Braniff Airways, Inc., In re

• Decision Date: 02 March 1983
• Docket Number: No. 83-1101,83-1101
• Citation: 10 B.C.D. 933,700 F.2d 935
• Parties: 8 Collier Bankr.Cas.2d 522, 10 Bankr.Ct.Dec. 933 In re BRANIFF AIRWAYS, INC., Debtor. PENSION BENEFIT GUARANTY CORPORATION, CONTINENTAL AIR LINES, INC., et al., Plaintiffs-Appellants Cross-Appellees, v. BRANIFF AIRWAYS, INC., et al., Defendants-Appellees, and Braniff Ticketholders Committee, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 935

700 F.2d 935

8 Collier Bankr.Cas.2d 522, 10 Bankr.Ct.Dec. 933

In re BRANIFF AIRWAYS, INC., Debtor PENSION BENEFIT GUARANTY CORPORATION, CONTINENTAL AIR LINES INC., et al., Plaintiffs-Appellants Cross-Appellees, v. BRANIFF AIRWAYS, INC., et al., Defendants-Appellees and Braniff Ticketholders Committee, Defendant-Appellee Cross-Appellant.

No. 83-1101.

United States Court of Appeals, Fifth Circuit.

March 2, 1983.

Rehearing and Rehearing En Banc Denied April 20, 1983.

Gerald Goldman, Hughes, Hubbard & Reed, Washington, D.C., Arthur L. Moller, Sheinfeld, Maley & Kay, Houston, Tex., for Continental Air Lines.

Marc Johnston, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for Federal Aviation.

Bruce H. Simon, New York City, for Air Line Pilots Ass'n Intern., et al.

Rufus S. Garrett, Jr., Fort Worth, Tex., for Delta Airlines.

James F. Parker, San Antonio, Tex., for Southwest Airlines.

James R. O'Donnell, Houston, Tex., Robert E. Cohn, Washington, D.C., for Peoples Exp. Airlines, Inc.

Alvin D. Shapiro, Kansas City, Mo., for U.S. Air, Inc.

Harold C. Abramson, Dallas, Tex., for United Airlines, Inc.

Ernest W. DuBester, Washington, D.C., for Intern. Ass'n of Machinists.

Kent G. Cprek, Washington, D.C., for Pension Benefit Guaranty Corp.

Ronald S. Orr, Los Angeles, Cal., for American Airlines.

Kent Kibbie, Fort Worth, Tex., for the Bank of New York.

John P. Campbell, New York City, W.B. West, III, Dallas, Tex., for U.S. Trust Co. of New York.

Sander L. Esserman, Dallas, Tex., for Secured Bond Owners Creditors Committee.

Edward L. Rothberg, Atty., Tax Div., Dept. of Justice, Dallas, Tex., for the U.S.

George G. Olsen, Washington, D.C., for Regional Airline Ass'n.

David Bonderman, Washington, D.C., Michael J. Crames, Andrew A. Kress, New York City, for Braniff.

Robert J. White, Los Angeles, Cal., R. Bruce Keiner, Jr., Washington, D.C., for Pacific Southwest Airlines, Inc.

L.N.D. Wells, Jr., Dallas, Tex., for Intern. Broth. of Teamsters.

St. Clair Newbern, III, Fort Worth, Tex., for Braniff Ticketholders Committee.

A.L. Vickers, Dallas, Tex., Philip Pierce, New York City, for Unsecured Creditors' Committee.

Hugh M. Ray, Houston, Tex., David T. Sykes, Philadelphia, Pa., for Ins. Co. Secured Creditors of Braniff.

John R. Blinn, Stephen A. Goodwin, Fort Worth, Tex., Alan B. Miller, New York City, for Secured Bank Lenders.

Robert L. Hoffman, Dallas, Tex., for Dallas-Fort Worth Regional airport bd.

Daniel C. Stewart, Dallas, Tex., for Interfirst Bank Dallas.

Appeals from the United States District Court for the Northern District of Texas.

Before GEE, GARZA and POLITZ, Circuit Judges.

GEE, Circuit Judge:

The facts and procedural history of this case are exceedingly complex. However, the succinct summary by the district court below is sufficient to afford an understanding of our decision today:

On May 13, 1982, Braniff and Braniff International Corporation ("International") filed petitions for reorganization under Chapter 11 of the Bankruptcy Code (the "Code") and were continued in the management and operation of their businesses and properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the Code. No trustee or examiner was appointed. Shortly thereafter, to minimize the effect of Braniff's termination of service, the Department of Transportation and Federal Aviation Administration (DOT/FAA) distributed to other carriers, on an emergency basis, approximately 100 of the over 400 [landing] slots allocated to Braniff. [For safety reasons, the FAA allocates hourly landing slots at airports among the various airlines. See Part II, infra.] On May 24, 1982, DOT/FAA issued Special Federal Aviation Regulation ("SFAR") 44-4, 47 Fed.Reg. 22,492 (1982) providing for allocation of the remaining slots formerly used by Braniff through participation by air carriers in a random draw.

