmark Cards, Inc. v. Commissioner, 90 T.C. 26, 34 (1988). In the case of a contested claim, accrual is not proper until the dispute is resolved. Cold Metal Process Co. v. Commissioner, 17 T.C. 916, 932 (1951), aff’d per order, 53-1 USTC para. 9135 (6th Cir. 1952). A dispute is resolved when the parties settle or when the liability finally determined and is not subject to further appeal or contest. Snyder Air Prods., Inc. v. Commissioner, 71 T.C. 709, 716-717 (1979).

VHC properly accrued as income the $203,036 on the invoice it issued to Jedson in 2006. SCS performed the work that was the subject of the invoice, and it issued the invoice to Jedson for the amount due, satisfying the “all events” test. Jedson did not contest the amount in 2006, fixing VHC’s right to the income.

VHC did not properly accrue as income the $889,453 on the invoice it issued in 2007. On September 5, 2007, SCS issued a second back-charge invoice to Jedson related to the work it performed. Jedson did not pay the invoiced amount and initiated a lawsuit against petitioner in 2007. Disputed claims are inherently contingent as to both the fact and the amount of the liability. See Shea Co. v. Commissioner, 53 T.C. 135, 154 (1969). VHC and Jedson did not settle the lawsuit until 2011. VHC improperly accrued $889,453 as income for 2007 and is entitled to reduce its income by this amount.

B.     Bad Debt Deduction

Because we conclude that VHC properly accrued income of $203,036 for 2006, we must consider its position that it is entitled to a bad debt deduction for 2007 for the income it accrued for 2006. In order to be eligible for a bad debt deduction for a debt that became worthless, it must prove that a bona fide debt existed and that the debt became worthless in the year for which it claimedthe deduction.5 Sec. 166(a); sec. 1.166-1(c), Income Tax Regs. VHC contends that it is entitled to a deduction for a wholly worthless bad debt of $203,036 for tax year 2007, because in 2007 it became clear that the invoiced amount was not going to be paid.

[Footnote: We do not address whether that debt is bona fide because the debt did not become worthless for the year for which the deduction was claimed.]

The year a debt becomes worthless is fixed by identifiable events that form the basis of reasonable grounds for abandoning any hope of recovery. Aston v. Commissioner, 109 T.C. 400, 415 (1997). The question of whether a debt actually becomes worthless during a taxable year is to be determined on the basis of all the facts and circumstances. See, e.g., Halliburton Co. v. Commissioner, 93 T.C. 758, 774 (1989), aff’d, 946 F.2d 395 (5th Cir. 1991). Among the facts and circumstances considered by courts to determine whether a debt is worthless are the debtor’s earning capacity, the solvency of the debtor, the debtor’s refusal to pay, actions of the creditor in pursuing collection, subsequent dealing between the creditor and debtor, and the debtor’s lack of assets. Am. Offshore, Inc. v. Commissioner, 97 T.C. at 594. No single factor is conclusive. Id. at 595.

VHC did not establish that the invoiced amounts became wholly worthless in 2007. It did not introduce evidence regarding Jedson’s earning capacity, solvency, or lack of assets. It has not shown that the lawsuit Jedson initiated in 2007 formed a basis for abandoning any hope of recovery. The lawsuit was not settled in 2007, and only after Jedson initiated its lawsuit against VHC did it seek collection of the $203,036. In 2008 SCS filed a counterclaim lawsuit against Jedson to recover its invoiced amounts for 2006 and 2007 and further alleged several contract violations against Jedson. It was not until 2011, when SCS and Jedson settled the lawsuit, that it became clear that the invoiced amounts would not be paid. The settlement required SCS to pay Jedson $280,000 in exchange for the release of its lawsuit against Jedson and Jedson’s release of its lawsuit against SCS.

VHC contends alternatively that the settlement of the lawsuit in 2011 entitles it to a bad debt deduction for tax year 2011. VHC raises this contention for the first time on brief. Respondent argues that this alternative 2011 argument is untimely.

On December 1, 2015, the Court ordered that each party submit an Issues Memorandum setting forth the following:

(1)(a) The issues of fact (including any issues subsidiary to ultimate issues) and (b) the issues of law (including any issues subsidiary to ultimate issues) to be resolved by the Court. * * *;

(2) A clear, complete, and concise exposition of each party’s position and the theory underlying that position with respect to each of the issues that are set forth pursuant to (1) above. * * *

*  *  *  *  *  *  *

* * * neither party will be allowed to advance a position or theory underlying that position with respect to any of the issues set forth pursuant to (1) above that is different from the positions or theories set forth pursuant to (2) above.

VHC’s argument that it is entitled to a bad debt deduction for the Jedson invoiced amounts in 2011 is untimely. It is not entitled to a bad debt deduction for 2007 or 2011 for the Jedson income it properly accrued in 2006.

  

V.     Interest Expense

In 1997 VHC agreed to purchase Raymond and Patricia’s 36 apartment units in Green Bay for $750,000, and on December 1, 1997, the parties executed a promissory note. In that note VHC promised to pay Raymond and Patricia the principal sum, with 10% interest on the unpaid balance from the date of the note until paid. In 2012 VHC repaid the principal amount of $750,000.

VHC claimed interest expense deductions of $75,000 for each tax year from 2009 to 2012 and $69,000 for tax year 2013 related to VHC’s purchase of the apartment units. Respondent disallowed these deductions in full.

VHC contends that it is entitled to interest expense deductions for tax years 2009-13 because it paid interest on a bona fide debt. Respondent contends that it is not entitled to the deductions because it did not establish that it paid interest on a bona fide debt.

Section 163(a) allows a deduction for all interest paid or accrued within the taxable year on indebtedness. Deductions are a matter of legislative grace, and taxpayers bear the burden of establishing entitlement to any claimed deduction, including substantiating the amounts of items underlying claimed deductions. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. at 84; sec. 1.6001-1(a), Income Tax Regs.

VHC contends that it has met the factors in Goldstein v. Commissioner, T.C. Memo. 1980-273, for a bona fide debt. Intrafamily transactions, as in this case, are subject to rigid scrutiny. See Estate of Van Anda v. Commissioner, 12 T.C. at 1162.

VHC has not met factors that determine a payment is a bona fide loan. See Dixie Dairies Corp. v. Commissioner, 74 T.C. at 493; see also Am. Offshore, Inc. v. Commissioner, 97 T.C. at 602-606; Goldstein v. Commissioner, T.C. Memo. 1980-273. VHC introduced the promissory note evidencing its purchase, but formal documentation is not controlling. See Calumet Indus., Inc. v. Commissioner, 95 T.C. at 288. Raymond was an influential presence at VHC in 1997 and subsequent years, and he actively participated in its management. Raymond and VHC were free to document the transaction in any manner they chose, and therefore its form has little probative value. See Shaw v. Commissioner, T.C. Memo. 2013-170, at *13. The promissory note required interest and there was a fixed schedule of repayment, but the parties did not comply with the terms of the note.

There is no evidence in the record establishing that any security or collateral was requested. Raymond and Patricia held no security interest and had no way to enforce repayment. There was no right to enforce the payment of principal, as principal payments were not allowed until the promissory note’s date of maturity. VHC failed to make principal payments on the promissory note’s date of maturity and was allowed to renew the note on the same terms for 15 years. There was no written loan agreement independent of the promissory note, and VHC did not introduce evidence that Raymond or Patricia made a demand for repayment. VHC did not introduce its records or Raymond’s and Patricia’s records establishing that the parties treated the transaction as a loan. VHC has not established that it paid interest from 2009-13 on a bona fide debt. Respondent’s disallowance of these deductions is sustained.

To reflect the foregoing, Decisions will be entered under Rule 155.

    

See also:

  

A bogus scheme to build an eco-friendly “green energy” waste processing facility in Detroit defrauded lenders and investors — including Chinese investors hoping to qualify for U.S. visas — of $4,475,000, according to a federal grand jury in Milwaukee.

