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Court Rules Mere Conduit Defense Not Suitable for a Motion to Dismiss
At the motion to dismiss stage, courts usually won't consider affirmative defenses. This issue arose recently in a preferential transfer case, where a defendant sought to dismiss a complaint by arguing it was a mere conduit, not an initial transferee. But the court ruled against the defendant, explaining why it would not adjudicate a mere conduit defense on a motion to dismiss. Official Comm. of Unsecured Creditors of Pack Liquidating, LLC v. Kepler Grp., LLC, Adv. Proc. No. 23-50536 (In re Pack Liquidating, LLC), Case No. 22-10797, 2024 Bankr. LEXIS 2444 (Bankr. D. Del. Oct. 4, 2024).
Before their bankruptcy filings, the debtors sold consumer products online. The defendant in the preference action was an e-marketing services provider and an alleged agent of the debtors. In the debtors' Chapter 11 cases, the unsecured creditors' committee (Committee) sued the defendant to recover $389,000 transferred from the debtors. The complaint alleged that the defendant was the initial transferee of the funds. The complaint asserted a preferential transfer claim under Bankruptcy Code section 547 and a constructive fraudulent transfer claim under Bankruptcy Code section 548. The complaint also sought recovery from the defendant under Bankruptcy Code section 550.
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