ASK LLP SECURES KEY WIN FOR ITS CLIENTS
May 23, 2025
motion to dismiss defeated
ASK LLP successfully secured a remarkable victory for its client, the Plan Administrator of the Voyager Wind-Down Debtors, by prevailing on the motion to dismiss a preference action filed by a defendant in the recent decision by Judge Wiles (Bankr. S.D.N.Y.). In the early stages of the bankruptcy, the debtors had proposed a sale of Voyager to cryptocurrency exchange FTX. The debtors proposed selling FTX the avoidance actions of any Voyager customer transferring over to the FTX platform. In addition asserting that the sale of potential avoidance actions was necessary to preserve the sale value to FTX, the debtors also stated that any avoidance actions would be protected by the ordinary course of business defense. The sale to FTX ultimately did not close, based upon the well-publicized demise of FTX. The versions of the disclosure statement and plan ultimately voted upon by creditors retained the right of the Wind-Down Debtor to pursue any causes of action not sold, and did not have any language about whether the ordinary course of business would bar avoidance actions. After the effective date of the plan, the Plan Administrator pursued preference actions against certain account holders, including defendant M. Fuller.
Defendant's Motion to Dismiss
In a preference action, a defendant may present certain affirmative defenses to defeat a plaintiff’s preference claims. One of those defenses, the ordinary course of business defense, provides that transfers by a debtor to defendant are not avoidable if the transfers were made in the same manner as historical transfers between the parties. Courts use a highly fact-intensive analysis to determine whether the defense applies, and examine things such as the amount of the transfer, the timing of the transfer, and whether collection pressure was applied to receive the payment.
In the motion to dismiss, Mr. Fuller argued that the debtor’s prior statements about the ordinary course of business constituted judicial admissions by the debtor which bound the Plan Administrator. He also asserted that the doctrine of judicial estoppel prevented the Plan Administrator from taking a position contrary to the debtors’ initial position. If the court were to accept that the debtors’ statements were admissions, it would effectively bar the avoidance action from moving forward.
Court Rejects Defendant's Argument
The judge denied the motion to dismiss on both bases. As to the doctrine of judicial admission, the court determined that, rather than specific statements of fact, the statements by the debtors were conclusory remarks about the application of a legal standard. Further, even if they had been statements of fact, those statements were superseded in later disclosure statement versions. To the extent that a pleading containing an admission has been superseded, the statement at issue may no longer be used as an admission.
The court also determined that judicial estoppel did not apply, as the court never relied upon the statements on the ordinary course of business. The court noted that while it did conditionally approve the sale motion and earlier disclosure statement, the approval was for sufficiency of the debtors’ explanations of the proposed sale and plan, and not an endorsement or adoption of any of the debtors’ statements or justifications on the same.
Further, the judge emphasized that “[i]t is absurd to ask me to negate the clear terms of the confirmed plan, and to undermine the clear terms of the final 2023 disclosure statement that creditors relied on in casing votes, all in order to protect the alleged ‘integrity’ of an earlier disclosure statement that related to a different and ultimately moot transaction.” Thus, the final plan made clear that the preference causes of action were retained as assets of the Wind-Down Debtor. Importantly, the court allowed the avoidance action to continue for the benefit of the creditors of the debtor.
