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Delaware Bankruptcy Court Grants Dismissal of Preference and Fraudulent Transfer Claims For Failure to Adequately State Facts

Miller v. Welke (In re United Tax Grp., LLC), Nos. 14-10486 (LSS), 16-50088 (LSS), 2016 Bankr. LEXIS 4322 (U.S. Bankr. D. Del. Dec. 13, 2016)

Before filing bankruptcy, Debtor United Tax Group was in the business of providing tax preparation services to consumers. During the period from March 7, 2012, to October 1, 2013, the Debtor made certain transfers totaling $821,402.69, which the Trustee sought to avoid as a preference or fraudulent. The Trustee alleged that the Debtor made the transfers to Defendant Edward Welke for his benefit and that he was the initial transferee or the beneficial transferee of the transfers. He also alleged that the Debtor was balance sheet insolvent at the beginning of 2012 according to the tax returns. The Defendant argued that the Trustee’s complaint did not satisfy applicable pleading standards and that it was filed to harass the Defendant. The Delaware Bankruptcy Court dismissed the Trustee’s allegations.

The Court found that the Trustee failed to adequately plead all counts necessary to give rise to a preference claim. Specifically, the Court held that the Trustee failed to: (i) identify the transferee of each transfer, and (ii) identify the nature and amount of each alleged antecedent debt. As for the fraudulent transfer claims, the Court found that the Trustee failed to allege facts necessary to demonstrate that the Debtor was insolvent at the time such transfers were made or that that the Debtor received less than reasonably equivalent value for certain of the transfers. Finding that the Trustee’s allegations merely parroted the language of Section 548, the Court dismissed the Trustee’s claims but granted the Trustee a leave to amend the complaint to adequately plead facts.


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