The opinion
UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
In re:
SPARHAWK LLC, et al.,1 Case No.: 26-10527-11
Jointly Administered
Debtors.
DECISION ON MOTION BY WOODTRUST BANK
TO APPOINT A CHAPTER 11 TRUSTEE
Sparhawk LLC, Sparhawk Properties LLC, Sparhawk Trucking, Inc., and
Sparhawk Truck and Trailer, Inc. (“Debtors”), each filed voluntary petitions
under Chapter 11 of the Bankruptcy Code on March 13, 2026. A motion for
joint administration was granted on March 15, 2026. On March 25, WoodTrust
Bank (the “Bank”) moved for entry of an order abstaining from and dismissing
these cases or, in the alternative, for the appointment of a Chapter 11 Trustee.
Dkt. No. 41. Debtors object to the request for the appointment of a Chapter 11
Trustee.
The Court has denied the motion to abstain. This leads to the need for a
decision on the motion to appoint a Chapter 11 Trustee under 11 U.S.C.
§ 1104(a).
As explained below, the motion is granted. The Court finds the
appointment is in the best interests of creditors, equity security holders, and
1 Jointly administered with Sparhawk Properties LLC (Case No. 26-10528-11),
Sparhawk Trucking, Inc. (Case No. 26-10529-11), and Sparhawk Truck and Trailer,
Inc. (Case No. 26-10530-11). This caption applies to all four debtors.
other interests of the estate under 11 U.S.C. § 1104(a)(2). The Court hereby
orders the appointment of a Chapter 11 Trustee by the United States Trustee
(“U.S. Trustee”) as soon as possible.
FACTS
Debtors operate a transportation and logistical business. Mark Sparhawk
(“Sparhawk”) is the manager of Debtors.
Sparhawk took over the business from his father. Under his control, the
business grew to more than 100 trucks. But he remained “in control” of all
aspects of the business. He did not have a chief financial officer or person in
charge of accounting. He didn’t have a person in charge and supervising all
business operations such as marketing and billing or coordinating assignment
and management of drivers, owner operators, or loads. All decisions needed to
be run by him.
Unfortunately, medical issues arose in 2023 that took Sparhawk from
management and supervision of the Debtors for substantial portions of 2023.
This negatively impacted the business.
In 2022, there was an in-house CPA who worked on accounting and
financial reports. In 2023, this transitioned to Kerber Rose, an outside
accounting firm. They would periodically consult and review financial
statements, true-up the financials, and prepare tax returns. They also prepared
various other tax documents and financial statements.
Debtors began experiencing cash flow issues. To address cash flow
issues, Sparhawk approached the Bank to discuss the issue. Working capital
had been eroding, overdrafts had occurred, and both payroll and insurance
payments were coming due. For a brief time, the Bank agreed to interest-only
payments.
Kerber Rose stopped working on the financial and accounting reports
and the 2024 tax returns in 2025. The work with Kerber Rose stopped while
the process of reviewing year-end financials and while the tax returns were
being prepared because payment was not being made for their services.
The working capital and cash flow issues did not improve. When the cash
flow problems continued, Sparhawk again met with the Bank. In June 2025,
he was asked to sign a letter forbearance agreement. He did so, although no
copy of such agreement was provided to the Court. This included a request to
turn over the titles to all unencumbered trucks.
The Bank suggested hiring a financial consultant. Sparhawk and a
representative of the Bank interviewed three consultants. The Silverman Group
(“Silverman”) was selected by Sparhawk. Trevek Sengbusch (“Sengbusch”), a
partner at Silverman, was Sparhawk’s primary point of contact.
Sparhawk and Sengbusch met almost weekly with the Bank. At times,
Sengbusch spoke with the Bank without Sparhawk. Consolidated Operating
Performance reports were prepared by Silverman for August, September, and
October 2025. Dkt. No. 62-3, Ex. 103. These also included Income Statements.
There were gaps and inconsistencies in financial and accounting records.
