claim and was proposing that Monarch’s claim be unsecured. Monarch, however, wants us to
view its consent from the perspective of a business person. (Jd. at 23.)

The Bankruptcy Court refused to give Monarch this deference. We agree. The
Bankruptcy Court concluded that the Trustee sent the objection form to the people designated by
Monarch on the claim form — Monarch’s general counsel — and that he was “a perfectly
appropriate person to designate.” (2/5/03 Tr. at 8.) Monarch did not challenge this finding in its
motion for reconsideration before the Bankruptcy Court and has not raised it as an issue in this
appeal. Monarch suggests (without explicitly stating) that a lawyer never reviewed the objection
and further suggests that its president was unknowledgeable about the workings of bankruptcy
court. This argument is not persuasive. First, as noted above, the objection form was sent to
Monarch’s general counsel and therefore Monarch’s president must have received the form from
him, making it hard to believe that the lawyer did not offer some advice regarding what was
being proposed. Second, Monarch had been represented by counsel throughout this lengthy
bankruptcy proceeding. It is therefore fair and reasonable to assume that Monarch’s president
acted in consultation with a lawyer or chose to take the risk of not doing so. For these reasons,
we do not see a need for an evidentiary hearing to delve into the question of how sophisticated
Monarch’s president was as to the workings of bankruptcy procedure.

To summarize, Monarch argues that, when it received an objection form that arguably
asserted that Monarch no longer had a lien on its post-petition claim, it was entitled to rely on a
proof of claim filed more than eight years earlier and was under no duty to communicate in some
fashion that it was still asserting its lien. The Bankruptcy Court, which is more expert in these

matters than this Court, concluded that such an assumption was unreasonable in light of the

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To all parties in interest whose claims are the subject of an objection:

Please be advised that the Midway Trustee has filed an objection to your
proof of claim.

Your claim has been objected to for the reasons set forth under the heading
“Summary of Objection.” In most cases, the primary basis for the objection was
the fact that the amount claimed did not reconcile to Midway’s records.

In the event you disagree with the objection to your claim, you are required
to file with the Clerk of the Bankruptcy Court a written response to the objection
on or before the date set forth in the objection. Your response must (a) contain a
complete written statement of all reasons supporting your opposition to the
objection and (b) attach copies of all documentary evidence in your possession,
custody, or control upon which you intend to rely in support of your claim. If
your response contests the objection, the matter will be scheduled by the court for
a hearing, and you will be provided with a separate notice of the date, time, and
place of that hearing.

If you consent to the objection or otherwise agree to the proposed
treatment of your claim, kindly return to the Clerk a completed Consent to
Treatment of Claim form which is enclosed with this notice. Upon receipt of your
consent, an order will be entered by the Court that will treat your claim as allowed
or disallowed in the amount set forth in the objection.

In the event that you fail to file a timely response to the objection, you will
be deemed to have no opposition to the relief sought by the objection. The
Trustee then will submit to the Court a proposed form of order granting the relief
Tequested that the Court will consider without further notice or hearing.
did.)
The third page of the objection was entitled “Summary of Objection” and described the

specific objection to Monarch’s claim as well as the Trustee’s proposed treatment of the claim:


debtors’ fuel because it had not expended any skill or labor to “improve or repair” the fuel in its
possession, (Id. at 10-14.)

Monarch filed a notice of appeal on March 6, 2003, within 10 days of the entry of the
February 24, 2003 order. Monarch has raised the following five issues on appeal:

1) Did the Bankruptcy Court Err in Holding that Monarch had no bailee’s lien for
post-petition services?

2) Did the Bankruptcy Court Err in Holding that a Consent to the Trustee’s
Objection to Monarch’s Pre-petition Claim Waived Monarch’s Lien Claim

securing amounts due for post-petition services?

3) Did the Bankruptcy Court Err in Holding that A Consent to the Trustee’s
Objection was Enforceable Per Se without an evidentiary hearing?

4) Did the Bankruptcy Court therefore err in granting the Trustee’s Motion for
Summary Judgment as to the secured status of Monarch’s post-petition claim?

5) Did the Bankruptcy Court err in denying Monarch’s Motion for Summary
Judgment?

