ACJK, Inc. v. Aetna Health Management, LLC

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF ILLINOIS
In Re 	)
) 	Case No. 	23-30045
ACJK, Inc., 	)
) 	Chapter 11
Debtor. 	)
)
ACJK, Inc., 	)
)
Plaintiff, 	)
v. 	) 	Adv. No. 	25-03000
)
AETNA HEALTH 	)
MANAGEMENT, LLC, 	)
)
Defendant. 	)
___________________________________ )
)
In Re 	)
) 	Case No. 	23-30045
ACJK, Inc., 	)
) 	Chapter 11
Debtor. 	)
)
ACJK, Inc. 	)
)
Plaintiff, 	)
v. 	) 	Adv. No. 	25-03008
)
CVS HEALTH CORPORATION f/k/a )
CVS CAREMARK CORPORATION 	)
f/k/a CAREMARK PCS, LLC, 	)
)
Defendant. 	)
Before the Court are motions to dismiss complaint and compel arbitration
filed by the defendants in two separate adversary proceedings commenced by the
debtor in the same underlying bankruptcy case. For the reasons set forth herein,
O P I N I O N
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the motions to dismiss and compel arbitration will be denied and orders will be
accordingly entered in each proceeding.
I. 	Factual Background
ACJK, Inc. (“Debtor”), a corporation that operated a pharmacy in Granite
City, Illinois, commenced its voluntary Chapter 11 case on January 30, 2023, by
filing 	a 	bare-bones 	petition. 	The 	Debtor’s 	schedules 	and 	other 	required
documents were filed a month later. On Schedule D: Creditors Who Have Claims
Secured by Property, the Debtor listed Aetna Health Management, LLC (“Aetna”),
Caremark PCS, LLC, and others as holders of claims in unknown amounts
secured by the pharmacy’s accounts receivable valued at $228,800. The debts
were marked by the Debtor as being “disputed.” Among the assets listed on
Schedule A/B, the Debtor identified potential causes of action for breach of
contract 	and 	misrepresentation 	against 	Aetna, 	Caremark, 	and 	others 	of
unknown values. On its Statement of Financial Affairs, the Debtor identified
Aetna and Caremark as recipients of prepetition transfers in unknown amounts
described as “offset DIR fees from Debtor’s accounts receivable.” Aetna and
Caremark were similarly identified as having set off debts owed to them by taking
unknown amounts from the Debtor’s financial account without permission.
Neither entity filed a proof of claim in the case.
The Debtor’s Second Amended Chapter 11 Plan was confirmed on March
5, 2024. The plan defined “DIR Fees” as “pharmaceutical-related expenses
deducted from Debtor’s gross sale proceeds by Pharmacy Benefit Managers
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(PBM’s), including” Aetna and Caremark. The plan was to be implemented in
part through a litigation fund comprised of proceeds that might be obtained in
pursuing causes of action for the benefit of creditors against the PBMs in relation
to DIR fees collected.
On January 29, 2025, the Debtor commenced an adversary proceeding
against Aetna, CVS, and several other entities asserting causes of action against
each 	for 	unauthorized 	postpetition 	transfers 	and 	constructively 	fraudulent
prepetition transfers under federal and state law based on DIR fees deducted
from the Debtor’s accounts receivable in the months and years surrounding the
petition date.1 In an order entered February 13, 2025, the Judge previously
assigned to the proceeding found that, among other deficiencies, the complaint
impermissibly joined defendants in the same cause of action for what appeared
to be separate and distinct transactions or occurrences and directed the Debtor
to file separate adversary complaints against each defendant within 21 days.
After an initial motion to reconsider 	was denied, the Debtor filed another
document labeled as a motion to reconsider or for clarification, asserting that it
had a right to file an amended complaint as a matter of course through which it
hoped to cure any issues. Consistent with that position, the Debtor filed a first
amended complaint which asserted essentially the same causes of action against
the same defendants. Several named defendants objected and asked the Court
1 The complaint identified CVS as “CVS Health Corporation f/k/a CVS Caremark Corporation f/k/a Caremark PCS,
LLC.” The Motion to Dismiss and to Compel Arbitration in adversary case no. 25-03008 was filed by CaremarkPCS
Health, LLC asserting that it was the only entity served with summons and that the Motion to Dismiss and to Compel
Arbitration was filed only on its behalf. Nevertheless, the amended brief in support of the Motion contends that the
arbitration agreement at issue applies equally to CVS Health Corporation as the ultimate parent of Caremark. For
purposes of this Opinion, reference to CVS includes Caremark.
