In re Airwest Intern., Bankruptcy No. 86-00145.
| Decision Date | 10 March 1987 |
| Docket Number | Bankruptcy No. 86-00145. |
| Citation | 70 BR 914 |
| Parties | In re AIRWEST INTERNATIONAL, dba Air Hawaii, Debtor(s). |
| Court | U.S. Bankruptcy Court — District of Hawaii |
Cuyler Shaw, Honolulu, Hawaii, for First Interstate Bank.
Christian Porter and Susan Ichinose, Honolulu, Hawaii, for Trustee.
First Interstate Bank of Hawaii ("First Interstate") filed a Motion to Lift Automatic Stay on October 15, 1986, and the final hearing was held on December 10, 1986 and February 11, 1987. Present at the hearing were Cuyler Shaw, Esq., appearing for First Interstate, Susan Ichinose, Esq. and Christian Porter, Esq., appearing for the Trustee, Richard Kennedy. The Court, having reviewed and considered the memoranda and affidavits filed in support of and in opposition to the motion, and having heard arguments of counsel at said hearing, hereby makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. On or about December 9, 1985, Airwest International, ("Air Hawaii"), filed a written application requesting that First Interstate issue a standby letter of credit on its behalf in favor of the City and County of San Francisco and its Airport Commission ("S.F. Airport Commission") in the amount of $23,000.00 to serve as a guaranty of Air Hawaii's payment and performance under certain operating agreements between Air Hawaii and the Airport Commission. The application bore a hand-written notation "TCD $20,872.17 pledged plus check $2,127.83 to be placed on TD".
2. On or about December 9, 1985, First Interstate issued a standby letter of credit in favor of the S.F. Airport Commission in the amount of $23,000.00. The expiration date on the letter of credit was December 10, 1986.
3. On or about December 9, 1985, Air Hawaii pledged two certificates of deposit to First Interstate to secure Air Hawaii's obligations to reimburse First Interstate for any amounts disbursed by First Interstate under the letter of credit. The pledged certificates included certificate of deposit No. 134632, dated November 22, 1985, for $20,872.17 and certificate of deposit No. 136305 dated December 9, 1985, for $2,127.83.
4. The terms and conditions upon which First Interstate held the certificates of deposits as collateral for the letter of credit in favor of the S.F. Airport Commission were set forth in a Security Agreement dated December 9, 1985 signed by Air Hawaii.
5. Although the Security Agreement specified that each certificate of deposit would secure not only Air Hawaii's obligations to reimburse First Interstate for any amounts drawn against the Airport Commission letter of credit, but that they would also serve as "collateral security for the payment of any and all overdrafts, liabilities, claims, obligations and other indebtedness" of Air Hawaii, it was intended that the collateral secure only the standby letter of credit.
6. The two certificates of deposit held by First Interstate as security for its letter of credit in favor of the S.F. Airport Commission matured on February 24, 1986. On that date, the two certificates were "rolled over" into a single certificate (No. 140833) for $23,000.00 bearing a maturity date of December 10, 1986, the date of expiration on the letter of credit.
7. At all times immediately prior to, during and immediately subsequent to the "rollover" of the certificates of deposit, First Interstate remained in possession of the certificates, and no certificate or cash or monies were at any time returned to, released or otherwise placed in the control of Air Hawaii.
8. On or about November 21, 1985, Air Hawaii filed a written application requesting that First Interstate issue a standby letter of credit on its behalf in favor of the U.S. Customs Service in the amount of $10,000.00.
9. On or about November 21, 1985, First Interstate issued a standby letter of credit in favor of the U.S. Customs Service in the amount of $10,000.00. The expiration date on the letter of credit was November 26, 1986.
10. On or about November 21, 1985, Air Hawaii pledged a certificate of deposit to First Interstate to secure Air Hawaii's obligations to reimburse First Interstate for any amounts disbursed by First Interstate under the letter of credit. The pledged certificate was certificate of deposit No. 134617, dated November 21, 1985, for $10,000.00. The certificate matured on November 26, 1986.
