Wisper Ii, LLC v. Strawn (In re Wisper, LLC)

• Decision Date: 05 May 2014
• Docket Number: Adv. Pro. No. 14-5036,Case No. 13-10770
• Court: U.S. Bankruptcy Court — Western District of Tennessee
• Parties: In re: WISPER , LLC Debtor. WISPER II, LLC fka WISPER, LLC, Plaintiff, v. THOMAS H. STRAWN, Defendant.

In re: WISPER , LLC Debtor.

WISPER II, LLC fka WISPER, LLC, Plaintiff, v. THOMAS H. STRAWN, Defendant.

Case No. 13-10770

Adv. Pro. No. 14-5036

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF TENNESSEE EASTERN DIVISION

Filed: May 6, 2014

May 5, 2014

Chapter 11

MEMORANDUM OPINION RE: WISPER II, LLC'S MOTION FOR SUMMARY JUDGMENT and DEFENDANT'S RESPONSE THERETO

At issue in this adversary proceeding is whether the plaintiff, Wisper II, LLC, fka Wisper, LLC, is entitled to summary judgment on its complaint to compel turnover of certain documents under § 542(e) of the Bankruptcy Code. The plaintiff contends that there are no genuine issues as to any material fact in this case and that it is entitled to judgment as a matter of law.The defendant, Thomas H. Strawn, argues that turning over the requested documents may constitute a breach of the attorney-client privilege and other ethical rules.

For the reasons that follow, the Court concludes that Wisper II, LLC's motion for summary judgment should be granted and that Strawn is obligated to turn over Wisper, LLC's complete bankruptcy file to Wisper II, LLC, pursuant to 11 U.S.C. § 542(e).

I. Jurisdiction

This proceeding arises in a case referred to this Court by the Standing Order of Reference, Misc. Order No. 84-30 in the United States District Court for the Western District of Tennessee, Western and Eastern Divisions, and is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(b)(1) and 1334 and, thus, may hear and enter a final order in this matter. This memorandum opinion shall serve as the Court's findings of facts and conclusions of law. Fed. R. Bankr. P. 7052.

II. FACTS

At the time of filing for bankruptcy relief, Wisper, LLC ("Wisper I"), provided wireless high speed internet service to rural communities in West Tennessee. George Matthew Abernathy ("Abernathy") was the sole owner and managing member of Wisper I.

Wisper I filed a voluntary Chapter 11 petition for bankruptcy relief on March 27, 2013. No Chapter 11 trustee was appointed in this case. Therefore, pursuant to 11 U.S.C. §§ 1101 and 1107(a), Wisper I was a debtor in possession. Abernathy continued to operate the debtor in possession's business post-petition as the managing member. Wisper I filed an application to employ attorney Thomas H. Strawn ("Strawn") as counsel for the debtor on March 27, 2013. The Court approved Strawn's employment on April 19, 2013.

Wisper I filed its Chapter 11 plan of reorganization on August 21, 2013. Several of Wisper I's creditors filed a competing plan of reorganization on October 15, 2013 ("InvestorPlan").¹ The proponents for the Investor Plan were Ally Finance Corporation, NTCH-West Tenn, Inc., Carter Edwards, Crockett Gin Company, Robbie Russell, Rance Barnes, Educational Broadband Corp., Halls Investment Group, Will Wade, Donnie Bearden, Barbara Woods, and Jerry Hughes (collectively referred to as "Investor Plan Proponents").

Wisper I submitted copies of both plans to its creditors in mid-December 2013. During the balloting process, a majority of Wisper I's creditors voted to accept the Investor Plan. At the January 23, 2014 confirmation hearing, the Court confirmed the Investor Plan ("Confirmed Plan"). The Court entered an order confirming the plan on January 29, 2014 ("Confirmation Order").

In relevant part, the Confirmed Plan provided for the merger of Wisper I into a new legal entity named Wisper II, LLC ("Wisper II"):

After the Effective Date of the Order confirming the Plan, the Reorganized Debtor is to be a Board-Managed Tennessee Limited Liability Company and will be governed by a board of not less than five (5) or more than seven (7) directors who shall, from time to time designate one or more officers to operate the business in which the Debtor is currently engaged (the "Reorganized Debtor"). The Reorganized Debtor will be named "Wisper II, LLC" and shall be the survivor entity by merger as contemplated by this Plan immediately following Confirmation of the Plan proposed by the Creditor/Investor Plan Proponents.

. . . .

The Reorganized Debtor will continue to exist after the Effective Date as a separate business entity, with all the powers of a Tennessee limited liability company under applicable law and without prejudice to any right to alter or terminate such existence (whether by merger, dissolution or otherwise) under applicable state law. Except as otherwise provided herein, as of the Effective Date, all property of the Debtor, and any property acquired by a [sic] Debtor or Reorganized Debtor under the Plan, will vest in the applicable Reorganized Debtor, free and clear of all Claims, liens, charges, other encumbrances and interests[.] . . . On and after the Effective Date, the Reorganized Debtor may operate its business and may use, acquire and dispose of property and compromise or settle any Claims or Equity Interests without supervision or approval by the Bankruptcy Court and free of any restrictions of the Bankruptcy Code or Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or the Confirmation Order.

