Delaware Bankruptcy Court Rejects Per Se Premise that a Discretionary Bonus Payment Can Never Be on Account of “Value”

Jalbert v. Flanagan, et al. (In re F-Squared Investment Management, LLC), No. 15-11469 (LSS), 2019 WL 2051005 (Bankr. D. Del. May 7, 2019).

In this Opinion, Judge Silverstein granted in part and denied in part the motions of Brian Flanagan, Matthew Landon, Patrick Coyle, and Scott Kearney (collectively, the “Defendants”)  to dismiss certain fraudulent transfer and insider preference claims brought by the Trustee for the Debtors’ (defined below) liquidating trust (the “Trustee”).  In so doing, Judge Silverstein rejected the Trustee’s premise that an entirely discretionary bonus can never be made in exchange for value.

F-Squared… Read More

Bankruptcy Court Determines Issue of First Impression – Holds That Recovery Under Section 550 is Not Capped by The Amount of Creditor Claims

PAH Litigation Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), Adv. Proc. No. 15-51238 (KG), 2017 WL 5054308 (Bankr. D. Del. Nov. 1, 2017)

On cross-motions for partial summary judgment, the Delaware Bankruptcy Court was confronted with a complex issue of first impression in the Third Circuit – whether damages in a fraudulent transfer action are capped to permit creditors to receive only the amount of their claims. Competing interests made the decision difficult.  On the one hand, there are numerous decisions outside of the Third Circuit holding that there is no cap… Read More

Security Interest Determined as of the Date of Petition, Not the Transaction, for Purposes of Stating a Preference Claim Under Section 547(b)(5)

Simplexity, LLC v. Sprint Corp. (In re Simplexity, LLC), 578 B.R. 255 (Bankr. D. Del. 2017)

In this Opinion, the Delaware Bankruptcy Court addressed when a security interest is determined for purposes of stating a preference claim under section 547(b)(5) of the Bankruptcy Code.  Distinguishing an earlier ruling by the Court in the context of insurance premium financing, Judge Kevin Gross ruled that security interests generally must be determined as of the petition date rather than the transaction date.  Judge Gross also set forth guidelines for how the valuation should be conducted using an “add back” method.

Under… Read More

Third Circuit Rules That Transfers By Non-Debtors Are Immune From Avoidance As Fraudulent Transfers

Crystallex Int’l Corp. v. Petroleos de Venezuela, S.A., 879 F.3d 79 (3d Cir. 2018)

In an Opinion that may also have repercussions in bankruptcy law, the Third Circuit Court of Appeals recently held in Crystallex Int’l Corp. v. Petroleos de Venezuela, S.A. that transfers by a non-debtor cannot be fraudulent under title 6, section 1304 of the Delaware Code (the “Delaware Uniform Fraudulent Transfer Act” or “DUFTA”).  Notwithstanding that the transfers at issue were allegedly orchestrated by a debtor with the express purpose of defrauding a creditor and notwithstanding the transferor’s intentional and knowing participation in the alleged… Read More

Two Clear-Cut Decisions of the Supreme Court – Narrowing Both Section 546(e)’s Securities Safe Harbor in Merit and the Standard of Review for Non-Statutory Insider Determinations in U.S. Bank

Merit Mgmt. Group, LP v. FTI Consulting, Inc., 583 U.S. __ (2018)

U.S. Bank Nat’l Ass’n v. Vill. at Lakeridge, LLC, 583 U.S. __ (2018)

On February 27, 2018, the United States Supreme Court issued its unanimous holding in Merit Management Group, LP v. FTI Consulting, Inc.  The Opinion, delivered by Justice Sotomayor, addressed a Congressional limitation placed on a trustee’s power to avoid certain transfers, such as preferential transfers under 11 U.S.C. § 547 or constructively fraudulent transfers under 11 U.S.C. § 548(a)(1)(B).  More specifically, section 546(e) of the… Read More

In One of Her Honor’s Last Decisions as a Delaware District Court Judge, The Honorable Sue L. Robinson Clarifies the Distinction Between “Advance Payments” and “Payments on Account of an Antecedent Debt”

Pirinate Consulting Group, LLC v. Kadant Solutions Division (In re NewPage Corp.), No. 16-955 (SLR), 2017 WL 2964803 (D. Del. 2017)

In this appeal to the United States District Court for the District of Delaware, Judge Sue L. Robinson examines the distinction between “advanced payments” required under a contract and payments “on account of an antecedent debt” for purposes of section 547(b) of the Bankruptcy Code.

