Center City Healthcare, LLC v. McKesson Plasma & Biologics LLC

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) Ch. 11

)

CENTER CITY HEALTHCARE, LLC d/b/a ) Case No. 19-11466 (MFW)

HAHNEMANN UNIVERSITY HOSPITAL, )

et al., ) (Jointly Administered)

)

Debtors. )

)

CENTER CITY HEALTHCARE, LLC d/b/a ) Adv. Proc. No. 21-50796

HAHNEMANN UNIVERSITY HOSPITAL, ) (MFW)

ST. CHRISTOPHER’S HEALTHCARE, LLC )

TPS III OF PA, LLC, TPS IV OF PA, )

and TPS V OF PA, LLC )

)

Plaintiffs, )

)

v. )

)

MCKESSON PLASMA & BIOLOGICS LLC )

& MCKESSON MEDICAL-SURGICAL, INC., )

)

Defendants. ) Re: D.I. 1, 18, 21 & 25

MEMORANDUM OPINION1

Before the Court is a motion to dismiss (the “Motion to

Dismiss”) a Complaint seeking avoidance of preferential

transfers, avoidance of fraudulent transfers, recovery of

property, and disallowance of claims. For the reasons stated

below, the Court will grant in part, and deny in part, the Motion

to Dismiss.

1 The Court is not required to state findings of fact or

conclusions of law pursuant to Rule 7052 of the Federal Rules of

Bankruptcy Procedure. Instead, the facts recited are those

averred in the Complaint, which must be accepted as true for the

purposes of the Motion to Dismiss. Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009).

I. BACKGROUND

On June 30 and July 1, 2019, Center City Healthcare, LLC and

some of its affiliates (the “Debtors”) filed petitions under

chapter 11 of the Bankruptcy Code. The Debtors employed

EisnerAmper LLP (“EisnerAmper”), with Court approval, to provide

interim management and operational services to the Debtors.2 As

part of this role, EisnerAmper reviewed the Debtors’ financials

for the ninety days prior to the Petition Date (the “Avoidance

Period”). Based on that review, the Debtors concluded that

several transfers (the “Transfers”) from the Debtors to McKesson

Plasma & Biologics LLC (“McKesson Plasma”) and McKesson Medical-

Surgical, Inc. (“McKesson Medical”) (collectively, the

“Defendants”) were avoidable.3 On May 7 and May 26, 2021, the

Debtors sent offers to the Defendants to settle these claims (the

“Demand Letters”).4 The Defendants did not respond.5

2 D.I. 338. References to the docket in the main case are to

“D.I. #” while references to the docket in this adversary

proceeding are to “Adv. D.I. #.”

3 Adv. D.I. 1 ¶¶ 3, 33-34, 39, & Exs. B & C.

4 The Debtors attached the Demand Letters to their response.

Adv. D.I. 21 at Ex. 1. In the Demand Letters, the Debtors

outlined claims against the Defendants, delineated potentially

applicable defenses to a preference action, proposed a settlement

of the claims, and invited the Defendants to identify defenses

upon which they would rely. Id.

5 Adv. D.I. 1 ¶ 36.

2

On June 23, 2021, the Debtors commenced a Complaint against

the Defendants seeking to recover $853,284 in pre-petition

payments made by the Debtors to the Defendants during the

Avoidance Period.6 The Complaint seeks to avoid and recover

those Transfers as preferences under Counts I & III, to avoid and

recover those Transfers as fraudulent transfers under Counts II &

III, and to disallow any claims that the Defendants may have

against the Debtors under Count IV.

On February 7, 2022, the Defendants filed the Motion to

Dismiss pursuant to Rules 8 and 12 of the Federal Rules of Civil

Procedure.7 On February 22, 2022, the Debtors filed a response.8

The Defendants filed a reply on March 1, 2022.9 The Motion to

Dismiss is ripe for decision.

6 Exhibit A to the Complaint is a summary of the Transfers,

Exhibit B sets forth the details of each of the Transfers to

McKesson Plasma (totaling $790,414), and Exhibit C sets forth the

details of each of the Transfers to McKesson Medical (totaling

$62,870). Id. ¶¶ 32-34. Exhibits B and C include the applicable

check number, the payment, wire or ACH identifying number, the

payment date, the payment amount, the invoice number(s) to which

each payment relates, the invoice date(s), and the invoice

amount(s) paid. Id.

