In re Tradewinds Airlines, Inc.

• Decision Date: 18 September 2008
• Docket Number: Adversary No. 08-01546-AJC.,Bankruptcy No. 08-20394-BKR-AJC.
• Citation: 394 B.R. 614
• Parties: In re TRADEWINDS AIRLINES, INC., Debtor. Tradewinds Airlines, INC., Plaintiff, v. AAR Aircraft Services-Miami, INC. f/k/a Avborne Heavy Maintenance, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

394 B.R. 614

In re TRADEWINDS AIRLINES, INC., Debtor.

Tradewinds Airlines, INC., Plaintiff, v. AAR Aircraft Services-Miami, INC. f/k/a Avborne Heavy Maintenance, Inc., Defendant.

Bankruptcy No. 08-20394-BKR-AJC.

Adversary No. 08-01546-AJC.

United States Bankruptcy Court, S.D. Florida, Miami Division.

September 18, 2008.

Jason Z. Jones, Esq., Jeffrey I. Snyder, Mindy A. Mora, Esq., Scott L. Baena, Esq., Miami, FL, for Plaintiff.

Carmen H. Lonstein, Bruce H. Lonstein, Baker & McKenzie LLP, Chicago, IL, Donald J.Hayden, Miami, FL, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEBTOR'S EMERGENCY MOTION FOR PRELIMINARY INJUNCTION

A. JAY CRISTOL, Chief Judge. Emeritus.

THIS CAUSE came before the Court for hearing on August 26, 2008 at 3:00 p.m. upon Debtor's Emergency Motion For Preliminary Injunction (the "Motion") [D.E. 4] and Defendant's Response thereto [D.E. 12]. Central to the issues in the above-captioned adversary proceeding and Debtor's Motion is whether Defendant, AAR Aircraft Services — Miami, Inc., properly complied with Florida and federal law regarding the recordation and perfection of both its asserted statutory lien and contractual lien in Debtor's model A-300 aircraft bearing tail number N504TA ("Aircraft 504").

As of the Petition Date, Aircraft 504 was in the possession of Defendant, who is asserting statutory and contractual liens in Aircraft 504 for outstanding maintenance payments it claims are due for work allegedly performed on Aircraft 504 and for work previously performed on other aircraft owned by Debtor. Pursuant to this Court's Order Granting, in Part, Debtor's Emergency Motion for Preliminary Injunction [D.E. 14], Defendant was directed to turn over possession of Aircraft 504 to Debtor, subject to certain enumerated conditions, including the preservation of whatever lien rights Defendant has, subject to further order of this Court determining whether Defendant's asserted liens are valid, and if valid, the extent and priority of such liens.

At the hearing, the Court advised each of the parties to submit proposed orders as to their respective positions regarding the requirements of Florida and federal law relating to the validity of Defendant's asserted liens in Aircraft 504, whether arising pursuant to contract or by statute.

The Court, having reviewed the file and submissions of all interested parties, and having heard the proffers, representations and argument of counsel, and having otherwise been duly informed in the premises, holds that Defendant's asserted statutory lien and contractual lien are invalid against Debtor, its bankruptcy estate and its creditors for failure to timely file a prepetition notice of lien with the Federal Aviation Administration in Oklahoma City, Oklahoma.

BACKGROUND

From the commencement of this bankruptcy case on July 25, 2008, Debtor has been acting as a debtor in possession and a fiduciary of this Court, and in that capacity is vested with certain rights, powers and obligations of a chapter 11 trustee pursuant to 11 U.S.C. § 1107, including the rights of a bona fide purchaser and a hypothetical lien creditor under 11 U.S.C. § 544. As a fiduciary, the debtor in possession owes a duty to all creditors of the bankruptcy estate, including the Defendant.

As debtor in possession, Debtor currently operates a cargo carrier business that provides airport-to-airport service to the air freight community and owns certain Airbus model A-300 aircraft, including Aircraft 504.

Debtor, pursuant to a General Terms Agreement and Aircraft Maintenance Agreement¹ (collectively, the "Contract"), delivered Aircraft 504 to Defendant on June 19, 2008 for the purpose of having a 96-month heavy maintenance check performed in Miami-Dade County, Florida. The Contract provided for the payment of $250,000 to Defendant at induction of Aircraft 504 for the purposes of the 96-month maintenance check.

Debtor asserts that, after delivery of Aircraft 504 to Defendant, Debtor instructed Defendant not to perform any maintenance on Aircraft 504. Defendant asserts it performed substantial work to prepare for the 96-month maintenance check as well as in connection with the movement of Aircraft 504 upon delivery. As a result, the parties dispute whether Aircraft 504 was actually inducted pursuant to the contract, and whether any amount is owed by Debtor to Defendant in respect of maintenance work allegedly performed on Aircraft 504.²

The dispute between the parties arose due to Defendant's refusal to return Aircraft 504 to Debtor after Debtor had requested the turnover of the aircraft post-petition. Defendant's refusal to relinquish possession of Aircraft 504 was based on its assertion of a statutory mechanic's lien and a contractual lien in Aircraft 504 for outstanding maintenance payments due for work allegedly performed on Aircraft 504 and performed on other of Debtor's aircraft. Essentially, irrespective of whether labor or services were performed for Debtor on Aircraft 504, Defendant argues that it is entitled to assert a lien on Aircraft 504 due to the "cross-collateralization" provision found in the parties' Contract and as a matter of statutory right pursuant to Fla. Stat. § 713.58.

