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Minnesota Debtor Argues Creditor’s Claim Offset by Breach of Contract Damages


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September 02, 2022, US Bankruptcy Court of Minnesota – Minnesota Athletic Apparel, Inc. (“MAA” or the “Debtor”) objects to proof of claim filed by CentraCare Health System (“Defendant”). The Debtor also seeks the offset of the amount of a debt allegedly owed by CentraCare to the Debtor against any amounts owed by the Debtor to CentraCare.

By background, Defendant CentraCare entered into a series of contracts with MAA to purchase personal protective equipment (PPE), such as masks and gloves, from MAA. MAA allegedly defaulted on its obligation to deliver gloves due to an alleged fraud committed by one of MAA’s suppliers. CentraCare obtained a judgment against MAA in the state court for its alleged breach of the agreement to deliver the gloves.

Although MAA delivered the masks to CentraCare, CentraCare rejected the delivered masks, claiming that the masks allegedly are not fit for a variety of sizes. Debtor MAA contends that CentraCare allegedly did not order masks in a variety of sizes and claims that the rejection is improper. MAA alleges that CentraCare allegedly had no grounds to allege breach and claims entitlement to judgment against CentraCare for the full amount of the contract price for the masks.

CentraCare has filed a proof of claim in the amount of $11,964,750.00. The amount of the claim appears to include $2,124,750.00 on account of the extant judgment based on the breach of the gloves contract and $9,840,000 claimed to be due on account of MAA’s alleged breach of the Mask Contract. However, Debtor MAA objects to this claim holding the ground that MAA allegedly did not breach the Mask Contract. MAA counterclaims that it has been allegedly damaged as a direct and consequential result of CentraCare’s alleged breach and “wrongful” rejection of the masks.

MAA claims that CentraCare is allegedly indebted to MAA in the approximate amount of $2,460,000.00 for the alleged damage caused to MAA. The Debtor seeks to offset this amount to the amount of debt it owes to CentraCare for breach of gloves contract.

Minnesota Athletic Apparel Inc. v. CentraCare Health System (In re Minnesota Athletic Apparel Inc.), AP No. 22-04041, US Bankruptcy Court for Minnesota