Source: http://caselaw.findlaw.com/us-3rd-circuit/1128829.html
Timestamp: 2014-10-24 07:50:47
Document Index: 128194035

Matched Legal Cases: ['§\u2002547', '§\u2002101', '§\u2002547', '§\u2002547', '§\u2002101', '§\u2002101', '§\u2002101']

IN RE: TRANS WORLD AIRLINES - FindLaw
IN RE: TRANS WORLD AIRLINES, INCORPORATED, Debtor. TRAVELLERS INTERNATIONAL AG, Appellant/Cross-Appellee in Appeal No. 97-7037, v. TRANS WORLD AIRLINES, INCORPORATED; Official Committee of Unsecured Creditors for Trans World Airlines, Trans World Airlines, Incorporated Appellant/Cross-Appellee in Appeal No. 97-7082.
Nos. 97-7037, 97-7082.
Michael Joseph, Richard A. Kirby (Argued), Joseph O. Click, Dyer, Ellis, Joseph & Mills, Washington, DC, Laurie S. Silverstein, Potter, Anderson & Corroon, Wilmington, DE, for Travellers International AG. William H. Sudell, Jr. (Argued), Derek C. Abbott, Morris, Nichols, Arsht & Tunnell, Wilmington, DE, Michael J. Templeton, Jones, Day, Reavis & Pogue, New York City, for Trans World Airlines, Incorporated.
OPINION OF THE COURTThe sole issue we must resolve in this appeal is whether TWA was insolvent on November 4, 1991 so that the transfer of certain monies to a judgment creditor within 90 days of TWA's petition for bankruptcy constituted a preference. Our analysis of TWA's insolvency depends on how TWA's assets and liabilities should be valued.We conclude that TWA's assets must be valued at fair market value in the context of a “going concern” and that its liabilities should be measured at face value. Inasmuch as we agree with the bankruptcy court's calculations, albeit with minor qualifications, we hold that on the date in question, TWA was insolvent. Accordingly, any transfer of TWA's monies to Travellers falls within the preference statute, 11 U.S.C. § 547(b).We will reverse the district court's order, which had reversed the insolvency holding of the bankruptcy court, and direct the district court to remand this case to the bankruptcy court for proceedings consistent with our opinion.I.On October 12, 1991, the United States District Court for the Southern District of New York entered a judgment in the amount of $12.3 million in favor of Travellers International AG (“Travellers”) against Trans World Airlines, Inc. (“TWA”). On November 4, 1991, TWA obtained a stay of enforcement of the judgment by depositing $13.7 million in cash with the clerk of the court. Eighty-eight days after the deposit was made, on January 31, 1992, TWA filed a petition for reorganization in the United States Bankruptcy Court for the District of Delaware under Chapter 11 (11 U.S.C. § 101 et seq.). Subsequently, TWA filed a complaint against Travellers in the United States Bankruptcy Court for the District of Delaware, seeking a declaration that the $13.7 million deposit was a preferential transfer which was voidable under 11 U.S.C. § 547(b).1 See Travellers Int'l AG v. Robinson, 982 F.2d 96, 97 (3d Cir.1992).A. The Bankruptcy Court ProceedingsThe bankruptcy court held a four day bench trial in February 1994 to determine whether the deposit was indeed a preferential transfer. See In Re Trans World Airlines, Inc., 180 B.R. 389 (Bankr.D.Del.1994). In particular, the court focused its attention on the statutory requirement that TWA was insolvent on the day of the transfer. See 11 U.S.C. § 547(b)(3). Following the code's guidance that a corporation is insolvent when “the sum of such entity's debts is greater than all of such entity's property, at a fair valuation,” 11 U.S.C. § 101(32)(A),2 the bankruptcy court heard evidence by experts hired by both TWA and Travellers on the value of TWA's assets and liabilities.1. Travellers' ArgumentsTravellers, together with its expert Global Aviation Associates, Ltd. (“Global”), offered testimony that TWA's assets exceeded its liabilities by almost two billion dollars, and thus that the company was solvent. Global based its “fair valuation” of TWA's assets on their market value assuming that TWA was not compelled to sell the assets under any time constraint. Applying this methodology, Global valued TWA's operating assets at $4,162,273,000. See 180 B.R. at 421. Combining this with the cash, cash equivalents, accounts receivable, and other investments owned by the company, Travellers argued that the value of the company's assets totaled $5,298,373,000.Turning to TWA's liabilities, Travellers contended that § 101(32)(A) called for a “fair valuation” of TWA's liabilities, which Travellers insisted translated into a fair market valuation of TWA's publicly traded debt. As a result, Travellers' expert testified that TWA's debt obligations amounted to $662,898,000.3 With respect to TWA's additional liabilities, Travellers' expert testified that the value of TWA's aircraft lease obligations was $813,604,000; pension plan liabilities, $219 million; taxes, $949.7 million; and other liabilities, $947.4 million. Travellers calculated the sum of TWA's liabilities to be $3,593,000,000.Inasmuch as TWA's assets, if valued at $5,298,373,000 exceeded its liabilities at $3,593,000,000, Travellers urged the bankruptcy court to find that TWA was solvent.2. TWA's ArgumentsTWA and its experts, Avmark Inc. (“Avmark”), offered very different valuations of both assets and liabilities. According to TWA's calculations, TWA was insolvent on November 4, 1991, the date of the transfer to the escrow account, because TWA's liabilities exceeded assets by as much as three billion dollars. Avmark based its “fair valuation” of TWA's assets on the amount realizable from the assets following a hypothetical sale of the assets within a reasonable time period. Referring to 12-18 months as a reasonable time period, Avmark concluded that the overall value of TWA's assets was $2,561,366,000. See 180 B.R. at 404.As to the company's liabilities, TWA contended that the fair valuation prescription in 11 U.S.C. § 101(32)(A) did not apply to liabilities. TWA thus asked the court to consider the face value of the company's debt, rather than the much lower market value urged by Travellers, in determining the company's insolvency. TWA's calculation of the company's liabilities also included an extra $634,814,000 of what it termed contingent liabilities, as well as up to $576,000,000 of pension plan liabilities. These additional liabilities represented costs to which TWA would be subject if it had ceased operating soon after November 4, 1991: they included $138.8 million payable to two of TWA's unions, $214.8 million for severance payments pursuant to contractual obligations, and $248.2 million in wind down expenses. TWA urged the court to consider these liabilities in light of the high likelihood as of November 4, 1991 that TWA would soon cease operations. Combined with $370 million in tax liability, medical/dental benefits totaling $400 million, and almost one billion dollars of other liabilities, the liability figure urged by TWA totaled between fiv