If your holiday to‑do list includes lights, cocoa, and some year‑end legal news, here’s a little stocking stuffer for you. In a recent decision from the United States Bankruptcy Court for the District of Delaware, Judge Thomas M. Horan dismissed a preference lawsuit tied to the Chapter 7 case of Christmas Tree Shops, LLC. Think of this decision as the court checking its list twice and finding the complaint a little light on pre-filing due diligence. Let’s unwrap the opinion and see what it means for businesses and professionals dealing with preferences in the new year.

‘Tis the Season for Preferences

A “preference” suit is a bankruptcy claim where the estate tries to claw back payments made to creditors in the 90 days before the bankruptcy filing. The idea is to make sure one creditor didn’t get a sleigh‑ride advantage over others right before the company filed bankruptcy. Here, the trustee sued a vendor to recover roughly $736,000 in alleged preferential transfers. The vendor asked the court to dismiss the case. The reason? The complaint didn’t say that the trustee had done the diligence about potential defenses that Congress now requires before bringing a lawsuit.

‘Twas the Night Before Suing

Under Section 547(b) of the Bankruptcy Code, as updated by the Small Business Reorganization Act, a trustee has to do “reasonable due diligence” and take into account a target’s known or reasonably knowable defenses before filing a preference complaint. Picture Santa reviewing purchase orders, invoices, and payment histories like a North Pole auditor: the law expects at least a basic, good‑faith check before dropping a lawsuit down someone’s chimney.

The court treated that requirement as a “condition precedent.” Translation: it’s a threshold box that must be checked in the complaint under Civil Rule 9(c). You don’t need to write a whole  novel about your analysis, but you do need to say you did the work.

Why this Complaint Landed on the Naughty List

The trustee’s complaint mentioned that the defendant might assert defenses (like ordinary course of business or new value) and that the defendant bears the burden of proving those defenses. But that’s not the same as saying, “we did our due diligence and considered those defenses before filing.” Without a general allegation of due diligence, the pleading fell short, and the court granted the motion to dismiss (without prejudice).

What it Takes to Make the Nice List

The court pointed to other cases where complaints survived because they said enough about diligence. In those cases, plaintiffs alleged that they reviewed records, evaluated reasonably knowable defenses, and even made a preliminary pass at “new value” math. Nothing overly detailed—just enough to show they had looked under the wrapping paper before declaring what the gift was. By contrast, the Christmas Tree Shops complaint didn’t use the words “due diligence” or include equivalent language from which diligence could be inferred.

One more Procedural Bow: Asking to Amend

The trustee asked for permission to amend the complaint if the court found a problem. The court said “not yet.” In the Third Circuit (which includes Delaware), if you want leave to amend, you’re expected to attach your proposed amended complaint so the judge can see whether it would fix the issue. No attachment, no go. The court denied leave to amend without prejudice, but left the door open for the trustee to come back within a short window with a draft and a redline.

Why this Decision Matters beyond the Twinkle Lights

For anyone doing business with companies that might later file for bankruptcy—think suppliers, service providers, and lenders—preference suits are a fact of life. This decision is a reminder that Delaware courts expect plaintiffs to allege, up front, that they’ve done the pre‑suit diligence Congress requires. That expectation can streamline cases, encourage better pre‑filing review, and sometimes nip weak claims in the bud.

For potential defendants, this creates a straightforward early defense: if a complaint doesn’t say the plaintiff did due diligence and considered known or reasonably knowable defenses, a motion to dismiss might be your best ornament on the tree. It doesn’t end the case forever (dismissals like this are typically without prejudice), but it can force a clean re‑plead and change the opening moves of settlement talks.

A New Year’s Resolution: what proper Due Diligence looks like

For trustees, think of “due diligence” as a short checklist before lawsuit season:

• Review the debtor’s books and records—purchase orders, invoices, payment dates.
• Consider obvious defenses—ordinary course of business, contemporaneous exchanges, and subsequent “new value” (later deliveries or services that may offset earlier payments).
• Make a basic, good‑faith assessment that, even after accounting for those defenses, some payments are likely recoverable.

If a complaint says, in general terms, that this checklist happened, it’s usually enough to clear the pleading bar. If it doesn’t, the court may send it back for a rewrite faster than you can say “figgy pudding.”

Delaware Cheer: what practitioners should keep in mind

• Delaware courts view the due‑diligence clause as a real, enforceable threshold. Expect Rule 9(c) to apply and plan your pleadings accordingly.
• The court’s examples of “good” complaints aren’t long; they’re just concrete. A sentence or two explaining that you reviewed records and considered defenses often does the trick.
• Procedure matters. If you’re seeking leave to amend, attach a proposed amended complaint.
• For plaintiffs and estate fiduciaries: Add one clear paragraph to every preference complaint stating that you conducted reasonable due diligence and considered known or reasonably knowable defenses, based on a review of the debtor’s records. When in doubt, include a brief nod to ordinary course, contemporaneous exchange, and new value. And if you need to amend, file the proposed amendment with your request.
• For defendants and recipients of year‑end demand letters: Read the complaint like a wish list. If there’s no due‑diligence statement, consider a motion to dismiss. Meanwhile, gather your records—payment history, credit terms, and delivery documents—so you’re ready to show ordinary course or new value. Strong facts now can trim back exposure later.

The Big Picture, Wrapped up with a Bow

The Christmas Tree Shops decision doesn’t change the law in a dramatic way. It reinforces a common‑sense expectation that’s been part of Section 547(b) since its SBRA update: do your homework, say you did your homework, and then bring your claim. That clarity helps everyone. Plaintiffs know what to allege. Defendants know what to challenge. And courts can focus on the cases that belong on the “nice” list.

As the holiday season rolls on, consider this a gentle reminder: whether you’re decorating your storefront, finalizing year‑end invoices, or sorting through legal risks before the ball drops, a little preparation and a clear record can go a long way. In Delaware, at least, courts are making sure preference complaints arrive with the right tag, the right ribbon, and proof that someone checked the list twice before placing it under the Christmas tree.