Insolvency Services Group, Inc. v. Samsung Electronics America, Inc.

Background

Insolvency Services Group (ISG) is the assignee for the benefit of creditors of CVE Technology Group, Inc., an insolvent corporation that owed its creditors more than $30 million. The assignment created an estate that ISG administers. Between July 3, 2019, and October 1, 2019, CVE transferred $1,483,639.91 to Samsung to pay debts CVE owed to Samsung.

ISG sued to recover those payments for distribution among CVE’s unsecured creditors. Its amended complaint asserted two claims: recovery of preferential transfers under California Code of Civil Procedure § 1800 and money had and received/unjust enrichment.

Motion and Standard

Samsung’s premotion letter was treated as a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint contains enough factual allegations to state a legally plausible claim. At this stage, the court accepts well-pleaded factual allegations as true and does not weigh competing evidence.

Samsung argued that the Section 1800 claim was preempted, or displaced, by the federal Bankruptcy Code. Samsung also argued that the payments were not made for or on account of an earlier debt and that it was not unjustly enriched. ISG opposed dismissal.

Court’s Analysis

The court considered Samsung’s preemption defense because it appeared on the face of the complaint. It rejected the argument that Section 1800 was preempted by the Bankruptcy Code. Judge Marrero noted that the court was not bound by the cited Ninth Circuit decision, that other courts had criticized that decision, and that California courts had held that Section 1800 was not preempted. The court concluded that state laws allowing recovery of voluntary or preferential transfers have historically operated alongside federal bankruptcy law. It also noted that Section 1800 is nearly identical to the Bankruptcy Code’s corresponding provision and that the Code allows state-law avoidance rights to be used in federal proceedings.

The court also held that the Section 1800 claim was sufficiently pleaded. The complaint plausibly alleged payments made to Samsung on account of an earlier debt, while CVE was insolvent and within 90 days of the assignment, and alleged that Samsung received more than another creditor in the same class. The court noted that Samsung had evidence suggesting the payments might not have involved earlier debts, but did not consider or credit that evidence on a motion to dismiss.

The court likewise declined to dismiss the money-had-and-received claim. The parties disputed whether the transfers paid for goods shipped to CVE or instead to Phoenix Technologies, LLC. The court found it plausible that Samsung had been paid for goods not shipped to, or for the benefit of, CVE. It cautioned that the claim might not survive if evidence showed that Samsung supplied goods of equivalent value, but found the pleadings sufficient at that point.

Disposition

The court denied Samsung’s motion to dismiss. It also directed ISG to file a second amended complaint, including a new claim under the New York Debtor and Creditor Law, by March 26, 2021. Samsung was directed to answer by April 23, 2021. The opinion states that the parties were to file later papers according to that schedule.