Thereafter, on May 27, 1982, the Unsecured Creditors' Committee filed an Application seeking a declaration of whether the FAA allocation of former Braniff slots constituted a violation of the automatic stay under 11 U.S.C. Sec. 362 or of a temporary restraining order entered earlier by the Bankruptcy Court proscribing interference with Braniff's property. On June 24, 1982, the Bankruptcy Court approved a stipulation among the United States, Braniff, and the Unsecured Creditors' Committee, stating that the slots would be recalled and made available "[s]hould Braniff or an air carrier succeeding to the rights, duties and obligations of Braniff begin operations."

On December 23, 1982, Braniff filed an application for approval of a proposed agreement between Braniff and PSA. On December 30, 1982, Braniff filed with the Bankruptcy Court a "Memorandum of Understanding" as a basis for a proposed settlement and compromise of all claims, counterclaims, and potential litigations by and among Braniff, certain unsecured creditors, and certain secured creditors.

Between December 30, 1982, and January 3, 1983, various notices of hearings on the proposed agreements were mailed or published. These documents gave notice of a hearing to be held on January 14, 1983, to consider the matters set forth in the PSA Agreement and the Memorandum of Understanding. As stated in these notices, a hearing commenced before United States Bankruptcy Judge John Flowers on January 14, 1983, in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Bankruptcy Division.

From January 14, 1983, through January 26, 1983, all interested parties were afforded an opportunity to present evidence on their behalf. The Bankruptcy Court heard oral arguments on January 28, 1983, and announced its opinion in this matter on Monday, January 31, 1983. The Bankruptcy Court entered its "Order Regarding the PSA Agreement and Agreement and Stipulation" and its "Findings of Fact and Conclusions of Law Approving the PSA Agreement and Agreement and Stipulation" on February 1, 1983. On that same date, the Bankruptcy Court entered an order pursuant to Sections (e)(2)(A)(i) and (e)(3) of the Local Rule, certifying its order and findings for immediate review to the United States District Court for the Northern District of Texas.

In re Braniff Airways, Inc., No. CA4-83-57-E (N.D.Tex. Feb. 18, 1983) (unpublished memorandum opinion).

The Bankruptcy Court approved both the PSA Agreement and the Memorandum of Understanding between Braniff and its creditors (both agreements hereinafter jointly referred to as the "PSA transaction"). Pursuant to a Local Rule, ¹ the district court conducted a de novo review of the Bankruptcy Court's findings. In three days of hearings, the district court heard testimony, received evidence and heard oral argument. Thereafter, the district court, as had the Bankruptcy Court, approved the PSA transaction. Because business exigencies required that the PSA transaction be consummated soon if it was to happen at all, we granted this expedited appeal.

Three principal issues are presented. First, was the district court's approval of the PSA transaction authorized under Section 363(b) of the Bankruptcy Code, 11 U.S.C. Sec. 363(b)? Second, did the district court have the power to order the FAA to allocate certain landing "slots" at various airports to Braniff so that Braniff could transfer them in the PSA transaction? Third, did the district court have the power to order Braniff's assumption of its defaulted lease on terminal facilities at Washington National Airport and its subsequent assignment in the PSA transaction without FAA approval?

I.

The courts below approved the PSA transaction pursuant to Section 363(b) of the Bankruptcy Code, which provides:

The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.

11 U.S.C. Sec. 363(b).

The appellants contend that Sec. 363(b) is not applicable to sales or other dispositions of all the assets of a debtor, and that such a transaction must be effected pursuant to the voting, disclosure and confirmation requirements of the Code. See In re White Motor Credit Corp., 14 B.R. 584 (Bkrtcy.N.D.Ohio 1981). Braniff responds that cases decided before and after promulgation of the Code authorize a Sec. 363(b) sale of all of a debtor's assets. See In re Dania Corp., 400 F.2d 833 (5th Cir.1968); In re WHET, Inc., 12 B.R. 743, 750-51 (Bkrtcy.D.Mass.1981).

We need not express an opinion on this controversy because we are convinced that the PSA transaction is much more than the "use, sale or lease" of Braniff's property authorized by Sec. 363(b). Reduced to its barest bones, the PSA transaction would provide for Braniff's transfer of cash, airplanes and equipment, terminal leases and landing slots to PSA in return for travel scrip, unsecured notes, and a profit participation in PSA's proposed operation. The PSA transaction would also require significant restructuring of the rights of Braniff creditors. Appellants raise a blizzard of objections to each of these elements of the deal. It is not necessary, however, to decide whether each individual component of the PSA transaction is or is not authorized by Sec. 363 because the entire transaction was treated by both courts below as an integrated whole. Since certain portions of the transaction are clearly outside the scope of Sec. 363, the district court was without power under that section to approve it. Its order must be reversed.

Three examples will illustrate our rationale. The PSA Agreement provided that Braniff would pay $2.5 million to PSA in exchange for $7.5 million of scrip entitling the holder to travel on PSA. It further required that the scrip be used only in a future Braniff reorganization and that it be issued only to former Braniff employees or shareholders or, in a limited amount, to unsecured creditors. This provision not only changed the composition of Braniff's assets, the contemplated result under Sec. 363(b), it also had the...