The Netherlands v. MD Helicopters, Inc. (In re MD Helicopters, Inc.)
| Decision Date | 01 July 2022 |
| Docket Number | 22-10263-KBO (Jointly Administered),Civ. 22-702-RGA,22-828-RGA |
| Parties | IN RE MD HELICOPTERS, INC., et al., Debtors. v. MD HELICOPTERS, INC., et al., Appellees. THE STATE OF THE NETHERLANDS, Appellant, |
| Court | U.S. District Court — District of Delaware |
Dennis O'Donnell, James E. Berger, Charlene C. Sun, DLA Piper LLP (US), New York, NY; R. Craig Martin, DLA Piper LLP (US) Wilmington, DE, attorneys for appellant The State of the Netherlands.
Suzanne Uhland, Adam S. Ravin, Brett M. Neve, Tianjiao (TJ) Li, Alexandra M. Zablocki, Latham & Watkins LLP, New York, NY; David B. Stratton, David M. Fournier, Evelyn J Meltzer, Kenneth A. Listwak, Troutman Pepper Hamilton Sanders LLP, Wilmington, DE, attorneys for appellees MD Helicopters Inc., et al.
These appeals arise in the chapter 11 cases of MD Helicopters, Inc. (together with certain affiliates, “Debtors”) and in connection the Debtors' sale of assets free and clear of all liens, claims, and encumbrances, including a judicial lien (“Netherlands Lien”) held by appellant, the State of the Netherlands (“the Netherlands”) which, the Netherlands asserts, attached to certain leasehold interests and related improvements located on premises leased by the Debtors at their Mesa, Arizona manufacturing facility, located in Maricopa County, Arizona (“Mesa Leases and Improvements”). The Netherlands has appealed two orders: (1) the Bankruptcy Court's May 26, 2022 bench ruling (D.I. 21-1 (“5/26/22 Tr.”) at 59:5-69:14 (“Bench Ruling”)) and the accompanying June 1, 2022 Order (B.D.I. 303; D.I. 4-2) (“Phase One Order”),[1] which together held that, although the Netherlands Lien is a valid and binding lien on any “real property” owned by the Debtors in Maricopa County, the Netherlands Lien was not secured by any collateral because the Debtors owned no such real property; and (2) the subsequent order approving the sale of the Debtors' assets free and clear of the Netherlands Lien (B.D.I. 377) (“Sale Order”).[2]
Pending before the Court is the Netherlands' Emergency Motion for Order Certifying State Law Question to Supreme Court of Arizona (D.I. 4, 5, 18) (“Emergency Certification Motion”), which seeks to certify the issue of “whether the Debtors' lease of land and buildings ... in Mesa, Arizona [] are subject to the Netherlands' valid judicial lien under an Arizona statute, Ariz. Rev. Stat. 33-961.” (D.I. 4 at 2). Debtors oppose the Emergency Certification Motion. (D.I. 8). Also pending before the Court is the Netherlands' Emergency Motion for Stay Pending Appeal (D.I. 12, 13, 23, 25) (“Emergency Stay Motion”),[3] which seeks a stay of both the Phase One Order and the Sale Order, so that the Netherlands “may prosecute and obtain a ruling on the [Certification Motion],” and (2) “with the benefit of a ruling on this issue of Arizona law from the Arizona Supreme Court, brief, argue and obtain a ruling from this Court on the merits of the Appeals”- assuming, that is, that the Arizona Supreme Court accepts the question for review. (D.I. 12 at 3). Debtors oppose this relief as well. (D.I. 21, 24). The Emergency Certification Motion and the Emergency Stay Motion are fully briefed. For the reasons set forth herein, the Court will deny both Emergency Motions.
Prior to the Debtors' chapter 11 filing, the Hague District Court in the Netherlands rendered two separate judgments in favor of the National Police Services Agency of the Netherlands (the “KLPD”) against debtor MDHI for damages, fees, and interest based on MDHI's guaranty of a distributor's obligation under a 2001 procurement contract to deliver aircraft to the KLPD, which the distributor breached. The KLPD thereafter assigned the judgments to the Netherlands. The Netherlands domesticated the judgment in the Superior Court of Maricopa County, Arizona, which issued an Arizona judgment in favor of the Netherlands for $15,074,750.[4]The Netherlands recorded that judgment in the Office of the Maricopa County Recorder-which maintains land and judgment records for Mesa, Arizona. Debtors appealed the judgment, but the Arizona Court of Appeals, and ultimately, the Supreme Court of Arizona, affirmed, ruling that the judgment was enforceable.[5] On August 3, 2021, the Netherlands recorded a Final Judgment with Mandate, reflecting the outcome of the appeal and increasing the amount due under the judgment.[6]
On March 30, 2022, Debtors filed voluntary petitions seeking relief under chapter 11 of the Bankruptcy Code. On April 26, 2022, the Bankruptcy Court entered an order approving procedures with respect to a competitive sale and marketing process for substantially all of the Debtors' assets (B.D.I. 206) (“Bid Procedures Order”), and an order authorizing Debtors to obtain post-petition financing and use collateral (including cash collateral) (B.D.I. 205) (“Final DIP Order”). The Bid Procedures Order contemplates a sale of Debtors' assets free and clear of all liens, claims, and encumbrances to the bidder submitting the highest and best offer.
