Plaintiff’s Answering Brief in Opposition to Defendant’s Motion to Dismiss filed in the Evergreen Solar, Inc. Bankruptcy – U.S. Bank National Association, v. Massachusetts Development Finance Agency (In re Evergreen Solar, Inc.), AP No. 13-50905 Dkt.No. 7 (Bankr. D. Del May 8, 2013 )  before U.S. Bankruptcy Judge Mary F. Walrath filed by  ASK LLP (St. Paul, MN) Joseph L. Steinfeld and Kendra K. Bader; Gellert Scali Busenkell & Brown, LLC (Wilmington, DE)  Ronald S. Gellert .  –  Opposition to Motion to Dismiss $1 million preference claim on grounds that Debtor no longer owned or held the preference claim at the time of entering into a release of claims with the Defendant.

The timeline behind this dispute is straightforward. 

• On or about February 8, 2012, the Debtor executed a Stipulation of Settlement (the “Indenture Settlement”) with U.S. Bank National Association, as Indenture Trustee (the “Plaintiff”);
• Pursuant to the Indenture Settlement, the Debtor transferred to Plaintiff all preference claims in the amount of $60,000.00 or greater;
• The Indenture Settlement was approved by Court Order entered on March 6, 2012;
• On March 11, 2012, the Debtor and Defendant executed a Settlement Agreement (the “MassDev Settlement”) containing, in part, a mutual release by and between the Debtor and Massachusetts Development Finance Agency (the “Defendant”) of certain claims held against each other;
• On March 14, 2013, Plaintiff filed the Complaint, seeking avoidance and recovery of seven preference period payments aggregating  $1,057,404.01;
• On April 10, 2013, Defendant filed its Motion to dismiss the Complaint pursuant to Rules 12(b)(6) on grounds that the claims alleged in the Complaint were “clearly” released in the MassDev Settlement approved by court order on March 23, 2012.

Plaintiff’s response to the Defendant’s motion to dismiss is that the Debtor could not release what it did not own.   The following is an excerpt from the response:

The release provided for in paragraph number 2(a) of the MassDev Settlement is expressly limited to those claims which the Debtor “is the sole owner and holder . . . .” Ex. C, ¶ 4; see also Sale Order, ¶ 21 (limiting application of the Order “only to Hackman Acquired Assets owned by the Debtor”)(emphasis added).² However, the preference claims asserted against Defendant in this Adversary Proceeding were transferred with the other Non-Released Preference Actions from the Debtor to Plaintiff pursuant to the Evergreen Stipulation executed on February 8, 2012. See Ex. A. Accordingly, the Debtor was no longer “the sole longer and holder” of such preference claims at the time of entering into the MassDev Settlement more than a month later. Construing all facts and inferences in the light most favorable to Plaintiff, the MassDev Settlement does not contemplate a release of the preference claims assigned to Plaintiff, a non-signatory of the MassDev Settlement.

There is certainly more to this story … but scenarios like this give lawyers sleepless nights.