7 Adv. D.I. 18. The applicable Federal Rules of Civil

Procedure are incorporated in the Federal Rules of Bankruptcy

Procedure. Therefore, citations herein are to the Federal Rules

of Civil Procedure.

8 Adv. D.I. 21.

9 Adv. D.I. 25.

3

II. JURISDICTION

The Court has subject matter jurisdiction over this

adversary proceeding. 28 U.S.C. § 1334(b). This action involves

core claims. 28 U.S.C. § 157(b). The Defendants have consented

to entry of an order by the Court on the Motion to Dismiss.10

III. DISCUSSION

A. Standard of Review

1. Rule 12(b)(6)

The Motion to Dismiss is brought under Rules 8(a) and

12(b)(6). Rule 8(a) requires a complaint to contain “a short and

plain statement of the claim showing that the pleader is entitled

to relief.”11 Rule 12(b)(6) provides for dismissal for “failure

to state a claim upon which relief can be granted.”12 When a

complaint is challenged by a motion to dismiss under Rule

12(b)(6), the complaint “does not need detailed factual

allegations, [but] a plaintiff’s obligation to provide the

‘grounds’ of his ‘entitle[ment] to relief’ requires more than

labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do.”13 To survive a

10 Adv. D.I. 18, 25.

11 Fed. R. Civ. P. 8(a).

12 Fed. R. Civ. P. 12(b)(6).

13 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

4

motion to dismiss, the complaint must contain sufficient factual

matter, accepted as true, “to state a claim to relief that is

plausible on its face.”14 Two “working principles” underlie this

pleading standard:

First, the tenet that a court must accept a complaint’s

allegations as true is inapplicable to threadbare

recitals of a cause of action’s elements, supported by

mere conclusory statements. Second, determining

whether a complaint states a plausible claim is context

specific, requiring the reviewing court to draw on its

experience and common sense.15

Under this standard, a complaint must nudge claims “across the

line from conceivable to plausible.”16 The court must draw all

reasonable inferences in favor of the plaintiff,17 and the movant

“bears the burden to show that the plaintiff’s claims are not

plausible.”18

In weighing a motion to dismiss, the Third Circuit instructs

courts to follow a three-part analysis. “First, the court must

‘tak[e] note of the elements a plaintiff must plead to state a

14 Id. at 570.

15 Iqbal, 556 U.S. at 663-64 (citation omitted).

16 Twombly, 550 U.S. at 570.

17 See, e.g., Alpizar-Fallas v. Favero, 908 F.3d 910, 914 (3d

Cir. 2018).

18 UMB Bank, N.A. v. Sun Capital Partners V, LP (In re LSC Wind

Down, LLC), 610 B.R. 779, 783 (Bankr. D. Del. 2020).

5

claim.’”'? Second, the court must separate the factual and legal

elements of the claim, accepting all of the complaint’s well-pled

facts as true and disregarding any legal conclusions.*° Third,

the court must determine whether the facts alleged in the

complaint are sufficient to show that the plaintiff has a

plausible claim for relief.*' After conducting this analysis,

the court may conclude that a claim has facial plausibility when

the pled factual content allows the court to draw the reasonable

inference that the defendant is liable for the alleged

misconduct.

B. Voidable Preferences

The Defendants move to dismiss Count I of the Debtors’

Complaint which alleges claims for avoidance of preferential

transfers under section 547 of the Bankruptcy Code. The

Defendants contend that the Complaint fails to plead the

preference claim adequately for multiple reasons.

1. Pleading the Traditional Elements of Section 547

Initially, the Defendants argue that a preference complaint

18 Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir.

2010) (quoting Iqbal, 556 U.S. at 675).

20 Santiago, 629 F.3d at 130. See also Fowler v. UPMC

Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (citing Igbal, 556

U.S. at 679).

21 Santiago, 629 F.3d at 130.

ee Igbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556).

must allege more than the statutory elements of a preference.

They assert that the Complaint is merely boilerplate and provides

only minimal factual information regarding the alleged Transfers.

