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In re Hawker Beechcraft, Inc.

United States District Court, Second Circuit

December 18, 2013

In re HAWKER BEECHCRAFT, INC., et al,
v.
HAWKER BEECHCRAFT CORPORATION, Defendant. Chapter 11. UNITED STATES OF AMERICA EX REL. DONALD MINGE AND DAVID KIEHL AND DONALD MINGE AND DAVID KIEHL INDIVIDUALLY, Plaintiffs, No. 12-11873 (SMB) Adversary Proceeding No. 12-01890 (SMB)

MEMORANDUM AND ORDER

P. KEVIN CASTEL, District Judge.

Plaintiffs move for leave to appeal from the August 2, 2013 decision of the United States Bankruptcy Court for the Southern District of New York (Bernstein, S.) (the "Decision"), which dismissed in part the complaint filed in their adversary proceeding in the Chapter 11 reorganization case of Hawker Beechcraft Corporation ("HBC"). In re Hawker Beechcraft, Inc. , 493 B.R. 696 (Bankr. S.D.N.Y. 2013). In that adversary proceeding, plaintiffs sought a determination that their claims against HBC under the False Claims Act ("FCA") were not dischargeable in HBC's Chapter 11 reorganization proceeding. The Bankruptcy Court found that plaintiffs' claims for penalties and damages were dischargeable, but declined to dismiss the adversary proceeding with respect to plaintiffs' potential claims for attorneys' fees and expenses. For the reasons set forth below, leave to appeal is granted.

I. BACKGROUND

A. The FCA Claims, the Chapter 11 Case, and the Adversary Proceeding

The facts summarized herein are more fully set forth in the Decision, Hawker Beechcraft , 493 B.R. at 699-701. Plaintiffs Donald Minge and David Kiehl are former employees of TECT Aerospace, Inc. or TECT Aerospace Wellington, Inc. (together, "TECT"), two subcontractors of defendant HBC, a manufacturer of military aircraft. On July 27, 2007, plaintiffs filed a qui tam suit under the FCA against, inter alia, HBC and TECT, in the United States District Court for the District of Kansas (the "Kansas Action"). U.S. ex rel Minge v. TECT Aerospace, Inc., No. 07-1212-MLB. Plaintiffs alleged that defendants made misrepresentations in their certifications to the government regarding certain components manufactured by TECT and incorporated into military aircraft sold to the government. As provided for under the FCA, plaintiffs sought to recover triple the damages sustained by the government (totaling $2.3 billion), in addition to a civil penalty of $11, 000 for each of the 347 violations alleged (totaling $3.8 million), plus attorneys' fees and costs.

On May 3, 2012, HBC and certain affiliates filed a petition for reorganization under chapter 11 of the Bankruptcy Code, staying the Kansas Action as to HBC. The Court in the Kansas Action further stayed the action as to all parties on November 16, 2012. U.S. ex rel Minge v. TECT Aerospace, Inc., No, 07-1212-MLB, Dkt. No. 380 (Nov. 16, 2012). On June 5, 2012, the debtors' appointed claims agent mailed a "Notice of Chapter 11 Bankruptcy Cases, Meeting of Creditors, & Deadlines, " dated June 5, 2012 (the "Notice"), to creditors and other parties in interest. The Notice was based on Official Form 9F, a model form intended for use in Chapter 11 cases in which the debtor is a corporation or partnership. The Notice provided that the creditors' meeting required under 11 U.S.C. § 341 would take place on June 26, 2012. The second page of the Notice provided information with respect to the discharge of debts upon confirmation of a Chapter 11 plan, notifying recipients that, in order to avail themselves of the discharge exception provided under 11 U.S.C. § 1141(d)(6)(A), they were required to file a complaint with the bankruptcy clerk's office by a deadline specified under the heading "Deadline to File a Complaint to Determine Dischargeability of Certain Debts" on the first page of the Notice. That section of the Notice did not provide a date, but instead stated that "Notice of deadline will be sent at a later time."

