Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


April 29, 1991


The opinion of the court was delivered by: Goettel, District Judge:


Before us is a matter of significance as its resolution may force yet another of America's airlines into bankruptcy. The facts presented are uncontroverted and can be summarized as follows. In February 1986, defendant Trans World Airlines, Inc. ("TWA") entered into an Equipment Trust Agreement (the "Agreement") with plaintiff The Connecticut National Bank ("CNB"). The Agreement is what is commonly known as a Sale/Leaseback. Simply, it provided that the Bank would purchase ten aircraft and approximately ninety-six jet engines from TWA, and would then lease them back to TWA until February 1, 1996.*fn1 In connection with the lease/purchase, plaintiff received Senior Secured Trust Notes (the "Notes"), some of which matured on February 1, 1991, and others of which were scheduled to mature on February 1, 1996. The aggregate original principal amount of these Notes was approximately $312 million, with the principal on the 1991 Notes being worth $100 million and the balance being covered by the 1996 Notes. The Agreement provided that TWA would pay all the necessary interest and principal on the Notes directly to CNB, as trustee, which in turn would pay the noteholders, who are the trust beneficiaries. TWA also guaranteed payment to the beneficiaries and agreed to indemnify CNB. Finally, the Agreement stated that once the lease expired and the Notes were paid off, the equipment would revert back to TWA.

It appears that TWA met its obligations in a satisfactory fashion until January 31, 1991. At that time, however, TWA failed to make required payments of approximately $57 million, nine million of which represented interest on the 1991 and 1996 Notes, and the other 48 million of which represented the remaining principal on the then-matured 1991 Notes. Consequently, CNB failed to pay the beneficiaries since the Agreement specifically provided that CNB was only obligated to pay the beneficiaries to the extent it was paid by TWA. CNB then demanded return of its property, as well as immediate payment of the approximately $81 million that was then due as principal on the 1996 Notes. The Agreement specifically afforded CNB these remedies. TWA failed to make any payments and did not return any of CNB's property.

CNB then filed the instant action on March 26, 1991. The complaint seeks specific performance of the Agreement's default remedies, including return of the equipment located inside and outside of this country, delivery of various records relating to the property, and a permanent injunction preventing TWA from removing any of the property from the United States. On April 2, before any discovery had been conducted, plaintiff filed the instant motion for summary judgment and oral argument was heard on April 24.*fn2 CNB contends that since it owns the property and was merely leasing it to TWA, once TWA defaulted CNB was entitled to utilize the Agreement's provisions permitting it to reclaim the property. CNB emphasizes that it owns the property, as trustee, notwithstanding the fact that the property might ultimately have reverted back to TWA if the Agreement had been fully performed.

The well established standards for granting a motion for summary judgment require the moving party to establish the absence of a genuine issue of material fact and that it is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). In turn, the non-moving party has the burden of setting forth specific facts establishing a genuine issue for trial. Fed.R.Civ.P. 56(e). For the reasons which follow, we find that CNB has met its burden and that TWA's arguments to the contrary are simply unavailing.

Before addressing TWA's specific claims, we will mention the facts it concedes. TWA does not contest its failure to make the interest and principal payments it was required to make on January 31. Similarly, it does not challenge CNB's right to sue for enforcement of the Agreement's provisions, which provide, inter alia, that in the event of a default, CNB may "enter upon the premises of [TWA] or of any sublessee where any part or the whole of the Equipment may be and take possession of any part or the whole of the Equipment and withdraw the same from said premises." Agreement § 7.02. Nor does it dispute that it refused the trustee's demand for such access and possession. Instead, TWA offers a number of procedural arguments in opposition to CNB's motion.

TWA's first contention is that it has not been afforded an adequate opportunity to conduct discovery and, therefore, we should not yet address the merits of this dispute. We recognize that barely a month has passed since the filing of the complaint and that no discovery has been conducted. In addition, we acknowledge that courts generally are reluctant to grant summary judgment when the non-moving party has not had an adequate opportunity for discovery. This by no means is a prohibition on the entry of judgment at this stage. As the Second Circuit Court of Appeals has recognized, the opposing party must submit an affidavit explaining, inter alia, the facts that are sought, how they are to be obtained and, perhaps most importantly, how these facts are expected to create a genuine issue of material fact. See Hudson River Sloop Clearwater, Inc. v. Department of the Navy, 891 F.2d 414, 422 (2d Cir. 1989). TWA has not met this burden. With one exception, TWA has not suggested any additional evidence that it needs to obtain, but instead, simply suggests that it is too soon to entertain a summary judgment motion, especially on a matter as important as this one. That is insufficient.

