ACJK, Inc. v. Express Scripts IncACJK, Inc. v. Express Scripts Inc
Before the Court are motions to dismiss filed by the defendants in two separate adversary proceedings commenced by the debtor in the same underlying bankruptcy case. The motions seek dismissal of the claims against the defendants pursuant to
I. Factual Background
ACJK, Inc. (“Debtor“), a corporation that operated a pharmacy in Granite City, Illinois, commenced its voluntary Chapter 11 case on January 30, 2023, by filing a bare-bones petition. The Debtor‘s schedules and other required documents were filed a month later. On Schedule D: Creditors Who Have Claims Secured by Property, the Debtor listed Express Scripts, Inc., OptumRX, Inc., and others as holders of claims in unknown amounts secured by the pharmacy‘s accounts receivable valued at $228,800. The debts were marked by the Debtor as being “disputed.” Among the assets listed on Schedule A/B, the Debtor identified potential causes of action for breach of contract and misrepresentation against OptumRX, Express Scripts, and others of unknown values. On its Statement of Financial Affairs, the Debtor identified OptumRX and Express Scripts as recipients of prepetition transfers in unknown amounts described as “offset DIR fees from Debtor‘s accounts receivable.” OptumRX and Express Scripts were similarly identified as having set off debts owed to them by taking unknown amounts from the Debtor‘s financial account without permission. Neither entity filed a proof of claim in the case. But several other creditors filed claims, including on account of unsecured prepetition debts.
The Debtor‘s Second Amended Chapter 11 Plan was confirmed on March 5, 2024. The plan defined “DIR Fees” as “pharmaceutical-related expenses
On January 29, 2025, the Debtor commenced an adversary proceeding against OptumRX, Express Scripts, and several other entities asserting causes of action against each for unauthorized postpetition transfers and constructively fraudulent prepetition transfers under federal and state law based on DIR Fees deducted from the Debtor‘s accounts receivable in the months and years surrounding the petition date.1 In an order entered February 13, 2025, the Judge previously assigned to the proceeding found that, among other deficiencies, the complaint impermissibly joined defendants in the same cause of action for what appeared to be separate and distinct transactions or occurrences and directed the Debtor to file separate adversary complaints against each defendant within 21 days. After an initial motion to reconsider was denied, the Debtor filed another document labeled as a motion to reconsider or for clarification, asserting that it had a right to file an amended complaint as a matter of course through which it hoped to cure any issues. Consistent with that position, the Debtor filed a first amended complaint which asserted essentially the same causes of action against the same defendants. Several named defendants objected and asked the Court
Relevant to the present proceedings, Count I of the first amended complaint alleges that OptumRX and Express Scripts deducted DIR Fees in unknown amounts from the Debtor‘s accounts receivable after the petition date of January 30, 2023. Because the Debtor ceased operations on January 21, 2023, the Debtor alleges that such deductions must have been on account of prepetition claims and are therefore avoidable under
Counts VI and VII seek to avoid constructively fraudulent transfers to Express Scripts under
Counts XII and XIII similarly seek to avoid constructively fraudulent transfers to OptumRX under
Although OptumRX and Express Scripts are represented by different attorneys, each filed substantially identical Motions to Dismiss ACJK, Inc.‘s First Amended Complaint Pursuant to
On September 25, 2025, the above-captioned proceedings, along with the other severed actions based on the same amended complaint, were reassigned to the undersigned Judge. A hearing was set for status on pending matters in
The Defendants filed a joint objection to the motion to modify plan and, after hearing and additional briefing on the issues raised by the motion to modify, the Court took the matter under advisement. Based on the adversary parties’ agreement that the motion to modify could be consequential to the adversary litigation, orders were separately entered in each of the adversary proceedings putting the Motions to Dismiss on hold pending resolution of the motion to modify in the bankruptcy case.
The motion to modify was ultimately denied by order entered March 25, 2026. The denial was based primarily on the Debtor‘s stipulation that distributions had begun under the confirmed plan, and, as such, the plan had been substantially consummated and could not be modified. The concluding paragraph of the order noted that the Motions to Dismiss had been put on hold pending decision on the motion to modify and would be taken under advisement once again.
