United States District Court, D. Colorado
ORDER ADDRESSING MR. WILHITE'S OWNERSHIP INTEREST
IN ADVANCED FLOOR CONCEPTS AND THE ASSETS OF THE YAHAB
FOUNDATION AND PERMITTING FEDERAL GARNISHMENT OF THAT
CHRISTINE M. ARGUELLO, UNITED STATES DISTRICT JUDGE.
matter is before the Court to determine the percentage of Mr.
Michael David Wilhite's ownership interest in Advanced
Floor Concepts, LLC (AFC) and in the assets of the Yahab
Foundation. Having thoroughly considered the parties'
arguments, expert testimony, and relevant legal authority,
the Court concludes that Mr. Wilhite has a 73.9% interest in
AFC and a 72.4% interest in the $200, 000 that AFC
transferred to Yahab in 2014. The Court further concludes
that this interest constitutes property that is subject to
garnishment under federal law.
23, 2016, this Court issued an Order concluding that, under
the Colorado Uniform Trust Act (CUFTA) and Holman v.
United States, 505 F.3d 1060 (10th Cir. 2007), Mr.
Wilhite holds a property interest in AFC and any assets
stemming from AFC, even though his wife is listed as the sole
founder and owner of the company. (Doc. # 121, p. 27-28.) The
Court specifically found that the circumstances surrounding
the creation of AFC (and the transfer of funds to the Yahab
Foundation) demonstrate Mr. Wilhite's “actual
intent to hinder, delay, or defraud” his creditors.
Court then asked the parties to brief the best method for
determining the percentage of Mr. Wilhite's interest in
the companies. (Id. at 28.) Finding the written
briefing lacking, the Court set the matter for a hearing,
which occurred over the course of two days, March 23, 2017,
and April 14, 2017. (Doc. ## 151, 154.) Following the
hearing, the parties submitted to the Court proposed findings
of fact and conclusions of law on the issue. (Doc. ## 155,
156.) The parties propose as follows:
• The Government alleges that Mr. Wilhite has a 73.9%
interest in AFC and a 72.4% interest in Yahab. The
Government's figures are supported by the expert
testimony of Michael Petron, a certified public accountant
and certified fraud examiner.
• The Wilhites contend that Mr. Wilhite has a 10.45%
interest in AFC and no interest in Yahab. The Wilhite's
proposal is supported by the expert testimony of William
Callison, an attorney with extensive experience in handling
limited liability company matters.
reasons set forth below, the Court finds the Government's
expert's conclusions more credible and the
Government's position more persuasive.
conducting the instant analysis, the Court sits in equity.
Miller v. Kaiser, 433 P.2d 772, 775 (1967);
Double Oak Const., L.L.C. v. Cornerstone Dev. Int'l,
L.L.C., 97 P.3d 140, 147 (Colo.App. 2003). The purpose
of a court sitting in equity is to promote and achieve
justice with some degree of flexibility; to this end, the
court is to examine substance over form. Garrett v.
Arrowhead Imp. Ass'n, 826 P.2d 850, 855 (Colo.
1992). “Equity . . . has to do with the substance and
reality of a transaction-not the form and appearance which it
may be made to assume . . . . [I]t is the real intention of
the parties, and the true nature of the transaction that
concern equity; . . . . no matter how many papers may have
been executed to cover up the real purpose and give to the
transaction an appearance other than the true one.”
Rocky Mountain Gold Mines v. Gold, Silver, &
Tungsten, 93 P.2d 973, 982 (Colo. 1939).
Court looks partly to the Colorado Limited Liability Company
Act (CLLCA), which governs the interests and contributions of
LLC members, to assess Mr. Wilhite's membership
interest in AFC. Colo. Rev. Stat. §§
7-80-101, et seq. Colorado Revised Statute § 7-80-102(9)
defines “member” as “a person with an
ownership interest in a limited liability company with the
rights and obligations specified under this article.” A
member's financial interest in a LLC, i.e. his ownership
interest, is based on the value of contributions that member
has made to the company. See Colo. Rev. Stat.
§§ 7-80-503, -504; see also Nicholas
Karambelas, 1 Ltd. Liab. Co.: L., Prac. and Forms § 7:3
(2016) (The interest percentage is expressed as a percentage
of the whole and “bears a mathematical relationship to
the type and value of the contribution made.”). This
value is also used to determine an individual's share in
“the profits and losses” and the distribution of
cash or other assets of the LLC. Colo. Rev. Stat.
§§ 7-80-503, -504.
addition, § 7-80-108 binds members of an LLC to its
operating agreement and requires that this Court give that
agreement “maximum effect.” Weinstein v.
Colborn Foodbotics, LLC, 302 P.3d 263, 266 (Colo. 2013).
