Swift Aircraft Management LLC v. MorrisAnderson & Associates Limited ( 2020 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 IN THE MATTER OF: No: CV-20-00854-PHX-JAT 10 Swift Air, L.L.C. ORDER 11 Debtor. 12 13 Swift Aircraft Management LLC, 14 Appellant, 15 vs. 16 MorrisAnderson & Associates Limited, 17 Appellee. 18 19 Appellant Swift Aircraft Management LLC (“Appellant”) appeals from the 20 Judgment (the “Judgment”), (Doc. 1 at 9–12), and the Under Advisement Order (the 21 “Under Advisement Order”), (Doc. 19-2 at 65–262),1 entered by the United States 22 Bankruptcy Court for the District of Arizona (the “Bankruptcy Court”). In support, 23 Appellant filed an Opening Brief. (Doc. 12). Appellee MorrisAnderson & Associates 24 Limited (“Appellee” or the “Trustee”) filed a Brief in response, (Doc. 17), to which 25 1 This appeal relates to the appeals in Transjet Incorporated v. MorrisAnderson & Associates Limited, Case No. CV-20-00849-PHX-JAT and Redeye II, LLC v. 26 MorrisAnderson & Associates Limited, Case No. CV-20-00855-PHX-JAT (the “Redeye Appeal”) (together with the present appeal, the “Related Appeals”). The appellants in the 27 Related Appeals have briefed issues that cross all three Related Appeals in the appellants’ Opening Brief in the Redeye Appeal as permitted by Fed. R. Bankr. P. 8014(e). Any 28 citation of Docs. 19, 19-1, 19-2, 19-3, 19-4, 19-5, 19-6, 19-7, or 19-8 will refer to the appellants’ Opening Brief and attachments in the Redeye Appeal. 1 Appellant filed a Reply Brief, (Doc. 18). After reviewing the briefs and the record, the 2 Court issues the following order. 3 I. BACKGROUND 4 The below is a brief summary of the background of this case. A more extensive 5 discussion of the background can be found in the Under Advisement Order, (Doc. 19-2 at 6 75–116), and the appellants’ Opening Brief in the Redeye Appeal, (Doc. 19 at 10–14). 7 Prior to December 21, 2011, Swift Air, LLC (“Swift” or the “Debtor”) operated as 8 an aviation management company under a combined 14 CFR Part 121/135 Certificate 9 (“Part 121 Certificate” and “Part 135 Certificate”) issued by the Federal Aviation 10 Administration (“FAA”). (Doc. 19 at 10). Swift’s business involved managing aircraft 11 owned by other parties and booking charter contracts. (Id.). Swift maintained a Part 135 12 Certificate business which managed corporate/individual charter flights (the “Part 135 13 Business”), and Swift also maintained a Part 121 Certificate business which consisted of 14 flying large charter groups, in particular, professional sports teams (the “Part 121 15 Business”). (Id. at 11). Keeping the Part 121 Certificate operational required that certain 16 criteria be satisfied, such as having five specific positions filled by qualified employees 17 (the “Five Wise Men”).2 (Doc. 19-5 at 173–74). 18 Swift was a wholly owned subsidiary of Swift Aviation Group, Inc. (“SAG”). (Doc. 19 19-2 at 260). SAG also held all the equity interests in Swift Aviation Sales, Inc. (“Sales”), 20 Swift Aviation Management, LLC (“SAVM”), and Swift Aviation Services, LLC 21 (“Services”). (Id.). SAG was wholly owned by the Jerry and Vickie Moyes Family Trust 22 (the “Moyes Trust”). (Id.). Jerry Moyes (“Moyes”) was the sole trustee of the Moyes Trust. 23 (Id.). The Moyes Trust also held all the equity interests in Transjet, Inc. (“Transjet”), 24 Transjet’s three subsidiaries (the “Transjet Subsidiaries”), Transpay, Inc. (“Transpay”), 25 and SME Steel Contractors, Inc. (“SME”). (Id.). Moyes also personally owned fifty percent 26 of Redeye II, LLC (“Redeye”). (Id.). Moyes served as Swift’s president, and Kevin 27 Burdette (“Burdette”) served as Swift’s vice-president. (Id. at 78). The companies owned 28 2 The positions are Chief Pilot, Director of Operations, Chief Inspector, Director of Safety, and Director of Maintenance. (Doc. 19-5 at 174). 1 by Moyes and the Moyes Trust regularly did business with one another and through this 2 business incurred significant accounts receivable and accounts payable that were 3 outstanding on December 21, 2011. (Id. at 77–87). 4 In 2011, Swift’s balance sheet reflected liabilities greater than assets by more than 5 $3 million. (Id. at 88). In the latter half of 2011, Burdette met with two potential buyers for 6 Swift who ultimately did not purchase the company. (Id.). Then, in October 2011, Jeff 7 Conry (“Conry”), on behalf of Avondale Aviation II, LLC and Jordan Gunthorpe Holdings, 8 LLC (collectively, the “Buyers”), approached Burdette about purchasing Swift’s Part 121 9 Business (the “Transaction”). (Doc. 19 at 11). Notably, the Buyers told Burdette that they 10 only wanted to acquire the equity in Swift’s Part 121 Business and that they intended to 11 merge it with their recently acquired business, Direct Air, which needed a Part 121 12 Certificate. (Doc. 19-2 at 88–89). The Buyers also told Burdette that they planned to obtain 13 a $5 million investment in Swift after its acquisition. (Id. at 90). 