Don't Bet the Business

The City of Detroit recently sued 180 companies and people who may have thought they were special because they had received payments shortly before Detroit filed for Chapter 9 bankruptcy in July 2013. 

Unfortunately, those “special” people and companies are now being sued for being “preferred” by the City of Detroit in making payments to them. The lawsuits range from under $100,000 to several million dollars.

The suits were filed the end of November and early December, shortly before the two year window closed to sue for preferences after the order for relief was entered by the bankruptcy court on Dec. 5, 2013. Somewhat ironically, the City of Detroit is “celebrating” the one-year anniversary of its emergence from bankruptcy as “The New Detroit.” 

The lawsuits are filed against city vendors, recipients of personal injury judgments and several law firms. While the lawsuits do not appear to have been served yet, there are a number of defenses that can be raised in these lawsuits. 

Among the defenses are the new value defense and ordinary course of business defense. In addition, if the payments that the city seeks to recover are part of an executory contract that was assumed by the city, then such payments should not be recoverable as preferences given that the contract was assumed.

For those unfortunate souls who find themselves being treated a bit less special than they had hoped or expected, in the city’s cases or in similar situations, Plunkett Cooney has several bankruptcy experts who can help.