(Monarch’s Opening Br. at 2.)
STANDARD OF REVIEW

Although the Trustee argues that this Court should review the Bankruptcy Court’s
decision under a “clearly erroneous” standard, this Court concludes that a de novo review is
warranted. In a recent case, Judge Aspen concisely summarized the standard of review in a case,
such as this one, where the Bankruptcy Court granted summary judgment on an undisputed
factual record:

As a conclusion of law, a grant of summary judgment by the bankruptcy court is

reviewed de novo by the district court. The district court will affirm summary

judgment if “there is no genuine issue as to any material fact and if the moving

party is entitled to judgment as a matter of law.” McGinn v. Burlington N. R.R.
Co., 102 F.3d 295, 298 (7th Cir. 1996), Summary judgment may be affirmed on

-9-



Trustee’s App.) On January 17, 2002, the Bankruptcy Court entered an order disallowing,
$75,644.59 of Claim 22

On August 7, 2002, the Trustee filed an adversary complaint against Monarch to
determine the validity of Monarch’s purported lien in the sale proceeds that are being held in
escrow. The Trustee asserted in the complaint that Monarch did not have a lien on the proceeds
of the jet fuel that was serviced by Monarch because this fuel was used up and replaced with new
fuel on a daily basis and, therefore, if Monarch held a Possessory lien, the fuel was used up well
before the January 28, 1992 sale took place. The Trustee did not assert in the complaint that
Monarch had waived its lien claim by signing the consent form. After both parties informed the
Bankruptcy Court that there were no issues of material fact, the Bankruptcy Court set a briefing
schedule for cross-motions for summary judgment. The matter was fully briefed. In their briefs,
the parties focused primarily on the issue of whether Monarch in fact did have a valid possessory
lien, and the Trustee did not make a formal argument that Monarch had waived its lien claim by
filing the consent.

On February 5, 2003, the parties appeared before the bankruptcy Judge who came to court
with a prepared ruling that she read into the record at the end of the hearing (see 2/5/03 Tr. 15-
25). Before reading her ruling, she told that parties that her ruling did not address the substantive

issue of whether Monarch had a common law possessory lien, which is the issue the parties

7Although not relevant to this appeal, on May 24, 2002, the Trustee objected to Claim 1
by serving a second objection (similar to the first one), which established June 22, 2002 as the
deadline for filing an objection. The Trustee objected that Claim 1 was a duplicate claim.
Monarch failed to file a response and therefore consented to the Trustee’s treatment of Claim 1.

-6-


CLAIMANT NAME  cecsscssccossessescssecssesesee MONARCH AIR SERVICE, INC.
CLAIM NUMBER oo scsssessssssssssseessssveseesse 14387

CLAIMED AMOUNT ++ $112,583.19

PROPOSED ALLOWED AMOUNT ** ... $36,938.60

EXPLANATION OF OBJECTION:

1 Not self-sustaining: the claim that you filed has no backup and/or lacks
documentation to support the amount that you claim is owed to you.

2 Prepetition Claim Item: The claim that you filed has one or more items
that are classified prepetition. (Pre-petition = on or prior to the Chapter 11

filing of March 25, 1991.) No distribution will be made to pre-petition
claims because the Estate lacks funds to pay all post-petition claims in full.

** Your distribution will be a percentage of your Allowed Amount,
(Id.)

The fourth page of the objection was entitled “Consent To Treatment Of Claim” and
contained a blank signature and date line to be filled in by the claimant. The objection form
stated that Monarch must file a response with the Clerk of the Bankruptcy Court by August 17,

2001. On August 3, 2001, Monarch’s president (Matthew J. Lynch) signed and returned the

consent form, consenting to the “relief requested in the objection to claim served.” (Bx. P

~5-


(2/5/03 Tr. at 7, 8-9.) Counsel for Monarch argued that the Trustee’s objection was not clear and
did not explicitly state that the Trustee was objecting to the secured status of the post-petition
claim, The Judge responded by pointing out that the objection indicated that Monarch would
receive only a “percentage” of the claim, which was consistent with a “typical” administrative
claim that was not secured:

[The objection] says your distributions will be a percentage of your allowed

amount. That’s what it says at the bottom of the consent form. This is no

reference to the secured status. [] And it’s, obviously [] telling you you’re going to

have a percentage of the allowed amount, which is a typical administrative []

expense, unless it’s administratively insolvent, but you’re not going to get the

whole amount.

(Tr. at 11-12.)°

One day later, on February 6, 2003, Monarch filed a Motion for Reconsideration, arguing
that the Bankruptcy Court had relied on a ground (waiver) that was not asserted by the Trustee
and arguing that there was no waiver in any event. Further briefing ensued.

On February 24, 2003, the Judge again came to court with a prepared ruling that she read
into the record. (See 2/24/03 Tr. at 3-14.) She denied the motion for reconsideration, holding
first that the “general issues of consent and waiver were raised” and were properly before the
court, (Jd. at 8.) She then rejected the trustee’s argument that a lien could not have arisen based

on the automatic stay. (/d. at 9.) Finally, as an additional ground supporting the decision, she

held that Monarch had not established the existence of a common law bailee’s lien on the

’Monarch’s counsel also argued that he did not receive a copy of the objection and that
the consent was signed by Monarch’s president who is not a lawyer. The Judge stated that the
objection form was sent to Monarch’s general counsel (who is not the same person as Monarch’s
current counsel) and that this was the proper person to receive notice.

