Delaware Business Bankruptcy Report: Morris James LLP Lawyers and Attorneys

MAS Litigation Trust v. Plastech Engineered Prods. (In re Meridian Automotive Sys.-Composite Ops. Inc.), Adv. Pro. No. 07-51196 (KG), 2007 WL 4322527 (Bankr. D. Del. Dec. 5, 2007) (Judge Kevin Gross)

Plastech Engineered Products, Inc., a defendant in an avoidance action commenced by the MAS Litigation Trust, moved to dismiss the plaintiff’s amended complaint on the grounds that, inter alia, the new claims set forth in the amended complaint did not relate back to the original complaint.  In a matter related to one we discussed here last week, The United States Bankruptcy Court for the District of Delaware granted the motion, finding that the new claims did not seem to arise out of the same transactions described in the original complaint.  However, the Court granted the plaintiff twenty days to amend the complaint, if it could allege facts sufficient to show the additional claims related back to the original ones.

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Stanziale v. Pepper Hamilton LLP (In re Student Finance Corp.), No. 04-1551 (JJF), 2007 WL 2936195 (D. Del. Oct. 5, 2007) (Judge Joseph J. Farnan, Jr.)

In this adversary proceeding in the United States District Court for the District of Delaware, certain defendants moved to strike damages claims alleged by the trustee of the estate of Student Finance Corporation.  The Court granted the motion, finding that the trustee failed to provide fair notice of these damages claims, as required under Fed. R. Civ. P. 8(a) (made applicable to this adversary proceeding by Fed. R. Bankr. P. 7008(a)). 

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Fruehauf Trailer Corp. v. Nat. Union Fire Ins. Co. of Pittsburgh, PA (In re Fruehauf Trailer Corp.), Case Nos. 96-1563–1572, Adv. Pro. No. 98-514, 2007 WL 676248 (Bankr. D. Del. March 2, 2007) (Judge Peter J. Walsh)

The defendants filed this motion to dismiss for failure to prosecute under Federal Rule of Civil Procedure 41(b), after a period of inactivity in the instant adversary proceeding of more than five years. The court denied the motion, finding that the plaintiff asserted cognizable claims, and that the most drastic sanction of dismissal was inappropriate. The Court held that giving the defendants the benefit of the doubt in all issues of fact that became vague as a result of the passage of time was sufficient to counter-balance the prejudice to defendants caused by the delay. In addition, the Court found that it was obliged to refer the matter to arbitration, pursuant to the agreement between the debtor and the defendants.

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Broadway Advisors, LLC v. Hipro Elecs., Inc. (In re Gruppo Antico, Inc.), 359 B.R. 578 (Bankr. D. Del. 2007) (Judge Kevin J. Carey)

Vendor Hipro Electronics, Ltd. of Taiwan sold computer parts to the debtor prior to the commencement of the debtor’s bankruptcy case. However, in the period running up to the petition date, the debtor sent payments for Hipro Taiwan invoices to another Hipro entity, Hipro Electronics, Inc., in Texas. Hipro USA forwarded those checks to Hipro Taiwan, who deposited the checks into their own account. The debtor, however, commenced a preference action against Hipro USA. Hipro USA filed a motion for judgment on the pleadings. The court held that, because Hipro USA never deposited the funds, it was not a transferee of the debtor, and therefore could not be liable for the avoidance of the payments that the debtor sent to Hipro USA.

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Claybrook v. Consolidated Foods, Inc. (In re Bake-Line Group, LLC), 359 B.R. 566 (Bankr D. Del. Feb. 5, 2007) (Judge Peter J. Walsh)

The debtor came into possession of a check made payable to the preference defendant when the postman mistakenly delivered the check to the debtor. The debtor converted the check, depositing it into the debtor’s bank account. The defendant learned of the debtor’s actions, and demanded and received from the debtor a check to cover the funds that the debtor had converted. Days later, the debtor commenced its bankruptcy case.

The plaintiff in this adversary proceeding, the trustee of the debtor’s estate, sued the defendant to recover the payment as a preferential transfer. The court granted summary judgment in favor of the defendant, finding that the debtor converted the funds, and never had any interest in them that it could transfer.

