The January 5, 2011 Delaware Bankruptcy Court decision in Burtch v. Huston, Adv. No. 09-50469 (In re USDigital, Inc. Del. Case No. 09-10374) provides welcome relief for avoidable transfer defendants facing claims under Bankruptcy Code Sections 544, 547 and 548. Judge Christopher S. Sontchi applied the recent Supreme Court decision in Ashcroft v. Iqbal and dismissed counts brought under each of those sections, holding that: “The Trustee has failed to set out sufficient factual matter to show that the claim is facially plausible. Conclusory or bare-bones allegations no longer suffice to survive a motion to dismiss.”

In dismissing the Section 547 bankruptcy preference count, Judge Sontchi found the “Trustee has failed to assert a facially plausible claim.” The complaint was found to be lacking of any factual allegation to support a conclusion that the transfers by the debtor occurred on account of an antecedent debt.

With respect to the fraudulent transfer claims made under Sections 544 and 548, the deficiency in pleading was as to the failure of any factual allegations to support a claim that the debtor did not receive “reasonably equivalent value” for the transfers to the defendant.

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