Appellate court rules in Timberland bankruptcy
The Ninth Circuit Court of Appeals recently affirmed the Ninth Circuit Bankruptcy Appellate Panel's denial of a bankruptcy discharge for former Whitefish contractor Brendon Retz.
Retz, who formed Timberland Construction Inc. in 1994, filed for Chapter 7 bankruptcy in February 2004.
Bankruptcy trustee Richard Samson, Retz's former business partner Donald Abbey and several banks filed an adversary proceeding in March 2005 seeking to stop Retz's discharge. After a five-day trial, the bankruptcy court denied Retz's discharge.
Retz's appeal of the bankruptcy court's finding was denied on four grounds, any of which alone would suffice to deny his discharge, according to the Ninth Court's ruling.
Retz and Abbey met in early 2001 when the successful California real estate investor decided to build an extravagant and expensive home on Shelter Island on Flathead Lake's west side.
Abbey has been involved in about 10,000 real estate transactions over 35 years and has interests in more than 60 companies. He decided to form a construction and development company with Retz in order to maintain control of the Shelter Island construction project and to save money.
After forming Timberland Construction LLC, Abbey contributed $300,000 to the company as part of an operating agreement. In May 2003, Abbey ran into Retz on the "comp" floor of the Bellagio Resort & Casino, in Las Vegas.
Abbey testified in court that he was 'shocked" that someone who earned only $40,000 a year had been provided a complimentary room at the casino. Suspicious about Retz's behavior, Abbey traveled to Montana in July 2003 and spoke to representatives at several local banks about Retz and Timberland.
After learning that Retz had allegedly entered into partnerships and loan agreements in violation of Timberland's operating agreement, Abbey brought an accountant to Montana to look into the matter.
According to the court, the accountant allegedly found numerous accounting irregularities on the Timberland books and suspicious transfers between Retz and Timberland. Abbey began withdrawing financial support from Timberland and shutting down the Shelter Island project.
Soon after Retz learned that Abbey was planning to sue him, Retz decided to preemptively file a lawsuit against Abbey in state court. Abbey counter-sued Retz and his brother Ryan. Litigation in state court was stayed when Retz filed a voluntary Chapter 7 bankruptcy petition.
The bankruptcy court found that "after observing Retz's demeanor while testifying under oath and cross-examination, and examination of the transcripts of the state court hearing … that Retz is not a credible witness."
Retz's discharge was denied on the grounds that he knowingly and fraudulently made a false oath or account on legal documents; that he sold a house allegedly belonging to Timberland to his brother Ryan at $60,000 under the market value within one year before filing for bankruptcy; that he transferred assets of the North Forty Resort Corp. after filing for bankruptcy to reduce the value of the bankruptcy estate; and "failed to explain satisfactorily … any loss of assets or deficiency of assets to meet his liabilities."
The Ninth Circuit Bank-ruptcy Appellate Panel affirmed the bankruptcy court on all four grounds, and the Ninth Circuit Court of Appeals affirmed the appellate panel.