A Texas judge on Tuesday denied the sale of the trustee's rights in the bankruptcy case of a former high-profile real estate developer from Northwest Arkansas.
Recipio Investments Strategic Fund I LLC was named the winner of an auction of the trustee's legal claims in the bankruptcy case of Bill and Carolyn Schwyhart on Monday with a bid of $270,000 but the deal still required judicial approval. The bankruptcy trustee had identified Recipio and others as possible insiders in the case, a claim Recipio's attorneys have denied in a earlier hearing and in court documents.
Schwyhart creditor CHP LLC objected to some wording in the sale motion, contending that while the trustee may sell causes of action of the estate, it should be made clear that those rights don't include CHP's fraud and civil conspiracy claims. CHP contends in court filings that the Schwyharts have tried to hide their assets, including their interest in Pinnacle Villa -- an affiliate of Recipio -- as well as a home in Northwest Arkansas that CHP describes as a multimillion-dollar mansion.
Bill Schwyhart and his wife, Carolyn, filed for Chapter 7 bankruptcy protection in Texas in July 2018, claiming more than $90 million in debt, mostly related to business.
The Schwyharts contend in court documents that they have done nothing wrong. Their attorney has asked the court 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 court documents were justified under the circumstances of the case.
In a hearing Tuesday on WebEx, Judge Harlin Hale of U.S. Bankruptcy Court Northern District of Texas denied the sale motion saying its wording hindered CHP's rights. He added that he would consider another sale motion that addressed his concerns.
Hale credited attorneys on both sides for making solid legal arguments, adding he and his staff spent a good deal of time on the complicated case law that the sale addressed. In his ruling, Hale said CHP's demand for punitive damage in the case on the counts of fraud and civil conspiracy are compelling and that the trustee lacks the legal standing to sell them.
Last week, trustee Scott Seidel offered at auction "all causes of action of the estate." In bankruptcy cases, the trustee's causes of action -- legal claims against another party -- may be considered property of the estate and therefore something that can be sold with court approval. The purchase gives the buyer the ability to step into the shoes of the trustee to use the trustee's powers to pursue a debtor or to chose to not pursue claims.
During the hearing Monday, Rakhee Patel, attorney for Recipio, contended that all the disputes in the bankruptcy center on the 9 Clubhouse Drive property in Rogers and that as such they center on transfers of property which are clearly in the purview of the trustee's causes of action. Also during the hearing, attorney Brian Ferguson representing CHP, reiterated his argument that while some of the causes of action are property of the trustee, CHP's claims of fraud and civil conspiracy are not and therefore can't be undone by the sale.
In court documents and recent hearings trustee Seidel and his attorney said the estate seems to have claims and causes of action against third parties in the Schwyhart bankruptcy, including Pinnacle Villa LLC and Recipio for potential fraudulent transfers and other causes of action linked to a scheme by the Schwyharts to hide assets, including real property and settlement assets.
He told the court the sale was in the best interest of the estate since any trial would be likely lengthy and costly and wouldn't be guaranteed success. He said the auction format ensures the final purchase price for the causes of action are fair and reasonable.
During the Northwest Arkansas building boom, Bill Schwyhart worked with 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 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. It filed for Chapter 7 bankruptcy protection in early 2009.