Project promoter Ronald Van Den Heuvel promised the victims that his Green Box-Detroit would build and operate a facility to recycle paper, process other waste and produce synthetic fuel, the indictment charged. …

In a related civil suit against Van Den Heuvel and Green Box-Detroit, the Securities and Exchange Commission (SEC) said, “He claimed that he had developed a breakthrough recycling process that could turn post-consumer waste into usable products. He represented that the Green Box process would be both environmentally friendly and profitable, and would allow Green Box-Detroit to repay investors.”

But it was a scam because Van Den Heuvel never acquired the promised facility or equipment and used the money for other purposes, the indictment said.

His defense lawyer, Robert LeBell of Milwaukee, didn’t respond to requests for comment.

The primary victims of the Detroit project were nine investors from China who poured $4,475,000 into the failed endeavor. They’d hoped to become permanent residents — green card-holders — by investing at least $500,000 each under the U.S. Citizenship and Immigrant Services [USCIS]
EB-5 Immigrant Investment Program
.

Van Den Heuvel worked through Green Detroit Regional Center, which is owned by a Georgia law firm that is authorized to operate in Wayne, Livingston, St. Claire, Lapeer and Macomb counties, court documents said. The center findsforeign clients, mainly from China and South Korea, to invest in large alternative energy projects,” according to its website.

The Green Box-Detroit project was portrayed as creating 35 direct and indirect jobs per each Chinese investor.

“Green Detroit Regional Center promoted the EB-5 investments in Green Box Detroit based on Van Den Heuvel’s representations,” the SEC suit said. It said the chief executive officer of the Green Detroit Regional Center, Georgia lawyer Simon Ahn, marketed the project to investors through immigration consultants in China. Neither Ahn nor Green Detroit Regional Center have been charged or sued by the SEC.

Ahn said, “If the charges are true, it is completely shocking to learn about the extent that Ron Van Den Heuvel hid the truth from me,” the center and investors.

All of us visited the plants in Wisconsin many times, including the potential site in Detroit, and everything checked out fine. All the financials from a recognized accounting firm indicated that everything was proceeding on track, Ahn said.

The SEC suit said Van Den Heuvel falsely told investors that the MEDC [Michigan Economic Development Corp.] had approved tax exempt bonds for the project. However, the MEDC rejected the request after discovering five tax liens, one construction lien, two state tax warrants, four civil judgments and three civil lawsuits, according to court documents.

“Van Den Heuvel did not satisfy MEDC’s concerns. He did not provide additional information to the MEDC, and did not provide a satisfactory explanation for the issues that it had raised,” the SEC suit said.

As opposed to the WEDC, which did absolutely NO background check on Ron Van Den Heuvel whatsoever before loaning his ‘green energy’ fraud scheme $1.2 MILLION

and instead went out of their way to look every which other way…

(the ol’ Joe Paterno move)…

and loaned OSGC $4 MILLION to do the exact same thing Ron fraudulently claimed GREEN BOX NA GREEN BAY LLC could do, but under a different name – GREEN BAY RENEWABLE ENERGY LLC [more accurately – ‘GREEN BOX ONEIDA NATION’].

  

  

Relevant Documents:

[The] charter granted on October 16, 1996 did not make it clear that Oneida Seven Generations Corporation must comply with the banking laws

WHEREAS, the ability of our Native community to be protected from the affects of dioxin poisoning is critical to the future of our tribal nations and a1l life that sustains us,
and…

WHEREAS, tribal communities and families continue to be disproportionately exposed to dioxin and other persistent organic pollutants. Many of our tribal members are more susceptible to these dangerous toxins due to our land-based culture and subsistence practices, and…

WHEREAS, dioxin has been classified as a “known human carcinogen” with the “highest” level of certainty by the International Agency for Research on Cancer, and acknowledged by the World Health Organization that dioxin exposure is linked to severe health effects…

NOW, THERE, BE IT RESOLVED: that the Oneida Tribe of Indians of Wisconsin requests that the United States State Department pursue ending the production and release of Dioxin and other Persistent Organic Pollutants in the United States.

 

  • June 23, 2010 Oneida Business Committee Resolution 06-23-10-B, ‘Department of the Interior / Bureau of Indian Affairs / Energy and Mineral Development Program / Office of Indian Energy and Economic Development Grant Program / Office of Indian Energy and Economic Development Grant Program to Assess, Evaluate and Promote Development of Tribal Energy and Mineral Resources FY2010’

…Emissions Source tests conducted at the Romoland facility in June-July 2005 confirmed this technology emits dioxin and other toxic air contaminants as well as other pollutants. The SCAQMD preliminary evaluation of the test results found some emissions exceeded those from typical garbage incinerators.

We respectfully urge the Oneida Nation to reconsider this project that would pollute the environment and undermine true renewable energy efforts, and instead pursue safer, truly green and viable economic development projects.

  • March 23, 2011 OBC Resolution 03-23-2011-C to Support OSGC Energy Project – ‘Renewable Energy Topic Area 3 – Development of a Renewable Energy Project for Power Production by Oneida Seven Generation[s Corporation]’ on “Indian Lands identified and committed to the proposed project is a fee simple parcel, identified as 1230 Hurlbut St., Green Bay, WI, 54303 and in the process of purchase by the [Oneida] Seven Generations Corporation”  [NOTE: THE HURLBUT ST. PARCEL IS NOT ON RESERVATION LAND.]
  • November 16, 2011 Contract #SEP FY10-20265, $2 Million State Energy Program Loan Agreement between the Wisconsin Economic Development Corporation / WEDC and Oneida Seven Generations Corp. / OSGC-subsidiary Oneida Energy Inc.

[OBC Chair Ed Delgado] must read the [CONFIDENTIAL October 30, 2008 OSGC AUDIT by the Tribe’s INTERNAL AUDIT DEPT.] as it appears that [OSGC] is still not in compliance with the issues brought up there … While my previous emails may have seemed to soften my stance on [OSGC] after reading the 2008 audit I am very concerned. [Ed] should order a followup to the 2008 audit and then have an independent counsel review how the tribal law was violated and possible action. (much of this is business 101)

I am very concerned about this whole mess.

  • March 2, 2012 Complaint, Brown Co. Case No. 12CV479,  Julie Gumban  v.  Ron Van Den Heuvel, Kelly Van Den Heuvel, KYHKJG LLC, Tissue Products Technology Corp. & Tissue Technology LLC

[Artley] Skenandore had no expertise in the paper industry. Nevertheless, he was made president [of Nature’s Way Tissue Corp.]

Nature’s Way Tissue Corp. fraud scheme principals: OSGC, Artley Skenanadore Jr., Ron Van Den Heuvel, and Steven Peters (who was also a ‘straw borrower’ in Ron’s bank fraud scheme during the same time period that Nature’s Way Tissue Corp. violated state tax laws and ONWI lost over $4 million dollars)

“On or about May 3, 2013, Kevin Cornelius informed ACF that 4 out of 5 OSGC Board members approved the commitment letter.” [April 6, 2015 Plaintiffs-Appellants’ Brief, Cook Co. IL, ACF/GCF v. ONW/OSGC et ]

Kevin:

Did you sign the commitment letter yet?

Eric

We are still waiting for one more board member to give us a yes. We have 4 yes votes, but we’d like to have all 5 votes.

We have two options. First, we will talk with Craig at the bank and if he needs it by today then we will sign the commitment letter since we have the votes.

Second, if we wait till Monday [May 6, after the Sunday, May 5, 2013 GTC Meeting Kevin Cornelius attended on behalf of OSGC where GTC voted to prohibit OSGC from engaging in ACF/GCF’s project on the Oneida Reservation,then we will work with the board member to get his vote by Monday. He is not opposed, but  he had a few questions and we have sent him the answers, but he has not gotten back to us.