-8-



Minute Order Form (06/97)

Ase

. United States District Court, Northern District of Illinois

Name of Assigned Judge John A. Nordberg Sitting Judge if Other
or Magistrate Judge . than Assigned Judge
CASE NUMBER 03 C 2580 DATE 7/30/2003
CASE In Re: In the Matter of Midway Airlines
TITLE
Lin the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY:
qd) oO Filed motion of [ use listing in “Motion” box above.]
(2) Q Brief in support of motion due
(3) i) Answer brief to motion due. . Reply to answer brief due.
(4) a Ruling/Hearing on set for at
(5) 0 Status hearing[held/continued to) [set for/re-set for] on set for at
(6) im) Pretrial conference[held/continued to} [set for/re-set for] on set for at :
(7) i) Trial[set for/re-set for] on at
(8) im) [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) CLocal Rule 41.1 OCOFRCP41(a)(1) O FRCP4i(a)(2).
(10) Ml [Other docket entry) Enter memorandum opinion and order. The decision of the Bankruptcy Court
is affirmed. This is a final judgment.
dl) [For further detail see order attached to the original minute order.]
No notices required, advised in open court,
No notices required, umber of notces
Notices mailed by judge's staff.
Notified counsel by telephone. JU L 3 4 2003
wv | Docketing to mail notices.
v | Mail AO 450 form.
Copy to judge/magistrate judge.
courtroom | date mailed notice
TP deputy’s
initials
Date/time received in
central Clerk's Office baling deputy intals



Monarch focuses on the fact that the objection never specifically stated that the Trustee
was objecting to the post-petition lien and on the fact that Monarch’s president (not its lawyer)
signed the consent form. Before looking at these points, it is important to lay out the various
contextual factors.

First, although it is true that Monarch had previously filed a proof of claim, it did so in
1992, which is more than eight years before the claims objection process in 2001. Second,
Monarch signed the consent form as part of a claims objection process known as a negative
notice procedure, whose whole purpose was to resolve a large amount of small claims. There
were 11,000 claims in this case. As the Trustee correctly points out, the purpose of the claims
procedure was to conserve the estate’s scarce resources by first determining the validity of each
proof of claim and once there was an issue as to the validity of the claim, to shift the burden to
the claimant to establish the validity of its claim. (Trustee’s Resp. Br. at 9.)

Third, the general language of the consent form made it obvious that the Trustee was
trying to reach a comprehensive and final settlement of all claims. Page two of the form (which
is quoted above) contained a number of general instructions along this line. For example, it ,
stated that, if the creditor disagreed with the claim, it should file a written response containing
“all reasons” supporting the creditor’s objection and the creditor should attach “all documentary
evidence in [its] possession.” (Ex. O Trustee’s App.) This and other statements on the same

page made it clear that the intent of this process was to come to a final resolution of claims.

-ll-



any ground supported in the record, even if it was not relied upon by the court

below. Johnson v. Gudmundsson, 35 F.3d 1104, 1115 (7th Cir. 1994). As the

bankruptcy court made its determination below on the basis of legal conclusions

on essentially undisputed facts, the standard of review is de novo as to each of the

issues raised on appeal.
In re Outboard Marine Corp., 278 B.R. 778, 782 (N.D. Ill. 2002).

DISCUSSION

Although Monarch raises five issues for consideration upon appeal, these issues involve
only two substantive questions: (i) whether Monarch waived its lien on its post-petition
administrative claim when it signed the consent form; and (ii) whether Monarch had a valid lien
on its post-petition claim. To prevail, Monarch must show that the Bankruptcy Court erred on
both points. Because the Bankruptcy Court relied primarily on waiver, and only later addressed
the lien issue in deciding the motion for reconsideration, we also will focus on the waiver issue.

At issue is whether Monarch waived its lien when it signed the consent form. The parties
proceed under the assumption that the general law of waiver will apply, as neither side cites to
any relevant case law from any particular jurisdiction on the elements needed to establish a
waiver. It is generally accepted that a “waiver, which can be either express or implied, is an
intentional relinquishment of a known right.” Miller v. Willow Creek Homes, Inc., 249 F.3d 629,
631 (7th Cir. 2001.) The Bankruptcy Judge stated that the waiver here was not express (see
2/5/03 Tr. at 6); therefore, we will analyze it as an implied waiver, which in turn requires us to
review the circumstances surrounding the alleged waiver.