With the assistance of Kerber Rose in the past, these records were periodically
reviewed, corrected, and finalized. That assistance stopped earlier in 2025. Part
of the cause of the inconsistencies arose from the use and input of information
into portions of the software used by the company. Individuals in the company
used the software for very different purposes. For example, an individual may
add information about new loads to be hauled and delivery of a load. Another
individual may add information on billing. Other individuals may have entered
information about maintenance costs, parts, and repairs. These kinds of
inconsistencies were previously addressed with the assistance of Kerber Rose.
In November 2025, Silverman tagged 100 trailers for auction. David
Christianson testified he was directed by Silverman to prepare the units for
auction. Standard practice when sending trucks to auction is to remove the
Samsara units. Mr. Christianson complied with this practice.
In addition to the rolling stock that the Bank financed, Debtors also
bought equipment financed by BMO Bank, N.A. (“BMO”), Wells Equipment
Finance, Inc. (“Wells”), and Daimler Truck Financial Services, LLC (“Daimler”).
Payments were not being made to these creditors.
Despite the lockbox agreement, Sparhawk contacted some customers
and directed them to send payment to the office and not to the lockbox. He
then took three checks to Nicolet National Bank and opened a new bank
account. Funds from the account were then used to make payments to BMO,
Wells, and Daimler. Afterward he told Sengbusch about that account.
Sengbusch advised him to tell the Bank. He did so.
Recommendations were made by Sengbusch to Sparhawk for ways to
increase cash flow, stem the erosion of working capital, and address other
improvements for the business. It appears that the recommendations were
ignored in large measure.
Sparhawk promised that there would be payments to the Bank to reduce
debt. One of the sources would be the sale of excess equipment.
Over the course of several months, Sparhawk first “sold” two trucks,
then leased or sold an additional 30 plus trucks and at least three trailers.
These sales and leases were to Rene Garcia (“Garcia”).
Sparhawk testified that the original agreement with Garcia was for the
sale of two trucks. Garcia said he was taking them to Texas. Garcia came to
Wisconsin to pick up the trucks. He didn’t bring the money for the purchase.
He promised he would send it or bring it. So Sparhawk let him take the trucks.
Over the next few months, instead of a sale, it was suggested that more trucks
could be leased for use in oil fields in Texas. Thus, there was a need for
trailers.
Sengbusch asked about this deal. He advised Sparhawk there should be
written agreements and more information. Sparhawk ignored that advice. The
Samsara tracking devices were removed from the trucks and trailers despite
the fact that no payments had been made. The result was an inability to timely
geographically locate that equipment. Sparhawk either let Garcia bring his own
drivers to take the equipment away or, in some instances, had drivers
employed by the Debtors help move the equipment.
Ultimately, the Debtors had no information about the location of any of
those trucks. They didn’t have any written agreements. No action was taken to
gather information to confirm the arrangements were with legitimate
companies. There was a check for $500,000 made payable to Sparhawk dated
September 6, 2026, from Bolivar Trucking—a company associated with Garcia.
Dkt. No. 53-5, Ex. 5. It was supposed to be payment for the trucks. Sparhawk
was told not to deposit the check right away. Eventually it was deposited but
was returned NSF. Then there was a check from Felipe Aguirre Mata for
$10,000,000. Dkt. No. 53-6, Ex. 6. It was dated December 6, 2025, and was to
be for the lease or purchase of equipment. This check was never deposited and
would not have cleared.
Matters quickly accelerated and deteriorated as shown by the following
events:
Date Event
August 10, 20252 Forbearance Agreement
• Debtors must hire financial consultant
• Debtors must execute new mortgages
including on unencumbered property
• Various financial reports must be delivered
before 9/2/25 with a weekly budget and
liquidating excess assets
• By 9/25 Debtors must have hired an
accounting firm
September 25, 2025 Amendment to Forbearance Agreement3
• A lockbox was required
• A disposition plan required by 10/10
November 14, 20254 Second Amendment
• Debtors waive a right to notice of default
2 Although this agreement bears the date August 10, it was not actually signed until
well after that date. Dkt. No. 53-1, Ex. 1.
