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White and Williams Secures Dismissal of Preferential and Fraudulent Transfer Complaints Against Area Hospitals in New England Motor Freight Bankruptcy

October 22, 2021

When New England Motor Freight (NEMF) filed for bankruptcy protection in 2019 in the United States Bankruptcy Court for the District of New Jersey, it was labeled as the largest transportation bankruptcy since 2002.

On February 10, 2021, the liquidating trustee for NEMF and its affiliates brought suit against Holy Spirit Medical Center and The Milton S. Hershey Medical Center for alleged preferential and fraudulent transfers in connection with payments for medical services made under the debtor’s ERISA-qualified, self-insured health plan. The aggregate claims, asserted in two, separate lawsuits, exceeded $1.1 million.

While the theories raised by the trustee in support of the avoidance actions were novel, a cross-disciplinary team of White and Williams litigators and bankruptcy attorneys moved to dismiss those claims, arguing that avoidance actions to recover health benefit claims to medical providers for the actual treatment of the debtor’s employees cannot lie because, for among other reasons, (i) the funds used to pay the claim belonged to the ERISA qualified self-insurance plan, and therefore, were not “property of the debtor” as required by Section 547 of the bankruptcy code and/or were contemporaneous exchanges for value and (ii) reasonably equivalent value was given by the hospitals because the claims paid were in exchange for medical treatment actually provided to employees and their dependents.

The end result was a powerful argument that caused the court to express skepticism as to the validity of the trustee’s claims and order the trustee to file amended complaints. Thereafter, the trustee opted to forgo filing amended pleadings and voluntarily dismissed both lawsuits.

The two hospitals were represented by Frank Perch, Andrew Arthur, Thomas Pinney, Edward Beitz and Geoffrey Sasso.

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