united states bankruptcy court district of … · ment of the aircraft purchase agreement without...

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE

In re:

Kingsbury Corporation Donson Group, Ltd. Ventura Industries, LLC

Debtors.

Bk. No. 11-13671-JMD Bk. No. 11-13700-JMD Bk. No. 11-13687-JMD Jointly Administered

SUPPLEMENT TO MOTION FOR AUTHORITY TO REJECT

SETTLEMENT AGREEMENT BETWEEN KINGSBURY CORPORATION AND CITY OF KEENE PURSUANT TO 11 U.S.C. § 365

Kingsbury Corporation (the “Debtor”), a debtor and debtor-in-possession in the above-

captioned chapter 11 case, files this supplement (the “Supplement”) to its Motion for Authority

to Reject Settlement Agreement Between Kingsbury Corporation and City of Keene Pursuant to

11 U.S.C. § 365 (the “ Motion to Reject”). The purpose for the Supplement is to bring to this

Court’s attention the attached opinion, In re Hawker Beechcraft, Inc., __ B.R. __, 2013 WL

310034 (Bankr. S.D.N.Y. Jan. 28, 2013), which directly addresses an argument raised by the

City of Keene (the “City”) in its Memorandum of Law in Support of Opposition of City of

Keene to Motion of Debtor Kingsbury Corporation to Reject Settlement Agreement Between

Kingsbury Corporation and City of Keene Pursuant to 11 U.S.C. § 365 (the “Memorandum”).

1. The Debtor filed the Motion to Reject on March 6, 2012 and the City filed its

Memorandum on May 23, 2012.

2. In the Memorandum, the City argued, inter alia, that “the restrictive provisions of

the Settlement Agreement requiring Kingsbury to not pursue an appeal of the 2009 and 2010

abatements and refrain from filing of an abatement request for 2011 . . . have become merely

restrictive covenants and not material obligations” and therefore do not represent obligations

which may be rejected pursuant to section 365 of the Bankruptcy Code. Memorandum at ¶ 22.

Case: 11-13671-JMD Doc #: 553 Filed: 01/30/13 Desc: Main Document of 20

3. Following a hearing on January 29, 2013, this Court took the Motion to Reject

under advisement.

4. Later that same day, counsel for the Debtor became aware of the Hawker

Beechcraft opinion, in which the United States Bankruptcy Court for the Southern District of

New York considered whether certain aircraft purchase agreements constituted executory

contracts which could be rejected under section 365. Those contracts included some or all of the

following provisions:

a. A limited warranty which “included terms and conditions that, among other things, required that the customer (1) maintain, operate and store the aircraft in accordance with certain manuals and other written instructions, (2) not remove certain identifying marks and serial numbers from the aircraft, or alter the aircraft other than as allowed under the warranty and (3) not use the aircraft for unspecified purposes.” Hawker Beechcraft, 2013 WL 310034 at *1.

b. The debtor agreed to provide training for pilots and maintenance personnel provided the customer agreed to indemnify and hold the debtor harmless for certain liabilities and claims enumerated in the purchase agreement. Id.

c. The customer agreed that it may not assign its rights under the purchase agreement with the debtor’s prior written consent. Id.

d. The customer agreed that the terms and conditions of the purchase agreement would not be disclosed to a third party without the prior written consent of the debtor. Id.

5. In analyzing the executory nature of the provisions listed above, the Hawker

Beechcraft court distinguished between mere conditions, which may excuse nonperformance by

a counterparty but do not constitute a breach, and duties which, if not performed, do result in a

breach of contract. Hawker Beechcraft, 2013 WL 310034 at *8-9.

6. Specifically, the court held that the terms listed in subparagraph (a) constituted

conditions rather than duties. Hawker Beechcraft, 2013 WL 310034 at *8. While the


nonoccurrence of these conditions might excuse the debtor from performance with respect to the

limited warranty, the agreement itself would not be breached. Id.