On May 5, 2013 the ONWI General Tribal Council voted to prohibit OSGC & its subsidiaries from engaging in ‘gasification,’ ‘waste-to-energy’ and ‘plastics-to-oil’ anywhere on the Oneida Nation in Wisconsin Reservation.

4. Petitions …

b. Petitioner Leah Sue Dodge: General Tribal Council directs the Oneida Business Committee to stop Oneida Seven Generations Corporation (OSGC) from building any “gasification” or “waste-to-energy” or “plastics recycling” plant at N7329 Water Circle Place, Oneida, WI or any other location within the Oneida Tribal reservation boundaries

Motion by Karen Skenandore, seconded by Tammy Skenandore, to end discussion. Motion approved by show of hands.

Motion by Leah Sue Dodge, seconded by Cathy L. Metoxen, to direct the Oneida Business Committee to stop Oneida Seven Generations Corporation (OSGC) from building any ‘gasification’ or ‘waste-to-energy’ or ‘plastics recycling’ plant at N7329 Water Circle Place, Oneida, Wisconsin or any other location within the Oneida Tribal boundaries. Motion by Loretta V. Metoxen, seconded by Larry Smith, to table [the petition submitted by Leah Sue Dodge]. Motion to table failed by hand count: Yes—755, No—814, Abstentions–18, Total votes–1,587

Motion by Leah Sue Dodge, seconded by Cathy L. Metoxen, to direct the Oneida Business Committee to stop Oneida Seven Generations Corporation (OSGC) from building any ‘gasification’ or ‘waste-to-energy’ or ‘plastics recycling’ plant at N7329 Water Circle Place, Oneida, Wisconsin or any other location within the Oneida Tribal boundaries. Motion approved by a show of hands.

  • TRANSCRIPT – May 5, 2013 General Tribal Council Meeting Transcript, including GTC’s vote to prohibit OSGC & its subsidiaries from engaging in ‘pyrolysis,’ ‘waste-to-energy’ and ‘plastics-to-oil’ anywhere on the Oneida Nation of Wisconsin reservation.

 

  

According to the April 6, 2015 Plaintiffs–Appellants’ Brief in Cook. Co. Case No. 2014-L-2768GCF/ACF  v.  ONWI & OSGC, et al., and Exhibits:

Louis Stern and Kevin Cornelius signed the [GCF] Agreements in May and June, 2013.

Throughout the negotiations of the Agreements, OSGC and the Tribe representatives repeatedly represented to ACF that they are acting on behalf of the Tribe/OSGC and referred to the Tribe, OSGC and GBRE as though they were one and the same. Kevin Cornelius and Bruce King repeatedly corresponded with ACF regarding the Project, utilizing OSGC email addresses and OSGC letterhead and utilized OSGC’s office. Kevin Cornelius and Bruce King represented to ACF that GBRE was only a vehicle for tax purposes, that the Agreements were with the Tribe/OSGC and that Kevin Cornelius had authority to enter into the Agreements and waive sovereign immunity on behalf of the Tribe, OSGC and GBRE.

In reliance on the representations of Kevin Cornelius, Bruce King, and William Cornelius that they had they permission of the Tribe and OSGC to enter into the Agreements, ACF continuously performed a variety of tasks to meet its obligations under the Agreements once they were executed. In fact, Kevin Cornelius and Bruce King sent numerous documents related to the Project to Eric Decator in Illinois, but none of these documents referred to GBRE, which was consistent with ACF’s understanding that the actual parties to the Project were OSGC/the Tribe.

According to the May 22, 2014 Complaint w/ Exhibit ‘Master Lease Agreement’  filed in U.S. District Court, Middle District of Florida, Fort Meyers Division, Case No. 2:14-cv-283, Generation Clean Fuels  v.  Veterans Capital Corp. [Joseph E. Wold Jr., President]:

14.  Pursuant to an Equipment Manufacture and Purchase Agreement, dated August 15, 2012 (the “Purchase Agreement”), between GCF and SPARTAN, Spartan agreed to manufacture the Machine, which was to be located in CHEBOYGAN, MICHIGAN. A true and complete copy of the Purchase Agreement is attched hereto as Exhibit B.

Louis Stern was President of SPARTAN, INC.. of Bakersfield, CA, which was supposed to build a poly conversion liquefaction machine for Veterans Capital Corp. to lease to Louis Stern’s and Atty. Eric Decator’s Generation Clean Fuels, LLC, which would then sublease the machine to OSGC & GBRE, but the machine was never built.

  

 

06/11/13–06/13/13 : From the Native American Finance Officers Association [NAFOA] Energy Summit at the Sandia Resort & Casino Hotel in Albuquerque, New Mexico

Agenda & Registration Form for NAFOA’s June 10–12, 2013 Developing Tribal Energy Resources & Economies

9:00 a.m. Round-Table Discussion: Economic and Energy Challenges and Opportunities for Indian Country – Tex G. Hall, Mandan, Hidatsa & Arikara, Chairman-Mandan, Hidatsa & Arikara Nation; …Ernie Stevens [Jr.], Oneida Nation, Board-Chairman National Indian Gaming Association; …Tina Danforth, Delegate-Native American Finance Officers Association and Treasurer-Oneida Tribe of Indians of Wisconsin…

1:30 p.m. Session 3: Funding Development on Tribal Lands: EB-5 Foreign Investment, New Market Tax Credits, DOE Programs and Equity and Debt Partners
  

I was asked to be a speaker at the NAFOA Energy Summit to talk about renewable energy sources. The source of my inspiration was the Oneida Seven Generations Corporation Gasification Plant. Converting recycled food grade plastics into base oil, char ash and vapor gas is the basic model for this energy source. The base oil would be sold to oil refineries or a reseller of synthetic oil. With many of the newer cars requiring synthetic oil, the use of this oil is increasing. Char ash which is high in carbon would be sold to paving companies for driveways, parking lots, and roads. The vapor gas burns cleaner than propane gas and could be sold as a replacement for propane. The concept of using recycled food grade plastics and converting it to a renewable energy source not only keeps items from landfills but would provide a more economical product to the general population.

Despite our own trials and tribulations with the OSGC project, many of the other Tribes in attendance were eager to learn more. It was a great opportunity to highlight a project OSGC has been working on for some time …

Even though our own [Oneida Seven Generations] Corporation has been the target of negative press and conversations, they are the only entity connected to our Tribe that thought outside the box and did their best to make something happen that would generate additional revenues for our Tribe. Even though we all do not see the value in their work, they did the best they could with what they had. Their project may not be welcome on our reservation but other Tribes liked the idea and wanted to learn more. It is just unfortunate for us that we were unable to bring this technology to light.

Cristina Danforth is now President of the Native American Finance Officers Association Board [NAFOA] as well as a member of the Board of Directors of the Native American Bank NA [NABNA] and the Native American Bancorporation Co. in the State of Colorado.

According the FY2017 GTC Annual Meeting Packet, the Oneida Nation of Wisconsin has so far LOST 70% of its $1,000,00 investment in 8% ownership of NABNA.

Tina Danforth misses ~50% of OBC and GTC Meetings due to her travel for NABNA and the Native American Finacce Officers Association [NAFOA], work for which she is presumably paid even as her incompetence leads to MILLIONS OF DOLLARS IN LOSSES TO GTC.

MEANWHILE, the Native American Bank NA makes money when tribes borrow millions from the BIA for boondoggles like Ron Van Den Heuvel’s & OSGC’s ‘renewable energy’ fruad schemes, and the Native American Bank NA Annual Report 2015 says:

2014  We became a dominant institution in the utilization of BIA loan guarantees, accounting for nearly 30% of all dollars under this type of guarantee in the country.

For the second year in a row we received a Bank Enterprise Award in the amount of $265,496 and a Performance Lending Award from the US Department of Interior, Office of Indian Energy and Economic Development Division of Capital Investment.

