08/19/2011 – Memorandum of Law in Support of Defendant’s Motion to Dismiss filed in the WL Homes Adversary Proceedings by Time Warner Cable before U.S. Bankruptcy Judge Brendan L. Shannon in the District of Delaware filed by Saul Ewing LLP attorney Lucian B. Murley and Wargi & French LLP attorney Julie C. Jared.   Defendant Time Warner Cable Inc. files this motion to dismiss and for sanctions under 28 U.S.C. § 1927 based on Plaintiff’s continued prosecution of a preference action less than the 11 U.S.C. § 547(c)(9) jurisdictional limit. Nothing new in terms of law but the facts alleged are extreme even for mass preference actions. Registered users click here to see a copy of this brief.

Plaintiff George L. Miller, Chapter 7 Trustee for the estate of WL Homes, LLC., et al. filed 386 preferential transfer recovery complaints between Januray 31, 2011 and February 18, 2011. One of those complaints was against Defendant Time Warner Cable Inc. Trustee Miller claimed preferential transfers to Defendant in the aggregate amount of $32,610.85. The Defendant was not, however, able to confirm receipt of one payment for $30,714.62.

After numerous informal requests to Plaintiff’s counsel, on June 28, 2011, Defendant finally was provided the backup documentation for the $30,714.62. It turned out that the payment had been made by the Debtor to a public company called “Time Warner Telecom” in Denver, Colorado, which has had no affiliation with the Defendant since 1998. The amount of the transfers made to Defendant was only $1,896.23.

Plaintiff nevertheless refused to dismiss the complaint and stated its intent “to pursue recovery of any and all transfers to Time Warner Cable during the preference period regardless of the amount of the transfers as Time Warner Cable is a Delaware corporation.” Plaintiff also stated that the Trustee a motion to add “Time Warner Telecom” to the action.  Plaintiff also refused to grant any further extensions to answer the complaint.

Defendant’s Jurisdictional Argument

Defendant makes the following, straightforward jurisdictional argument under 11 U.S.C. § 547(c)(9):

11 U.S.C. § 547(c)(9) provides the following:

the trustee may not avoid . . . a transfer if, in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $5,475.

Under the plain language of the statute, Plaintiff may not maintain this action if the aggregate transfer amount is less than $5,475. The jurisdictional threshold is not met in this case.

Plaintiff’s Complaint alleges repeatedly throughout the transfers listed on Exhibit “A” thereto were made to TWC. (See, e.g., Compl. irri 23, 25, 26, 28-35.). However, of the $32,610.85 in transfers Plaintiff seeks to avoid in this action, only $1,896.23 of those transfers were actually made to TWC. (Goldberg Decl. ¶ 12.) The remaining transfer of $30,714.62 listed on Exhibit A to the Complaint was made — based on the Plaintiff’s own documents — to an entity known as “Time Warner Telecom.” (Id. irri 9, 11-12 & Exs. C, D; see also Ex. A to Compl.) It is undisputed that since July 14, 1998, Time Warner Telecom has been a separate legal entity having different ownership, management, offices and operations from those of TWC. (Tohvert Dec. ¶ 5; see also Ex. A.) There is simply no legal affiliation or relationship between TWC and Time Warner Telecom, the entity that actually received the Payment. (Id. 7 4-5.) As a result, the aggregate amount in controversy between Plaintiff and TWC is $1,896.23, far below the jurisdictional threshold established by section 547(c)(9).

Defendant’s Argument for Sanctions under 28 U.S.C. § 1927

Defendant argues for recovery of its costs and attorneys fees in the following paragraphs:

Under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” In this Circuit, bankruptcy courts are empowered to grant sanctions under section 1927. In re Schaefer Salt Recovery, Inc., 542 F.3d 90, 105 (3d Cir. 2008) (affirming bankruptcy court’s award of sanctions); Claybrook v. Am. Remanufacturers, Inc. (In re Am. Remanufacturers), July 28, 2011 Opinion (granting costs against trustee and trustee’s counsel under 28 U.S.C. § 1927), attached hereto as Exhibit B. Indeed, Section 1927 “has been interpreted to impose a continued obligation on attorneys to dismiss claims that are no longer viable.” Schaefer Salt Recovery, 542 F.3d at 101-102.

In this case, CCA has unreasonably expanded these proceedings by forcing TWC to answer the Complaint and prosecute the instant motion after having all of the information required to determine that: (1) “Time Warner Telecom” is wholly unrelated to TWC, and (2) the removal of $30,714.62 from the amount in controversy between TWC and Plaintiff in this action divested this Court of subject matter jurisdiction. (See generally Goldberg Dec. & Tohvert Dec.) Indeed, a simple search on the Internet by CCA would have revealed this fact. (See Ex. A.) CCA chose to ignore the information in its own possession, as well as that which TWC provided, and to affirmatively expand the proceedings unnecessarily and without justification by stating that it intended “to pursue recovery of any and all transfers to Time Warner Cable during the preference period regardless of the amount of the transfers.” (Goldberg Dec. ¶ 15 and Ex. E.)

In light of the foregoing, CCA’s position is unquestionably meritless and has caused TWC significant expense in engaging outside counsel to seek dismissal of this action. Accordingly, the imposition of sanctions against CCA, including the award of attorneys’ fees and costs is both necessary and appropriate. See In re Schaefer Salt Recovery, Inc., 542 F.3d at 105; Claybrook v. AutoZone Texas LP, Adv. Pro. Nos. 07-51597, 07-51603 (In re American Remanufacturers, Inc., Case No. 05-20022), July 28, 2011 Memorandum Opinion (awarding sanctions under Section 1927 for trustee’s and trustee’s counsel’s continued pursuit of baseless claims).