CRC Litigation Trust Starts Chem Rx Corporation Bankruptcy Transfer Avoidance Adversary Proceedings

On from April 5, 2012 to May 8, 2012, AP Services, LLC, as trustee of the CRC Litigation Trust in the Chem Rx Corporation Bankruptcy, commenced Chapter 5 preferential and fraudulent transfer recovery litigation with the filing of 93 avoidance complaints (40 complaints include 547 preferential transfer counts and 53 include constructive fraudulent conveyance claims under Bankruptcy Code Section 548 and New York Debtor and Creditor Law Section 278) complaints in the District of Delaware.   Traditional trade creditors make up less than half of the defendants.  Religious and charitable organizations are the primary targets.

Delaware Bankruptcy Court – Must Name Transferor in Two Debtor Bankruptcy; 502(d) Count Not Viable Before Preferential Transfer Judgment

District of Delaware Bankruptcy Judge Mary F. Walrath grants motion of Mitsubishi Digital Electronics America, Inc (“Mitsubishi”) to dismiss a bankruptcy preference avoidance complaint for failure to state a claim for relief. In her May 1, 2012 opinion, Judge Walrath holds that the Chapter 7 trustee’s Section 547 preferential transfer count fails to sufficiently identify which of the two associated debtors was the transferor.  Judge Walrath further concludes that the Trustee can not maintain a Section 502(d) count for disallowance of Mitsubishi’s claims until the trustee has obtained “any judicial determination of Mitsubishi’s liability”.  Giuliano v. Mitsubishi Digital Electronics America, Inc., Adv. Proc. No. 11-52663 Dkt No. 24 (Bankr.D. Del. May 1, 2012)

E.D. Kentucky District Court – No Application of Stern to Fraudulent Transfer, Preference Claims; Withdrawal of Reference Denied

Eastern District of Kentucky U.S. District Court Judge David L. Bunning holds that “[t]aking the specific facts and issues in [Stern v. Marshall, 564 U.S. —-, 131 S. Ct. 2594, 2605 (2011)] and [Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)] into consideration, in addition to the Supreme Court’s deliberate attempt to limit the scope of its holdings in both cases, this Court cannot extend the holding of Stern to fraudulent conveyance and preference actions.” Official Committee Of Unsecured Creditors Of Appalachian Fuels, LLC v. Energy Coal Resources, Inc. et al., No. 11-00131-DLB Dkt No. 13 (E.D. Ky April 18, 2012)

Delaware Bankruptcy Court – Stern No Avail in Avoidance Actions

District of Delaware Bankruptcy Judge Peter J. Walsh denies the motions of defendants (the “Defendants”) in 8 adversary proceedings that sought dismissal of avoidance and recovery claims based on Stern v. Marshall, — U.S. –-, 131 S.Ct. 2594 (2011).  In his opinion, Zazzali v. New West Paving et al, Adv. Proc. No. 10-54995 Dkt No. 47 (Bankr.D. April 12, 2012), Judge Walsh concludes that, after Stern, he still “can enter a final judgment on the core preference, post petition transfer, fraudulent transfer, and unjust enrichment claims and issue proposed findings of fact and conclusions of law on the non-core causes of action.”  Judge Walsh also addresses in dicta the “even if” scenario and erases any notion that, based on Stern, a dismissal is obtainable in a Chapter 5 avoidance proceeding in Delaware Bankruptcy Court.

Dreier Trustee, Avoidance Action Defendant Spar Over “Initial Transferee” of Payments by Checks Issued Without Naming Payee

The plaintiff trustee and defendant in this fraudulent conveyance action clash on the elemental question of who was the “initial transferee” of payments made by checks issued with the payee left blank.   At stake is the availability to Defendants of the “good faith” subsequent transferee defense under Section 550(b)(2).  These adversary proceedings arise out of the infamous Ponzi scheme and bankruptcy case of Marc S. Dreier pending in the Southern District of New York (Manhattan) before the Honorable Stuart M. Bernstein.

[Update April 18, 2012:  The Honorable Stuart M. Bernstein, United States Bankruptcy Judge for  the Southern District of New York sides with the Trustee.  The Plaintiff Trustee’s motion for partial summary judgment was granted; the Defendant’s cross motion for partial summary judgment was denied.  The three page order generally references the Plaintiff Trustee’s briefing and supporting affidavits but otherwise is without any discussion of the legal issues.  LaMonica v. Hemby, Adv. Proc. No. 11-01504 (SMB) Dkt. No. 47 (Bankr. SDNY  April 18, 2012).]

Madoff Avoidance Defendants Say “Beam Me Up, Scotty” – One Day, 202 Motions to Withdraw Reference

On a single day, April 2, 2012, 202 motions (including 108 second motions) to withdraw the reference were filed in the Madoff SIPA adversary “claw back” proceedings.  This spike brought to 983 the number of motions were filed by defendants seeking to have their cases heard by the U.S. District Court, rather than the U.S. Bankruptcy Court, for the Southern District of New York.  Out of the 1140 Madoff adversary proceedings, defendants in 760 have sought transfer to the District Court.