Source: https://law.justia.com/cases/federal/appellate-courts/F2/700/935/117212/
Timestamp: 2020-02-28 16:21:26
Document Index: 634685776

Matched Legal Cases: ['§ 362', '§ 363', '§ 363', '§ 1126', '§ 1125', '§ 1348', '§ 1348', '§ 1655', '§ 1486', '§ 105', '§ 365', '§ 363', '§ 361', '§ 551']

In Re Braniff Airways, Inc., Debtor.pension Benefit Guaranty Corporation, Continental Air Lines,inc., et al., Plaintiffs-appellants Cross-appellees, v. Braniff Airways, Inc., et al., Defendants-appellees,andbraniff Ticketholders Committee, Defendant-appellee Cross-appellant, 700 F.2d 935 (5th Cir. 1983) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fifth Circuit › 1983 › In Re Braniff Airways, Inc., Debtor.pension Benefit Guaranty Corporation, Continental Air Lines,inc....
In Re Braniff Airways, Inc., Debtor.pension Benefit Guaranty Corporation, Continental Air Lines,inc., et al., Plaintiffs-appellants Cross-appellees, v. Braniff Airways, Inc., et al., Defendants-appellees,andbraniff Ticketholders Committee, Defendant-appellee Cross-appellant, 700 F.2d 935 (5th Cir. 1983)
US Court of Appeals for the Fifth Circuit - 700 F.2d 935 (5th Cir. 1983) March 2, 1983. Rehearing and Rehearing En Banc Denied April 20, 1983
Thereafter, on May 27, 1982, the Unsecured Creditors' Committee filed an Application seeking a declaration of whether the FAA allocation of former Braniff slots constituted a violation of the automatic stay under 11 U.S.C. § 362 or of a temporary restraining order entered earlier by the Bankruptcy Court proscribing interference with Braniff's property. On June 24, 1982, the Bankruptcy Court approved a stipulation among the United States, Braniff, and the Unsecured Creditors' Committee, stating that the slots would be recalled and made available " [s]hould Braniff or an air carrier succeeding to the rights, duties and obligations of Braniff begin operations."
From January 14, 1983, through January 26, 1983, all interested parties were afforded an opportunity to present evidence on their behalf. The Bankruptcy Court heard oral arguments on January 28, 1983, and announced its opinion in this matter on Monday, January 31, 1983. The Bankruptcy Court entered its "Order Regarding the PSA Agreement and Agreement and Stipulation" and its "Findings of Fact and Conclusions of Law Approving the PSA Agreement and Agreement and Stipulation" on February 1, 1983. On that same date, the Bankruptcy Court entered an order pursuant to Sections (e) (2) (A) (i) and (e) (3) of the Local Rule, certifying its order and findings for immediate review to the United States District Court for the Northern District of Texas.
In re Braniff Airways, Inc., No. CA4-83-57-E (N.D. Tex. Feb. 18, 1983) (unpublished memorandum opinion).
Three principal issues are presented. First, was the district court's approval of the PSA transaction authorized under Section 363(b) of the Bankruptcy Code, 11 U.S.C. § 363(b)? Second, did the district court have the power to order the FAA to allocate certain landing "slots" at various airports to Braniff so that Braniff could transfer them in the PSA transaction? Third, did the district court have the power to order Braniff's assumption of its defaulted lease on terminal facilities at Washington National Airport and its subsequent assignment in the PSA transaction without FAA approval?
11 U.S.C. § 363(b).
The appellants contend that Sec. 363(b) is not applicable to sales or other dispositions of all the assets of a debtor, and that such a transaction must be effected pursuant to the voting, disclosure and confirmation requirements of the Code. See In re White Motor Credit Corp., 14 B.R. 584 (Bkrtcy.N.D. Ohio 1981). Braniff responds that cases decided before and after promulgation of the Code authorize a Sec. 363(b) sale of all of a debtor's assets. See In re Dania Corp., 400 F.2d 833 (5th Cir. 1968); In re WHET, Inc., 12 B.R. 743, 750-51 (Bkrtcy.D. Mass. 1981).
