Articles tagged with: Defenses and Limitations

articles discussing bankruptcy preference defenses, including contemporaneous exchange, ordinary course, subsequent new value, lesser known defenses

Motion to Dismiss Response – Debtor Could not Release What It Did Not Own

Plaintiff’s Answering Brief in Opposition to Defendant’s Motion to Dismiss filed in the Evergreen Solar, Inc. Bankruptcy – U.S. Bank National Association, v. Massachusetts Development Finance Agency (In re Evergreen Solar, Inc.), AP No. 13-50905 Dkt.No. 7 (Bankr. D. Del May 8, 2013 )  before U.S. Bankruptcy Judge Mary F. Walrath filed by  ASK LLP (St. Paul, MN) Joseph L. Steinfeld and Kendra K. Bader; Gellert Scali Busenkell & Brown, LLC (Wilmington, DE)  Ronald S. Gellert .  –  Opposition to Motion to Dismiss $1 million preference claim on grounds that Debtor no longer owned or held the preference claim at the time of entering into a release of claims with the Defendant.

Visteon Corporation v. SL Alabama Corporation et al – Brief in Support of Motion to Dismiss

A serious game of motion practice brinksmanship is being played out in a $3 million plus preference proceeding brought by reorganized Visteon Corporation (“Visteon”).  Defendant SL Alabama, LLC (“SL Alabama”) makes the first move toward final resolution nearly two months after a default judgment against it was vacated.  SL Alabama’s Brief in Support of Motion to Dismiss is noteworthy for two reasons: the brief raises a fundamental legal issue – i.e. proof of service of a summons and complaint; and the facts may cause both defenders and prosecutors of preference actions to update their own practice checklists.

Orleans Homebuilders, Inc. Unsecured Creditor Agent Starts Bankruptcy Preference Adversary Proceedings

On February 16, 2012, J.H. Cohn, LLP, as Unsecured Creditor Agent in the Orleans Homebuilders, Inc. Bankruptcy, commenced mass Chapter 5 preferential transfer recovery litigation in the District of Delaware.   The proceedings add insult to injury.  Each defendant now knows that the Debtors chose not to invoke the reorganization plan’s “Litigation Protocol” to stop the the avoidance action against it.

Lehman Brothers Bankruptcy: Defendant JPMorgan’s Supplemental Memorandum of Law in Support of Motion to Dismiss

08/05/2011 – Defendant’s Supplemental Memorandum of Law in Support of Motion to Dismiss filed in the Lehman Commercial Paper Inc. Adversary Proceedings by JPMorgan Chase Bank, N.A. before U.S. Bankruptcy Judge James M. Peck in the Southern District of New York (Manhattan) filed by  Wachtell, Lipton, Rosen & Katz (New York, NY) by attorney Paul Vizcarrondo, Jr.; Of counsel: Harold S. Novikoff, Amy R. Wolf, Douglas K. Mayer, David C. Bryan, Emil A. Kleinhaus and Alexander B. Lees .

JPMorgan Chase Bank, N.A. (“JPMorgan” or “Defendant”) argues that, in view of Stern v. Marshall, 131 S. Ct. 2594 (2011) (“Stern”), the Bankruptcy Court lacks authority to determine any of the 49 claims in the Amended Complaint of Lehman Brothers Holdings Inc. (“LBHI”) and Official Committee of Unsecured Creditors of Lehman Brothers Holdings Inc. (collectively with LBHI, “Plaintiff”). Registered users click here to see a copy of this brief.

Qimonda Richmond, LLC Bankruptcy: Qimonda Richmond, LLC v. Citibank Memorandum of Law in Support of Motion to Dismiss

08/03/2011 – Memorandum of Law in Support of Motion to Dismiss filed in the Qimonda Richmond, LLC Adversary Proceedings by Citibank, National Association et al before U.S. Bankruptcy Judge Mary F. Walrath in the District of Delaware filed by  Morris, Nichols, Arsht & Tunnell LLP (Wilmington, DE) attorneys Gregory W. Werkheiser and Andrew R. Remming; and Milbank, Tweed, Hadley & McCloy LLP (New York, NY) attorneys Scott A. Edelman and Sander Bak .

Citibank, National Association seeks dismissal of a complaint for recovery of an allegedly preferential and fraudulent transfer of approximately $34 million. Citibank makes arguments based on Citibank’s status as a secured creditor, the presence of “reasonably equivalent” value; and its exercise of a right of setoff, but the first and primary argument is based on the Section 546(e) safe harbor.

Chapter 7 Trustee Starts DHP Holdings II Corporation aka DESA Bankruptcy Preference Adversary Proceedings

On July 29, 2011 and July 30, 2011, Alfred Thomas Giuliano, Chapter 7 Trustee in the DHP Holdings II Corporation aka DESA Bankruptcy, commenced Chapter 5 preferential transfer recovery litigation with the filing of 145 complaints in the District of Delaware.  The complaints are meticulous. Relationship pleading abounds. The identification of transfers crosses every “t” and dots every “i”.  When everything is pleaded with such attention to detail, the omission of a key fact tends to stick out. The omitted fact in these complaints – the date the interim Trustee’s appointment became permanent. Only the date of his interim appointment is pleaded.

Sunset Aviation, Inc. Bankruptcy: Shorenstein Company LLC’s Reply in Support of Motion to Dismiss with Prejudice

07/27/2011 – Defendant’s Reply in Further Support of Its Motion to Dismiss with Prejudice filed in the Sunset Aviation, Inc. Adversary Proceedings by Shorenstein Company LLC before Judge Walsh in the District of Delaware filed by  Cross & Simon LLC (Wilmington, Delaware) attorney Michael J. Joyce; and Morrison & Foerster LLP (New York, New York) attorneys Melissa A. Hager John A. Pintarelli. Defendant Shorenstein Company LLC’s reply takes apart every aspect of the Chapter 7 Trustee’s position that substantive consolidation order shifted the date for calculating the preference period to the earliest debtor petition date. However, what makes this reply especially noteworthy is (1) its retort to the Trustee’s “equity of creditors” rhetoric; (2) its discussion of the Third Circuit’s approach to substantive consolidation; and (3) its argument that, if the Court is inclined to give nunc pro tunc effect, it should be to the petition date of the last filing debtor.

$376 Million Preference Complaint against Quebecor Noteholders Dismissed

Concluding that the recent opinion of the Court of Appeals for the Second Circuit in In re Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., __F. 3d __, 2011 WL 2536101 (2d Cir. June 28, 2011) (“Enron“) left him no choice, Southern District of New York United States Bankruptcy Judge James M. Peck grants summary judgment to the defendant noteholders against a claim recovery of approximately $376 million received from Quebecor World (USA) Inc. during the preference period.  As interpreted in Enron, Judge Beck found that the “settlement payment” protection from avoidance in Bankruptcy Code Section 546(e) protected the transfer of cash made to complete a repurchase and subsequent cancellation of privately-placed notes.  Judge Peck makes clear that he did not agree with this result: “Purely from an equitable perspective, the disparity in relative recoveries between the Noteholders and Quebecor’s other creditors almost cries out for a remedy unless the payments fall within an appropriately more favored category of transfers that logically fits the definition of settlement payments under the Code.” 

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

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.

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

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.