Court: United States Bankruptcy Court, M.D. Georgia; August 21, 2002; Us Bankruptcy; United States Bankruptcy Court
On August 7, 2002, a trial was held regarding the complaint of First National Bank of South Georgia to ascertain the validity, priority, and extent of liens or interests in two General Electric aircraft engines. The case involves Ayers Aviation Holdings, Inc. and related entities, which filed for Chapter 11 bankruptcy on November 27, 2000. The Plaintiff seeks a ruling on the lien status and initially requested a preliminary injunction to prevent the removal of the aircraft from the Debtor's facility in Albany, Georgia.
The original defendants included the Debtor, Zlatava Davidova, Trustee of LET, a.s., and GATX Capital Corporation. GATX’s motion to dismiss for failure to include General Electric as a defendant was granted, allowing Plaintiff to amend the complaint to add General Electric. The parties agreed not to remove the aircraft during proceedings.
Debtor asserted cross-claims regarding the validity and priority of liens and sought to determine the avoidability of these interests and authority to dispose of the assets. GATX subsequently sought relief from the automatic stay, leading to the consolidation of motions for concurrent hearings.
In a pre-trial conference on May 17, 2002, the court decided that Czech Republic law governed the lien issues. GATX admitted to not having a perfected security interest under this law, resulting in the court granting a motion to strike GATX’s responsive pleadings. Debtor is a Florida corporation, wholly owned by Fred P. Ayers, while LET, a.s. is a Czech Republic entity involved in aircraft manufacturing.
In 1997, LET manufactured an L610 aircraft, Serial No. 970301, equipped with two General Electric Model HE CT7-9D engines. LET registered the aircraft with the Czech Republic's Civil Aviation Authority and received a Special Certificate of Airworthiness. In August 1998, the Debtor acquired approximately 93% of LET's shares, leading to a restructuring of its management, including the replacement of director general Zdenek Pernica with Preston Turner Bostwick. After the acquisition, Mr. Ayers became chairman of the board and one of two Procurators, with Mr. Bostwick serving as the other. Despite Mr. Ayers making most decisions, he did not attend board meetings.
Under the Companies Register, at least two directors are required to act for LET. The Procurators have the authority to perform legal acts on behalf of the company. On May 19, 2000, Mr. Ayers executed a Bill of Sale transferring the L610-301 aircraft and its engines from LET to the Debtor, in exchange for avionics and cash. On the same day, Mr. Ayers entered a loan agreement with the Plaintiff for $200,000, granting the Plaintiff a security interest in the engines. The Plaintiff filed a UCC-1 financing statement and recorded its security interest with the FAA.
As of the trial, the Debtor owed the Plaintiff $200,125.00 plus accrued interest. Liquidation proceedings against LET began on August 30, 2000, with Zlatava Davidova acting as trustee. The Plaintiff claims a perfected security interest in the engines, arguing the conveyance from LET to the Debtor was valid, and that the engines' horsepower ratings necessitate FAA registration for perfecting the security interest.
General Electric asserts that neither the Debtor nor LET owned the 998 engine, while acknowledging LET's purchase of the 002 engine for $750,400, claiming no interest in it. General Electric maintains that the 998 engine was loaned to LET under a bailment agreement established on June 3, 1997, as part of a contract for supplying CT7-9 engines for the L610G aircraft development. This agreement stipulated that the engines would be loaned at no charge during the development phase until FAA certification. Consequently, General Electric argues that LET could not transfer the 998 engine to the Debtor since it never owned it.
In contrast, the Debtor claims it acquired title to the L610-301 and the 002 engine through a Bill of Sale executed on May 19, 2000, asserting that Mr. Ayers had the authority to execute this document and that his signature as "Chairman" was valid. The Debtor argues it provided equivalent value for the aircraft and engines and had no knowledge of General Electric’s claims, positioning itself as a good faith purchaser.
The LET Trustee counters that LET holds all rights to the L610-301 and the 002 engine, arguing the Bill of Sale was invalidly executed by Mr. Ayers, who lacked the authority to bind LET without the required actions of two directors. The Trustee also contends that the Bill of Sale does not comply with the Czech Commercial Code, which mandates that the price be stated or a method for determining it be provided. Furthermore, the Trustee argues the transfer was ineffective as it occurred within six months before LET's liquidation proceedings, which would void such transfers under Czech law. Lastly, the Trustee notes the transfer was not registered with the Civil Aviation Authority, as required by Czech law for ownership changes.
LET is recorded as the owner of the L610-301 in the Czech Civil Aviation Authority Registry, leading the LET Trustee to argue that any attempted transfer of the aircraft is ineffective. Since the L610-301 and the 002 engine were LET's property when the petition was filed, they became part of LET’s estate. The court addressed General Electric's claims regarding the 998 engine, finding it subject to the Bailment Agreement related to the L610G aircraft. Although the 998 engine is not specifically mentioned in the LET/GE Contract, the parties agreed it was provided to LET under that contract, establishing LET as a bailee without ownership rights. Consequently, LET could not legally transfer the 998 engine to Debtor, rendering such transfer invalid.
Regarding the Bill of Sale, the court determined it is invalid only concerning the 998 engine, as LET lacked title to convey. However, the Bill of Sale remains valid overall. The LET Trustee's argument that the Bill of Sale was improperly executed by Mr. Ayers was rejected; the evidence indicated his intent to sign as Procurator despite not using the title. Additionally, the LET Trustee contended the Bill of Sale's invalidity based on non-compliance with the Czech Commercial Code. The court noted that the LET Trustee failed to prove the relevant Czech law, which governs the validity of the Bill of Sale under Fed. R.Civ. P. 44.1. The court has discretion in assessing foreign law and does not require independent research but expects a thorough presentation from counsel. A letter provided by Tomas Richter, a Czech attorney, included translated legal provisions and opinions but was objected to by Plaintiff’s counsel due to concerns over Mr. Richter’s competency, as he was connected to the LET Trustee. The court recognized that the letter had not been offered as formal evidence.
The court determined that it would not consider Mr. Richter's letter after the Plaintiff's counsel asserted it could not be included, and no objections were raised by the LET Trustee during the trial. Although Rule 44.1 permits consideration of relevant materials regardless of admissibility, the court noted that both parties understood Mr. Richter's letter would not be considered at the trial's conclusion. The LET Trustee's post-trial argument for considering the letter was deemed insufficient, leading the court to reject her claims regarding the validity of the Bill of Sale and the effectiveness of the transfer of aircraft engines.
Consequently, the court found: 1) General Electric holds clear title to the 998 engine; 2) the Bill of Sale from LET to Debtor validly transferred ownership of the 002 engine, establishing Plaintiff's perfected security interest; 3) the Bill of Sale also transferred ownership of the L610-301 to Debtor, which is part of Debtor's bankruptcy estate; and 4) GATX's motion for relief from stay was denied.
Additionally, the court recognized the parties involved in the liquidation proceedings in the Czech Republic and noted that issues of registration with the Civil Aviation Authority were irrelevant to ownership. The LET/GE Contract would be governed by the laws of England, but since no conflict of law issues were raised, the court applied Georgia law. An order reflecting these findings will be issued.