In response, the Debtors contend that they have asserted

sufficient non-conclusory facts to adequately plead a claim under

section 547. Specifically, the Debtors argue that the exhibits

attached to the Complaint contain sufficient facts about the

alleged Transfers to satisfy the traditional elements of a

preference claim.

The traditional elements of an avoidable preference claim as

stated in section 547(b) allow a debtor to avoid a transfer of

property of the debtor:

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the

debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made on or within 90 days before the date of filing

the petition; . . . and

(5) that enables such creditor to receive more than

such creditor would receive if

(A) the case were a case under chapter 7 of

this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such

debt to the extent provided by the provisions

of this title.23

To survive a motion to dismiss, a claim for a preferential

transfer under section 547 must include the following

information: “(a) an identification of the nature and amount of

23 11 U.S.C. § 547(b).

7

each antecedent debt and (b) an identification of each alleged

preference transfer by (i) date [of the transfer], (ii) name of

debtor/transferor, (iii) name of transferee and (iv) the amount

of the transfer.”24

In this case, the Court concludes that the Debtors have

alleged all the traditional elements of a voidable preference

action. The exhibits attached to the Complaint allege sufficient

facts to support the Debtors’ claim because they state (1) the

applicable payment date and amount, (2) the invoice number, date,

and amount to which such payment relates, (3) the Defendant

receiving the payment, and (4) the Debtor making the payment.25

Thus, the exhibits give enough factual detail that the Defendants

have notice of the Transfers alleged to be avoidable preferences

and the antecedent debt they pay.

Finally, the Court concludes that the Complaint adequately

alleges that the Defendants received more than they would have in

a hypothetical chapter 7 case because it alleges that the Debtors

24 Valley Media, Inc. v. Borders, Inc. (In re Valley Media,

Inc.), 288 B.R. 189, 192 (Bankr. D. Del. 2003). See also Miller

v. Nelson (In re Art Inst. of Phila. LLC), Adv. Pro. No. 20-50627

(CTG), 2022 Bankr. LEXIS 68, at *48 (Bankr. D. Del. Jan. 12,

2022) (holding that the complaint failed to identify which

particular debtor made the transfer, thus, failing to state a

claim for preference); Beskrone v. OpenGate Capital Grp., LLC (In

re PennySaver USA Publishing, LLC), 602 B.R. 256, 274 (Bankr. D.

Del. 2019) (holding that the court requires the trustee, inter

alia, to identify the particular debtor making the preferential

transfer when there are multiple debtors involved in the case).

25 Adv. D.I. 1 at Exs. B & C.

8

have filed a proposed plan of liquidation that will not provide

for payment in full of general unsecured claims.26

Consequently, the Court concludes that the Debtors have

stated a factually plausible claim that satisfies the traditional

elements of an avoidable preference.

2. Additional Due Diligence Requirement

The Defendants argue, however, that the recent amendment to

section 547(b)27 creates a new element in a preference claim

which requires that the Debtors make additional factual

allegations in their Complaint, namely that the complaint is

based on “reasonable due diligence in the circumstances of the

case and taking into account a party’s known or reasonably

knowable affirmative defenses under subsection (c).”28 The

Defendants assert that the Complaint’s threadbare statement that

the Debtors did an inquiry is insufficient to satisfy that

26 Adv. D.I. 1 ¶ 35. See Stanziale v. Southern Steel & Supply,

L.L.C. (In re Conex Holdings, LLC), 518 B.R. 269, 278 (Bankr. D.

Del. 2014) (“As a matter of general arithmetic, any transfer to a

general unsecured creditor ordinarily satisfies this test unless

the debtor’s estate turns out to be solvent in Chapter 7.”);

Buchwald Capital Advisors LLC v. Metl-Span I., Ltd. (In re Pameco

Corp.), 356 B.R. 327, 336-37 (Bankr. S.D.N.Y. 2006) (holding that

because the defendant was not secured and the plan filed by the

debtor will pay unsecured creditors less than 100%, the defendant

clearly recovered more than it would have in a hypothetical

chapter 7 liquidation).

27 Section 547(b) was amended in 2019 by The Small Business

Reorganization Act of 2019, Pub. L. No. 116-54 § 3(a).

28 11 U.S.C. § 547(b).

