W. Pac. Airlines v. Smith Management, s. 98-1018

• Decision Date: 07 July 1999
• Docket Number: Nos. 98-1018,98-1214,s. 98-1018
• Citation: 181 F.3d 1191
• Parties: (10th Cir. 1999) In re: WESTERN PACIFIC AIRLINES, INC., a Delaware corporation, Debtor, BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.; BOULLIOUN PORTFOLIO FINANCE I, INC., Appellants, v. SMITH MANAGEMENT; WESTERN PACIFIC AIRLINES, INC., OFFICIAL COMMITTEE OF UNSECURED CREDITORS; JEFFREY A. WEINMAN, Chapter 7 Bankruptcy Trustee, Appellees. In re: WESTERN PACIFIC AIRLINES, INC., a Delaware corporation Debtor, SMITH MANAGEMENT COMPANY and JEFFREY A. WEINMAN, Chapter 7 Bankruptcy Trustee, Appellees, v. AIRCORP, INC. and BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., Appellants, ORIX, AIRCRAFT FINANCERS, and ATLAS AIR, INC., Amici Curiae
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1191

181 F.3d 1191 (10th Cir. 1999)

In re: WESTERN PACIFIC AIRLINES, INC., a Delaware corporation, Debtor,

BOULLIOUN AIRCRAFT HOLDING COMPANY, INC.; BOULLIOUN PORTFOLIO FINANCE I, INC., Appellants, v. SMITH MANAGEMENT; WESTERN PACIFIC AIRLINES, INC., OFFICIAL COMMITTEE OF UNSECURED CREDITORS; JEFFREY A. WEINMAN, Chapter 7 Bankruptcy Trustee, Appellees.

In re: WESTERN PACIFIC AIRLINES, INC., a Delaware corporation Debtor,

SMITH MANAGEMENT COMPANY and JEFFREY A. WEINMAN, Chapter 7 Bankruptcy Trustee, Appellees, v. AIRCORP, INC. and BOULLIOUN AIRCRAFT HOLDING COMPANY, INC., Appellants, ORIX, AIRCRAFT FINANCERS, and ATLAS AIR, INC., Amici Curiae.

Nos. 98-1018, 98-1214

UNITED STATES COURT OF APPEALS TENTH CIRCUIT

July 7, 1999

Appeal from the United States District Court for the District of Colorado. D.C. No. 97-K-2564 and 98-K-358

[Copyrighted Material Omitted] Susan M. Freeman of Lewis and Roca, LLP, Phoenix, Arizona (Daniel F. Warden, Bond & Morris, Denver, Colorado, with her on the briefs), for appellants Boullioun.

David T. Brennan of Otten, Johnson, Robinson, Neff & Ragonetti, P.C., Denver, Colorado (Stephen J. Shimshak, Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York with him on the briefs), for appellee Smith Management Company.

Mark L. Fulford of Sherman & Howard, LLC, Denver, Colorado, for appellee Jeffrey A. Weinman, Chapter 7 Bankruptcy Trustee.

Paul D. Rubner of Rubner & Kutner, P.C., Denver, Colorado and William J. Rochelle, III, of Fulbright & Jaworski, LLP, New York, New York, filed amicus curiae briefs for Orix.

M.O. Sigal, Jr. and Jacob S. Pultman of Simpson Thacher & Bartlett, New York, New York, filed an amicus curiae brief for Aircraft Financers.

Kevin J. Burke, Marc J. Korpus, and James E. Rosenfeld of Cahill Gordon & Reindel, New York, New York, filed an amicus curiae brief for Atlas Air, Inc.

Before BRORBY, HOLLOWAY and LUCERO, Circuit Judges.

LUCERO, Circuit Judge.

We consider whether an appeal by an aircraft lessor is moot if the lessor seeks modification of post-petition lenders' bargained-for collateral but has failed to seek a stay of the relevant post-petition financing order pursuant to 11 U.S.C. 364(e). For the reasons set forth below, we conclude that these appeals are moot and dismiss. Solely because of case-specific, equitable considerations, we do not vacate the decisions below.

I

These appeals arise from bankruptcy proceedings regarding Western Pacific Airlines, Inc. ("WestPac"). In appeal No. 98-1018 ("the lease assignment appeal"), Boullioun Aircraft Holding Co. and Boullioun Portfolio Finance I, Inc. ("Boullioun") challenge the bankruptcy court's December 10, 1997, decision that WestPac could assign its interest in three planes that it leased from Boullioun as collateral to providers of post-petition financing, despite provisions in the leases prohibiting such assignment. See In re Western Pacific Airlines, Inc., 223 B.R. 567, 573 (D. Colo. 1997). The district court dismissed Boullioun's appeal of this holding as moot. See In re Western Pacific Airlines, Inc., 216 B.R. 437, 440 (D. Colo. 1998). Essentially, Boullioun challenges the bankruptcy court's determination that 11 U.S.C. 365(f)(1), which permits assignment of leases by a bankruptcy trustee, is not trumped by 11 U.S.C. 1110, which exempts, under certain circumstances, an aircraft lessor's power to retrieve its aircraft following a lease default from the powers of the court to enjoin repossession.¹

In appeal No. 98-1214 ("the repossession appeal"), Boullioun challenges the district court's interpretation of another aspect of 11 U.S.C. 1110. The district court, in In re Western Pacific Airlines, Inc., 219 B.R. 305, 309-10 (D. Colo. 1998), concluded that 1110 ceases to have effect once an aircraft lessee cures existing defaults within the allotted time period and promises not to default again, even if the lessee subsequently defaults on lease terms. Boullioun also seeks affirmance of the bankruptcy court's determination, not reached by the district court, that once it is clear to a lessor that a lessee has defaulted and will not cure, the lessor need not wait until thirty days have expired before repossessing its aircraft.

