Irving H. Picard, Esq. v. Citibank, N.A. et al – Memorandum of Law in Support of Motion to Dismiss

Date: July 27, 2011 Author: burbageweddell

07/26/2011 – Memorandum of Law in Support of Citibank N.A., Citicorp North America, Inc. and Citigroup Global Markets Limiteds Motion to Dismiss the Trustees Complaint filed in the Bernard l. Madoff Investment Securities LLC Adversary Proceedings by Citibank, N.A. et al before Judge U.S. Bankrutpcy Judge Burton R. Lifland in the Southern District of New York (Manhattan) filed by  Cleary Gottlieb Steen & Hamilton LLP Carmine D. Boccuzzi, Jr. (New York, New York) attorneys David Y. Livshiz, Jr. and David Y. Livshiz.

Defendants Citibank, N.A., Citicorp North America, Inc.’ (“CNAI,” and together with Citibank, N.A., “Citibank”) and Citigroup Global Markets Limited (“CGML” and collectively with Citibank, “the Citi Defendants”) challenge Trustee Irving H. Picard’s effort to “clawback” four transfers, in the aggregate amount of $430 million, received by CGMI, and Citibank as purported subsequent transferees from Fairfield Sentry Limited (“Sentry”) and the Rye Select Broad Market Prime Fund, L.P. (“Prime Fund”). Defendants make three arguments in support of their motion to dismiss the Trustee’s thirteen count complaint to recover transfers on preference, constructive fraudulent conveyance and state law theories. The Defendants argue that the “safe harbors” of sections 546(e) and (g) of the Code protect the Defendants from avoidance the transfers at issue. Additionally, the Defendants claim that the Complaint fails to adequately plead recovery of the transfers under Section 550. However, this memorandum of law is significant for argument that, in the case of Sentry, “the Trustee has expressly relinquished his ability to ever avoid the initial transfers by entering into a settlement agreement with Sentry and agreeing to the entry of a consent judgment that does not avoid the alleged initial transfers.” Registered users click here to see a copy of this brief.

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Borders’ Suppliers and Other Creditors Face the Possibility of Bankruptcy Preference Claims

Date: July 26, 2011 Author: burbageweddell

The Borders’ July 18, 2011 announcement that efforts to conduct a going concern auction had been abandoned means more than the trade creditor write off of $398 million in acknowledged pre-petition unsecured claims.  Many of Borders’ vendors will face the possibility, if not the probability, of receiving a demand pursuant to Section 547 of the Bankruptcy Code for repayment of amounts received from Borders in the 90 days prior to the date of bankruptcy (the “Preference Period”).  1786 creditors received a total of $485 million in payments from Borders, Inc. in the Preference Period.   Of this $485 Million, more than $318 million was paid to the Top 50 Preference Period Payment Recipients.  In percentage terms, approximately 5% of the creditors received more than 72% of the dollars paid out in the Preference Period.  For the remaining 1683 creditors potentially facing preference claims of less than $500 thousand, this high end concentration is not good news.

This article analyzes the pre-bankruptcy payment data, discusses the factors indicating preference claims will be brought and explains why mid-market trade creditors likely are targets despite their proportionately small percentage of the total Preference Period payments made by Borders.  Click this link to read the rest of the article.

Kimball Hill, Inc. Bankruptcy: KHI Liquidation Trust v. Wisenbaker Builder Services, Inc. et al – Defendants’ Motion to Dismiss

Date: July 23, 2011 Author: burbageweddell

07/21/2011 – Defendants’ Motion to Dismiss Adversary Proceeding filed in the Kimball Hill, Inc. Adversary Proceedings by Wisenbaker Builder Services, Inc. et al before Judge Sonderby in the Northern District of Illinois (Eastern) Filed by King & Spalding LLP (Houston, TX) Attorneys Henry J. Kaim, Edward L. Ripley, and Eric M. English; and Swanson, Martin & Bell, LLP (Chicago, IL) Attorney Darren B. Watts .

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Delaware Bankruptcy Judge Sontchi Imposes Sanctions for “Grossly Deficient” Preference Complaint

Author: burbageweddell

Visteon Corporation v. Global Asset Protection Services, LLC (In re Visteon Corporation), Adv. Proc. No. 11-52070 (Bankr. Del. July 21, 2011) Delaware District of Delaware United States Bankruptcy Judge Christoper S. Sontchi issues an order imposing sanctions against plaintiff’s counsel for the “filing of a grossly deficient” complaint seeking recovery of preferential transfers under Section 547 and constructively fraudulent transfers under section 548(a)(1)(B).   In this two page order, Judge Sontchi also (1) denies Defendant’s motion to dismiss, (2) grants leave to Plaintiff to file the First Amended Complaint (which Plaintiff had already filed), and (3) prohibits any further amendments to the complaint.  Defendant already had signaled in its reply brief that the First Amended Complaint also is deficient, so the problems for Visteon’s claims against Defendant may not be over.

