Opinion ID: 2647462
Heading Depth: 3
Heading Rank: 3

Heading: Kiwi Air

Text: As a final matter we address the applicability of Kiwi Air, 344 F.3d 311 (3d Cir. 2003), to this situation. Appellant argues that our opinion in that case requires us to take into account all material post-petition events in determining preference liability. Kiwi Air, however, only examines the “unique set of rights” created by § 365 (a provision regarding the assumption of contracts by a trustee) and § 1110 (a provision on security agreements, leases, and conditional sales of aircraft equipment and vessels), and addresses their interaction with rights created under § 547. 344 F.3d at 317 (emphasis added). In Kiwi Air, we held that the post-petition assumption of an executory contract under § 365 and a 32 stipulated order pursuant to § 1110, which both require a trustee to cure certain defaults, preclude a trustee from bringing a preference action to recover pre-petition payments made pursuant to the contract. Id. at 314. We reasoned that, insofar as § 365 and § 1110 entitle creditors to receive unpaid pre-petition payments in connection with the assumption of the contract and curing of defaults, allowing recovery of a preference payment would thwart their effect. Id. at 321. In particular, we emphasized that the debtor’s assumption of contracts was “important because it enabled [the debtor] to compel its creditors to continue performing under the assumed agreements, for the purpose of receiving contract benefits necessary to its operation.” Id. at 314. To the extent that § 365 enables bankrupt companies to continue to operate, it serves a similar purpose to § 363, one of the statutes upon which the Bankruptcy Court relied in granting Appellant’s Wage Order. If anything, Kiwi Air teaches that post-petition events can cast the payment in a different light in order to effectuate the purposes and provisions of the Code. Here, that translates into a directive that we should not undermine the purpose of the Wage Order. This is best accomplished by precluding post-petition payments made pursuant to the Wage Order from consideration in preference liability analysis. Kiwi Air demonstrates that there are unique circumstances in which other provisions of the Bankruptcy Code dealing with post-petition transactions directly interact with § 547 and thus can alter the otherwise straightforward preference analysis. As with the entry of the Wage Order, the assumption of a contract involves a “unique set of rights” that warrants different preference treatment of creditors not similarly situated. We, therefore, view the import of Kiwi Air to be more helpful to Appellee than to Appellant. 33