Pioneer Commercial Funding Corp. v. United Airlines, Inc.

• Decision Date: 11 January 1991
• Docket Number: 90-Civ. 2296 (GLG).,No. 89 Civ. 7147 (GLG),89 Civ. 7147 (GLG)
• Citation: 122 BR 871
• Parties: PIONEER COMMERCIAL FUNDING CORP., Plaintiff, v. UNITED AIRLINES, INC., Defendant. The BANK OF TOKYO TRUST COMPANY, Security Pacific National Bank, and Banque Nationale de Paris, San Francisco Agency, Plaintiffs, v. UNITED AIRLINES, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

122 B.R. 871 (1991)

PIONEER COMMERCIAL FUNDING CORP., Plaintiff, v. UNITED AIRLINES, INC., Defendant.

The BANK OF TOKYO TRUST COMPANY, Security Pacific National Bank, and Banque Nationale de Paris, San Francisco Agency, Plaintiffs, v. UNITED AIRLINES, INC., Defendant.

Nos. 89 Civ. 7147 (GLG), 90-Civ. 2296 (GLG).

United States District Court, S.D. New York.

January 11, 1991.

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Weil, Gotshal & Manges, New York City (Marvin E. Jacob, Philip S. Weber, Alexandra Margolis, of counsel), for Pioneer Commercial Funding Corp.

Jones, Day, Reavis & Pogue, New York City (Thomas L. Abrams, of counsel), Broad, Schultz, Larson & Wineberg, San Francisco, Cal. (Marcy J. Bergman, Richard A. Rogan, Pamela J. Tennison, of counsel), for The Bank of Tokyo Trust Co., Sec. Pacific Nat. Bank, and Banque Nationale de Paris, San Francisco Agency.

Winston & Strawn, Cole & Deitz, New York City (Robert S. Fischler, of counsel), Stephen P. Sawyer, Asst. Gen. Counsel, Elk Grove Township, Ill. (Stephen P. Sawyer, of counsel), Winston & Strawn, Chicago, Ill. (Duane M. Kelley, Thomas J. Frederick, of counsel), for United Airlines, Inc.

OPINION

GOETTEL, District Judge:

I. FACTS¹

Presidential Airways, Inc. ("Presidential"), a Maryland corporation with its principal place of business located in Herndon, Virginia, operated from February 1988 until December 1989 as a feeder airline for United Airlines, Inc. ("United"), a Delaware corporation having its principal place of business in Chicago, Illinois. Specifically, Presidential operated as a "United Express" carrier covering short flights between small cities in the eastern United States and Washington, D.C.'s Dulles International Airport. This arrangement included the issuance to Presidential of a license to use certain of United's marks and logos. As a result, Presidential incurred various obligations to United. In turn, United would book reservations for Presidential and collect customers' airfares. This resulted in United's indebtedness to Presidential based on a percentage of what it had received from the customers.

In order to facilitate the settlement of their accounts, United and Presidential employed the Airlines Clearing House, Inc. ("ACH"), which is a Delaware corporation. ACH is employed by numerous airlines and a formal "Agreement Relating to the Settlement of Interline Accounts through Airlines Clearing House, Inc.," the standard industry agreement, was to be utilized by United and Presidential in this case. As a general proposition, ACH would calculate on a monthly basis the credits and debits incurred by participating airlines. Thereafter, to the extent a party was to receive payment from another party, ACH transferred the funds from the debtor's account to the creditor's account. In the case at bar, it is alleged that each month United ultimately would be indebted to Presidential. However, since the transfer of funds never occurred until month's end, the amounts owed to Presidential pending ACH's settlement of accounts represented accounts receivable.

On March 30, 1988, it appears that Presidential entered into a contract with Pioneer Commercial Funding Corporation ("Pioneer"), a New York corporation with its principal place of business located in Armonk, New York. Pioneer's business was the lending of money and in this case, the contract stated that Pioneer would provide funding for Presidential's day-to-day operations in the form of a credit line secured by Presidential's accounts receivable. Pioneer's security interest was perfected in Virginia and ACH was given explicit instructions that Pioneer was to receive Presidential's accounts receivable directly each month, rather than having them first go to Presidential only to be subsequently transferred to Pioneer. Between March 1988 and October 1989, Pioneer loaned an unspecified amount to Presidential pursuant to this agreement. Until August 1989, Pioneer was reimbursed through Presidential's accounts receivable as provided for in the contract. Thereafter, however, the troubles leading to this litigation began.

