Articles tagged with: Defenses and Limitations

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

Circuit City Stores Bankruptcy Court – Transfer to Satisfy 503(b)(9) Claim Negates New Value

Eastern District of Virginia Bankruptcy Judge Kevin R. Huennekens, in a December 1, 2010 opinion in Circuit City Stores, Inc. v. Mitsubishi Digital Electronics America, Inc. (AP No. 10-03068), held that the preference claim defendant could not utilize a new value defense (Section 547(c)(4) defense) if the defendant receives a transfer for its § 503(b)(9) administrative claim predicated upon the same instance of new value.  In reaching the conclusion, the Court methodically and with remarkable precision parses through the complexities of Section 547(c)(4).  Given the Court’s reasoning, the next question is “What about payments post petition under critical vendor, warehouseman, carrier and wage motions.”

Circuit City Stores Bankruptcy – Liquidation Trustee Files 565 Bankruptcy Preference Actions

Alfred H. Siegel, as Trustee of the Circuit City Stores, Inc. Liquidating Trust filed 565 adversary proceedings for the recovery of bankruptcy preferences between November 5 and November 10, 2010 in the Bankruptcy Court for the Eastern District of Virginia.  The complaints are unremarkable with one notable exception.  The complaints include the following:

Plaintiff acknowledges that some of the Preferential Transfers might be subject to defenses under Bankruptcy Code section 547(c), for which the Defendant bears the burden of proof under Section 547(g). Plaintiff will work with Defendant to exchange applicable information in an effort to resolve any and all factual issues with respect to potential defenses.

Below is a summary of the adversary proceedings.  An adversary proceeding report (APScan) of the adversary proceedings can be reviewed by clicking this link.

Iowa Corn Farmers Turn Back VeraSun Energy Corporation’s Threatened Bankruptcy Preference Actions

With the passage on October 31, 2010 of the 2 year statute of limitations, Iowa’s corn farmers have definitively rebuffed a threatened onslaught of preferential transfer avoidance actions by VeraSun Energy Corporation.  The 198 defendants who were named in the VeraSun preference actions only can envy the result of the tenacity and resourcefulness of these Iowa farmers.  And more than a few small business owners should eat an extra helping of corn at Thanksgiving in thanks for the corn farmers undoubted influence on VeraSun’s decision to set a $20,000 floor for bringing preference actions.  The story behind the success of the Iowa Corn Farmers has an important lesson.

DPH Holdings Corp. (fka Delphi Corporation) Moves to Amend 130 Bankruptcy Preference Actions – Does the Presumption of Insolvency Trump Ashcroft v. Iqbal’s Mandate for Pleading Facts from which Insolvency Can be Found? Does Delphi Have the Insolvency Facts to Plead?

On July 22, 2010, Southern District of New York Bankruptcy Judge Robert Drain gave counsel for the Delphi reorganized debtors (the “Debtors”) an ultimatum – convince him that the debtors should be allowed to amend 130 preference-action complaints or those complaints will be dismissed on Rule 12(b)(6) grounds.  The ”new” complaints, offered up on September 7, 2010, rely on factually threadbare conclusory statements of Delphi’s insolvency during the preference period.  The Debtors’ collective prayer for relief can be paraphrased as: “Please let the Section 547(f) presumption of insolvency suffice for pleading factual grounds for insolvency!”

Chapter 7 Trustee’s Ply-Marts Preference Claims Illustrate Some “Preference Claim Timing Facts Of Life”

On August 16, 2010, the Chapter 7 bankruptcy trustee for Ply-Marts, Inc. (Northern District of Georgia Bankruptcy Case No. 08-72687) sued twenty creditors of the defunct lumber and building materials retailer, which did business as “Ply-Mart” and “PlyMart” (the “Debtor”).  The trustee, Tamara Miles Ogier of the Atlanta firm of Ellenberg, Ogier, Rothschild & Rosenfeld, is seeking to avoid and recover preferential transfers made by the Debtor within the 90-day preference period.

Lessons of an Economic Analysis of the 204 Intermet Bankruptcy Preference Adversary Proceedings

Over a 3 day period, August 9th, 10th and 11th, 2010, the trustee of the liquidating trust for Intermet Corporation and its 19 co-debtors (the “Debtors”), filed 204 (almost immediately reduced by 3 to 201[fn1]) bankruptcy preference actions.  The adversary proceedings are pending before Judge Kevin Gross.  An analysis of the complaints shows:

SemCrude 356 Bankruptcy Preference Actions Filed Under Stricter Pleading Standard of In Re Charys

On July 22, 2008, SemCrude, L.P. and 26 affiliated debtors (the “Debtors”) filed bankruptcy petitions in Delaware Bankruptcy Court (Lead Case No. 08-11525).  On July 21, 2010, one day before the expiration of the 2 year statute of limitations, Bettina M. Whyte as the litigation trustee of the SemGroup Litigation Trust filed 356 adversary proceedings seeking recovery of alleged Section 547 preferential transfers.

Sixth Circuit: Enabling Loan Collateralization Remains at Risk as Preferential Transfer Until Lien is “Actually Noted on Kentucky Certificate of Title” Leaves Purchase Money Lenders Subject to the Vagaries of Motor Vehicle Title Administration.

On July 2, 2010, the United States Court of Appeals for the Sixth Circuit ruled that, under Kentucky law, the “immunizing” effect of a purchase money security interest under Section 547(c)(3)[FN 1] was held in abeyance as a preference claim defense until the enabling loan security interest was “actually noted on the certificate of title.”  Brock v. Branch Banking and Trust Company (In re Johnson), — F.3d —-, 2010 WL 2629704 (6th Cir. 2010).  The holding had the practical effect of exposing the secured lender in that proceeding to the trustee’s claims for lien avoidance and recovery as a preferential transfer.

Delaware Bankruptcy Court Confirms Applicability of Section 1409(b) Venue Dollar Threshold to Claims for Recovery of Avoidable Preferential Transfers under Section 547

The Bankruptcy Court for the District of Delaware, Judge Kevin Gross, has confirmed the applicability to preference actions of the venue dollar threshold of 28 USC Section 1409(b).  Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del., May 10, 2010). 

“Subsequent Advance” Approach to Subsequent New Value May Still Live in the Eleventh Circuit… and Payment of 503(b)(9) Administrative Expense Claim Held to Reduce Subsequent New Value Defense to Bankruptcy Preference

A simple statement of the April 28, 2010 holding in TI Acquisition, LLC, v. Southern Polymer, Inc. 2010 WL 1993848 (Bankr.N.D.Ga.), may paint the decision as adverse to creditor interests.  Certainly, Judge Mary Grace Diehl held that “new value” paid as a 503(b)(9) administrative expense is unavailable in a “subsequent new value” defense to a bankruptcy preference claim. However, this holding is overshadowed