J&A’s Assumption of Contract Assertion Defeats Preference Clawback Attempt

Prior to filing for bankruptcy, the Debtors operated as a company engaged in the exploration and production of oil and gas in the United States. The Defendant, our client provides services within the oilfield industry. The Defendant provided services to the Debtors in the form of installing a 60 mil polyuria liner, making and installing pipe stands and reinstalling production lines. The Defendant continued to provide services to the Debtors for several works even after the Debtors filed for bankruptcy. Plaintiff brought a lawsuit against the Defendant to avoid and recover an amount totaling $76,640 as alleged preferential transfers. 

Upon our analysis, we argued that the payments made in exchange for inchoate liens are made in exchange for new value and cannot be avoided pursuant to Sec. 547 (c)(1) of the Bankruptcy code. We showed that the Defendant held inchoate mechanic’s or materialman’s lien pursuant to North Dakota Century Code Title 35-24 well or pipeline construction lien. Next, we argued that the alleged preferential transfers corresponded to services performed under the master services agreement between the parties. Further, we showed that the transfers are protected from avoidance since Section 365 and court precedent stipulate that the trustee cannot avoid transfers from contracts assumed by the Debtor post-petition. Finally, we argued that the transfers should not be avoided since they were according to ordinary business terms, as stipulated in the MSA.  

Based on our arguments and defense in the position statement, the plaintiff dismissed the case for no payment.

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