Debtor v. Tracon Int'l, Inc. (In re Coral Air, Inc.), Civil No. 84/156
| Decision Date | 30 May 1984 |
| Docket Number | Civil No. 84/156 |
| Citation | 21 V.I. 7 |
| Parties | In the Matter of CORAL AIR, INC., Debtor v. TRACON INTERNATIONAL, INC. and TRACON INTERNATIONAL AIRLINES, INC., Intervenors |
| Court | U.S. District Court — Virgin Islands |
Motion of creditors of airline, who were included in a plan of reorganization approved by the Bankruptcy Court, to convert the reorganization of the airline to a liquidation.The District Court, O'Brien, J., held that since conversion was an extreme step, the motions would be held in abeyance and the court would fashion relief aimed at protecting the airline and its creditors by exercising its authority under the Bankruptcy Act and the order confirming the plan.GEORGE H. T. DUDLEY, JR., ESQ., St. Thomas, V.I., and HAROLD M. COHEN, ESQ., Millburn, N.J., for debtor
GERALD T. GRONER, ESQ., St. Croix, V.I., for intervenor
EDWARD HASKINS JACOBS, ESQ., St. Croix, and KURT E. JOHNSON, ESQ., Glen Rock, N.J., for intervenor
KENNETH A. ROSSKOPF, ESQ., St. Croix, V.I., for intervenor
WARREN B. COLE, ESQ., St. Croix, V.I., for intervenor
TODD NEWMAN, ESQ., St. Croix, V.I., for intervenor
SCOTT SILVERLIGHT, JR., ESQ., St. Croix, V.I., for intervenor
DOUGLAS CAPDEVILLE, ESQ., Assistant U.S. Attorney, St. Croix, V.I., for intervenor
NAN L. BLUMENFELD, ESQ., St Thomas, V.I., for intervenor
PATRICIA M. FITCH, ESQ., St. Croix, V.I., for intervenorDERECK M. HODGE, ESQ., St. Croix, V.I., for intervenor
JOHN F. JAMES, ESQ., St. Croix, V.I., for intervenor
MEMORANDUM OPINION
Several creditors of Coral Air, Inc.("Coral Air"), who were included in a plan of reorganization approved by the Bankruptcy Court, filed motions under 11 U.S.C. § 1112(b)(7) and (8) to convert this matter from a reorganization under 11 U.S.C. Chapter 11("the Bankruptcy Act") to a liquidation under Chapter 7 of the same act.They assert failure of Coral Air and others to meet the terms and conditions of the order approving the plan, and they claim a material default by Coral Air in meeting its obligations under the plan.
The Court will hold the motions for conversion in abeyance, and will fashion relief aimed at protecting Coral Air and its creditors under the plan, by exercising its authority under the Bankruptcy Act and the order confirming the plan.1
Coral Air, a small commercial airline serving the Virgin Islands, Puerto Rico and other Caribbean islands, filed its petition for reorganization under the Bankruptcy Act in 1981.On August 6, 1982, after rejecting one proposed plan, the Bankruptcy Court approved a plan submitted by Coral Air and Sun Rae, Inc., the latter a corporation still to be formed.Sun Rae, Inc., never came into existence, and its obligations under the plan became the responsibility of the individuals who undertook its implementation as shareholders of the approved, reorganized Coral Air.They were Joseph H. Jaffe, Carol Rae Culliton and Harold M. Cohen, Esq.
Under the plan, the claims of many, many unsecured creditors, themselves struggling businesses in this territory and elsewhere, were discharged and Coral Air was freed of their payment.A limited number of creditors were given coverage in the plan, and Coral Air remained responsible for payment of those debts.
The new shareholders operated Coral Air continuously from August 6, 1982, until September 1983, when they sold their shares under a stock purchase agreement to Tracon International, Inc.("Tracon").One of the exhibits to that agreement was the plan of reorganization and the order confirming the plan.While Coral Air remained responsible for implementing the plan as the debtor, Tracon took over the responsibilities of Jaffe, Culliton and Cohen as shareholders.
The net effect of the transfer of control of Coral Air in terms of implementing the plan, however, was nil.This is because the Jaffe-Culliton-Cohen group had largely ignored the creditors under the plan, and these creditors fared no better under Tracon's direction of Coral Air.
It appears that Tracon took things a step further.It caused the assets of Coral Air, with two exceptions, to be transferred to a corporation it created, Tracon International Airlines, Inc.("TIA").This put those assets effectively beyond the reach of any creditors of Coral Air.The two assets not transferred were not capable of transfer.One was a so-called "interline account" by which Coral Air was credited monthly for passengers traveling on its routes with tickets issued by travel agents and other airlines.This account, in Chase Manhattan Bank, N.A. in New York, was not an actual checking account.Rather, at the end of each month, having been advised of a balance, if any to its favor, Coral Air could transfer by check the funds held there to its credit, to any account it chose.Under Tracon's control, the funds were transferred to accoun which did not bear the name of Coral Air.
