)adversary complaint · 2020-01-20 · 4 cavic aviation leasing (ireland) 22 co. designated...

1 CAVIC Aviation Leasing (Ireland) 22 Co. Designated Activity Company’s Motion to Dismiss Counts I, III, IV, V, VI and VII of the Trustee’s Adversary Complaint

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HOLLAND & KNIGHT LLP Robert J. Labate (SBN 313847) 50 California Street, Suite 2800 San Francisco, CA 94111 Telephone: 415.743.6900 Facsimile: 415.743.6910 Email: [email protected] Vince Farhat (SBN 183794) Alan J. Watson (SBN 177531) 400 South Hope Street 8th Floor Los Angeles, CA 90071 Telephone: 213.896.2400 Facsimile: 213.896.2450 Email: [email protected] [email protected]

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA

LOS ANGELES DIVISION In re: ZETTA JET USA, INC., a California corporation, Debtor. _________________________________ In re: ZETTA JET PTE, LTD., a Singaporean corporation, Debtor. ________________________________ JONATHAN D. KING, solely in his capacity as Chapter 7 Trustee of Zetta Jet USA, Inc. and Zetta Jet PTE, Ltd., Plaintiff, v. CAVIC AVIATION LEASING (IRELAND) 22 CO. DESIGNATED ACTIVITY COMPANY; and BOMBARDIER AEROSPACE CORPORATION, Defendants.

)))))))))))) ) ) )))))))))) ) ) ) ) ) ) ) )

Lead Case No.: 2:17-bk-21386-SK Chapter 7 Jointly Administered With: Case No.: 2:17-bk-21387-SK Adv. Proc. No. 2:19-ap-01147-SK

CAVIC AVIATION LEASING (IRELAND)

22 CO. DESIGNATED ACTIVITY

COMPANY’S NOTICE OF MOTION AND

MOTION TO DISMISS COUNTS I, III, IV,

V, VI, AND VII OF THE TRUSTEE’S

ADVERSARY COMPLAINT

Case 2:19-ap-01147-SK Doc 59 Filed 01/10/20 Entered 01/10/20 17:03:53 DescMain Document of 35


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TO THE HONORABLE SANDRA R. KLEIN, UNITED STATES BANKRUPTCY

JUDGE, AND TO TRUSTEE’S COUNSEL OF RECORD:

PLEASE TAKE NOTICE that Defendant CAVIC Aviation Leasing (Ireland) 22 Co.

Designated Activity Company (“CALI”) moves (by this “Motion”) the Court to dismiss, without

leave to amend and with prejudice, Counts I, III, IV, V, VI, and VII of the complaint (the

“Complaint”) filed in the above-captioned adversary proceeding, for failure to state a claim upon

which relief can be granted, because the Complaint insufficiently pleads the facts necessary to

plausibly state claims for relief for declaratory judgment, avoidance and recovery of an alleged

security interest, and recovery of alleged preferences.

PLEASE TAKE FURTHER NOTICE that this Motion is being brought under Federal

Rules of Civil Procedure 12(b)(6), as made applicable by Federal Rules of Bankruptcy Procedure

7012, and is based on the accompanying memorandum of points and authorities, the Court’s files

in this adversary proceeding and in the related Chapter 7 cases, and such other evidence and

argument as may properly come before this Court at any hearing.

PLEASE TAKE FURTHER NOTICE that by agreement of the parties, a written

response to this Motion must be filed and served by February 14, 2020.

WHEREFORE, CALI respectfully requests that the Court enter an order (i) granting the

Motion, (ii) dismissing, without leave to amend and with prejudice, Counts I, III, IV, V, and VII

of the Complaint for failure to state a claim, and (iii) granting such other and further relief that the

Court deems just and necessary.

Dated: January 10, 2020 HOLLAND & KNIGHT LLP

/s/ Robert Labate ____________________________ Robert J. Labate, Esq. Vince Farhat, Esq.

Attorneys for CAVIC Aviation Leasing (Ireland) 22 Co. Designated Activity Company



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TABLE OF CONTENTS

Page

I. INTRODUCTION .................................................................................................... 8

II. BACKGROUND .................................................................................................... 13

A. The Three Leased Aircraft .......................................................................... 13

B. The Busted Deal For Aircraft 9788 ............................................................. 13

C. The Preferential Payments. ......................................................................... 15

III. PLEADING STANDARDS ................................................................................... 15

IV. ARGUMENT .............................................................................................................. 17

A. COUNT I SHOULD BE DISMISSED ....................................................... 17

1. The Complaint Fails to State a Claim for Re-characterization of All Financed Leases. ..................................... 17

2. English Law Does Not Permit Re-characterization .................... 20

B. COUNTS III, IV, V AND VI SHOULD BE DISMISSED ....................... 22

1. The Complaint Fails to State a Claim that the PDP is Property of the Estate. ................................................................... 22

2. The Complaint Fails to Show A Lien Creditor’s Plausible Right to the PDP Under State Law ............................................... 22

3. New York Law Requires That Agreements Be Enforced Pursuant to Their Plain Meaning of That Agreement. .............. 26

C. COUNT VII SHOULD BE DISMISSED ................................................... 27

1. The Complaint Fails To Establish a Plausible Claim for Avoidance and Recovery of a Preference .................................... 27

2. CALI’s Preference Defenses Are Valid Regardless of Its Status as A Lessor, A Long-Term or A Short-Term Lender. ............................................................................................ 28

3. The Court may consider CALI’s “ordinary course” and “new value” defenses in a Motion to Dismiss .............................. 30

4. The “ordinary course” defense shelters CALI from liability for the 2017 Lease Payments ........................................... 31

5. The “subsequent new value” defense shelters CALI from liability for the 2017 Lease Payments ........................................... 33

6. The “earmarking doctrine” dictates that the 2017 Lease Payments were not an avoidable transfer of the Debtors’ property ........................................................................................... 34

CONCLUSION ................................................................................................................. 35



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TABLE OF AUTHORITIES

Page(s)

Cases

Anderson, as Trustee v. Carolyn Adams (In re Superior Stamp & Coin Co.),

223 F.3d 1004 (9th Cir. 2000) ..................................................................................... 33

Arrow Elec., Inc. v. Justus (In re Kaypro),

218 F.3d 1070 (9th Cir. 2000) ..................................................................................... 31

Ashcroft v. Iqbal,

556 U.S. 662 (2009) ..................................................................................................... 16

Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007) ..................................................................................................... 16

Boyd v. First Franklin Mortg. Loan Trust (In re Boyd),

595 B.R. 402 (Bankr. C.D. Cal. 2018) ................................................................... 16, 17

Brown v. Morton,

201 B.R. 563 (Bankr. W.D. Wash. 1999) .................................................................... 32

Burtch v. Revchem Composites, Inc. (In re Sierra Concrete Design, Inc.),

463 B.R. 302 (Bankr. D. Del. 2012) ............................................................................ 29

Butner v. United States

440 U.S. 48 (1979) ....................................................................................................... 25

In re Doorman Prop. Maint.,

No. 15-30912 DM, 2017 WL 90332 (Bankr. N.D. Cal. Jan. 10, 2017) ...................... 27

E.E.O.C. v. Peabody Western Coal Co.,

610 F.3d 1070 .............................................................................................................. 22

Ellington, 24 N.Y.3d 239 (2014) ....................................................................................... 26

Fisher v. City of Huntington Beach (In re The Huntington Ltd.),

654 F.2d 578 (9th Cir. 1981) ....................................................................................... 23

Flight Sys. v. Electronic Data Sys. Corp.,

112 F.3d 124 (3d Cir. 1997) ........................................................................................ 29

Ford v. Fed. Home Loan Mortgage Corp. (In re Bishop),

Case No. 09-1034-MWV, 2009 WL 2231197 (Bankr. D. N.H. July 24,

2009) ............................................................................................................................ 23



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Ganis Credit Corp. v. Anderson (In re Jan Weilert RV, Inc.),

315 F.3d 1192 (9th Cir. 2003) ..................................................................................... 31

Gellert v. Coltec Industries, Inc.,

2012 WL 5360945 (Bankr. Del. 2012) ........................................................................ 29

In re Grand Chevrolet,

25 F.3d 728 (9th Cir. 1994) ......................................................................................... 31

Great Minds v. Office Depot, Inc.,

No. ___ F.3d ___ ......................................................................................................... 16

Greenfield v Philles Records,

98 NY2d ....................................................................................................................... 26

Hatfield v. Halifax PLC,

564 F.3d 1177 (C.D.Cal. 2009) ................................................................................... 20

HFGL Ltd. & CNH Capital Europe Ltd., 700 F.Supp. at 688 .......................................... 21

HFGL Ltd. & CNH Capital Europe Ltd. v. Alex Lyon & Son Sales

Managers & Auctioneers, Inc., 700 F. Supp. 2d 681, 688 (D. N.J.

