In Re Midway Airlines, Inc.

Citations: 167 B.R. 880; 1994 Bankr. LEXIS 809; 25 Bankr. Ct. Dec. (CRR) 1122; 1994 WL 243014Docket: 19-03306

Court: United States Bankruptcy Court, N.D. Illinois; May 17, 1994; Us Bankruptcy; United States Bankruptcy Court

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The case involves a motion for summary judgment by Trustee Sheldon L. Solow against CAMCO Incorporated and its affiliates (collectively referred to as "UNC") regarding the modification of an automatic stay in the bankruptcy proceedings of Midway Airlines and its related entities. The bankruptcy court has jurisdiction under 28 U.S.C. 1334, with the matter classified as a core proceeding.

UNC provided repair and overhaul services for Midway's airplane engine parts since the mid-1980s. The process involved UNC evaluating needed services, communicating costs to Midway, and repairing the parts accordingly. UNC claims valid possessory liens under various state laws, asserting it holds a secured claim against the parts due to the statutory artisan's liens. The Trustee challenges this claim, emphasizing that UNC's invoices included terms such as "NET 30 DAYS," and that payments were typically delayed, often taking 60 to 80 days, indicating a credit-based business relationship without formal security agreements.

UNC contests the assertion of solely dealing on credit; it claims its credit extension was contingent on the volume of Midway's repairs in its possession and outstanding debts. In September 1990, UNC notified Midway of a credit hold due to payment issues, requiring prepayment for the release of already repaired parts. This credit hold led to no further parts being sent to UNC or payments made by Midway. Midway subsequently filed for Chapter 11 bankruptcy on March 25, 1991, later converting to Chapter 7, which initiated the present motions. The court ultimately denies the Trustee's motion for summary judgment, allowing the disputed issues to be resolved at trial.

UNC has the burden of proof regarding its stay motion under 11 U.S.C. § 362(g)(1), specifically to establish Midway's equity in the relevant parts and demonstrate a colorable claim for statutory liens. Conversely, the Trustee holds the burden of proof on all other matters related to the stay motion under 11 U.S.C. § 362(g)(2). For the Trustee to succeed in a motion for summary judgment, he must satisfy the criteria outlined in Rule 56 of the Federal Rules of Civil Procedure, applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) stipulates that judgment should be granted if the filed documents indicate no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. The U.S. Supreme Court has emphasized the use of summary judgment to eliminate factually unsupported claims. The moving party bears the responsibility to demonstrate the absence of genuine issues of material fact, with the determination based on the entire record. If the evidence presented is merely colorable or lacks significant probative value, summary judgment may be granted. The party seeking summary judgment must initially inform the court of the motion's basis and identify relevant evidence supporting the assertion of no material fact disputes. Once this prima facie case is established, the opposing party cannot rely solely on pleadings; instead, it must show that genuine issues remain for trial, which varies based on which party bears the burden of persuasion at trial.

When the burden of persuasion lies with the non-moving party at trial, the Trustee, as the party moving for summary judgment, can fulfill Rule 56's production requirement by either presenting affirmative evidence that negates an essential element of the non-moving party's claim or by showing that the non-moving party's evidence is inadequate to support such an element. All reasonable inferences from the facts must be viewed in favor of the opposing party. A material factual dispute must significantly affect the outcome based on applicable law. Summary judgment does not involve weighing evidence but determining if there is a genuine issue for trial. The non-moving party must produce evidence beyond the pleadings to establish a genuine dispute. The Local General Rules of the United States District Court for the Northern District of Illinois require the moving party to file a statement of undisputed facts along with specific references to supporting materials. This statement is crucial for identifying genuine disputes in the record and allows the non-moving party to respond. Failure to file this statement may result in denial of the motion. The Trustee has submitted a Rule 12(m) statement outlining ten paragraphs of what he claims are undisputed material facts. The opposing party, UNC, has filed a Rule 12(n) statement that admits some of the Trustee's claims and generally denies others, challenging their materiality or relevance.

The automatic stay provisions of 11 U.S.C. § 362(a) were activated upon the filing of Midway's bankruptcy petitions, preventing all pre-petition creditors, including UNC, from collecting debts. This stay applies regardless of any liens or security interests the creditors may possess. Relief from the automatic stay can be granted by the bankruptcy court under 11 U.S.C. § 362(d) for cause, which may include inadequate protection of a creditor's interest or if the debtor has no equity in the collateral and it is not necessary for reorganization. Since Midway's case is a Chapter 7 liquidation, reorganization is not applicable.

Determinations regarding the validity and perfection of liens are generally not addressed in § 362(d) hearings, which focus on whether the creditor has a colorable claim to a perfected security interest. Hearings are intended to be summary in nature, concentrating on adequacy of protection, equity, and necessity for effective reorganization. In the Seventh Circuit, these hearings do not have collateral estoppel or res judicata effects, allowing for subsequent challenges to the validity or priority of liens.

In this case, the Trustee claims that UNC relinquished its artisan's lien by dealing solely on a credit basis. This argument relies on New York case law asserting that an artisan cannot maintain both a contract lien and an artisan's lien when credit is extended. UNC disputes the applicability of these cases, citing distinctions based on jurisdictional law and the specifics of possession. The Court finds that UNC possesses a colorable claim to a lien under applicable laws from New York, Texas, and Florida, as UNC retained possession of the parts for repair and seeks recovery based on the contract price or reasonable charges for the work performed.

UNC performed labor on Midway's parts, meeting the criteria for lien statutes in New York, Texas, and Florida. UNC disputes the Trustee's assertion that its dealings with Midway were solely on a credit basis, arguing that several factors influenced its decision to extend credit, including Midway's existing debt and payment history. The nature of the debtor/creditor relationship is contested, preventing summary judgment. The Trustee claims that prior to September 1990, the relationship was exclusively credit-based, with UNC shipping repaired parts before payment and completing repairs without Midway's authorization, alleging excessive and unreasonable charges. Additionally, the Trustee contends that no contracts or security agreements existed to allow UNC to use Midway's parts as security for debts owed.

UNC argues that the absence of an explicit contract does not invalidate its statutory lien rights under state law. The Court agrees with UNC, finding the Trustee's cited case law non-persuasive and not controlling, particularly regarding UNC's lien claims under Florida and Texas statutes. The Court also concludes that extending credit does not automatically negate UNC's lien rights. The Trustee further claims that some parts are not in UNC's possession, which could undermine possessory lien claims. However, the record does not clarify which parts are currently with UNC, nor does it provide undisputed evidence regarding their equity or value decline. Consequently, the Court denies the Trustee's motion for summary judgment, allowing the case to proceed to trial as scheduled. This Opinion serves as the Court's findings of fact and conclusions of law per the relevant bankruptcy rules.

New York Lien Law § 180 provides that individuals who improve or repair personal property at the owner's request possess a lien on that property for reasonable charges incurred, allowing them to retain possession until payment is made. Texas Property Code § 70.001 allows workers who repair an article, including vehicles and boats, to keep possession until either the contract amount for repairs is paid or, if unspecified, a reasonable compensation is provided. Florida Statute Chapter 713.56 establishes liens for those performing labor on various items, including engines and hotel furnishings, ensuring their right to claim payment for work done on that property.