Defendant Had No Control Over Transfers And Was A Mere Conduit; Plaintiff Dismissed The Case For No Payment
Before filing for bankruptcy, the Debtors and their non-debtor affiliates and subsidiaries were developers and publishers of interactive entertainment software for popular gaming systems, including home video consoles, hand-held platforms, wireless devices, and personal computers including games played online. Our client, the Defendant, is engaged in the marketing and distribution of video games.
Plaintiff brought an action against our client to avoid and recover $25,000 as a preferential and fraudulent transfer.
We analyzed the facts of the case and showed that the transfer was neither preferential nor fraudulent because Defendant was not the initial transferee and acted as a mere conduit. The Debtor’s marketing representative appointed Defendant’s affiliate as its exclusive distributor for Brazil. The Defendant’s affiliate proposed that a marketing budget of $25,000 be sent through the Defendant. Pursuant to the Defendant’s affiliate and the Debtors’ discussion on the marketing budget, Defendant sent an invoice to the Debtors for $25,000. The Debtors sent a check for the same to the Defendant. Defendant merely acted as a conduit for the transfer of the $25,000 to its affiliate as part of its marketing contribution. With leading precedents, we showed that mere conduits of transfers are not deemed as initial transferees, do not have complete control over the transfers, and such transfers are not made for their benefit. Therefore, these transfers are outside the Plaintiff’s avoidance and recovery powers.
Based on the strength of our defenses, Plaintiff decided to dismiss the case without payment.