2010) ............................................................................................................................ 21

Hitchin Post Steak Co. v. General Electric Capital Corp. (In re HP

Distribution, LLP),

436 B.R. 679 (Bankr. D. Kan. 2010) ........................................................................... 17

Kaye v. Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC),

899 F.3d 1178 (11th Cir. 2018) ............................................................................. 28, 29

Kubick v. FDIC (In re Kubick),

171 B.R. 658 (9th Cir. BAP 1994) .............................................................................. 27

Lauter v. Anoufrieva,

642 F. Supp. 2d 1060 (C.D. Cal. 2009) ....................................................................... 17

Leffridge v. Nationstar Mortg.,

No. ED CV14-01940 JAK, 2014 WL 12586071 (C.D. Cal. Dec. 22,

2014) ............................................................................................................................ 16

Legum v. Russo,

133 A.D.3d 638 (2015) ................................................................................................ 26

Local Loan Co. v. Hunt,

292 U.S. 234 (1934) ..................................................................................................... 23



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Lomayaktewa v. Hathaway,

520 F.2d 1324(9th Cir.1975) ....................................................................................... 22

Long Term Disability Plan Hoffman-La Roche, Inc. v. Hiler (In re Hiler),

99 B.R. 238, 244 (Bankr. D. N.J. 1989) ...................................................................... 23

LT Leasing, Inc. v. NHA Hamburger Assekuranz-Agentur GmbH,

2015 WL 1622846 (E.D.Cal. 2015) ............................................................................. 20

Mason v. Heller Financial Leasing (In re JII Liquidating, Inc.),

341 B.R. 256 (Bankr. N.D. Ill. 2006) .................................................................... 17, 18

McGranahan v. Harris Woolf Cal. Almonds (In re Cent. Valley Processing,

Inc.),

No. 05-ap-1072, 2007 WL 2119002 (Bankr. E.D. Cal. July 19, 2007) ................. 30, 31

MHR Capital Partners, 12 N.Y.3d 640, 645 (2009) ......................................................... 26

Mission Product Holdings Inc. v. Tempnology LLC

(In re Tempnology), __ U.S. __, 139 S.Ct. 1652, 1663 (2019) ............................. 22, 23

Mitan, 497 F.Supp.2d at 1124 ........................................................................................... 16

Mosier v. Ever-Fresh Food Co. (In re IRFM, Inc.),

52 F.3d 228 (9th Cir. 1995) ......................................................................................... 32

Musso v. Ostashko,

468 F.3d 99 (2d Cir. 2006)........................................................................................... 23

N.Y.C. Shoes, Inc. v. Bentley Int’l, Inc. (In re N.Y.C. Shoes, Inc.),

880 F.2d 679 (3d Cir. 1989) ........................................................................................ 32

Pannell Kerr Forster Intern. Ass’n Ltd. V. Quek,

5 Fed. Appx. 574, 2001 WL 180646 (9th Cir. 2001) .................................................. 20

Pepper v. Litton,

308 U.S. 295 (1939) ..................................................................................................... 23

In re Pillowtex,

349 F.3d 711 (3d Cir. 2003) ........................................................................................ 17

PMC Mktg. Corp. v. PDCM Assoc. (In re PMC Mktg. Corp.),

518 B.R. 150 (BAP 1st Cir. 2014) ............................................................................... 32

Richards v. Lloyd’s of London,

135 F.3d 1289 (9th Cir. 1998) ..................................................................................... 20



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Roberts v. Balasco (In re Ernie Haire Ford, Inc.),

459 B.R. 824 (Bankr. M.D. Fla. 2011) ........................................................................ 16

Robinson v. Howard Bank (In re Kors, Inc.),

819 F.2d 19 (2d Cir. 1987)........................................................................................... 23

Royal T Energy v. ENGS Commercial Finance Co (In re Royal T Energy),

596 B.R. 525 (Bankr. E.D. Texas 2019) ...................................................................... 18

Schoenmann v. BCCI Constr. Co. (In re NorthPoint Commc’ns Grp., Inc.)

361 B.R. 149 (Bankr. N.D. Cal. 2007) ........................................................................ 30

Spy Optic, Inc. v. Alibaba.com, Inc.,

163 F. Supp. 3d 755 (C.D. Cal. 2015) ......................................................................... 17

Stanwyck v. Bogen, et al. (In re Stanwyck),

450 B.R. 181 (Bankr. C.D. Cal. 2011) ......................................................................... 17

Steckman v. Hart Brewing, Inc., 143 F.3d 1293, (9th Cir.1998) ...................................... 16

Travelers Casualty & Surety Co. v. Pacific Gas & Elec. Co.

549 U.S. 443 (2007) ..................................................................................................... 25

U.S. Commodity Futures Trading Comm’n v. Monex Credit Co.,

931 F.3d 966 (9th Cir. 2019) ....................................................................................... 16

Union Bank v. Wolas,

502 U.S. 151 (1991) ............................................................................................... 28, 30

Valley Media Inc. v. Borders, Inc. (In re Valley Media, Inc.),

288 B.R. 189 (Bankr. D. Del. 2003) ............................................................................ 27

Wahoski v. Am. & Efrid, Inc. (In re Pillowtex Corp.),

416 B.R. 123 (Bankr. D. Del. 2009) ............................................................................ 32

Waslow v. Grant Thornton LLP (In re Jack Greenberg, Inc.),

212 B.R. 76 (Bankr. E.D. Pa. 1997) ............................................................................ 29

WorldCom Inc. v. General Electric Global Asset Management Services (In

re WorldCom, Inc),

339 B.R. 56 (Bankr. S.D.N.Y. 2006) ........................................................................... 18

In re Zetta Jet USA, Inc.,

2:17-bk-21386-SK ......................................................................................................... 8

Statutes

11 U.S.C. § 101, et seq. ..................................................................................................... 13



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Bankruptcy Code § 544(a)................................................................................................. 23

Cal. Com. Code § 1203 ..................................................................................................... 18

Other Authorities

Fed.R.Civ.P. 19 ................................................................................................................. 22

https://www.vedderprice.com/-/media/files/vedder-

thinking/publications/2018/08/afl2018aircraft-operating-leases.pdf (last

accessed on Dec. 11, 2019) .......................................................................................... 21

MEMORANDUM OF POINTS AND AUTHORITIES

In accordance with Federal Rule of Civil Procedure 12(b)(6), made applicable to this

Adversary Proceeding through Federal Rule of Bankruptcy Procedure 7012, Defendant CALI

respectfully requests that this Court dismiss Counts I, III, IV, V, VI and VII of the Complaint filed

by plaintiff, Jonathan D. King, in his capacity as Chapter 7 Trustee (“Trustee”) of the debtors

Zetta Jet USA, Inc. (“Zetta USA”) and Zetta Jet PTE Ltd. (“Zetta PTE”) (collectively the

“Debtors”). 1 The Trustee has failed to allege sufficient facts to support his claim to a $30 million

aircraft pre-delivery payment made by CALI to co-defendant Bombardier Aerospace Corporation

(“Bombardier”). Further, CALI’s defenses to the Trustee’s preference avoidance claims, as

evident on the face of the Complaint, are a complete bar to the Trustee’s recovery.

I. INTRODUCTION

The Complaint is superficially appealing but legally hollow. Conclusions are presented as

facts, claim-defeating information is ignored, and the alleged causes of action are not plausible

under existing state and Bankruptcy law. We are presented with an Alice in Wonderland world in

which reality is disregarded and legal theories are conflated beyond recognition. Fortunately, the

Complaint’s false narrative has insufficient factual support and is refuted by its own Exhibits.

1 All capitalized terms are as defined in the Complaint, except as otherwise noted. “Debtors” refers to Zetta Jet USA,

Inc. and Zetta Jet PTE Ltd. All references to a paragraph of the Complaint (“Compl.”) are noted as “¶” and the docket

in this Adversary Proceeding are cited herein as “Dkt.” All references to a Complaint exhibit are cited as “Compl.

Ex. __”. All references to the docket in the Debtors’ lead chapter 7 case, In re Zetta Jet USA, Inc., 2:17-bk-21386-

SK, are cited herein as “Bankruptcy Case Dkt.” All references to claims filed in In re Zetta Jet USA, Inc. are cited

herein as “USA Claim No. __.” All references to claims filed in In re Zetta Jet PTE, LTD, 2:17-bk-21387-SK, are

cited herein as “PTE Claim No. __.”



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The Grab for A PDP Never Owned by the Debtors

The Complaint’s primary goal is to grab a $30 million pre-delivery payment (“PDP”)

even though no pleadings or Exhibits show, or even suggest, that the $30 million PDP was estate

property. To the contrary, pleadings and Exhibits show that the Debtors never owned, borrowed,

transferred or, under non-bankruptcy law, had a right to the entire $30 million PDP. The Debtors

never possessed, or in any way touched, the $30 million PDP paid by CALI to Bombardier and

the Complaint provides no legal claim that, even at the pleading stage, withstands scrutiny.

To hide such deficiencies, the Complaint resorts to euphemisms – such as referring to the

PDP as a “Refund.” Yet, its own pleadings and Exhibits show that CALI, not the Debtors,

borrowed funds used for the $30 million PDP under an entirely separate Facility Agreement

(Compl. Ex. F) with Export Development Canada (“EDC”) – to which the Debtors were not parties

-- and that CALI, not the Debtors, paid the $30 Million PDP to Bombardier for the manufacture of

Aircraft 9788. The Complaint does not explain how a stranger to the EDC Facility Agreement has

any right under state or Bankruptcy law to grab the PDP.

The Debtors also were not parties to the Bombardier Consent (Compl. Ex. T) which

acknowledges CALI’s ownership of the APA for Aircraft 9788 and which requires Bombardier to

return the $30 Million PDP to EDC if the aircraft is not delivered. The Complaint does not explain

why the clear language of the Bombardier Consent should not be enforced.

No Right to Re-characterize An Invalid Lease

Equally aggravating is the attempt to re-characterize a lease for Aircraft 9788 (Compl. Ex.

M) when the Complaint and Exhibit M clearly show that, by its own terms, the Debtors never held

a valid lease. The Lease Term (defined in Compl. Ex. M, § 3.1) does not begin until delivery of

aircraft. A pre-condition to the Lessor’s obligations to lease the aircraft to Zetta Jet USA was

delivery of the aircraft to the Owner Trust. Yet, the Complaint is clear that Aircraft 9788 was never

manufactured or delivered to the Owner Trust and Zetta Jet USA never held a valid lease to

Aircraft 9788. Simply put, without a valid agreement, there is no lease to re-characterize. The

issue of who owns an undelivered aircraft is moot.



