Opinion ID: 319366
Heading Depth: 2
Heading Rank: 2

Heading: Petition to Vacate the Order of September 8, 1970.

Text: 16 The referee in bankruptcy has discretionary power to vacate a prior order for good cause shown, provided that the order has not created vested rights which its vacation would disturb. Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U.S. 131, 137, 57 S.Ct. 382, 81 L.Ed. 557 (1937); Sandusky v. National Bank, 90 U.S. (23 Wall.) 289, 293, 23 L.Ed. 155 (1875); In re Pottasch Brothers Co., 79 F.2d 613, 616-617 (2d Cir. 1935). 17 The trustee argues for vacation on the ground that the referee mistakenly viewed the conveyances as simple leases. He claims that in fact the conveyances were conditional sales as defined by the Federal Aviation Act 101(16), 49 U.S.C. 1301(16) (1970). Thus, the trustee argues, LCI was the 'owner' of the airplanes under 14 C.F.R. 47.5(c) (1973) and, since Trans-East failed to record the sublease to LCI pursuant to section 503(a)(1) of the Federal Aviation Act, 49 U.S.C. 1403(a)(1) (1970), the conveyances were not valid against the trustee, Federal Aviation Act 503(c), 49 U.S.C. 1403(c) (1970), and Trans-East had only an unsecured lien on the planes. Under the trustee's theory Hudleasco and Castle Capital could not have a better claim against LCI than Trans-East, and therefore they are only general unsecured creditors whose rights, as general creditors, under section 70c of the Bankruptcy Act, 11 U.S.C. 110c, are inferior to the rights of the trustee. 18 We need not grapple with the many difficult questions which this theory raises since we hold that the action is barred both by equitable and by collateral estoppel. 19 (1) Equitable Estoppel. 20 The district court found that appellees had changed their position in reasonable reliance on the order of September 8, 1970, issued pursuant to the debtor's petition for disaffirmance. We agree. 21 The Trustee claims that he cannot be estopped because he was not a party to the disaffirmance proceeding. But disaffirmance of a contract by the debtor in possession binds the trustee even though the debtor is ultimately adjudicated a bankrupt. 8 Collier, Bankruptcy P3.15(9) (14th ed. 1971); cf. In re Wil-Low Cafeterias, Inc., 111 F.2d 83, 84-86 (2d Cir. 1940); In re Imperial '400' National, Inc., 391 F.2d 163, 171-172 (3d Cir. 1968). Thus for purposes of estoppel LCI's petition for disaffirmance is imputed to the trustee. 22 In this case appellees changed their position in reasonable reliance on the rejection of the contracts. They properly understood the order of September 8 to require them to take the planes and to attempt to mitigate damages by finding a new lessee. However, demand for the aircraft was very low. As the district court found, appellees expended considerable amounts of money, time, and effort to re-lease the planes, and these efforts plus appellees' expertise were largely responsible for the favorable leases eventually obtained. 23 Appellees had a right to rely on the order of disaffirmance. The debtor requested it, the court approved it, and no other party opposed it. For sixteen months neither the debtor nor the trustee objected to appellees' actions. Congress did not intend section 313(1) to be a trap for the unwary. It would be highly inequitable if the lessor, having regained possession of property following an order of disaffirmance and having re-leased the property on favorable terms, lost the benefit of the new lease when the debtor or trustee discovered that the contract surrendered as burdensome had suddenly become valuable. The doctrine of estoppel prevents such an inequitable result. 24 (2) Collateral Estoppel. 25 In considering the petition for disaffirmance the only issues for the bankruptcy court to decide are whether the contract is executory and whether disaffirmance would be advantageous to the debtor. 8 Collier, supra, P3.15(8). The referee here decided both questions in the affirmative. Unless the trustee has raised new issues here or shown special reasons for vacation of the disaffirmance order, the instant action is barred by collateral estoppel. Ashe v. Swenson, 397 U.S. 436, 443, 90 S.Ct. 1189, 25 L.Ed.2d 469 (1970). 26 The trustee has raised no new issues. He tries to circumvent this fact by claiming that the instant action sounds in tort for conversion, a theory not considered in the original proceeding. But, as our earlier discussion indicates, the taking of the planes by appellees was not tortious. 27 Appellant does not claim that the disaffirmance order is rendered invalid by fraud or bad faith by any party. He alleges that the referee committed a mistake of fact by viewing the conveyances to LCI as leases rather than conditional sales. Section 313(1) does not distinguish between leases and conditional sales. It requires only that the contracts be executory. Whether the contracts here were leases or conditional sales, they were executory. See 1 S. Williston, Contracts 14 (3d ed. 1957). 28 It would create an intolerable situation if, after entry of an order of disaffirmance, a party to an executory contract still had to fear that a bankruptcy trustee might subsequently re-open the case and insist on performance. The doctrine of collateral estoppel prevents such a result.