D.C. Bankruptcy Court Finds Pillowtex Analysis Not Required for Retaining Section 327(e) Professional

By Evan T. Miller, Esq.

In a helpful reminder for professionals regarding the nuances of 11 U.S.C. § 327 and its intersection with preference law, the Bankruptcy Court for the District of Columbia recently overruled a creditor’s objection to a debtor’s application (the “Application”) to retain special counsel under section 327(e).  The objection, filed in In re Core Communications, Inc., Case No. 17-00258, was based in part upon the fact that the debtor and proposed counsel (the “Professional”) had not provided a “Pillowtex Analysis” in support of the Application – i.e., an analysis disclosing any debtor payments made to the Professional in the 90 days prior to the Petition Date (the “Preference Period”).  The creditor maintained this assertion, notwithstanding the fact that the Professional had waived any claims it had against the estate.

The Court rejected the creditor’s argument.  Judge S. Martin Teel began with a recitation of professional retention guidelines and jurisprudence, noting that “[a] court authorizing the retention of professionals under 11 U.S.C. § 327(a) must determine whether the professional is disinterested, including whether the professional is the recipient of a preferential transfer.” In re Core Commc’ns, Inc., 2017 WL 5151674, at *3 (Bankr. D.D.C. Nov. 5, 2017) (citing In re Pillowtex, Inc., 304 F.3d 246 (3d Cir. 2002)).  While the Application did not disclose whether the debtor made any payments to the Professional during the Preference Period, the Court found the Application was made pursuant to 11 U.S.C. § 327(e), and as such, “adverse interests that would disqualify an attorney from being retained under § 327(a) are distinguishable from adverse interests that would disqualify an attorney from being retained under § 327(e).” Id. (quoting Giuliano v. Young (In re RIH Acquisitions NJ, LLC), 551 B.R. 563, 569 (Bankr. D. N.J. 2016).  Under section 327(e), “the attorney being retained only needs to be disinterested with respect to the matter on which such attorney is to be employed.” Id. (internal quotations omitted).  As a result, there was no need to “disclose the existence of any preferences incident to the Application.Id.

A copy of the Opinion can be found here.





Defining Ordinary: Judge Walrath (Bankr. D. Del.) Surveys Ordinary Course of Business Methodologies in In re Powerwave Technologies

By Evan T. Miller, Esq.

Determining the proper bookends when establishing a Historical Period for an ordinary course of business defense (“OCOB”) can be highly contentious in preference litigation.  The same can be said for determining which methodology is most appropriate for analyzing preference period transfers and even when to apply a given defense. Continue reading

Are Customer Funds Held by Debtor Logistics Company Property of the Debtor’s Estate? Chief Judge Ferguson (D.N.J.) Addresses Multiple Avoidance Issues in TransVantage Solutions

By Evan T. Miller, Esq.

Bankruptcies involving logistics management companies inherently involve unique issues with respect to avoidance actions, be it the tripartite nature of the transactions (customer/debtor/carrier), the contentious dispute over what constitutes property of the estate, and so on. Continue reading

Can an Administrative Claim Be Used to Offset Preference Liability? Judge Carey (D. Del.) Addresses an Issue of First Impression in Quantum Foods

By Evan T. Miller, Esq.

Addressing an issue of first impression, Judge Kevin Carey (Bankr. D. Del.) ruled that a preference action defendant could use their allowed administrative expense claim as a setoff against any preferential transfer exposure. Continue reading

Are Invoice Terms Alone Sufficient to Establish Contemporaneous Exchange for New Value or Ordinary Course of Business Defenses? In Cousins Fish Market, Second Circuit Offers Guidance

By Evan T. Miller, Esq.

The United States Court of Appeals for the Second Circuit (the “Second Circuit”) recently affirmed the judgment of the United States District Court for the Northern District of New York (the “District Court”) in John Nagle Co. v. McCarthy (In re The Cousins Fish Market, Inc.), 2016 WL 3854277 (2d Cir. July 12, 2016), which in turn had affirmed a decision of the district’s bankruptcy court (together with the District Court, the “Lower Courts”), finding the Lower Courts properly ruled that the defendant (“Defendant”) had not established its affirmative section 547(c) defenses. Continue reading

Does a Recent Change of Ownership Impact a Preference Defendant’s Ordinary Course of Business Defense? Judge Davis (Bankr. W.D. Tex.) Provides an Answer in In re Sterry Industries, Inc.

By Evan T. Miller, Esq.

The United States Bankruptcy Court for the Western District of Texas (the “Court”) recently addressed an interesting question – can a preference defendant establish an ordinary course of business defense to a trustee’s suit even though a pre-preference period change in defendant’s ownership also changed the course of its business with the debtor? Continue reading