3 Dkt. No. 53-2, Ex. 2.
4 Again, despite the date on the document, it was not signed until November 21, 2025,
as suggested on Dkt. No. 53-3, at 15-18 of that document. Dkt. No. 53-3, Ex. 3.
• Debtors were required to execute and deliver
an Assignment for the Benefit of Creditors
• If there is a default, the Bank would be
entitled to cause to be filed an Assignment for
the Benefit of Creditors
December 9, 2025 Wood County Circuit Court filings5
• Assignment for Benefit of Creditors filed
• Motion for . . . Order Authorizing Receiver to
enter into Financing Agreement
December 10, 2025 Wood County Circuit Court6
• Order by Judge Brazeau granting motion
approving financing agreement, providing for
release of Bank, and providing security
December 19, 2025 Notice to creditors of the Wood County Order7
• Objections were due before 12/30
• Copies of the Financing Agreement could be
requested from the office of the Receiver
The Order was signed by Judge Nicholas J. Brazeau, Jr., on December
10, 2025, approving the Financing Agreement. It was filed the next day. Dkt.
No. 105-3, Ex. 126, at 3. It ordered:
1. The terms and conditions of the Financing Agreement executed by
and between the Receiver and the Lender are hereby authorized,
approved and adopted and made the Order of this Court,
including, without limitation, the Receiver's agreement to grant
Lender first priority mortgages, security interests and liens in
substantially all assets of Sparhawk, including, without
limitation, any claims arising under Chapters 128 and 242 of
the Wisconsin Statutes.
. . .
3. This Order shall constitute an adjudication that the obligations
and the first priority properly perfected mortgage, security interest
in and lien on the Collateral granted to the Lender, are not subject
to avoidance, subordination, recharacterization, recovery, attack,
offset, counterclaim, defense, challenge, or claim of any kind. This
Order shall be sufficient and conclusive evidence of the validity,
5 Dkt. No. 105-2, Ex. 125; Dkt. No. 105-4, Ex. 127.
6 Dkt. No. 105-3, Ex. 126 at 3.
7 Id. at 1.
perfection, and priority of the Lender's security interests and
liens without the necessity of filing or recording any financing
statement, mortgage, notice of lien, or other instrument or
document which may otherwise be required under the law or
regulation of any jurisdiction or the taking of any other action to
validate or perfect the Lender's mortgage, security interest and
lien, or to entitle the Lender to the priorities granted herein.
Notwithstanding the foregoing, the Lender is authorized to file,
as it deems necessary in its sole discretion, such financing
statements, mortgages, notices of liens, and other similar
documents against the Receiver and Sparhawk to perfect or to
otherwise evidence the Lender's security interest and lien, and
all such financing statements, mortgages, notices and other
documents shall be deemed to have been filed or recorded as of
the date of entry of this Order; provided, however, that no such
filing or recordation shall be necessary or required in order to
create or perfect the Lender's security interest and liens. The
Lender's security interests and liens shall be valid and
enforceable against the successors and assigns of the Receiver,
Sparhawk, and any trustee or other estate representative
appointed in any bankruptcy case.
Id. at 5-6 (emphasis supplied).
DISCUSSION
A. Appointment of a Chapter 11 Trustee Under 11 U.S.C. § 1104
Appointment of a Chapter 11 Trustee is an extraordinary remedy. There
is a presumption that a debtor is entitled to remain in possession of its assets
and continue operating its business.8
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An appointment of a trustee is the exception, not the rule.9 Under section
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1104(a), a court may appoint a trustee:
(1) for cause, including fraud, dishonesty, incompetence, or gross
mismanagement of the affairs of the debtor by current
management, either before or after the commencement of the
8 7 COLLIER ON BANKRUPTCY ¶ 1104.02 (16th ed.).