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Alfred T. Giuliano, Chapter 7 Trustee Starts Ultimate Acquisition Partners, LP Bankruptcy Preference Adversary Proceedings

Date: July 20, 2011 Author: burbageweddell

On on July 19, 2011, Alfred T. Giuliano, Chapter 7 Trustee in the Ultimate Acquisition Partners, LP Bankruptcy, commenced Chapter 5 preferential transfer recovery litigation with the filing of 39 complaints in the District of Delaware.The debtors’ bankruptcy cases were filed on January 26, 2011 and Trustee Giuliano was appointed on May 4, 2011. This will be the first Delaware bankruptcy mass preference actions arising out of a case filed after the Delaware Bankruptcy Court made unequivocally clear that the days of “virtual, mail merge” preference complaints were over. Trustee Giuliano had the advantage of knowing the records he had to have and making sure that they were preserved.

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Marty Shoes Holdings, Inc. Bankruptcy: Miller v. Footwear Unlimited Inc. – Defendant’s Brief in Support of Its Motion to Dismiss Complaint

Date: July 19, 2011 Author: burbageweddell

07/15/2011 – Defendant’s Brief in Support of Its Motion to Dismiss Complaint filed in the Marty Shoes Holdings, Inc. Adversary Proceedings by Footwear Unlimited Inc. before Judge Carey in the District of Delaware.

Chapter 7 Trustee George L. Miller (the “Trustee”), in each of the 98 Marty Shoes bankruptcy preference complaints, made the gutsy admission : “The Trustee finds himself in an extraordinary situation as he has been deprived of the Debtors’ books and records, though he has taken the necessary steps to locate these records.”  Despite this invitation to file 12(b)(6) motions to dismiss and a prior warning given the Trustee by Chief U.S. Bankruptcy Judge Kevin J. Carey, this is the first motion to dismiss he is facing.  Registered users click here to see a copy of this brief. Even more surprising, he has been able to settle 10 preference actions, including several above the 50% mark.

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Visteon Corporation Bankruptcy: Visteon Corporation v. Global Asset Protection Services, LLC – Defendant’s Reply to Plaintiff’s Response to Motion to Dismiss

Date: July 15, 2011 Author: burbageweddell

07/14/2011 – Defendant’s Reply to Plaintiff’s Response to Motion to Dismiss filed in the Visteon Corporation Adversary Proceedings by Global Asset Protection Services, LLC before Judge Sontchi in the District of Delaware.

In this rebuttal in support of its motion to dismiss, Defendant Global Asset Protection Services, LLC (“Defendant”) is faced with the daunting tasks of (1) continuing to press for dismissal despite Plaintiff’s post-motion amendment of the original complaint and (2) pressing for a Rule 11 award of attorney’s fees without undertaking the multi-step process required before a party may move for sanctions. It is Defendant’s response on the first of these issues that deserves note.

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Sunset Aviation, Inc. Bankruptcy: Giuliano v. Shorenstein Company LLC – Plaintiff’s Memorandum of Law in Opposition to Motion to Dismiss

Date: July 13, 2011 Author: burbageweddell

07/11/2011 – Plaintiff’s Memorandum of Law in Opposition to Shorenstein Company LLCs Motion to Dismiss filed in the Sunset Aviation, Inc. Adversary Proceedings by Shorenstein Company LLC before Judge Walsh in the District of Delaware. Plaintiff Alfred T. Giuliano, Chapter 7 Trustee, opposes the Defendant’s motion to dismiss a bankruptcy preference complaint seeking recovery of a single wire transfer made on December 2, 2008 in amount of $443,690.00 (the “Transfer”).   The Defendant’s argument– the Transfer was made by a co-debtor who did not file its petition until May 1, 2009.  The December 2 transfer date is outside of the preference period.   Although the co-debtor cases were substantively consolidated, the Substantive Consolidation Order was not retroactive to the earliest petition date – i.e. nunc pro tunc.  Plaintiff starts its opposition with the observation that the Third Circuit has not addressed the proper calculation of the preference period following the entry of a substantive consolidation order that is “silent” as to its effect on avoidance actions.  Registered users click here to see a copy of this brief.

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W.D. Missouri Bankruptcy Court Rejects Pseudo Ponzi Scheme Challenge to Ordinary Course Preference Defense

Date: July 10, 2011 Author: burbageweddell

Western District of Missouri Bankruptcy Judge Dennis R. Dow holds that, in this bankruptcy preference action against trade creditors (the “Defendants”), the source of funds is irrelevant to the determination of the application of the §547(c)(2) ordinary course defense.  The Chapter 7 trustee (the “Trustee”) argued that the source of the funds debtors Joseph and Rebecca Graff (the “Debtors”) used to pay the Defendants was inconsistent with the ordinary course defense.  The Trustee attempted to bootstrap case authority denying the ordinary course of business defense as to payments to investors in a “Ponzi scheme”.  The Court rejected the argument.  This decision addresses an issue of increasing importance as Chapter 7 trustees seek to apply the Ponzi scheme label to legitimate business dealings in order to establish the prima facie elements of preference claims and defeat preference defenses.

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