9

additional element.29 Instead, the Defendants contend that the

Debtors are required to allege in detail what due diligence

efforts they made, including their analysis of the Defendants’

affirmative defenses.

The Defendants also contend that the Demand Letters the

Debtors sent to the Defendants were boilerplate and did not show

what independent analysis of “known or reasonably knowable

affirmative defenses” the Debtors conducted.30 The Defendants

assert that the Debtors have the requisite information in their

books and records to evaluate the Defendants’ ordinary course of

business, new value, and contemporaneous exchange defenses, but

the Complaint fails to provide any specific information regarding

the Debtors’ evaluation of those defenses. Thus, the Defendants

argue that the Complaint fails to allege specific factual bases

to satisfy the pleading requirements of amended section 547(b)

and Rule 8.

In response, the Debtors argue that the amendment to section

547(b) did not create a new element for a preference claim.31

29 See Husted v. Taggart (In re ECS Refining, Inc.), 625 B.R.

425, 454 (Bankr. E.D. Cal. 2020) (“This court believes that this

condition precedent, i.e., due diligence and consideration of

affirmative defenses, is an element of the trustee’s prima facie

case.”).

30 D.I. 21 at Ex. 1.

31 See Insys Therapeutics, Inc. v. Quinn Emanuel Urquhart &

Sullivan, LLP (In re Insys Therapeutics, Inc.), Adv. Pro. No. 21-

50359 (JTD), 2021 WL 5016127, at *3 (Bankr. D. Del. Oct. 28,

10

The Debtors assert that, because reasonable due diligence is not

an additional element of section 547, the Complaint has

adequately pled a claim for avoidance of a preference. Even if

it was a new element that must be pled under section 547, the

Debtors argue that it does not impose an obligation on plaintiffs

to disprove affirmative defenses at the motion to dismiss

stage.32 Rather, they assert that it merely requires that the

Complaint allege that the Debtors have done reasonable due

diligence of the claims and the possible defenses to the claims.

The Debtors contend that the Complaint satisfies that pleading

requirement because it alleges that they conducted “reasonable

due diligence” before filing the Complaint.33

2021) (declining to conclude that the amended language added a

new element but finding that the trustee had adequately pled due

diligence).

32 See Art Inst., 2022 Bankr. LEXIS 68, at *49 n.116 (noting

that a plaintiff does not have to “anticipate and negate”

potential affirmative defenses in his or her pleading) (citing

Perry v. Merit Sys. Prot. Bd., 137 S. Ct. 1975, 1986 n.9 (2017));

Insys, 2021 WL 5016127, at *3 (“[A]n affirmative defense may not

be used to dismiss a plaintiff’s complaint under Rule 12(b)(6).”)

(quoting In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 277

(3d Cir. 2004)).

33 The Complaint alleges that the Debtors conducted an analysis

of the transfers made to the Defendants during the Avoidance

Period and determined that transfers in the aggregate amount of

at least $853,284 are avoidable and not protected from avoidance

by any applicable defense. Adv. D.I. 1 ¶ 3. The Complaint

further alleges that the Debtors analyzed all readily available

information and reasonably believed that the Transfers were

avoidable after giving effect to the Defendants’ known or

reasonably knowable affirmative defenses under section 547(c) of

the Bankruptcy Code. Id. ¶ 37.

11

While the Debtors concede that the Complaint did not specify

in detail the due diligence efforts of EisnerAmper nor attach the

Demand Letters,34 they argue that the reference to them in the

Complaint is sufficient for the Court to consider them.35 Based

on the due diligence reflected therein, the Debtors argue that

they have properly pled a preference count against the

Defendants, and the Court should not dismiss Count I of the

Complaint.

34 The Debtors did include a copy of the Demand Letters and a

fulsome description of those efforts in their response to the

Motion to Dismiss. Adv. D.I. 21. Specifically, the Debtors

state that EisnerAmper: 1) reviewed the Debtors’ bank statements

to obtain the population of checks and wires, 2) traced

transactions to each Debtors’ check register to obtain invoices

paid under each transfer by check, 3) searched the Debtors’ check

requests, as well as correspondence with the Debtors’ accounts

payable and finance departments to identify the underlying

invoices for wire transfers, 4) calculated the days-to-pay for

each transaction based on the difference between the transfer

clear date per the bank records and the invoice dates, 5) scanned

check request files for indications of unusual collection

activity, 6) analyzed transactions prior to the Avoidance Period

on a vendor by vendor basis to compare days to pay prior to the

Avoidance Period and prepared an analytical review of same, 7)

scanned accounts payable, proofs of claim, and post-petition

spend files to ascertain unpaid invoices at the filing date to

identify vendors that would have a viable new value defense or

ordinary course of business defense, and 8) searched finance

department and accounts payable files and emails for evidence of

unusual collection activity. Id.