An AUGUST 15, 2011 DOCUMENT
provided by ONEIDA TIMES Publisher YVONNE METIVIER re: Statements made by former OSGC Secretary MIKE METOXEN to former OBC Chair EDWARD DELGADO about four (4) Wisconsin-registered corporate entities formed by OSGC for purpose of the “biomass grant project”
 named the following OSGC subsidiaries:

•  Oneida Energy, Inc.

•  Oneida Recycling Solutions, LLC

•  Broadway Manufacturing, LLC, and

•  Oneida Manufacturing, LLC 

  

Italicized notes at the end of the Memo state

the “biomass pyrolysis device”

was being sold to OSGC by

“Alliance Energy

Alliance, LLC”

…and the notes said that the seller of the biomass pyrolysis device was in delinquent status with WDFI as of 04/04/11.

  

HOWEVER . . .

   

Oneida Eye believes “Alliance Energy Alliance, LLC” is a typo and was actually in reference to a company that the Oneida Nation of WI’s General Tribal Council was never informed even existed –

 ALL NATIONS

ENERGY ALLIANCE, LLC

– which was registered w/ WDFI on 05/13/09 and delinquent as of 04/01/11; Registered Agent Mark Anthony Sweet; Principal Office:

2994 E. Service Road, Oneida, WI, 54155.All Nations Energy Alliance LLC business address was Tina Danforth's White Eagle Bar

MEANING THAT COMPANY SHARES
THE EXACT SAME ADDRESS AS
ONEIDA BUSINESS COMMITTEE
CHAIR & FORMER OBC TREASURER

CRISTINA DANFORTH’s
OWN PERSONAL FAMILY BUSINESS

. . .

WHITE EAGLE BAR & GRILL

  


MARK ANTHONY SWEET
 is also the listed as being the Manager of…

ALL NATIONS DEVELOPMENT ALLIANCE, LLC
registered w/ Minnesota Secretary of State on 04/04/10;
Registered Office: 7241 Ohms Ln. #275, Edina, MN, 55439; Principal Office: 350 N. Main Street, Suite 236, Stillwater, MN, 55082
.

  

THINK

     

ABOUT  THAT

 

OBC & OSGC tried

to convince the ONWI

General  Tribal  Council

to borrow millions in loans

to buy a ‘machine’ from

a company located in

rez bar owned by

Cristina Danforth

(fmr. OBC Treasurer,

exiting OBC Chair)

whose sister

Caterina ‘Cathy’ Delgado

was on

OSGC’s

Board of Directors

which the OBC ‘oversees.’

Cristina Danforth obtained & defaulted in bankruptcy against loans against her drinking establishment …
(and secret energy company headquarters) from…

ONEIDA SMALL BUSINESS, INC., which is funded by ONWI Gaming Compact monies and is currently under the management of convicted con-artist and insurance & investment fraudster DANIEL HAWK [husband of Judy Cornelius-Hawk].

According to court documents in Brown County Case No. 2013CV1838,  Oneida Small Business, Inc.  v.  White Eagle Sports Bar & Grill, LLC, Paul Danforth, and Cristina Danforth:

On November 18, 2009, Defendant, White Eagle Sports Bar & Grill, LLC, delivered to Plaintiff a Business Note for consideration. The Note was in the sum of $48,925.16. On August 18, 2006, Defendants, White Eagle Sports Bar & Grill, LLC, Cristina Danforth and Paul Danforth, signed a General Business Security Agreement pledging assets of the LLC as collateral on the Business Note and on August 18, 2006, Defendant, Cristina Danforth, married to Paul Danforth at the time, signed a Continuing Guaranty (Unlimited), personally guaranteeing the loans of White Eagle Sports Bar & Grill, LLC.

As of November 13, 2013, the date of Plaintiff’s Summons and Complaint, there is owed the sum of $54,358.80, comprised of principal, accrued interest and late charges. Interest against the principal accrues at 4.0% interest.

Cristina Danforth, in her Answer to the Summons and Complaint in this case, did not deny she was in default on the note.

As a result of the defaults in payment, Plaintiff, as it is entitled to do under the note, has declared the indebtedness immediately due and payable and demands payment in full and surrender of the business assets which secures repayment of the indebtedness.

…In her answer, Defendant, Cristina Danforth, failed to state any valid counter claim or defense relating to her failure to make payments on the note as they became due.

Excerpt from Defendant Tina Danforth’s handwritten Answer (with her own name misspelled TWICE):

Defendents [sic] demands
a trial by a jury of twelve.

That was after Cristina Danforth had been dropped as a client by Attorney John Pettijean

who was also at that time attorney for Ron Van Den Heuvel and his companies.

 

  

Watch Haskell Indian Nations University Board of Regents member Brandon Stevens explain why he deseves “preferential treatment” above General Tribal Council:

As you know, you and we have devoted substantial amounts of time, effort and money to developing the Project. We understand that you have devoted in excess of $5.8 million to the Project. We have also devoted thousands of hours and over $3.0 million to the Project. Now that the Project is about to be financed, it would be a horrible waste of all those hours and dollars to abandon it at this point.

Because of the close working relationship we have developed with your team, we have made many concessions, which have increased your potential benefit and reduced (if not eliminated) your risks with respect to this Project.

•  Leasing the equipment for the Project to you at a substantial discount to its market price.

•  Agreeing to defer almost half of the Project cost owed to us for as long as 9 years.

•  Lending GBRE $870,000 to fund half of the required debt service reserve fund.

•  Guaranteeing the entire amount of the loan. In addition, I am personally guaranteeing $3.0 million of the loan.

•  Providing OSGC with a royalty of 11% of gross revenues off the top.

•  Providing OSGC with a $250,000 development fee at Closing.

•  Depositing $2.2 million in cash as additional collateral for the loan.

We need to know as soon as possible whether you plan to complete the Project. We have many other customers who would like to acquire equipment from us. We have been deferring these customers because of our commitment to you. However, if you do not tell us by August 23, 2013, that you are planning to complete the Project, we will need to divert our assets and attention to servicing our other customers. At this point, even if you decided to complete the Project, we would need to reconsider whether we would still be willing to do the Project on the same basis (including all of the concessions outlined above).

08/28/13 : VIDEO – August 28, 2013 Oneida Business Committee Regular Meeting excerpt re: Analysis of Frank Cornelius Sr.’s Petition for GTC to Direct the OBC to Dissolve OSGC.

An OSGC Report by ONWI Legislative Affairs Director & OSGC Board Member Nathan King announced a ‘Mutual Separation Agreement’ with former OSGC CEO Kevin Cornelius, and falsely claiming OSGC was not involved in pyrolysis nor gasification on the ONWI Reservation WHEN IN FACT ‘open flame’ waste incineration was illegally occurring in violation of zoning & ordinance laws at OSGC’s 1201 O’Hare Boulevard, Hobart, WI commercial building, and the OBC refused to acknowledge & admit that OSGC’s plan was still to market pyrolysis & gasification incinerators to other tribes and municipalities as stated in Exhibit B of the 11/09/09 WI Dept. of Commerce Contract #LEG-FY10-19812.

