Assignee's Preference Avoidance Power

In Sherwood Partners, Inc., Assignee for the Benefit of Creditors of International Thinklink Corporation v. Lycos, Inc., 394 F.3d 1198 (9th Cir. 2005), the Ninth Circuit Court of Appeals, by a divided court, recently held that a state statute authorizing an assignee for the benefit of creditors to void a preferential transfer is preempted by the federal Bankruptcy Code. The Ninth Circuit majority's theory was that because the right to void preferences was granted by state law to the assignee, but not to an individual creditor, the state statute “trenched too closely” on the federal bankruptcy power, which thus preempted the state law. The majority opinion was authored by Judge Alex Kozinski. The dissent was by Judge Dorothy W. Nelson. The Ninth Circuit denied a petition for rehearing and suggestion for rehearing en banc. Sherwood Partners, Inc. (Sherwood), has filed a Petition for Writ of Certiorari with the U.S. Supreme Court.

The majority opinion of the Ninth Circuit concluded that the United States Bankruptcy Code (Title 11 of the United States Code), enacted pursuant to the Bankruptcy Clause of the United States Constitution (U.S. Const. art. I, ' 8, cl. 4), preempts California Code of Civil Procedure Section 1800 (C.C.P 1800) Cal. Civ. Proc. Code ' 1800 (C.C.P. ' 1800) in pertinent part, provides that: