In a decision signed September 21, 2017 in an adversary proceeding related to the Boomerang Systems bankruptcy (case 15-11729), Judge Walrath of the Delaware Bankruptcy Court denied a defendants FRCP 12(b)(6) motion to dismiss a preference complaint. Judge Walrath’s opinion is available here (the “Opinion”).
Judge Walrath first provided the requirements for a preference action to survive a motion to dismiss. Quoting Stanziale v. DMJ Gas-Mktg. Consultants, LLC (In re Tri-Valley Corp.), Adv. No. 14-50446 (MFW), 2015 WL 110074, at *2 (Bankr. D. Del. Jan. 7, 2015), Judge Walrath stated that “to satisfy Rule 8, the complaint must identify each alleged preferential transfer by the date of the transfer, the name of the debtor/transferor, the name of the transferee, and the amount transferred.” Opinion at *5.
In this case, Gavin Solmonese, LLC, the liquidating trustee of Boomerang Systems (the “Liquidating Trustee”), filed a preference action that is, in Delaware, a fairly routine pleading. In its complaint, the Liquidating Trustee alleged the amount, date, and method of payment made by the Debtors to the Defendant. Judge Walrath held that “this allegation is sufficient to allege a preferential transfer.” Opinion at *6.
The Defendant asserted its affirmative defenses as grounds for dismissal of the complaint. However, as the Court held, “these defenses are not grounds to dismiss the action under Rule 12.” Opinion at *6. A 12(b)(6) dismissal requires a deficiency in the plaintiff’s pleading.
Avoidance actions are painful for defendants – particularly when they are innocent actors. But the innocence of a preference defendant is not a defense. The only defenses available are those provided by statute – 11 U.S.C. § 547(c). We have provided an overview of these defenses in our short booklet A Preference Reference.
John Bird practices with the law firm Fox Rothschild LLP and is resident in Portland, Oregon. You can reach John at 302-622-4263, or email@example.com.