On August 29, 2017, The Wet Seal, LLC filed preference actions against 67 defendants.  The lead Wet Seal bankruptcy case is Case No. 17-10229 in the Bankruptcy Court for the District of Delaware.  Wet Seal is represented by A.M. Saccullo Legal, LLC and ASK, LLC.

According to the complaints, the Debtors were a national multichannel specialty retailer selling fashion apparel and accessory items designed for female customers aged 18 to 24 years old. The Debtors were comprised of two primary business units; the retail store business and an e-commerce business. Through their retail store business, the Debtors operated approximately 142 retail locations in 37 states, principally in leased-based mall locations. Through their e-commerce business, the Debtors operated an e-commerce site at  and had over 2 million followers on their Facebook page.  As retailers, they had a significant supply chain, comprised of a significant number of suppliers.  The defendants in these preference actions were entities who were alleged to have received payments within the 90-day period immediately preceding Wet Seal’s February 2, 2017 bankruptcy filing.

 

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.

On July 19-21, 2017, David W. Carickhoff, in his capacity as Chapter 7 Trustee of the Estates of Univita Holdings, et al., filed approximately 46 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547 and 550 of the Bankruptcy Code.

Univita Health, Inc. and its affiliated debtors filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on August 28, 2015 under Chapter 7 of the Bankruptcy Code.  The cases are jointly administered pursuant to Rule 1015(b) of the Bankruptcy Rules.

The various avoidance actions are pending before the Honorable Mary F. Walrath.  The Pretrial Conference has been set for 10/4/2017 at 02:00 PM ET.

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.

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.

Since the time of our last post on August 24, 2015, Alan D. Halperin, the Trustee of the FBI Wind Down, Inc. Liquidating Trust has filed 94 additional preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code.

Defenses to a Preference Action

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.  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 that we have prepared 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.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

On July 29, 2015, Deb Shops SDFMC LLC, in its capacity as debtor in possession, filed 92 preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).

By way of background, Deb Shops SDFMC LLC (“Deb Shops” or the “Debtors”) filed voluntary petitions for bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on December 4, 2014 under Chapter 11 of the Bankruptcy Code.  By order dated December 5, 2014, the Debtors’ Chapter 11 cases were consolidated for procedural purposes only and therefore are being jointly administered pursuant to Bankruptcy Rule 1015(b).

The Rosner Law Group and ASK LLP represent the Debtors in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Kevin Gross.

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.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

From January 23-27, 2015, Charles A. Stanziale, Jr., as the Chapter 7 Trustee (the “Trustee”) of Powerwave Technologies, Inc. (“Powerwave” or the “Debtor”), filed approximately 102 preference complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code.

Background

By way of background, Powerwave filed a petition for bankruptcy in the District of Delaware on January 28, 2013 under Chapter 11 of the Bankruptcy Code.  On June 11, 2013, the Court entered an Order converting the Debtor’s Chapter 11 case to a case under Chapter 7 of the Bankruptcy Code.

McCarter & English, LLP represent the Trustee in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Mary Walrath.

Defenses to a Preference Action

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 that we prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

In addition, 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

In the AFA Investment Inc. preference litigation, a summons has been issued scheduling the Pretrial Conference for June 30, 2014 at 11:30 a.m.  The hearing will be held before Judge Walrath in courtroom no. 4 on the 5th floor at the Bankruptcy Courthouse for the District of Delaware.  To view one of the summons issued in these preference cases, click here.

In pretrial conferences held before the United States Bankruptcy Court for the District of Delaware, the Court will enter a scheduling order governing the pending preferences actions.  This order will generally include deadlines to issue discovery, take depositions, file dispositive motions, along with the scheduling of trial and other relevant dates.  A template scheduling order that has been approved by the Court can be found on the Court’s website, or by clicking here.

It is important that preference defendants review a proposed scheduling order with counsel in order to determine whether the plaintiff’s proposed order comports with the standard terms of such orders approved by the Court in the District of Delaware.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.

Summary

In a 17 page decision signed on February 24, 2011, Judge Walrath of the Delaware Bankruptcy Court applied a twelve factor test in determining if a preference action against an out-of-state defendant could be transferred by that defendant to another jurisdiction more convenient to it. In her opinion issued in response to a motion by Harko, Inc., Judge Walrath held that because the twelve factors favored keeping the action in Delaware or were neutral, that the preference action would not be transferred. Judge Walrath’s opinion is available here.

Background

NWL Holdings, Inc. and several of its affiliates entered Chapter 11 bankruptcy protection in November of 2008. In February of 2009, the Debtors’ cases were converted to Chapter 7 liquidations and a Chapter 7 Trustee was appointed by the Court. Later in 2007, the Chapter 7 Trustee began filing preference actions against a number of parties, including Harko, Inc. (adversary proceeding 10-52768). In response to the preference action, Harko filed a motion to dismiss for lack of personal jurisdiction or to transfer venue of the adversary proceeding.

Judge Walrath’s Opinion

In a detailed, step by step process, Judge Walrath explained that a bankruptcy court’s forum is the entire nation, and bankruptcy courts have personal jurisdiction throughout the United States. Following this reasoning, Judge Walrath denied Harko’s motion to dismiss for lack of personal jurisdiction.

Judge Walrath then moved to a discussion of a twelve factor test that bankruptcy courts apply when determining if an action should be moved to another venue. The twelve factors come from a decision by the Third Circuit, Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995). Any defendant interested in attempting to transfer a case out of a court in the Third Circuit should attempt to frame their arguments according to the following twelve factors:

  1. plaintiff’s choice of forum;
  2. defendant’s forum preference;
  3. whether the claim arose elsewhere;
  4. the location of books and records and/or the possibility of viewing premises if applicable;
  5. the convenience of the parties as indicated by their relative physical and financial condition;
  6. the convenience of the witnesses, but only to the extent that the witnesses may actually be unavailable for trial in one of the fora;
  7. the enforceability of the judgment;
  8. practical considerations that would make the trial easy, expeditious, or inexpensive;
  9. the relative administrative difficulty in the two fora resulting from congestion of the courts’ dockets;
  10. the public policies of the fora;
  11. the familiarity of the judge with applicable state law; and
  12. the local interest in deciding local controversies at home.

John Bird practices with the law firm Fox Rothschild LLP in Wilmington, Delaware.  You can reach John at 302-622-4263, or jbird@foxrothschild.com.