7. With respect to the other provision, however, the Court went on to find:

Other obligations, however, clearly impose duties on the buyer. As discussed, the buyer must indemnify Hawker under certain circumstances in connection with the pilot and crew training program or if it fails to comply with export control regulations, it must follow certain protocols with respect to assignment of its rights, and it must maintain the terms and conditions of the Aircraft Purchase Agreement in confidence. Ordinarily, the materiality of these promises would be a question of fact requiring a trial. However, if the parties contractually agree that some or all of the terms are sufficiently important to discharge any further obligations imposed on the party aggrieved by a breach, their intent will govern.

Hawker Beechcraft, 2013 WL 310034 at *9.

8. In the Settlement Agreement before this Court, the Debtor’s duties to forbear

from pursuing an appeal of the 2009 and 2010 abatements and an abatement for 2011 clearly

constitute material obligations. These duties are indistinguishable from the duties outlined

above, which also require a contract party to forbear from engaging in specific activities.

9. The City clearly would not have agreed to the Settlement Agreement if the Debtor

had not to these terms. Accordingly, these duties—like the agreement of customers in Hawker

Beechcraft to forbear from certain activities—constitute continuing, material obligations under

the Settlement Agreement and, therefore, that agreement is an executory contract which may be

rejected pursuant to section 365 of the Bankruptcy Code.


Dated: January 30, 2013 KINGSBURY CORPORATION By its attorneys: /S/ Jennifer Rood, Esq. Jennifer Rood, Esq. NH BK # 01395 BERNSTEIN, SHUR, SAWYER & NELSON Jefferson Mill Building 670 North Commercial Street, Suite 108 PO Box 1120 Manchester, NH 03105-1120 (603) 623-8700 and /s/ Robert J. Keach, Esq. Robert J. Keach, Esq.

Jessica A. Lewis, Esq. BERNSTEIN, SHUR, SAWYER & NELSON 100 Middle St., PO Box 9729 Portland, Maine 04104-5029 (207) 774-1200


Only the Westlaw citation is currently available.

United States Bankruptcy Court,S.D. New York.

In re HAWKER BEECHCRAFT, INC., et al., Debt-ors.

No. 12–11873 (SMB).Jan. 28, 2013.

James H.M. Sprayregen, Esq., Paul M. Basta, Esq.,Patrick J. Nash, Jr., Esq., Ross M. Kwasteniet, Esq.,of Counsel, Kirkland & Ellis LLP, New York, NY,Attorneys for the Debtors and Debtors in Posses-sion.

Daniel H. Golden, Esq., David H. Botter, Esq.,Alexis Freeman, Esq., of Counsel, Akin GumpStrauss Hauer & Feld LLP, New York, NY, Attor-neys for Official Committee of Unsecured Credit-ors.

Richard Levin, Esq., of Counsel, Cravath, Swaine& Moore LLP, New York, NY, Attorneys for AdHoc Committee of Hawker 4000 Customers.

Richard G. Mason, Esq., of Counsel, GreenbergTraurig, LLP, New York, NY, Attorneys for Rotor-wing B.V.

Norman D. Orr, Esq., of Counsel, Kemp Klein,Troy, MI, Attorneys for Pace Aviation, LLC.

Richard A. Stieglitz Jr., of Counsel, Cahill Gordon& Reindel LLP, New York, NY, Attorneys forBiozyme Incorporated.

Spencer D. Elliott, Esq., of Counsel, Lewis GlasserCasey & Rollins, PLLC, Charleston, WV, Attor-neys for RCS Holdings, LLC.

Peter A. Ivanick, Esq., Hugh F. Hill, Esq., of Coun-sel, Hogan Lovells U.S. LLP, New York, NY, At-torneys for Elegant Aviation Limited.

John T. Gregg, Esq., of Counsel, Barnes & Thorn-burg LLP, Grand Rapids, MI, Attorneys for Mc-Grath Air, LLC.

MEMORANDUM DECISION PARTIALLYGRANTING AND PARTIALLY DENYING

DEBTORS' REJECTION MOTIONSTUART M. BERNSTEIN, Bankruptcy Judge.