14 The Transaction moved forward, terms were solidified, and the Buyers closed on 15 the purchase of the equity interest in Swift for a de minimis payment of $100 on December 16 21, 2011 (the “Transaction Date”). (Doc. 19 at 11–12). Swift’s Part 135 Business was not 17 included in the Transaction, so it was transferred into a newly created entity, Swift Aircraft 18 Management, LLC (“SAM”). (Id. at 12). As part of the Transaction, Swift transferred 19 certain assets and liabilities, including accounts receivable and accounts payable, 20 associated with the Part 135 Business to SAM and SAG pursuant to the Part 135 21 Assignment and Assumption Agreement and Guarantee (the “Assignment and Assumption 22 Agreement”). (Id. at 13). After the closing of the Transaction, Swift and the other Moyes 23 owned companies executed an Inter-Company Settlement Agreement and Mutual Release 24 (the “Settlement Agreement”). (Id.). The Settlement Agreement released Swift from any 25 debts or obligations to the other Moyes owned companies and facilitated a transfer of assets 26 and liabilities between Swift and certain other Moyes owned companies (the “Transfers”). 27 (Id.). The Transfers included a receivable from SAVM (the “SAVM Receivable”) and a 28 receivable from Redeye (the “Redeye Receivable”). (Id.). 1 After the Transaction, the newly acquired Swift (“New Swift”) experienced 2 cashflow shortages. (Doc. 19-2 at 105). The $5 million investment that the Buyers planned 3 to obtain for New Swift never materialized, and New Swift never merged with Direct Air. 4 (Id. at 107). New Swift also entered into new post-Transaction contracts that exacerbated 5 its money problems. (Id.). These and other problems led New Swift to commence a Chapter 6 11 bankruptcy proceeding on June 27, 2012. (Id.). New Swift emerged from its Chapter 11 7 bankruptcy proceeding through a confirmed restructuring plan in October 2013 after 8 receiving approximately $6.3 million from Nimbos Holings, LLC (“Nimbos”) in exchange 9 for the equity interests in the reorganized New Swift. (Doc. 19 at 14). 10 On June 27, 2014, Appellee initiated the underlying adversary proceeding. (Id.). 11 Appellee’s Third Amended Complaint asserted, among other things, preference, fraudulent 12 transfer, and breach of fiduciary duty claims against Appellant and others. (Id.). The 13 Bankruptcy Court held a trial after which the Bankruptcy Court issued the Under 14 Advisement Order and the Judgment. (Id. at 8, 14). During the adversary proceeding, 15 Appellant’s expert, Grant Lyon (“Lyon”) testified as did Appellee’s expert, Michael 16 Spindler (“Spindler”). (See id. at 23–24). 17 Appellant appealed the Judgment and the Under Advisement Order. (Doc. 1 at 6). 18 Appellant filed an Opening Brief. (Doc. 12). Appellee filed a Brief in response, (Doc. 17), 19 to which Appellant filed a Reply Brief, (Doc. 18). 20 II. LEGAL STANDARD 21 The Court has jurisdiction over this case pursuant to 28 U.S.C. § 158(a), which 22 provides that “district courts of the United States shall have jurisdiction to hear appeals . . . 23 from final judgments, orders, and decrees . . . of bankruptcy judges entered in cases and 24 proceedings referred to the bankruptcy judges under section 157 of this title.” 28 U.S.C. 25 § 158(a)(1). Matters referred to a bankruptcy court are classified as either “core” or “non- 26 core” proceedings. 28 U.S.C. § 157(b). Core proceedings are those “arising under title 11, 27 or arising in a case under title 11,” and non-core proceedings are those that are “otherwise 28 related to a case under title 11.” In re Bellingham Ins. Agency, Inc., 702 F.3d 553, 558 (9th 1 Cir. 2012), aff’d sub nom. Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25 (2014). 2 Bankruptcy court judges may enter final orders on all core proceedings and may submit 3 proposed findings of fact and conclusions of law to the district court for entry of final orders 4 on all non-core proceedings. See 28 U.S.C. § 157(b)–(c). Bankruptcy courts may enter final 5 judgments in non-core proceedings “with the consent of all the parties to the proceeding.” 6 Id. § 157(c)(2). 7 Regarding final orders by a bankruptcy court, this Court reviews a bankruptcy 8 court’s decision for “abuse of discretion: ‘The bankruptcy court’s conclusions of law are 9 reviewed de novo, and its findings of fact are reviewed for clear error.’” In re Taylor, 599 10 F.3d 880, 887 (9th Cir. 2010) (quoting In re Straightline Invs., Inc., 525 F.3d 870, 876 (9th 11 Cir. 2008)). “Thus, the first step of our abuse of discretion test is to determine de novo 12 whether the trial court identified the correct legal rule to apply to the relief requested.” 