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* Triad Int'l Maint. Corp. v. S. Air Transport, Inc. (In re S. Air Transport, Inc.), 511 F.3d 526 (6th Cir. Dec. 2007) (Norris, J.)
State law allowed perfection of lien on an aircraft and was not preempted by the Federal Aviation Act. The bankruptcy court ruled in favor of the chapter 11 trustee in a preference action seeking to avoid the transfer of an interest in the debtor's aircraft to the creditor. Prior to the commencement of the bankruptcycase, the creditor entered into a maintenance agreement with the debtor. The creditor was servicing the aircraft at the time of filing -- that is, the aircraft was in the creditor's possession. Fewer than 90 days before the petition date, the creditor sent the debtor an invoice, and the debtor wired a partial payment to the creditor. The bankruptcy court ruled in favor of the trustee on the preference action, but the Sixth Circuit reversed, concluding that North Carolina state law entitled the creditor a valid statutory aritsan's lien on the aircraft by possession without having filed any documents with the FAA. Because the creditor held a valid and perfected lien under state law, concluded the court of appeals, the creditor was secured and the trustee, therefore, failed to carry its burden of proving that the creditor received more by the pre-petition transfer than it would have received under a hypothetical chapter 7 liquidation had the transfer not occurred.
* Krys v. Official Comm. of Unsecured Creditors of Refco Inc. (In re Refco Inc.), 505 F.3d 109 (2d Cir. Oct. 2007) (Wesley, J.)
Group of a creditor's investors was not a party in interest that could object to a settlement.
After obtaining leave of court, the committee instigated a preference action against SphinX, an investment company based in the Cayman Islands that was a creditor of the Refco estate and allegedly received some $312 million from one of the debtors days before the commencement of the debtors' bankruptcy cases. Before trial on the avoidance action (and before the commencement of a liquidation proceeding against SphinX in the Cayman Islands), SphinX and the committee entered into a settlement agreement whereby SphinX agreed to return most of the pre-petition transfers. The settlement was brought before the bankruptcy court for approval, and a group of SphinX's investors objected, claiming that the settlement was not in their best interests and was procured by SphinX's fraud and collusion. The bankruptcy court rejected these arguments, reasoning that the investors were only indirectly affected by the settlement and lacked a direct interest in the debtors' bankruptcy estates. The court further noted that any dispute the investors had with SphinX was for another court to consider. The district court affirmed. While the appeals were pending, a Caymand Island court appointed joint official liquidators to wind up SphinX's business as part of a liquidation proceeding filed against SphinX. The investors and liquidators both appealed the district court's order to the Second Circuit.
The Second Circuit recognized that the definition of a "party in interest" may be broad enough to include more than merely a debtor and its creditors. However, the court of appeals found the investors' equity interest in SphinX to be too attenuated to place the investors within section 1109(b)'s definition of a "party in interest." Said the court, "Bankruptcy courts are primarily courts of equity, but they are not empowered to address any equitable claim tangentially related to the bankruptcy proceeding." Also unavailing to the Second Circuit was the investors' argument that the settlement payments were held in a constructive trust for the
