Summary Judgment Denied On 547(c)(2) Ordinary Course Defense, But Fraudulent Conveyance Claims Dismissed With Leave To Amend
Wahoski v. Classic Packaging Co. (In re Pillowtex Corp.), Adv. Pro. No. 05-30182 (KJC) (April 14, 2010) (J. Carey)
John Wahoski, as liquidating trustee of Pillowtex Corporation (the “Liquidating Trustee”) sought to recover $61,761.32 in allegedly preferential payments (the “Transfers”) from Classic Packaging Company (“Classic”), which had sold plastic bags and packaging printed with the Pillowtex brand names to the Debtors prior to the petition date. The Liquidating Trustee was also pursuing a claim to recover allegedly fraudulent transfers.
Classic filed a motion for summary judgment with regard to the Transfers, arguing that the ordinary course of business defense applied to each Transfer and a motion to dismiss arguing that the complaint did not set forth fraudulent transfer claims with sufficient specificity. For the reasons articulated below, the Court denied the motion for summary judgment and granted the motion to dismiss.
The Court began its review with Classic’s motion for summary judgment, pursuant to which Classic alleged that the ordinary course of business exception applied to the Transfers. In support of this motion, Classic provided affidavits by its vice president and its controller, its terms and conditions with the Debtors, the Debtors’ payment history, work orders, production and shipment dates. The Liquidating Trustee responded that summary judgment was inappropriate because the Transfers were not made in the ordinary course of business as established by the parties because the payment terms between Classic and the Debtors changed one month prior to the preference period began, resulting in payments being made more quickly during the preference period. The Court determined that the dispute regarding the consistency of the payment terms between Classic and the Debtors constituted a genuine issue of material fact and denied summary judgment because a change of terms requiring faster payments may have resulted in preferential treatment to Classic during the preference period.
Next, the Court determined that the allegations of fraudulent transfers constituted allegations of constructive fraud, and thus should be evaluated using Rule 8(a)(2). Remarking that the complaint “merely recites the statutory language of § 548(a) of the Bankruptcy Code and completely lacks any factual allegations to support a fraudulent transfer claim,” the Court dismissed the fraudulent transfer claim with leave to the Liquidating Trustee to file, within fourteen (14) days, an amendment to the Complaint “setting forth adequate facts to support a fraudulent transfer claim.”
