FBI Wind Down, Inc. v. Careers USA, Inc. (In re FBI Wind Down, Inc.)

• Decision Date: 17 April 2020
• Docket Number: Adv. Pro. No.: 15-51324 (CSS),Case No. 13-12329 (CSS)
• Citation: 614 B.R. 460
• Parties: IN RE FBI WIND DOWN, INC. (f/k/a Furniture Brands International, Inc.), et al., Debtors. FBI Wind Down, Inc. Liquidating Trust, by and through Alan Halperin, as Liquidating Trustee, Plaintiff, v. Careers USA, Inc. a/k/a CareersUSA, Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

614 B.R. 460

IN RE FBI WIND DOWN, INC. (f/k/a Furniture Brands International, Inc.), et al., Debtors.

FBI Wind Down, Inc. Liquidating Trust, by and through Alan Halperin, as Liquidating Trustee, Plaintiff,

v.Careers USA, Inc. a/k/a CareersUSA, Defendant.

Case No. 13-12329 (CSS)

Adv. Pro. No.: 15-51324 (CSS)

United States Bankruptcy Court, D. Delaware.

Signed April 17, 2020

[614 B.R. 468]

CAREERS USA, Inc., Jennifer O. Johnson, Careers USA, Inc., General Counsel, 6501 Congress Avenue, Suite 200, Boca Raton, FL 33487, Timothy J. Weiler, 716 North Tatnall Street, Wilmington, DE 19801, Counsel for Defendants, Careers USA, Inc.

BLANK ROME LLP, Michael B. Schaedle, Victoria Guilfoyle, Bryan J. Hall, 1201 Market Street, Suite 800, Wilmington, DE 19801, HAHN & HESSEN LLP, Mark S. Indelicato, Jeffrey Zawadzki, 499 Madison Avenue, New York, NY 10022, Co-Counsel for the Liquidating Trust

OPINION

Sontchi, C.J.

INTRODUCTION¹

Before the Court are cross-motions for summary judgment.² At issue is whether twenty-four transfers Furniture Brands International, Inc. and Thomasville Furniture Industries, Inc.³ made to Careers USA, Inc. (collectively, the "Transfers" or the "Disputed Transfers") are preferential or constructively fraudulent under Bankruptcy Code Sections 547 and 548, respectively.⁴

In connection with the Disputed Transfers, Defendant seeks to deny Plaintiff's avoidance action (i) for failure to satisfy the required elements, and (ii) on account of the ordinary course of business, contemporaneous exchange for new value, and subsequent new value defenses. Additionally,

[614 B.R. 469]

Defendant asserts the mere conduit defense to deny Plaintiff's recovery of the Disputed Transfers.

Plaintiff seeks (i) to avoid the Disputed Transfers under Sections 547 and 548, (ii) to deny all defenses, (iii) to recover the value of the Disputed Transfers under Section 550,⁵ (iv) to disallow and to object to Defendant's Claims, pursuant to Section 502(d) and Plan Sections 9.5 and 9.7, and (iv) to offset the Disputed Transfers against Defendant's Claims under Plan Section 8.9.

For the reasons set forth below, the Court will deny Defendant's Motion in its entirety and grant, in part, and deny, in part, Plaintiff's Cross-Motion.

Specifically, the Court holds the following on Defendant's Motion:

1. Summary judgment is denied as to whether the Transfers were preferential under Section 547. Factual issues remain solely as to whether August 21, 2013, August 23, 2013, and August 30, 2013 Transfers were for or on account of antecedent debt.

2. Summary judgment is denied as to the lack of fraudulent transfers under Section 548 as Defendant has not met its evidentiary burden.

3. Summary judgment is denied regarding the ordinary course of business defense as Defendant has not met its evidentiary burden and a significant number of factual issues remain for trial.

4. Summary judgement is denied regarding the contemporaneous exchange for new value defense. Defendant has failed to meet its evidentiary burden.

5. Summary judgment is denied regarding the subsequent new value defense. Defendant did not meet its evidentiary burden with respect to separation fees. There is a genuine dispute of material fact regarding the allocation of $10,656.97 of new value between the Transferring Debtors.

6. Summary judgment is denied regarding the mere conduit defense as CareersUSA established a reimbursement payment model with the Transferring Debtors in which Defendant exercised dominion and control over the Transfers.

The Court also holds the following on Plaintiff's Cross-Motion:

1. Summary judgment is granted, in part, and denied, in part, as to whether Transfers were preferential under Section 547. Summary judgment is granted for all Transfers excluding August 21, 2013, August 23, 2013, and August 30,2013, for which summary judgment is denied. Factual issues remain solely with regard to whether these Transfers were made for or on account of an antecedent debt.

2. Partial summary judgment on Plaintiff's Section 548 fraudulent transfer claim is denied. Plaintiff requested partial summary judgment on the reasonably equivalent value element of fraudulent transfer if the Court found that any of the Disputed Transfers was not made on account of an antecedent debt under

[614 B.R. 470]

Section 547(b). The need for the Court to consider this issue is obviated by the Court's finding that all of the Disputed Transfers have been on account of antecedent debt or have implicated factual questions regarding whether the Transfers were on account of an antecedent debt.