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to strike the amended complaint. Rather than strike the amended complaint, at
a hearing held on May 22, 2025, the Court ordered that the claims be severed so
that there would be separate adversary proceedings against each defendant, and
the Debtor’s attorney was further ordered to pay the filing fee for each of the
severed cases. The filing fees were paid, and the result was separate proceedings
against each defendant all based on the same first amended complaint.
Relevant 	to 	the 	present 	proceedings, 	Count 	I 	of 	the 	first 	amended
complaint alleges that Aetna and CVS deducted DIR fees in unknown amounts
from the Debtor’s accounts receivable after the petition date of January 30, 2023.
Because the Debtor ceased operations on January 21, 2023, the Debtor alleges
that such deductions must have been on account of prepetition claims and are
therefore avoidable under §549(a). Count I further seeks an accounting and
recovery of amounts avoided under §§542(a) and 550(a).
Counts II and III seek to avoid constructively fraudulent transfers to Aetna
under §548(a)(1)(B) and 740 ILCS 160/5, respectively. Count II alleges that,
between January 31, 2021, and January 30, 2023, “Aetna offset approximately
$127,983.72 in DIR fees from [the Debtor’s] Accounts Receivable” for obligations
incurred by the Debtor within that period. The Debtor alleges that it received less
than a reasonably equivalent value in exchange for the “excessive” DIR fees
collected and that it was insolvent at the time or made insolvent thereby. Count
II further alleges that Aetna was an insider of the Debtor as defined in the
Bankruptcy Code. Count III, in turn, alleges that Aetna “offset approximately
$171,595.22 in DIR fees from [the Debtor’s] Accounts Receivable” between
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January 31, 2019, and January 30, 2023, on account of obligations incurred by
the Debtor over the same period. The Debtor alleges it received less than
reasonably equivalent value for the described transfers and that the Debtor was
“(i) engaged or was about to engage in a business or a transaction for which the
remaining assets of the debtor were unreasonably small in relation to the
business or transaction, and/or (ii) intended to incur, or believed or reasonably
should have believed that it would incur, debts beyond its ability to pay as they
became due.”
Counts IV and V similarly seek to avoid constructively fraudulent transfers
to CVS under §548(a)(1)(B) and 740 ILCS 160/5, respectively. They make the
same allegations against CVS that are set forth in Counts II and III against Aetna,
differing only in the amounts of the alleged transfers. In that regard, Count IV
alleges that “CVS offset approximately $100,241.43 in DIR fees” in the two-year
period 	ending 	on 	the 	petition 	date, 	and 	Count 	V 	alleges 	that 	“CVS 	offset
approximately 	$135,087.86 	in 	DIR 	fees” 	in 	the 	four 	years 	preceding 	the
bankruptcy.
As it happens, Aetna and CVS are represented by the same attorneys who
filed substantially identical Motions to Dismiss Plaintiff’s Complaint and to
Compel Arbitration in each case. The Motions to Compel Arbitration state that
they are brought pursuant to the Federal Arbitration Act and purport to reserve
the Defendants’ rights to seek dismissal under Federal Rule of Civil Procedure
12(b)(6) and Bankruptcy Rule 7012(b) for failure to state a claim upon which
relief can be granted should the Court deny their present requests to compel
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arbitration. Along with the Motion to Compel Arbitration, the Defendant in each
proceeding 	filed 	a 	supporting 	brief, 	a 	supporting 	declaration 	signed 	by 	a
representative of Aetna’s purported affiliate and CVS subsidiary, Caremark, and
a motion and supporting brief seeking authority to file certain exhibits to the
declaration under seal. The exhibits identified for filing under seal were the 2017
Provider Agreement between the Debtor and Caremark and three iterations of
Caremark’s Provider Manual.2
On September 25, 2025, the above-captioned proceedings, along with the
other severed actions based on the same complaint, were reassigned to the
undersigned Judge. A hearing was set for status on pending matters in each
proceeding. Prior to the hearing, the Debtor filed responses in opposition to the
Motions to Compel Arbitration in the present proceedings. At the status hearing
held October 23, 2025, the Court explained that it is generally disinclined to
authorize filings under seal and that the Defendants’ requests to do so in these
proceedings did not meet the high burden to justify such relief. But the Court
2 According to the Defendants, the Debtor is bound by the Provider Agreement and the Provider Manuals incorporated
by reference in the Provider Agreement, all of which apply equally to and govern the Debtor’s relationship with both
CVS as parent company of Caremark and Aetna as an affiliate of Caremark. None of the documents submitted by the
Defendants, however, substantiate the bald assertion that Aetna is an affiliate of Caremark. Although the briefs and
declarations offered by Aetna in support of its Motion to Compel Arbitration state as much, nowhere in the Provider
Agreement and excerpted portions of the Provider Manuals cited in or attached to its filings is Aetna identified as an
affiliate of Caremark. Nor is the term “affiliate” defined in any of those documents. Of course, the Debtor has not
disputed the assertion, but, as alluded to by Aetna in its briefs, the party seeking to compel arbitration has the burden
of showing that an agreement to arbitrate disputes between the parties exists. Zurich Am. Ins. Co. v. Watts Indus., Inc.,
417 F.3d 682, 690 (7th Cir. 2005). And while Aetna cites several cases in its briefs in support of its assertion that the
agreement with Caremark also applies to the Debtor’s disputes with Aetna as Caremark’s affiliate, all those decisions
involve entities related to Caremark or CVS by common ownership—none involve or even appear to mention Aetna.