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Also moot is the Complaint’s attempt to re-characterize the APA Assignment for Aircraft

9788 (Compl. Ex. R) as disguised financing. The APA Assignment was not a lease and the

Complaint does not allege it was a lease. Yet, UCC § 1-203 and applicable re-characterization

case law address only “a transaction in the form of a lease.” The Complaint’s claim as to the APA

Assignment fails as a matter of law because the Assignment was not “a transaction in the form of

a lease” subject to re-characterization and, as described above, the Debtors do not have – and never

held -- a valid lease for Aircraft 9788.

No Right to the PDP By A Hypothetical Lien Creditor

The Complaint’s final attempt to grab the $30 million PDP is based on its claim that the

Trustee may assert the rights of a hypothetical lien creditor to the PDP pursuant to Code § 544.

Yet, the Complaint fails to show that, under state law, the $30 million PDP was property of the

Debtors’ estates or that the $30 Million PDP was transferred to Bombardier by the Debtors. To the

contrary, the Complaint and Exhibits show conclusively that CALI, not the Debtors, owned the

$30 million PDP and that CALI, not the Debtors, transferred the PDP to Bombardier. See

Bombardier Consent, Compl. Ex. T. Thus, the Complaint fails to satisfy essential elements of

avoidance under Code § 544.

Apparently undeterred, the Complaint seeks to avoid CALI’s “unperfected security

interest” in the $30 million PDP. Yet, the Complaint fails to plead any facts showing that CALI

held, or attempted to take, a security interest in the $30 million PDP. No provision of the

Complaint suggests that CALI – or any other party – held a security interest in the $30 million

PDP. Rather, the only Security Agreement (Compl. Ex. N) described by the Complaint is the

security interest granted by CALI to EDC in all agreements regarding the purchase and financing

of Aircraft 9788. EDC, however, is not a party to the Complaint and the time to join EDC expired

on September 15, 2018.

No Plausible Claim to Re-Characterize the Three Financed Leases

For reasons unrelated to the PDP, the Complaint attempts to re-characterize the three

“Financed Leases” (another euphemism) for Aircraft 9716, 9740 and 9764. Re-characterization

requires an examination of all documents and circumstances relating to the lease. Yet, the



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Complaint does not attempt to describe – or even identify – the agreements which comprise each

“Financed Lease.” In the absence of factual pleadings, the Complaint’s attempt to re-characterize

the three Financed Leases is insufficient to establish a plausible claim.

Instead of pleading facts regarding each of the Financed Leases, the Complaint relies

heavily on an unsigned Term Sheet (Composite Compl. Ex. D) between the Debtors and a non-

defendant third-party -- not CALI. The reliance is misplaced.

To begin with, the Complaint admits that the Term Sheet applies only to the financing

arrangements for Aircraft 9764 and 9788. Compl. ¶ 70. Thus, the Term Sheet, dated November

17, 2016, provides no factual support for re-characteizing leases for Aircraft 9716 and 9740 which

were executed, respectively, on May 24, 2016 and September 16, 2016. See POC for ZJ6000-1

and ZJ6000-2 Trusts.2 And, as discussed above, the Debtors never held a valid lease for Aircraft

9788 so the Term Sheet is irrelevant to a lease for a busted deal that cannot be re-characterized.

The Term Sheet has no probative value regarding the lease for Aircraft 9764 because it is

unsigned, has a number of pre-conditions, by its terms is not legally binding, and would be

superseded by the integration clause in each Aircraft lease. Nor does the Complaint allege that the

terms of the lease for Aircraft 9764 are ambiguous and require extraneous evidence to explain,

outside of the four corners of the leases, the parties’ intent. In fact, the Complaint contains no

factual allegations (and no Exhibits) regarding leases for Aircraft 9764 so the value of the Term

Sheet is impossible to determine.

Without describing the actual “Financed Lease” terms for Aircraft 9764, the Term Sheet is

merely speculative and alone is unable to sustain a plausible re-characterization claim. Moreover,

each of the Financed Leases is governed by English law which does not allow re-characterization

of aircraft leases. Thus, the Complaint’s “disguised financing” claim collapses.

2 The term “POC” refers to the Proofs of Claim filed in this case by the ZJ6000-1 Trust (POC # 163), the ZJ6000-2

Trust (POC # 164), and the ZJ6000-3 Trusts (POC # 166). Attached to each POC is a Head Lease and a Sub-Lease

for Aircraft 9716, 9740 and 9764, respectively. CALI filed proof of claim 162 and 165 in Zetta PTE’s Chapter 7

Case and proof of claim 163 which are attached to the Complaint as Compl. Ex. Y.



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The Preference Claims are Not Plausible

and CALI Holds Complete Defenses to Such Claims

Finally, the Complaint’s preference claims are not plausible. The allegations cannot satisfy

statutory minimum requirements, and the basis for each of CALI’s three defenses – “ordinary

course,” “subsequent new value” and “earmarking” – are evident from the face of the Complaint

and are sufficient to defeat the Trustee’s claims.

Indeed, the Complaint and its Exhibits admit that two of the three lease payments at issue

actually were made on the due date or within a few days thereafter, which constitutes “ordinary

course” under the Debtors’ past business practices and under industry custom, either of which is

sufficient. The Complaint and its Exhibits also make it clear that Debtors continued to use the

leased aircraft without payment both before and for a period of time after the petition date, so any

preference claim is offset by the new value the Debtors received for using the leased aircraft.

The Complaint itself establishes CALI’s “earmarking” defense by alleging that the Debtors

borrowed funds from a shareholder for the specific purpose of paying Debtors’ obligations under

the leases for Aircraft 9716, 9740 and 9764 and that the payments were made to CALI the day

after the shareholder’s loan was funded. The Complaint’s “earmarking” allegations provide a

complete defense to preference claims against CALI.

In deference to the strength of CALI’s preference defenses, the Complaint makes a rather

an unprecedented claim that bankruptcy law does not allow an “unperfected” secured creditor to

rely on such defenses. Yet, no cases nor any provisions of the Bankruptcy Code support the

Trustee’s muddled theory as to why bankruptcy preference defenses are inapplicable to claims

arising out of what he seeks to recharacterize as an unsecured long-term loan. To the contrary,

claims to recover payments made in respect of unsecured loans clearly are subject to applicable

defenses, such as the ordinary course, new value and earmarking defenses, available under Code

§ 547.3

3 The Bankruptcy Code, 11 U.S.C. § 101, et seq., is referred to herein as “Code § ____.”



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II. BACKGROUND

A. The Three Leased Aircraft

Aircraft 9716, 9740 and 9764, were manufactured by Bombardier and then delivered to the

respective Aircraft Trusts that owned and leased each Aircraft. 4 Compl. ¶ 1. After delivery of

each Aircraft, the respective Aircraft Trust leased the Aircraft to TVPX, as trustee and lessee,

pursuant to a Head Lease. Composite Compl. Ex. Y and Trust POCs. TVPX, as trustee and lessee,

through a Sublease, then leased each aircraft to Zetta USA. Composite Compl. Ex. Y and Trust

POCs. Zetta PTE executed guarantees of the lease payments for the benefit of the relevant

Aircraft Trust. Composite Compl. Ex. Y and Trust POCs. Pursuant to § 5.1 of each Head Lease

and § 4.1 of each Sublease, payments were made in arrears and on a quarterly basis. Composite

Compl. Ex. Y and Trust POCs.

B. The Busted Deal For Aircraft 9788

In December 2015, Zetta PTE entered into the Aircraft Purchase Agreement 6000-008186,

(the “APA”) with Bombardier for the purchase of Aircraft 9764 and 9788. Compl. ¶ 4; Compl.

Ex. A. There were five amendments to the APA prior to the CALI Assignment and a sixth

amendment after the APA Assignment that was between Bombardier, Zetta PTE, as original buyer

and CALI, as assignee. Compl. Ex. B, C, E, P, Q, and U. The Fifth Amendment (Compl. Ex. Q)

executed prior to the APA Assignment described an advance payment of $1,450,000 as having

been made by Zetta PTE to Bombardier. Subsequently, in the APA Assignment, on March 31,

2017, Zetta PTE transferred and assigned absolutely all of its rights, title, interests, liabilities and

obligations under the APA to CALI, including without limitation: (i) the advance payment already

made by Zetta PTE as described above in the Fifth Amendment; (ii) its obligation to make all

remaining payments under the APA; (iii) its right to accept delivery of the Aircraft 9788 and to

take title and be names as buyer of the Aircraft; and (iv) any and all rights to compel performance

of the APA. Compl. ¶¶ 6, 51; Compl. Ex. R.

4 That is, Aircraft 9716 was delivered to Aircraft Trust ZJ6000-1, Aircraft 9740 was delivered to Aircraft Trust

ZJ6000-2, and Aircraft 9764 was delivered to Aircraft Trust ZJ6000-3.



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Pursuant to the APA Assignment, Zetta PTE transferred and assigned not only its rights in

the APA but also its obligation to make the pre-delivery payments owed to Bombardier under the

APA, and CALI, as assignee, expressly agreed “to perform all of Assignor’s obligations under the

agreement to the extent not already performed by the Assignor as if it were the original Buyer

under the Agreement.” Compl. Ex. R. This included the $30 Million PDP owed to Bombardier

for Aircraft 9788. Compl. ¶¶ 6, 51.

To that end, in March 2017, as described earlier, CALI borrowed funds from the EDC

pursuant to the EDC Facility Agreement to fund the pre-delivery payments it was obligated to

make to Bombardier for the purchase of Aircraft 9788. Compl. Ex. F. Thereafter, Aircraft 9764

was delivered to Aircraft Trust ZJ6000-3 and was subsequently leased to TVPX, as trustee and

lessee, which in turn subleased it to Zetta USA. ZJ6000-3 POC.

Aircraft 9788 was scheduled for delivery later in 2017 to Aircraft Trust ZJ6000-4, which

was created in anticipation of delivery of the aircraft. Compl. ¶ 38. On March 30, 2017, CALI

paid the $30 Million PDP to Bombardier in respect of Aircraft 9788. CALI also was obligated to

make final payment for the aircraft upon delivery. Compl. ¶¶ 75, 100-104.

On or about March 31, 2017, Bombardier, EDC, CALI and TVPX entered into the

Bombardier Consent, as described earlier, by which the parties agreed that if the $30 Million PDP

paid by CALI to Bombardier in connection with the purchase of Aircraft 9788 had to be refunded

following a default by Bombardier or “for any other reason,” Bombardier would pay that $30

Million PDP over to EDC. Compl. Ex. T. The Bombardier Consent also confirms the parties

agreement to the proposed post-delivery lease for Aircraft 9788, the APA Assignment, a Forward

Purchase Agreement (“FPA”) that would come into effect if for any reason CALI did not perform

its obligation to purchase Aircraft 9788 or the proposed lease was not consummated,5 the Facility

5 The FPA is dated December 23, 2016 and executed by CALI and TVPX, acting as trustee for a British Virgin Islands

subsidiary of Zetta PTE and was therefore under the control of Zetta PTE. Compl. Ex. K. The FPA, which was

executed in anticipation of the delivery of Aircraft 9788, specified CALI’s and TVPX’s respective rights and

obligations as to Aircraft 9788, and is governed by New York law. Compl. ¶ 48(f).



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Agreement,6 and the EDC Security Agreement.7 The Bombardier Consent also provides that EDC

would have the right of approval until repayment of the Facility Agreement, and in the case of a

default under the APA, Bombardier was directed to transfer the $30 Million PDP to the EDC.

Compl. ¶¶ 107.

Before delivery of Aircraft 9788, the Debtors commenced their bankruptcy cases. Compl.

¶ 15. Soon after the Petition Date, Bombardier sought approval from the Bankruptcy Court to

cease manufacturing Aircraft 9788. Compl. ¶ 55, Dkt. 77-79. A November 2017 stipulation

between the Trustee and Bombardier, to which CALI was not a party, was approved by the

Bankruptcy Court. Compl. ¶ 58, Compl. Ex. V, & Dkt. 349.

C. The Preferential Payments.

As noted above, pre-petition the Debtors subleased Aircraft 9716, 9740 and 9764 from

separate trusts that in turn leased those aircraft from trusts set up to benefit CALI. The Debtors

were required to make quarterly lease payments with respect to those subleases. To that end, on

June 28, 2017, the Debtors paid an aggregate of $4,768,654.10 in lease payments (collectively, the

“2017 Lease Payments”) for Aircraft 9716, 9740, 9764 and 9788 (the “Leased Aircraft”). Compl.

¶ 118. Although the Debtors made no further lease payments, Debtors continued to use and earn

revenue from the Leased Aircraft up to and after the commencement of Debtors’ bankruptcy cases

on September 15, 2017 (the “Petition Date”) as well as for several weeks thereafter. In late 2017,

Debtors returned each Leased Aircraft to the respective Aircraft Trust from which it had subleased

such Leased Aircraft, and those trusts in turn returned them to the trusts set up to benefit CALI.

III. PLEADING STANDARDS

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face . . . . If the Court finds that

6 In anticipation of entering into the lease for Aircraft 9788, CALI and EDC entered into the Facility Agreement

pursuant to which the EDC, as lender, provided CALI, as borrower, with the $30 Million PDP. The Facility

Agreement is governed by English law. Compl. ¶ 49; Compl. Ex. O.

7 The EDC Security Agreement is dated December 23, 2016 and executed by CALI and EDC in which CALI granted

EDC a security interest in various aircraft-related documents, including, inter alia, the APA, the APA Assignment,

the FPA, and the Bombardier Consent. Compl. Ex. N. The EDC Security Agreement is governed by New York law

and shows what a security assignment of an aircraft purchase agreement really looks like. Compl. ¶ 48(i).



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the plaintiff did not allege sufficient facts to raise a right to relief above the speculative level and

support a cognizable legal theory, it may dismiss the complaint as a matter of law.” Great Minds

v. Office Depot, Inc., ___ F.3d ___No. 18-55331, 2019, WL 7206433, at *3 (9th Cir. Dec. 27,

2019) (internal citations and quotations omitted). see also Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 545 (2007) (pleadings must contain more than “labels, conclusions and formulaic

recitation[s] of a cause of action’s elements ...”); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

(quoting Twombly, 550 U.S. at 557) (a complaint does not suffice if it “tenders ‘naked assertion[s]’

devoid of ‘further factual enhancement.’ ”). While all factual allegations must be accepted as true,

legal conclusions are set aside. U.S. Commodity Futures Trading Comm’n v. Monex Credit Co.,

931 F.3d 966, 972 (9th Cir. 2019).

Moreover, “[t]he plausibility standard . . . asks for more than a sheer possibility that a

defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a

defendant's liability, it stops short of the line between possibility and plausibility of entitlement to

relief.” Leffridge v. Nationstar Mortg., No. ED CV14-01940 JAK, 2014 WL 12586071, at *2

(C.D. Cal. Dec. 22, 2014) (internal citations and quotations omitted); see also Roberts v. Balasco

(In re Ernie Haire Ford, Inc.), 459 B.R. 824, 835 (Bankr. M.D. Fla. 2011) (“While probability is

not required, a plaintiff must do more than raise a sheer possibility of the defendant's liability. A

complaint must, therefore, contain sufficient factual allegations to nudge the claim for relief from

the realm of conceivable to plausible. Facts that are merely consistent with a defendant's potential

liability are insufficient to accomplish this task.”). A court is not required to accept as true

conclusory allegations which are contradicted by documents referred to in the complaint. Mitan v.

Feeney, 497 F. Supp. 2d, 1113, 1124 (citing Steckman v. Hart Brewing, Inc., 143 F.3d 1293,

1295–96 (9th Cir. 1998)).

It is axiomatic that a claim cannot be plausible when it has no legal basis. Boyd v. First

Franklin Mortg. Loan Trust (In re Boyd), 595 B.R. 402, 405 (Bankr. C.D. Cal. 2018).

Accordingly, dismissal under Federal Rule of Civil Procedure 12(b)(6) “may be based either on

the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable

legal theory. Id. (dismissing claim that failure to extinguish a second mortgage could be



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considered a transfer under bankruptcy laws because “if accepted, [it] would open a bankruptcy

trustee’s avoiding power to almost unlimited ends.”); see also Stanwyck v. Bogen, et al. (In re

Stanwyck), 450 B.R. 181, 189 (Bankr. C.D. Cal. 2011)

Finally, when ruling on a motion to dismiss, courts may consider the exhibits attached to

the complaint. Spy Optic, Inc. v. Alibaba.com, Inc., 163 F. Supp. 3d 755, 763 (C.D. Cal. 2015).

While courts ordinarily do not consider documents outside of the pleadings on a motion to dismiss,

courts allow an exception for documents the authenticity of which is not disputed by the parties

such as official public records, documents central to plaintiffs’ claim, and documents referred to

in the complaint. Lauter v. Anoufrieva, 642 F. Supp. 2d 1060, 1077 (C.D. Cal. 2009)

IV. ARGUMENT

A. COUNT I SHOULD BE DISMISSED8

1. The Complaint Fails to State a Claim for Re-

characterization of All Financed Leases.

The Complaint seeks to re-characterize the three Delivered Finance Leases, that is, the

leases for Aircraft 9716, 9740 and 9764. As the party contending that the Financed Leases are not

what they purport to be, the Trustee has the burden of proof. Hitchin Post Steak Co. v. General

Electric Capital Corp. (In re HP Distribution, LLP), 436 B.R. 679, 682 (Bankr. D. Kan. 2010); In

re Pillowtex, 349 F.3d 711, 716 (3d Cir. 2003) (applying New York law);

When determining whether a lease is a true lease or a security agreement, there is a

rebuttable presumption that a transaction denominated as a lease agreement, is in fact a bona fide

lease, absent compelling factors to the contrary. Mason v. Heller Financial Leasing (In re JII

Liquidating, Inc.), 341 B.R. 256, 259 (Bankr. N.D. Ill. 2006). Accordingly, the party seeking to

re-characterize a lease has the burden of rebutting the presumption that the Lease is a true lease by

proving the elements of I-UCC § 1-204(b) or by establishing that the economic realities of the

transaction created a security agreement. Id; Royal T Energy v. ENGS Commercial Finance Co

(In re Royal T Energy), 596 B.R. 525, 530 (Bankr. E.D. Texas 2019).

8 Count II is directed against Bombardier but seeks termination of the APA for which CALI is the rightful and

absolute Buyer. CALI adopts the Motion to Dismiss Count II to be filed by Bombardier.



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California law applies UCC § 1–203, the relevant portions of which have been adopted

without amendment in California. See Cal. Com. Code § 1203. Although the UCC directs courts

to examine the “facts of each case,” it “does not provide any standard for determining which facts

are relevant or how relevant facts should be weighed in the final determination.” WorldCom Inc.

v. General Electric Global Asset Management Services (In re WorldCom, Inc), 339 B.R. 56, 71

(Bankr. S.D.N.Y. 2006) (applying California law). In addition, UCC § 1–203(c) enumerates six

factors which, if present, do not create a security interest “merely because” of their presence. The

Complaint’s must, but does not, identify and describe which “Delivered Finance Leases” it is

seeking to re-characterize. The failure to do so justifies dismissal.

a. The Invalid Lease for Aircraft 9788

Cannot Be Re-Characterized

The “lease” for Aircraft 9788 (Compl. Ex. M) cannot be re-characterized because the

aircraft was never delivered to the lessor and Zetta Jet never held a valid lease. The Complaint

leaves no doubt that Aircraft 9788 was never delivered by Bombardier (Compl. ¶ 2; Compl. Ex.

