In re Western Pacific Airlines, Inc.
| Decision Date | 12 January 1998 |
| Docket Number | No. Civ.A. 97-K-2564,Bankruptcy No. 97-24701 SBB.,Civ.A. 97-K-2564 |
| Parties | In re WESTERN PACIFIC AIRLINES, INC., a Delaware corporation, Debtor. BOULLIOUN AIRCRAFT HOLDING CO., INC., Appellant, v. WESTERN PACIFIC AIRLINES, INC. and Smith Management Co., Appellees. |
| Court | U.S. District Court — District of Colorado |
Susan M. Freeman, Lewis & Roca, Phoenix, AZ, Daniel F. Warden, Bond & Morris, P.C., Denver, CO, Ballard, Spahr, Andrews & Ingersoll, Denver, CO, for plaintiff/appellant.
Russell O. Stewart, Christian C. Onsager, Michael J. Pankow, Faegre & Benson, Denver, CO, David T Brennan, Otten, Johnson, Robinson, Neff & Ragonetti, P.C., Denver, CO, Howard R. Tallman, James T. Markus, John Frederick Young, Block, Markus & Williams, LLC, Denver, CO, for defendant/appellee.
This is an expedited appeal by Boullioun Aircraft Holding Company, Inc. and Boullioun Portfolio Finance I, Inc. (jointly, "Boullioun"), who lease certain aircraft operated by the debtor-in-possession, Western Pacific Airlines, Inc. ("WestPac"). Boullioun appeals from Judge Brooks's December 3, 1997 Order Authorizing Debtor to Obtain Postpetition Financing Pursuant to Sections 364(c)(1) and 364(d) of the Bankruptcy Code, as amended by Judge Brooks's specific Findings of Fact and Conclusions of Law dated December 10, 1997 (the "Order").
The Order authorized WestPac to obtain up to $30 million in additional financing under 11 U.S.C. § 364 and, over the objection of Boullioun, to assume and assign the aircraft leaseholds of Boullioun (and others) without their consent pursuant to 11 U.S.C. § 365(f). Several of these lessors, including Boullioun, appealed. None, however, sought or obtained a stay of the Order pending appeal.
The day after the December 3 Order, the lender disbursed $10 million to WestPac. Funds, including $1.7 million to Boullioun, were transferred directly to aircraft lessors for lease payments. As a result, certain of the appellant-lessors withdrew their appeals. Boullioun did not.
Boullioun contends its purpose on appeal is not to challenge the post-petition loan transaction itself (Boullioun concedes it accepted its $1.7 in loan proceeds) but to enforce its nonmonetary rights under 11 U.S.C. § 1110 to prevent the assignment of its leaseholds without its consent. Section 1110 of the Bankruptcy Code provides special protections to suppliers of aircraft in the event of default, stating the suppliers' right to repossess aircraft collateral "is not affected by section 362, 363, or 1129 of the Code or by any power of the court to enjoin the taking of possession" (unless the debtor agrees to cure or complies otherwise with other provisions of the statute Boullioun apparently believes are not applicable here). Boullioun contends the bankruptcy court erred in permitting WestPac to assume and assign its leases as a means of collateralizing the post-petition loan because doing so violated Boullioun's rights under § 1110.
In short, Boullioun argues § 1110 should "trump" § 365(f). Boullioun seeks a ruling that, while it was not error to have authorized the post-petition loan, it was error to have collateralized it with Boullioun's leaseholds in contravention of § 1110. Boullioun asks that the Order be amended to remove the security interest in its aircraft leases or, alternatively, for a ruling that, notwithstanding the Order, Boullioun is entitled to repossess its aircraft. WestPac disputes Boullioun's analysis of § 1110, but urges the dismissal of the appeal outright on grounds of mootness.
WestPac asserts that the protections afforded post-petition lenders pursuant to 11 U.S.C. § 364(e) render Boullioun's appeal moot. Section § 364(e) provides that "the reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization . . . or granting of such priority or lien, were stayed pending appeal." The purpose of the section is "to overcome people's natural reluctance to deal with a bankrupt firm whether as purchaser or lender by assuring them that so long as they are relying in good faith on a bankruptcy judge's approval of the transaction they need not worry about their priority merely because some creditor is objecting to the transaction and is trying to get the district court or the court of appeals to reverse the bankruptcy judge." In re EDC Holding Co., 676 F.2d 945, 947 (7th Cir.1982).
Thus, the disbursement of a postpetition loan authorized by the bankruptcy court creates a superpriority lien insulated from the effects of modification or reversal on appeal absent a stay. WestPac relies on § 364(e) to argue that, where a lender extends credit in good faith under § 364 and the authorization appealed from has not been stayed, the proper course is to dismiss and appeal as moot.
Boullioun relies on In re Swedeland Dev. Group, Inc., 16 F.3d 552 (3d Cir.1994), to argue that the mootness inquiry does not end with § 364(e). Where, as here, an appeal seeks not the undoing of the loan or reversal of the authorization for it, but some different form of "meaningful relief," Boullioun argues that under Swedeland, dismissal on mootness grounds is not automatic. Instead, the question proceeds to the next step of a mootness inquiry namely, for determination as to whether meaningful relief other than the unwinding of the loan can be fashioned on appeal.
Swedeland is inapplicable in the instant case. In Swedeland, unlike here, the appeal targeted proceeds of an approved § 364 loan that had yet to be disbursed by the lender. Under these circumstances, the Third Circuit reasoned, the lender stood as any other who had given a loan commitment and whose expectations...
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