Trustee’s clawback attempt pales in front of J&A’s affirmative defenses; client pays zero
Debtors were the largest processor and direct-to-store distributor of fresh fluid milk and other dairy and dairy case products in the United States. The Defendant, our client, handcrafts organic dairy products using North Carolina milk and sold crème fraiche to the Debtors.
After the Debtors filed for bankruptcy, the Trustee filed a clawback action against the Defendant to recover $82,774.88 as alleged preferential and fraudulent transfers.
Based on our analysis and leading precedents, we proved that the transfers in question are ordinary. The parties agreed on payment terms of ‘Net 15′ day, and the Debtors always paid the Defendants within 14 days, i.e., as per the agreed terms. In other words, the transfers in question were made within the historical range of payments, with the overall averages being identical between the historical period and the preference period.
If the ordinary course of business defense was not enough, we also showed that after the first alleged preferential transfer, Defendant provided subsequent new value of $49,920.46, which remains unpaid as of the petition date and could be set off against the total claim.
Finally, we proved that Debtors made the transfers in consideration of the crème fraiche that Defendant delivered to the Debtors and according to the parties’ contractual terms. Thus, the Trustee could not recover them as alleged fraudulent transfers.
Based on J&A’s hard-hitting defenses, the Trustee agreed to dismiss the case for no payment.