35 Adv. D.I. 1 ¶ 3, 36 & 37. See U.S. Express Lines Ltd. v.

Higgins, 281 F.3d 383, 388 (3d Cir. 2002) (holding that a court

may consider a document that is integral or explicitly relied

upon by the complaint without converting the motion to dismiss

into one for summary judgment) (citing In re Burlington Coat

Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997)).

12

As part of The Small Business Reorganization Act of 2019,°°

Congress added the following underlined language to section

547(b): “the trustee may, based on reasonable due diligence in

the circumstances of the case and taking into account a party’s

known or reasonably knowable affirmative defenses under

subsection (c), avoid any transfer of an interest of the debtor

in property. .. .”°’ There is no explanation, in the Code or in

the legislative history to the amendment, of what is required to

meet the new reguirement.°*® The bankruptcy courts differ on

whether it adds a new element to preference claims.°*® At least

one court has stated that it is a condition precedent, and thus a

new element, which the plaintiff must allege and prove.*® While

other courts have disagreed, they did not decide the issue

because they ruled on other grounds.“

86 Pub. L. No. 116-54 § 3(a).

37 11 U.S.C. § 547(b) (emphasis added).

38 H.R. 116-171, 116th Cong., lst Sess. (2019).

3° See Art Inst., 2022 Bankr. LEXIS 68, at *50 (“Bankruptcy

courts are divided on the question whether this statutory

language adds an element to a preference claim that must be

sufficiently alleged in the complaint and proven at trial.”).

40 ECS Refining, 625 B.R. at 453-58 (holding that reasonable

due diligence is an element of a prima facie case under section

(6b) and is consistent with Congressional intent).

See Art Inst., 2022 Bankr. LEXIS 68, at *50 (dismissing the

complaint on other grounds and declining to resolve whether

reasonable due diligence is an additional element of a prima

facie preference claim); Weinman v. Garton (In re Matt Garton &

13

The Court finds it unnecessary to resolve this issue. Even

if the amended language of section 547(b) added “reasonable due

diligence” as an element of a claim for an avoidable preference,

the Court concludes that the Debtors in this case have adequately

pled factual allegations to satisfy that element.42 The

Complaint alleges that the Debtors conducted an analysis of the

Transfers made to the Defendants during the Avoidance Period and

whether they were protected from avoidance by any applicable

defense.43 The Complaint further alleges that the Debtors sent

Demand Letters to the Defendants inviting an exchange of

information regarding any potential defenses with respect to the

Assocs., LLC), Adv. Pro. No. 21-1215 TBM, 2022 Bankr. LEXIS 633,

at *31-33 (Bankr. D. Colo. Feb. 14, 2022) (holding that the

trustee had conducted reasonable due diligence but declining to

conclude that it is a new element); Faulkner v. Lone Star

Brokering, LLC (In re Reagor-Dykes Motors, LP), Adv. Pro. No. 20-

05028, 2021 Bankr. LEXIS 1643, at *14-15 (Bankr. N.D. Tex. June

18, 2021) (explaining that the court does not need to decide

whether the amendment created an additional element but stressing

that the trustee must exercise a certain level of due diligence

prior to bringing a preference claim); Insys, 2021 WL 5016127, at

*3 (concluding that the trustee had adequately pled due diligence

in his complaint and declining to resolve the issue of whether

reasonable due diligence is a new element); Sommers v. Anixter,

Inc. (In re Trailhead Eng’g LLC), Adv. Pro. No. 20-3094, 2020

Bankr. LEXIS 3547, at *19-20 (Bankr. S.D. Tex. Dec. 21, 2020)

(holding that the court will not determine whether reasonable due

diligence is an element of a preference claim but noting that due

diligence is dependent on the circumstances of the case and what

the complaint alleged).