Because the Motions to Compel Arbitration will be denied on a different basis, discussion of Aetna’s relationship with
Caremark is limited to this footnote. But Aetna’s failure to show that it is an affiliate of Caremark such that the
Caremark agreement would also govern its own disputes with the Debtor could serve as an independent basis for
denying Aetna’s Motion to Compel Arbitration.
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also said it would give the Defendants time to supplement their motions to file
under seal and suggested the parties exchange the documents at issue and see
if they could stipulate to relevant portions being entered on the public docket to
alleviate the need for filing anything under seal. Regarding the Debtor’s response
to any supplemental filings by the Defendants, counsel for the Debtor said the
opportunity would be appreciated but he did not want a lack of response to be
construed as conceding any substantive issues.
Rather than supplementing or amending their requests to file under seal,
on November 6, 2025, Aetna and CVS filed amended briefs and declarations in
support of their Motions to Compel Arbitration which appeared to include the
relevant portions of documents they had asked to file under seal. Along with the
amended briefs and declarations, Aetna and CVS filed notices stating their intent
to withdraw the motions to file under seal without prejudice. The Debtor filed
nothing in either case in response to the amended brief and declaration.
The Court having reviewed and considered the parties’ arguments along
with the entire case record in each proceeding, the matter is ready for decision.
II. 	Jurisdiction
This Court has jurisdiction over proceedings “arising under title 11, or
arising in or related to cases under title 11” pursuant to 28 U.S.C. §1334. All
bankruptcy cases and proceedings filed in the Southern District of Illinois have
been referred to the bankruptcy judges. SDIL-LR Br1001.1; see 28 U.S.C.
§157(a). Matters concerning the administration of the estate, proceedings to
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determine, avoid, or recover fraudulent conveyances, and other proceedings
affecting the liquidation of the assets of the estate or the adjustment of the
debtor-creditor relationship are core proceedings. 28 U.S.C. §157(b)(2)(A), (H),
(O).
While 	statutorily 	core, 	there 	is 	some 	disagreement 	about 	whether
fraudulent conveyance actions are constitutionally core in the wake of the
Supreme Court’s decisions in Stern v. Marshall, 564 U.S. 462, 493 (2011), and
Executive Benefits Insurance Agency v. Arkinson, 573 U.S. 25, 37-38 (2014).
Compare Maxwell v. United States (In re Horizon Group Mgmt., LLC), 617 B.R. 581,
585 (Bankr. N.D. Ill. 2020) (finding fraudulent transfer action under §548
constitutionally core), with Brandt v. FDIC (In re Equip. Acquisition Res., Inc.), 560
B.R. 501, 504 (Bankr. N.D. Ill. 2016) (finding that state-law fraudulent transfer
claims as well as §548 claims are not constitutionally core). But the prevailing
opinion in this Circuit is that avoidance of fraudulent transfers under §548 are
constitutionally core. In any event, the first amended complaint also asserts
state-law fraudulent conveyance causes of action against each Defendant which
do not arise exclusively under the Bankruptcy Code and do not strictly arise in
a bankruptcy case, and this Court is therefore exercising “related to” jurisdiction
in these proceedings. Absent consent of the parties, the Court’s authority to enter
final judgment on at least the state-law fraudulent conveyance actions is limited.
Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 669 (2015); Exec. Benefits,
573 U.S. at 37-38; Stern, 564 U.S. at 493; 28 U.S.C. §157(c).
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Here, the Defendants have not consented to entry of final orders on the
merits of the claims asserted against them. Even so, this Court has authority to
enter orders on preliminary matters to the extent they do not constitute a final
adjudication on the merits of underlying causes of action over which the Court
does not have constitutional authority to enter a final order. See Lordstown
Motors Corp. v. Hon Hai Precision Indus. Co. (In re Nu Ride Inc.), 666 B.R. 510,
512 (Bankr. D. Del. 2024). The authority to enter orders on such preliminary
matters includes determinations of whether an enforceable arbitration clause
governs. Id.; Johnson v. S.A.I.L. LLC (In re Johnson), 649 B.R. 735, 741 (Bankr.
N.D. Ill. 2023); In re EPD Inv. Co., 821 F.3d 1146, 1151 (9th Cir. 2016).
III. 	Legal Analysis
The 	Federal 	Arbitration 	Act 	(“FAA”) 	was 	passed 	with 	the 	purpose 	of
“overrul[ing] 	the 	judiciary’s 	longstanding 	refusal 	to 	enforce 	agreements 	to
arbitrate” and “ensur[ing] judicial enforcement of privately made agreements[.]”
Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219-20 (1985). “But the FAA’s
‘policy favoring arbitration’ does not authorize federal courts to invent special,
arbitration-preferring procedural rules.” Morgan v. Sundance, Inc., 596 U.S. 411,
418 (2022) (citing Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24 (1983)). “The federal policy is about treating arbitration contracts like all
others, not about fostering arbitration.” Morgan, 596 U.S. at 418 (citations
omitted). Even so, the FAA requires that arbitration agreements be rigorously
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enforced by federal courts. Shearson/Am. Exp., Inc. v. McMahon, 482 U.S. 220,
226 (1987).
With that background, the starting point in deciding whether to compel
arbitration is to determine whether there is an agreement requiring arbitration
of disputes. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 626 (1985); BCS Ins. Co. v. Wellmark, Inc., 410 F.3d 349, 351-52 (7th Cir.
2005). The disputes at issue must also be within the scope of the arbitration
agreement. Zurich Am. Ins. Co., 417 F.3d at 687. Once it is established that the
parties’ disputes are covered by an arbitration agreement, the court must
determine whether there is a basis for denying enforcement of such agreement
notwithstanding the clear mandate of the FAA. “Like any statutory directive, the
[FAA’s] mandate may be overridden by a contrary congressional command.”
McMahon, 482 U.S. at 226. Such contrary command, however, must be evident
from the text of a statute or “from an inherent conflict between arbitration and
the statute’s underlying purposes.” Id. at 227.
In opposing arbitration of the claims asserted in each of the present
proceedings, the Debtor focuses its arguments on whether there is an inherent
conflict 	between 	the 	FAA 	and 	the 	Bankruptcy 	Code.3 Before 	reaching 	the
3 In its responses to the Motions to Compel Arbitration, the Debtor said that it did not have access to and therefore
had not seen the Caremark Provider Agreement and Provider Manuals repeatedly referenced in but not attached to the
Defendants’ Motions. After being given an opportunity to provide the documents to the Debtor and file supplements
to their motions to file under seal, the Defendants instead filed amended briefs in support of their Motions to Compel
Arbitration incorporating the relevant language of the documents previously referenced along with notices of
withdrawal of the motions to file under seal. The Debtor did not file responses to the amended briefs. Counsel for the
Debtor previously expressed that he was not inclined to oppose the motions to file under seal but asked the Court not
to construe a lack of response as conceding any substantive issues in the cases. Although the Court does not construe
the lack of response to the amended briefs as the Debtor conceding the Motions to Compel Arbitration, it will assume
that the existence of an arbitration agreement with Caremark is not disputed.
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inherent conflicts test, however, the Court must determine that the parties here
are bound by the agreement. The party seeking to compel arbitration “bears the
burden of offering sufficient evidence to allow a factfinder to conclude that the
parties agreed to arbitrate” the subject disputes. Campos v. Tubi, Inc., 716 F.
Supp. 3d 623, 630 (N.D. Ill. 2024) (citation omitted) (internal quotation marks
omitted); see also Zurich Am. Ins. Co., 417 F.3d at 687.
