In re Jet Sales W. LLC

• Docket Number: 20-12179-ta11
• Decision Date: 15 December 2021
• Parties: In re: JET SALES WEST LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

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In re: JET SALES WEST LLC, Debtor.

No. 20-12179-ta11

United States Bankruptcy Court, D. New Mexico

December 15, 2021

OPINION

HON. DAVID T. THUMA, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the City of El Paso's motion to dismiss this bankruptcy case as having been filed in bad faith. The Court concludes that the motion is not well taken and should be denied.

A. Facts.

The Court finds:^[1]

Debtor Jet Sales West LLC, a Nevada limited liability company, is based in Roswell, New Mexico. Lyle Byrum is Debtor's manager. Debtor has no employees. It owns four small business jets that have a combined value of about $3.7 million. The jets are registered in New Mexico. Debtor leases the jets to an affiliate, ATI Jet Inc. ("ATI"). Debtor uses the monthly lease payments, which total about $42, 800, to service loans obtained to buy the jets.

ATI operates a jet charter business, chartering jets leased from Debtor and five other companies. ATI is headquartered in El Paso, Texas, although it also operates out of Dallas, Texas and Eagle, Colorado, and plans to open a location in Scottsdale, Arizona. ATI's jets are chartered for trips throughout North America, Central America, South America, and the Caribbean. Mr. Byrum is ATI's chief executive officer.

Under Texas tax law, the City of El Paso (the "City") has the authority to assess and collect ad valorem taxes on real and personal property in El Paso. Taxable personal property includes

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commercial aircraft. The City is the collection agent for all governmental entities in El Paso county that have the authority to assess property taxes, i.e., the county, the El Paso Independent School District, and the University Medical Center of El Paso.

Debtor has been in business for more than 20 years.^[2] Before 2017, the City never taxed Debtor's jets. In 2017, however, the City changed course. On or about October 10, 2017, the city issued a "2017 Property Tax Bill" to Debtor for $104, 376.08. To arrive at that figure, the El Paso Central Appraisal District ("CAD") appraised Debtor's jets for $3, 205, 970. Using that value, the City, et al., assessed property taxes at a combined rate of 2.959709%, resulting in a tax of $94, 887.35. To this a "rendition penalty" of $9, 488.73 (10% of the tax) was added, per Tex. Tax Code § 22.28.

Similar taxes were assessed in 2018-2020. The following table summarizes the property taxes assessed against Debtor by the City for 2017-2020:

Year	Appraised Value of Aircraft	Assessed Property tax (including rendition penalties)
2017:	$3, 205, 970	$104, 376.08
2018:	$3, 686, 866	$121, 397.57
2019:	$2, 787, 800	$ 85, 684.76
2020:	$2, 787, 800	$ 87, 042.20
Total:	$398, 500.61

In 2021 the City and the CAD changed course again. Instead of appraising Debtor's jets at their full value, the CAD used an allocation formula set out in Tex. Tax Code § 21.05(b), which allocates the value of commercial aircraft based on the number of "revenue departures" from Texas during the year.^[3] Using the formula, the CAD calculated an appraised value $35, 914, about 1.3%

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of the 2020 value. The City then assessed property tax on the appraised value at 3.1413%, resulting in a tax of $1, 128.93. Thus, the 2021 property tax is about 1.3% of the 2020 property tax.

The approach taken by the CAD and the City in 2021 appears to be the one required by the Texas Tax Code. Had the parties followed the Texas Tax Code in 2017-2020, as they did in 2021, the taxes in those years would have been close to the 2021 figure. The Court will address elsewhere why the 2017-2020 property taxes are about 77+ times higher than they should have been.

Debtor did not pay the 2017-2020 property taxes. On July 10, 2020, the City applied in Texas state court for a tax warrant to seize the personal property of Debtor and another entity, ATI Jet Sales, LLC ("JS").^[4] The state court issued the tax warrant against both entities on July 23, 2020. On September 2, 2020, sheriff's deputies arrived at ATI's El Paso hangar with the tax warrant and seized a jet owned by JS. After holding the jet for 83 days, the City released it.

Debtor filed this case on November 20, 2020. At the § 341 meeting and again at the final hearing on the City's motion to dismiss, Byrum testified that Debtor's primary reason for filing bankruptcy was the tax dispute with the City and the CAD. Specifically, Byrum testified that seizure of Debtor's jets would "cause the collapse of [Debtor]."

The City filed the motion to dismiss on April 20, 2021, alleging that Debtor filed the case in bad faith for the sole purpose of gaining a tactical advantage in the tax dispute.

B. Motion to Dismiss for Cause Under § 1112(b).

Bankruptcy Code section 1112(b)(1) provides that, subject to "unusual circumstances," the Court must convert or dismiss a chapter 11 case, or appoint a trustee, if the movant shows "cause" to do so. Section 1112(b)(4) lists 16 grounds that constitute "cause" for dismissal. The list is not

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exhaustive. In re Melendez Concrete, Inc., 2009 WL 2997920, at 3 (Bankr.D.N.M.2009)...