06/23/2011 – Defendant’s Memorandum of Law in Support of Motion to Dismiss filed in the Visteon Corporation Adversary Proceedings by Global Asset Protection Services, LLC before Judge Sontchi in the District of Delaware.  This motion to dismiss provides a good treatment of the Delaware Bankruptcy Court decisions addressing the pleading requirements for a Section 547 preference claim. This motion is noteworthy, however, for another reason. It includes a rare request for attorney’s fees under Fed. R. Civ. P. 11(b)(3).  Registered users can view the motion by clicking this link.

In making the Rule 11 request, the Defendant stresses that the Plaintiff is the debtor and not a Chapter 7 trustee. This is an important observation and may well carry some weight with the Court.  The following is the portion of the Defendant’s memorandum of law that addresses the Rule 11 attorney’s fees request.

d.  The Complaint Fails to Allege Sufficient Facts to Indicate that Visteon’s Counsel Conducted a Reasonable Pre-Filing Investigation, As Required Under Civil Rule 11 and Bankruptcy Rule 9011.

By submitting the Complaint, Visteon’s counsel represented that they had made a reasonable investigation into the law and facts underlying the Complaint and that “the factual contentions [contained within the Complaint] have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.” FED. R. Qv. P. 11(b)(3). The main purpose of Civil Rule 11 is to “‘impose on counsel a duty to look before leaping and may be seen as a litigation version of the familiar railroad crossing admonition to ‘stop, look, and listen.”‘ Dibiase v. Smithkline Beecham Corp., 834 F. Supp. 143, 147 (E.D. Pa. 1993). While an attorney need not make a complete investigation prior to bringing claims, his investigation of the facts must be reasonable. Id; see also aVitrth v. Siemens A.G., 142 F.R.D. 424, 427 (D.N.J. 1991) (Rule 11 “does not permit the use of the ‘pure heart and empty head’ defense”).

The failure of Visteon’s counsel to conduct a reasonable pre-filing investigation is obvious from the face of the Complaint. Less obvious (in light of the circumstances described below) is how counsel’s pre-filing investigation could have been so deficient. Plaintiff is the reorganized debtor (not, as in Homebanc, a chapter 7 trustee or, as is so often the case, a liquidating trustee appointed as the deadline for filing avoidance lawsuits is about to expire), whose ignorance of the background facts simply cannot be excused. Whatever lenience a chapter 7 trustee or liquidating trustee might be afforded, as a reorganized debtor Visteon is not entitled to it. Moreover, almost two weeks before Visteon’s counsel filed the Complaint, counsel for GAPS sent counsel for Visteon a detailed email describing GAPS’s defenses to Visteon’s threatened preference claim. Visteon’s counsel did not respond to that e-mail, or request more information from GAPS’s counsel, and it plainly did not use the information to buttress its “threadbare allegations.”

IV.          CONCLUSION

For all of the reasons set forth herein, the Complaint should be dismissed in its entirety, with prejudice and without leave to amend, and Visteon and its counsel should be required to pay GAPS’s attorney’s fees and expenses.