Judge Sets July 24 Deadline for Motions to Dismiss Suits in TransVantage Case

The stage is set for a July 24 courtroom showdown over an effort to collect hundreds of millions of dollars from about 450 truckers in the TransVantage bankruptcy case.

U.S. Bankruptcy Court Judge Kathryn Ferguson set that deadline for filing of a motion to dismiss suits by attorney Alfred Giuliano, trustee for the bankrupt freight bill payment firm. A total of 126 freight companies have joined TransVantage customers such as New York utility Consolidated Edison in trying to derail and slow down the case.

In addition to setting the schedule for hearing the case, Ferguson’s June 24 order blocked Giuliano from immediately forcing repayment from companies he started suing in April.

TransVantage, which was supposed to audit customers’ freight bills and then make payment for freight shipments, failed in 2013. The Branchburg, New Jersey, company ran up about $40 million in debts for owner Shirley Sooy’s personal expenses, including a $135,000 sports car, a yacht and Florida property. Sooy faces federal criminal wire fraud and other charges lodged last year.

Giuliano in court filings argued that he was entitled to recover money because TransVantage was a Ponzi scheme, which “hopelessly commingled” all payments by customers to carriers in a single account instead of maintaining separate accounts for each customer.

Rafael Zahralddin, an attorney whose firm is defending Estes Express and dozens of other carriers, said Giuliano was “turning upside down” case law designed to protect clients against Ponzi schemes like one conducted by embezzler Bernie Madoff. Madoff is serving 150 years in prison for fraud that was estimated at $64.8 billion.

“Carriers didn’t profit at all from the [TransVantage] fraud,” Zahralddin said. “They simply delivered what they were asked to.

“A true Ponzi scheme is something where some investors profit in some way, waiting to see who’s the last man standing. Our clients didn’t get anything from an investment. They have been dragged into this whole mess just because they accepted payment for delivering freight,” Zahralddin continued.

At stake are amounts such as a combined $103 million from just two companies that are challenging Giuliano: UPS Inc. and FedEx Corp. Those companies are Nos. 1 and 2 on the Transport Topics Top 100 list of for-hire carriers in the United States and Canada. Other individual fleets are targeted for as much as $30 million.

Giuliano and attorneys filing the cases didn’t respond to repeated calls and messages from TT for additional comment.

Craig Helmreich, a partner in the law firm Scopelitis, Garvin, Light, Hanson & Feary ,which is defending 47 companies, also questioned the trustee’s Ponzi scheme argument.

“Unlike a Ponzi scheme, this was real work performed by real transportation service providers, not early investors getting rich off later investors,” Helmreich told TT last week. “Despite this difference, the trustee seeks to recover all payments TransVantage made on behalf of its shippers to these transportation service providers in the four years prior to its bankruptcy!”

Zahralddin said that none of his clients had a ride in [Sooy’s] expensive cars or on the yacht. “It is ridiculous that the trustee has decided to turn law that helps to facilitate going after bad guys and go after the carriers.”

Zahralddin also noted that TransVantage contracts were with customers whose bills were audited and paid by the bankrupt company on the shippers’ behalf, and not directly with the carriers. That fact further separates fleets from involvement, he said.

Ferguson’s scheduling order for reviewing the case stretches into October. Court records show about 50 of the suits against carriers have been closed without stating the outcome.

By not putting the money in separate trust accounts, it was impossible to know whether accurate payment transactions occurred, Giuliano argued.

Sooy’s criminal case remains unresolved after six extensions to allow time for plea bargaining negotiations, court documents show.

In addition, Zahralddin noted an important cost factor, whether the amount sought is $10 million or $600,000.

Companies of all sizes require the same amount of legal work to defend themselves, which makes pooling of those costs an important factor in lowering expenses for smaller companies, he said.

The defense attorney also questioned what is happening to the money that the trustee does collect because it cannot be returned to Sooy.