V) and the lease agreement makes clear that the “Lease Term” (defined in Compl. Ex. M, § 3.1)

did not begin until delivery of aircraft.

Further, the lease provides that “Lessor's obligation to deliver and lease the Aircraft to

Lessee hereunder shall be subject to the satisfaction of the following conditions precedent on or

before the Delivery: (b) Owner shall have acquired title to the Aircraft from the Airframe

Manufacturer as seller;” (Compl. Ex. M, Schedule 3, § 1). Thus, a pre-condition to the Lessor’s

obligations to lease the aircraft to Zetta Jet USA was delivery of the aircraft to the Owner, defined

as the Head Lessor which is ZJ6000-4 Trust. Comp. Ex. M Schedule 2. The Complaint is clear

that Aircraft 9788 was never manufactured or delivered to the Owner and Zetta Jet USA never

held a valid lease to Aircraft 9788.

UCC § 1-203 and applicable case law provide for re-characterization only of “a transaction

in the form of a lease.” Here, the question whether the “lease” for Aircraft 9788 is a true lease or

a disguised financing is moot because without a valid agreement there is nothing to re-characterize.



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b. The Complaint Fails to Plead A Plausible Claim

to Re-Characterize the Three Financed Leases

The Complaint ignores its burden to plead facts showing that the re-characterization claim

is plausible and provides absolutely no information on the Financed Leases for Aircraft 9716, 9740

and 9764. We are not even told what “Financed Leases” the Complaint wants to re-characterize.

It is impossible to weigh, review and consider re-consideration factors when the Complaint fails

to identify the underlying agreements.

Instead of pleading facts regarding the Finance Leases, the Complaint offers only an

unsigned Term Sheet, dated November 17, 2016, between AVIC and Zetta Jet PTE to support its

re-structuring claims. Compl. Ex. D. Yet, the Complaint admits that the Term Sheet applies only

to the financing arrangements for Aircraft 9764 and 9788. Compl. ¶ 70. Thus, the Term Sheet,

dated November 17, 2016, provides no factual support for re-characteizing any leases for Aircraft

9716 and 9740 which were executed, respectively, on May 24, 2016 and September 16, 2016.

The Term Sheet is irrelevant as to Aircraft 9788 because, as discussed above, no lease

exists for that aircraft. As to the lease for Aircraft 9764, the Term Sheet is insufficient to establish

a plausible claim for re-characterization because:

o The Term Sheet attached to the Complaint (Compl. Ex. D) is unsigned;

o AVIC International Leasing Co., Ltd., not CALI, is the party to the Term Sheet

and there are no factual allegations to show that the Term Sheet was negotiated

for the benefit of CALI;

o AVIC, which signed the Term Sheet, is not a party to this Complaint;

o The Term Sheet is non-binding letter of intent which may or may not have been

accepted, amended or superseded and is not relevant in light of integration clauses

in subsequent agreements;

o The Term Sheet cannot substitute for Aircraft 9764 Leasing Transaction

documents that are neither described nor identified; and

o The Term Sheet in any case is governed by English law, which does not permit

the re-characterization of agreements such as the Aircraft Leases at issue here.

Without factual allegations regarding which Leasing Transactions for Aircraft 9716, 9740,

and 9762, the Complaint is attempting to re-characterize, its claim cannot satisfy the plausibility



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requirement of Iqbal and Twombly. As such, the Trustee’s attempt to re-characterize the Aircraft

Leases should be dismissed outright.

2. English Law Does Not Permit Re-Characterization

The Complaint is premised on the false assumption that U.S. law regarding re-

characterization of contracts will be applied to the Aircraft Leases. Yet, all of the Aircraft Leases,

and many of the key Financed Transaction agreements, are governed by English law, which does

not permit re-characterization of leases.

Here, each of the Head Leases and Subleases for the Aircraft Leases have identical choice

of law provisions which broadly provide “This Agreement and any non-contractual obligations

arising from or in connection with it shall in all respects be governed by, and construed in

accordance with English Law.” Head Leases, § 32.1.9

That English law applies is well established. See LT Leasing, Inc. v. NHA Hamburger

Assekuranz-Agentur GmbH, 2015 WL 1622846 (E.D.Cal. 2015) (acknowledging that English law

must govern the parties’ insurance contract dispute as a result of the parties English choice of law

clause); Hatfield v. Halifax PLC, 564 F.3d 1177, 1183 (C.D.Cal. 2009) (holding that a California

court would enforce English choice of law provision); Pannell Kerr Forster Intern. Ass’n Ltd. V.

Quek, 5 Fed. Appx. 574, 2001 WL 180646 (9th Cir. 2001) (holding claims under license agreement

would be governed by and construed in accordance with English law based on parties’ choice of

law provision); Richards v. Lloyd’s of London, 135 F.3d 1289 (9th Cir. 1998) (holding district

court did not err in enforcing parties’ choice of law provision and applying English law).

The parties selected English law to govern all of the Aircraft Head Leases, all of the

Aircraft Subleases and a majority of key agreements including: the Facility Agreement between

EDC and CALI (Compl. Ex. F); the Facility Agreement between EDC and ZJ6000-4 Trust in

respect of Aircraft 9788 (Compl. Ex. O); the Head Lease between the ZJ6000-4 Trust and TVPX

(Compl. Ex. I); the Sublease between TVPX and Zetta USA (Compl. Ex. M); the Head Lease

Guaranty between the ZJ6000-4 Trust and the Debtors in respect of Aircraft 9788 (Compl. Ex. J);

9 Each Sublease contains the same provision regarding English law as the governing law in § 29.1. The Subleases

for Aircraft 9716, 9740 and 9764 are attached to the ZJ 1 POC, ZJ 2 POC, and ZJ 3 POC.



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and the FPA Guaranty between CALI and the Debtors in respect of the FPA (Compl. Ex. K). and

other related agreements.

“Under English law, there is no risk of recharacterization of an aircraft lease as a security

agreement.” See Thomas A. Zimmer & Neil Poland, Aircraft Operating Leases – New York Law

or English Law?, Aviation Finance and Leasing (https://www.vedderprice.com/-

/media/files/vedder-thinking/publications/2018/08/afl2018aircraft-operating-leases.pdf (last

accessed on Dec. 11, 2019) (“If an instrument is structured as a lease, a lessor may exercise its

rights against the lessee regardless of the economic substance of the transaction”).

“[T]he prevailing laws of England and the law of the States diverge on whether an owner

retains title and ownership in property that is the subject of a [lease] agreement.” HFGL Ltd. &

CNH Capital Europe Ltd. v. Alex Lyon & Son Sales Managers & Auctioneers, Inc., 700 F. Supp.

2d 681, 688 (D. N.J. 2010) (denying motions for summary judgment in light of the multiple

disputed material issues of fact).

In English law, there is a clear, formalistic distinction between a sale and a hire purchase

or lease. See Gerald McCormack, Secured Credit Under English and American Law 52–53 (2004).

Under English law, a hire purchase agreement is viewed as a “lease with an option to purchase

provided at the end of the term of the lease.” Unless the option is exercised, the lessor retains

ownership of the goods.

HFGL Ltd. & CNH Capital Europe Ltd., 700 F.Supp. at 688 (citations to expert report

omitted). The formal approach [to which the United Kingdom adheres] is one which sharply

distinguishes the grant of security from the retention of title under conditional sale, hire-purchase

and leasing agreements, on the basis that the buyer, hirer or lessee has merely a possessory interest,

subject to which the seller, owner or lessor continues to enjoy absolute ownership by virtue of the

agreement between the parties.

Goode, R. and Gullifer, L. (2017), Goode and Gullifer on Legal Problems of Credit and

Security (6th Ed.), London, Sweet & Maxwell, at ¶ 1-04.

Under English law, the lease may not be re-characterized and the lessor retains ownership

until and unless the lessee exercises an option. Applying English law to the Aircraft Leases,



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absolute ownership of each aircraft remained with the Aircraft Trusts until and unless the option

was exercised, which did not happen. Under the circumstances, Aircraft 9716, 9740 and 9764 were

owned by the respective Aircraft Trusts and Count I must be dismissed as a matter of law.

For Aircraft 9788, Zetta Jet USA did not hold a valid lease because Bombardier never

manufactured and delivered that aircraft to the Owner, ZJ6000-4 Trust. Thus, for that aircraft there

was no Sublease from TVPX to the Debtors which might be re-characterized as a disguised

financing.10 Without a Sublease for Aircraft 9788, the Trustee’s claim under Count I entirely

collapses as a matter of law.

B. COUNTS III, IV, V AND VI11 SHOULD BE DISMISSED

1. The Complaint Fails to State a Claim that the PDP

is Property of the Estate.

The Trustee’s claim to the PDP also must be dismissed because it fails to allege sufficient

facts to show that the Trustee holds a plausible claim to the $30 Million PDP under non-bankruptcy

law. Setting aside, for now, the issue of whether the Trustee may avoid, pursuant to Code § 544(a),

CALI’s alleged unperfected security interest in the $30 Million PDP, the Complaint also must

show that the a hypothetical judicial lien creditor holds a plausible claim to assert a lien on the $30

Million PDP. Nothing in the Complaint “connects the dots” to show that a judicial lien creditor

has any such right, because the $30 Million PDP never belonged to Debtors.