Second, under the agreement between Braniff and its creditors, the secured creditors were required to vote a portion of their deficiency claim in favor of any future reorganization plan approved by a majority of the unsecured creditors' committee. Again, such an action is not comprised by the term "use, sell, or lease," and it thwarts the Code's carefully crafted scheme for creditor enfranchisement where plans of reorganization are concerned. See 11 U.S.C. § 1126.2
For these reasons, we hold that the district court was not authorized by Sec. 363(b) to approve the PSA transaction and that its order is reversed. In any future attempts to specify the terms whereby a reorganization plan is to be adopted, the parties and the district court must scale the hurdles erected in Chapter 11. See e.g. 11 U.S.C. § 1125 (disclosure requirements); id. Sec. 1126 (voting); id. Sec. 1129(a) (7) (best interest of creditors test); id. Sec. 1129(b) (2) (B) (absolute priority rule). Were this transaction approved, and considering the properties proposed to be transferred, little would remain save fixed based equipment and little prospect or occasion for further reorganization. These considerations reinforce our view that this is in fact a reorganization.
The preamble to the regulation stated that " [i]f Braniff does again operate, then the slots necessary for continued Braniff operations will be returned to Braniff." Id. at 22492. A subsequent stipulation was entered into among Braniff, the FAA, and certain creditors providing that, subject to FAA regulations, the slots would be returned to Braniff or a successor upon reorganization. In its order below, the District Court issued an injunction requiring the FAA to transfer slots to PSA to effectuate the PSA transaction. Since the district court ordered the FAA to allocate slots to PSA, and since nothing in our opinion would preclude reconsideration of the PSA transaction as a plan of reorganization, in the interest of judicial economy we will proceed to address the lower court's authority to order this action by the FAA.
In promulgating the landing slot program, the FAA relied upon its authority under the Federal Aviation Act to "assign ... the use of the navigable airspace under such terms, conditions, and limitations as [it] may deem necessary in order to insure the safety of aircraft and the efficient utilization of such airspace. [It] may modify or revoke such assignment when required in the public interest." 49 U.S.C. § 1348(a). According to the legislative history, that Act vested "unquestionable authority for all aspects of airspace management in the [FAA] Administrator." S.Rep. No. 1811, 85th Cong., 2d sess. 14 (1958). See also id. at 15 (Administrator given "plenary authority in the matter of air traffic rules"); H.R.Rep. No. 2360, 85th Cong., 2d sess. 6-7 (1958), U.S.Code Cong. & Admin.News 1958, p. 3741. As stated in Air Line Pilots Association, International v. Quesada, 276 F.2d 892, 894 (2d Cir. 1960):
See also City of Houston v. FAA, 679 F.2d 1184, 1195 (5th Cir. 1982); Northwest Airlines, Inc. v. Goldschmidt, 645 F.2d 1309, 1315 (8th Cir. 1981).
The Federal Aviation Act contains explicit standards governing the exercise of the FAA's broad authority to assign use of the navigable airspace under 49 U.S.C. § 1348(a). In addition to "insur [ing] the safety of aircraft and the efficient utilization of such airspace," id., regulations in this area must take cognizance of such policies as the requirements of the national defense, id. Sec. 1303, as well as the encouragement of a competitive air transportation system and " [t]he development and maintenance of a sound regulatory environment ... responsive to the needs of the public." Id. Secs. 1302(a) (4), (5), and (9), made applicable to the FAA by 49 U.S.C. § 1655(c) (1) and 49 C.F.R. Sec. 1.47(a).
Regulations issued by the FAA to implement the policies of the statute are subject to only limited review in the courts of appeals. 49 U.S.C. § 1486(a); see, e.g., Northwest Airlines, Inc. v. Goldschmidt, 645 F.2d 1309 (8th Cir. 1981). Congress expressly provided that the FAA's findings of fact are "conclusive" if supported by "substantial evidence." Id. Sec. 1486(e).
Notwithstanding Congress' manifest intent that the FAA exercise exclusive jurisdiction over navigable airspace subject to review in the courts of appeals, Braniff argues that the landing slots are "property" of its estate and that under Sec. 105 of the Code, 11 U.S.C. § 105, the Bankruptcy Court may issue whatever orders it thinks necessary to protect them. We disagree.