On July 24, 2008, the day immediately preceding the petition date, Defendant filed a claim of lien with the Clerk of the Circuit Court in Miami-Dade County, Florida, as document no. CFN 2008R0607302, at O.R. Book 26493, Page 3683 (the "Claim of Lien") asserting a mechanic's lien solely against Aircraft 504 for labor, materials and services Defendant allegedly provided on Aircraft 504 [D.E. 1, Ex. 3]. Defendant listed the unpaid amount of these services as $250,000, which is the payment amount the Contract provides is to be charged Debtor at induction of Aircraft 504.

Post-petition, on July 29, 2008, Defendant recorded a certified copy of the Claim of Lien with the Federal Aviation Administration (the "FAA Claim of Lien"), which asserts a lien in the amount of $250,000 against Aircraft 504, for labor, material or services allegedly performed on Aircraft 504 [D.E. 1, Ex. 4].

Debtor has argued that Defendant's assertion of a perfected lien in Aircraft 504 is contrary to Fla. Stat. §§ 713.58, 329.51, and 329.01 because Defendant failed to timely file the FAA Claim of Lien prior to the petition date pursuant to Fla. Stat § 329.01 and 49 U.S.C. §§ 44107 and 44108, in order to have a properly perfected lien in Aircraft 504 that is valid and enforceable against both the Debtor and third parties. Debtor further argues that, if Defendant does have a valid lien, Defendant's Claim of lien filed with the Clerk of the Circuit Court in Miami-Dade County, Florida and the FAA Claim of Lien filed with the Federal Aviation Administration ("FAA") would not perfect the lien asserted for the amounts claimed by Defendant as due and owing for work performed on Debtor's aircraft, other than Aircraft 504.

Defendant has argued that it has perfected liens in Aircraft 504 for work performed on Aircraft 504 and for work performed on other aircraft of Debtor in compliance with applicable Florida Statutes, including Fla. Stat. §§ 713.58, 329.51, and 329.01, and as permitted under 11 U.S.C. §§ 362(b)(3) and 546(b).

ANALYSIS OF LAW

There is no dispute between the parties that Fla. Stat. § 713.58(1)³ provides a lien for labor or services on personal property on which an artisan actually provides services or labor. Where the parties differ is whether Defendant has a perfected lien in Aircraft 504 as of the petition date and, if it does, the extent and priority of the lien.

Validity and Enforceability of a Florida Mechanic's Lien Against Aircraft

Pursuant to Fla. Stat. § 713.58(1), a lien on personal property upon which labor or services have been provided arises at the time such labor or services are provided. This much is not in dispute. However, the parties differ as to the proper method of perfection of the lien under Florida and federal law.

Defendant argues that possession of Aircraft 504 is enough for its statutory mechanic's lien to be valid under Florida law, while Debtor argues that the validity of a statutory mechanic's lien against an aircraft under Florida law requires perfection of the lien, which is a two-step process. First, the lienor must file a verified notice of lien with the clerk of the circuit court in the county in which the aircraft was located at the time the labor, services, fuel, or material was last furnished in order for the lien to be enforceable against the owner of the aircraft. Second, a notice of lien must be recorded in the office of the Federal Aviation Administrator of the United States, before a statutory lien claimed becomes valid against any third party. See Fla. Stat. §§ 329.51 and 329.01; 49 U.S.C. §§ 44107 and 44108.

Federal law is consistent with these provisions of Florida law. Pursuant to 49 U.S.C. § 44108, until an instrument executed for security purposes is filed for recording with the Federal Aviation Administration (the "FAA"), the instrument is valid only against the person making the instrument, and not against any other person or entity. Many cases that have considered whether non-consensual statutory liens must be filed with the FAA, purely as a matter of federal law, have found that recordation of such liens is mandatory and that the FAA filing and recordation scheme pre-empts contrary state law. See Southern Air Transport, Inc., v. Northwings Accessories Corp. (In re Southern Air Transport Inc.), 255 B.R. 715, 721 (Bankr. S.D.Ohio 2000) (citing Aero Support Systems, Inc. v. F.D.I.C., 726 F.Supp. 651, 653 (N.D.Tex.1989) (mechanic's lien against aircraft must be recorded with the FAA to be perfected; state law is preempted); South Shore Bank v. Int'l Jet Interiors, Inc., 721 F.Supp. 29, 32-33 (E.D.N.Y.1989) (mechanic's lien on aircraft must be recorded with FAA; state law is preempted); Southern Horizons Aviation v. Farmers & Merchants Bank, 231 Ga.App. 55,...