13 United States v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009). “If the bankruptcy court 14 identified the correct legal rule, we then determine whether its ‘application of the correct 15 legal standard [to the facts] was (1) illogical, (2) implausible, or (3) without support in 16 inferences that may be drawn from the facts in the record.’” In re Taylor, 599 F.3d at 887 17 (quoting Hinkson, 585 F.3d at 1262). “If the bankruptcy court did not identify the correct 18 legal rule, or its application of the correct legal standard to the facts was illogical, 19 implausible, or without support in inferences that may be drawn from the facts in the 20 record, then the bankruptcy court has abused its discretion.” Id. at 887–88. Regarding 21 findings of fact, “‘a finding is ‘clearly erroneous’ when, although there is evidence to 22 support it, the reviewing court on the entire evidence is left with the definite and firm 23 conviction that a mistake has been committed.’” Hinkson, 585 F.3d at 1260 (quoting United 24 States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). The parties do not dispute that the 25 Bankruptcy Court had the authority to enter final orders in the instant appeal. 26 III. ANALYSIS 27 Appellant makes four arguments in its opening brief: (1) the Bankruptcy Court erred 28 in determining that Swift was insolvent at the time of the Transfers under 11 U.S.C. § 1 547(b)(3); (2) the Bankruptcy Court erred by failing to apply a fair market value standard 2 to certain receivables in the Transfers for purposes of liability under 11 U.S.C. § 550; (3) 3 the Bankruptcy Court erred in determining that Appellee satisfied its burden under 11 4 U.S.C. § 547; and (4) the Bankruptcy Court abused its discretion in taking judicial notice 5 of certain facts. (Doc. 12 at 14–17). These arguments are addressed below. 6 A. The Bankruptcy Court’s Determination that Swift was Insolvent at the 7 Time of the Transfers Under 11 U.S.C. § 547(b)(3) 8 The Court conducted a de novo review of this issue in the Redeye Appeal and 9 concluded, as the Bankruptcy Court did, that Swift was insolvent at the time of the 10 Transfers. See Redeye II, LLC v. MorrisAnderson & Associates Limited, Case No. CV-20- 11 00855-PHX-JAT, Section III.D.1 (D. Ariz. Dec. 1, 2020). Thus, the Bankruptcy Court did 12 not abuse its discretion in determining that Swift was insolvent that the time of the transfers, 13 so the Court affirms the Bankruptcy Court on this issue. 14 B. The Bankruptcy Court’s Valuation Standard for Certain Receivables in 15 the Transfers for Purposes of Liability Under 11 U.S.C. § 550 16 The Court conducted a de novo review of this issue in the Redeye Appeal and 17 concluded that the Bankruptcy Court applied the correct valuation standard for the 18 receivables in the Transfers. See Redeye II, LLC v. MorrisAnderson & Associates Limited, 19 Case No. CV-20-00855-PHX-JAT, Section III.D.2 (D. Ariz. Dec. 1, 2020). Thus, the 20 Bankruptcy Court did not abuse its discretion in its valuation of the receivables in the 21 Transfers, so the Court affirms the Bankruptcy Court on this issue. 22 C. The Bankruptcy Court’s Determination that Appellee Satisfied its 23 Burden Under 11 U.S.C. § 547(b)(1) and (b)(2) 24 The Court conducted a de novo review of this issue in the Redeye Appeal and 25 concluded, as the Bankruptcy Court did, that Appellee satisfied its burden under 11 U.S.C. 26 § 547(b)(1) and (b)(2). See Redeye II, LLC v. MorrisAnderson & Associates Limited, Case 27 No. CV-20-00855-PHX-JAT, Section III.D.3 (D. Ariz. Dec. 1, 2020). Thus, the 28 Bankruptcy Court did not abuse its discretion in determining that Appellee satisfied its burden under 11 U.S.C. § 547(b)(1) and (b)(2), so the Court affirms the Bankruptcy Court || on this issue. 3 D. The Bankruptcy Court’s Taking of Judicial Notice of Certain Facts 4 The Court conducted a de novo review of this issue in the Redeye Appeal and 5 || concluded that the Bankruptcy Court did not improperly take judicial notice of certain 6|| facts, and even if it did, any error was harmless. See Redeye II, LLC v. MorrisAnderson & || Associates Limited, Case No. CV-20-00855-PHX-JAT, Section III.D.5 (D. Ariz. Dec. 1, 8 || 2020). Thus, the Bankruptcy Court did not abuse its discretion by taking improper judicial 9|| notice of certain facts, so the Court affirms the Bankruptcy Court on this issue. 10] IV. CONCLUSION 11 Based on the foregoing, 12 IT IS ORDERED AFFIRMING the Bankruptcy Court’s Judgment and Under 13 || Advisement Order in their entirety. Pursuant to Federal Rule of Bankruptcy Procedure 8024(a), the Clerk of the Court shall enter judgment accordingly. 15 Dated this 1*t day of December, 2020. 16 17 A 18 James A. Teilborg 19 Senior United States District Judge 20 21 22 23 24 25 26 27 28 -7-