In re American General Aircraft Corp.
| Decision Date | 21 June 1995 |
| Docket Number | Bankruptcy No. 94-20443. Adv. No. 94-2095. |
| Citation | 190 BR 275 |
| Parties | In re AMERICAN GENERAL AIRCRAFT CORPORATION. AMERICAN GENERAL AIRCRAFT CORPORATION, Plaintiff, v. WASHINGTON COUNTY ECONOMIC DEVELOPMENT DISTRICT, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Mississippi |
Barney E. Eaton, III and Eileen Shaffer Bailey, Jackson, MS, for American General Aircraft Corporation.
David R. Hunt and Patricia W. Burchell, Hunt and Ross, Clarksdale, MS, for Washington County Economic Development District.
David J. Cocke, The Bogatin Law Firm, Memphis, TN, for Trustee Alex Gates.
On consideration before the court is a motion for summary judgment filed by the defendant, Washington County Economic Development District; response to said motion having been filed by the Chapter 7 trustee, Alex Gates; and the court having considered the motion, response, and memorandum briefs, hereby finds as follows, to-wit:
I.
The court has jurisdiction of the subject matter of and the parties to this adversary proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), (K), and (O).
II.
Summary judgment should only be granted when there are no genuine issues of material fact and one party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party must present its basis for the motion; the non-moving party then 56(c). The moving party must present its basis for the motion; the non-moving party then has a duty to present enough evidence to indicate the existence of a factual dispute. Celotex v. Catrett Corp., 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
It is not the function of the court to weigh the evidence and determine its credibility, but to decide whether there is a genuine issue for trial.
The court must, however, determine if the factual issues are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986).
As to the issue before the court, there are no material factual issues in dispute. Therefore, summary judgment is appropriate.
III.
The debtor, American General Aircraft Corporation (AGAC), filed this adversary proceeding requesting the court to determine the extent and validity of an alleged lien existing in favor of the Washington County Economic Development District (Development District) upon certain machinery, equipment, and tooling which the Development District leased to AGAC pursuant to an Industrial Enterprise Lease Agreement. The single issue now before the court is whether the transaction between the Development District and AGAC is a "true lease" or a "lease intended for security."
IV.
The Development District is a public agency established by the Washington County Board of Supervisors pursuant to § 19-5-99, Miss.Code Ann., (1972), for the purpose of securing and furthering industrial development in Washington County, Mississippi. On November 4, 1991, at the request of the Development District, the Board of Supervisors adopted a resolution authorizing the issuance of general obligation industrial development bonds in the principal amount of $2,000,000.00. The purpose was to raise money to equip four industrial buildings, located in the Greenville Airport Industrial Park, with equipment, machinery, and tooling, for leasing to AGAC.
On January 13, 1992, L. Carl Hagwood, the State's Bond Attorney, issued his opinion certifying that all of the acts relative to the issuance of the aforementioned bonds were in strict compliance with the Constitution and laws of the State of Mississippi. On January 27, 1992, the bond issue was validated pursuant to a decree of the Chancery Court of Washington County, Mississippi.
As a part of the bond issue process, AGAC conveyed the equipment, machinery, and tooling to the Development District pursuant to a bill of sale dated February 18, 1992. Thereafter, these items were leased by the Development District to AGAC pursuant to the Industrial Enterprise Lease Agreement. It was dated February 1, 1992, but executed on February 19, 1992. Certain provisions of the agreement are set forth as follows:
1. The payments under the lease were to be utilized to repay the $2,000,000.00 bond issue over a period of fifteen years. The principal, interest, and bond premium were amortized over 180 monthly payments beginning on February 15, 1992. (§ 5.03A.)
2. AGAC was to pay all taxes and government charges, including the payment of fees to the Bond Paying Agent. (§ 5.03B.)
3. AGAC was to prosecute or defend any actions or proceedings which it deemed reasonably necessary to secure or protect its rights of use and possession of the leased property. (§ 5.04)
4. AGAC was to repair, maintain, and replace the leased property, as well as, acquire substitute equipment, etc., should same become obsolete or nonuseful in the operation of AGAC's business. (§ 5.05)
5. AGAC was to maintain and pay for property damage and casualty insurance applicable to the "Project," defined in the agreement as the equipment, machinery, and costs related to the issuance of the bonds. (§ 5.06)
6. AGAC had the option to redeem or prepay the bond issue. (§ 5.14)
7. At the termination of the lease, AGAC had the option to purchase the "Project" for the purchase price of $100.00. (§ 5.16)
8. The agreement was a "net lease" to the Development District, free from all costs, expenses, and obligations including taxes, assessments, and utility charges. (§ 7.03)
In connection with the transaction, a guaranty agreement, dated February 1, 1992, was executed by AGAC in favor of the Development District, as well as, Washington County, Mississippi, the bond issuor. This agreement was also executed by approximately thirty-five individual and corporate guarantors. Its purpose was to further insure the repayment of the bond indebtedness.
AGAC paid the lease as agreed for approximately eighteen months and then defaulted. On February 25, 1994, AGAC filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The case was converted to Chapter 7 on November 15, 1994. This adversary proceeding was initially commenced by AGAC as the Chapter 11 debtor-in-possession. However, since conversion, it has been assumed by the Chapter 7 trustee, Alex Gates.
V.
As noted earlier, the only issue presently before the court is whether the Industrial Enterprise Lease Agreement is a "true lease" or a "lease intended for security." Since the agreement provides that AGAC has the option of becoming the owner of the "Project" for $100.00 at the end of the lease, the court first looks to § 75-1-201(37), Miss. Code Ann., which provided, effective the date of the subject transaction, as follows:
The court is of the opinion that the aforementioned section is dispositive of the motion for summary judgment. A lease agreement which affords the lessee, upon compliance with the terms of the lease, an option to purchase the leased property for a nominal consideration is a "lease intended for security." In this case, the purchase price of $100.00 is obviously nominal, considering the $2,000,000.00 leasehold obligation. See, James Talcott, Inc. v. Franklin National Bank, 292 Minn. 277, 194 N.W.2d 775, 780 (1972); Stanley v. Fabricators, Inc., 459 P.2d 467, 470 (Alaska 1969); Whitworth v. Krueger, 98 Idaho 65, 558 P.2d 1026, 1029 (1976); Peco, Inc. v. Hartbauer Tool and Die Co., 262 Or. 573, 500 P.2d 708, 710 (1972); Kupka v. Morey, 541 P.2d 740, 746 (Alaska 1975); and Title Insurance Co. of Minnesota v. Construction Escrow Service, Inc., 675 S.W.2d 881, 888 (Mo.App.1984). See also, Annotation, Equipment Leases as Security Interest within UCCs § 1-201(37), 76 A.L.R.3d 11 (1977).
Under similar circumstances, this court has reached the same conclusion. See, In re 20th Century Enterprises, Inc., 152 B.R. 119 (Bankr.N.D.Miss.1992). In addition to the nominal option purchase price, there were several provisions in the 20th Century Enterprises agreement, practically identical to those extracted above from the AGAC agreement, that supported the conclusion that the transaction was a "lease intended for security." One factor even more glaring in this proceeding is the provision requiring AGAC to acquire replacement equipment upon the...
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