Before addressing the exact claims in the cases before us, the foregoing must be slightly amended to explain the existence of the second suit before us. It appears that in April 1988, and every month there-after until October 1989, Security Pacific National Bank ("Security Pacific") actually loaned the funds to Pioneer that were subsequently loaned to Presidential. These loans to Pioneer were secured by an assignment of the same Presidential accounts receivable that previously had been assigned to Pioneer by Presidential. Like Pioneer, Security Pacific perfected its security interest in Virginia, as well as in New York and California. Pioneer thereafter notified ACH of Security Pacific's security interest in Presidential's accounts receivable.² Through August 1989, all the parties apparently met their respective obligations. Due to events which will be discussed, however, Pioneer defaulted on its obligations to the Bank Group in October 1989. In part, this instigated the filing of an involuntary chapter 7 bankruptcy petition against Pioneer in the Southern District of New York on January 30, 1990.³

One final factual issue must be addressed. It appears that sometime in early 1988, before the Pioneer/Presidential relationship commenced, United loaned $3.5 million to Presidential on an unsecured basis. A promissory note, in turn, was given by Presidential to United. This loan was refinanced at some point and, thereafter, additional loans were made from United to Presidential, the exact total of which is unclear. In August 1989, Presidential issued another a promissory note to United for $3.5 million. This time, however, the note specifically guaranteed payment to United from the same accounts receivable previously assigned to Pioneer and reassigned to the Bank Group. In September 1989, pursuant to United's demand, Presidential allegedly informed ACH to set off United's obligations for that month by the $3.5 million. Consequently, when ACH did its monthly accounting on September 28, United's obligations to Presidential were reduced by $3.5 million and, in turn, Presidential's accounts receivable for that period were reduced by that same amount since less money was transferred by ACH from United's account to Presidential's account. Both Pioneer and the Bank Group, who had perfected security interests in those accounts receivable, claim to have been damaged by this setoff.

Thereafter, on October 26, 1989, Pioneer filed the first of the pending actions against United for conversion and tortious interference with contract, claiming that United knew of the Pioneer/Presidential contract when it took the setoff. Pioneer's complaint seeks damages for the setoff United actually received, as well as additional, yet unspecified, sums for the future Presidential accounts receivable that would become due to Pioneer, but would be going instead to United pursuant to Presidential's instructions. With regard to these alleged future damages, we note that Presidential filed for chapter 11 bankruptcy protection in the Eastern District of Virginia on the same day the Pioneer complaint was filed. On March 5, 1990, that proceeding was converted to a chapter 7 proceeding and Kermit Rosenberg, Esq. was appointed as trustee by Bankruptcy Judge Bostetter. In its papers and at oral argument before this court, Pioneer's counsel recognized that United would not be receiving further setoffs as of the date Presidential filed for bankruptcy. Thus, notwithstanding any claims for future damages asserted in its complaint, at present Pioneer is only seeking damages for any setoffs actually taken by United prior to Presidential's bankruptcy filing.

Turning to the Bank Group's action, which was filed on April 3, 1990, the Banks seek damages from United for, inter alia, impairment of security interests, claiming that their perfected security interest in Presidential's accounts receivable was violated by United's receipt of setoffs. Besides the September setoff previously alluded to,⁴ the Bank Group also alleges that two other setoffs totaling approximately $4 million were taken between October 23 and October 25, just days before Presidential's bankruptcy filing and the filing of Pioneer's complaint. Thus, the Bank Group seeks approximately $6.7 million from United.

Presently before us are United's motions to stay or dismiss the two actions. United argues that the automatic stay provisions of the Bankruptcy Code (the "Code") require the granting of a stay. Moreover, it argues that even if the automatic stay provisions are inapplicable, equity demands that these cases be stayed pending a final resolution of Presidential's and Pioneer's bankruptcy proceedings. Alternatively, United argues that the cases actually should be dismissed on a number of grounds. First, United argues that Presidential is an indispensable party to both actions under the Federal Rules of Civil Procedure. The Code, however, prohibits the joining of Presidential in these actions and, thus, United contends we must dismiss these cases. Additionally, with respect to the Pioneer action, United claims that Pioneer has failed to properly state a claim for either conversion or tortious interference with contract. Similarly, United contends that count three of the Bank Group's complaint, which relates to impairment of a security interest, must be dismissed for failure to state a claim.

II. DISCUSSION

We will first address the application for a stay of proceedings and then turn to the motions to dismiss.

A. Motions for a Stay

The Bankruptcy Code provides that "a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of — ... (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate." 11 U.S.C. §...