The Defendants contend that the arbitrator rather than the Court must
decide threshold arbitrability questions because the agreement incorporates
American Arbitration Association rules which, in turn, provide for arbitrators
having power to rule on their own jurisdiction, including questions of scope and
validity of agreements. But courts have held that an agreement must “clearly
and unmistakably” provide that power to the arbitrator; more than the presence
of expansive arbitration language is needed to remove the issue from judicial
determination. Peabody Holding Co. v. United Mine Workers of Am., 665 F.3d 96,
101-02 (4th Cir. 2012). Here, the excerpted language from the agreement does
provide that “[t]he arbitrator(s) shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability or formation of
the agreement to arbitrate[.]” But it is axiomatic that an agreement to arbitrate—
and thus any decision on any issue by an arbitrator—can only bind the parties
to 	the 	agreement, 	and 	a 	party 	generally 	cannot 	be 	required 	to 	submit 	to
arbitration any dispute which that party has not agreed to submit. Fort v. Kibbey
(In re Oaktree Med. Ctr., P.C.), 640 B.R. 649, 658 (Bankr. D.S.C. 2022) (citing Am.
Bankers Ins. Group, Inc. v. Long, 453 F.3d 623, 626-27 (4th Cir. 2006)); see also
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Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 296 (2010) (where
dispute at issue is one of contract formation, it is generally for courts to decide)
(citations omitted); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 941-47
(1995) (court should decide whether an arbitration clause applied to a party who
“had not personally signed” the document containing it).
As noted, there appears to be no dispute that the Debtor entered into a
prepetition arbitration agreement with Caremark. But the parties overlook an
important fact: because a trustee was not appointed in the Debtor’s Chapter 11
case, the Debtor has acted as a debtor in possession in the bankruptcy case with
generally all the rights and duties of a trustee. See 11 U.S.C. §§1101, 1107(a).4
The Debtor has thus worn two hats in its bankruptcy case, that of “debtor” acting
in its personal capacity and that of “debtor in possession” acting as a fiduciary
of the bankruptcy estate. In re Johnston, 2013 WL 1337757, at *2 n.1 (Bankr.
S.D. Ind. Mar. 29, 2013). Whether the Debtor is bound by the prepetition
arbitration agreement turns on the capacity in which the Debtor is suing the
Defendants.
When a trustee asserts a cause of action derived from the debtor’s rights,
he stands in the “shoes” of the debtor and would be bound by an arbitration
clause in a prepetition agreement to the same extent as would the debtor.
4 Although the Debtor’s confirmed plan provided for all estate property to vest back to the Debtor upon confirmation—
raising a question of whether the Debtor continues to act as debtor in possession—it also contemplated the Debtor
pursuing causes of action against PBMs for the benefit of its creditors. Courts within this Circuit have found similar
retention language sufficient to establish standing to pursue causes of action post-confirmation, and the Defendants
raised no objections on that basis. See KHI Liquidation Trust v. Wisenbaker Builder Svs., Inc. (In re Kimball Hill,
Inc.), 449 B.R. 767, 773-78 (Bankr. N.D. Ill. 2011); Brandt v. PlainsCapital Leasing, LLC (In re Equip. Acquisition
Res., Inc.), 483 B.R. 823, 828-32 (Bankr. N.D. Ill. 2012).
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Oaktree Med. Ctr., 640 B.R. at 658-59 (citing In re MF Glob. Holdings Ltd., 571
B.R. 80, 89-90 (Bankr. S.D.N.Y. 2017), and Hays & Co. v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 885 F.2d 1149, 1153 (3d Cir. 1989)). A debtor in possession
asserting claims derived from the debtor’s prepetition rights would likewise be
bound by the debtor’s agreement to arbitrate disputes. But when a trustee or
debtor in possession asserts claims belonging to the trustee or creditors, the
trustee or debtor in possession is no more bound by the debtor’s arbitration
agreement than any other who was not a party to that agreement. See Oaktree
Med. Ctr., 640 B.R. at 659; Bethlehem Steel Corp. v. Moran Towing Corp. (In re
Bethlehem Steel Corp.), 390 B.R. 784, 790-92 (Bankr. S.D.N.Y. 2008); Cohen v.
Ernst & Young, LLP (In re Friedman’s, Inc.), 372 B.R. 530, 544-45 (Bankr. S.D.