The Bankruptcy Court concluded that, under all the circumstances, Monarch should have

taken some affirmative step when it signed the consent form to indicate that it was still asserting

(and was not waiving) its post-petition lien. Reviewing the record de novo, we agree.

-10-



focused on in their briefs, because she concluded that Monarch had waived any such claim by
signing the consent form.

At this point, counsel for Monarch argued that the consent only applied to the pre-petition
claim (i.e, the $75,644.59 portion of the total amount of $112,583.19) and did not apply to the
post-petition administrative expense claim of $36,938.60. Counsel asked whether the Judge was
ruling that the consent also constituted a waiver of the post-petition lien, In the ensuing colloquy
(Tr. 6-15), the Judge explained why she believed that the consent also constituted a waiver of the
post-petition lien.?

To summarize her ruling, the Judge acknowledged that Monarch had filed a proof of
claim in 1992 asserting the secured status of its post-petition claim.* The Judge concluded,
however, that Monarch should have made some effort during the claims objection process to
assert its lien claim:

So even though there was this order out there, you know, back in the old days,

preserving any liens anybody might have, when we go through the whole claims
process, that is the time to assert your security interest.

Ok OF

[T]hat was the time, in the claim objection process, to state that it was a secured
claim. Yes, we think it’s administrative, but we also think it’s secured.

>This colloquy, rather than the prepared ruling that was later read into the record,
constitutes the portion of her decision that is relevant to this appeal.

‘In her prepared ruling, the Judge set forth the law regarding the burden of proof for a
proof of claim. She noted that, when a party properly files a proof of claim, that proof of claim
constitutes prima facie evidence of the validity and amount of the claim, unless the debtor
objects. (2/5/03 Tr. at 19.) The Judge further noted, that the objecting party must introduce
some evidence rebutting this presumption and that, ultimately, the burden of establishing a claim
rests with the claimant. (/d.)

-7-



of $75,644.59, assigned claim #17945 by the Trustee (“Claim 1"), and the other in the amount of
$112,583.19, assigned claim #14387 by the Trustee (“Claim 2"). Claim 2, which is the focal
point of this appeal, included both pre- and post-petition amounts claimed by Monarch.

On May 18, 1993, the Bankruptcy Court entered an order allowing Monarch an
administrative expense claim in the amount of $36,638.60. The order did not state whether
Monarch’s claim was secured or unsecured. (Ex. R Trustee’s App.)

Approximately eight years later, in 2001, the Trustee filed a motion for approval of a
claims resolution procedure. The Trustee sought authority to communicate claim objections to
post-petition claimants by sending them a notice of the Trustee’s objection and informing them
of their right to a hearing if their claim could not be resolved consensually. On June 11, 2001,
the Bankruptcy Court granted the motion and entered a claims procedure order authorizing the
Trustee to resolve the disputed claims by this negative notice procedure.!

Pursuant to this procedure, on July 20, 2001, the Trustee served a claim objection
regarding Claim 2. The Trustee objected that $75,644.59 of this claim was incurred pre-petition
and that it lacked sufficient documentation. This objection was sent to Monarch’s general
counsel, Alfred P. Bianucci, who was the party designated by Monarch to receive such notices. It
contained four pages. (See Ex. O Trustee’s App.) The second page was entitled “Notice
Regarding Objections To Claims And Response Requirement” and contained general

information about the claims objection process. It stated:

‘According to the Trustee, there were approximately 11,000 claims filed in these cases.

-3-



amount of time that had elapsed from the filing of the claim, the negative notice procedure that
was designed to settle these claims, and the “percentage” language in the claim form that
indicated that the claim was not secured. For the reasons stated above, this Court agrees with the
Bankruptcy Court’s conclusions.

Having concluded that the Bankruptcy Court correctly held that Monarch waived its
secured claim, this Court will not analyze the question of whether Monarch established a
bailee’s lien under Illinois common law, which was offered as an additional ground to support
the decision.

CONCLUSION

For the reasons set forth above, the decision of the Bankruptcy Court is affirmed. This is

a final judgment.

ENTER:

DATED: 30 IL 3

-14-



On March 25, 1991 (the “Petition Date”), the Debtors filed voluntary petitions for relief
under chapter 11 of the Bankruptcy Code, and subsequently managed their estates as debtors-in-
possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. Also on the Petition Date,
the Debtors commenced an adversary proceeding against a number of vendors and suppliers,
including Monarch, seeking to bar them from terminating or suspending performance under pre-
petition industry agreements. On March 26, 1991, the Bankruptcy Court ordered certain of these
vendors, including Monarch, to continue to provide services to the Debtors.

