625 B.R. 125
Bankr. N.D. Ga.2020Background
- Debtors American Berber, Inc. and Howard Johnson filed Chapter 11 in May 2019 and commenced an adversary proceeding against James M. Smith alleging a preferential transfer and recovery under § 550.
- On or about January 2, 2019 American Berber paid $700,000 (the "Transfer") to Smith as part of a Settlement Agreement resolving a Superior Court partnership dispute; Smith is alleged to be an insider.
- The Settlement Agreement allocated the $700,000 as $500,000 for purchase of an equity interest and $200,000 as consideration for release, and provided mutual releases and dismissal with prejudice.
- Plaintiffs allege the Transfer was an avoidable preference under 11 U.S.C. § 547(b) (debtor insolvent; insider; within one year; creditor received more than in Chapter 7) and seek recovery under 11 U.S.C. § 550.
- Smith moved to dismiss Counts 1 (preference) and 3 (§ 550) arguing the settlement created a new debt (not an antecedent debt) and, alternatively, the transfer was a contemporaneous exchange for new value under § 547(c)(1).
- The court considered the Settlement Agreement and Stipulation of Dismissal (central and undisputed) and denied Smith’s motion to dismiss Counts 1 and 3, permitting Plaintiffs to proceed on those claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $700,000 Transfer was "on account of an antecedent debt" under § 547(b) | Transfer paid to resolve the Superior Court Action asserting pre-existing partnership claims, so it was on account of an antecedent debt | Settlement created a new obligation/payment tied to non-debt consideration (purchase, release, lis pendens removal), so not an antecedent debt | Denied dismissal: allegations plausibly show the Transfer resolved pre-existing claims and satisfy antecedent-debt element at pleading stage |
| Whether § 547(c)(1) contemporaneous exchange defense bars avoidance | N/A (Plaintiffs assert avoidability) | Transfer was a contemporaneous exchange for new value (release, equity transfer, lis pendens removal) | Affirmative defense not dismissible at pleading stage; not apparent on face of complaint, so court did not dismiss on this basis |
| Whether Plaintiffs may recover from subsequent transferees under § 550 if transfer avoided | If Count 1 avoidable, § 550 allows recovery from initial or subsequent transferees | If no avoidable transfer, § 550 claim fails | Because Count 1 survives pleading challenge, Count 3 (§ 550 recovery) also survives |
| Whether court may consider settlement and dismissal documents on Rule 12(b)(6) motion | Documents are referenced in and central to the complaint | Documents are authentic and undisputed | Court may consider them without converting to summary judgment (Day v. Taylor standard) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint requires more than labels and conclusions)
- Midwest Holding #7, LLC v. Anderson (In re Tanner Family, LLC), 556 F.3d 1194 (11th Cir. 2009) (debt is incurred when creditor has a claim against debtor for antecedent-debt analysis)
- Lewis v. Diethorn, 893 F.2d 648 (3d Cir. 1990) (settlement to lift lis pendens held not payment of antecedent debt — minority view)
- Baker Hughes Oilfield Ops. v. Cage (In re Ramba, Inc.), 416 F.3d 394 (5th Cir. 2005) (criticizes Lewis; a transfer securing present benefit can also satisfy antecedent-debt analysis)
- Official Unsecured Creditors' Comm. v. Airport Aviation Servs., Inc. (In re Arrow Air, Inc.), 940 F.2d 1463 (11th Cir. 1991) (elements for contemporaneous-exchange defense)
- Day v. Taylor, 400 F.3d 1272 (11th Cir. 2005) (court may consider undisputed, central documents attached to a motion to dismiss)
- Isaiah v. JPMorgan Chase Bank, 960 F.3d 1296 (11th Cir. 2020) (complaint need not anticipate and negate affirmative defenses)