3. Summary judgment is granted, in part, and denied, in part, regarding the inapplicability of defenses.

a. Summary judgment is denied with respect to the ordinary course of business defense as there are unresolved questions of fact.

b. Summary judgement is granted, in part, and denied, in part regarding the contemporaneous exchange for new value defense. Summary judgement is granted with respect to all Disputed Transfers prior to August 15, 2013, as it is clear that these transfers were not intended to be, nor were they, in fact, contemporaneous exchanges. Summary judgment is denied with respect to all Transfers after August 15, 2013, as there are unresolved questions of fact.

c. Summary judgment is denied regarding the subsequent new value defense. With respect to staffing services there is a genuine dispute of material fact regarding how $10,656.97 of new value is allocated between the Transferring Debtors; and it is unclear if Defendant will be able to prove its case with respect to separation fees.

4. Summary judgment is denied as to recovery under Section 550 since recovery is inappropriate when Section 547(b) and Section 548 avoidance actions have not been fully adjudicated.

5. Summary judgment is denied regarding disallowance, objection, or setoff since relief is inappropriate when the Section 547(b) and Section 548 avoidance actions have not been fully adjudicated.

JURISDICTION & VENUE

This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 11 U.S.C. § 157(b)(2)(A) and (O). Venue is proper before the United States Bankruptcy Court for the District of Delaware under 28 U.S.C. §§ 1408 and 1409. The Court has the judicial authority to enter a final order.

BACKGROUND

I. Procedural History

On September 9, 2013 (the "Petition Date"), FBI Wind Down, Inc. (f/k/a Furniture Brands International, Inc.) and each of its eighteen affiliates (the "Debtors") filed voluntary petitions with the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court" or the "Bankruptcy Court") for relief under Chapter 11 of the Bankruptcy Code.⁶ On November 25, 2013, CareersUSA filed a proof of claim (number 3045) against the Debtors, which asserts an unsecured, non-priority claim in the

[614 B.R. 471]

amount of $10,656.97 (the "Claim"). On July 9, 2014 the Debtors filed Second Amended Joint Plan of Liquidation of FBI Wind Down, Inc., and Its Subsidiaries Under Chapter 11 of the Bankruptcy Code (the "Plan").⁷ On July 14, 2014, the Delaware Bankruptcy Court entered Order Confirming Debtors' Second Amended Joint Plan of Liquidation of FBI Wind Down, Inc. and Its Subsidiaries Under Chapter 11 of the Bankruptcy Code (the "Confirmation Order"), which entered effect on August 1, 2014 (the "Effective Date").⁸ Pursuant to Plan Section 7.3, the Creditors' Committee, in consultation with the Debtors, appointed Alan D. Halperin Liquidating Trustee of the FBI Wind Down, Inc. Liquidating Trust (the "Trustee"). His duties include pursuing any existing or potential Causes of Action (as defined in the Plan) in connection with 11 U.S.C. §§ 547 - 50.⁹

In April 2015, the Trustee sent a written correspondence to Defendant demanding the return of transfers made by the FBI and Thomasville Debtors on or within 90 days before the Petition Date (the "Preference Period") to the Liquidating Trustee.¹⁰ The Defendant did not comply with this request. Consequently, on September 8, 2015, the Trustee filed the Complaint to Avoid and Recover Preferential Transfers and Object to Claims (the "Complaint").¹¹ On December 20, 2016, the CareersUSA filed Defendant's Answer and Affirmative Defenses .¹² On January 31, 2017, the Bankruptcy Court entered an order assigning the adversary proceeding to Mediation, which did not resolve the dispute.¹³

On May 17, 2017, the Court entered a Scheduling Order , which required all dispositive motions to be filed and served by July 24, 2018 and for any deadline contained in the Scheduling Order to be extended only by the Court and only upon written motion for good cause shown.¹⁴ On July 25, 2018, after the Parties filed a July 24th stipulation, the Court entered Order Approving Stipulation Extending Time to File Dispositive Motions , which extended the deadline to file dispositive motions from July 24, 2018 to July 30, 2018.¹⁵

On July 30, 2018, the CareersUSA filed Defendant's Motion for Summary Judgment and Incorporated Memorandum of Law (the "Motion").¹⁶ On August 13, 2018, the Trustee filed Plaintiff's Cross-Motion for Summary Judgment Pursuant to Fed. R. Civ. P. 56 (the "Cross-Motion").¹⁷ On July 21, 2018, the Parties agreed to file on the subsequent day a stipulation that extended the deadline for (i) Defendant to file a reply brief in support of its summary

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judgment motion and answering brief in response to Plaintiff's Cross-Motion to September 4, 2018, and (ii) Plaintiff to file a reply brief in support of the Cross-Motion to September 11, 2018.¹⁸ The Court entered an order approving this stipulation (the "Briefing Order") on August 27, 2018.

On September 4, 2018 CareersUSA filed Defendant's Reply Brief in Support of Defendant's Motion for Summary Judgment and Answering Brief in Response to Plaintiff's Cross-Motion for Summary Judgment .¹⁹ In response, on September 11, 2018, the Trustee filed Reply Brief in Support of Plaintiff's Cross-Motion for...