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FELDMAN v. TRANS-EAST AIR

August 1, 1973

George FELDMAN, as Trustee in Bankruptcy of Leasing Consultants Incorporated, Bankrupt, Plaintiff,
v.
TRANS-EAST AIR, INC., et al., Defendants



The opinion of the court was delivered by: WEINSTEIN

MEMORANDUM AND ORDER

This is an action by a trustee in bankruptcy to recover three aircraft and the proceeds derived therefrom. Also pending in a collateral bankruptcy proceeding is a petition to review an order of the referee in bankruptcy dated September 5, 1972. For the reasons stated below, defendants' motion to dismiss in the plenary action must be granted and the decision of the referee must be affirmed.

 I. FACTS

 In August, 1967, the defendant Trans-East Airlines, Inc. ["Trans-East "] contracted with De Havilland Aircraft of Canada, Ltd. for the purchase of the three aircraft in question. The cost of each airplane was to be approximately $ 312,000.00.

 When the various aircraft were ready for delivery, Trans-East assigned its right to purchase as to two of the planes to the defendant Hudleasco, and as to the third plane to the defendant Castle Capital.

 The planes were duly purchased and Hudleasco and Castle Capital each then leased its plane or planes to Trans-East. Each lease contract included a purchase option. Both Hudleasco and Castle Capital registered their title to their respective aircraft with the Federal Aviation Administration in Oklahoma City pursuant to the provisions of the Federal Aviation Act. 49 U.S.C. § 1301 et seq.

 Trans-East subsequently went out of the airline business and became a fixed base operator at Bangor International Airport in Maine. By separate agreements dated March 15, 1969, Trans-East sublet the three aircraft to Leasing Consultants, Inc. ["LCI"], the bankrupt.

 LCI was a public corporation, engaged in the business of leasing aircraft, computers and other equipment. On August 18, 1970, LCI filed a petition for arrangement pursuant to Chapter XI of the Bankruptcy Act. On August 24, 1970, a petition by the debtor in possession was prepared which sought the rejection of certain executory contracts pursuant to section 313(1) of the Bankruptcy Act. 11 U.S.C. § 713(1). Among these executory contracts were the three "Aircraft Leases" between Trans-East as lessor, and LCI as lessee.

 LCI had leased these aircraft from Trans-East for sublease to its wholly owned subsidiary, Florida Atlantic Airlines, Inc. This subsidiary had been engaged in operations as a third level air carrier between Florida and the Bahamas. Prior to August 18, 1970, Florida Atlantic's operating certificate had been suspended by the Federal Aviation Administration and the planes were not in use. The $ 18,150 per month rental due from LCI to its lessor was onerous and burdensome under the circumstances.

 A hearing was held to consider the petition on September 2, 1970, before Referee Rudin. There was no opposition and LCI's petition was granted. On September 8, 1970, an order was entered which rejected LCI's leases with Trans-East as well as other executory contracts. Trans-East subsequently took possession of the aircraft.

 On October 14, 1970, LCI consented to its adjudication as a bankrupt and the plaintiff in this action was appointed trustee.

 At the time of the rejection by LCI of the subleases, Trans-East was in default in the rentals owed to Hudleasco and Castle Capital under the leases, and it was apparent that Trans-East could not meet the rental payments in the absence of a new sublease of the aircraft.

 The task of finding a new sublessee was made particularly difficult by the condition of the market for such aircraft at the time. As shown by defendants' affidavits-uncontroverted by plaintiff-in the fall of 1970 and for some time thereafter, the market for this type of aircraft was extremely weak. Considerable effort was expended by these defendants in obtaining new sublessees and, ultimately, vendees for the aircraft.

 In March of 1971, the trustee served the defendants, Trans-East, Hudleasco, and Castle Capital with subpoenae to appear for examination pursuant to section 21(a) of the Bankruptcy Act.

 In January, 1972, suit was commenced by the trustee in the bankruptcy court to vacate the referee's order of September 8, 1970. The bankruptcy court declined summary jurisdiction on the grounds that other rights "have vested [and] positions have changed." A petition to review this decision ...


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