II

At the threshold, we consider appellees' assertion that these appeals are moot. "We review the issue of mootness de novo." Anderson v. United States Dep't of Health & Human Services, 3 F.3d 1383, 1384 (10th Cir. 1993). Generally, a federal court cannot give opinions absent a live case or controversy before it. See Mills v. Green, 159 U.S. 651, 653 (1895). Specifically, a case becomes moot when it becomes "impossible for the court to grant 'any effectual relief whatever' to a prevailing party." Church of Scientology v. United States, 506 U.S. 9, 12 (1992) (quoting Mills, 159 U.S. at 653).

A

We first address appellees' mootness claim with respect to appeal No. 98-1018, the lease assignment appeal. The district court concluded that Boullioun's challenge to the bankruptcy court decision permitting assignment of Boullioun's leases as collateral for the post-petition financing is moot because of Boullioun's failure to seek a stay of the financing order pursuant to 11 U.S.C. 364(e). See In re Western Pacific Airlines, Inc., 216 B.R. at 440. Section 364(e) provides that

[t]he 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 and the incurring of such debt or the granting of such priority or lien, were stayed pending appeal.

11 U.S.C. 364(e).²

Although 364(e) facially provides for the "reversal or modification on appeal" of an authorization to incur debt and the grant of a priority lien, it limits the effect of such modification if the challenging party has failed to seek a stay. Accordingly, 364(e) renders some financing order challenges effectively moot. See, e.g., In re Adams Apple, Inc., 829 F.2d 1484, 1487-89 (9th Cir. 1987). An appeal is moot if the court can fashion no meaningful relief because of 364(e). See Church of Scientology, 509 U.S. at 12; In re Swedeland Dev. Corp., 16 F.3d 552, 559-60 (3d Cir. 1994).³ At the same time, "[if] a court can fashion 'some form of meaningful relief,' even if it only partially redresses the grievances of the prevailing party, the appeal is not moot." 16 F.3d at 559 (quoting Church of Scientology, 506 U.S. at 12-13). Thus, we must consider whether Boullioun can obtain meaningful relief from the complained-of orders despite its failure to seek a stay of the post-petition financing order. Cf. In re Osborn, 24 F.3d at 1203-04. We conclude that it cannot.

We agree with the conclusion reached in In re Clinton Street Food Corp., 170 B.R. 216, 220 (S.D.N.Y. 1994), that 364(e) prohibits not only outright invalidation of a lien or priority where the challenging party has failed to seek a stay, but also modification of the terms of a post-petition lender's bargained-for collateral.⁴ Such an interpretation stems from the language of 364(e), as well as the purpose of this provision, which is to encourage lenders to advance funds to a bankrupt company in reliance on the unstayed order of bankruptcy court, even if on appeal. See In re Adams Apple, Inc., 829 F.2d at 1488; In re EDC Holding Co., 676 F.2d 945, 947 (7th Cir. 1982); In re Clinton Street Food Corp., 170 B.R. at 220; 4 Norton Bankr. L. & Prac. 2d 87:24 (1999). Accordingly, the fact that Boullioun does not seek disruption of the debtor-in-possession financing orders, modification of which is precluded by 364(e), and instead argues for the modification of the economic consequences of the post-petition financiers' liens under 11 U.S.C. 1110, does not save this case from mootness. In light of Congress's intent in enacting 364, see In re Adam's Apple, Inc., 829 F.2d at 1488, we read 364(e) to apply not just to the validity of financing itself, but also to the terms of collateralization. See In re Clinton Street Food Corp., 170 B.R. at 220.

We reject Boullioun's argument that the reasoning of the Third Circuit's decision in In re Swedeland Dev. Corp., 16 F.3d at 559-60, dictates that we find a live controversy here. The Swedeland court found one of several financing orders in a bankruptcy proceeding not moot on the grounds that funds under that order remained undistributed. See 16 F.3d at 561. Here, on the contrary, DIP funds have been fully distributed in reliance on the financing agreement, and merit full 364(e) protection.⁵

We also reject Boullioun's argument that an unresolved issue regarding a sanction of $4,000 in attorney fees saves this case from mootness.⁶ The $4,000 sanction represents an award of attorney fees to the estate for expenses arising from issues relating to one of three aircraft leases. Precedent clearly indicates that "an interest in attorney's fees is insufficient to create an Article III case or controversy where a case or controversy does not exist on the merits of the underlying claim." Cox v. Phelps Dodge Corp., 43 F.3d 1345, 1348, n.4 (10th Cir. 1994) (citing Lewis v. Continental Bank Corp., 494 U.S. 472, 480 (1990)). Under Bankruptcy Code 364(e), an interest in attorney fees cannot save a case from mootness where no possibility of relief exists with regard to the underlying dispute. Given 364(e), Boullioun's repossession of its aircraft, and the parties' settlement of Boullioun's remaining claims, we cannot grant Boullioun any effective relief on its claims regarding the underlying dispute. Thus we conclude that the potential refund of $4,000 in attorney fees is insufficient to create a live controversy. See Lewis, 494 U.S. at 480; cf. In re Osborn, 24 F.3d at 1204 (declining to hold case moot under 11...