500 B.R. 384
Bankr. D. Del.2013Background
- Vaso Active Pharmaceuticals filed Chapter 11; trustee appointed to pursue avoidance actions.
- Settlements with Iroquois Master Fund required Frattaroli and Masiz to warrant no fraudulent transfers of assets; later disputes over asset transfers occurred.
- Dec 2009 settlement proceeds from Robinson & Cole were paid to Masiz and Frattaroli before bankruptcy.
- Two transfers to Masiz totaled $776,363 from settlement proceeds; Debtor’s petition filed Mar 11, 2010.
- Trustee moves for partial summary judgment under 11 U.S.C. §547 to recover Masiz’s transfers as preferences; Masiz appeals.
- Court previously ruled partially in 2012 on a related motion; Masiz appealed that judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the transfers avoidable as preferences under §547(b)? | Masiz received transfers on account of antecedent debt while insolvent within the preference period. | Transfers may be protected or not within §547 defenses; insider status uncertain; other defenses may apply. | Yes; transfers are avoidable preferences under §547(b). |
| Does the subsequent new value defense under §547(c)(4) reduce Masiz's liability? | New value by Masiz after the transfers reduces exposure. | Masiz provided only wages; no demonstrable net new value beyond ordinary compensation. | Partial defense successful; liability reduced by $34,520.55; remaining liability $741,842.45. |
| Does the contemporaneous exchange defense under §547(c)(1) apply? | Some transfers contemporaneous with new value; defense may apply to second payment. | No clear contemporaneous exchange for the first payment; insufficient proof for second payment. | Contemporaneous-exchange defense fails for both payments. |
| Is there a defense under §365 (unallowable pre-petition default in assumed contracts)? | Plan did not assume Masiz’s employment contract; transfers not tied to assumed contracts. | Employment contract or related assumptions could bar avoidance. | Defense rejected; no assumed contract to bar avoidance. |
| Should the court grant recovery under §550 and award prejudgment interest? | Liability established; §550 allows recovery from initial transferee; prejudgment interest appropriate. | Interest may be discretionary; need justification. | Transfers recoverable under §550; prejudgment interest awarded. |
Key Cases Cited
- In re AmeriServe Food Distribution, Inc., 315 B.R. 24 (Bankr. Del. 2004) (discusses bankruptcy avoidance standards and 547(c) defenses)
- In re CVEO Corp., 327 B.R. 210 (Bankr. D. Del. 2005) (addresses new value and contemporaneous exchanges under §547)
- Bonded Financial Services, Inc. v. European American Bank, 838 F.2d 890 (7th Cir. 1988) (burden shifting and knowledge standards for §547 defenses)
- In re IT Group, Inc., 331 B.R. 597 (Bankr. D. Del. 2005) (contemporaneous exchange and new value considerations in §547)
- In re Resyn Corp., 945 F.2d 1279 (3d Cir. 1991) (law of the case and finality in bankruptcy decisions)
- In re Philip Services Corp., 267 B.R. 62 (Bankr. D. Del. 2001) (procedural aspects of summary judgment and §547 standards)