Patrick James Urges Court to Toss First Brands’ Fraudulent Transfer Suit Against Him, Casts Blame on Company, ‘Predatory’ Creditors

First Brands’ founder and former CEO, Patrick James, has moved to dismiss the debtors’ lawsuit to claw back “hundreds of millions (if not billions) of dollars” from him and his companies. James argues First Brands is trying to blame him for alleged massive fraud that led to the company’s freefall bankruptcy, even though the debtors themselves engaged in the wrongdoing. First Brands’ unclean hands prevent it from recovering against its founder, according to the brief.

In the suit, the debtors accuse James of fraudulently transferring hundreds of millions of dollars from the company to himself, his companies and his family. First Brands alleges that James used fake invoices to incur at least $2.3 billion in factoring liabilities and deployed special purpose vehicles to incur at least $2.3 billion in additional debt, double-pledging collateral in the process. Judge Christopher Lopez has tentatively scheduled a two-week trial in the suit for June 2026.

In the motion to dismiss, James says the parties are still unearthing facts in this early stage of the litigation. But so far, “other than conclusory and unsupported assertions that the Debtors’ conduct was undertaken at Mr. James’ direction (which assertions Mr. James disputes), there are no allegations that Defendants (as opposed to the Debtors) took any of the actions underlying the purportedly wrongful conduct,” according to the brief (emphasis added).

Meanwhile, the defendants argue, “it becomes increasingly clear that other parties that the Debtors simply did not consider as potential targets for investigation and estate claims may have engaged in wrongdoing that they seek to pin on Mr. James.” For example, James asserts “certain factors’ conduct may have invited the review of regulatory authorities,” citing media reports that the U.S. Securities and Exchange Commission is seeking information on whether Jefferies gave investors in its Point Bonita fund enough information about their exposure to the auto business.

James also suggests certain creditors may be to blame for the downfall of the business. He cites reporting that Raistone, “who was supposedly so disgruntled with First Brands that it was the first party to seek the appointment of an examiner,” “openly admitted during a conference in New York earlier this month that ‘a lot of people made a lot of money over many, many, years on First Brands … So they’re not all sad. They’re not all kicking themselves.’”

Turning to SPV lender Onset Financial, James says Onset “charged onerous fees” to accrue a claim it contends is $1.9 billion, “but incidentally has a guaranty from Viceroy that is inconsistent with its claim to be an equipment lender and more consistent with a commercial payday loan.” The former CEO asserts “these off-balance-sheet lenders’ predatory practices drilled the Company in the weeks leading up to” the bankruptcy and “the lenders themselves may face liability for chapter-5 transfers or improperly charging unconscionable fees and defaulting the Company” (emphasis added). Onset has moved to intervene in the adversary proceeding, saying it can provide the court with valuable information on how the First Brands founder and his brother Edward James lured Onset into lending.

Broadly, James insists the court must toss the debtors’ equitable claims against him – unjust enrichment, money had and received, accounting, and constructive trust – under the doctrine of in pari delicto (in equal fault), which prevents one wrongdoer from recovering against another. The former CEO also challenges fraud claims in the complaint, saying they do not meet pleading standards because they are so imprecise on the “who, what, when, where, and why as to the fraudulent conduct.”

The former CEO says the debtors’ claims are generally bare-bones and fail to include key elements to establish fraud. James also points to the evidence adduced at a November hearing where Judge Lopez denied the debtors a preliminary injunction that would have frozen James’ bank accounts. He says the hearing involved the review of “millions of pages” of documents, more than 60 trial exhibits and nearly six hours of testimony, but the debtors “did not directly link Mr. James to any allegedly manipulated invoices or double-pledged collateral,” nor did they “show he concealed facts.”

“It is implausible to suggest one individual is singularly responsible for what the Debtors claim is $2.3 billion of irregular ‘factoring’ and $2.3 billion of off-balance-sheet financing,” James asserts.

On third-party factoring, the defendants say the complaint “does not connect Mr. James to the factoring,” other than conclusory allegations that James “and his co-conspirators’ activities included” issuing “erroneous or fabricated invoices in connection with accounts receivable factoring activities” or that “upon information and belief” this happened at James’ direction.

As for the off-balance-sheet financing, the former CEO says the complaint only states that James’ activities “and those of his coconspirators” included “issues involving off-balance sheet financing arrangements,” without saying what those issues are.

All eight counts in the complaint must be dismissed, James continues, because the debtors do not list the transfers they seek to challenge, the dates, the entity whose property was transferred, whether the debtors making the transfers were insolvent and “how or why the transfers were made for less than reasonably equivalent value or with the intent to hinder, delay, and defraud creditors.” “If the payments are not listed,” James says, “then no determination can be made with respect to solvency or value” (emphasis added).

James further argues many of the equitable and fraud claims are untimely because they fall outside the lookback periods or statutes of limitations under the Bankruptcy Code or applicable state law. For example, he asserts the fraudulent transfer claims are subject to a two-year lookback under the Bankruptcy Code and a four-year lookback under Delaware and Ohio law – meaning the lookback periods extend to Sept. 28, 2023, and Sept. 28, 2021, respectively. But the debtors seek to avoid allegedly fraudulent transfers “dating back to at least 2018,” according to the motion.

The First Brands founder also defends what he calls the company’s “strong fundamentals,” saying the business is not actually “crumbling under the weight of the alleged fraud perpetrated by Mr. James.” He highlights the company’s 25 “well-known brands,” saying its sales grew to $5 billion in 2024 from $500 million in 2018 even in the face of the Covid-19 pandemic, supply chain disruptions and increasing interest rates.

Prepetition term lenders’ agreement to provide $1.1 billion in new-money DIP financing is a further testament to the resilience of the business, James says, without mentioning recent reports that the company will soon need more funding. However, he argues that “even a company as strong as First Brands could not absorb both extraordinary, intervening events, e.g., tariffs, and usurious factor and off-balance-sheet lending practices” (emphasis added).

James urges Judge Lopez to dismiss the complaint in its entirety because it is “so bereft of baseline facts … [that the defendants] are incapable of fully defending against those claims.” But if the judge does not, he argues the debtors should be required to give a more definitive statement of their claims and provide more details on the transfers they seek to challenge.

James and his affiliates maintain that they are entitled to demand a jury trial with respect to claims filed in the adversary suit and reserve their rights to make such a demand or seek to withdraw the reference from the bankruptcy court at the appropriate time.

The brief includes the following chart summarizing James’ arguments on why he believes the claims in First Brands’ complaint should be dismissed: