MATTER OF F/S AIRLEASE II, INC., Bankruptcy No. 84-1628
| Citation | 59 BR 769 |
| Decision Date | 14 April 1986 |
| Docket Number | Motion No. 85-2157.,Bankruptcy No. 84-1628 |
| Parties | In the Matter of F/S AIRLEASE II, INC., Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania |
Philip J. Nathanson, Kasdin & Nathanson, Chicago, Ill., for petitioner Lewis Simon and S-J Corp. Alan M. Epstein, New York City, Paul M. Singer, Pittsburgh, Pa., for Greycas, Inc. (secured creditor).
Daniel J. O'Neill, New York City, M. Bruce McCullough, Pittsburgh, Pa., for F/S Airlease II, Inc. (debtor).
Stoddard Platt, New York City, for Swig Inv. Co. Aircraft Trust No. 1 (owner).
Before this Court is an Application For Professional Fees By Petitioner, Mr. Lewis Simon and S-J Corporation ("S-J"), averring that it procured a lease at the Debtor's request, that said lease constitutes the sole asset of the estate, and that it should be compensated in the amount of $450,000.00, based upon the fees received in past conduct with the Debtor and upon the fees charged for such services in the marketplace.
F/S Airlease II, Inc. ("Debtor") has objected to the payment of the compensation requested, claiming, that while S-J should be compensated to some degree for the services performed, the amounts requested are excessive and would deter the formulation of a proposed Plan of reorganization.
Greycas, Inc. ("Greycas"), the largest secured creditor, has objected to the payment of any compensation to S-J, asserting inter alia that S-J has no legal basis for its claim as prior Court approval was not secured.
Swig, the owner of the aircraft, now requests that the Court impose a $100,000.00 limit to S-J's compensation—an amount which Swig refused to accept during the initial negotiations.
The parties conducted an extensive hearing on the various issues and offered complete testimony, both at the hearing and through depositions. The parties have also submitted very complete and thoroughly researched briefs, proposed Findings of Fact and Conclusions of Law. Based upon the various pleadings, memoranda, and the hearing thereon, this Court concludes that S-J is entitled to compensation in the amount of $450,000.00.
The Debtor is a single-asset corporation, which has the sole purpose of leasing and remarketing a certain Boeing 737-222 aircraft. This aircraft was purchased by the Debtor in July of 1980, and financing for the purchase was obtained from Greycas. The aircraft was subsequently sold and repurchased several times, the final purchaser being the Swig Investment Company Aircraft Trust No. 1 ("Swig"). Swig subsequently leased the aircraft to the Debtor for an 18-year term. At all times, Greycas continued to hold a security interest and was to be repaid from the rental proceeds received as a result of the Debtor's releasing of the aircraft.
In February of 1980, the Debtor entered into an initial agreement with S-J, hiring it as a leasing agent to find leases for various aircrafts. In July of 1980, S-J successfully arranged for the lease of the Boeing 737-222 aircraft to Air Florida. Soon thereafter, a disagreement arose between the Debtor and S-J as to the appropriate compensation due S-J for its services. Litigation was instituted in the United States District Court for the Northern District of Illinois, which ultimately was resolved by a Settlement Agreement dated May 27, 1983. This Agreement directed that S-J would be entitled to compensation in the amount of one-half of one month's rent for each year of releasing, and would give S-J the remarketing rights to this and other aircraft, subject to the rights of the various owners and secured lenders. Additionally, the Settlement Agreement stated that S-J had a right to payment only when the Debtor received payment.
On July 3, 1984, Air Florida, the lessee of this aircraft, filed a Chapter 11 bankruptcy, which effectively terminated the aircraft lease, leaving the aircraft available for release or sale. The Debtor immediately contacted S-J, urging it to assist in the search for a new lessee. On July 20, 1984, S-J sent a letter to the Debtor proposing to remarket the aircraft for a flat fee of $100,000.00 plus expenses, irrespective of the new lease terms. On July 30, 1984, S-J forwarded a second letter to the Debtor, again offering to act as the leasing representative for the $100,000.00 flat fee, plus expenses. S-J specified that it needed a response by August 3, 1984. On August 21, 1984, almost three (3) weeks after the expiration date, the Debtor wrote to S-J, accepting the proposed arrangement. This acceptance was conditioned upon the approval of Swig. Swig, for unspecified reasons, categorically refused to approve any flat fee arrangement, and accordingly that offer was terminated. Only now, after S-J has procured a 10-year lease and requested $450,000.00, has Swig inferred that the Court should impose the $100,000.00 fee upon S-J.
On July 25, 1984, S-J and representatives for the Debtor traveled to Phoenix, Arizona, Greycas' headquarters, to discuss possible leasing of this aircraft to America West Airlines ("America West"). This joint trip was the result of several meetings among the Debtor, S-J, and Greycas, during which time the possibilities of various leases and lessees were discussed. Greycas' proposal to lease the aircraft to America West was contingent upon Greycas obtaining possession of the aircraft, which possession it did not have, and could not have, pursuant to final court order.
With a general understanding as to professional fees but no finalized written agreement between them, the Debtor requested that S-J proceed with attempts to remarket the aircraft. At that time the aircraft was not airworthy, in that one of its engines had been removed and was placed, disassembled, in a box. Since the aircraft was not airworthy, it was providing no revenue to any of the parties. In September of 1984, Greycas made a proposal to America West which called for a 6-month lease with a 10-year option. The monthly rental fee proposed was $85,000.00. Additionally, since the aircraft was missing an engine, Greycas proposed to have America West lease an engine and subtract the cost of the leased engine from the monthly rental payments. Again, this proposal was contingent upon Greycas' receipt of the aircraft which it did not and could not obtain.
By October 25, 1984, S-J had procured a Letter of Agreement with Aloha Airlines ("Aloha"). The Agreement called for a 10-year lease at a monthly rental of $90,000.00. Further, Aloha, a more solvent and stable airline, agreed to supply the necessary second engine, without receiving a rent rebate thereon, and also agreed to return the aircraft at the conclusion of the 10-year lease with two operational engines instead of one.
On November 29, 1984, the Debtor and Aloha prepared a lease based on the agreement procured by S-J. The following day, an Order was entered in this Court approving this lease, finding it to be in the best interests of the estate. At that hearing the parties made the Court aware that the Debtor had requested S-J to procure a lease, that S-J had procured same, and that Greycas, while nominally objecting to S-J's involvement, wanted the lease, secured by S-J, to be approved. The rental proceeds were to be, and have been, deposited in an interest-bearing account pending disposition of this matter.
Greycas, the Debtor, and S-J each make several arguments either for or against the allowance of compensation to S-J. Each party's arguments will be outlined seriatum.
Greycas offers several arguments for disallowing any compensation whatsoever to S-J.
Pursuant to the May, 1983 Settlement Agreement Greycas avers that:
Greycas claims that the Debtor and S-J attempted to obtain Greycas' consent on two separate occasions and failed.
Next, Greycas argues that no court approval of S-J's retention was either sought or obtained, as required by 11 U.S.C. § 327(a), and that absent such court approval, S-J is not entitled to any compensation.
Additionally, Greycas argues that the court should not approve S-J's retention nunc pro tunc because: S-J has not provided detailed records for the court to determine the amount of work done; it is not disinterested, as it holds an interest adverse to the estate, thereby precluding its appointment; and, nunc pro tunc orders appointing professional persons should not be permitted.
Greycas also argues that S-J cannot recover as a regular, salaried employee pursuant to 11 U.S.C. § 327(b) because:
Finally, Greycas argues that since it is secured in the funds which S-J wishes to obtain, S-J must meet certain requirements to attach those funds, and S-J has not done so.
Specifically, S-J has not shown:
The Debtor raises many of the same arguments that Greycas raises. The Debtor first states that S-J did not have prior court approval for its employment, thereby barring any compensation....
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