These cases were subsequently converted to cases under Chapter 7 of the Bankruptcy
Code, two were converted on November 27, 1991, and the third was converted on March 9,
1992. Sheldon L. Solow was appointed Trustee on November 27, 1991.

On June 18, 1991, Monarch filed a proof of an unsecured claim in the amount of
$75,644.59 on account of pre-petition services.

On January 27, 1992, the Bankruptcy Court entered an order authorizing the sale of
certain jet fuel inventory to Mobile Oil Corporation and Northwest Airlines, Inc. The sale order
provided “Liens, including warehousemen’s liens and other possessory liens, shall attach to the
proceeds [of the sale].”

On or about March 15, 1992, Monarch informed the Trustee that it believed it held a
possessory lien in the proceeds of the sale. By letter dated March 16, 1992, the Trustee informed
Monarch that the sale proceeds would be placed in escrow pending determination of the validity
of Monarch’s lien. These sale proceeds continue to be held in escrow today.

On April 29, 1992, Monarch filed two secured proofs of claim each purporting to amend

or replace Monarch’s original unsecured proof of claim filed in June of 1991, one in the amount

-2-



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DOCKETED

03 C 2580 JUL 3 1 2003
Judge John A. Nordberg,

In the Matter of

)
)
MIDWAY AIRLINES, INC., )
MIDWAY AIRLINES (1987), INC. and )
MIDWAY AIRCRAFT ENGINEERING, INC., —_)

) On appeal from the United States

) Bankruptcy Court for the Northern

) District of Illinois, Eastern Division,

) Honorable Carol A. Doyle,

) presiding (02 A 01070)

Debtors.

APPEAL OF MONARCH AIR SERVICE, INC.

MEMORANDUM OPINION AND ORDER

This matter is before this Court on appeal from the decision of the United States
Bankruptcy Court for the Northern District of Illinois, which granted summary judgment to the
trustee, holding that Monarch Air Service, Inc. does not have a common law lien securing its
post-petition administrative claim. This court has jurisdiction over this appeal pursuant to 28
US.C. § 158(a).

BACKGROUND

The material facts are not in dispute. Sheldon L. Solow is the chapter 7 trustee (the
“Trustee”) for the estates of Midway Airlines, Inc., Midway Airlines (1987), Inc., and Midway
Aircraft Engineering, Inc. (collectively, the “Debtors”). Monarch Air Service, Inc. (“Monarch”)
is an Illinois corporation.

On August 28, 1990, Monarch entered into an agreement to provide airport fueling
services to Midway Airlines at Midway Airport in Chicago. As part of this contract, Monarch

had possession of the Debtors’ fuel.

-1-



Turning to the specific language of the claim objection, it is true that the objection never
specifically stated that the Trustee was objecting to the post-petition lien. But, as the Bankruptcy
Judge concluded, the objection did so implicitly by stating that the Trustee was proposing to
allow only a “percentage” of the administrative claim. She stated that this language was
“typical” of an unsecured administrative claim. Given the context, the Bankruptcy Judge
concluded that the objection form would have mentioned the existence of the lien if in fact the
Trustee believed such a lien still existed. At a minimum, it is reasonable to hold that the
Trustee’s objection raised a question as to validity of the lien. In light of the negative notice
procedure, Monarch should have made it clear that it was still asserting its lien claim — a step that
would have been easy to take.°

Monarch responds by relying on the fact that its president signed the form and suggests
that he is not versed in the workings of the bankruptcy court. Specifically, Monarch asks that
this Court (as it asked the Bankruptcy Court) to not view Monarch’s president’s consent “through
the prism of categories of claim well known to the Court and bankruptcy practitioners but rather
from the perspective of a businessman reading the language proffered by the trustee.”
(Monarch’s Br. at 22-23.) By making this argument, Monarch is effectively conceding a key
point made by the Bankruptcy Judge; namely, that bankruptcy lawyers certainly would have

recognized from the objection form that the Trustee was objecting to the lien on the post-petition

SAs an example of this proactive approach, Monarch’s current counsel (who apparently
was not involved in the decision to sign the consent form) took the extra step during the briefing
on summary judgment of pointing out that Monarch was still asserting a lien on its post-petition
claim. Specifically, although counsel believed that the Trustee’s opening summary judgment
brief did not challenge the validity of the post-petition lien, Monarch’s counsel nonetheless
specifically pointed out in the response briefs the fact that Monarch was asserting that its lien
“extends to and secures its post-petition administrative claim.” (Ex. 19 Monarch’s App.)

-12-