Thinklink Corp., a unified messaging service provider, entered into an agreement with Lycos, which operates a network of websites. Lycos agreed to promote Thinklink’s messaging service on Lycos websites exclusively for two years.

Thinklink eventually defaulted on one of its payments; Lycos nevertheless continued to display links to Thinklink’s messaging service. Lycos and Thinklink renegotiated their agreement, shortening the exclusivity period to 90 days and reducing Thinklink’s remaining payments from over $17 million to $1 million plus stock. Thinklink delivered the $1 million but not the stock, and about two months later made a voluntary general assignment for the benefit of creditors to Sherwood Partners. Sherwood shut down Thinklink’s business and sued Lycos in state court to recover the $1 million payment as a preferential transfer. Lycos argued that the ABC statute was preempted by the Bankruptcy Code and could not be enforced.

CASE QUESTIONS

1. Who prevails and why?
2. Why did Thinklink agree to an ABC agreement with Sherwood?