Wisper Ii, LLC v. Abernathy (In re Wisper, LLC), Case No. 13-10770

Decision Date02 December 2015
Docket NumberCase No. 13-10770,Adv. Pro. No. 14-5043
PartiesIn re WISPER, LLC, Debtor Wisper II, LLC, Plaintiff, v. George Matthew Abernathy and Adria Abernathy, Defendants.
CourtU.S. Bankruptcy Court — Western District of Tennessee

In re WISPER, LLC, Debtor

Wisper II, LLC, Plaintiff,
v.
George Matthew Abernathy and Adria Abernathy, Defendants.

Case No. 13-10770
Adv. Pro.
No. 14-5043

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TENNESSEE EASTERN DIVISION

December 2, 2015


Chapter 11

MEMORANDUM OPINION RE: (1) PLAINTIFF'S FIRST AMENDED COMPLAINT TO RECOVER MONEY AND PROPERTY OF THE ESTATE, TO COMPEL TURNOVER, TO RECOVER PREFERENCES, AND TO RECOVER FRAUDULENT TRANSFERS; and (2) DEFENDANTS' COUNTER-COMPLAINT TO RECOVER MONEY AND PROPERTY WRONGFULLY TAKEN FROM DEFENDANTS

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Table of Contents

I. Summary of Opinion .................................................................................................. 1

II. Procedural History ..................................................................................................... 4

III. Constitutional Authority and Jurisdiction .................................................................... 9

IV. Facts ........................................................................................................................ 16

A. 11 U.S.C. § 541 .................................................................................................. 25

1. 2010 Ford F-250 ........................................................................................... 25
2. 2004 Ford Econoline Van .............................................................................. 27
3. Office Furniture and Equipment .................................................................... 28
4. 2007 Gooseneck Trailer ................................................................................ 30
5. Various Items of Property Allegedly Removed from Alamo Property ............ 30
a) Equipment ................................................................................................ 30
b) $11,965.00 in Cash .................................................................................. 33
6. Damages Claim ............................................................................................. 37

B. Conversion and/or Fraud .................................................................................... 38

C. 11 U.S.C. §§ 547 and 548 .................................................................................. 42

1. Withdrawals from Wisper I's Deposit Account ............................................... 42
2. Investments from Jerry Hughes and David Hughes ...................................... 51
3. Tennessee Code Annotated § 48-236-105(a) ............................................... 53

D. Overpayment of Rent ......................................................................................... 53

E. 11 U.S.C. § 503(c) .............................................................................................. 54

F. 11 U.S.C. § 362 .................................................................................................. 55

G. Contempt of Court .............................................................................................. 55

H. Tax Counterclaim ............................................................................................... 56

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V. Analysis ................................................................................................................... 58

A. 11 U.S.C. § 541 .................................................................................................. 58

1. 2010 Ford F-250 ........................................................................................... 60
2. Office Furniture and Equipment .................................................................... 62
3. Missing Equipment ........................................................................................ 66
4. $11,965.00 in Missing Cash .......................................................................... 68
5. Damages for Failure to Turn Over Property of the Estate ............................. 71

B. Conversion and/or Fraud .................................................................................... 74

C. 11 U.S.C. §§ 547 and 548 .................................................................................. 80

1. 11 U.S.C. § 547 ............................................................................................. 81
2. 11 U.S.C. § 548 ............................................................................................. 83
a) Withdrawals from Wisper I's Deposit Account ......................................... 88
b) Investments from Jerry Hughes and David Hughes ................................. 92

D. Overpayment of Rent ......................................................................................... 92

E. 11 U.S.C. § 503(c) .............................................................................................. 95

F. 11 U.S.C. § 362 .................................................................................................. 97

G. Contempt of Court .............................................................................................. 98

H. Tax Counterclaim ............................................................................................. 104

I. Affirmative Defenses ........................................................................................ 106

VI. Conclusion ............................................................................................................. 107

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I. SUMMARY OF OPINION

In this adversary proceeding, the Court is called upon to evaluate the propriety of the parties' actions both prior to and following confirmation of the Chapter 11 plan in the underlying bankruptcy case. The debtor, Wisper, LLC ("Wisper I"), filed its Chapter 11 Petition for bankruptcy relief on March 27, 2013. At the time of filing, defendant George Matthew Abernathy ("Matt Abernathy" or "Abernathy") served as Wisper I's managing member. Wisper I was a single member LLC. Matt's wife, Adria Abernathy, served as Wisper I's bookkeeper both before and after the filing of the Chapter 11 case. Wisper I filed its proposed Chapter 11 plan of reorganization on August 21, 2013. A group of Wisper I's creditors filed a competing Chapter 11 plan on October 15, 2013 ("Competing Plan"). On January 29, 2014, the Court confirmed the Competing Plan. The terms of the confirmed plan provided that the reorganized debtor would be a Board-Managed Tennessee Limited Liability Company known as Wisper II, LLC ("Wisper II"). Wisper I merged with and into Wisper II as of February 12, 2014, the effective date of the confirmed plan.

In this adversary proceeding, Wisper II alleges that Matt Abernathy and Adria Abernathy (together, the "Defendants") wrongfully removed property from the debtor's business premises both before and after the filing of Wisper I's Chapter 11 case. Wisper II also alleges that the Defendants made unauthorized withdrawals from the debtor's bank accounts during this same period of time. Wisper II asserts that these actions give rise to the turnover, conversion, preference, and fraudulent transfer claims at issue in this adversary proceeding. Lastly, Wisper II asserts that Matt Abernathy disobeyed orders of this Court and should, therefore, be held in contempt. Wisper II is seeking damages, the return of property, and sanctions against the Defendants.

In their Counter-Complaint, the Defendants allege that Wisper II is liable for approximately $82,000.00 in payroll taxes the IRS collected from Matt Abernathy following confirmation of the creditors' Chapter 11 plan. The Defendants are seeking reimbursement of this amount from Wisper II.1

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The Court conducted a three-day trial in this adversary proceeding from June 10, 2015, to June 12, 2015. At the Court's direction, the parties filed Post-Trial Briefs on July 14, 2015. Given the nature of the claims at issue, resolution of this adversary proceeding requires the Court to make factual findings regarding each parties' actions as well as legal conclusions as to whether those actions create liability.

Wisper II filed its Amended Complaint against three defendants: Matt Abernathy, Adria Abernathy, and Matt's father, George T. Abernathy. Pursuant to a January 30, 2015 Consent Order, the parties entered a non-suit as to George T. Abernathy. As such, he is no longer a defendant in this adversary proceeding.

For the reasons set forth herein, the Court concludes as follows:

1. The Court finds that the 2010 Ford F-250 Truck, the welder along with the 25 hp Kohler engine, the eight 290 amp hour deep cycle marine batteries, the two battery chargers, the gas generator, and the $11,965.00 in missing cash are property of Wisper II. As such it will order the Defendants to turn that property over to Wisper II;

2. The Court finds that the air compressor and the missing Laptop are property of the Defendants. The Court also finds that there was no proof that an impact drill was removed from Wisper I's offices. Accordingly, the Court will not order the Defendants to turn these three items over to Wisper II;

3. The Court finds that the office furniture and equipment currently being used at Wisper II's offices in Alamo, Tennessee, are property of Wisper II;

4. Based on the lack of evidence at the trial, the Court finds that Wisper II is not entitled to damages for the Defendants' failure to turn over property to Wisper II;

5. The Court finds that the Defendants wrongfully converted the two Pure Wave WiMax BTS Base Stations worth $20,600.00, $693.92 of the $2,804.02 Humana insurance premium for February 2014, and the $1,938.61 the Defendants used to make repairs to their personal vehicle. The Court will award Wisper II $23,232.53 for this conversion;

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6. The Court finds that the 2004 Ford Econoline Van was the Defendants' personal property. The Court therefore will not find that the Defendants converted Wisper I property when they sold the van post-petition;

7. The Court finds that the pre-petition transfers from Wisper I to the Defendants are not
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