In re Express One Intern., Inc., Bankruptcy No. 95-41189. Adversary No. 97-4057.
| Citation | 243 BR 290 |
| Decision Date | 09 November 1999 |
| Docket Number | Bankruptcy No. 95-41189. Adversary No. 97-4057. |
| Parties | In re EXPRESS ONE INTERNATIONAL, INC., Debtor. Express One International, Inc., Plaintiff, v. Gie Balkans Bail, Defendant. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas |
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Marci L. Romick, Arter & Hadden, L.L.P., Dallas, TX, for debtor.
Robert G. Richardson, Jackson Walker, L.L.P., Dallas, TX, for defendant.
Now before the Court is the Second Amended Objection to Proof of Claim No. 823 filed By GIE Balkans ("GIE"). The objection was joined with a counter claim to recover money and thereby became an adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 3007. After several delays, the matter came on for hearing pursuant to regular setting. At the conclusion of the hearing, the Court granted the parties time to file briefs; after which it was taken under advisement. This opinion constitutes the Court's findings of facts and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052 and disposes of all issues before the Court at this hearing.
This is a core proceeding pursuant to 28 U.S.C. § 157, over which this Court has retained jurisdiction.
Federal Rule of Bankruptcy Procedure 3001(f) gives the following evidentiary effect to the filing of a proof of claim — "A proof of claim executed and filed in accordance with the rules shall constitute prima facie evidence of the validity and amount of the claim." An objecting party must produce evidence rebutting the claimant, or the claimant will prevail. In re WHET, Inc., 33 B.R. 424, 437 (Bkrtcy.D.Mass.1983). The traditional standard of proof imposed upon a creditor seeking to have its claim allowed is by a preponderance of the evidence. In re Koch, 83 B.R. 898, 17 B.C.D. 449 (Bkrtcy. E.D.Pa.1988). Although the burden of production shifts to the objecting party, the burden of persuasion by a preponderance of the evidence remains with the claimant: "If, however, evidence rebutting the claim is brought forth, then the claimant must produce additional evidence to `prove the validity of the claim by a preponderance of the evidence'". Calif. State Board of Equalization v. The Official Unsecured Creditors' Committee (In the Matter of Fidelity Holding Co., Ltd.,) 837 F.2d 696, 697 (5th Cir.1988). See also: In re WHET, Inc., 33 B.R. 424, 437 (Bkrtcy. D.Mass.1983).
"Preponderance of the evidence" means: "Evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not." Braud v. Kinchen, 310 So.2d 657, 659 (1st Cir.1975). It is evidence which is more credible and convincing than the other evidence brought. The standard is more than a "scintilla" of evidence and less than "clear and convincing". In re Express One International, Inc., 229 B.R. 129, 133 (Bankr.E.D.Tex., 1999). A preponderance of the evidence means "by the greater persuasive force thereof, and not the greater volume thereof, or the greater number of witnesses testifying thereto". Liechti v. Roche, 198 F.2d 174, 177 (5th Cir.1952). Accordingly, it is incumbent upon GIE, whose claim has been objected to by the Debtor, to prove the extent and validity of its claims by a preponderance of the evidence.
Express One International, Inc. ("Debtor"), filed for relief under Chapter 11 of the U.S. Bankruptcy Code. At the time of this hearing, Express One was operating as a reorganized Debtor having had their plan of reorganization confirmed earlier. The plan of reorganization provided that certain claims' objections would be litigated later and provisions were made in the plan for funds to be set-aside for payment of those claims. The instant controversy is the last major claim remaining in the case and has been one of the more contentious ones. This contested matter arises from the Debtor's objection to the unsecured proof of claim filed by GIE in the amount of $1,090,323.58 alleged to be due under that certain Aircraft Operating Lease (the "Lease") entered into by and between the Debtor and GIE pre-petition. Under the terms of the Lease, the Debtor leased a DC-10 aircraft from GIE for an initial deposit and a monthly fee of $240,000 (U.S.) for the purpose of ferrying international tourists. The monthly fee was not predicated on the hours of usage. The Lease was for a term of 37 months and it was accompanied by a requirement that a company known as Finnair be paid for all maintenance work on the plane during the 37 month term of the Lease. The Finnair agreement is not in controversy in this case. The matter is made somewhat complicated by the fact that GIE is a French company1 and the Lease, prepared by GIE, provides that it is to be interpreted under French law. The parties have had considerable disagreement over provisions of French law as they apply to the resolution of this dispute. Obviously, Express One was not able to perform under the Lease or there would not be a dispute to adjudicate.