9 In re Schroeder Bros. Farms of Camp Douglas LLP, 602 B.R. 695, 702 (Bankr. W.D.
Wis. 2019); see also In re Sharon Steel Corp., 871 F.2d 1217, 1225 (3d Cir. 1989).
case, or similar cause, but not including the number of holders
of securities of the debtor or the amount of assets or liabilities of
the debtor; or
(2) if such appointment is in the interests of creditors, any equity
security holders, and other interests of the estate, without regard
to the number of holders of securities of the debtor or the amount
of assets or liabilities of the debtor.10
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Courts are divided on the burden of proof required of the movant. The
majority, including those in the Seventh Circuit, have applied the clear and
convincing standard.11 The minority have relied on a preponderance of the
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evidence standard.12
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The Court applies the clear and convincing standard. It is more aligned
with the presumption that Debtors are entitled to remain in possession of their
business.13
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1. Appointment of a Trustee for “Cause” Under Section 1104(a)(1)
Under section 1104(a)(1), a court shall appoint a trustee where there is
“cause.” Cause is not defined under section 1104(a)(1). A court has
considerable discretion to determine when evidence constitutes sufficient
“cause” under section 1104(a)(1).14 In doing so, the Court considers a variety of
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things—some nuanced and some not. This can include:
10 11 U.S.C. § 1104.
11 In re Waterworks, Inc., 538 B.R. 445, 464–65 (Bankr. N.D. Ill. 2015); In re LHC, LLC,
497 B.R. 281, 291 (Bankr. N.D. Ill. 2013).
12 In re Berwick Black Cattle Co., 405 B.R. 907, 912 (Bankr. C.D. Ill. 2009),
subsequently dismissed sub nom., In re Ray, 597 F.3d 871 (7th Cir. 2010).
13 In re LHC, LLC, 497 B.R. 281, 291 (Bankr. N.D. Ill. 2013).
14 11 U.S.C. § 1104(a)(1).
• Considerations of whether the court “find[s] something more
aggravated than simple mismanagement in order to appoint a
trustee.”15 Thus, a court must base its determination on the
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totality of circumstances.
• If past management is also current management, confidence
in whether a “new leaf” has been turned is important.16
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• A court did not find gross mismanagement where corporate
debtor’s chief financial officer testified that debtor’s business
had been able to grow its cash balance during bankruptcy
while keeping current on its accounts payable, and where,
under the last filed monthly operating report, debtor had an
ending cash balance of $1,053,808.64.17
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The Court’s inquiry is not limited to the enumerated statutory list of
fraud, dishonesty, or gross mismanagement. Its inquiry extends to “similar
cause.”18 Under section 1104(a)(1), some courts have considered the following
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factors for determining whether to appoint a trustee:
1. Materiality of the misconduct;
2. Evenhandedness or lack of same in dealings with insiders
or affiliated entities vis-a-vis other creditors or customers;
3. The existence of pre-petition voidable preferences or
fraudulent transfers;
4. Unwillingness or inability of management to pursue estate
causes of action;
5. Conflicts of interest on the part of management interfering
with its ability to fulfill fiduciary duties to the debtor;
15 In re Fuller’s Serv. Ctr., Inc., 675 B.R. 575, 591 (Bankr. N.D. Ill. 2025) (citing In re 4
C Sols., Inc., 289 B.R. 354, 370 (Bankr. C.D. Ill. 2003)).
16 Id.
17In re Skytec, Inc., 610 B.R. 14 (Bankr. D.P.R. 2019).
18 11 U.S.C. § 1104.
6. Self-dealing by management or waste or squandering of
corporate assets.19
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“[A]lthough courts are directed to appoint a trustee once ‘cause’ has been
established, the determination of whether cause has been established is solely
within the discretion of the court.”20
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2. Appointment of a Trustee Under the “Interests” Standard
of Section 1104(a)(2)
An alternative basis for appointment of a Chapter 11 Trustee is
contained in section 1104(a)(2).