The Litigation Trustee of the NP Creditor Litigation Trust (the “Trustee”) sought to avoid from Kadant Solutions Divisions (“Kadant”) alleged preferential transfers, including a payment in the amount of… Read More

Tribal Sovereign Immunity Bars Preference Claims Against Casinos Subject to Recoupment Rights

Casino Caribbean, LLC v. Money Ctrs. of Am., Inc. (In re Money Ctrs. of Am., Inc.), Adv. Nos. 14-50437 (CSS), 16-50410 (CSS), 2017 WL 775780 (Bankr. D. Del. Feb. 28, 2017)

In this Opinion, the Delaware Bankruptcy Court addressed for the first time whether tribal sovereign immunity bars preference actions against casinos operated by (or on behalf of) Indian tribes.  After considering split authority from other jurisdictions, the Court ruled that it does, although the right to use preference liability defensively in support of a recoupment claim may still be preserved.

The facts underlying the Opinion concern preference claims brought… Read More

Executoriness for Purposes of Kiwi Defense to Preference Action Determined on a Contract by Contract Basis; Purchase Orders Issued under Master Agreement Were Separate Divisible Contracts

PIRINATE Consulting Grp., LLC v. C.R. Meyer & Sons Co. (In re NewPage Corp.), No. 13-52429 (KG), 2017 WL 571478 (Bankr. D. Del. Feb. 13, 2017)

The Litigation Trustee (“Trustee”) of the NP Creditor Litigation Trust brought this adversary proceeding against C.R. Meyer & Sons Co. (“CRM”) seeking to avoid and recover over $2.3 million in alleged preferential transfers.  NewPage Corporation (“NewPage”) and its affiliates (collectively, “Debtors”) operated paper mills throughout the United States, and CRM handled maintenance and construction at the Escanaba, Michigan and Duluth, Minnesota mills.  Prior to the Debtors’ bankruptcy filing, the parties entered into… Read More

Delaware Bankruptcy Court Holds Section 546(e) Safe Harbor Does Not Bar a Litigation Trust, as a Creditor-Assignee, From Asserting State Law Constructive Fraudulent Transfer Claims

PAH Litig. Trust v. Water Street Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.), No. 15-51238 (KG), 2016 WL 3611831 (Bankr. D. Del. June 20, 2016)

In rendering this Opinion and permitting a post-confirmation trust to pursue state law constructive fraudulent transfer claims against two former shareholders of debtor Physiotherapy Holdings, Inc. (“Physiotherapy”), the Honorable Kevin Gross of the Delaware Bankruptcy Court eschewed the recent holding of the Court of Appeals for the Second Circuit that section 546(e) of the Bankruptcy Code preempts not only state law fraudulent transfer claims brought by trustees in bankruptcy, but also those brought… Read More

Set Off of Administrative Claim Against Preference Liability is Permissible and Not a “Disguised New Value Defense”

Official Comm. of Unsecured Creditors of Quantum Foods, LLC v. Tyson Foods, Inc. (In re Quantum Foods, LLC), No. 15-50254 (KJC), 2016 WL 4011727 (Bankr. D. Del. July 25, 2016)

In this Opinion, the Delaware Bankruptcy Court addressed a question that remained in the wake of the Third Circuit’s Opinion in Friedman’s: although post-petition goods and services may not be counted as subsequent new value under section 547(c)(4) of the Bankruptcy Code, may they still be used to offset alleged preference liability?  See Friedman’s Liquidating Tr. v. Roth Staffing Co., LP (In re Friedman’s Inc.), 738… Read More