In a recent decision by the influential Third Circuit Court of Appeals, In re KB Toys Inc., 2013 U.S. App. LEXIS 23083 at *17 (3d Cir. Nov. 15, 2013), the Court decided that “the cloud on the claim” stemming from a preferential payment made to the original claimant continues with the claim, which then could be disallowed.

In an adversary proceeding arising out of the Chapter 11 case of Residential Capital, LLC (“ResCap”), the bankruptcy court denied in part and granted in part a secured lenders’ motion to dismiss certain claims in the case. Official Comm. Of Unsecured Creds. V. UMB Bank, N.A. (In re Residential Capital, LLC), Adv. P. No. 13-01277, -- B.R. --, 2013 WL 4069512 (Bankr. S.D.N.Y. Aug. 13, 2013). At issue was certain collateral, which was part of the secured lenders’ collateral, that the lenders released to enable ResCap to pledge it to different third parties.