In re Utah Aircraft Alliance, BAP No. UT-05-032.

Citation342 B.R. 327
Decision Date19 May 2006
Docket NumberBAP No. UT-05-032.,Bankruptcy No. 04T-40205.
PartiesIn re UTAH AIRCRAFT ALLIANCE, Debtor. G & B Aircraft Management and Gene Curtis, Appellants, v. David E. Smoot, Trustee, United States Trustee, and Utah Aircraft Alliance, Appellees.
CourtBankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Tenth Circuit

Timothy Miguel Willardson, Salt Lake City, Utah, for Appellants.

Jennifer A. Brown, Mabey & Murray LC, Salt Lake City, Utah (Steven J. McCardell with her on the brief), for Appellees.

Before CORNISH, BROWN, and McNIFF, Bankruptcy Judges.

ORDER DENYING REHEARING

BROWN, Bankruptcy Judge.

The matter before the Court is the Motion for Rehearing ("Motion"), filed March 28, 2006, by the Appellants. The Trustee filed an objection to the Motion on March 31, 2006.

Neither Federal Rule of Bankruptcy Procedure 8015 nor Rule 8015-1 of this Court's Local Rules states the substantive requirements for motions for rehearing. However, when those Federal and Local Rules are silent, Local Rule 8018-11(b) provides that we may order application of the Federal Rules of Appellate Procedure or the Tenth Circuit Rules. Federal Rule of Appellate Procedure 40(a)(2) declares that a petition for rehearing before one of the United States Courts of Appeals "must state with particularity each point of law or fact that the petitioner believes the court has overlooked or misapprehended and must argue in support of the petition." Tenth Circuit Rule 40.1(A) adds that: "A petition for rehearing should not be filed routinely. Rehearing will be granted only if a significant issue has been overlooked or misconstrued by the court." We believe that the standards set by these rules should apply to the Motion.

The Motion does not demonstrate a basis for rehearing. Its arguments regarding unfair surprise and Utah Code Ann. § 70A-2-401(3) are unavailing. The Motion notes that Utah's Aircraft Lien Act, discussed on page 15 of the Opinion, was not enacted at the time G & B's alleged repairman's lien arose. But, assuming that the Aircraft Lien Act is inapplicable, the end result is the same. A party who seeks relief from stay has the burden of demonstrating "cause" sufficient to grant relief from stay. G & B did not meet its burden because it did not show at that preliminary stage that it held a valid lien. The ultimate determination of whether G & B holds a valid lien was not before the bankruptcy court and is not before this Court; that determination must be made as part of an adversary proceeding. What was before the bankruptcy court and what is before this Court is whether G & B made a sufficient showing to justify relief from stay. G & B did not make a sufficient showing, and the bankruptcy court did not abuse its discretion in denying the relief requested. The Court will withdraw its March 20, 2006, Opinion and substitute the attached Opinion, which omits any reference to the Aircraft Lien Act.

Accordingly, it is HEREBY ORDERED that:

1. The Motion is DENIED.

2. The Court's Opinion, entered March 20, 2006, is WITHDRAWN, and the attached opinion is substituted in its place.

OPINION

G & B Aircraft Management ("G & B") appeals an Order denying its motion to lift the stay under 11 U.S.C. § 362(d)(1)1 to allow it to enforce its rights as to five airplanes. Central to this dispute is the question of whether language in its Purchase Agreements with the Debtor Utah Aircraft Alliance ("UAA") is effective that purports to retain G & B's title to the airplanes until UAA has fully paid for them. G & B contends that the bankruptcy court erred in finding that it was not the owner, but held only an unperfected security interest in the planes. It also appeals the court's holding that it did not possess a valid repairman's lien on the aircraft. For the following reasons, we affirm.

I. Background

The founders of UAA formed it as a club to provide licensed pilots with cost-effective access to airplanes. Gene Curtis was a shareholder and officer of UAA for most of UAA's existence. He was also shareholder and officer of G & B. G & B managed UAA, sold five planes to UAA during the time period of December 1, 2000, to March 1, 2002, under contracts retaining title to the planes until all payments were made; and provided maintenance for the planes.