Ga. 2007); Hays, 885 F.2d at 1155.
Turning to the claims asserted against the Defendants here, they consist
of: 	(1) 	a 	count 	against 	each 	relating 	to 	postpetition 	transfers 	seeking 	an
accounting and turnover under §542(a) of amounts deducted from the Debtor’s
accounts receivable as well as the avoidance and recovery of such transfers
under §§549(a) and 550(a); (2) a count against each seeking avoidance of
prepetition transfers as constructively fraudulent under §548(a)(1)(B) and their
recovery under §550(a); and (3) a count against each seeking avoidance of
prepetition transfers as constructively fraudulent under the Illinois Uniform
Fraudulent Transfer Act and §541(a) and their recovery under §550(a).5
5 Although not cited by the Debtor, §544(b) provides the authority for a trustee to step into the shoes of a creditor to
avoid a transfer under nonbankruptcy law for the benefit of all creditors. It is apparent that this is the avenue through
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Taken at face value, the causes of action asserted against the Defendants
are “avoidance actions” which several courts have recognized as not being
derived from the debtor’s rights and obligations and therefore not subject to
mandatory arbitration agreements executed by the debtor. See, e.g., Bethlehem
Steel Corp., 390 B.R. at 791-92 (statutory avoidance claims belonging exclusively
to trustee or debtor in possession are asserted on behalf of creditors who were
not 	parties 	to 	agreement 	and 	therefore 	are 	not 	subject 	to 	arbitration);
Friedman’s, Inc., 372 B.R. at 546-47 (§§544 and 548 are “Code-derived creditor
claims and are not arbitrable”); In re Gandy, 299 F.3d 489, 495-97 (5th Cir.
2002) (causes of action under §§544(b), 548, and 550 not derivative of debtor
but rather belong to trustee for benefit of creditors); Hays, 885 F.2d at 1155
(claims asserted by trustee under §544(b) not derivative of debtor but belong to
creditors who, along with trustee, are not parties to and thus not bound by
debtor’s 	agreement 	to 	arbitrate); 	see 	also 	Robert 	M. 	Lawless, 	Reframing
Arbitration & Bankruptcy, 96 AM . BANKR . L.J. 701, 740-43 (2022) (“avoidance
actions” 	plainly 	include 	remedies 	under 	Chapter 	5 	of 	Code 	for 	turnover,
preference, 	and 	fraudulent 	transfer 	but 	also 	include 	state-law 	fraudulent
transfer claims). Further, the Debtor’s request for accounting under §542 stems
from a trustee’s statutory powers. Henderson v. Legal Helpers Debt Resol., LLC
(In re Huffman), 486 B.R. 343, 359 (Bankr. S.D. Miss. 2013).
which relief is being sought, and the Debtor’s failure to cite §544 as the basis for the claim asserted does not prevent
the Court from construing it as such. See King v. Kramer, 763 F.3d 635, 642 (7th Cir. 2014) (citations omitted).
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And 	while 	none 	of 	the 	arbitration 	decisions 	involve 	actions 	to 	avoid
postpetition transfers under §549, such claims are similarly “Code-derived”
claims belonging exclusively to the trustee for the benefit of the bankruptcy
estate. David Cutler Indus., Ltd. v. Bank of Am. (In re David Cutler Indus., Ltd.),
502 B.R. 58, 71-72 (Bankr. E.D. Pa. 2013) (noting difference between claims
brought by trustee as successor to debtor and claims asserted pursuant to
trustee’s avoidance powers as representative of creditors, including under §549);
In 	re 	Worldcom, 	Inc., 	401 	B.R. 	637, 	646-47 	(Bankr. 	S.D.N.Y. 	2009) 	(§549
avoidance powers belong to trustee, not by virtue of status as debtor’s successor
but rather as representative of creditors to whom such claims belong). This Court
therefore draws no distinction between avoidance actions under §549 and other
Code-based avoidance actions for present purposes and further agrees with
those courts that have concluded that avoidance actions are not subject to a
debtor’s prepetition arbitration agreement. But that is not the end of the inquiry.
