On July 6-7, 2017, Craig Jalbert, in his capacity as Trustee for F2 Liquidating Trust, filed approximately 187 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code (depending on the nature of the claims).  In certain instances, the Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

F-Squared Investment Management and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on July 8, 2015 under Chapter 11 of the Bankruptcy Code.   The Court confirmed the Debtors’ Joint Plan of Liquidation.  The Liquidating Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Laurie Selber Silverstein.  As of the date of this post, the pretrial conference has not yet been scheduled.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On June 15, 2017, Curtis R. Smith, as Liquidating Trustee of the Hastings Creditors’ Liquidating Trust, filed approximately 69 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code.  The Liquidating Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Draw Another Circle, LLC and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on June 13, 2015 under Chapter 11 of the Bankruptcy Code.   On February 14, 2017, the Court confirmed the Debtors’ Plan.  The Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  As of the date of this post, the pretrial conference has not yet been scheduled.

For readers looking for more information concerning claims and defenses in preference litigation, attached is a booklet prepared by this firm on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On May 23, 2017, Don A. Beskrone, the chapter 7 trustee for the estate of PennySaver USA Publishing, LLC filed preference actions against 46 defendants.  PennySaver was an iconic company that specialized in the production, printing, and dissemination of a free weekly publication, offering coupons and classified ads to targeted audiences.

By 2013, the Debtors’ print circulation locally targeted 780 zones or regions and reached approximately 9.1 million California households every week. The Debtors’ website, PennySaverUSA.com, received 1 million unique visitors each month.  By 2015, the Debtors encountered financial difficulties, which arose from a number of causes including, among other things: (i) a decline in print advertising market that corresponded with a rise in electronic media and changing consumer habits, and (ii) a related inability of the Debtors to pay their debts as they came due.  Finally, on May 29, 2015 (the “Petition Date”), the Debtors filed for bankruptcy.  Accordingly, the Trustee had until May 29, 2017 to file preference actions in this case pursuant to the statute of limitations contained in the Bankruptcy Code.

These cases have been filed in the Bankruptcy Court for the District of Delaware.  The Trustee is represented by Ashby & Geddes, P.A.

Preference actions are a form of litigation specifically provided for by the Bankruptcy Code which are intended to recover payments made by the Debtor within the 90 days prior to declaring bankruptcy.  The presumption is that the Debtor knew it was going to file bankruptcy, so any payments it made during this 90-day window went to friends and people it wanted to keep happy, and stiffed those the Debtor’s management didn’t like.   Recognizing that these payments aren’t always made for inappropriate reasons, the Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

John Bird is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  John is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach John at (302) 622-4263 or at jbird@foxrothschild.com.

Starting on April 28, 2017, Craig R. Jalbert, as Distribution Trustee of the Corinthian Distribution Trust, filed approximately 122 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548, 549 and and 550 of the Bankruptcy Code (depending upon the nature of the underlying transactions).  The Distribution Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Corinthian Colleges and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on May 4, 2015 under Chapter 11 of the Bankruptcy Code.   On August 28, 2016, the Court confirmed the Debtors’ Third Amended and Modified Combined Disclosure Statement and Chapter 11 Plan of Liquidation.  The Corinthian Distribution Trust was established in accordance with the Plan and Confirmation Order.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  As of the date of this post, the pretrial conference has not yet been scheduled.

For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On March 2, 2017, Cal Dive Offshore Contractors, Inc. (“Cal Dive” or “Debtor”) filed approximately 136 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code.

Cal Dive and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on March 3, 2015 under Chapter 11 of the Bankruptcy Code.  According to each complaint, Cal Dive “constituted a global marine contractor that provided highly specialized manned diving, pipelay and pipe burial, platform installation and salvage, and well-intervention services to a diverse customer base in the offshore oil and gas industry.”

The various avoidance actions are pending before the Honorable Christopher S. Sontchi.  The pretrial conference has not yet been scheduled.

For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of Spizz v. Goldfarb Seligman & Co. (In re Ampal-American Israel Corp.), 2017 WL 75750 (Bankr. S.D.N.Y. Jan. 9, 2017), the United States Bankruptcy Court for the Southern District of New York dismissed a preference complaint filed by a trustee of chapter 7 debtor headquartered in Israel, where the payment was made from the debtor’s Israeli bank to an Israeli supplier.  The Court held that Section 547 of the Bankruptcy Code does not have extraterritorial effect and the transfer did not originate in the U.S.

