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North Carolina BK Court Dismisses with Requirement of Invoice Details at Motion to Dismiss Stage


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August 05, 2022, US Bankruptcy Court for the Middle District of North Carolina – The North Carolina Bankruptcy Court granted in part and denied in part the motion brought by Defendant Moses H. Cone Memorial Hospital Operating Corporation (“Cone Health” or “Defendant”) to dismiss various claims maintained in the complaint filed by Trustee Louis E. Robichaux, IV against Cone Health. Trustee Robichaux filed the complaint in his capacity as Liquidation Trustee of the bankruptcy estate of Randolph Hospital, Inc. (“Randolph Health” or “Debtor”).

In 2016, Randolph Health entered into the Management Services Agreement with Cone Health which gave Cone Health the “full power, authority, and responsibility” for the management of Randolph Health. The Trustee’s complaint alleged that Cone Health breached many obligations under the Management Services Agreement. The complaint alleged that Cone Health failed to develop a physician recruitment plan and to provide for annual operating budgets. The complaint claimed that Randolph Health allegedly made certain transfers to Cone Health under Management Services Agreement. The Trustee sought to avoid the transfers made within one year prior to the bankruptcy filing as alleged “preferential transfers” under section 547(b) of the Bankruptcy Code claiming that Defendant Cone Health was an alleged “insider”.

Cone Health argued that the complaint failed to allege an antecedent debt since the complaint did not identify Cone Health with adequate invoice information. The Court disagreed with this argument and dismissed the requirement to identify invoices or invoice numbers at the motion to dismiss stage. The Court found that the complaint contained sufficient factual allegations to show the existence of pre-existing obligations as antecedent debt.

The Court found that the Trustee’s allegations were insufficient to show that Debtor Randolph Health was balance sheet insolvent. However, the Court affirmed a statutory presumption of insolvency of a 90-day period prior to the bankruptcy filing.

Nevertheless, the Court did not give the benefit of the presumption of insolvency under state law since it found a lack of sufficient specificity in allegations that Randolph Health was unable to pay its debts as they became due during the one-year period. Therefore, the Court dismissed the fraudulent transfer claim under North Carolina state law.

The Court noted that the main issue with the Trustee’s claims is inadequate factual pleading and therefore, granted the Trustee a leave to amend his complaint.

Robichaux v. Moses H. Cone Mem. Hosp. Operating Corp. (In re Randolph Hosp., Inc.), 2022 Bankr. LEXIS 2180