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New Value Must Remain Unpaid?  It's Time to Resole New York City Shoes.  ABI Journal, Vol. XXV, No. 9, November 2006.  Authored by: Carl N. Kunz, III and Thomas M. Horan.

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Burtch v. Dent, (In re Circle Y of Yoakum, Tx.), 354 B.R. 349 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

The Chapter 7 Trustee of debtor Circle Y’s estate asserted claims under sections 547 and 548 of the Bankruptcy Code relating to payments made to an insider more than one year before the petition date. The Bankruptcy Court held that those claims were time-barred. Also, because the Trustee’s fraudulent transfer claims pled no facts in support of the Trustee’s allegations, but merely recited relevant statutory language, the Bankruptcy Court dismissed those claims for failure to plead fraud with sufficient particularity. However, the Court granted the Chapter 7 Trustee leave to amend to add additional payments where those payments were part of a discernible pattern with payments alleged in the Trustee’s original complaint.

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Amphenol Corp. v. Shandler (In re Insilco Techs., Inc.),  351 B.R. 313 (Bankr. D. Del. 2006) (Judge Kevin J. Carey)

Amphenol challenged the filing of a preference action against PCM, a non-debtor subsidiary it had purchased from the debtor, because the order approving the sale did so free of all liens and encumbrances. The Court interpreted the sale agreement and order as releasing Amphenol from the estate’s claims related to the purchase and ownership of PCM’s stock, but not releasing PCM itself from any estate actions, as PCM was a distinct corporate entity from Amphenol.

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Golden v. The Guardian (In re Lenox Healthcare, Inc.), 343 B.R. 96 (Bankr. D. Del. 2006) (Judge Mary F. Walrath)

When Guardian Life Insurance Company of America was sued by the Chapter 11 Trustee for Lenox Healthcare, Inc. for alleged preferential, fraudulent and unauthorized post-petition transfers it received, Guardian moved for summary judgment in part on the basis that the transfers it received were actually deductions taken by Lenox from its employees’ paychecks for the purpose of procuring health benefits. As a result, Guardian argued, the funds received by it were not transfers of the debtor’s interest in property, and therefore were not recoverable as preferences. The Bankruptcy Court (Judge Mary F. Walrath) agreed.

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In re Hayes Lemmerz Int'l, Inc. (HLI Creditor Trust v. Metal Techs., Inc., 337 B.R. 49 (Bankr. D. Del. 2006) (Judge Paul B. Lindsey)

The Court presided over a trial in which only the defendant’s § 547(c)(2)(B) and (C) ordinary course of business defenses were at issue.

The Court found that the payments had been made pursuant to ordinary business terms in the defendant’s industry under pre-BAPCPA §547(c)(2)(C) and read the acceptable range of payment aging broadly.

The Court further found that a creditor who insists on a debtor remaining within credit terms established by the parties can do so without taking subsequent payments out of the ordinary course of business under §547 (c)(2)(B). However, if credit terms are altered, such as when shipment is conditioned on advance payment, the ordinary course defense is defeated.

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Hechinger Inv. Co. of Del. v. Universal Forest Products, Inc. (In re Hechinger Inv. Co. of Del., Inc.), Case No. 99-02261 (PJW), Adv. Pro. No, 01-3170 (PBL), 2004 WL 3113718 (Bankr. D. Del. December 14, 2004) (Judge Paul B. Lindsey)

The debtor, Hechinger Investment Company, operated a chain of home improvement stores. Defendant Universal Forest Products was a trade creditor of the debtor, supplying treated wood products for sale at the debtor’s stores. The debtor brought a preference action against UFP. UFP filed a motion for summary judgment, asserting various defenses under 11 U.S.C. § 547(c), including, most notably, a subsequent new value defense under section 547(c)(4). The Court distinguished the Third Circuit case of In re New York City Shoes, Inc., 880 F.2d 679 (3d Cir.1989), holding that in a typical running account scenario like this one, there is no requirement in section 547(c) that new value remain unpaid. However, the Court held that summary judgment was premature absent a waiver of the other asserted defenses under section 547(c), or a stipulation by the parties as to the amount in controversy, because a calculation under section 547(c)(4) must be prefaced by a determination of whether the transfers made on account of new value are "otherwise avoidable."

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