42 Adv. D.I. 1 ¶¶ 3, 36-37. See Twombly, 550 U.S. at 555.

43 Adv. D.I. 1 ¶¶ 3, 37.

14

Transfers and received no responses.“

While the Complaint failed to allege in detail those

analysis efforts or attach the Demand Letters, the Complaint did

reference them. Thus, the Court may consider them.*? Taking the

allegations of the Complaint as true — as the Court must at this

stage — the Court concludes that the Debtors allege sufficient

facts to state a plausible claim that they met the added

requirement of section 547. The Court concludes that there is no

requirement that the Debtors plead how the affirmative defenses

are not available; the Debtors must simply plead that they

considered them. *®

Accordingly, the Court will deny the Motion to Dismiss Count

rT.

Cc. Fraudulent Transfers

The Defendants also move to dismiss Count II of the Debtors’

Complaint, which alternatively seeks avoidance of the Transfers

aa Id. 36.

a See End of the Road Trust ex rel. Fruehauf Trailer Corp. v.

Terex Corp. (In re Fruehauf Trailer Corp. I), 250 B.R. 168, 183

(D. Del. 2000) (concluding that when considering a Rule 12 (b) (6)

motion to dismiss, a court may consider documents attached to or

incorporated by reference into the complaint); IKB Int’l, S.A. v.

Wilmington Trust Co., 1:17-cv-1351, 2018 WL 2210564, at *2 (D.

Del. May 14, 2018) (when a court considers a motion to dismiss

pursuant to Rule 12(b) (6), the court should generally only

consider allegations in the complaint as well as documents

incorporated by reference or integral to the claim).

ae See Art Inst., 2022 Bankr. LEXIS 68, at *49; Insys, 2021 WL

5016127, at * 3.

15

as constructively fraudulent transfers under the Bankruptcy Code,

if they are not determined to be avoidable as preferences. The

Defendants argue that the Complaint fails to satisfy the Rule 8

pleading standards because the Debtors merely recite the elements

of section 548(a)(1)(B) without asserting actual factual

allegations to support those elements. Furthermore, the

Defendants assert that, because the Complaint alleges that the

Transfers were made by the Debtors to satisfy a pre-existing

obligation under their commercial agreements, reasonably

equivalent value was given in exchange for the Transfers.47

Similarly, the Defendants argue that the Complaint fails to

include a single factual allegation supporting a conclusion that

the Debtors were insolvent at the time of the Transfers or were

rendered insolvent by them. The Defendants note that, unlike

section 547, there is no presumption of insolvency under section

548. Therefore, the Defendants argue that Count II must be

dismissed.

The Debtors counter that they have properly pled a

constructively fraudulent transfer claim in the alternative.

They assert that, at this stage, to properly allege a claim under

section 548(a)(1)(B), they need only identify transfers which

47 Adv. D.I. 1 ¶¶ 33-34, 43, 49. See Burtch v. Huston (In re

USDigital, Inc.), 443 B.R. 22, 40 (Bankr. D. Del. 2011) (holding

that the trustee failed to assert any factual allegations in its

complaint that the debtor did not receive reasonably equivalent

value and dismissed the claim for “threadbare” assertions).

16

they allege were made for less than reasonably equivalent value

at a time when they were insolvent.48 The Debtors argue that

they have met this pleading standard by the allegations in the

Complaint and its Exhibits. Specifically, while the Complaint

does assert that the Transfers were to pay for invoices, the

Debtors note that the Complaint alleges that the Debtor that paid

the Defendant was not indebted to the Defendant.49 As a result,

the Debtors assert that the transferor Debtor did not receive

reasonably equivalent value in return for the payment. Further,

the Debtors argue that they have met the pleading requirements of

Rule 8(a) as a result of the allegations in the Complaint that

they were insolvent at the time of the Transfers.

A party may plead a claim in the alternative under Rule

8(d)(2).50 Therefore, the Debtors are not precluded from

asserting that the Transfers are avoidable either as preferences

or as fraudulent conveyances. To assert a claim for avoidance of

48 See Stanziale v. Brown-Minneapolis Tank ULC, LLC (In re BMT-

NW Acquisition, LLC), 582 B.R. 846, 856-58 (Bankr. D. Del. 2018)

(concluding that the trustee needs to only state facts with

sufficient particularity to provide the defendant fair notice of

the charges against him, but it must do more than simply reciting

statutory elements).