2. The Complaint Fails to Show A Lien Creditor’s

Plausible Right to the PDP Under State Law

A Trustee’s rights in the debtor’s property during bankruptcy are no greater than the

debtor’s rights outside of bankruptcy. See Mission Product Holdings Inc. v. Tempnology LLC (In

re Tempnology), __ U.S. __, 139 S.Ct. 1652, 1663 (2019) (“As one bankruptcy scholar has

put the point: Whatever “limitation[s] on the debtor’s property [apply] outside of

10 If TVPX is not joined in this case it cannot defend its interests as Aircraft Lessor and the Complaint’s effort to re-

characterize such leases. See Fed.R.Civ.P. 19; E.E.O.C. v. Peabody Western Coal Co., 610 F.3d 1070, 1082 (9th

Cir. 2010) (“We have repeatedly held that ‘[n]o procedural principle is more deeply imbedded in the common law

than that, in an action to set aside a lease or a contract, all parties who may be affected by the determination of the

action are indispensable.’ (citing Lomayaktewa v. Hathaway, 520 F.2d 1324, 1325 (9th Cir. 1975)). 11 Count VI is directed against Bombardier but seeks turnover of the PDP to which CALI is absolutely entitled.

CALI coopts the Motion to Dismiss Count VI to be filed by Bombardier.



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bankruptcy[ ] appl[y] inside of bankruptcy as well. A debtor’s property does not shrink by

happenstance of bankruptcy, but it does not expand, either.” D. Baird, Elements of

Bankruptcy 97 (6th ed. 2014)”). Indeed, “[t]he estate cannot possess anything more than

the debtor itself did outside bankruptcy.” Id. See also Long Term Disability Plan Hoffman-

La Roche, Inc. v. Hiler (In re Hiler), 99 B.R. 238, 244 (Bankr. D. N.J. 1989) (“the estate

can have no greater right in property than the debtor had.”).12

In relevant part, Bankruptcy Code § 544(a) provides:

“[t]he trustee . . ., as of the commencement of the case, . . . may avoid any transfer of property of the debtor . . . that is voidable by . . . a creditor that . . . obtains . . . a judicial lien on all property on which a creditor on a simple contract could have obtained a judicial lien, whether or not such a creditor exists.

The effect of avoiding CALI’s alleged security interest under Code § 544(a)(1) is to put

the trustee “in the position of an ideal lien creditor, armed with a judgment and with all the power

that state law confers on such ideal creditors.” Musso v. Ostashko, 468 F.3d 99, 104 (2d Cir.

2006). However, “[w]hether the debtor has a legal or equitable interest in property such that it

becomes ‘property of the estate’ under [Code § 541] is determined by applicable state law.” Id. at

105.

The Complaint must plead a plausible claim under state law because “state law is used to

determine what the lien creditor's priorities and rights are.” Robinson, 819 F.2d at 22-23; See Ford

v. Fed. Home Loan Mortg. Corp., (In re Bishop), Case No. 09-1034-MWV, 2009 WL 2231197,

at *2 (Bankr. D. N.H. July 24, 2009) (“To assert a cause of action pursuant to [Code] § 544(a)(1)

. . ., the Plaintiff must provide adequate grounds for an inference that a transfer of property of the

debtor is avoidable by a hypothetical lien creditor . . .”); see also Robinson v. Howard Bank (In

12 Bankruptcy courts are courts of equity, charged with promoting justice and do not sit to confer a windfall. See Fisher

v. City of Huntington Beach (In re The Huntington Ltd.), 654 F.2d 578, 585 (9th Cir. 1981) (bankruptcy court

appropriately weighed the equities and refused to enforce a lease termination provision where doing so would provide

party with “an unconscionable windfall.”) See also Pepper v. Litton, 308 U.S. 295 (1939) (“[T]his Court has held that

for many purposes, ‘courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings

in equity.’” (Quoting Local Loan Co. v. Hunt, 292 U.S. 234, 240 (1934)).



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re Kors, Inc.), 819 F.2d 19, 22 (2d Cir. 1987) (The Trustee can only “avoid unperfected liens on

property belonging to the bankruptcy estate.” (emphasis added)).

It is axiomatic that the Complaint must allege facts showing that (i) Zetta PTE had a legal

or equitable interest in the $30 Million PDP on the petition date, September 15, 2017; and (ii) a

creditor holding a judgment lien under applicable state law would be able to attach the debtor’s

rights in and to the $30 Million PDP.13 The Complaint, however, contains no such facts.

The Trustee’s claim to the PDP rests entirely on the theory that, upon termination of the

December 10, 2015 APA, the “Buyer” is entitled to a return of “all advanced payments” received

by Bombardier for the undelivered Aircraft 9788. Compl. ¶ 4. The APA was assigned to CALI

on March 31, 2017 (Compl. ¶ 51; Compl. Ex. R) and, as Buyer, CALI was a party to:

o The Facility Agreement with EDC (Compl. ¶ 48(a); Compl. Ex. F);

o The grant of security interests to EDC in the APA as well as other Aircraft 9788 Leasing Transaction Agreements (Compl. ¶ 48(i); Compl. Ex. N);

o The ZJ6000-4 Trust Agreements (Compl. ¶¶ 48(c); Compl. Ex. H);

o The Bombardier Consent, as Buyer (Compl. ¶ 53; Compl. Ex. T);

o The Head Lease between the ZJ6000-4 Trust and TVPX (Compl. ¶ 48(d); Compl. Ex. I); and

o The FPA Guaranty between CALI and the Debtors in respect of the FPA (Compl. ¶ 48(f); Compl. Ex. K). and other related agreements.

All of these agreements were executed by CALI as Buyer of Aircraft 9788, and as the

Buyer, CALI was directly obligated, as borrower, to repay the $30 million loan to EDC which

CALI incurred on a recourse basis to fund the $30 million PDP. The Debtors were not parties to

any of these agreements. Pursuant to the plain language of the APA Assignment, CALI became

the buyer of Aircraft 9788 and all parties looked to CALI, not the Debtors, to perform the

obligations of the Buyer until delivery of the aircraft. This structure is used in the Airline Industry

to allow an airline to lease up to date aircraft at an affordable cost. At no time did the Debtors

borrow, hold, transfer or have a legal claim to the $30 Million PDP.

13 The Complaint makes no factual allegations regarding the rights of a judicial lien holder under New York or

California law nor does it connect-the-dots to show how a judicial lien holder has a claim against the entire $30

million PDP.



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The Trustee’s unprecedented claim is that he may “avoid” the APA Assignment to CALI

as a disguised security interest and then step into CALI’s right to recover the PDP. There are a

number of flaws to this theory.

First, the APA Assignment, by itself, was not a lease which can be “avoided” as a disguised

financing.14 The APA Assignment was a transfer by the Debtor of its obligation to acquire Aircraft

9788 and to shed the associated obligation to pay for that aircraft, and an acquisition by CALI of

the obligation to purchase the aircraft and to pay for it. The Complaint states no theory under

which that transaction can be re-characterized, avoided or otherwise impacted.

Second, the PDP Facility Agreement with EDC was separate and distinct from the proposed

purchase, lease and sublease of Aircraft 9788. The Debtors were not parties to most of the

operative documents relating to the construction, financing, acquisition and delivery of Aircraft

9788 and, thus, the Debtors are without standing to challenge those transactions. In addition, there

is no basis under state law for re-characterizing transactions between non-debtors.

Third, the proposed purchase, lease and sublease of Aircraft 9788 was a busted deal - the

aircraft never was manufactured by Bombardier, delivered to the relevant Aircraft Trust, leased to

sublessor Trust or subleased to the Debtors. See Compl. ¶ 61. There is no precedent under state

law for re-characterizing a non-existent lease.

Fourth, the right of an estate to “property” is defined by state law. See Travelers Cas. &

Surety Co. v. Pacific Gas & Elec. Co., 549 U.S. 443, 449–455, (2007) (“Indeed, we have long

recognized that the ‘‘basic federal rule in bankruptcy is that state law governs the substance of

claims,’ [. . . ] Congress having ‘generally left the determination of property rights in the assets of

a bankrupt’s estate to state law.’’” (quoting Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20

(2000) (quoting Butner v. United States, 440 U.S. 48, 54, 57 (1979)))).

The Complaint provides no facts from which a plausible state law claim to the entire $30

PDP can be inferred. When Zetta Jet PTE assigned the APA to CALI, CALI took on the obligation

to pay Aircraft 9788. As a result, CALI, not Debtors, was the party to borrow the money to fund

14 As a matter of law, the Complaint misconstrues § 4 of the APA Assignment, which, on its face, is an exception to

§ 10.1 of the APA and is not evidence that the APA Assignment was a security agreement. See Compl. ¶ 110.



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the PDP. Therefore, it didn’t. Instead, CALI paid $30 million that it borrowed from EDC to

Bombardier. Neither Debtor borrowed that money, paid that money—indeed touched that money.

There is no theory under which the Trustee has any right to the $30 million PDP in which the

Debtors never had an interest.

Fifth, even if the Trustee were to “step into the shoes” of CALI, his claim to the $30 Million

PDP is belied by the plain language of the Bombardier Consent which provides that, in case of

default by Bombardier “or for any other reason” the $30 Million PDP shall be paid to EDC, not to

the buyer under the APA, be it CALI or Debtors. Compl. Ex. T. Under New York law, discussed

in the next section, a court must enforce the plain meaning of an agreement.

3. New York Law Requires That Agreements Be

Enforced Pursuant to Their Plain Meaning.