II. Jurisdiction
This Court has jurisdiction over proceedings “arising under title 11, or arising in or related to cases under title 11” pursuant to
While statutorily core, there is some disagreement about whether fraudulent conveyance actions are constitutionally core in the wake of the Supreme Court‘s decisions in Stern v. Marshall, 564 U.S. 462, 493 (2011), and Executive Benefits Insurance Agency v. Arkinson, 573 U.S. 25, 37-38 (2014). Compare Maxwell v. United States (In re Horizon Grp. Mgmt., LLC), 617 B.R. 581, 585 (Bankr. N.D. Ill. 2020) (finding fraudulent transfer action under
Here, the Defendants have not consented to entry of final orders on the merits of the claims asserted against them. Even so, this Court has authority to enter orders on preliminary matters to the extent they do not constitute a final adjudication on the merits of underlying causes of action over which the Court does not have constitutional authority to enter a final order. See Lordstown Motors Corp. v. Hon Hai Precision Indus. Co. (In re Nu Ride Inc.), 666 B.R. 510, 512 (Bankr. D. Del. 2024). The authority to enter orders on such preliminary matters generally includes orders resolving motions to dismiss. Id.; Settlers’ Hous. Serv., Inc. v. Schaumburg Bank & Trust Co. (In re Settlers’ Hous. Serv., Inc.), 514 B.R. 258, 268-69 (Bankr. N.D. Ill. 2014) (bankruptcy court has authority to deny motion to dismiss because such denial does not result in entry of judgment; and, while an order of dismissal may be a final judgment, if order adjudicates fewer than all claims or rights of all parties then it is not a final judgment). Because the orders entered in connection with these adversary proceedings will
III. Legal Analysis
To survive a motion to dismiss for failure to state a claim upon which relief can be granted, a complaint need only allege enough factual allegations to plausibly suggest a claim for relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007);
“A claim has facial plausibility ‘when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.‘” Bissessur v. Indiana Univ. Bd. of Trs., 581 F.3d 599, 602 (7th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). When ruling on a motion to dismiss, a court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the non-moving party. Iqbal, 556 U.S. at 678; McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 879 (7th Cir. 2012). Those well-pleaded facts, however, must “permit the court to infer more than the mere possibility of misconduct[.]” Iqbal, 556 U.S. at 679.
A. The Undeveloped Factual Record Prevents the Court from Concluding that the Transactions at Issue are Unavoidable Setoffs or Recoupment.
The Motions to Dismiss make three main arguments in support of dismissal. The first argument focuses on the nature of the transactions as setoffs or recoupment. Pointing to the Debtor‘s repeated use of the term “offset” to describe the alleged transfers, the Defendants argue that Counts I, VI/XII, and VII/XIII must be dismissed because a setoff is not a transfer as defined in the Bankruptcy Code and therefore not avoidable under
The Defendants rely primarily on Matter of Prescott, 805 F.2d 719, 730-31 (7th Cir. 1986), in which case the Seventh Circuit described the history around setoffs and their exclusion from the bankruptcy legislation definition of a “transfer,” setting up its holding that a setoff is not avoidable as a preference except as provided in
Although related concepts, recoupment and setoff differ in that recoupment requires the countervailing claims to arise from the same transaction, typically resulting in some type of “overpayment.” Raleigh v. Mid Am. Nat. Bank & Trust Co. (In re Stoecker), 131 B.R. 979, 982-83 (Bankr. N.D. Ill. 1991). Further, unlike setoff, “recoupment is not subject to the automatic stay of
The Defendants further cite bankruptcy decisions outside the Seventh Circuit in support of their broader contention that “recoupments simply are not subject to the avoidance powers under Chapter 5 of the Bankruptcy Code[,]” but the reasoning of those decisions is premised on the nature of recoupment as merely a defense to liability by way of reducing the defendant‘s obligation, the burden of which rests with the party asserting the defense to establish. See Mercy Hosp. of Watertown v. New York State Dep‘t of Soc. Servs., 171 B.R. 490, 495-96 (N.D.N.Y. 1994); Visiting Nurse Ass‘n of Tampa Bay, Inc. v. Sullivan (Matter of Visiting Nurse Ass‘n of Tampa Bay, Inc.), 121 B.R. 114, 121 (Bankr. M.D. Fla. 1990);
Turning then to the Debtor‘s amended complaint here, it is not clear that the transactions complained of are in the nature of setoff or recoupment as the Defendants contend. Their argument is based on the Debtor‘s use of the term “offsets” to describe the transactions upon which the avoidance claims are founded. But terminology notwithstanding, the allegations of the amended complaint describe a varied process by which transactions between the parties were settled at different times. Among them, the Debtor does allege that net claim reimbursement proceeds were routinely deposited into the Debtor‘s account after deducting DIR Fees owed to the Defendants, suggestive of setoff or recoupment. But the allegations also describe a process by which the Defendants would pay the reimbursement proceeds in full to the Debtor‘s account with Cardinal and
Inartful as they are, the allegations of the amended complaint provide enough to give the Defendants notice of the grounds for the Debtor‘s avoidance claims and to withstand, at least for now, the Defendants’ assertion that the transactions at issue are not subject to avoidance as setoffs or recoupment. If true, the Debtor‘s allegations of Cardinal affirmatively paying the Defendants for DIR Fees owed to them could be sufficient to dispose of any argument of setoff or recoupment. But the Court cannot make that determination on the record before it; the nature of the transactions at issue is a disputed fact for which further development of the factual record is needed. Further, in terms of recoupment specifically, the Debtor‘s allegation that Cardinal would indiscriminately settle claims by PBMs for DIR Fees from the commingled pot of aggregate proceeds received from all PBMs creates a dispute of fact as to whether the “same transaction” requirement for recoupment exists. The Defendants may ultimately prevail defending against the Debtor‘s avoidance actions if the facts
B. The Debtor‘s Confirmed Plan Failed to Preserve Postpetition Causes of Action for Postconfirmation Prosecution by the Debtor.