The Defendants contend that the causes of action asserted against them
are 	simply 	contractual 	disputes 	dressed 	up 	as 	avoidance 	claims. 	Similar
arguments 	have 	been 	made 	in 	other 	courts 	with 	mixed 	results. 	Compare
Friedman’s, 	Inc., 	372 	B.R. 	at 	545-46 	(rejecting 	argument 	that 	fraudulent
conveyance claims should be treated as breach of contract or malpractice claims
for purposes of compelling arbitration), with Trefny v. Bear Stearns Sec. Corp.,
243 B.R. 300, 320-23 (S.D. Tex. 1999) (concluding that trustee’s causes of action
were improperly characterized as turnover and fraudulent conveyance and that
trustee was therefore bound by debtor’s prepetition arbitration agreement).
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Despite their divergent outcomes, both cases seem to agree with the basic
principle that mere labels and citations to the statute do “not conclusively
establish that the claims are in fact claims derived from the Code.” Friedman’s,
Inc., 372 B.R. at 545 (citing Trefny, 243 B.R. at 320-23). Nevertheless, this Court,
like the court in Friedman’s, Inc., is not persuaded that the causes of action
asserted here should be recharacterized as state-law contract or tort claims.
Friedman’s, Inc., 372 B.R. at 546.
In Trefny, the court found that the allegations did not support an action
for turnover under §542 because the underlying claims were neither liquidated
nor undisputed, making the Code provision inapplicable. Trefny, 243 B.R. at
320. The court likewise found that the allegations did not support a claim under
§548 because the property alleged to have been transferred was not the debtor’s
but rather was property of the debtor’s customers. Id. at 321-23. In Friedman’s,
Inc., on the other hand, the court seemed more circumspect in evaluating the
adequacy of the claims asserted, noting first that the trustee had pleaded the
basic elements of fraudulent conveyance and that the defendant had not shown
that the complaint failed to state a claim. Friedman’s, Inc., 372 B.R. at 546. The
court further reasoned that the existence of a common set of facts that could
support both a fraudulent conveyance claim and a breach of contract claim did
“not prevent the Trustee from pleading both claims in his complaint” and did not
alter the nature of the fraudulent conveyance actions as “Code-derived creditor
claims” that are not arbitrable. Id. at 546-47.
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In evaluating the Defendants’ arguments here, the Court is conscious of
the fact that the Motions before it do not seek dismissal under Rule 12(b)(6) for
failure to state a claim upon which relief can be granted. This is important
context. As in Friedman’s, Inc., the Defendants here have not shown—let alone
meaningfully argued—that the Debtor failed to state a claim for the causes of
action asserted. The Defendants merely contend that the only disputes raised
“concern the terms of the Provider Agreement and Provider Manual and [the
Defendants’] conduct pursuant thereto.” But the fact that the claims asserted
involve allegations concerning the Defendants’ contractual relationship with the
Debtor does not bar the Debtor from pursuing relief through statutory avoidance
powers. Id.
In the absence of a formal challenge under Rule 12(b)(6), this Court is
reluctant to evaluate the adequacy of the amended complaint under a Rule
12(b)(6) standard with the same rigor as if a motion were filed on that basis. That
reluctance is supported by case law, with courts recognizing they have discretion
to dismiss a complaint sua sponte but often reserving the exercise of that
discretion for frivolous or transparently defective claims. See Hoskins v. Poelstra,
320 F.3d 761, 763 (7th Cir. 2003); cf. Choi v. 37 Parsons Realty LLC, 642 F.
Supp. 3d 329, 334-36 (E.D.N.Y. 2022) (collecting cases limiting sua sponte
dismissal under 12(b)(6) and applying reasoning to the court’s sua sponte review
of 	complaint’s 	adequacy 	in 	default 	judgment 	context). 	Thus, 	the 	Debtor’s
characterization of its causes of action as avoidance claims should only be
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disregarded for purposes of compelling arbitration if the claims are clearly
meritless.
The Court cannot say the claims are frivolous or that they are patently
defective. The Debtor has arguably pleaded the basic elements for the avoidance
actions asserted. That is not to say that the amended complaint is without
problems or that all the claims asserted would survive a motion to dismiss under
Rule 12(b)(6) if filed. And, of course, whether the Debtor will ultimately be able
to meet its burden of proof on the elements of those claims is an entirely different
question. But for present purposes, the Debtor has plainly alleged that the
Defendants deducted DIR fees from the Debtor’s accounts receivable. Some of
those deductions are alleged to have occurred after the filing of the bankruptcy
petition but on account of prepetition transactions and without authorization
from the Court, consistent with basic elements of §549. Other deductions are
alleged to be excessive and to have occurred while the Debtor was insolvent
within the applicable prepetition timeframes for avoidance under §548 and the
Illinois Uniform Fraudulent Conveyance Act. Neither the Debtor’s failure to
identify each deduction and the specific amounts nor the fact that the deductions
may have been provided for by contract precludes relief. Kind Operations, Inc. v.
