In a straight-forward 9 page decision signed May 1, 2012, Judge Walrath of the Delaware Bankruptcy Court granted a defendant’s motion to dismiss a preference complaint, but granted the plaintiff leave to amend. Judge Walrath’s opinion is available here (the “Opinion”). Numerous posts on this blog discuss other opinions issued by the Delaware Bankruptcy Court dealing with preference payments, as can be seen here. PREFERENCE OPINION POSTS.
Additionally, this opinion is very similar to that discussed in this prior post: Decision in Everything But Water, LLC Requires Preference Claimants to Identify Transferees Specifically in Granting Motion to Dismiss.
The Debtors are comprised of two entities, Ultimate Acquisition Partners, LP and CC Retail. They operated under the name “Ultimate Electronics” and all checks were cut using this name, rather than identifying which Debtor was acting. Opinion at *2. Several payments were made to various creditors, including Mitsubishi Digital Electronics America, Inc. d/b/a Mitsubishi Digital Electronics (“Mitsubishi”) within the 90 day period before the Debtors filed for bankruptcy.
The Debtors filed for bankruptcy on January 26, 2011, and the Court converted the cases to chapter 7 and appointed the Trustee, Alfred T. Giuliano, on May 3, 2011. Mitsubishi filed several claims in the bankruptcy, including general unsecured claims, administrative claims, and 503(b)(9) claims. Opinion at *2. On July 19, 2011, the Trustee filed a complaint against Mitsubishi for recovery of any preference payments. On October 19, 2011, Mitsubishi filed the motion to dismiss that is decided by this Opinion.
The motion to dismiss argues that the Trustee is required to identify which of the two Debtors made the payments that the Trustee now seeks to avoid. Opinion at 4-5. Failing this, Mitsubishi argued, the complaint must be dismissed. Opinion at *4.
Judge Walrath’s Opinion
Judge Walrath’s analysis of the standard of review for a 12(b)(6) motion could be a cut/paste of the Everything But Water opinion mentioned above, citing the same authorities for the same principles. Jumping then, to Mitsubishi’s argument for dismissal: The Trustee fails to identify the transferor as required by Miller v. Mitsubishi Digital Elecs. Am. Inc. (In re Tweeter Opco), 452 B.R. 150 (Bankr. D. Del. 2011) and In re Valley Media, Inc., 288 B.R. 189, (Bankr. D. Del. 2003). Opinion at *4. Judge Walrath agreed with Mitsubishi and granted the motion to dismiss. Opinion at *5.
The Trustee’s complaint also argued that Mitsubishi’s claims and administrative expense claims, filed in the Ultimate Acquisition bankruptcy case, should be disallowed pursuant to 11 U.S.C. § 502(d). Opinion at *5-6. Section 502(d) provides that “the court shall disallow any claim of any entity from which” a transfer is avoidable “unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable…” 11 U.S.C. § 502(d). However, because the Trustee’s preference complaint was dismissed, his 502 claim was not applicable and would also be dismissed. Opinion at *8.
Recent opinions published by the judges in the Delaware Bankruptcy Court seem to indicate that they are becoming more strict in their interpretation of pleading requirements, but generously allowing plaintiffs to amend insufficient complaints. Regardless of which side of a preference action you are on, knowledge of the ever changing local rules and precedents is vital to successful litigation or settlement.