The Defendants’ second argument for dismissal focuses on Count I and its request for relief under
Count I of the amended complaint seeks relief under
Since P.A. Bergner, courts in the Seventh Circuit have varied in their determination of whether the language of a particular plan was sufficient to
Turning to the Debtor‘s confirmed plan here, Section IV.A provides for the liquidation of assets comprised in part of “pre-petition Causes of Action against . . . the PBM‘s [sic].” Section IV.B provides for the creation of a “Litigation Fund” into which proceeds from litigation and settlement of “Causes of Action” are to be deposited and distributed for the benefit of creditors according to the procedures set forth. The plan does not define “Causes of Action,” but the definitions for other terms are helpful. The plan defines “Litigation Proceeds” as including money collected from litigation or settlement of causes of action against persons or entities that collected DIR Fees. “DIR Fees” are defined as “pharmaceutical-related expenses deducted from Debtor‘s gross sale proceeds by Pharmacy Benefit Mangers [sic] (PBM‘s) [sic],” naming the Defendants as
The Second Amended Disclosure Statement identifies “pre-petition Causes of Action” falling into three categories: two involving non-PBM entities and thus not relevant here, and a third category described as “causes of action against the PBM‘s [sic] for unfair and deceptive practices involving the collection of approximately $1,000,000 in DIR Fees from Debtor‘s accounts receivable in the five years preceding the Petition Date.” Consistent with the plan, the disclosure statement calls for the establishment of a “Litigation Fund” into which any “proceeds attributable to Debtor‘s causes of action shall be paid” for purposes of implementing and funding the plan. The final paragraph of the disclosure statement provides as follows:
D. Retention of Causes of Action and Jurisdiction. All rights and causes of action held by the Debtor prior to confirmation shall be retained by Debtor, as Debtor-in-Possession and successor in interest, regardless of whether such rights or causes of action came into being pre-petition or post-petition. The Bankruptcy Court will retain jurisdiction over matters related to the Plan to the full extent available by law.
Although neither the plan nor disclosure statement describes avoidance or other Code-based causes of action to be pursued by the Debtor—indeed the disclosure statement describes the causes of action as unfair and deceptive practice claims—they do identify the basic transactions and occurrences upon which the claims are based and the entities against whom the claims are to be
But the plan and disclosure statement language at issue here is clearly limited to causes of action based on prepetition events and claims. In specifying its intention to pursue prepetition causes of action it might have against the Defendants and their collection of DIR Fees, the Debtor defined the category of claims to be preserved such that those claims falling into the category were successfully retained to the exclusion of all others. Chapter 11 plans are essentially contracts which should be interpreted to give effect to all terms according to their ordinary and natural meaning. Kmart Corp. v. Intercraft Co. (In re Kmart Corp.), 310 B.R. 107, 125 (Bankr. N.D. Ill. 2004) (citations omitted). The only reasonable interpretation of the plan‘s reference to prepetition causes of action here is that it did not apply to postpetition causes of action. The Defendants are therefore correct that the plan failed to preserve the postpetition claims in Count I for turnover and accounting under
To be sure, the disclosure statement does contain a broad retention provision in its final paragraph, which warrants a brief discussion even if the Debtor failed to mention it. It provides that “[a]ll rights and causes of action held by the Debtor prior to confirmation shall be retained by Debtor, as Debtor-in-Possession and successor in interest, regardless of whether such rights or causes of action came into being pre-petition or post-petition.” While a natural reading of the provision would include the causes of action asserted in Count I of the amended complaint, courts have widely concluded that similar provisions alone are ineffective for purposes of
Count I relates exclusively to postpetition claims which the Debtor‘s confirmed plan failed to preserve for postconfirmation pursuit by the Debtor. Count I must therefore be dismissed in its entirety in each proceeding. And, because the problems with Count I could not be cured through amendment, the dismissal is with prejudice.