The Bombardier Consent and the APA Assignment are governed by and construed in

accordance with the laws of the State of New York. Compl. Ex. R, T, ¶ 18. Under New York law,

“[i]t is well settled that a contract is to be construed in accordance with the parties' intent, which

is generally discerned from the four corners of the document itself.” MHR Capital Partners, 12

N.Y.3d 640, 645 (2009). “Consequently, ‘a written agreement that is complete, clear and

unambiguous on its face must be enforced according to the plain meaning of its terms’ . . . .” Id.

(citing Greenfield, 98 N.Y.2d 562, 569 (2002)) (MHR was an appeal of a motion to dismiss).

“Ambiguity in a contract arises when the contract, read as a whole, fails to disclose its purpose and

the parties' intent, or when specific language is susceptible of two reasonable interpretations.”

Ellington, 24 N.Y.3d 239, 244 (2014) (internal quotations and citations removed). “Whether a

contract is ambiguous is ‘an issue of law for the courts to decide’ . . . .” Legum v. Russo, 133

A.D.3d 638, 640 (2015) (citing Greenfield v Philles Records, 98 N.Y. 2d 562, 569(2002)).

Pursuant to the Bombardier Consent, Bombardier agreed that upon receiving the requisite

notice from EDC, it would directly pay the $30 Million PDP to EDC if it was required to do so for

any reason. Further, EDC agreed that that in exercising any rights under APA, or in making any

claim with respect to the assigned rights, “the terms and conditions of [APA] (including, but not



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limited to, Article 4) will apply to and be binding on [the EDC] to the same extent as if [the EDC]

had been the original ‘Buyer’ thereunder.” Compl., Ex. T, ¶ 7.

Significantly, Zetta Jet PTE was not a signatory to the Bombardier Consent and

acknowledges APA Assignment was an absolute assignment. If the APA Assignment was

anything other than an absolute assignment, Bombardier and the EDC would have required Zetta

PTE to sign the Bombardier Consent given Zetta PTE’s possible residual rights in and to the $30

Million PDP. However, Zetta PTE’s approval was not necessary because the terms of the APA

Assignment and Bombardier Consent were clear, as was the parties’ intent reflected therein – it

was EDC, not Zetta PTE, that was to receive the $30 Million PDP in case of default by Bombardier

or “for any other reason.”

As such, the “Buyer’s” right to the return of the $30 Million PDP in the APA is superseded

by the specific language of the Bombardier Consent and confirms the absolute assignment

provided by the APA Assignment. The clear and unambiguous language of the Bombardier

Consent defeats any claim the Trustee asserts to recover the $30 Million PDP. Even assuming that

Debtors could substitute themselves for CALI as a party to the Bombardier Consent, this would

not change the clear direction in the Bombardier Consent that the $30 Million PDP be paid over

to CALI as subrogee for EDC.

C. COUNT VII SHOULD BE DISMISSED

1. The Complaint Fails To Establish a Plausible Claim

for Avoidance and Recovery of a Preference

To survive a motion to dismiss, courts require that a preference complaint must allege more

than just the statutory elements of a preference, but must also include: "(a) an identification of the

nature and amount of each antecedent debt and (b) an identification of each alleged preference

transfer by (i) date [of the transfer], (ii) name of debtor/transferor, (iii) name of transferee and (iv)

the amount of the transfer." Valley Media Inc. v. Borders, Inc. (In re Valley Media, Inc.), 288 B.R.

189, 192 (Bankr. D. Del. 2003) (emphasis added) (relying on Kubick v. FDIC (In re Kubick), 171

B.R. 658, 660 (9th Cir. BAP 1994)); In re Doorman Prop. Maint., No. 15-30912 DM, 2017 WL



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90332, at *3 (Bankr. N.D. Cal. Jan. 10, 2017) (dismissing preference claim where complaint failed

sufficiently to describe the existence of an antecedent debt).

Here the Complaint wholly fails to provide information about the “nature and amount of

each antecedent debt” owed to CALI and thus fails to state a claim. Although the Complaint

contains information regarding each alleged preferential transfer, nowhere does the Complaint

explain the nature of the debt on account of which the transfers were made. Moreover, although

the Complaint states that the Debtors paid invoices to CALI, the Trustee neither states the amounts

due under each invoice, nor attaches the relevant invoices to the Complaint. The Complaint simply

fails to allege the necessary facts and accordingly, the Trustee’s preference claims fail.

2. CALI’s Preference Defenses Are Valid Regardless of Its Status

as A Lessor, A Long-Term or A Short-Term Lender.

The Complaint suggests that CALI is not entitled to assert preference defenses if this Court

finds that the leases were “financings” and not true leases. Nonsense. CALI is entitled to

preference defenses whether agreements are true leases or financings.

In 1991, the Supreme Court found that the ordinary course of business defense was

available to both long-term and short-term debt creditors, noting that Code § 547(c)(2) made “no

distinction between short-term and long-term debt . . . .” Union Bank v. Wolas, 502 U.S. 151,

162 (1991). In fact, the Wolas Court recognized that allowing long-term creditors to benefit from

the ordinary course defense “does further the policy of deterring the race to the courthouse and, as

the House Report recognized, may indirectly further the goal of equal distribution as well.” Id. In

his one paragraph concurrence, Justice Scalia tersely commented that “[i]t is regrettable that we

have a legal culture in which such arguments have to be addressed (and are indeed credited by [the

Ninth] Court of Appeals), with respect to a statute utterly devoid of language that could remotely

be thought to distinguish between long-term and short-term debt.” Id. at 163.

Later, in 2018, the Eleventh Circuit Court of Appeals was confronted with the issue of

whether “new value” must remain unpaid for the creditor to benefit from the defense. See Kaye v.

Blue Bell Creameries, Inc. (In re BFW Liquidation, LLC), 899 F.3d 1178, 1189 (11th Cir. 2018).



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The Blue Bell Court found “common ground with the Fourth, Fifth, Eighth, and Ninth Circuits”

when it held that “new value” need not remain unpaid for a creditor to use such defense. Id.

And although not integral to the court’s holding, the trustee in the Blue Bell case argued

that “requiring new value to remain unpaid is necessary to ensure that short-term creditors like

Blue Bell are treated the same as longer-term creditors whom the debtor did not repay during the

preference period.” Id. at 1195. The court disagreed with the “suggestion that longer-term

creditors will necessarily be worse off in the absence of a requirement that new value remain

unpaid,” instead noting that “by encouraging creditors to continue extending credit to financially

troubled debtors, [Code] § 547(c)(4) has the potential to help such debtors avoid bankruptcy

altogether, an outcome that longer-term creditors would almost certainly choose.” Id. at 1196.

The court’s acknowledgement of the trustee’s argument is important, not because of how

the court ruled, but simply because the court addressed it in the first place. If the new value defense

was not available to long-term creditors, the court could have avoided the trustee’s argument

altogether, or could have stated that it was irrelevant because the new value defense did not apply

to long-term creditors. It did neither.



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3. The Court may Consider CALI’s “Ordinary

Course” and “New Value” Defenses in a Motion to

Dismiss

It is “well-established . . . that a complaint may be subject to dismissal under Rule 12(b)(6)

when an affirmative defense appears on its face and presents an ‘insuperable barrier to recovery

by the plaintiff.’” Waslow v. Grant Thornton LLP (In re Jack Greenberg, Inc.), 212 B.R. 76, 84

(Bankr. E.D. Pa. 1997) (citation omitted) (rejecting trustee's argument that an affirmative defense

is not properly considered on a motion to dismiss); see also Gellert v. Coltec Indus., Inc., (In re

Crucible Materials Corp.), No. 11-53884, 2012 WL 5360945 (Bankr. Del. 2012) (holding that

allegations in a complaint may conclusively establish that payments were made in the ordinary

course of business); see also Flight Sys. v. Elect. Data Sys. Corp., 112 F.3d 124, 127 (3d Cir.

1997); Burtch v. Revchem Composites, Inc. (In re Sierra Concrete Design, Inc.), 463 B.R. 302,

306 (Bankr. D. Del. 2012).

The Trustee’s Complaint specifically identifies each of the 2017 Lease Payments,

including the amount and the date on which they were made, and that the payments were made

pursuant to the Aircraft Leases. The record in this bankruptcy case also establishes that, as a result

of the Debtors’ continued use of the Aircraft, CALI advanced new value to the Debtors in excess

of the amount of the 2017 Lease Payments. Such advances were unsecured, and the Debtors did

not make payment for the new value. Thus, the allegations of the Complaint and the record in this

bankruptcy case are sufficient to establish, as a matter of law, that (1) the majority of the 2017

Lease Payments were made in the ordinary course of business, and (2) that CALI provided

subsequent new value to the Debtors in excess of the 2017 Lease Payments.



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4. The “Ordinary Course” Defense Shelters CALI

From Liability for the 2017 Lease Payments

The 2017 Lease Payments for Aircraft 9740 and 9764, totaling $3,119,809.99, were made

either on or within a few days of the scheduled lease payment date, which, conclusively establishes

that they were made in the “ordinary course of business.”

The U.S. Supreme Court, as well as California bankruptcy courts, recognize that the

“ordinary course” defense should be construed broadly because it “furthers the policy of

preventing ‘dismember[ment] of the debtor during his slide into bankruptcy,’ by enabling . . .

‘the struggling debtor to continue operating its business.’” McGranahan v. Harris Woolf Cal.

Almonds (In re Cent. Valley Processing, Inc.), No. 05-ap-1072, 2007 WL 2119002, at *3 (Bankr.

E.D. Cal. July 19, 2007) (quoting Schoenmann v. BCCI Constr. Co. (In re NorthPoint Commc’ns

Grp., Inc.) 361 B.R. 149, 156 (Bankr. N.D. Cal. 2007) quoting Union Bank v. Wolas, 502 U.S.

at 151, 161 (1991)).

