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Cordes v. United States

United States District Court, D. Colorado

January 22, 2018

EDWARD B. CORDES, solely in his capacity as the court appointed receiver in the District Court of Hamilton County, Kansas, No. 10-CV-7 Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

          ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

          Richard P. Matsch Senior District Judge

         The First National Bank of Syracuse, Kansas (“Bank”), on August 17, 2007, received a note in the principal amount of $28, 000, 000 from Vreba-Hoff Genetics, LLC (“V-H Genetics”), an Ohio entity owned by Vreba Dairy, B.V. (“Vreba”), a Netherlands company owned by W.H.M. “Willy” Van Bakel, a citizen of the Netherlands.

         On October 31, 2007, the Bank received a note in the principal amount of $13, 000, 000 from West Kansas Dairy, LLC (“West Kansas Dairy”), a Kansas entity owned by Vebra, through its ownership of Vreba-Hoff Genetics.

         Payment of these notes was guaranteed by Vreba, the sole member of Orleton Farms, LLC (“Orleton Farms”), an Ohio entity, the owner of a 6, 000 acre farm in Ohio. As security for Vreba's guarantee, Orleton Farms granted a third priority mortgage on the farm.

         The notes went into default and the Bank seized the assets of V-H Genetics and West Kansas Dairy. They were sold at auction with the proceeds applied as partial payment on the notes.

         The Orleton Farms property was sold at public auction for $27, 100, 000, an amount insufficient to pay the Bank's mortgage. Because the owner of Orleton Farms was Vreba, a foreign entity, $2, 710, 000 was paid to the IRS as required by Section 1445(a) of the Internal Revenue Code to be withheld to pay Vreba's potential tax liability.

         On September 17, 2009, the Bank obtained a Security Agreement reciting the following twenty-four entities as “Debtors:” Vreba; Orleton Farms; Midwest Ag Investments, LLC; V-H Genetics; West Kansas Dairy; Vreba-Hoff Holdings, LLC; Vreba-Hoff Dairy, LLC; Blue Streams Farms, LLC; Wild Cat Farms, LLC; Waldron Dairy, LLC; Andrews Dairy, LLC; Four Leaf Clover Dairy, LLC; Vreba-Hoff Dairy Development, LLC; Vreba-Hoff Dairy Leasing, LLC; Hill Dairy, LLC; Earth Art Leasing, LLC; Springfield Dairy, LLC; Union-Go Diary, LLC; Van Ham Dairy Leasing, LLC; Hulsbosch Dairy Farm Leasing, LLC; Four Leaf Clover Dairy Leasing, LLC; Yellow Hills Dairy Leasing, LLC; New Holland Dairy Leasing, LLC; and Bekel Leasing, LLC. (Ex. 1 to Compl., doc. 1-1.) The only loans described in the Security Agreement were the notes from V-H Genetics and West Kansas Dairy. (Id.)

         The collateral was described in this language:

All Federal Income Tax Refunds of the Debtors for tax year 2009, specifically including but no [sic] limited to, the Debtors' anticipated refund of a Foreign Investment in Real Property Tax Act of 1980 Federal Income Tax withholding in the amount of $2, 710, 000 arising from a withholding from the sale of real property owned by Orleton Farms, LLC to Midwest Farms, LLC which is the subject of IRS Form 8288 dated August 28, 2009.

(Id.) The only signature for the “Debtors” was that of Willy Van Bakel, as director of Vreba, and manager or president of the other entities.

         In 2009, Vreba filed a consolidated income tax return reflecting the combined activities of at least 20 other entities that it owned (directly or indirectly) and operated in the United States. Entities identified as “Debtors” in the Security Agreement were among those included in the consolidated tax return.

         This return was under examination by the IRS for several years. Ten limited liability companies included on the return had failed to pay employment taxes which they reported, in an aggregate amount exceeding $1.6 million dollars. Those ten entities, their states of incorporation, and their relationship to Vreba are follows:

• V-H Genetics was an Ohio limited liability company, with operations in Oklahoma. Vreba was its sole member.
• West Kansas Dairy was a Kansas limited liability company, with operations in Kansas. Its sole member was V-H Genetics, which was solely owned by Vreba.
• Vreba-Hoff Holdings, LLC (“V-H Holdings”) was an Ohio limited liability company. Vreba owned a 50% interest in V-H Holdings.
• Vreba-Hoff Dairy Development, LLC (“V-H Development”) was an Ohio limited liability company, with operations in Ohio. Its sole member was V-H Holdings, the holding company in which Vreba had a 50% interest.
• Hill Dairy, LLC was an Indiana limited liability company, with operations in that state. Its sole member was V-H Development, which was solely owned by V-H Holdings, in which Vreba had a 50% interest.
• Rock Creek Dairy Leasing, LLC was an Indiana limited liability company. Its sole member was Midwest Dairy Investments, LLC, which was solely owned by V-H Development. As set forth above, V-H Development was solely owned by V-H Holdings, the holding company in which Vreba had a 50% interest.
• Andrews Dairy Farm, LLC was an Indiana limited liability company. Its sole member was V-H Holdings, in which ...

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