A bankruptcy court’s analysis of a petition to dismiss an annulment claim: the analytical framework | Patterson Belknap Webb & Tyler LLP


A federal judge recently authorized a trustee preferential transfer the claim against a law firm to proceed but rejected a constructive fraudulent transfer request. The decision highlights the advocacy standards and analytical framework for motions to dismiss such claims. Insys Liquidation Trust v. Urquhart (In regarding Insys Therapeutics Inc.), Case n ° 19-11292, Adv. No. 21-50359, 21 Bankr. LEXIS 2965 (JTD) (Bankr. D. Del. October 28, 2021).

The debtors had paid the law firm $ 90,000 within 90 days of the Chapter 11 filing. The liquidation trustee sued the company to reverse the transfers and recover the fees. The company requested dismissal, alleging that the complaint did not make a claim for which relief could be granted under federal bankruptcy rules 7008 and 7012.

On a motion to dismiss, a “complaint must contain sufficient factual elements, accepted as true” to state a claim for relief which is plausible on its face. ” In the case of Insys Therapeutics Inc., 2021 Banque LEXIS 2965, at * 4 (citing Bell Atl. Corp. vs. Twombly, 550 US 544, 570 (2007)). The court “must draw all reasonable inferences in favor of the plaintiff” and the defendant bears the burden of showing that the plaintiff’s claims “are not plausible”. Identifier. (citation omitted).

The bankruptcy court first considered the company’s arguments for rejecting the preferential transfer request. The five elements of this claim under Article 547 (b) of the Bankruptcy Code are:

  • a transfer has been made in favor of a creditor or in favor of a creditor;
  • for or because of a previous debt of the debtor before this transfer was effected;
  • when the debtor was insolvent;
  • within 90 days of filing for bankruptcy (or between 90 days and one year for insiders of the debtor); and
  • which allowed the obligee to receive more than it would in a Chapter 7 liquidation.

Before making a request for preference, a debtor must also perform “due diligence” on the circumstances of the case and on any affirmative defenses. 11 USC § 547 (b).

The law firm argued that the complaint did not demonstrate that it had received a prior debt, was a creditor, or received more than it would have in a Chapter 7 case. firm also said that prior to the filing of the case, there was no evidence that the debtors had shown “due diligence”.

Specifically, the company claimed that the complaint contained too few facts to satisfy the elements of section 547. But the court noted that – as is often seen in preference trials – the key facts were in a annex attached to the complaint. The schedule identified the payer and payee, the amount of payment, the date of payment, the check number, and the date, number and amount of the law firm’s invoices. The schedule also revealed that the debtor had made payments on these invoices. According to the court, these details were facts sufficient to show that the law firm had received payments for past debts and was a creditor.

The court also concluded that the complaint satisfied the fifth element of section 547 (b): the complaint alleged that if the company had not received the transfers, it would have had an unsecured debt in a hypothetical case of the Chapter. 7 and would therefore have received less than full payment on the invoices. In addition, the court concluded that the trustee had exercised due diligence before filing a complaint. Therefore, the court rejected all of the law firm’s arguments and allowed the trustee to pursue the preferential transfer request.

The court then considered the implied fraudulent transfer request. To successfully assert such a claim, a claimant must demonstrate that the debtor (i) received less than a reasonably equivalent value for the transfers in question and, (ii) was insolvent when the transfers were made, failed. found himself with unreasonably low capital, or was unable to pay debts as they fell due. 11 USC § 548 (a).

The court concluded that the allegations in the complaint “merely repeat elements of the law and contain no factual allegation” regarding specific parts of the section 548 test. In the case of Insys Therapeutics Inc., 2021 Banque LEXIS 2965, at * 11. The trustee argued that it was sufficient for the complaint to allege a lack of reasonably equivalent value because the matter had to be resolved by investigation and not on a motion to dismiss. Although the court agreed that the issue “cannot be resolved at the motion to dismiss” stage, the trustee “must nonetheless allege certain facts which would ultimately support a finding of reasonably lack of value. equivalent ”. Identifier. But, the court noted that the complaint cited no facts to support the claim.

Likewise, the insolvency allegations of the trustee were flawed. The court noted that the complaint did not “plausibly allege insolvency” when the transfers took place. It is not enough to recite the wording of the law “is not enough”. Identifier. to * 13. Therefore, the court dismissed the trustee’s claim for alleged fraudulent transfer.


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