On December 15, 2013, the ONWI GTC voted to direct the OBC to DISSOLVE OSGC:

4. New Business

a. Petitioner Frank Cornelius: General Tribal Council directs the Business Committee to dissolve the Oneida Seven Generations Corporation based on the Law Office’s March 2013 finding that the OSGC’s corporate charter identifies that the shareholder (i..e. the Tribe), as represented by the Oneida Business Committee, can dissolve the corporation (petition submitted 7/9/13)

Motion by Cathy L. Metoxen to dissolve Seven Generations Corporation and for Frank Cornelius to assist and work with the Business Committee on the dissolution, seconded by Scharlene Kasee. Motion approved by a hand count: 814 yes, 689 no, 69 abstained, total-1,572

    • June 17, 2014 Deposition of Ty Christopher Willihnganz;
    • April 10, 2014 Letter from Ty Willihnganz to Wisconsin Office of Lawyer Regulation re: Answer to Complaint Against Ty Willihnganz;
    • May 28, 2014 Letter from Ty Willihnganz to Judge Donald Zuidmulder re: Motion to Quash Subpoena in Brown Co. Case No. 13CV463, Araujo v. Ronald Van Den Heuvel and Green Box NA Green Bay, LLC

The Oneida Business Committee received a request from [Eric Decator / Louis Stern / Gaylen LaCrosse / Michael Flaherty / Generation Clean Fuels / Arland Clean Fuels / GCF / ACF] to consider settlement. The complaint alleges $400 million in damages; the settlement offer was $9 million. We discussed this settlement in Executive Session on August 26, 2015, and rejected this offer. We believe that the Tribe has not damaged ACF in any way and was not a party to the contract. As a result, the settlement offer is too high to be considered. We do not make a counter-offer as we continue to believe that the Tribe will prevail in this matter. However, if a settlement offer is presented which we think fairly represents the risk and cost of continuing versus concluding this matter, we have committed to bringing that to the General Tribal Council for action.

BUT THE OBC LIED TO GTC IN WRITING, BECAUSE THAT’S NOT WHAT HAPPENED, AND THE OBC REFUSES TO SAY HOW MANY MILLIONS OF DOLLARS OSGC GAVE ACF/GCF IN AN UNDISCLOSED ‘SETTELEMENT’ THAT LOOKS MORE LIKE A RICO EXTORTION SCHEME.

  • November 6, 2015 Letter from U.S. Senator Tammy Baldwin to U.S. General Attorney Loretta Lynch requesting review of May 20, 2015 Letter by WI Sen. Julie Lassa & WI Rep. Peter Barca, and September 21, 2015 Letter from 42 Enrolled Members of the Oneida Tribe of Indians of Wisconsin asking for U.S. Department of Justice investigations of Wisconsin Economic Development Corporation (WEDC), and how the Oneida Tribe of Indians of Wisconsin became the target of criminal waste gasification scams by WEDC recipients Oneida Seven Generations Corp./Green Bay Renewable Energy, Oneida Energy Inc., and Ron Van Den Heuvel’s Green Box NA Green Bay, and how Artley Skenandore Jr.’s Swakweko LLC and Abdul Latif Mahjoob’s American Combustion Technologies Inc./ACTI were involved

  • July 1, 2016 Paul Piikkila Plea Agreement, U.S. District Court, WI Eastern District Docket No. 16-CR-064,  United States of America  v.  Ronald H. Van Den Heuvel, Paul J. Piikkila, and Kelly Y. Van Den Heuvel
  • VIDEO – August 10, 2016 ONWI General Tribal Council Meeting

Watch as Oneida Small Business Inc.’s Registered Agent Dan Hawk and OSGC & GBRE’s counsel – Attorney Joe Nicks of Godfrey & Kahn SC encourage the ONWI GTC to sue OSGC’s victim – the City of Green Bay – rather than file lawsuits against the fraudsters who utilized ONWI officials & Tribally-owned OSGC’s corporate officers & executives to defraud the ONWI General Tribal Council of tens of millions of dollars in what can only be described as Racketeering Influenced Corrupt Organization / RICO activities.

Note that the vote to allow and encourage OSGC & GBRE to foolishly (or malfeasantly) file suit against the City of Green Bay was merely an ‘Amendment’ to a Main Motion which was itself tabled for over three months and thus died according to Robert’s Rules of Order as used by the GTC…

which means the Amendment to sue Green Bay died with it.

But did OSGC & GBRE let that stop them?

Of course not!

Watch the GTC Meeting videos below and see how Pete King III’s story proves to be untrue!

  

NOTE: RON VAN DEN HEUVEL

& GAYLEN LA CROSSE WERE

BUSINESS PARTNERS IN

VENTURES INCLUDING:

  • RECOVERING AQUA RESOURCES, INC.

 

SEE ALSO:

  • November 3, 2017 Plaintiffs’ Post Trial Brief, U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak

EXCERPT FROM AUGUST 10, 2016: Motion by Sherrole Benton to rescind the December 15, 2013 action dissolving the Oneida Seven Generations Corporation and restrict the corporation to commercial leasing activities. Seconded by Loretta Metoxen. Motion not voted on; item tabled.

Amendment to the main motion by Allen R. King to approve all of the BC recommendations for Items 4.A.1-4. Chairwoman Tina Danforth ruled this motion out of order. 

Amendment to the main motion by Nancy Skenandore that we as GTC want to know who are the leaders; who are the investors; who are the attorneys; who are the stockholders; who are the owners; who are the board members; how are they paid; what do they use for collateral; for this information be provided for the last 10 years; and to be reported at the next meeting. Seconded by Cathy Metoxen. Motion carried by show of hands.

Amendment to the main motion by Dan Hawk to allow Oneida Seven Generations Corporation to continue litigation with the City of Green Bay. Seconded by Sherrole Benton. Motion carried by show of hands.

EXCERPT FROM AUGUST 10, 2016: Motion by Frank Cornelius to table this item. Seconded by Linda Dallas. Motion carried by hand count: 845 support; 395 opposed; 16 abstentions.

EXCERPT FROM OCTOBER 2, 2016: Motion by [Oneida Business Committee Vice-Chair] Melinda J. Danforth to take the motion related to item 4.A.1. from the table. Seconded by Allen King. Motion failed by show of hands.

  • December 23, 2016 Complaint & Jury Demand, U.S. District Court, Eastern District of Wisconsin, Docket No. 16-CV-1700, Oneida Seven Generations Corporation & Green Bay Renewable Energy, LLC  v.  City of Green Bay
  • January 9, 2017 Letter and Order dated November 3, 2016 re:  Case Remanded to Circuit Court of Cook County, IL, Law Division, Case No. 2016-L-00789, U.S. District Court, Northern District of Illinois Eastern Division Case No. 16-CV-08251,  ChrisKen Group LLC and CK Property Management LLC  v.  HAS Capital LLC, Stephen A. Wheeler, Eric R. Decator LLC; Eric R. Decator; BMO Harris Bank NA; and Konstantino Apostolou 
    Nature of Suit:  Racketeer Influenced & Corrupt Organizations / RICO

…Assistant U.S. Attorney Matthew Krueger provided a fulsome summary of the electronic discovery produced by the United States, particulary focused on materials secured through execution of a search warrant by Brown County, Wisconsin, authorities [that] resulted in the seizure of approximately 317,000 pages … purportedly related to allegations concerning a fraud scheme involving the Green Box Investment Fraud scheme.

1:45 pm  [Asst. U.S. Attorney Matthew] Krueger informs the Court of separate ongoing federal investigations, government in possession of approximately 313,000 pages of material, potential relevance, and agrees the volume of material is not realistic for manual review.

  • April 3, 2017 Decision and Order, U.S. District Court, Eastern District of Wisconsin, Case No. 1:2014CV1203, Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC
  • April 3, 2017 Amended Complaint, U.S. District Court, Eastern District of Wisconsin, Case No. 1:2014CV1203, Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC, and Sharad Tak
  • April 11, 2017 Summons in a Civil Action to Sharad Tak, U.S. District Court, Eastern District of Wisconsin, Case No. 1:2014CV1203, Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC, and Sharad Tak
  • April 12, 2017 Telephone Scheduling Conference, U.S. District Court, Eastern District of Wisconsin, Case No. 1:2014CV1203, Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC, and Sharad Tak  
  • APRIL 23, 2017 ONWI GENERAL TRIBAL COUNCIL ANNUAL MEETING PART 3 [reconvened from February 20 & March  27] excerpt wherein OBC Council member and candidate for OBC Vice-Chair in the July 2017 ONWI General Election said Ron Van Den Heuvel had nothing to do with OSGC’s Pyrolysis plan.

Therefore – according to Brandon Lee Yellowbird Stevens – there’s absolutely no need for anyone to ask any local, state, nor federal agency to investigate anyone nor anything anymore.