The Court therefore also looks to AFC's Operating
Agreement when assessing Mr. Wilhite's membership
interest. (Def. Ex. D, E.) The Agreement provides
that a member's “membership interest” should
“be expressed as the percentage equivalent of the
number” that results from dividing the total of the
member's capital account by the total of all members'
capital accounts. (Def. Ex. D, p. 2, ¶ 3; E, p. 1-2.) A
capital account “reflects each member's capital
contribution to the Company” and is required to
“be set up and maintained . . . for each member”
of AFC. (Def. Ex. D., p. 4, ¶ 4; E, p. 1.) The capital
account should also track each member's distributions
based on the profits and losses of the company.
AFC did not maintain these accounts, the Court nonetheless
finds that these provisions demonstrate the company's
intent and understanding behind membership interests. That
Mr. Wilhite, the CEO, did not sign the Operating Agreement
does not mean that it is inapplicable to him. Indeed, Mr.
Wilhite's signature is missing from numerous AFC
documents despite his clear involvement in the company from
its inception. The Court also rejects the Wilhites'
argument that the Operating Agreement does not apply because
Mrs. Wilhite began AFC as a single-member LLC. The Operating
Agreement clearly contemplates a multi-member organization
and this Court has already concluded that Mr. Wilhite is
considered a member, and indeed owner, of the
Company. The 1997 Operating Agreement even concludes with
Mrs. Wilhite certifying “that the Company's members
have adopted the terms of this document.” (Def. Ex. D.)
The Wilhites' continued characterization of the company
as a single-member entity is merely an attempt to further
conceal the realities of AFC from the Court. Even Mr.
Callison, the Wilhites' expert agreed that an LLC's
operating agreement is “typically where [he] would
go” to determine a member's interest in the
company. (Doc. # 151, p. 162.)
the principles set forth in the CLLCA and AFC's Operating
Agreement, the Court's finds it appropriate to conduct a
two-part analysis. The Court's first task is to determine
the value of Mr. Wilhite's contributions to AFC. Next,
the Court must factor in any profits, losses, or
distributions applicable to Mr. Wilhite and determine how
they may affect or drive his overall interest in AFC. The
figures resulting from these two steps will dictate the
ultimate percentage of interest in AFC attributable to Mr.
Operating Agreement states that a member's contributions
may be in the form of “cash, property, or
services.” (Def. Ex. 4, p. 3, ¶ 1.) Section
7-80-501 similarly provides, “[t]he contribution of a
member [of a limited liability company] may be in cash,
property, or services rendered or a promissory note or other
obligation to contribute cash or property or to perform
services.” All parties and both experts agree that Mr.
Wilhite's contributions fall into two categories: (1)
service contributions and (2) financial or cash
contributions. (Doc. # 151, p. 19 (Mr. Petron), 170 (Mr.
parties and experts also agree that Mr. Wilhite's
uncompensated services should form the basis for his service
contributions. They disagree, however, on the value of Mr.
Wilhite's uncompensated services and whether to include
services provided after 2008, when he claims to have retired.
Having thoroughly reviewed the dueling expert recommendations
and supporting evidence, the Court finds Mr. Petron's
approach more reasonable and reliable than Mr. Callison's
Mr. Petron queried a nationally-reliable database from the
Economic Research Institute (ERI), using data points that
were reflective of AFC's size, operation, and location.
(See Doc. # 151 at p. 20-21, wherein Mr. Petron
explained that although typically used by Fortune 500
companies, the ERI database can also be used to set
compensation rates for smaller-sized companies at
“different geographic areas across the country”);
see also Warren v. Campbell Farming Corp., No. CV
05-441 MV/RLP, 2009 WL 10664916, at *11 (D.N.M. Mar. 30,
2009), aff'd, 461 F. App'x 779 (10th Cir. 2012)
(commenting on the reliability of the ERI database). He
specifically queried the database using the following
categories: 1) Area (Castle Rock, Colorado, AFC's
headquarters); 2) Industry: Structural Steel and Precast
Concrete Contractors (using North American Industry
Classification System (“NAICS”) code 238120); and
3) Organization Size (AFC's revenue by year). (Pl. Ex.
51, ¶ 24.) Mr. Petron also included in his ERI
compensation search Mr. Wilhite's position at AFC, which
this Court previously classified as CEO. (Id.) Mr.
Petron then broke down the fair market value of Mr. and Mrs.
Wilhite's uncompensated services by year to account for
economic change, inflation, and the like. His expert report
is thorough and well-supported and his testimony on this
topic was credible.
Mr. Petron found the fair market value of Mr. Wilhite's
uncompensated services between 1997 and 2016 to be $4, 230,
393. He calculated the fair market value of Mrs.
Wilhite's uncompensated services between 1997 and 2016 to
be $1, 277, 045.
Wilhites dispute Mr. Petron's service calculation because
(1) Mr. Wilhite did not operate as the CEO of the company and
therefore Mr. Petron's fair market salary ...