Marty Shoes Holdings, Inc. Bankruptcy: Miller v. Footwear Unlimited Inc. – Defendant’s Brief in Support of Its Motion to Dismiss Complaint

Date: July 19, 2011 Author: burbageweddell

07/15/2011 – Defendant’s Brief in Support of Its Motion to Dismiss Complaint filed in the Marty Shoes Holdings, Inc. Adversary Proceedings by Footwear Unlimited Inc. before Judge Carey in the District of Delaware.

Chapter 7 Trustee George L. Miller (the “Trustee”), in each of the 98 Marty Shoes bankruptcy preference complaints, made the gutsy admission : “The Trustee finds himself in an extraordinary situation as he has been deprived of the Debtors’ books and records, though he has taken the necessary steps to locate these records.”  Despite this invitation to file 12(b)(6) motions to dismiss and a prior warning given the Trustee by Chief U.S. Bankruptcy Judge Kevin J. Carey, this is the first motion to dismiss he is facing.  Registered users click here to see a copy of this brief. Even more surprising, he has been able to settle 10 preference actions, including several above the 50% mark.

The first, practical question presented by this motion to dismiss is whether, given his pre-complaint lack of books and records, the Trustee will be able to amend the complaint to remedy the obvious pleading deficiencies.  If not, the next question is whether Chief U.S. Bankruptcy Judge Kevin J. Carey will soften his stance taken in Miller v. Alston & Bird, LLP, (In re Homebanc Mortgage Corporation), Adv. Proc. No. 10-50621 (Bankr. Del. October 29, 2010). Indeed, the Defendant stresses the Trustee ‘s prior experience with Judge Carey in the following paragraphs of Defendant’s brief:

B. The Complaint Should Be Dismissed With Prejudice

Defendant acknowledges the liberal standards generally governing leave to file amended complaints when a plaintiff fails to plead a cause of action. Under the present circumstances, however, Defendant maintains that the Trustee should be denied the right to file an amended complaint.

“A denial of leave to amend is justified if there is undue delay, bad faith, dilatory motive, prejudice, or futility.” Valley Media, 288 B.R. at 193. The Trustee has recently had at least two complaints for the recovery of allegedly preferential transfers dismissed for failing to satisfy the Valley Media pleading requirements. See Miller, 2011 WL 2433090, *4; Miller v. Alston & Bird, LLP, Adv. No. 10-50621 KJC, Bankr D. Del., Dkt No. 24.

Moreover, in no uncertain terms, this Court previously and explicitly warned the Trustee that if he filed a deficient, form complaint, he would not be provided with leave to amend. See Order Granting Motion to Dismiss With Leave to Amend (the “Alston Order to Dismiss”) entered on October 29, 2010 in Miller v. Alston & Bird, LLP, Adv. No. 10-50621 KJC, at Docket No. 24 (“I have granted the trustee’s request for leave to amend, but with the caution that, with respect to deficient form preference complaints filed after today, plaintiffs should expect no such accommodation.”). A true and accurate copy of the Alston Order to Dismiss is attached hereto as Exhibit A and incorporated by reference herein.

Defendant maintains that Trustee’s Complaint in the instant action reflects a clear disregard for the foregoing admonishment and, as such, should be dismissed with prejudice.

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