Whatsoever.

Later…

Oneida Election Board Chair Racquel ‘Rocky’ Hill tried to make hay about the February 7, 2017 Declaration of Leah Sue Dodge in Support of Defendant’s Motion to Dismiss Plaintiffs’ Complaint for Lack of Capacity to Sue, U.S. District Court, Eastern District of Wisconsin, Green Bay Division, Case No. 1:16-cv-01700,  Oneida Seven Generations Corporation & Green Bay Renewable Energy, LLC  v.  City of Green Bay

…as if were somehow scandalous to help defend the City of Green Bay against the criminal fraud schemes of OSGC, GBRE, et al.

Then…

OBC Chair Cristina Danforth’s Senior Policy Advisor Michael Debraska recounted for GTC his experiences two months previous in February 2016 when he accompanied Oneida Eye Publisher Leah Sue Dodge to track down ONWI Dept. Chief Counsel James Bittorf at the ONWI Law Office [OLO] following weeks of having emails and phone calls ignored…

only for Mike Debraska & Leah Dodge to be told by Atty. Bittorf that John Breuninger had been made ‘Sole Director’ of Green Bay Renewable Energy, LLC / GBRE and Oneida Energy Inc. (though Atty. Bittorf wasn’t comfortable saying appointed by whom)…

and that John Breuninger (the husband of ONWI Law Office / OLO Senior Paralegal Jeri Bauman) was responsible for entering a ‘confidential’ multimillion settlement agreement with litigants Arland Clean Fuels LLC / Generation Clean Fuels LLC / ACF / GCF… (though Atty. Bittorf couldn’t say how much or the origin of the funds)…

only to later have OSGC Managing Agent Pete King III claim that he – not John Breuninger – made the “business decision” after being asked by Mike Debraska during the 08/10/16 GTC Special Meeting while the OBC sat there, looked on, listened, and said nothing to the contrary

only to later have (OSGC Attorney Carl Artman‘s first cousin) Chief Counsel Jo Anne House later admit at the 07/17/17 GTC Semi-Annual Meeting that OSGC ‘Managing Agent’ PETER J. KING III [of KING SOLUTIONS, LLC] DID NOT have the authority to usurp GTC and enter into a ‘confidential’ multimillion dollar settlement agreement with ACF / GCF …

but the OBC retroactively approved Pete King III’s actions anyway without coming back to GTC for any action…

as was promised in the OBC Letter to GTC mailed in late-October 2015 (but strangely dated September 23, 2015).
 

Additionally, despite numerous oral and written requests from the undersigned to Debtor’s counsel over a period of multiple weeks, WEDC has been unable to receive basic information regarding, among other things, the location of WEDC’s collateral…

The undersigned has been informed by the counsel for the Parkview property landlord that

a.  All of the Debtor’s personal property located therein is currently in the process of being removed, and

b.  The location or even existence of certain specific personal property in which WEDC believe it holds a first position security interest cannot be confirmed.

CONCLUSION

For the reasons set forth above, the City’s motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim is granted.

  • June 28, 2017 Court Documents for the U.S. 7th Circuit Court of Appeals, Docket No. 17-2341Oneida Seven Generations Corp. / OSGC & subsidiary Green Bay Renewable Energy, LLC / GBRE  v.  City of Green Bay

07/17/17 : FULL VIDEO – JULY 17, 2017 ONWI GENERAL TRIBAL COUNCIL SEMI-ANNUAL MEETING

In the excerpt below, the OBC’s attorney – Chief Counsel Jo Anne House –  admits that Oneida Seven Generations Corp. / OSGC Managing Agent
Peter J. King III / King Solutions, LLC, DID NOT HAVE THE AUTHORITY TO ENTER INTO A CONFIDENTIAL MUTLIMILLION DOLLAR ‘SETTLEMENT’ with Atty. Eric Decator and Arland Clean Fuels / Generation Clean Fuels / ACF / GCF

but the OBC retroactively and surreptitiously approved the multimillion ‘settlement’ anyway instead of bringing the matter back to GTC for action as had been promised in the OBC’s Letter mailed to GTC members in late-October 2015 (strangely backdated September 23) after the OBC rejected ACF/GCF’s request in August 2015 for a $9 MILLION ‘settlement’ payment, with the OBC’s letter falsely telling GTC:

The Oneida Business Committee received a request from [Eric Decator / Generation Clean Fuels / Arland Clean Fuels / GCF / ACF] to consider settlement. The complaint alleges $400 million in damages; the settlement offer was $9 million. We discussed this settlement in Executive Session on August 26, 2015, and rejected this offer. We believe that the Tribe has not damaged ACF in any way and was not a party to the contract. As a result, the settlement offer is too high to be considered. We do not make a counter-offer as we continue to believe that the Tribe will prevail in this matter. However, if a settlement offer is presented which we think fairly represents the risk and cost of continuing versus concluding this matter, we have committed to bringing that to the General Tribal Council for action.

BUT THAT’S OBVIOUSLY NOT WHAT HAPPENED.

A SECRET MULTIMILLION DOLLAR ‘SETTLEMENT’ WAS PAID…

WHICH ACTUALLY SEEMS MORE LIKE AN EXTORTION PAYMENT.

GTC MEMBERS HAVE BEEN TOLD VARIOUS VERSIONS OF EVENTS.


When Oneida Eye Publisher LEAH SUE DODGE inquired at the July 17, 2017 GTC Semi-Annual Meeting about what really happened, both the OBC and their attorney – OLO Chief Counsel Jo Anne House (who is oddly also GTC Parliamentarian) refused to answer for the record…

(a)  exactly when did the
OBC retroactively approve
the unauthorized & costly
usurption of GTC’s authority
violation of GTC’s rights by
OSGC ‘Managing Agent’
Pete King III and his sham
front King Solutions LLC?

and…

(b)  exactly where 
did the OBC & OSGC
supposedly obtain

SECRET MULTIMILLIONS
to play with for
 what
looks & smells like
just another state &
federally funded

intentional tort
‘plastics-to-oil’
‘waste-to-energy’
‘green investment’
white-collar extortion

criminal fraud scheme

with a treasonous,

genocidal twist?

Oneida Eye sources estimate the
actual ‘settlement’ amount of Pete King III’s
OBC-approved ‘payment’ to COOK COUNTY,
EVANSTON, ILLINOIS-based

ARLAND CLEAN FUELS, LLC
ACF SERVICES, LLC
ACF LEASING, LLC
aka
GENERATION CLEAN FUELS, LLC
& ACF/ GCF principals

 
MICHAEL FLAHERTY
[of Door County, WI]

 
GAYLEN LACROSSE
[of Door County, WI]

  
LOUIS R. STERN
[of Cook County, IL]

  
ERIC DECATOR
[of Cook County, IL,
formerly of
COLORADO]

as being

between

$10 – $15 MILLION.

  

  

HOWEVER…

GENERAL TRIBAL COUNCIL / GTC

– the GOVERNING BODY of ONWI –

has the following authority,

in accordance with the

Oneida Nation of WI Constitution,

Article VI –

Powers of the General Tribal Council

Section 1. Enumerated Powers.

The General Tribal Council of the Oneida Nation [of Wisconsin] shall exercise the following powers, subject to any limitations imposed by the statutes or the Constitution of the United States:

(c) To veto any sale, disposition, lease or encumbrance of tribal lands, interests in lands,
or other tribal assets of the Nation.

  

THUS…

the  GTC

can  VETO ANY ENCUMBRANCE

created by the OBC & OSGC

due to any ‘settlement’…

as well as hold them

personally liable

for criminal fraud.

NEVER FORGET.

