In re Air Florida Systems, Inc., Bankruptcy No. 84-01233-BKC-SMW-A
| Decision Date | 01 July 1985 |
| Docket Number | Bankruptcy No. 84-01233-BKC-SMW-A,Adv. No. 84-0667-BKC-SMW-A. |
| Citation | 50 BR 653 |
| Parties | In re AIR FLORIDA SYSTEMS, INC., Debtor. AIR FLORIDA SYSTEMS, INC., and Air Florida, Inc., Plaintiffs, Official Statutory Creditors Committee, Intervenor, v. UNITED STATES of America, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Arnold D. Schatzman, Britton, Cassel, Schantz & Schatzman, P.A., Miami, Fla., for Creditors Committee.
John K. Olson, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa, Fla., for Air Florida.
Richard F. Mitchell, Dept. of Justice, Tax Div., Washington, D.C., for the U.S. (I.R.S.).
Charles L. Schlumberger, J. Christopher Kohn, Daniel E. Loeb, Dept. of Justice, Civil Div., Washington, D.C., for the U.S. (F.A.A.).
Robert A. Greenspon, Robinson & Cole, Stamford, Conn., for GPA.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This Cause came on before the Court on March 15, April 11, and April 18, 1985 on the Debtor's complaint against the Defendant, United States of America, Internal Revenue Service, to avoid pre and post petition transfers pursuant to 11 U.S.C. §§ 547 and 549. The complaint sought to recover from this Defendant: a) $8,021,209.28 paid by AIR FLORIDA to the IRS as a claimed preference (Count I); b) $650,000.00 paid by AIR FLORIDA to the IRS as a claimed improper postpetition transfer (Count II); and c) $680,000.00 which AIR FLORIDA currently holds subject to this Court's ruling in this adversary case (Count III).
The FEDERAL AVIATION ADMINISTRATION (FAA), GPA CORPORATION, GPA LEASING (NA) N.V. and GPA GROUP LTD. (collectively GPA), were joined as Defendants in Counts II and III only because they claim a security interest in any sums AIR FLORIDA recovers from the IRS. The FAA and GPA claims have been bifurcated pending the results of this trial. The OFFICIAL STATUTORY CREDITORS COMMITTEE of the unsecured creditors (COMMITTEE), was permitted to intervene due to the magnitude and importance of this matter and because of a potential conflict of position by AIR FLORIDA relating to the claims which are the subject of Counts II and III of the complaint.
The Court having heard the testimony, examined the evidence, observed the candor and demeanor of the witnesses, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
COUNT I ISSUES
During portions of the calendar year 1983, AIR FLORIDA incurred federal excise tax obligations totalling $3,952,062.98 and federal wage related tax obligations totalling $4,069,146.30. The IRS filed its notices of tax lien on December 22, 1983 ($4,352,664.30); February 1, 1984 ($1,541,937.09); and February 2, 1984 ($2,126,607.89); totalling $8,021,209.28. These lien notices were filed with the Clerk of the Circuit Court in Dade County, Florida. No notices of lien were filed with the office of the FAA in Oklahoma City, Oklahoma, nor were they filed with the United States District Court for the Southern District of Florida.
Beginning as early as December, 1983, AIR FLORIDA was engaged in negotiation for the sale of four Boeing 737.200 advanced aircraft, which culminated in GPA's subsequent purchase of them in April and May, 1984. After a careful review of the evidence, the Court finds the total purchase price to be the sum of $47,000,000.00. AIR FLORIDA deemed it necessary to satisfy in full these tax notices of $8,021,209.28 in order to allow AIR FLORIDA to proceed with the sale because the IRS claimed liens upon the aircraft by virtue of its filed lien notices.
After satisfying superior lienholders' interests, the sale of the four aircraft realized only $5,410,954.00 to be applied to the IRS debt. AIR FLORIDA borrowed $2.6 million from GPA which, together with $68,895.23 of AIR FLORIDA's own funds, was used to satisfy the IRS obligation.
It is not disputed that these payments to the IRS were made for an antecedent debt, paid within ninety (90) days of the bankruptcy petition, and made at a time when AIR FLORIDA was insolvent. Nor is it disputed that the monies necessary to satisfy the IRS claim came exclusively from GPA's cashiers checks payable and delivered directly to the IRS, plus $68,895.23 paid from AIR FLORIDA's general funds.
The Court further finds that if AIR FLORIDA had been liquidated under Chapter 7 on July 3, 1984, the sum realized would have been insufficient to pay AIR FLORIDA's debt to IRS under distribution priorities established by 11 U.S.C. § 507 and thus any payment received by the IRS was preferential.
