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The Chapter 7 trustee in the bankruptcy of former real estate developer Bill Schwyhart is asking the court to compel the attorney representing Schwyhart Holdings LLC to turn over all his files concerning the entity.

In a Thursday motion, Scott Seidel said he tried unsuccessfully to coordinate a turnover of the documents with Fayetteville attorney Travis Story, who has acted as counsel for Schwyhart personally and several of his entities including Schwyhart Holdings. In the filing, Seidel noted that Story said he needed court guidance before turning over the files because such a step could run afoul of attorney-client privilege.

In documents, Seidel noted that as the trustee he controls Schwyhart Holdings and therefore can waive any privilege.

In July, Schwyhart and his wife filed for Chapter 7 bankruptcy protection in Texas, claiming more than $90 million in debt. A complaint to the discharge of the bankruptcy made by CHP, an investment group, and unsealed in February contends that Schwyhart and his wife lied about or failed to disclose their ownership in various business entities to defraud creditors and hide information about their finances. Later in February, Seidel notified creditors that a special counsel is investigating the Schwyharts' transactions.

In a March filing, the Schwyharts argued that they have done nothing wrong. Their attorney asked that the complaint be dismissed and that their bankruptcy be discharged, saying the couple never intended to hinder, delay or defraud, and that all acts or failures to act outlined in the objection were justified under the circumstances of the case.

Joshua Silverstein, a professor at the W.H. Bowen School of Law at the University of Arkansas at Little Rock who researches and writes about bankruptcy law, said that in a Chapter 7 bankruptcy, the trustee in effect stands in the shoes of the debtor and has the ability to exercise or waive certain rights, including the right of attorney-client privilege.

He said a situation can become complicated when an attorney represents both an individual and an entity, like Schwyhart Holdings and while the judge likely will support the trustee's request, it might take some sorting out.

"It can get complicated," Silverstein said.

In court filings, CHP contends that the Schwyharts shifted assets secured through the confidential settlement agreements through "a web" of various entities, and used that money for living expenses and other spending but denied knowledge of them in their bankruptcy filing.

CHP also argues that the Schwyharts deceived the court by hiding the fact that they owned an 8,333-square-foot house in the Pinnacle Country Club development in Rogers where they lived for years until recently moving to Texas.

During the Northwest Arkansas building boom, Schwyhart worked with late trucking magnate J.B. Hunt and Tim Graham on the Pinnacle Hills Promenade mall, which opened in 2006. After Hunt's death later that year, his widow, Johnelle Hunt, and Graham broke ties with Schwyhart.

Schwyhart and longtime business partner Robert Thornton formed Pinnacle Investments LLC after the split. Schwyhart was also one of the investors, along with J.B. Hunt, in the now-defunct charter-jet company Pinnacle Air LLC, which did business as Aspen JetRide and filed for Chapter 7 bankruptcy in early 2009.

Business on 05/04/2019

Print Headline: Court asked to wrest bankruptcy files


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