Paid today, sued tomorrow

Bankrupt client’s goodwill seen as preference

As a motor carrier, we provide substantial service to a major printer with a logistics company that went bankrupt. We were awarded critical vendor status and were paid our then-outstanding receivables. Although the bankrupt has not reneged on its promise to pay the balance due, we now have been sued for a “preference” action, and the litigation trustee seeks from us all freight charges we were paid within 90 days of bankruptcy. We had no prior notice of the bankrupt’s filing and were paid regularly up until the time it filed. What are we to do?

info@transportationlaw.net

If misery loves company, then there is quite a party going on. It appears this litigation trustee has sued every carrier for every dollar the bankrupt paid within 90 days of its filing. A sum total of 435 carriers, brokers, freight forwarders and commercial factors have been sued for more than $63 million.

Motor carriers always are easy targets for lawyers.

A preference action is a wicked surprise for a motor carrier creditor, one that I previously have discussed in this column. To a layman, a preference is demonstrable, specific, favorable treatment of an unsecured creditor that results in the creditor getting more than it would have if the debtor had treated all unsecured creditors equitably. One would think that the court’s interest in a preference action would be to ensure that all unsecured creditors were treated fairly and that, in anticipation of bankruptcy, nobody got more than its fair share.

That may be the purpose behind the Bankruptcy Code, but in practice, something far different occurs. Under 11 U.S.C. 547, the lawyers acting on behalf of the bankrupt or the Unsecured Creditors Committee merely can sue all unsecured creditors for every payment they received within 90 days of bankruptcy and shift the burden of proof to the creditor to show that the payment was “received in the ordinary course” or otherwise subject to some statutory exception.