March 1, 2019, Delaware– Recently, in the Millennium Lab Holdings II, LLC’s bankruptcy case, the Honorable Judge Selber Silverstein denied the Defendant Banks’ motion to dismiss the Millennium trustee’s complaint to clawback over $35.3 million as actual and constructive fraudulent conveyances under Sec. 548(a)(1)(A) and 548(a)(1)(B) of the Bankruptcy Code.
In its motion to dismiss, the defendant alleged that the Defendant did not plead the confluences of badges of fraud. Further, the defendant banks claimed that the plaintiff did not sufficiently allege reasonable equivalent value because the complaint did not contain the allegations that the fee was not market value for the services provided. The Defendant also asserted that the plaintiff focused on the wrong transaction and that the use of the term loan proceeds to pay the dividend cannot form the basis for the avoidance.
The Court held that while the plaintiff did not sufficiently allege a confluence of badges of fraud, taking all facts in the complaint as true, the plaintiff adequately pleaded the intent to delay or defraud creditors in the incurrence of the obligation to pay the fee. Thus, the Court held that the allegations in the complaint were sufficiently detailed for pleading purposes and the trustee adequately plead lack of reasonably equivalent value. Therefore, the Court denied the Defendants motion to dismiss and permitted the Millennium trustee to pursue its clawback action against the defendants.
By way of background – The Chapter 11 trustee for the estate of Millennium Lab Holdings II LLC, Marc Kirschner had sued JPMorgan Chase and three other banks for over $35.3 million in fees they received for arranging a $1.8 billion deal. This deal allegedly led to the collapse of Millennium Health LLC. The named defendants in the fraudulent suit included – JPMorgan Chase Bank NA, Citibank NA, BMO Harris Bank NA, and SunTrust Bank. JPMorgan received about $19.4 million in fees for its work; Citibank, approximately $12.4 million; and BMO and SunTrust, nearly $1.77 million each. In its clawback action, the trustee sought to recover these fees that were paid to the banks in 2014, about eight months before the drug testing business began facing heightened US Justice Department scrutiny and about 18 months before it filed for bankruptcy.