 

Witness this astounding display of Cognitive Dissonance later during the July 17, 2017 Semi-Annual ONWI GTC Meeting by ONEIDA TIMES Publisher Yvonne Metivier:

  

  • July 24, 2017 Court Minutes from Hearing re: Green Box NA Green Bay, LLC’s Motion to Modify the Confirmed Revised Third Amended Chapter 11 Plan of Reorganization, U.S. Bankruptcy Court, Wisconsin Eastern District Docket No. 16-24179-beh, Chapter 11, Green Box NA Green Bay, LLC  

[Atty. PAUL SWANSON, Trustee for GBNAGB]:  Have you paid subtantial monies to these various entities to get these projects, get these studies, or whatever, rolling?

[STEPHEN A. SMITH of  GBNAGB ‘Registered Agent’ GlenArbor Partners, Inc.]: Yes. [sighs]

[Atty. Swanson]:  And how much time have you spent?

[Stephen Smith]:  Too much. Um, I’ve spent, I mean, it’s been Ed [Kolasinski]‘s full-time job, times probably 50%, and it’s been virtually my full-time job for the last 3 or 4 months. I’ve had investments elsewhere.

 

[Atty. Swanson]:  Now, let me back up just to uh, clarify and for full disclosure  that PCDI [Partners Concepts Development, Inc.] contract, who signed that?

[Stephen Smith of GlenArbor Partners]: Ron Van Den Heuvel.

[Atty. Swanson]:  And, was that ‘personally guaranteed’?

[Stephen Smith]:  Yes.

[Atty. Swanson]:  By who?

[Stephen Smith]:  By him.

[Atty. Swanson:] [softly gasps]
 
Who would take
Ron Van Den Heuvel’s
‘personal guarantee’?

[Stephen Smith]: I don’t know, but it wasn’t going to be my personal guarantee, though. That was really where that started, um, is um, the, the – When we approached the scrap dealer [TONY HAYES], he wanted a personal guarantee and I was not about to do that for this. I’ve got enough, probably way too much money in this project already and I wasn’t going to guarantee performance.

 

NOTE:

COURT RECORDS LIST TONY HAYES of DOOR COUNTY,
WISCONSIN
 as an ‘American Indian / Alaskan Native’ 
[see Door Co. Case No. 11FA160, In re: the marriage of Angela Hayes and Tony Hayes]

…but TONY HAYES IS NOT an Enrolled Member of Oneida Nation of Wisconsin / ONWI.

 

WDFI.org lists TONY HAYES as the Registered Agent for:

•  FULL CIRCLE RECYCLERS, LLC [reg’d w/ WDFI on 01/10/2006; Principal Office: 1456 Shiloh Rd., Sturgeon Bay, WI, 54235; Dissolved on 05/29/2017]

An archive of SBISMetal.com lists the address
for Full Circle Recyclers, LLC as
:
3751 Creamery Road, De Pere, WI, 54115

…across the street from Ron Van Den Heuvel’s son-in-law & bank-fraud stooge Patrick Hoffman’s business, The Creamery.

•  STURGEON BAY IRON & SCRAP METAL, LLC [reg’d w/ WDFI on 08/06/2003; Principal Office: 1456 Shiloh Rd., Sturgeon Bay, WI, 54235; Notice of Administrative Dissolution on 07/17/2017] 

•  HOBART IRON & METAL, LLC [reg’d w/ WDFI on 07/24/2014; Principal Office: 1456 Shiloh Rd., Sturgeon Bay, WI, 54235; Notice of Administrative Dissolution on 07/17/2017]

Hobart Iron & Metal, LLC is located at 3807 W. Mason St, Hobart, WI, next to the ONWI-owned Ridgeview Plaza, across the street from the Brown County Waste Transfer Station.

  

HOWEVER  

TONY HAYES IS NOT a Licensed Waste Hauler in the State of Wisconsin, according to the WI Dept. of Natural Resources / WDNR official online database of Licensed Transporters.

    

AUDIO EXCERPT – Later during the 07/24/17 U.S. Bankruptcy Court Hearing re: Docket No. 16-24179-beh, Chapter 11, Green Box NA Green Bay, LLC:

[Attorney BRIAN THILL of Murphy Desmond S.C. for WEDC]:  Is there an arrangement between PCDI and Green Box for the purchase of the equipment?

[Steven Smith]:  I have… Yes, I have complete control of that So, there’s no – there’s no contractual arrangement. I have the ability to sell that, uh, equipment, and, um, at – at whatever points I deem appropriate for whatever amounts I deem appropriate.

[Atty. Thill]:  How do you know you have that authority?

[Stephen Smith]:  It’s in the operating agreement of the company.

[Atty. Thill]:  When’s the last time you saw that document?

[Stephen Smith]:  Oh, in the last month or two? It’s been in place – it’s been in place for 2 (two) years.

[Atty. Thill]:  Do you trust Ron Van Den Heuvel?

[Laughter & snickering]

[Atty. Thill]:  So, what would stop Ron Van Den Heuvel from entering into some sort of amended agreement with Tony Hayes. He’s already signed one agreement, right?

[Stephen Smith]:  Because he needs to get my approval to do so. It’s very well documented.

[Atty. Thill]:  But, you yourself said you don’t –
I believe the word was that
Tony Hayes himself was ‘notorious.’ Is that accurate?

[Stephen Smith]:  No, I didn’t say that.

[Atty. Thill]:  Ok, I think your lawyer said that. Would you agree with your –

[Steven Smith]:  I would never agree with my lawyer. I’m not nuts. No, I don’t know Tony Hayes. I’ve never met him. So if Tony Hayes is notorious, then – then, uh, that’s – that’s [Atty.] Paul [Swanson]’s opinion.

[Atty. Thill]:  So you have no idea who the scrap dealer is?

[Stephen Smith]:  No, no. That’s not – I didn’t say I don’t have idea who he is. We looked into it carefully. I’ve never met him. I’ve – um, we – I was fully aware of the transaction; I approved the transaction. Um, and, but your – your question is, “Do I know him?” No. “Is he ‘notorious’?” I don’t know. That’s all opinion.

A well-founded “opinion,” as it turns out:

TONY HAYES filed for Chapter 7 bankruptcy on July 23, 2013 [U.S. Bankruptcy Court, Wisconsin Eastern District Docket No. 13-29932-svk, Chapter 7, Tony Hayes aka Hayes Salvage]. Although the Order Discharging Debtor(s) was originally filed on October 28, 2013, it was later vacated on November 12, 2015 and the case closed on September 14, 2016, because the Chapter 7 Trustee for Debtor / Tony Hayes was Attorney PAUL SWANSON, whose October 20, 2014 Complaint For Revocation of Discharge against Tony Hayes [U.S. Bankruptcy Court, Wisconsin Eastern District Adversary Proceeding No. 14-02563-svk, Paul G. Swanson v. Tony Hayes] accused Hayes of multiple acts of FRAUD.

[The July 2, 2014 Brown Co. WI Sheriff’s Office]affidavit established that the defendants’ enterprise was permeated with fraud.

The large quantity of materials seized reflects not officer misconduct, but rather the pervasive, complex, and long-term nature of the defendants’ fraudulent activities.

This case arose from federal investigations regarding the defendants pursuing two schemes to defraud banks by obtaining loans through straw borrowers. Separately, the [Brown County WI Sheriff’s Office] was investigating Ronald Van Den Heuvel for defrauding investors and lenders by promoting his Green Box businesses. Federal agencies also subsequently began investigating Ronald Van Den Heuvel’s Green Box scheme; that investigation is ongoing and has not led to charges yet.

Courts have applied this “permeated by fraud” doctrine to approve of broad search warrants when there was probable cause to believe an enterprise was fraudulent.

This doctrine applies here because the BCSO affidavits establish ample cause to believe that Ronald Van Den Heuvel conducted his businesses through a long series of interlocking fraudulent maneuvers.

  • August 11, 2017 Plaintiffs’ Proposed Findings of Fact, U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak

Pursuant to Circuit Rule 33, briefing in this appeal is SUSPENDED pending further court order.