Within 90 days before bankruptcy, the debtor wired money from the debtor’s Israeli bank account to the supplier’s Israeli bank account, on account of an antecedent debt.  The chapter 7 trustee sued the supplier to avoid and recover the alleged preferential payment.  The supplier asserted that Section 547 could not be applied extraterritorially.

Judge Bernstein observed that the “presumption against extraterritoriality” is a “longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.”  In Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010), the United States Supreme Court outlined a two-step approach to determine whether the presumption forecloses a claim.

First, the court asks “whether the statute gives a clear, affirmative indication that it applies extraterritorially.”  If not, the court must turn to the second step to determine if the litigation involves an extraterritorial application of the statute.  Second, the court determines “whether the case involves a domestic application of the statute, . . . by looking to the statute’s ‘focus.’ . . . [I]f the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.”

In applying this analysis, the S.D.N.Y. bankruptcy court first held that the avoidance provisions of the Bankruptcy Code (including Section 547) do not apply extraterritorially.  In so holding, the Court disagreed with the Fourth Circuit’s decision in French v. Liebmann (In re French), 440 F.3d 145 (4th Cir. 2006), which held that Congress intended international application of U.S. fraudulent transfer law.

Next, the S.D.N.Y. Bankruptcy Court ruled that the determination of whether the case involves a domestic or extraterritorial application of section 547 depends on whether the initial transfer came from the United States.  Because the transfer here occurred between a U.S. transferor headquartered in Israel and an Israeli transferee through Israeli bank accounts, the transfer occurred in Israel, and was not domestic.

Therefore, the court concluded that it could not be avoided, and dismissed the trustee’s preference complaint.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

From December 15-21, 2016, the Seal123, Inc. Liquidation Trust filed approximately 68 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 544 and/or 547, 548 and 550 of the Bankruptcy Code (depending upon the nature of the underlying transactions).  The Liquidation Trust also seek to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

The Seal123, Inc., and its affiliated debtors, filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on January 15, 2015 under Chapter 11 of the Bankruptcy Code.   On October 30, 2016, the Court confirmed the Debtors’ First Amended Joint Plan of Liquidation.

The various avoidance actions are pending before the Honorable Christopher S. Sontchi.  The pretrial conference has been scheduled for February 28, 2017  at 10:00 AM at US Bankruptcy Court, 824 Market St., 5th Fl., Courtroom #6, Wilmington, Delaware.

For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of George L. Miller v. Edward Welke, et al. (In re United Tax Group, LLC), Adv. Pro. No. 16-50088 (LSS), the Delaware Bankruptcy Court considered a motion for judgment on the pleadings in connection with the Trustee’s complaint asserting preference and fraudulent transfer claims.

The Court found that the Trustee failed to adequately plead all counts necessary to give rise to a preference claim.  Specifically, the Court held that the Trustee failed to: (i) identify the transferee of each transfer, and (ii) identify the nature and amount of each alleged antecedent debt.  The Court also declined to consider the Trustee’s factual allegations raised in his answering brief.

As for the fraudulent transfer claims, the Court found that the Trustee failed to allege facts necessary to demonstrate that the debtor was insolvent at the time such transfers were made, which is an element of a fraudulent transfer claim under Section 548 of the Bankruptcy Code.  In addition, the Trustee failed to set forth a factual basis for his contention that the Debtor received less than reasonably equivalent value for certain of the transfers. The Court found that the Trustee’s allegations merely parroted the language of Section 548.

In light of the above, the Court granted dismissal of the Trustee’s claims, but granted leave for the Trustee to amend the complaint to adequately plead facts to support the Trustee’s claims.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

In the recent decision of Unsecured Creditors Comm. of Sparrer Sausage Co., Inc. v. Jason’s Foods, 826 F.3d 388 (7th Cir. 2016), the Seventh Circuit overturned the bankruptcy court’s application of the “bucketing” method to assess an ordinary-course defense to preference liability, concluding that range of invoice payment dates chosen as the baseline was arbitrarily narrow.

Jason’s Foods, a wholesale meat supplier, provided meat products to Sparrer Sausage, a sausage manufacturing company.  Their relationship stretched back two years before Sparrer filed for bankruptcy.  During the 90-day preference period, Sparrer paid 23 invoices from Jason’s totaling $586,658.  The creditors committee filed a complaint to recover the payments to Jason’s as avoidable preferences.