Section 1104(a)(2) provides that an appointment is appropriate “if such
appointment is in the interests of creditors, any equity security holders, and
other interests of the estate, without regard to the number of holders of
securities of the debtor or the amount of assets or liabilities of the debtor.”21
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Section 1104(a)(2) contains a more flexible standard. It allows the
appointment of a trustee even when no “cause” exists.22 Many courts have
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considered the following in determining whether to appoint a trustee under
that subsection:
1. the trustworthiness of the debtor;
2. the debtor in possession’s past and present performance and
prospects for the debtor's rehabilitation;
19 In re LHC, LLC, 497 B.R. 281, 292 (Bankr. N.D. Ill. 2013); In re Intercat, Inc., 247
B.R. 911, 921 (Bankr. S.D. Ga. 2000); In re López-Muñoz, 553 B.R. 179, 190 (B.A.P.
1st Cir. 2016), aff'd, 866 F.3d 487 (1st Cir. 2017); In re Sundale, Ltd., 400 B.R. 890,
900 (Bankr. S.D. Fla. 2009).
20 In re LHC, LLC, 497 B.R. at 292.
21 11 U.S.C. § 1104(a)(2).
22 In re Ionosphere Clubs, Inc., 113 B.R. 164, 168 (Bankr. S.D.N.Y. 1990).
3. the confidence—or lack thereof—of the business community
and of creditors in present management; and
4. the benefits derived by the appointment of a trustee,
balanced against the cost of the appointment.23
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“Appointment of a trustee under § 1104(a)(2) is within the sound discretion of
the bankruptcy judge.”24
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B. Application of the Testimony to the Factors Set Forth by Case Law
Under Section 1104
1. Factors for Appointing Trustee Under Section 1104(a)(1)
a. Materiality of the misconduct
The Bank alleges improper conduct it says is material to the functions of
Debtors’ operations. The conduct includes payment of his daughter’s college
tuition, loaning an employee $15,000, and taking a motorcycle as collateral
without any documentation.
It also argues the asset lists and accounting records were not accurate.
Finally, it points to a series of transactions with Garcia that resulted in more
than 30 trucks and three trailers being moved to Texas either as sales or leases
that were neither documented nor paid for.
The testimony provided explanation for differences in asset lists.
Sparhawk credibly testified that asset lists are periodically updated. Further,
that copies of various lists are maintained and different individuals at Debtors
23 Ionosphere Clubs, Inc., 113 B.R. at 168; In re Madison Mgmt. Grp., Inc., 137 B.R.
275, 282 (Bankr. N.D. Ill. 1992); In re LHC, LLC, 497 B.R. at 293; In re Eletson
Holdings Inc., 659 B.R. 426, 453 (Bankr. S.D.N.Y. 2024); In re Sillerman, 605 B.R. 631,
652 (Bankr. S.D.N.Y. 2019); In re Fuller’s Serv. Ctr., Inc., 675 B.R. 575, 579 (Bankr.
N.D. Ill. 2025).
24 In re LHC, LLC, 497 B.R. at 293.
possess different lists. For example, there may be one list kept for certain
purposes by maintenance staff. While perhaps not the best business
recordkeeping practice, there were multiple lists kept by different people for
different purposes. Sparhawk was not the person asked by Silverman for the
lists. He testified convincingly that he would have been the person most likely
to provide a current and more complete list. The Bank failed to establish by
clear and convincing evidence that this constituted improper conduct.
With regard to the payment of his daughter’s tuition, the testimony was
that Sparhawk had not taken a salary or draw in some period of time. Again,
while not in a budget approved by Silverman and the Bank—and what may be
considered as a preference when viewed with clear hindsight—this again does
not establish improper conduct under section 1104(a)(1).
The more troubling allegations relate to Debtors’ management of the
businesses, the transfers and disposition of rolling stock, and actions taken
with regard to payment of some secured creditors after the appointment of a
state court receiver. The loss of Debtors’ trucks in the transactions with Garcia
is not incidental. Rather, the trucks constitute a part of Debtors’ business, are
collateral of a secured creditor, and either through use by the Debtors or sale
could have been the source of significant amounts for the Debtors and their
creditors.
