Lack of Facts Showing Insolvency Tanks Trustee Fraudulent Conveyance Complaint
June 13, 2022, US Bankruptcy Court for the District of Delaware – The Delaware Bankruptcy Court granted in part and denied in part a motion brought by McKesson Plasma & Biologics LLC, and McKesson Medical-Surgical, Inc. (collectively, the “Defendants”) to dismiss the complaint filed by Center City Healthcare, LLC and some of its affiliates (the “Debtors”) seeking avoidance of preferential transfers, avoidance of fraudulent transfers, recovery of property, and disallowance of claims.
With regard to the preference claim, the Defendants argued that the complaint was merely boilerplate and provided only minimal factual information regarding the transfers. However, the Court found that the Debtors stated a factually plausible preference claims because they alleged all the traditional elements of a voidable preference action. The Debtors also supported their allegations with exhibits which included sufficient facts like (1) the applicable payment date and amount, (2) the invoice number, date, and amount to which such payment relates, (3) the Defendant receiving the payment, and (4) the Debtor making the payment. Lastly, the Court found that the complaint adequately alleges that the Defendants received more than they would have in a hypothetical chapter 7 case because Debtors filed a proposed plan of liquidation that would not provide for payment in full of general unsecured claims.
Next, the Defendants contended that the Debtors did not allege in detail what due diligence efforts they made into the circumstances of the case, including their analysis of the Defendants’ affirmative defenses. The Court concluded that there is no requirement that the Debtors plead how the affirmative defenses are not available; the Debtors must simply plead that they considered them; which they appropriately did in the Complaint.
Finally, the Defendants argued that the Debtors did not sufficiently meet the Rules 8 pleading standard for bringing a fraudulent transfers claim under the Bankruptcy code. Additionally, they argued that the Complaint fails to include a single factual allegation supporting a conclusion that the Debtors were insolvent at the time of the Transfers or were rendered insolvent by them.
While the Court concluded that the Debtors sufficiently pled that they did not receive reasonably equivalent value for the transfers in question, they failed to plausibly allege the Debtors’ insolvency at the time of the Transfers. This is because there is no presumption of insolvency under section 548 as there is in section 547. Thus, a plaintiff seeking to avoid transfers under section 548 must allege facts sufficient to support a finding that the debtor was insolvent at the time of the transfers or that the transfers rendered it insolvent. Since the complaint did not allege any such facts, the Court decided to dismiss the fraudulent transfers count from the complaint.
Ctr. City Healthcare, LLC v. McKesson Plasma & Biologics LLC (In re Ctr. City Healthcare, LLC), Nos. 19-11466 (MFW), 21-50796 (MFW), 2022 Bankr. LEXIS 1638 (Bankr. D. Del. June 13, 2022)
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