We cannot accept Braniff's characterization of the slots as its property. We agree with the view expressed by the Eighth Circuit that SFAR's establishing slots are "rules" as defined in the Administrative Procedure Act,3 and do not lose their character as rules because they modify airlines' claimed rights to slot allocations. Northwest Airlines, Inc. v. Goldschmidt, 645 F.2d 1309, 1321 (8th Cir. 1981). See also Air Lines Pilots Association, Int'l v. Quesada, 276 F.2d 892, 896 (2d Cir. 1960) (FAA action limiting pilots' licenses to age 60 does not lose rulemaking character because it changes pilots' claimed property rights). The slots are actually restrictions on the use of property--airplanes; not property in themselves. As such, they are not within the jurisdiction of the Bankruptcy Court under Sec. 105 of the Code.4
Moreover, even if we were to assume that the slots give rise to some limited proprietary interest so as to confer jurisdiction over them on the Bankruptcy Court, the most substantial and persuasive line of authority establishes that any transfer of a state or federal regulatory license or certificate is subject to the continuing jurisdiction and approval of the applicable agency. See e.g. LaRose v. FCC, 494 F.2d 1145, 1149 (D.C. Cir. 1974) (radio license); Barutha v. Prentice, 189 F.2d 29, 31 (7th Cir.), cert. denied, 342 U.S. 841, 72 S. Ct. 69, 96 L. Ed. 635 (1951) (state motor carrier license); In re Rainbo Express, Inc., 179 F.2d 1, 5 (7th Cir.), cert. denied sub nom. Richardson v. National Acceptance Co., 339 U.S. 981, 70 S. Ct. 1029, 94 L. Ed. 1085 (1950) (ICC license); In re Airlines Transport Carriers, Inc., 129 F. Supp. 679, 683-4 (S.D. Cal. 1955) (CAB letter of registration). See generally Hyde v. Woods, 94 U.S. 523, 525, 24 L. Ed. 264 (1877) (debtor's seat on stock exchange "is incumbered with conditions" that "entered into and became an incident of the property when it was created.").5 At most, a determination that the slots were "property" might allow the debtor to transfer them to another carrier for purposes of the bankruptcy laws, but approval of that transfer under the Federal Aviation Act would rest solely with the FAA.
Section 365(c) of the Bankruptcy Code, 11 U.S.C. § 365(c), provides that the trustee in Bankruptcy may not assume or assign an unexpired lease if applicable law excuses the lessor from accepting performance from an assignee and if the lessor does not consent to assignment. The district court found Sec. 365(c) inapplicable, stating, as have some Bankruptcy Courts, e.g. In re Taylor Mfg., Inc., 6 B.R. 370 (Bkrtcy.N.D. Ga. 1980), that Sec. 365(c) was intended to apply only to personal service contracts. Nothing in the statute authorized the district court to depart from the express language of Sec. 365(c), which provides for its application to unexpired leases and belies any limitation to personal service contracts. It may well be that the impetus for Congress' enactment of Sec. 365(c) was to preserve the pre-Code rule that "applicable law" precluding assignment of personal service contracts is operative in bankruptcy. See 1 Norton, Bankruptcy Law & Practice Sec. 23.14 (1981) ("typical" contract falling within Sec. 365 is for personal performance). However, the drafters actually codified a much broader principle. Surely if Congress had intended to limit Sec. 365(c) specifically to personal service contracts, its members could have conceived of a more precise term than "applicable law" to convey that meaning.
See In re Braniff Airways, Incorporated, et al., 700 F.2d 214 (5th Cir. 1983) (district court and bankruptcy court constitutionally exercised jurisdiction pursuant to Local Rule)
We are aware that the Code provides for certain adjustments in the rights of creditors pursuant to a valid Sec. 363 transaction in order to provide "adequate protection" to secured creditors. 11 U.S.C. § 363(e) (condition use, sale or lease so as to assure "adequate protection" of secured creditors' interest); 11 U.S.C. § 361 (periodic payments, additional liens, or other relief may be used to provide adequate protection). However, nothing has been brought to our attention that would indicate that this particular provision of the PSA transaction was adopted to assure adequate protection and we do not see how it could have been. More important, the other provisions discussed in the text affect only unsecured creditors and are wholly unrelated to any issue of adequate protection. Accordingly, although some actions that technically are not "uses, sales or leases" may be authorized by Sec. 363 and Sec. 361 to assure "adequate protection," the offending portions of the PSA transaction are not within that rubric
5 U.S.C. § 551(4): " [A]n agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy...."
Braniff relied principally on a dictum of this court to the effect that a bankruptcy court may stay regulatory proceedings under Sec. 105 to the extent that they threaten the assets of the estate. SEC v. First Financial Group, 645 F.2d 429, 440 (5th Cir. 1981). No such threat was present in that case and it is therefore not binding on us for that proposition. In other principal cases relied upon by Braniff, e.g. In Re Shipper's Interstate Service, Inc., 618 F.2d 9, 13 (7th Cir. 1980); In re Bel Air Chateau Hospital, Inc., 611 F.2d 1248, 1251 (9th Cir. 1979), the proposition was also dictum. Moreover, First Financial concerned appointment by the SEC of a receiver for the debtor's existing assets. We think that whatever vitality the "threat to assets" theory may have, it is inapplicable where, as here, the very existence of the "asset" depends on the regulatory activity in question