Letting more than 30 pieces of equipment worth in excess of an
estimated $1 million leave the state without permission might be considered an
act of desperation to raise money. Sparhawk may have been scammed. That,
however, does not mean that it isn’t mismanagement. It is.
All of these items predate these cases. No post-petition conduct has been
identified as improper. This factor suggests the Court may find cause to
appoint a trustee under section 1104(a)(1), but it is not dispositive.
b. Evenhandedness or lack of same in dealings with insiders or
affiliated entities vis-a-vis other creditors or customers
The testimony did not demonstrate a lack of evenhandedness in dealing
with insiders or affiliated entities vis-a-vis other creditors or customers. Rather,
the testimony suggests the Debtors sought to treat all the creditors holding
security interests in the trucks the same. It was Silverman or the Bank and
then the receiver who, at least initially, decided not to make payments to those
other equipment lenders for trucks being used to haul freight that was
generating accounts receivable for the benefit of the Bank.
The only absence of equal treatment could be the granting of mortgages
to the Bank and then the receiver seeking an order of the state court to waive
all potential claims against the Bank, grant first priority security interests to it,
and assign to it interests in all claims Debtors might have against anyone,
including possible claims against the Bank. Finally, asking for an order from
the state court that purports to determine that whatever might be in a
financing agreement between the receiver and the Bank is enforceable and
binding on a bankruptcy court or trustee is not equal treatment when it comes
to the interests and rights of all creditors and parties in interest.
The evidence does not satisfy this factor.
c. The existence of pre-petition voidable preferences or fraudulent
transfers and unwillingness or inability of management to pursue
estate causes of action
The next two considerations are connected in this case.
Sparhawk made payment to his daughter’s college to pay her tuition.
While there may be an explanation that is understandable, it may constitute an
avoidable transfer or payment.
More significant is Sparhawk’s testimony on cross-examination by
Attorney Erin A. West. Sparhawk testified he used $200,000 from Sparhawk
Trucking, Inc., to fund the purchase of Hollyrock’s Bar. Hollyrock’s Bar was
purchased by an entity called MAS Rocks LLC. Sparhawk confirmed he was the
sole owner of MAS Rocks LLC. He also confirmed that he did not repay
Sparhawk Trucking, Inc., for the $200,000 used to purchase the bar. This
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purchase was a transfer to an insider pre-petition. It may consist of a
fraudulent transfer. Such a purchase weighs in favor of finding cause to
appoint a trustee under section 1104(a)(1).
There are other prepetition transfers that may also be avoidable. Those
include the granting of a mortgage to the Bank on three parcels it did not have
as security. Dkt. No. 118, Ex. 132, at 4-5. There was a mortgage to another
creditor on one but apparently equity in it. The other two parcels were
unencumbered. Id.
The testimony does not prove that Sparhawk has been unwilling or
unable to pursue estate causes of action. Attorney West conducted several
lines of questioning during her cross-examination of Sparhawk that implicates
this factor.
First, Attorney West asked Sparhawk if he was willing to sue his
daughter, Hollyrock’s Bar, and MAS Rocks. Attorney Kerkman objected to her
question. The Court sustained the objection because it was a legal conclusion.
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As such, this exchange does not establish an unwillingness or inability to
pursue estate claims.
Second, Attorney West questioned Sparhawk regarding his decision not
to submit an insurance claim for the missing trucks. Sparhawk testified that it
did not make sense to submit a claim considering the value of the trucks. As a
member of a cooperative insurance company, Sparhawk noted he would not
gain anything considering he would be responsible for a couple hundred
thousand dollars. His explanation is reasonable and not indicative of an
unwillingness or inability to pursue estate causes of action.
Third, Attorney West asked Sparhawk whether he was willing to report
the stolen trucks as a crime. Sparhawk said he considered it. But he did not
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report the crime to any law enforcement. He explained that he “got played” and
he “let it happen.” Dkt. No. 99, at 172.
21F”
The timing of that request was after a receiver was appointed. The
explanation for the question was that it would be something that could support
an insurance claim. The Bank suggests that not filing an insurance claim
demonstrates mismanagement or an unwillingness to act.
The testimony, however, presented a different and plausible explanation.
The insurer is a cooperative made up of 51 trucking companies. For any claim
there is a deductible. If there is a loss paid in excess, the members contribute
to fund the amount of coverage. But, in the next year, Sparhawk would have
received an assessment requiring it to contribute an amount necessary to
reimburse the amounts paid by all the other trucking companies. In addition,
insurance coverage could have been canceled. So, it seems there may have
been a valid business judgment underlying this decision.
While his decision reflects poor judgment and some embarrassment, it
does not, without more, prove an unwillingness or inability to pursue estate
causes of action.
While suggesting lack of evenhandedness, the evidence does not support
this factor by clear and convincing evidence at this time.
d. Conflicts of interest on the part of management interfering with its
ability to fulfill fiduciary duties to the debtor
Sparhawk’s purchase of Hollyrock’s Bar with the $200,000 check from
Sparhawk Trucking’s corporate account presents a conflict of interest. Such
conduct supports a finding of cause to appoint a trustee under section
1104(a)(1).
e. Self-dealing by management or waste or squandering of corporate
assets
The testimony demonstrates waste or squandering of corporate assets.
Sparhawk’s testimony on his current business arrangements raises concerns
about his judgment.
Sparhawk said he continues to have four trucks in the possession of a
company in Texas. He receives no compensation for the company’s use of the
trucks. Sparhawk did not explain his reasoning for such an arrangement. On
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its face, the business arrangement does not provide any apparent material
benefit to Debtors. Coupled with the continued and indefinite use of estate
assets by a third party, there is a suggestion of waste or squandering of
corporate assets.
Further, Sparhawk testified about a relationship he has with a man
named Adrian Muniz (“Muniz”). He said that Muniz was initially a potential
buyer of one of the missing trucks who reached out to him inquiring about the
suspiciousness of a sale of a truck. Sparhawk confirmed he agreed that Garcia
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was selling the trucks without titles. According to Sparhawk, Muniz has helped
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him look for his missing trucks.
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Sparhawk testified that two “show trucks” are in Muniz’s family lot.
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Sparhawk says these two “show trucks” are not being used.
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He also says two other trucks are being used by a man named Omar.
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But he wasn’t involved in that arrangement. Rather, Muniz arranged Omar’s
use of the trucks. Sparhawk notes he does not receive any compensation for
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this arrangement.
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The motives for such business arrangements are unclear. That said,
permitting others to use Debtors’ trucks without compensation, insurance,
written agreements, or a clear end date of the use does not satisfy any sound
business judgment or the fiduciary duties of management. Such considerations
support a finding of cause under section 1104(a)(1).
2. Factors for Appointing Trustee Under Section 1104(a)(2)
a. The trustworthiness of the debtor
Debtors’ witnesses appear sincere. Even so, the Debtors redirected cash
collateral into a new bank account. This was done with the knowledge it was
collateral of the Bank and an agreement that all accounts receivable collections
would be deposited in accounts at the Bank.
The Debtors agreed to dispose of excess equipment. Arrangements were
made for various equipment to go to auction. Then, without consulting the
Bank, Debtors began to dispose of equipment without payment. Permitting
more than 30 trucks and three trailers to leave the state without payment and
after the Samsara devices were removed evidences gross mismanagement.
Using $200,000 of Debtors’ money to buy a bar certainly isn’t in the
interest of the Debtors or their creditors.