ALSO on 08/24/17:

  • Tissue Products Technology Corp.
    changed Registered Agent to Ron Van Den Heuvel; TPTC was Organized w/ WDFI on 12/11/01 as Oconto Falls Tissue Technologies, Inc., but changed names 02/04/02; Registered Agent also changed on 04/11/07, and 05/20/09, and 11/11/14
      

Oneida Energy, Inc. (BIA can get $ back)
Oneida Recycling, LLC (BIA cannot get $)

4. Investors and Shareholders
     (who will have oversite?)
     Must disclose under GTC Directive

Ed,

In 2007, Glory [LLC / OSGC] allowed Nature’s Way [Tissue] Corporation to switch to be TTL, LLC. That way Artley [Skenandore Jr.] et al [i.e. Ron Van Den Heuvel & Steven Peters] could not have personal assets attached for repayment as a corporation, but as an LLC could only have the business’ assets attached. [OSGC CEO] Kevin Cornelius et al plan to do the same with Oneida Energy, Inc. switch to Oneida Recycling [Solutions], LLC.

Highly Suspect

  

•  According to WDFI.org, Oneida Recycling Solutions, LLC was Organized on 01/12/10 and officially Dissolved on 05/29/17; Principal Office: 1239 Flight-Way Dr., De Pere, WI 54115-9596; Registered Agent: Kevin I. Cornelius

  • August 25, 2017 Declaration of Jonathan T. Smies, counsel for Defendants Tak Investments, LLC and Sharad Tak, U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak
  • September 1, 2017 Supplemental Declaration of Jonathan T. Smies, counsel for Defendants Tak Investments, LLC and Sharad Tak, U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak
  • September 13, 2017 Exhibit & Witness List By by All Plaintiffs,  U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak
  • September 13, 2017 Defendants’ Pretrial Report,  U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak
  • September 13, 2017 TAK Investments LLC Exhibit & Witness List,  U.S. District Court / Eastern Wisconsin, Green Bay Division Case No. 14-CV-1203,  Tissue Technology LLC, Partners Concepts Development Inc., Oconto Falls Tissue Inc., and Tissue Products Technology Corp.  v.  TAK Investments LLC and Sharad Tak
  • September 19, 2017 ComplaintU.S. District Court, Eastern District of Wisconsin, Case No. 17-CV-1261,  United States Securities and Exchange Commission [SEC]  v.  Ronald Van Den Heuvel & Green Box NA Detroit LLC
  • September 19, 2017 Indictment, U.S. District Court, Eastern District of Wisconsin, Case No. 17-CV-1261,  United States Securities and Exchange Commission [SEC]  v.  Ronald Van Den Heuvel & Green Box NA Detroit LLC

14. Conversion of this case is necessary to investigate potential pre-petition fraudulent transfers, preferences, and unknown property of the Debtor.

RELIEF REQUESTED

16. WEDC respectfully requests that its Limited Objection to the Motions to Dismiss filed by Ability and Paper Holdco be sustained, such Motions be denied, and this case converted to one under Chapter 7 of the Bankruptcy Code.

The SEC filed the Complaint in this action on September 19, 2017, and promptly served Green Box [NA] Detroit [LLC]. A process server served Green Box Detroit with a copy of the summons and the Complaint through its registered agent on September 25, 2017. The SEC, in turn, filed a return of service on September 29, 2017.

Green Box Detroit had an obligation to file an answer within 21 days of service of the summons and the Complaint. That is, Green Box needed to file its answer by October 16. That deadline has now passed. Accordingly, the SEC respectfully requests the clerk’s entry of default against Green Box [NA Detroit LLC.]

  • October 31, 2017 Clerk’s Entry of DEFAULT as to Green Box NA Detroit LLC, U.S. District Court, Eastern District of Wisconsin, Case No. 17-CV-1261,  U.S. Securities & Exchange Commission [SEC]  v.  Ronald Van Den Heuvel and Green Box NA Detroit LLC

In reply to the [Wisconsin Economic Development Corp. / WEDC’s] limited objection, Paper Holdco hereby modifies its requested relief in the Motion and requests the Court to convert this [Green Box NA Green Bay LLC Chapter 11 bankruptcy] case [to Chapter 7] instead of dismissing it. 

NATURE OF HEARING: (1) Ability Insurance Company’s motion for relief from stay or, in the alternative, dismissal and (2) Paper Holdco LLC’s motion to dismiss

JUDGE: Beth E. Hanan;  APPEARANCES: Nicholas Hahn, appearing for the debtor-in-possession; Michele McKinnon, for Ability Insurance Company; Angela Dodd, for the Securities and Exchange Commission; Brittany Ogden, for Cliffton Equities, Inc.; Brian Thill, for Wisconsin Economic Development Corporation; Jonathan Smies, for Crossgate Partners, LLC and Advanced Resources Materials, LLC; Christopher Camardello, for Varde/Paper Holdco, LLC; Laura Steele, for the United States Trustee

The court held a joint hearing on Ability’s motion for relief from stay or, in the alternative, dismissal (Doc. No. 301), filed on October 3, 2017, and Paper Holdco LLC’s motion to dismiss (Doc. No. 306), filed on October 5. On October 17, the debtor filed a consent to the motions to dismiss (Doc. No. 317). WEDC filed a limited objection to the motions on October 26 (Doc. No. 330), arguing for conversion, rather than dismissal. Just prior to the hearing, Paper Holdco, LLC joined in WEDC’s request for conversion, rather than dismissal (Doc. No. 335).

Ability’s request for relief from the stay

The court concluded that Ability was no longer subject to the automatic stay by virtue of confirmation of the debtor’s plan, see 11 U.S.C. section 1141, as well as the express terms of the plan, Article 4.1. The court will enter an order acknowledging that there is no automatic stay in effect, to allow Ability to proceed with a foreclosure action in state court. Attorney McKinnon will upload a proposed order.

Requests for dismissal vs. conversion

Counsel for the debtor and Ability argued that dismissal was in the best interest of the creditors and the estate and that conversion would serve no purpose. Counsel for WEDC and Paper Holdco argued in favor of conversion. The other parties participating in the hearing voiced no position on either option. The court questioned what property would exist in a chapter 7 estate for a trustee to administer if this case were converted. Under 11 U.S.C. section 1141(b), the confirmation of the plan in this case vested all of the property of the estate in the debtor; conversion will not re-vest any of that property in a chapter 7 estate, see 11 U.S.C. section 348. Attorney Thill [for WEDC] suggested that there may be fraudulent transfers and preferences that a chapter 7 trustee could discover. Attorney Hahn claimed that the existence of such transfers was mere speculation. The court cautioned Attorney Thill that he would need to provide facts to support his argument, citing In re T.S.P. Indus., Inc., 120 B.R. 107, 111 (Bankr. N.D. Ill. 1990) (“Neither the motion to alter the Court’s prior judgment nor the original motion to convert or dismiss should be used as a pretext for a fishing expedition, especially when the lake looks so barren. The mere possibility that a claim might be found is not reason enough to convert a case, appoint a trustee and incur administrative expenses that will almost certainly never be paid. That result would not be in the best interests of creditors or the estate.”).

The court considered and decided against holding an evidentiary hearing, but stated that it would consider the matter on briefs, which may include evidentiary affidavits. Based on the discussion at the hearing, both movants (Ability and Paper Holdco) consented to the continuance of the matter past the 15-day deadline in which the court ordinarily must issue a decision on a motion to dismiss, see 11 U.S.C. section 1112(b)(3), to allow the parties to brief the issue. Accordingly, the court ORDERED the following briefing schedule:

1. Briefs by WEDC and Paper Holdco arguing in favor of conversion must be filed by November 20, 2017.
2. Responses by any parties advocating dismissal rather than conversion must be filed by December 4, 2017.
3. Reply briefs by WEDC and Paper Holdco must be filed by December 11, 2017. The court will issue a ruling on the matter once briefing is concluded.

  


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