The IRS claimed a lien for taxes on all assets of the Debtor. Other than an equity in the aircraft sold, all assets of AIR FLORIDA were fully encumbered, except for AIR FLORIDA's accounts receivables. These receivables must be evaluated by considering evidence of setoffs, uncollectable accounts, AIR FLORIDA's declining revenue base, sums actually received but not recorded, rejected and unidentifiable credit card items and the generally poor state of AIR FLORIDA's financial condition and record keeping at the times material to this case. The Court finds from the evidence relating to these factors that AIR FLORIDA's accounts receivable did not exceed $1.7 million.
At the time of the filing of the IRS's first lien INTERFIRST BANK DALLAS, N.A. held a first priority lien upon AIR FLORIDA's receivables which was subsequently assigned to the FAA as of January 6, 1984. In the FAA's hands, this lien secured $6 million of debt owed to the FAA, which clearly establishes a lack of equity in the receivables for the IRS. The IRS lien could not attach to the accounts receivable, as they were valued out pursuant to Section 506.
Section 724(b) of the Bankruptcy Code requires that certain administrative expenses and other priorities be paid before a valid tax lien is satisfied. Thus, even where a valid tax lien exists, payments made on that lien within the 90 days preceding bankruptcy can result in the IRS receiving more than it would have under a Chapter 7 liquidation and thus constitute avoidable preferences. See In re R & T Roofing Structures & Commercial Framing, Inc., 42 B.R. 908, 915 (D.Nev.1984); In re Scherbenske Excavating, Inc., 38 B.R. 84, 87 (Bankr.D.N.D.1984); Matter of Community Hospital of Rockland County, 15 B.R. 785, 788-89 (Bankr.S.D.N.Y.1981). Indeed, this Court has expressly recognized that application of §§ 547 and 724(b) can produce this result. In re Debmar Corp., 21 B.R. 858, 862 (Bankr.S.D.Fla.1982).
This Court, considering principles established in United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983), stated in In re Debmar Corp., supra, that such sums as the government may have received during the 90-day period could be avoided as a preference, provided the necessary elements of § 547 were proved. Such sums constitute property of the estate. 11 U.S.C. § 541.
Considering the prime bankruptcy policy of equality of distribution among creditors, together with the additional purpose of § 547 of preventing courthouse races by creditors shortly before bankruptcy to economically and otherwise dismantle the debtor, it is more reasonably understood that the recovery of property preferentially transferred serves the best interest of all creditors and promotes a level of comfort that no creditor will receive a greater payment than others of his class. To this end, neither the Bankruptcy Code, nor any other legislation, permits the IRS to be treated any more favorably than any other creditor of the estate. See In re R & T Roofing Structures, supra.
The IRS argues that its release of lien constitutes "new value" and thereby prevents this Court finding a preferential transfer. However, a release of a lien, in and of itself, cannot constitute new value. See Matter of Lario, 36 B.R. 582 (Bankr.S. D.Ohio 1983) (); In re Ken Gardner Ford Sales, Inc., 23 B.R. 743 (Bankr.E.D.Tenn.1982) (); In re George Rodman, Inc., 39 B.R. 855 (Bankr. W.D.Okla.1984) ().
Ordinarily, aircraft liens are recorded pursuant to the recording instructions found in the Federal Aviation Act. 49 U.S.C. § 1403 of that Act requires liens be filed in the office of the Administrator in Oklahoma City, Oklahoma. Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 103 S.Ct. 2476, 76 L.Ed.2d 678 (1983); In re La Mancha Aire, Inc., 41 B.R. 647 (Bankr.S.D. Fla.1984). However, 14 C.F.R. § 49.17 provides certain exceptions with respect to the filing of a notice of federal tax lien. This Rule provides that federal tax liens against aircraft be filed in accordance with requirements of the Internal Revenue Code (26 U.S.C. § 6323).
14 C.F.R. § 49.17 appears, on its face, to conflict with the Congressional policy that all instruments affecting civil aircraft be filed with the FAA in Oklahoma City in order to be effective. 49 U.S.C. § 1403; Philko Aviation, Inc. v. Shacket, supra. Indeed, legislative history states that "to determine whether there are any encumbrances on an aircraft, it is only necessary to consult the central file." S.Rep. No. 1060, 88th Cong., 2d Sess., p. 2 (June 5, 1964); U.S.Code Cong. & Admin.News 1964, pp. 2319, 2320. The same rules apply for liens held by the United States as for liens held by private citizens. U.S. v. United Aircraft Corp., 80 F.Supp. 52 (D.Conn. 1948). It would thus appear that 14 C.F.R. § 49.17 conflicts with 49 U.S.C. § 1403 to the extent it purports to exempt federal tax liens from central filing requirements. However, the apparent conflict is cured under Florida law by Florida Statutes § 329.01.
The Internal Revenue Code directs that federal tax liens be recorded in accordance with the filing requirements of state laws. 26 U.S.C....
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