These incidents alone demonstrate the Debtors are not trustworthy in
the management of the business or protection of its assets. That said, the
testimony highlighted moments of Sparhawk’s poor judgment in managing the
Debtors. Although these concerns relate to Sparhawk’s decision-making, he is
the person in control of the Debtors. He is the person who made promises and
agreements and then ignored those agreements. He was aware of various
requirements and acted to the contrary. Thus, there are genuine doubts about
whether the management of Debtors can be trusted to carry out their fiduciary
duties.
b. The debtor in possession’s past and present performance and
prospects for the debtor’s rehabilitation
Debtors are under the management and control of Sparhawk. He testified
he was confident the business would improve. Sparhawk testified the company
is performing the way it should. He said Debtors’ rates are considerably higher
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because the spot market flipped.
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Although, at a glance, the weekly income and expense budgets may seem
to support Sparhawk’s testimony on Debtors’ improvement, the data does not
support his optimism.
The weekly budgets are missing numerous items for an ongoing
business. Dkt. No. 66-1, Ex. 113; Dkt. No. 90. For example, no amounts for
depreciation or debt service are included. There are no expenses for
professional fees including accountants and lawyers. The company is
overleveraged. It is unclear whether the Debtors could generate the needed net
amounts required to service all of the loans let alone afford to replace aging
equipment.
Sparhawk deposited customer checks in a Nicolet National Bank account
to pay Sparhawk Trucking’s equipment lenders. The checks were collateral of
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the Bank.
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He engaged in a history of questionable transactions with third parties.
His dealings with Garcia are beyond simply poor judgment and naivete.
Sparhawk gave Garcia two trucks without receiving payment. Later, he sold or
leased numerous additional trucks to Garcia without receiving payment. By
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those actions, Debtors transferred more than a million dollars of Debtors’
equipment to Garcia. Sparhawk demonstrates a cavalier attitude about
Debtors’ property. These circumstances support appointing a trustee under
section 1104(a)(2).
c. The confidence—or lack thereof—of the business community and of
creditors in present management
The Bank lacks confidence in Debtors’ present management. Other than
Sparhawk, there was no evidence presented about anyone with confidence in
his management.
Although the Bank appears to be the only creditor to formally raise such
concerns, it is Debtors’ largest creditor. Based on the testimony, the Court
concludes Sparhawk may be an optimistic person with hopes for the Debtors.
Those wishes, however, are not reliable or achievable by present management.
This factor supports appointment of a trustee.
d. The benefits derived by the appointment of a trustee, balanced
against the cost of the appointment
Appointment of a trustee would provide independent oversight, enhance
transparency with the Court and Debtors’ creditors, and potentially restore the
Bank’s confidence in Debtors’ management. A trustee may better handle the
Debtors’ remaining estate assets. A trustee may also be in a better position to
pursue potential claims for the stolen trucks.
C. Appointment of a Chapter 11 Trustee by the U.S. Trustee
The Court inquired of the U.S. Trustee on April 2 whether, if the Court
were to order the appointment of a Chapter 11 Trustee, that office would be
prepared to make a recommendation or report to the Court. This question was
intended to encourage the U.S. Trustee to undertake consideration of potential
trustees, consult with parties in interest, undertake the necessary discussions
to confirm the person selected would qualify as disinterested, and to prepare
the required verified statement together with notice of the appointment and an
application to approve the appointment.
This inquiry was reiterated on April 20. The reason for the inquiry was
also made clear to the U.S. Trustee—to assure that if the Court were to order
the appointment there would be a prompt appointment. Clearly such a prompt
and timely appointment would be in the best interests of all parties in
interest—creditors, the estate, and equity holders. It would also avoid any gap
in supervision or control of the Debtors. The U.S. Trustee advised that it had
been in consultation with the parties about possible trustees if the Court
ordered an appointment.
CONCLUSION
The Court grants the motion for the appointment of a Chapter 11
Trustee. The U.S. Trustee is hereby ordered to immediately select and appoint
the Trustee and file the appropriate application together with supporting
materials.
This decision constitutes findings of fact and conclusions of law under
Bankruptcy Rule 7052 and Rule 52 of the Federal Rules of Civil Procedure.
A separate order consistent with this decision will be entered.
Dated: April 24, 2026
BY THE COURT:
Hon. Catherine J. Furay
U.S. Bankruptcy Judge
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