The Netherlands asserted in the chapter 11 cases that, by virtue of the Netherlands Lien, it was the senior, secured creditor as to the Debtors' rights in the Mesa Leases and Improvements. (B.D.I. 221 ¶ 1). Debtors and their pre- and post-petition secured lenders (which have liens on substantially all of the Debtors' assets) disagreed regarding the extent, priority, and value of the Netherlands Lien, as well as the Netherlands' entitlement to any additional adequate protection. (Final DIP Order ¶ 37(c)). The Bankruptcy Court approved the parties' agreement to an expedited, two-phase process to determine the lien dispute prior to the asset sale. In “Phase One” of this process, the parties agreed that the Bankruptcy Court would determine: (i) “whether the Netherlands Lien is [] valid and binding;” (ii) “whether and to what extent the Netherlands Lien properly attached to any real property of the Debtors, including any leasehold interests and related improvements owned by the Debtors in Maricopa County;” and (iii) “whether the Netherlands Lien is senior to [all other encumbrances on the relevant collateral].” (Id. ¶ 37). If the Bankruptcy Court concluded that the Netherlands had a valid and binding senior lien on the Debtors' assets, the lien determination process would proceed to “Phase Two,” for a determination of (i) the value of the collateral securing the Netherlands Lien, and (ii) the Netherlands' entitlement to any additional adequate protection. (Id. ¶ 37(d)).
On May 26, 2022, the Bankruptcy Court issued its Bench Ruling, holding that although the Netherlands Lien is a valid and binding lien on any “real property” owned by the Debtors in Maricopa County, the Netherlands Lien was not secured by any collateral because the Debtors owned no such “real property.” (Bench Ruling 68:20-69:2). Reviewing relevant Arizona authority, the Bankruptcy Court first found that “[l]eases are not real property and, therefore, cannot be a part of a real property.” (Id. 63:18-19). With respect to the Improvements, the Bankruptcy Court found, “an absence of clear and express language in the [Mesa Leases] that invents [sic] an intent to treat the improvements a[s] property of the debtors and, therefore, they are owned by the city [of Mesa under the default rule in Arizona law].” (Id. 68:17-20). Alternatively, the Bankruptcy Court held that, even if the parties to the Mesa Leases had intended to grant ownership of the Improvements to the lessee, they would be “owned by [Debtor MDHI] as its personal property.” (Id. 63:23-64:3). In light of those findings, the Bankruptcy Court had no need to address the third Phase One question-i.e., whether the Netherlands' lien over any collateral had priority over all other claims on that collateral-or to proceed to Phase Two. (Id. 68:17-69:8).
On May 27, 2022, the Netherlands appealed. (D.I. 1). On June 1, 2022, the Bankruptcy Court entered the Phase One Order memorializing the terms of its Bench Ruling. On June 2, 2022, the Netherlands filed its Emergency Certification Motion (D.I. 4), along with a motion in the Bankruptcy Court for a stay of the Phase One Order pending appeal. (B.D.I. 305). On June 6, 2022, the Bankruptcy Court denied the Netherlands' request for expedited consideration of the stay motion and set a hearing on the stay motion for June 17, 2022 - the same day as the hearing to approve the sale. (B.D.I. 316). The same day, this Court set a briefing schedule on the Netherlands' Emergency Certification Motion.
At the June 17, 2022 hearing, the Bankruptcy Court issued an oral ruling denying the Netherlands' request for a stay of the Phase One Order pending appeal based on the Netherlands' failure to establish a likelihood of success on the merits. (See D.I. 12-1 (“6/17/22 Tr.”) 79:1280:17). At the same hearing, the Bankruptcy Court entered the Sale Order. (Id. 95:22-97:3). In so doing, the Bankruptcy Court overruled a limited objection filed by the Netherlands challenging, among other things, the scope of the § 363(m) “good faith” finding granted by the Sale Order. (B.D.I. 343 ¶¶ 3-5, 13-19).
Based on the Bankruptcy Court's denial of the Netherlands' request for a stay of the Phase One Order, denial of the Netherlands' request for expedited treatment of same, and the Bankruptcy Court's reaffirmation of the propriety of its Phase One Order conclusions, the Netherlands concluded that it would be impracticable to seek a stay of the Sale Order from the Bankruptcy Court. (D.I. 12 ¶ 13). On June 21, 2022, the Netherlands filed the Emergency Stay Motion in this Court, seeking...
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