Opinion ID: 654607
Heading Depth: 2
Heading Rank: 1

Heading: Air Kentucky's Continued Operation as Reasonably Equivalent Value

Text: 18 In Durrett v. Washington National Insurance Co., 4 we held that we review de novo the issue whether a debtor received reasonably equivalent value. Even though application of de novo review to this question can be troubling, 5 we nonetheless remain bound by our decision in Durrett and thus continue to apply de novo review. Fortunately, the outcome of the inquiry in the instant case would be the same regardless of whether we were to apply the de novo or the clear error standard. As for the fact-finding that underlies the valuation issue, we review for clear error only. 6 19 Although the minimum quantum necessary to constitute reasonably equivalent value is undecided, it is clear that the debtor need not collect a dollar-for-dollar equivalent to receive reasonably equivalent value. 7 In determining whether Fairchild derived such value by paying for Air Kentucky's fuel, we first observe that the aggregate amount paid is uncontested: $432,380.91. We must also observe, though, that Fairchild's decision to purchase fuel must be evaluated as of the time it was made and during the time it was implemented--from the beginning of January through May, 1989--and then only to the extent of the precise decision actually made, which was to spend between $16,000-$20,000 a week to keep Air Kentucky flying until a buyer could be found. 8 Thus, the issue is whether keeping Air Kentucky operating during this period was worth $16,000-$20,000 a week, or its reasonable equivalent, to Fairchild. Like the bankruptcy and district courts before us, we conclude that it was. 20 We note initially that Fairchild derived several immediate benefits from keeping Air Kentucky in operation during the relevant period. First, Fairchild avoided having to take back three aircraft that it had previously sold to Air Kentucky; such a return would have been likely to disrupt Fairchild's sale of new aircraft--at $800,000 profit per plane--as Fairchild would have needed to dispose of this inventory of used planes. Second, any sudden cessation of Air Kentucky's operations would have seriously damaged Fairchild's relationship with USAir, a potential major customer. USAir required substantial advance notice of any break in operations caused by loss of a connecting airline such as Air Kentucky. Given Fairchild's involvement in the financing and continued operation of Air Kentucky, USAir would likely have attributed to Fairchild any resultant harm suffered by USAir from such a precipitous stoppage in service. 21 We next note that keeping Air Kentucky flying kept it marketable, a posture highly desirable to Fairchild. For if a suitable buyer could be found, then Fairchild would have an opportunity to recoup at least some of the millions it had invested in Air Kentucky--as well as to sell it more new aircraft in the future. Under the circumstances, we agree that Fairchild took a risk that generated cognizable value. As already noted, the rewards from a sale of Air Kentucky would have been high and the likelihood that a sale would occur was also demonstrably high. After all, by the middle of May, Fairchild had acquired Reed as a buyer. Reed had agreed to purchase Air Kentucky, to assume Fairchild's lease obligations on the three aircraft already acquired by Air Kentucky, and to purchase three new aircraft from Fairchild--an agreement that would have compensated Fairchild handsomely for its investment in fuel, and one that could not have occurred but for that investment. Although this sale was unexpectedly derailed by USAir (which refused to permit the transfer of the all-important code-sharing agreement from Air Kentucky to Reed), we cannot use hindsight to recalibrate the risk--or the potential reward--of Fairchild's investment. 9 22 Finally, we note that Whyte's attempt to foreclose inquiry into the value derived from Air Kentucky's continued operation is misguided. According to Whyte, the only value that can be considered is property actually received. Under this view the value of an investment--no matter how large and how probable the potential return--cannot be considered unless it actually pays off, and only to the extent that it does so. Under such a postulation, anyone who provides, deals with, or invests in an entity in financial straits would be doing so at his or her peril under Sec. 548; which means, of course, that few would be likely to do so. 23 The narrow realized property approach to value advanced by Whyte finds no approbation in the law. Rather, the recognized test is whether the investment conferred an economic benefit on the debtor; 10 which benefit is appropriately valued as of the time the investment was made. 11 Courts have considered such indirect financial effects as, for example, the synergy realized from joining two enterprises, 12 the increase in a credit line, 13 and the increased monetary float resulting from guarantying the loans of another, 14 as constituting value received under Sec. 548. We conclude that, when viewed within the appropriate frame of reference, the benefits flowing to Fairchild from keeping Air Kentucky in operation is likewise value for purposes of Sec. 548. And, as discussed above, we also conclude that, for purposes of Sec. 548, the value realized by Fairchild for fuel payments made while Air Kentucky was still flying was sufficient to constitute reasonably equivalent value.