49 Adv. D.I. 1 ¶ 49.

50 “A party may set out 2 or more statements of a claim or

defense alternatively or hypothetically, either in a single count

or defense or in separate ones. If a party makes alternative

statements, the pleading is sufficient if any one of them is

sufficient.” Fed. R. Civ. P. 8(d)(2).

17

a constructively fraudulent transfer under section 548, the

plaintiff must allege that “there was a transfer for less than

reasonably equivalent value at a time when the Debtors were

insolvent.”°*' The pleading party cannot rely on reciting

statutory elements but must allege facts with sufficient

particularity to establish its claim.”

1. Reasonably Equivalent Value

The Bankruptcy Code does not define “reasonably equivalent

value.” The Third Circuit uses a totality of the circumstances

analysis.°? That analysis includes: “(1) whether the transaction

was at arm’s length, (2) whether the transferee acted in good

faith, and (3) the degree of difference between the fair market

value of the assets transferred and the price paid.”°** Under

that test, even where a transaction is at arm’s length and the

transferee acted in good faith, a transfer may nonetheless be

avoidable if the actual value of what was given in exchange was

ot PennySaver, 602 B.R. at 266 (holding that constructively

fraudulent transfer claims are subject to the pleading standard

of Rule 8(a) (2) rather than Rule 9) (citing JLL Consultants, Inc.

v. Gothner (In re AgFeed USA, LLC), 546 B.R. 318, 336 (Bankr. D.

Del. 2016)).

82 See Insys, 2021 WL 5016127, at *4-5.

°8 See Official Comm. of Unsecured Creditors of Midway Games

Inc. v. Nat’l Amusements Inc. (In re Midway Games Inc.), 428 B.R.

303, 323 (Bankr. D. Del. 2010) (citing In re R.M.L., Inc., 92

F.3d 139, 153 (3d Cir. 1996)).

of R.M.L., 92 F.3d at 153.

18

not equivalent to the value of the transfer.55 Further, courts

have held that where the debtor identifies the date, amounts, and

transferee of each transfer and alleges that the transfer was for

less than reasonably equivalent value, it has stated a claim

under section 548.56

Here, the Complaint identifies the date, amounts, and

transferee of each transfer, while alleging the Transfers were

for less than reasonably equivalent value.57 While the

Defendants argue that the Complaint alleges that the Transfers

were in payment of the invoices for goods and services provided

by them, the Third Circuit has held that even a payment in

satisfaction of an invoice for which the debtor was liable may

nonetheless be a fraudulent transfer.58

Here, the Complaint goes further by alleging that the Debtor

who made the Transfer did not receive reasonably equivalent value

in exchange for that Transfer because the transferor Debtor had

not incurred the debt represented by the invoice the Transfer

55 Id. at 154.

56 PennySaver, 602 B.R. at 268-69.

57 Adv. D.I. 1 ¶ 49, Exs. B & C.

58 R.M.L., 92 F.3d at 153 (concluding that payments made by a

debtor under a loan fee agreement were not reasonably equivalent

to the benefits provided by the bank under that agreement because

there was very little possibility that the bank would ever grant

a loan to the debtor).

19

paid.59

Thus, the Court concludes that the Debtors have adequately

pled that they did not receive reasonably equivalent value for

the Transfers.

2. Insolvent

However, the Court concludes that the Complaint does not

plausibly allege the Debtors’ insolvency at the time of the

Transfers. There is no presumption of insolvency under section

548 as there is in section 547. Thus, a plaintiff seeking to

avoid transfers under section 548 must allege facts sufficient to

support a finding that the debtor was insolvent at the time of

the transfers or that the transfers rendered it insolvent.60 In

this case, the Complaint does not allege any facts relative to

the Debtors’ insolvency at the time of the Transfers but merely

recites the language of the statute. This does not satisfy the

59 Adv. D.I. 1 ¶ 49(a).

60 See Lightsway Litig. Servs., LLC v. Yung (In re Tropicana

Entm’t, LLC), 520 B.R. 455, 472 (Bankr. D. Del. 2014) (stating

that to meet the burden of pleading insolvency, “a plaintiff must

plead facts showing that the debtor-corporation has either 1) a

deficiency of assets below liabilities with no reasonable

prospect that the business can be successfully continued in the

fact [sic] thereof, or 2) an inability to meet maturing

obligations as they fall due in the ordinary course of business”)