Cadence Bank (In re PA Co-Man, Inc.), 644 B.R. 553, 626-27 (Bankr. W.D. Pa.
2022) (exercising rights under contract not per se bar to fraudulent transfer
claim); Rizack v. Starr Indem. & Liab. Co. (In re Grandparents.com), 614 B.R. 625,
631-32 (Bankr. S.D. Fla. 2020) (recognizing that value includes satisfaction of
debt but finding that payment in accordance with contract does not insulate the
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transaction from claim for constructive fraud); In re Mack Indus. Ltd., 2025 WL
875209, at *2 (N.D. Ill. Mar. 20, 2025) (finding payment to contractor per
agreement was reasonably equivalent value but noting that trustee made no
claim that the invoiced amounts were unfair or unreasonable for the work done).
The causes of action asserted against the Defendants are Code-derived
claims belonging to the trustee or creditors who are not parties to the arbitration
agreement at issue here and would not be bound by such agreement. And
because the Debtor is exercising the statutory powers of trustee, it stands in the
shoes of the trustee and creditors and is likewise not bound by the arbitration
agreement for purposes of the claims asserted in these proceedings. The Motions
to Compel Arbitration will therefore be denied.
In making its determination, the Court is aware of the many cases focused
on whether there is an inherent conflict between the FAA and a competing
applicable statute and, particularly in bankruptcy matters, the core versus
noncore nature of claims. But such cases are premised on an assumption—if
not an affirmative finding—that the party sought to be compelled to arbitrate its
disputes was bound as a party to the underlying arbitration agreement. Because
this Court finds that the Debtor standing in the shoes of the trustee and creditors
is not bound by the arbitration agreement, there is no need to analyze whether
there exists an inherent conflict between the FAA and the underlying purposes
of the Bankruptcy Code. See, e.g., Friedman’s, Inc., 372 B.R. at 541-44 (applying
the McMahon test to debtor-derived claims but not Code-derived creditor claims
it concluded were not arbitrable).
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Further, while the core/noncore distinction can help inform the inherent
conflict analysis, it is not determinative of whether a claim must be sent to
arbitration. Johnson, 649 B.R. at 748-49. To be sure, several courts have placed
heavy emphasis on the nature of claims as core or noncore to categorically
remove “noncore” matters from bankruptcy court discretion, but that approach
has been criticized as an oversimplification in favor of a bright line rule that
arose from cherry-picked language which today carries significance and meaning
different from what it once did. See Reframing Arbitration & Bankruptcy, 96 A M .
BANKR . L.J. at 707-713 (discussing the unintended history of the rule and the
problems 	with 	marrying 	it 	to 	the 	current 	scheme 	for 	bankruptcy 	court
jurisdiction); Johnson, 649 B.R. at 746-47 (Whether a claim is core or noncore
“should 	not 	be 	used 	as 	a 	bright 	line 	in 	determining 	the 	enforceability 	of
arbitration clauses.”). See also EPD Inv. Co., 821 F.3d at 1150-51 (that claim was
not constitutionally core under Stern and its progeny did not dictate outcome
because claim was still statutorily core and denial of arbitration was not final
judgment). To the extent bankruptcy decisions on arbitration turn on the core
versus noncore nature of the claims asserted, they are inapt because the claims
at issue in these proceedings are at least statutorily core and, in any event, are
brought on behalf of creditors who are not parties to and not bound by the
Debtor’s arbitration agreement. Id. at 1150-52.
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IV. 	Conclusion
The Defendants’ Motions to Compel Arbitration will be denied. The claims
asserted against the Defendants are derived from the Bankruptcy Code and may
only be brought by a trustee or debtor in possession on behalf of the Debtor’s
creditors. As neither the creditors nor the trustee in whose shoes the Debtor
stands were parties to the Debtor’s prepetition agreement to arbitrate disputes,
they are not bound by the agreement and the Debtor therefore cannot be
compelled to arbitrate the claims asserted on their behalf.
This Opinion is to serve as Findings of Fact and Conclusions of Law
pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ENTERED: February 23, 2026
/s/ Mary P. Gorman
_________________________________________
UNITED STATES BANKRUPTCY JUDGE
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