In re MarkAir, Inc.
| Citation | 240 BR 581 |
| Decision Date | 24 September 1999 |
| Docket Number | Bankruptcy No. A95-00236-HAR. Adversary No. A95-00236-013-HAR. |
| Parties | In re MARKAIR, INC., an Alaska corporation, Debtor. AERFI Group plc, AERFI Jetprop Limited, AERFI Corporation, as assignee of Aerousa, Inc., and Air Tara Limited, Plaintiffs, v. William Barstow, Chapter 7 Trustee for MarkAir, Inc., Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Alaska |
Spencer C. Sneed, Dorsey & Whitney, Anchorage, AK, for plaintiff.
Michael R. Mills, Bankston & McCollum, Anchorage, AK, for defendant.
John C. Siemers, Burr Pease & Kurtz, Anchorage, AK, for trustee.
1. INTRODUCTION — GPA1 collected substantial monthly rental and maintenance reserve payments from MarkAir under existing leases for the use of jet aircraft within 90 days before MarkAir filed bankruptcy. GPA also obtained a security interest on most of MarkAir's unencumbered assets to secure payment of past and future rent, maintenance reserves, and the performance of maintenance obligations.
The trustee seeks to recover the rent and maintenance reserve payments and avoid the security interest as preferential.
GPA argues that the monthly rent and maintenance reserve payments (or at least those which were made on time) were not preferential since they were for "current rent" which arose when the aircraft were used, and not for "antecedent debt."2 GPA also contends that the unpaid rent and maintenance reserve payments for use of the aircraft which accrued after receiving the security agreement were not antecedent debt with respect to the security agreement.
The trustee maintains that both the payments and security interest were for antecedent debt, incurred when the lease was entered into, and that GPA should be required to prove its defenses under § 547(c).3
Were the payments and security interest for "antecedent debt?" Based on the expansive definition of "claim"4 and "debt"5 under the Bankruptcy Code, I conclude that they were.
In argument and briefing, GPA has implied that obligations beyond just periodic rent and maintenance reserves were covered by the security agreement, such as the costly obligation to return the aircraft in a maintained condition. These obligations are also antecedent debt for which the grant of the security interest was preferential.
2. FACTUAL6 AND PROCEDURAL BACKGROUND — This Memorandum relates only to one leg of the eight distinct groups of summary and cross-summary judgment motions brought by the parties, each addressing certain aspects of preference law as they relate to the facts of this proceeding.7
The present Memorandum deals only with the "antecedent debt" issue raised by GPA's motion for summary judgment8 addressing whether GPA can "cut the trustee off at the pass" by showing that he can not establish the transfers were for "antecedent debt," part of the trustee's prima facie case. It does not address what exceptions to preference GPA might be able to establish under § 547(c) which are addressed in other motions.9
MarkAir had filed a prior chapter 11 bankruptcy in June 1992 (MarkAir I).10 GPA provided substantial support to the MarkAir I debtor and facilitated confirmation of a plan. The reorganized debtor was not able to perform under its plan, however, and GPA put substantial pressure on MarkAir to catch up on delinquent rental obligations for a number of jet aircraft leased to MarkAir. In the course of negotiations, GPA was taken over by General Electric Capital Aviation Services, which had a much more aggressive collection policy.
As a condition to keeping a number of the aircraft, MarkAir was required in February 1995, within 90 days of the April 14, 1995, bankruptcy petition (MarkAir II), to sign a security agreement with GPA, secured by most of its unencumbered assets.11 The security agreement covered the payment of past and future rental and maintenance reserves, and the performance of maintenance obligations and other conditions of the lease agreement. GPA also granted a deferral or forbearance in making some of the payments on the dates they were initially required under the leases.
During the 90 days before MarkAir filed a second bankruptcy petition (MarkAir II),12 MarkAir paid GPA a number of lease and maintenance reserve payments called for by the original leases or the deferral agreement. A few were on the exact date they were due (either under the original leases, or the February 1995, deferral agreement), but most were at least a day or more late.
During the 90 days before the MarkAir II filing, MarkAir was desperately seeking refinancing and sought a further extension from GPA. It indicated to GPA that if it could not get the extension, it would file a second bankruptcy proceeding and seek to avoid the security agreement. No agreement could be reached and MarkAir filed a chapter 11 petition within 90 days of the perfection of GPA's security agreement.
The case converted to chapter 7, and the trustee sued GPA to recover the alleged preferential payments and avoid the security agreement. GPA filed a motion seeking summary judgment that:
GPA Corporation moves this Court for partial summary judgment that its security interest in the property of MarkAir, Inc. is not subject to avoidance to the extent that it secures aircraft rents that accrued from the grant of the security interest until MarkAir\'s redelivery of GPA\'s aircraft.13
Although this statement only address the security interest to secure "rent," there were three antecedent debt issues addressed in the briefing and argument:
(1) the transfer of a security interest on most of debtor's property during the preference period to secure the accrued "rent"; (2) payments made for rent and maintenance reserves during the preference period; and (3) the transfer of the security interest to cover maintenance obligations contained in the leases.
Both parties say that they only want a "conceptual resolution" of the § 547(b)(2) issue, but it is hard to talk about the numerous transfers in the abstract, even if it might not be necessary to have exact computations at this point. I requested each party identify the various types of transfers and present me with a sensitivity analysis concerning the potential damages under the antecedent debt issue. The figures they have provided belie the notion that GPA is only concerned with "rents that accrued."
The parties indicate that a decision in favor of GPA will wind up with it garnering most of the estate by virtue of its security agreement. GPA says this antecedent debt issue involves approximately $15 million14 and the trustee says it is in excess of $50 million, more than the collateral will bear.15 GPA has submitted a rough itemization of $15 million (actually, closer to $16.25 million) in damages as shown in the following verbatim summary by GPA:16
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Alternative Outcomes: Antecedent Debt
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TRANSFERS
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Payments / C-Checks
Nonantecedent Debts: Made on Due Date Security Agreement
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Rents
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Incurred Pre-redelivery $ 169,958 $ 2,551,159
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Incurred Post-redelivery n/a $ 5,049.2251
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Maintenance Reserves
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Paid $ 553,262
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Unpaid $ 829,183
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