In re Ahlan Indus., Inc.
| Decision Date | 02 July 2020 |
| Docket Number | Case No. BG 18-04650 |
| Parties | In re: AHLAN INDUSTRIES, INC., et al., Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
Appearances:
April A. Hulst, Grand Rapids, Michigan, attorney for Anthony Winters and Jamie Zichterman.
Joseph M. Infante and Brittni W. Riley, Grand Rapids, Michigan, attorneys for Grand Rapids E-Cigarette, LLC.
This contested matter is before the court on three related motions,1 all of which arise from a sale of the assets of several chapter 7 debtors - Ahlan Industries, Inc., Mitten Vapors, LLC, Peninsula Vapors, LLC, and GR E Liquid, LLC (collectively, the "Corporate Debtors") - to purchaser Grand Rapids E-Cigarette ("GRE"). Prior to the filing of the chapter 7 cases, GRE sued the Corporate Debtors and the individuals who owned and managed the Corporate Debtors, Jamie Zichterman and Anthony Winters (the "Individuals"), in Kent County Circuit Court. GRE obtained a partial judgment for civilcontempt for over $283,000 against the Corporate Debtors and the Individuals and was in the process of seeking an additional award of attorney's fees and costs when the Corporate Debtors and the Individuals filed their bankruptcy petitions.
After the Corporate Debtors filed their bankruptcy cases, this court approved a sale of their assets to GRE. GRE asserts that this sale included approximately 60,000 email messages sent and received through email addresses on the corporate entities' G-Suite account. Winters and Zichterman allege that among these thousands of messages are several hundred email communications with their attorneys - many of which contain legal advice about the prior state court litigation with GRE. They assert that these messages were not "assets" of the Corporate Debtors and therefore, were not sold to GRE. Alternatively, the Individuals argue that they had a reasonable expectation that the contents of the emails would remain private, notwithstanding the fact that they were sent from corporate email accounts. They further assert that the emails are subject to claims of attorney-client privilege and should be protected from disclosure to GRE on that basis. The emails are of particular importance to all of the parties because GRE has filed adversary proceedings against both Winters and Zichterman, seeking a determination that the debt owed under the state court contempt judgment is nondischargeable in their respective chapter 13 cases.
The court gave a partial bench opinion on March 11, 2020, in which it made preliminary findings on the waiver and confidentiality arguments raised by GRE. Based on its preliminary conclusions that the communications were made in confidence and that any privilege which may attach was not waived, the court ordered the Individuals to submitthe email communications for an in camera review. The court has reviewed the email communications and has determined to issue this written opinion and a final order.
The court has jurisdiction over these chapter 7 bankruptcy cases. 28 U.S.C. § 1334. The cases, and all related proceedings and contested matters, have been referred to this bankruptcy court for determination. 28 U.S.C. § 157(a); LGenR 3.1(a) (W.D. Mich.). The matter before the court is a core proceeding and this court has authority to enter a final order. 28 U.S.C. § 157(b)(2)(A) () and (N) (orders approving the sale of property). To the extent this contested matter requires the interpretation of the prior sale order and asset purchase agreement, it is well-established that this court has "jurisdiction to interpret and enforce its own prior order[]." Travelers Indemnity Co. v. Bailey, 557 U.S. 137, 151, 129 S. Ct. 2195 (2009); Lefkowitz v. Michigan Trucking, LLC (In re Gainey Corp.), 447 B.R. 807, 814 (Bankr. W.D. Mich. 2011) (), aff'd, 481 B.R. 264 (6th Cir. B.A.P. 2012).
At the evidentiary hearing on this contested matter, the court heard testimony from two witnesses: Jamie Zichterman and Anthony Winters.2 Both witnesses testified credibly. The court also admitted six exhibits into evidence, all by stipulation of theparties. The following findings of fact are based on the evidence presented at the evidentiary hearing.3
The email communications at issue in this contested matter occurred while the Individuals were operating Mitten Vapors, LLC. Mitten Vapors was a manufacturer of e-liquid products.4 It also sold such products online and, for some period of time, at a retail "vape shop" located on Plainfield Avenue in Grand Rapids, Michigan.5 Jamie Zichterman was the owner of Mitten Vapors and Anthony Winters served as its manager. (Tr. at 22, 61.)