The bankruptcy court determined that before the preference period, Sparrer paid invoices from Jason’s within 16 to 28 days.  Of the 23 invoices that Sparrer Sausage paid during the preference period, 12 fell within this range, so the bankruptcy court concluded that these 12 payments were ordinary and thus nonavoidable.  The remaining 11 invoices were paid within 14, 29, 31, 37, and 38 days of the invoice date.  The court concluded that these payments, which totaled $306,110, were not ordinary and must be returned to the bankruptcy estate.  The district court affirmed, and Jason’s appealed.

Although Jason’s and committee stipulated to a historical period that covered all 234 invoices that Sparrer paid before the preference period, the bankruptcy court considered only 168 invoices.  The court cut off the historical period seven months before the start of the preference period based on its conclusion that that date “marked the beginning of the debtor’s financial difficulties” and that invoices paid after that date did not accurately reflect the norm when Sparrer was financially healthy.  The bankruptcy court based its finding on the fact that the percentage of invoices paid 30 or more days after issuance increased significantly after that date.  While acknowledging that the evidence of Sparrer’s financial distress was “hardly overwhelming,” and questioning the bankruptcy court’s decision to disregard the parties’ stipulation, the Seventh Circuit observed that the bankruptcy court “offered a reasoned explanation for his decision,” which could not be overturned as clear error.

On the other hand, the circuit court found clear error in the bankruptcy court’s application of the average-lateness method to conclude that invoices paid more than 6 days on either side of the 22-day average were outside the ordinary course.  The bankruptcy court “applied Quebecor World and its so-called ‘bucketing’ analysis to support this conclusion, but neither the facts nor the bankruptcy court’s analysis in that case bear any resemblance to this case.”

The Seventh Circuit observed that

H]ere a 16-to-28-day baseline range encompasses just 64% of the invoices that Sparrer Sausage paid during the historical period.  Even more problematically, the judge offered no explanation for the narrowness of this range.  Why exclude invoices that Sparrer Sausage paid within 14 days when these payments were among the most common during the historical period?  The same goes for invoices that Sparrer Sausage paid within 29 days.  Indeed by adding just two days to either end of the range, the analysis would have captured 88% of the invoices that Sparrer Sausage paid during the historical period, a percentage much more in line with the Quebecor World analysis.  Thus, a 16-to-28-day baseline appears not only excessively narrow but also arbitrary.

The circuit court pointed out that “Sparrer Sausage paid 9 of the 11 contested invoices within 14, 29, and 31 days of issuance.  These payments fall either squarely within or just outside the 14-to-30-day range in which Sparrer Sausage paid the vast majority of invoices during the historical period.  As such they are precisely the type of payments that the ordinary-course defense protects: recurrent transactions that generally adhere to the terms of a well-established commercial relationship.  Sparrer Sausage paid the other 2 invoices 37 and 38 days after they were issued, which is substantially outside the 14-to-30-day baseline.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On September 7-8, 2016, various debtors in the ADI Liquidation, Inc. (f/k/a AWI Delaware, Inc.), et al. bankruptcy proceeding filed approximately 332 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 544 and/or 547, 548 and 550 of the Bankruptcy Code (depending upon the nature of the underlying transactions).  The Debtors also seek to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Of the 332 avoidance actions, AW Liquidation, Inc. (f/k/a Associated Wholesalers, Inc.), filed approximately 294, WR Liquidation, Inc. (f/k/a White Rose Inc.) filed approximately 27 avoidance actions, and RT Liquidation Corp. (f/k/a Rose Trucking Corp.) filed 11 avoidance actions.

The ADI Liquidation Debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on September 9, 2014 under Chapter 11 of the Bankruptcy Code.   A hearing on the confirmation of the Debtors’ Second Amended Chapter 11 Plan of Liquidation is scheduled for September 30, 2016.

The various avoidance actions are pending before the Honorable Kevin J. Carey.  The pretrial conference has not yet been scheduled.

For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:

Preference Payments: Brief Analysis of Preference Actions and Common Defenses

Minimizing Preference Exposure: Require Prepayment for Goods or Services

Minimizing Preference Exposure (Part II) – Contemporaneous Exchanges

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.