The interline account served another purpose.Persons should be given Coral Air tickets for their own use on certain airlines where those airlines had granted permission by interline agreements.The usage of those tickets would be treated as a debit to the same account.This opportunity to use Coral Air tickets for widespread travel on other airlines could be a bonanza to unscrupulous persons, unless carefully controlled.
The second asset not transferred was the actual Federal Aviation Administration certificate granting Coral Air the right to act as a commercial air carrier in certain designated areas.It could not be summarily transferred.Tracon, however, circumvented this roadblock by the simple expedient of using TIA as manager of Coral Air under the certificate of the latter.
For a short time after transfer of Coral Air by the Jaffe-Culliton-Cohen group to Tracon, Jaffe and Culliton remained to continue to operate the airline.On January 10, 1984, a confrontation took place between Jaffe and Culliton on the one hand, and Tracon on the other, wherein the former arranged for armed guards to convergeon the Coral Air hangar and disrupt Coral Air operations.The expressed intent of Jaffe and Culliton was apparently to "gain the attention" of Tracon officials to their grievances over Tracon's failure to meet its obligations under the stock purchase agreement.2
This exercise in self-help quickly gained Tracon's attention.On January 11, 1984, a modification to the stock purchase agreement was signed by all the parties, and Jaffe and Culliton exited from further involvement in Coral Air operations.
On March 13, 1984, this Court, in a related matter, C & W Electronics, Inc. v. Coral Air, Inc., Civil No 83/10, decided to withdraw the entire matter of Coral Air from the Bankruptcy Court to the District Court pursuant to the Rules for the Interim Administration of the Bankruptcy Court adopted for the District of the Virgin Islands.
Thus did the District Court enter the maelstrom of Coral Air's affairs, and unexpectedly confront a thicket of contention.
[1, 2] Once a plan of reorganization is approved by the Bankruptcy Court, what jurisdiction does that Court, or the District Court have, over the matter?There is no question we have the power conferred by section 1112(b)(7) and (8) of the Bankruptcy Act.If dissatisfied creditors, covered in the plan, converge on the Court demanding conversion, and they cite valid reasons, the Court can grant the conversion.This is an extreme step, however, and should be exercised only when a Court is satisfied that no fruitful avenue remains, other than liquidation.
[3]The authority of the Court to take intermediate steps to enforce the plan, as an alternative to liquidation, rests in section 1142 of the Bankruptcy Act, which grants the Court power to direct the debtor "and any other necessary party" to perform any act "necessary for the consummation of the plan."3
[4] Clearly then, so long as the plan has not been terminated by fulfillment of its terms, the Court retains wide jurisdiction on a continuing basis to oversee those responsible for implementation of the plan, and to enter appropriate orders to enforce the intent and specific provisions of the plan.
That authority is furthered in this instance in the order granting approval entered on August 6, 1982, by which the Court retained jurisdiction "to make such orders as are necessary or appropriate to carry out the provisions of this Plan."
To this Court, those persons responsible under the law, the Plan, and the order confirming the plan include the debtor itself, Coral Air, no matter who controls it, the Jaffe-Culliton-Cohen group which submitted the plan to Bankruptcy Court and gained its approval, and anyone else to whom control of Coral Air is relinquished while the plan is still in effect.That latter entity in this case would be Tracon and the corporation it created to manage Coral Air, TIA.Indeed, it was for the purpose of having Tracon and TIA subject to the continuing orders of this Court in respect to the plan, that they were promptly granted permission to intervene in this matter.
At the May 24, 1984, hearing requested by certain creditors, a veritable parade of lawyers appeared.Their collective refrain was identical: their clients were creditors under Classes Three through Five of the plan (Classes One and Two have been paid in full).They have not been paid.Agreements for payment have been ignored.They want action.Other creditors in Class Five, claiming wages due, also stood and asked to be paid.
Nearly all creditors expressed concern that because Tracon had arranged the transfer of Coral Air's attachable assets, pursuit of Coral Air to obtain judgment liens would be fruitless.
Harold M. Cohen, Esq., speaking for Coral Air, himself, Jaffe and Culliton, promised that new money would be quickly forthcoming if they remained in control of Coral Air.They had been placed back in control of Coral Air by order of this Court, entered effective May 21,1984, in the action by Jaffe, et al., supra.4He...
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...order payments to creditors from specific accounts and direct that funds be held so as to implement the plan."); In re Coral Air, Inc., 21 V.I. 7, 12, 40 B.R. 979 (1984) (noting that section 1142(b) permits a court "to enter appropriate orders to enforce the intent and specific provisions o......