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March 2013

Multi-Office Team Wins Dismissal of Fraudulent Transfer Claims

On February 25, Gordon & Rees New Jersey partner James Valvano and Denver associate Ross Hoogerhyde and senior counsel  Megan Adeyemo negotiated an installment settlement of $45,000 where a Chapter 7 trustee sought to recover more than $1.8 million of alleged fraudulent and preferential transfers from Gordon & Rees’ client Data Processing Service (DPS).

Prior to bankruptcy, the debtor operated a third-party payroll processing business, which processed payroll and tax payments for customers. The debtor did not have a federal funds line required to initiate automated clearing house (ACH) payments, so it entered into agreements with DPS – which has a federal funds line – to process its ACH transfers for a small service fee.

The highly regulated nature of the ACH industry required the debtor to transfer its customers’ funds to DPS’s accounts, which DPS then electronically transferred to the appropriate employees and taxing authorities. Because of this, the trustee incorrectly believed the debtor transferred in excess of $1.8 million of its own funds to DPS in the two years prior to its bankruptcy filing and sought to recover the funds from DPS.

James Valvano and DPS met with the trustee, his attorneys and his accountants for two days to educate them regarding the ACH industry. Following the meetings, the trustee conceded that his fraudulent transfer claims were improper and dismissed them. Using this momentum, Gordon & Rees then negotiated a favorable installment payment settlement of the trustee’s only remaining preferential transfer claim for less than 33%.

Megan M. Adeyemo