Plaintiffs commenced an adversary proceeding on September 27, 2012, seeking a dischargeability determination with respect to their FCA claims against HBC in the Kansas Action. Their complaint alleged that the FCA claims in the Kansas Action were exempt from discharge under 11 U.S.C. § 1141(d)(6)(4 Specifically, plaintiffs sought a determination of nondischargeability based on both grounds set forth in section 1141(d)(6)(A), alleging that their debt was both "of a kind specified in section 523(a)(2)(A) owed to a domestic governmental unit" and "debt owed to plaintiffs as a result of the action they had filed under Subchapter III of chapter 37 of title 31 of the United States Code." HBC moved to dismiss plaintiffs' adversary proceeding.

B. The Bankruptcy Court's Decision

On August 2, 2013, the Bankruptcy Court issued the Decision, dismissing plaintiffs' adversary complaint insofar as their FCA claims sought damages and penalties. 493 B.R. at 713. Because HBC's plan of reorganization was confirmed in February 2013, the Decision had the effect of confirming the discharge of plaintiffs' claims for damages and penalties under the FCA. Id. The Bankruptcy Court, however, did not rule on "whether or to what extent the Plaintiffs have personal claims against" HBC, and thus permitted plaintiffs' adversary proceeding to proceed with respect to any potential claims for attorneys' fees and expenses recoverable under 11 U.S.C. §§ 3730(d)(3) and (4). Id.

The Bankruptcy Court's analysis focused on the interpretation of 11 U.S.C. § 1141(d)(6), a provision enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). This provision added limited exemptions to the otherwise comprehensive discharge provided for corporate debtors under 11 U.S.C. § 1141(d)(1). Section 1141(d)(6) provides:

Notwithstanding paragraph (1), the confirmation of a plan does not discharge a debtor that is a corporation from any debt-
(A) of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, or owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute....

The Bankruptcy Court's analysis parsed subparagraph (A) into two independent clauses separated by the comma following "domestic governmental unit." 493 B.R. at 709. Thus, the first clause ("Clause 1") excepts from discharge any debt "of a kind specified in paragraph (2)(A) or (2)(B) of section 523(a) that is owed to a domestic governmental unit, " and the second clause ("Clause 2") excepts any debt "owed to a person as the result of an action filed under subchapter III of chapter 37 of title 31 or any similar State statute[.]"[1] Because they pursued their qui tam claims as relators on behalf of the United States but also stood to recover a portion of any damages awarded in a successful claim, plaintiffs argued that their claims were exempt under both clauses of section 1141(d)(6)(A). As Judge Bernstein explained, under the Bankruptcy Code there are generally "two types of exceptions to discharge: (1) those that are self-executing and (2) those that require the creditor to seek a determination of dischargeability in the bankruptcy court by a fixed deadline, failing which the exception does not apply and the debt is discharged." 493 B.R. at 701 (citing 11 U.S.C. § 523(c)(1)).

The Decision included several holdings, three of which plaintiffs seek to appeal. In the first challenged holding, the Court concluded that 11 U.S.C. § 523(c)(1) applies to Clause 1, and thus a creditor seeking an exception to discharge under Clause 1 is required to timely move for such relief. The applicable deadline, set forth in Rule 4007(c) of the Federal Rules of Bankruptcy Procedure, requires creditors to file such a complaint "no later than 60 days after the first date set for the meeting of creditors under [11 U.S.C.] § 341(a), " unless the court extends the deadline for cause. Hawker Beechcraft , 493 B.R. at 705 (citing European American Bank v. Benedict ( In re Benedict , 90 F.3d 50, 53 (2d Cir. 1996)). Rule 4007(c) further provides that the bankruptcy court "shall give all creditors no less than 30 days' notice of the time so fixed...." Having thus found Bankruptcy Rule ...


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