Redeye II, LLC v. MorrisAnderson & Assocs. Ltd. (In re Swift Air, L.L.C.), No: CV-20-00855-PHX-JAT
| Decision Date | 01 December 2020 |
| Docket Number | No: CV-20-00855-PHX-JAT |
| Citation | 624 B.R. 694 |
| Parties | In the MATTER OF: SWIFT AIR, L.L.C., Debtor. Redeye II, LLC, et al., Appellants, v. MorrisAnderson & Associates Limited, Appellee. |
| Court | U.S. District Court — District of Arizona |
Alisa Carol Lacey, Anthony P. Cali, Christopher Charles Simpson, Thomas J. Salerno, Stinson LLP, Phoenix, AZ, for Appellants.
Dale C. Schian, Schian Walker PLC, Phoenix, AZ, Kim Robert Maerowitz, Maerowitz Law Firm LLC, Scottsdale, AZ, for Appellee.
Appellants Redeye II LLC, Jerry Moyes, Vickie Moyes, and the Jerry and Vickie Moyes Family Trust (collectively, "Appellants") appeal from the Judgment (the "Judgment"), (Doc. 1 at 9–12); the underlying Order Granting in Part and Denying in Part Motions for Summary Judgment re: Preference Claims Asserted by Trustee (the "Summary Judgment Order"), (Doc. 1 at 13–19); and the Under Advisement Order (the "Under Advisement Order"), (Doc. 19-2 at 65–262), entered by the United States Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"). In support, Appellants filed an Opening Brief. (Doc. 19). Appellee MorrisAnderson & Associates Limited ("Appellee" or the "Trustee") filed a Brief in response, (Doc. 25), to which Appellants filed a Reply Brief, (Doc. 27). Appellants also filed Objections to the Bankruptcy Court's Findings of Fact and Conclusions of Law, (Doc. 20), and Appellee filed a Response to Appellants' objections, (Doc. 26). After reviewing the briefs and record, the Court issues the following order.
The below is a brief summary of the background of this case. A more extensive discussion of the background can be found in the Under Advisement Order, (Doc. 19-2 at 75–116), and Appellants' Opening Brief, (Doc. 19 at 10–14).
Prior to December 21, 2011, Swift Air, LLC ("Swift" or the "Debtor") operated as an aviation management company under a combined 14 CFR Part 121/135 Certificate ("Part 121 Certificate" and "Part 135 Certificate") issued by the Federal Aviation Administration ("FAA"). (Doc. 19 at 10). Swift's business involved managing aircraft owned by other parties and booking charter contracts. (Id. ). Swift maintained a Part 135 Certificate business which managed corporate/individual charter flights (the "Part 135 Business"), and Swift also maintained a Part 121 Certificate business which consisted of flying large charter groups, in particular, professional sports teams (the "Part 121 Business"). (Id. at 11). Keeping the Part 121 Certificate operational required that certain criteria be satisfied, such as having five specific positions filled by qualified employees (the "Five Wise Men").1 (Doc. 19-5 at 173–74).
Swift was a wholly owned subsidiary of Swift Aviation Group, Inc. ("SAG"). (Doc. 19-2 at 260). SAG also held all the equity interests in Swift Aviation Sales, Inc. ("Sales"), Swift Aviation Management, LLC ("SAVM"), and Swift Aviation Services, LLC ("Services"). (Id. ). SAG was wholly owned by the Jerry and Vickie Moyes Family Trust (the "Moyes Trust"). (Id. ). Jerry Moyes ("Moyes") was the sole trustee of the Moyes Trust. (Id. ). The Moyes Trust also held all the equity interests in Transjet, Inc. ("Transjet"), Transjet's subsidiaries (the "Transjet Subsidiaries"), Transpay, Inc. ("Transpay"), and SME Steel Contractors, Inc. ("SME"). (Id. ). Moyes also personally owned fifty percent of Redeye II, LLC ("Redeye"). (Id. ). Moyes served as Swift's president, and Kevin Burdette ("Burdette") served as Swift's vice-president. (Id. at 78). The companies owned by Moyes and the Moyes Trust regularly did business with one another and through this business incurred significant accounts receivable and accounts payable that were outstanding on December 21, 2011. (Id. at 77–87).
In 2011, Swift's balance sheet reflected liabilities that were greater than assets by more than $3 million. (Id. at 88). In the latter half of 2011, Burdette met with two potential buyers for Swift who ultimately did not purchase the company. (Id. ). Then, in October 2011, Jeff Conry ("Conry"), on behalf of Avondale Aviation II, LLC and Jordan Gunthorpe Holdings, LLC (collectively, the "Buyers"), approached Burdette about purchasing Swift's Part 121 Business (the "Transaction"). (Doc. 19 at 11). Notably, the Buyers told Burdette that they only wanted to acquire the equity in Swift's Part 121 Business and that they intended to merge it with their recently acquired business, Direct Air, which needed a Part 121 Certificate. (Doc. 19-2 at 88–89). The Buyers also told Burdette that they planned to obtain a $5 million investment in Swift after its acquisition. (Id. at 90).