(Ch. 11 Plan at 12, Bankr. Case No. 13-10770, ECF No. 142).

The Confirmation Order included similar language concerning Wisper I's merger into Wisper II. The relevant portion of the Confirmation Order states that

[o]n the Effective Date of the Plan the Debtor, Wisper, LLC shall be deemed as merged into Wisper II, LLC, a Tennessee Limited Liability Company duly formed on January 2, 2014 (the "Reorganized Debtor") and Wisper II, LLC, as the Reorganized Debtor shall be the surviving entity of the merger and this Order and the Plan shall constitute the "Plan of Merger" to be filed with the Tennessee Secretary of State in accordance with Tennessee law.

. . . .

That on or before the Effective Date, the Debtor, its manager, George Matthew Abernathy, and its employees are directed to turn over all Property of the Debtor including but not limited to all business records and documents; all furniture, fixtures and equipment; keys to the Debtor's principal business location and tower sites; all access codes and passwords to all Property, all bank deposit records (including debit cards and credit cards of the Debtor) such that the Reorganized Debtor can assume the right to continue the business operations of the Debtor without interruption to the customers and subscribers of the business.

(Confirmation Order at 5-6, Bankr. Case No. 13-10770, ECF. No. 245).

On February 12, 2014, Wisper II filed a Certificate of Merger with the Tennessee Secretary of State. The Certificate of Merger states that, effective January 23, 2014, Wisper I is merged with and into Wisper II and that Wisper II is the surviving entity. The Certificate of Merger also indicates that the Confirmed Plan and Confirmation Order set forth all of the terms for the merger.

Following entry of the Confirmation Order, Strawn filed a motion to withdraw as counsel for Wisper I. The Court granted Strawn's motion on March 6, 2014.

On March 18, 2014, Stephen L. Hughes ("Hughes") filed a Notice of Appearance as counsel for Wisper II. That same day, Wisper II filed a complaint to compel turnover of Strawn's complete bankruptcy file for Wisper I pursuant to 11 U.S.C. § 542(e). Wisper II's turnover request included "all pleadings, documents, notes, emails, and electronically stored documents and communications" relating to Strawn's representation of Wisper I throughout the course of these bankruptcy proceedings. (Compl. at 2, Bankr. Case No. 13-10770, Adv. Proc. No. 14-5036, ECF. No. 1.) Wisper II alleged that it acquired all of Wisper I's rights, privileges and assets, including Wisper I's complete bankruptcy file, when the entities merged on January 23, 2014. Strawn filed an answer to the complaint on March 25, 2013, in which he asked the Court to dismiss the complaint.

On March 27, 2014, Wisper II filed a motion for summary judgment, a statement of material facts, and a memorandum of law and facts in support of the motion. In its memorandum, Wisper II asserted that "the complete bankruptcy file of Wisper [I] . . . vested in Wisper II" at the time of the merger. Consequently, Wisper II argued it had the authority to "waive any attorney-client privilege that the former entity may have held." (Memo. in Supp. of Mot. for Summ. J. at 3, Bankr. Case No. 13-10770, Adv. Proc. No. 14-5036, ECF No. 7.)

Strawn filed a response to the motion, a statement of material facts, and a memorandum of law in support of his response on April 9, 2014. In his response, Strawn stated:

George Matthew Abernathy has raised with Defendant and called for the lawyer/client privilege with respect to all notes, emails, and electronically stored documents. . . .[C]ompelling Defendant to turn over possession of the complete bankruptcy file for Wisper, LLC . . . would violate the privilege of communication that has been established between Defendant and Wisper, LLC's Chief Executive Officer, George Matthew Abernathy.

(Defs. Resp. at 1, Bankr. Case No. 13-10770, Adv. Proc. No. 14-05036, ECF No. 14). Strawn asserted that Rule 1.6 of the Tennessee Rules of Professional Conduct prohibits him from turning over Wisper I's complete bankruptcy file to Wisper II.

At the April 10, 2014 hearing on the motion for summary judgment, Strawn stated that he did not dispute any of the facts contained in Wisper II's statement of material facts. He merely filed his own statement in order to supplement the facts provided by Wisper II. Indefense of Wisper II's complaint and motion, Strawn repeated his assertion that Abernathy had invoked the attorney-client privilege to him in writing and expressed opposition to turning over Wisper I's complete bankruptcy file. Strawn also repeated his concern that turning over any documents to Wisper II may conflict with the attorney-client privilege and Rule 1.6 of the Tennessee Rules of Professional Conduct.

II. ANALYSIS

Federal...