The only specific issue upon which TWA seeks discovery is the question of whether CNB is merely a "`naked trustee[]' [acting] as [a] `mere conduit[]' for a remedy flowing to others." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 465, 100 S.Ct. 1779, 1784, 64 L.Ed.2d 425 (1980) (citations omitted). TWA claims that if CNB is not suing on its own behalf, but rather, is merely a "naked trustee" seeking to protect the trust beneficiaries, it may not be the real party in interest. Thus, the beneficiaries would be deemed the real parties in interest and, since some beneficiaries are not diverse from TWA, we may actually lack subject matter jurisdiction.

Unfortunately for TWA, there is absolutely no merit to the claim that CNB is a "naked trustee" and further discovery will not change this conclusion. First, CNB owns the property in question and, therefore, has an obvious interest in seeking its return, notwithstanding the fact that TWA has both guaranteed payment to the beneficiaries and agreed to indemnify CNB. The remedy CNB seeks was specifically provided for in the Agreement. In addition, the Navarro Savings Court referred to a trustee acting as a conduit "for a remedy flowing to others." Id. Here, the only party that can seek return of the property is CNB. The beneficiaries have no such power and, in fact, CNB would be breaching its fiduciary duties as trustee if it did not seek return of the property. The fact that certain beneficiaries have sued TWA in state court for payment on the Notes pursuant to TWA's guarantee does not change the fact that CNB's claims before us are to protect its rights as owner of the property.*fn3 The beneficiaries' suit on the guarantee is not an alternative to CNB's action on the Agreement. Of course, we recognize that once CNB obtains the property, the funds it recovers from a subsequent sale or lease must be applied to mitigate the damages of certain noteholders. This, however, does not alter our conclusion that CNB has an obvious interest in the prosecution of this litigation and the return of its property.*fn4

Before addressing these particular questions, we must note that this is not the ordinary situation where a party is demanding specific performance of a contractual obligation, notwithstanding the fact that CNB's complaint denominates its demands as such. The contractual obligation placed upon TWA was to pay money in exchange for the use of CNB's property. Technically, if CNB was demanding specific performance of TWA's obligations, it would be demanding that TWA pay the money it owes pursuant to the Agreement. Such a demand, of course, would be futile since TWA has already failed to pay. Instead, CNB seeks to have the property returned, which is the precise remedy the parties previously agreed to. Thus, CNB is not really seeking specific performance of TWA's obligations, but rather, is seeking to enforce a contractual remedy agreed to by the parties in the event of a default. Under this rationale, it is clear that CNB is entitled to return of the property.

New York's laws governing secured transactions permit a party holding a security interest in a chattel to sue on the debt or to foreclose on the collateral. N.Y. U.C.C. § 9-503 (McKinney 1990); MGD Graphic Sys., Inc. v. New York Press Publishing Co., 52 A.D.2d 815, 383 N.Y.S.2d 606, 607-08 (1st Dep't 1976), aff'd, 42 N.Y.2d 1018, 368 N.E.2d 835, 398 N.Y.S.2d 657 (1977). In the case at bar, however, CNB is more than a secured creditor, it actually owns the property. It would defy logic for its rights to be more limited than those of a secured creditor, especially when the Agreement specifically affords CNB this remedy. Following TWA's argument, if one were to lease a car from a car dealership and then stop paying, the dealership would not be entitled to demand the return of its car, notwithstanding a specific lease provision permitting it to do so, but rather, would be forced to secure a money judgment against the leaseholder and then attempt to enforce it. If the lessee lacked liquid assets to pay the money judgment, the lessor would be relegated to levying on the lessee's property, which in this instance belongs (at least in part) to it. Such a result would turn property law as we know it on its head and we refuse to do so.

Even if CNB's demands are considered traditional claims for specific performance of a contractual obligation, CNB is entitled to summary judgment. TWA claims that CNB will be adequately protected if it secures a money judgment against it for the amount due on the Notes. Since CNB only is required to make payments to the beneficiaries solely from the funds it actually receives from TWA, CNB allegedly is not suffering any loss or risk because of TWA's failure to pay or return the property. Moreover, TWA argues that since it must maintain the planes and engines under strict guidelines from the Federal Aviation Administration, there is no risk of damage to the property.

The suggestion that by obtaining a money judgment CNB will be adequately protected is nothing short of specious. TWA has been teetering on the brink of bankruptcy for years and it is unlikely that it possesses the cash in its coffers to satisfy such a judgment. If TWA had the money, it presumably would not have defaulted in the first place. Instead, the likely scenario would be that after obtaining such a judgment, CNB would be forced to attach TWA's property, like planes and engines, to satisfy the judgment. This would return us precisely to the position we are in today. Requiring such actions would be extremely unfair to CNB in light of the fact that the Agreement itself provided such a remedy in the ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.