The Transaction moved forward, terms were solidified, and the Buyers closed on the purchase of the equity interest in Swift for a de minimis payment of $100 on December 21, 2011 (the "Transaction Date"). (Doc. 19 at 11–12). Swift's Part 135 Business was not included in the Transaction, so it was transferred into a newly created entity, Swift Aircraft Management, LLC ("SAM"). (Id. at 12). As part of the Transaction, Swift transferred certain assets and liabilities, including accounts receivable and accounts payable, associated with the Part 135 Business to SAM and SAG pursuant to the Part 135 Assignment and Assumption Agreement and Guarantee (the "Assignment and Assumption Agreement"). (Id. at 13). After the closing of the Transaction, Swift and the other Moyes owned companies executed an Inter-Company Settlement Agreement and Mutual Release (the "Settlement Agreement"). (Id. ). The Settlement Agreement released Swift from any debts or obligations to the other Moyes owned companies and facilitated a transfer of assets and liabilities between Swift and certain other Moyes owned companies (the "Transfers"). (Id. ). The Transfers included a receivable from SAVM (the "SAVM Receivable") and a receivable from Redeye (the "Redeye Receivable"). (Id. ).
After the Transaction, the newly acquired Swift ("New Swift") experienced cashflow shortages. (Doc. 19-2 at 105). The $5 million investment that the Buyers planned to obtain for New Swift never materialized, and New Swift never merged with Direct Air. (Id. at 107). New Swift also entered into new post-Transaction contracts that exacerbated its money problems. (Id. ). These and other problems led New Swift to commence a Chapter 11 bankruptcy proceeding on June 27, 2012. (Id. ). New Swift emerged from its Chapter 11 bankruptcy proceeding through a confirmed restructuring plan in October 2013 after receiving approximately $6.3 million from Nimbos Holings, LLC ("Nimbos") in exchange for the equity interests in the reorganized New Swift. (Doc. 19 at 14).
On June 27, 2014, Appellee initiated the underlying adversary proceeding. (Id. ). Appellee's Third Amended Complaint asserted, among other things, preference, fraudulent transfer, and breach of fiduciary duty claims against Appellants and others. (Id. ). The Bankruptcy Court issued the Summary Judgment Order and held a trial after which the Bankruptcy Court issued the Under Advisement Order and the Judgment. (Id. at 8, 14). During the adversary proceeding, Appellants' expert, Grant Lyon ("Lyon") testified as did Appellee's expert, Michael Spindler ("Spindler"). (See id. at 23–24).
Appellants appealed the Judgment, the Summary Judgment Order, and the Under Advisement Order. (Doc. 1 at 6). Appellants filed an Opening Brief. (Doc. 19). Appellee filed a Brief in response, (Doc. 25), to which Appellants filed a Reply Brief, (Doc. 27). Appellants also filed Objections to the Bankruptcy Court's Findings of Fact and Conclusions of Law, (Doc. 20), and Appellee filed a Response to Appellants' objections, (Doc. 26).
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 158(a), which provides that "district courts of the United States shall have jurisdiction to hear appeals ... from final judgments, orders, and decrees ... of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title." 28 U.S.C. § 158(a)(1). Matters referred to a bankruptcy court are classified as either "core" or "non-core" proceedings. 28 U.S.C. § 157(b). Core proceedings are those "arising under title 11, or arising in a case under title 11," and non-core proceedings are those that are "otherwise related to a case under title 11." In re Bellingham Ins. Agency, Inc. , 702 F.3d 553, 558 (9th Cir. 2012), aff'd sub nom. Exec. Benefits Ins. Agency v. Arkison , 573 U.S. 25, 134 S.Ct. 2165, 189 L.Ed.2d 83 (2014). Bankruptcy court judges may enter final orders on all core proceedings and may submit proposed findings of fact and conclusions of law to the district court for entry of final orders on all non-core proceedings. See 28 U.S.C. § 157(b) – (c). Bankruptcy courts may enter final judgments in non-core proceedings "with the consent of all the parties to the proceeding." Id. § 157(c)(2).
Regarding final orders by a bankruptcy court, this Court reviews a bankruptcy court's findings of fact under the clearly erroneous standard, and conclusions of law de novo. In re Lazar , 83 F.3d 306, 308 (9th Cir. 1996) ; Granite State Ins. Co. v. Smart Modular Techs. , 76 F.3d 1023, 1028 (9th Cir. 1996). Regarding proposed findings of fact and conclusions of law by a bankruptcy court, "any final order of judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1). The Court may "accept, reject or modify the proposed findings of fact or conclusions of law, receive further evidence, or recommit the matter to the bankruptcy judge with instruction." Fed. R. Bankr. P. 9033(d). In conducting a de novo review, the Court must consider a bankruptcy court's findings and conclusions and afford them no presumption of...
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