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Home / Case News / CRS Trustee Wins $4.5M Clawback Against Wells Fargo Bank

CRS Trustee Wins $4.5M Clawback Against Wells Fargo Bank

March 3, 2019, New York – Last week, in a fraudulent conveyance action, the bankruptcy court for the Southern District of New York allowed Corporate Resource Services (CRS) Trustee to recover $4.1 million on fees the debtor CRS paid to a defendant bank as constructively fraudulent transfers.

The Debtor comprised of the several entities – TS Employment, Inc., Corporate Resource Services, Inc., Accountabilities, Inc., Corporate Resource Development Inc., Diamond Staffing Services, Inc., Insurance Overload Services, Inc., Integrated Consulting Group, Inc., The CRS Group, Inc. and TS Staffing Services, Inc. (“CRS Debtors”)

CRS was a publicly-traded holding company for various temporary staffing businesses.  TSE was a professional employer organization for workers employed by those businesses. Robert Cassera owned the majority of CRS’s stock and 100% of TSE’s stock. Cassera also held 100% of Tri-State Employment Service, Inc. (TSE) Defendant Wells Fargo, N.A. provided receivables financing to certain of the CRS Debtors, and cash management services to TSE, Tri-State, and Tri-State subsidiaries.

The Trustee filed a complaint against the Defendant-bank, which contained twenty-three counts, to recover the alleged transfers based on a variety of legal theories under the Bankruptcy Code, including constructive fraudulent transfer, preferential transfer, and violation of the automatic stay. During the trial, the focus of the parties’ evidence and arguments was on whether the CRS Debtors received reasonably equivalent value from the subject transfers.

To determine whether the CRS Debtors received reasonably equivalent value, the Court assessed the fee payments and the underlying obligations in their entirety and considered the net effect of these transactions on the CRS Debtors. The Court found that the Debtors did not receive value from excessive and punitive fees as the bank imposed these fees while Debtors experienced a shortage of liquidity as a result of business expansion. The Court also allowed the Trustee to recover the unrelated legal charges.

The Trustee also sought to recover additionally $2,572,570.26 in the payroll overdraft as a fraudulent transfer under sections 544 and 548 of the Bankruptcy Code and NYDCL §§ 273-275, 278, and 279. However, the Court held that the overdraft could not be recovered as a constructively fraudulent transfer because it found that one of the Debtors received indirect benefit reasonably equivalent to the payment of the payroll overdraft. The Court added that the payroll overdraft resulted from the presentment of two weeks of payroll checks for professional employer organization’s employees who were exclusively servicing the Debtor’s customers.

The case is  Feltman v. Wells Fargo Bank, N.A. (In re TS Emp’t, Inc.) in the United States Bankruptcy Court for the District of New York.