C. Neither §160/5(a) of the Illinois Uniform Fraudulent Transfer Act Nor §544(b) of the Bankruptcy Code Requires the Debtor to Identify the Creditor in Whose Shoes it Stands for Pleading Purposes.
The Defendants’ final argument for dismissal relates to Count VII against Express Scripts and Count XIII against OptumRX, both brought under
The Seventh Circuit has unequivocally stated, however, that a plaintiff need not articulate a specific creditor in whose shoes it is stepping for purposes of avoiding transfers under state law; it is sufficient if unsecured claims were filed by creditors, any one of whose position a trustee could assume. Matter of Leonard, 125 F.3d 543, 544 (7th Cir. 1997). The Seventh Circuit has reiterated the point several times. See, e.g., In re Chicago Mgmt. Consulting Grp., Inc., 929 F.3d 803, 807, 811 (7th Cir. 2019) (affirming bankruptcy court determination that existence of IRS and credit card debt was sufficient to permit
There is post-Leonard precedent from within this Circuit requiring such pleading. In Covey v. Webster (In re Webster), 1999 WL 33582261, at *1 (Bankr. C.D. Ill. Apr. 27, 1999) (Altenberger, J.), the court acknowledged the Seventh Circuit‘s conclusion that a plaintiff need not identify a creditor by name but ultimately dismissed the action due to the plaintiff‘s failure to allege that any creditor existed at the time of the transfer, noting that the amended complaint only needed to allege that a creditor existed. Cf. Maxwell v. Michael (In re Horizon Grp. Mgmt., LLC), 652 B.R. 764, 789-91 (Bankr. N.D. Ill. 2023) (questioning the scope and application of Leonard, noting that the decision does not affect the plaintiff‘s burden of proving the existence of a qualifying creditor, and stating that, “[a]t the very least, the court must be reasonably assured that such a creditor exists, even if the plaintiff need not specifically identify the creditor“).
Importantly, those decisions have in common a distinguishing fact: none of the claims at issue involved
Similarly, Aluminum Mills and the other decisions cited by the Defendants requiring plaintiffs to specifically plead the existence of a creditor with a pending claim against the debtor at the time of the alleged fraudulent transfer “were decided prior to the enactment of (or were not governed by) section 160/5 of the [IUFTA]” and are therefore distinguishable. Brandt v. KLC Fin., Inc. (In re Equip. Acquisition Res., Inc.), 481 B.R. 422, 429-30 (Bankr. N.D. Ill. 2012). In drawing that distinction and explaining that it is not necessary for a plaintiff bringing an action under
In the underlying bankruptcy case here, several unsecured claims were filed by creditors on account of prepetition debts that have been deemed allowed in the absence of objection. The Court can and does take judicial notice of those claims, and, accordingly, the Debtor‘s failure to allege the existence of any one of those qualifying creditors is not a basis for dismissal under
Even without taking judicial notice of the claims register in the underlying bankruptcy case, the existence of at least one unsecured creditor can easily be inferred from the allegations of Counts VII and XIII. The amended complaint
Notwithstanding the Debtor‘s utter failure to address the Defendants’ argument that Counts VII and XIII must be dismissed for not alleging the existence of a creditor in whose shoes the Debtor is standing to bring the causes of action under the IUFTA, the Court finds that dismissal of Counts VII and XIII is not warranted. The case law cited by the Defendants in support of their argument is inapt. Dismissing Counts VII and XIII for failing to expressly allege the existence of an unsecured creditor at the time of filing the bankruptcy petition when a court could take judicial notice of such fact would further be as unproductive as dismissing a cause of action arising under the Bankruptcy Code for failing to expressly allege that a debtor was in bankruptcy. In any event, the
IV. Conclusion
The Defendants’ Motions to Dismiss will be granted in part and denied in part. Count I against both Defendants will be dismissed because it is based on postpetition claims and transactions which the Debtor‘s confirmed plan plainly did not preserve for postconfirmation prosecution. Because the problems cannot be cured by amendment, the dismissal of Count I is with prejudice. The Motions to Dismiss are denied in all other respects. The proceedings will move forward on the remaining Counts VI and VII against Express Scripts and Counts XII and XIII against OptumRX.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to
See written Order.
ENTERED: June 10, 2026
/s/ Mary P. Gorman
UNITED STATES BANKRUPTCY JUDGE