(citation and internal quotations omitted); Joseph v. Quad

Venture Partners, LP (In re Troll Commc’ns, LLC), 385 B.R. 110,

123-24 (Bankr. D. Del. 2008) (concluding that the plaintiff

adequately pled insolvency by alleging facts that showed the

debtors’ liabilities exceeded their assets during the year before

the bankruptcy).

20

pleading standard of Rule 8(a)(2). As a result, the Court will

grant the Motion to Dismiss Count II of the Complaint.

D. Recovery of Avoided Transfers and Disallowance of

Claims

Count III seeks the recovery of the Transfers avoided under

sections 547 and 548 through section 550. Count IV seeks the

disallowance of any claims of the Defendants pursuant to section

502 of the Bankruptcy Code. The Defendants move to dismiss

Counts III and IV because they argue that the Debtors have not

set forth a plausible claim that the alleged Transfers are

avoidable as preferences under section 547 or fraudulent

transfers under section 548. Therefore, the Defendants contend

that the Debtors have no right to recover the Transfers under

section 550 or to disallow any claims pursuant to section 502.61

The Debtors respond that because the Complaint sufficiently

pleads claims for avoidance of preferences and/or fraudulent

transfers under sections 547 and 548, they have stated a claim

under section 550 and under section 502. As a result, they argue

that the Court should not dismiss Counts III and IV.

61 See Giuliano v. Shorenstein Company LLC (In re Sunset

Aviation, Inc.), 468 B.R. 641, 651-52 (Bankr. D. Del. 2011)

(dismissing a section 550 claim because the plaintiff failed to

state a claim under either section 547 or section 548); Miller v.

McCown De Leeuw & Co., Inc. (In re The Brown Schs.), 368 B.R.

394, 406-07 (Bankr. D. Del. 2007) (dismissing a section 550 claim

because the trustee had waived the right to bring a claim to

avoid the transfer to the initial transferee).

21

Section 550 of the Bankruptcy Code provides that “to the

extent that a transfer is avoided under section 544, 547, [or]

548 . . . of this title, the trustee may recover . . . the

property transferred . . . from the initial transferee of such

transfer or the entity for whose benefit such transfer was

made.”62 Further, section 502 provides for the disallowance of

all claims of a claimant who is liable for an avoidable transfer

under section 547 or 548 unless the claimant has paid the amount

due or returned the property transferred.63 Therefore, to state

a claim for recovery of a transfer under section 550 or for

disallowance of a claim under section 502, a plaintiff must only

state a plausible claim for avoidance of the transfer under

section 547 or 548.64

As the Court concluded above, the Debtors have adequately

pled a preference claim. Therefore, they have stated a claim for

recovery under section 550 and a claim for disallowance of the

Defendants’ claims under section 502(d) as well. As a result,

62 11 U.S.C. § 550. See, e.g., FBI Wind Down, Inc. v. Careers

USA, Inc. (In re FBI Wind Down, Inc.), 614 B.R. 460, 502 (Bankr.

D. Del. 2020).

63 “[T]he court shall disallow any claim of any entity from

which property is recoverable under section . . . 550 . . . of

this title or that is a transferee of a transfer avoidable under

section . . . 547 [or] 548 of this title, unless such entity or

transferee has paid the amount, or turned over any property, for

which such entity or transferee is liable . . . .” 11 U.S.C. §

502(d).

64 See Sunset Aviation, 468 B.R. at 651-52.

22

the Court will deny the Motion to Dismiss Counts III and IV.

IV. CONCLUSION

For the reasons set forth above, the Motion to Dismiss will

be granted with respect to Count II. The Motion to Dismiss will

be denied with respect to Counts I, III, and IV.

An appropriate Order follows.

Dated: June 13, 2022 BY THE COURT:

Mary F. Walrath

United States Bankruptcy Judge

23