Mitten Vapors utilized G-Suite, a Google product, for email and related services. There were ten different email addresses associated with the Mitten Vapors G-Suite account. The emails at issue in this contested matter were sent and received from the Mitten Vapors G-Suite email addresses assigned to the Individuals: jamie@mittenvapors.com and anthony@mittenvapors.com.
At the evidentiary hearing, both Zichterman and Winters testified that they used their Mitten Vapors email accounts for business, as well as personal, communications. (Tr. at 24, 63.) The personal emails sent and received through the accounts includedcommunications with their attorneys, communications with medical professionals, personal banking information, and online shopping orders. (Tr. at 24, 63.) Both accounts were password protected, and Zichterman and Winters each testified that they had never shared their email passwords with any other party. (Tr. at 24, 62.)
The Mitten Vapors Employee Handbook was admitted into evidence at the hearing. (Individuals' Exh. 3.) Winters testified that he had created the Handbook by searching for "employee handbook things" on the internet, and then cutting and pasting provisions he found into a new document for Mitten Vapors. (Tr. at 62.) Zichterman testified that he was not aware of the Handbook during the time he was operating Mitten Vapors and only learned of its existence in the week prior to the evidentiary hearing. (Tr. at 23.) He stated that he did not know if other employees had received copies of the Handbook. (Tr. at 35.) Winters testified that some employees had received it, but he was not sure how many. (Tr. at 69.)
Regardless of who received the Handbook, it is undisputed that the document is silent about email accounts and email communications. The Handbook does, however, address certain employee practices and employer rights, such as cell phone use and workplace inspections. In a section entitled "Cell Phone Use," the Handbook provides: (Individuals' Exh. 3.) Zichterman testified that Mitten Vapors did not provide cell phones to employees, although both Zichterman and Winters acknowledged that Ahlan Industries may have paid their cell phone bills on occasion. (Tr. at 36, 71.) Even if company cell phones had been provided to employees, the Handbook does not prohibit personal usage.
The section of the Handbook entitled "Workplace Inspections" reserves the company's right to inspect various property, including "computers and other equipment," at "any time, with or without notice." (Individuals' Exh. 3.) The policy goes on to state that such inspections are "compulsory" and that those who "resist inspection may be denied access to Company premises." (Id.) Winters testified that Mitten Vapors never conducted such inspections. (Tr. at 82.)
GRE filed its state court lawsuit against Mitten Vapors and GR E-Liquid in March of 2016. (State Court Contempt Opinion at 4.) The state court litigation generally arose out of a license and joint purchasing agreement between GRE and GR E-Liquid, which was owned by Winters. (Id. at 3.) GRE alleged that GR E-Liquid violated the terms of the agreement, including its "stringent noncompetition requirements," and ultimately terminated the contractual relationship in February 2015. (Id.) Approximately ten days later, Zichterman formed Mitten Vapors. (Id. at 4.) Mitten Vapors had the same business address as the GR E-Liquid store, employed Winters to work at the store, and inherited the GR E-Liquid inventory and customers. (Id.) In June 2016, the Kent County Circuit Court entered an injunction prohibiting certain actions by GR E-Liquid, Mitten Vapors, Winters, and Zichterman that the court determined would violate the noncompete provisions with GRE. (Id.)
The Individuals were not originally named as defendants in the state court lawsuit. (Tr. at 51-52.) Zichterman testified, however, that both he and Winters were brought in as parties to the lawsuit a couple of months after it was filed. (Tr. at 30, 52.) Zichterman also stated that he assumed from the beginning of the state court litigation that he wouldbe "included in the lawsuit" at some point. (Tr. at 52.) He explained that this assumption was based on conversations with his attorneys, or with GRE and its counsel. (Tr. at 52.)
Throughout the state court litigation, the Individuals corresponded with various attorneys seeking legal representation and advice both for themselves and for the corporate entities. Prior to the filing of the state court complaint, Zichterman consulted with Attorney Bobbi Hines on "personal and business matters." (Tr. at 33.) Shortly after the state court litigation was filed in 2016, the law firm of Dickinson Wright was retained to represent the Individuals, Mitten Vapors, Peninsula Vapors,...
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