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Home Case Studies Plaintiff’s Clawback Attempt Fails Due to Mere Conduit Defense

Plaintiff’s Clawback Attempt Fails Due to Mere Conduit Defense

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Debtors were 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 a former employee of the Debtors in a separate case with the Debtors.

The parties involved ultimately settled that case. The Defendant executed a general release in favor of the Debtors for a sum of $112,500, to be paid in three installments approximately fifteen days apart. As the attorney for its client, Defendant received two of the three installments checks in its attorney’s trust account. Defendant exerted no dominion or control over these funds. Once Defendant received the checks, it distributed them to various entities following its client’s instructions.

Plaintiff sought to avoid and recover the $75,000 received by Defendant are avoidable and preferential and fraudulent payment.

From this amount, Defendant retained $7,359.75 as partial payment of its attorney’s fees according to the agreement with its client. These transfers were thus made according to the agreed terms between the parties and were therefore ordinary.

The remaining transfers amounting to $67,640.25 were neither preferential nor fraudulent because Defendant was not the initial transferee. The Defendant acted as a mere conduit for the settlement funds when it made disbursements to various entities on its client’s behalf and for their benefit. Defendant’s client had complete and ultimate control over the transfers.

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

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Jones & Associates

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