11. The terms and conditions upon which First Interstate held the certificate of deposit as collateral for the letter of credit in favor of the U.S. Customs Service were set forth in a Security Agreement dated November 21, 1985 which was signed by Air Hawaii.
12. Although the Security Agreement specified that the certificate of deposit collateral would secure not only Air Hawaii's obligations to reimburse First Interstate for any amounts drawn against the letter of credit, but that it would aso serve as "collateral security for the payment of any and all overdrafts, liabilities, claims, obligations and other indebtedness" of Air Hawaii, it was intended that the collateral secure only the standby letter of credit.
13. On or about September 24, 1985, First Interstate and Air Hawaii signed a First Interstate Bank of Hawaii Charge Card Program Member Agreement under which Air Hawaii agreed to participate in the First Interstate Charge Card Program and under which Air Hawaii could sell passenger tickets, including coupon books, to customers using VISA or MasterCard charge cards.
14. A substantial number of the coupon books sold by Air Hawaii in Hawaii and on the mainland were processed by First Interstate pursuant to the Charge Card Program Member Agreement described above.
15. Air Hawaii ceased flight operations in early March of 1986. It has not resumed flight operations. And, on March 14, 1986, Air Hawaii filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States District Court for the District of Hawaii.
16. Cessation of flight operations by Air Hawaii made the ticket coupons irredeemable for air transportation and rendered the coupon books worthless.
17. Pursuant to the requirements of the agreements entered into between First Interstate, on the one hand, and VISA and MasterCard, on the other, First Interstate was required to honor "charge-backs" from certain of the persons who had purchased coupon books using VISA or MasterCard charge cards but who were unable to use the tickets or coupons or to obtain refunds from Air Hawaii because of Air Hawaii's cessation of flight operations and bankruptcy, and who took all steps and made all certifications required to qualify for charge-backs under the VISA and MasterCard charge card rules and regulations.
18. First Interstate claims that the amount expended to date in connection with charge-backs by coupon book purchasers exceeds $4.5 million.
19. Under the terms of the Charge Card Program Member Agreement, Air Hawaii is required to indemnify and reimburse under paragraph 8 of the Member Agreement titled "Indemnification" First Interstate with respect to all charge-backs. Air Hawaii is therefore currently indebted to First Interstate in an amount exceeding $4.5 million, representing the aggregate expense incurred by First Interstate in connection with the charge-backs.
20. On or about October 9, 1986, and pursuant to appropriate demand made by the S.F. Airport Commission on its letter of credit, First Interstate was required to and did pay the sum of $20,410.40.
21. On November 21, 1986, and pursuant to appropriate demand made by the U.S. Customs Service on its letter of credit, First Interstate was required to and did pay the sum of $40.38.
22. To the extent that these Findings of Fact constitute Conclusions of Law, they shall be so considered.
1. The Court has jurisdiction over the parties and the subject matter.
2. First Interstate has a valid, perfected and enforceable security interest in the two certificates of deposit initially pledged by Air Hawaii to secure the letter of credit in favor of the S.F. Airport Commission, being Certificates of Deposit Nos. 134632 and 136305.
3. The Trustee contends that First Interstate's security interest in the certificates of deposit is not enforceable because the certificates were not adequately described in the Security Agreement. However, the Court need not decide whether the description was adequate since First Interstate was in possession of the certificates of deposit. The requirement of the Uniform Commercial Code ("U.C.C.") that a debtor sign a security agreement with an adequate description of the collateral only applies in cases where the collateral is not in the possession of the secured party. See U.S.C. § 9-203(1)(a). Pursuant to U.C.C. Section 9-305, possession of the certificates of deposit perfected the security interest.
4. The Trustee also contends that the rollover of the two certificates of deposit into a single certificate constituted a preferential transfer voidable by the Trustee under § 547 of the Code.
5. U.C.C. § 9-306 states in part:
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