G & B's motion for stay relief claims that a balance remains due on the purchase price for each of the five planes. Although G & B transferred title to one of the planes to UAA, it alleges that the transfer was merely an accommodation to help UAA secure funding. G & B asserts that it holds title to the four remaining planes. G & B also claims that UAA did not pay for all of G & B's maintenance work on the planes. G & B sought relief from stay to recover the planes, alleging that: (1) it held title to the planes; (2) the amounts due on the planes exceeded the planes' values; (3) G & B had received no payments since the bankruptcy filing; and (4) the planes were deteriorating due to lack of use and maintenance. G & B's motion limited its request for stay relief to 11 U.S.C. § 362(d)(1), for "cause," including a lack of adequate protection.

At the hearing on the motion for relief from stay, G & B alleged for the first time that it also held a repairman's lien for unpaid maintenance work. Although he had not raised the issue in his opposition to the motion, the Trustee argued for the first time at the hearing that G & B held only an unperfected security interest in the planes. Following an evidentiary hearing, the bankruptcy court found in the Trustee's favor, holding that G & B had only a security interest in the planes, which had not been perfected, and had no repairman's lien. Since the court found G & B held only an unperfected security interest, it held that G & B was not entitled to adequate protection and denied G & B's request for relief from the stay.

II. Appellate Jurisdiction

This appeal timely followed. An order denying relief from stay is a final order.2 The parties have consented to this Court's jurisdiction because they did not elect to have the appeal heard by the United States District Court for the District of Utah.3

III. Standard of Review

Ordinarily, we review a bankruptcy court's determination of "cause" under Section 362(d)(1) for an abuse of discretion.4 "Under the abuse of discretion standard: `a trial court's decision will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances."'5 An abuse of discretion, however, may exist when a ruling is premised on an erroneous conclusion of law or on clearly erroneous fact findings.6 We review the bankruptcy court's conclusions of law under the de novo standard.7 "When an appellate court reviews a [trial] court's factual findings, the abuse-of-discretion and clearly erroneous standards are indistinguishable. . . ."8

IV. Discussion
A. The Scope of a Ruling on a Motion for Stay Relief

With certain exceptions not relevant here, 11 U.S.C. § 362(e) provides that the automatic stay in bankruptcy automatically terminates within thirty days from the filing of a request for stay relief to bring an action against property of the estate, unless the court expressly orders the stay continued in effect pending the conclusion of, or as a result of, a final hearing and determination on a stay relief motion. Because the statute requires bankruptcy courts to rule quickly on stay motions, a relief from stay proceeding is by its nature a cursory or summary proceeding. It does not replace the need for filing an adversary proceeding in order to obtain a final determination as to the validity, extent or priority of a creditor's lien.

The legislative history on § 362 analogizes a preliminary hearing on the stay to a preliminary injunction hearing.

The filing of the petition which gives rise to the automatic stay is similar to a temporary restraining order. . . .

At the expedited hearing under subsection (e), and at all hearings on relief from the stay, the only issue will be the claim of the creditor and the lack of adequate protection or existence of other cause for relief from the stay. This hearing will not be the appropriate time at which to bring in other issues, such as counterclaims against the creditor on largely unrelated matters. Those counterclaims are not to be handled in the summary fashion that the preliminary hearing under this provision will be. Rather, they will be the subject of more complete proceedings by the trustees to recover property of the estate or to object to the allowance of a claim.9

. . . However, this would not preclude the party seeking continuance of the stay from presenting evidence on the existence of claims which the court may consider in exercising its discretion. What is precluded is a determination of such collateral claims on the merits at the hearing.10

At a stay hearing, the court merely determines whether the movant has a colorable claim, i.e., a facially valid security interest. It then should consider whether the objector has raised a colorable defense that, not merely offsets the movant's claim, but actually would defeat the movant's claim. In this context, the bankruptcy court limits its consideration of defenses to those that strike at the heart of the creditor's lien or that bear on the debtor's equity in the property.11

The Trustee's theory that G & B held only an unperfected security interest in the planes aimed at the heart of G & B's ownership claim and bore directly on UAA's equity in the property. Thus, it is the type of defense that a bankruptcy court may properly exercise its discretion to hear and consider. G & B complains that this defense or theory was not raised in the Trustee's objection to the motion and, as a result, it has been denied due process. In truth, the Trustee surprised G & B with this legal argument in closing...

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