J&A Prove That Defendant Was a Mere Conduit, Plaintiff’s Clawback Dismissed

Debtors were a casino, gambling, and hotel operators who owned and operated two casino hotels in Atlantic City. Our client, the Defendant, is a law firm that represented one of the individual creditors of the Debtors in a separate case with the Debtors.

The parties involved ultimately settled that case, and Defendant executed a general release in favor of the Debtors for a sum of $15,000. As the attorney for its client, the Defendant asked the Debtors to make the settlement check payable to itself. Once the Defendant received the check, it distributed it to various entities following its client’s instructions.

Plaintiff sought to avoid and recover the $15,000 received by Defendant are avoidable and preferential and fraudulent payment.

We proved that the transfer was in the ordinary course of business, seeing how the parties had to comply with statutory rules of civil procedure, which substantially require settlement funds to be transferred to the appropriate party within thirty days from the settlement date.

We also proved that the transfers were neither preferential nor fraudulent because Defendant was not the initial transferee and acted as a mere conduit for the settlement funds. It was Defendant’s client who had complete control over the transfers.

Upon reviewing our Position Statement, Plaintiff dismissed the case for no payment.

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