Moreover, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act amended

Code § 547(c)(2) by replacing the conjunction “and” with “or” which makes “the second and third

parts of the ‘ordinary course of business’ inquiry disjunctive. . . . the defense can [now] be

established by a showing that the disputed transfer of property was consistent with either the

“Subjective Test” or the “Objective Test”. Congress thus chose to increase the protection of

payments to creditors who provide goods and services to financially distressed debtors.” In re

Cent. Valley Processing, Inc., 2007 WL 2119002 at *3 n.4.

As to the Objective Test, the Ninth Circuit has stated that although “‘the court must look

to those terms employed by similarly situated debtors and creditors facing the same or similar

problems,’ creditors are not required to prove a particular uniform set of business terms, rather,

‘ordinary business terms’ refers to the broad range of terms that encompasses the practices

employed by those debtors and creditors, including terms that are ordinary for those under financial

distress.” Ganis Credit Corp. v. Anderson (In re Jan Weilert RV, Inc.), 315 F.3d 1192, 1198 (9th

Cir. 2003) (quoting Arrow Elec., Inc. v. Justus (In re Kaypro), 218 F.3d 1070, 1074 (9th Cir.

2000)).



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Under the Objective Test, based on the allegations in the Complaint, there is no question

that the quarterly lease payments for Aircraft 9740 and 9764 were according to contract terms in

the ordinary course of business. Thus, $3,119,809.99 of the $4,768,654.10 2017 Lease Payments

are not recoverable by the Trustee as a matter of law.

But even if this Court examines the 2017 Lease Payments for Aircraft 9740 and 9764 under

the Subjective Test, the Trustee’s claims to recover these payments still fail as a matter of law.

“[A]mong the factors courts consider in determining whether transfers are ordinary in relation to

past practices are: (1) the length of time the parties were engaged in the transactions at issue; (2)

whether the amount or form of tender differed from past practices; (3) whether the debtor or

creditor engaged in any unusual collection or payment activity; and, (4) whether the creditor took

advantage of the debtor's deteriorating financial condition.” In re Grand Chevrolet, 25 F.3d 728,

732 (9th Cir. 1994).

The Trustee relies on a single factor – unusual collection or payment activity – to challenge

CALI’s “ordinary course” defense. However, the allegations in the Complaint do not establish

that there was any “unusual collection or payment activity” as a matter of law. To meet such a

threshold, the Trustee must allege that CALI engaged in some proscribed practice such as evidence

of work stoppage or legal action. See In re Cent. Valley Processing, Inc., 2007 WL 2119002 at

*6.

Here, there is no allegation that the 2017 Lease Payments resulted from such proscribed

practices. Specifically, the two emails that form the basis of the Trustee’s claims do no more than

discuss issuing a default notice. See Compl., ¶115. Further, despite Zetta PTE’s financial

instability – which included missing a payment due August 24, 2017 for Aircraft 9716 – the

Trustee does not, because he cannot, allege that the Aircraft Trusts prevented Debtors from

continuing to use the Leased Aircraft during the period up to and after the Petition Date. Therefore,

there was no “unusual collection activity” and CALI’s “ordinary course” defense prevails as a

matter of law.



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5. The “Subsequent New Value” Defense Shelters CALI From

Liability for the 2017 Lease Payments

The “subsequent new value” defense available pursuant to Code § 547(c)(4) provides

CALI with a separate, fully effective defense to the Trustee’s preference claims. The “subsequent

new value” defense has two interrelated purposes, first, “to encourage trade creditors to continue

dealing with troubled businesses, and second, . . . . to treat fairly a creditor who has replenished

the estate after having received a preference.” PMC Mktg. Corp. v. PDCM Assoc. (In re PMC

Mktg. Corp.), 518 B.R. 150, 157 (BAP 1st Cir. 2014); Wahoski v. Am. & Efrid, Inc. (In re

Pillowtex Corp.), 416 B.R. 123, 130 (Bankr. D. Del. 2009) (citing N.Y.C. Shoes, Inc. v. Bentley

Int’l, Inc. (In re N.Y.C. Shoes, Inc.), 880 F.2d 679, 680–81 (3d Cir. 1989)).

Code § 547(c)(4) allows a preference defendant to offset an avoidable transfer by the

amount of “new value” extended to the debtor subsequent to the transfer. In order to establish this

defense, CALI must show that: (a) it advanced new value to the debtor after the preferential

transfer; (b) the advance was unsecured; and (c) it did not receive payment for the new value,

which could not be recovered by the Debtor. See Mosier v. Ever-Fresh Food Co. (In re IRFM,

Inc.), 52 F.3d 228, 231 (9th Cir. 1995).

New value is created where a debtor lessee, like Zetta USA, retains possession and use of

the leased property. See In re PMC Mktg. Corp., 518 B.R. at 158; Brown v. Morton, 201 B.R.

563, 567 (Bankr. W.D. Wash. 1999) (“Hence by permitting the debtor to remain in possession

without paying rent, the landlord extends value that did not exist at the time the lease was

executed”).

The Complaint and the record in the Debtors’ bankruptcy case establish the applicability

of Code § 547(c)(4) as a matter of law. There is no dispute that the Debtors remained in possession

of and continued to operate and use Aircraft 9716, 9740, and 9764 to generate revenue. Debtors

made (i) no payments after June 28, 2017, (ii) experienced serious liquidity issues and (iii) missed

a payment due on August 24, 2017 to ZJ6000-1 Trust. Yet, the ZJ6000 1, 2 & 3 Trusts continued

to allow the Debtors to use Aircraft 9716, 9740, and 9764 up to and after the Debtors’ bankruptcy

filing on the Petition Date.. So too, lease payments were made in arrears, so the 2017 Lease



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Payments made by Zetta PTE were not a pre-payment for the Debtors’ use of the Leased Aircraft

during July, August and September.

The amount of “new value” extended by CALI is not in dispute based on the schedule of

pre-petition quarterly payments due or accrued, but not made. The unpaid lease payments for the

Leased Aircraft were as follows:

o New value of $1,899,215.45 for Aircraft 9716, based on unpaid quarterly payment of $1,533,359.99 due August 24, 2017, plus a portion of the next quarterly payment ($1,529,941.73) accruing prior to the Petition Date was $365,855.46.

o New value $1,447,580 for Aircraft 9740, based on a portion of the next quarterly payment of $1,556,793.36 accruing prior to the Petition Date.

o New value $1,291,087.34 for Aircraft 9764, based on a portion of the next quarterly payment of $1,503,544.75, accruing prior to the Petition Date.

This “new value” of $4,637,882.79 is far in excess of the $1,519,806.61 paid to CALI for

Aircraft 9716 and is approximately the amount of all transfers to CALI within the 90-day

preference period. Accordingly, based on the foregoing, CALI has no exposure in connection with

the 2017 Lease Payments as a matter of law, and the Trustee’s claims must be dismissed.

6. The “Earmarking Doctrine” Dictates That the 2017 Lease

Payments were Not an Avoidable Transfer of the Debtors’

Property

The “earmarking doctrine” prevents avoidance of otherwise preferential payments where

a lender has made a loan to the debtor for the specific purpose of paying a particular creditor(s).

Anderson, as Trustee v. Carolyn Adams (In re Superior Stamp & Coin Co.), 223 F.3d 1004, 1010

(9th Cir. 2000).

In his Complaint, the Trustee admits facts that show the funds paid to CALI were

“earmarked”:

“[T]he Debtors were desperately scrambling for money and on June 26, 2017 received a $15 million loan from one of their shareholders (the “Shareholder Loan”). One day later, during the Preference Period, on June 27, 2017, the Debtors made multiple large payments exceeding $14,500,000 in the aggregate to certain favored creditors using proceeds from the Shareholder Loan. Of the roughly $14.5 million, Zetta PTE made transfers to [CALI] totaling $4,768,654.10, which makes up the Preference Payments.”



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Complaint, ¶¶ 116, 117 and 118.

Under Superior Stamp and other Ninth Circuit precedent, the “earmarking doctrine”

requires:

1. the existence of an agreement between the new lender and the debtor that the new funds will be used to pay a specified antecedent debt;

2. performance of the agreement according to its terms; and

3. the transaction viewed as a whole does not result in diminution of the estate such as by granting the lender additional security in the debtor’s assets which otherwise would have been used to pay unsecured creditors.

Here, the Trustee’s Complaint establishes a prima facie case for application of the

earmarking doctrine by showing that the purpose of the shareholder loan was to pay specific debts,

including the 2017 Lease Payments. Thus, the funds were “earmarked” and were therefore never

property of the estate. As a result, the Trustee cannot establish that there was a transfer of an

interest of the Debtors, and his claims must be dismissed.

CONCLUSION

WHEREFORE, CALI respectfully requests that this Court dismiss as against CALI: Count

I (seeking Declaratory Judgment that the Finance Leases are not true Leases); Count II (against

Bombardier); Count III (seeking Declaratory Judgment that CALI’s Security Interest in the PDP

is not Perfected); Count IV (seeking to avoid the security interest in the PDP under Code §

544(a)(1)); Count V (seeking a right to the PDP under Code § 550); Count VI (requesting a finding

that the PDP is property of the Estate under Code § 550); and Count VII (the alleged preferential

transfer claims under Code § 547 and § 550).

Dated: January 10, 2010 HOLLAND & KNIGHT LLP

/s/ Robert Labate

By:

ROBERT J. LABATE (SBN 313847)

VINCE FARHAT (SBN 183794)

Attorneys for CAVIC Aviation Leasing (Ireland) 22

Co. Designated Activity Company


)adversary complaint · 2020-01-20 · 4 cavic aviation leasing (ireland) 22 co. designated...

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