Express One contends that it entered into the 37 month Lease in the belief that there was a substantial market to ferry European tourists from Europe to the United States, primarily Florida, and that the business had the possibility of being a lucrative one for the airline. This was a new and speculative venture for Express One since it was the first wide-bodied jet they operated. The Lease was negotiated during the summer and fall of 1993 and ultimately resulted in the completed agreement on or about October 13, 1993, with the first rental payment being due on December 10, 1993. Express One apparently paid the first rental payment without a problem but immediately experienced problems when the second payment became due. The expected lucrative charter contracts did not materialize, in part, because of an unfortunate attack on some European tourists in Miami which had a very chilling effect on the tourist business. Additionally, the Republic Airlines bankruptcy caused large losses to Express One and further, added to their cash flow problems. The Lease was ultimately terminated by mutual agreement of the parties in September of 1994 and the aircraft was returned to GIE. It is what happened in the interim that forms the basis of the dispute between these parties.
At the outset, the parties argued strenuously concerning procedural and evidentiary matters in the conduct of this trial. The parties agree that the contract requires French law to be applied to the resolution of any disputes and further agree that it is proper to apply French law. The evidentiary dispute centers around whether or not French law allows oral testimony concerning the terms of the agreement between the parties or whether the parol evidence rule (or the French equivalent thereof) prohibits any such testimony. GIE takes the position that the Lease is complete in itself and contains a provision that it cannot be altered except by written instrument and therefore, it is entitled to enforce the terms of the Lease as written. GIE further argues that it is clear that although French substantive law applies to the resolution of this dispute, the law of the forum, the State of Texas, supplies the procedural law for the conduct of the hearing. Thus, they argue it follows from that position that the Parol Evidence Rule as understood in Texas would prohibit the introduction of any oral testimony concerning the terms of a written agreement. The real controversy between the parties is whether the Parol Evidence Rule is a rule of substantive law or a procedural rule. If substantive law, then it is to be construed in accordance with French law and if procedural law, it is to be construed in accordance with Texas law. In addressing this issue, the Texas Supreme Court opined in Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30 (1958) that the Parol Evidence Rule is not a rule of evidence at all, but a rule of substantive law. See also Brannon v. Gulf States Energy Corp., 562 S.W.2d 219 (1977) and the discussion in McCormick and Ray, Tex. L.Evid.2d. Ed., § 1601. Additionally, the Fifth Circuit, applying Texas Choice of Law Rules to determine a choice of law issue, has also held Parol Evidence Rule to be a rule of substantive law rather than procedural law. Long Island Trust Company v. Dicker, 659 F.2d 641, n. 14 (5th Cir.1981) This Court must look to French law in this instance to determine the extent to which oral testimony can be used in the resolution of this dispute.
Contracts in France are classified as either commercial or civil. French law regards every rental of movables (movables in French Civil Law correspond to personal property in common law) and all obligations between traders, dealers and bankers to be acts of commerce. As such, these acts are controlled by the Commercial Code. The Commercial Code is a body of specialized law to deal with commercial contracts while the Civil Code is broader in application and codifies broad general concepts of the law. It is therefore necessary to characterize the aircraft lease to determine which body of law applies. There are two separate and distinct grounds to consider this a commercial transaction. First, it is a lease of an aircraft which is a movable under French law and it is a transaction between a corporation (Express One) and a French economic interest group which is a commercial enterprise under French law. It would seem that there can be no question but that the lease in question in this controversy is a commercial transaction on both of these grounds and is therefore controlled by the French Commercial Code. Article 109 of the Commercial Code of France is the important provision of French law pointed to by both Henry Dahl and Mr. Mondolino in the evidence presented by them. That Article of the...
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