On March 12, 2025, the U.S. Bankruptcy Court for the District of Delaware denied four banks’ motion for summary judgment in an action seeking to claw back $35 million in fees associated with a $1.8 billion loan that allegedly set the medical testing company Millennium Laboratories on the path to its 2015 Chapter 11 filing.
Millennium filed for Chapter 11 bankruptcy in 2015 with a deal to swap $1.15 billion in debt for equity. In the runup to its reorganization, Millennium faced several lawsuits and enforcement actions related to allegations that it overbilled Medicare and Medicaid for unnecessary medical tests and had used false advertising and illegal kickbacks to increase business. Its court-approved reorganization plan established a litigation trust.
The trustee filed suit against the four banks that arranged the $1.8 billion loan—J.P. Morgan, Citibank, BMO Harris Bank, and SunTrust—alleging that they did not inform investors of Millennium’s legal issues and that the loan proceeds were used only to refinance an earlier loan, make distributions to shareholders and insiders, and pay arrangement fees. The trustee sought to recover a total of $35.3 million in arrangement fees paid to the banks, characterizing them as either actual or constructive fraudulent transfers.
The four banks filed a motion for summary judgment, arguing that the trustee failed to marshal any evidence of the requisite actual intent to hinder, delay, or defraud creditors. The banks highlighted testimony from Millennium’s executives that they believed that Millenium would prevail in its litigation and would be able to pay its debts as they became due. The banks further argued that any notion of a fraudulent transfer was undercut by the fact that dozens of sophisticated lenders agreed to fund the 2014 loan with access to full information. The court held that disputes of material fact prohibited judgment as a matter of law in the banks’ favor. Addressing first the actual fraudulent transfer claim, the court found that the trustee identified evidence from which a trier of fact could infer fraudulent intent. It reasoned that none of Millennium’s decision makers were disinterested, as each received distributions from the proceeds of the 2014 loan. It also found there was evidence from which a jury could conclude Millennium was not entirely forthcoming with investors about the risks inherent in its business model and regarding its legal issues.
With respect to the claim for constructive fraudulent transfer, the court rejected the banks’ argument that they were entitled to summary judgment because they provided reasonably equivalent value for the arrangement fees. The court held that genuine disputes of material fact existed as to whether Millennium received any value from the transaction, crediting the trustee’s evidence that the banks’ services provided no benefit because loan proceeds were used to pay off a prior loan, pay dividends and bonuses to insiders, and the banks’ fees, as opposed to providing for working capital.
The case is Kirschner v. JPMorgan Chase Bank N.A., Adv. No. 17-51840 (Bankr. D. Del., Mar. 12, 2025). The trustee is represented by Cole Schotz PC and McKool Smith PC. JP Morgan is represented by Richards Layton & Finger and Sullivan & Cromwell. Citibank is represented by Richards Layton & Finger and Davis Polk & Wardwell. BMO Harris Bank is represented by Polsinelli and Norton Rose Fulbright. SunTrust is represented by King & Spalding. The opinion is available here.