*1 The Debtors (collectively “Hawker” or“HBC”), manufacture, sell and service jet and non-jet aircraft. Hawker plans to terminate most of itsjet aircraft production business, and has moved toreject certain agreements relating to the Hawker4000 and Premier I and IA (collectively, “Premier”)jet aircraft that impose continuing warranty andsupport obligations. (See Motion for Entry of AnOrder Authorizing the Debtors to Reject CertainAircraft Warranty and Support Obligations Relatedto Hawker 4000 and Premier I and IA Jets Effectiveas of November 15, 2012, dated Nov. 15, 2012 (“Rejection Motion ”) (ECF Doc. # 777).) Variousparties filed objections, but all save two have beenwithdrawn. For the reasons that follow, the Rejec-tion Motion is granted in part and denied in part.

BACKGROUNDA. The Purchase Agreements

At all relevant times, Hawker was engaged inthe manufacture, sale and servicing of jet and non-jet special mission and trainer-attack aircraft. (SeeAmended Disclosure Statement for Debtors'Amended Joint Plan of Reorganization Pursuant toChapter 11 of the Bankruptcy Code, dated Nov. 28,2012 (“ Amended Disclosure Statement ”), at 1(ECF Doc. # 849).) When Hawker sold a newHawker 4000 or Premier jet, the purchase agree-ment included a limited warranty that covered de-fects in materials and workmanship (the “LimitedWarranty”). FN1 (See Premier Purchase Agree-ment at Specification and Description, § 20;Hawker 4000 Purchase Agreement at Specificationand Description, § 24 .) The Limited Warranty in-cluded terms and conditions that, among other

Page 1--- B.R. ----, 2013 WL 310034 (Bkrtcy.S.D.N.Y.)(Cite as: 2013 WL 310034 (Bkrtcy.S.D.N.Y.))

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things, required that the customer (1) maintain, op-erate and store the aircraft in accordance with cer-tain manuals and other written instructions, (2) notremove certain identifying marks and serial num-bers from the aircraft, or alter the aircraft other thanas allowed under the warranty and (3) not use theaircraft for unspecified purposes. (Premier Pur-chase Agreement at Specification and Description,§ 20; Hawker 4000 Purchase Agreement at Spe-cification and Description, § 24.) The typical Lim-ited Warranty lasted anywhere between five to tenyears or 3,000 to 10,000 air flight miles, dependingon the aircraft model type.FN2

FN1. See Premier I and IA Aircraft Pur-chase Agreement (“Premier PurchaseAgreement”), attached as Exhibit A1 toDebtors' Brief in Support of the Debtors'First Omnibus Motion for Entry of an Or-der Authorizing the Debtors to Reject Cer-tain Aircraft Warranty and Support Oblig-ations Related to Hawker 4000 and Premi-er I and IA Jets Effective as of November15, 2012, dated Dec. 21, 2013 (“ Brief inSupport ”); Hawker 4000 Aircraft Pur-chase Agreement(“Hawker 4000 PurchaseAgreement ”), attached as Exhibit A2 tothe Brief in Support, (collectively “AircraftPurchase Agreements ”) (ECF Doc. #971). In some cases, the manufacturer of acomponent or system (engine, avionics)provided its own warranty and that war-ranty is not affected by the Rejection Mo-tion. (Rejection Motion at ¶ 8.)

FN2. The Premier Limited Warranty ranfor five years or 3,000 hours of aircraft op-eration, whichever occurred sooner, andthe Hawker 4000 Limited Warranty lastedfor ten years or 10,000 hours of aircraft op-eration, whichever occurred sooner. (SeePremier Purchase Agreement at Specifica-tion and Description, § 20; Hawker 4000Purchase Agreement at Specification andDescription, § 24; Brief in Support at 5 n.

14.)

The Hawker 4000 and Premier PurchaseAgreements also imposed duties on the customerunrelated to the Limited Warranty. For example,Hawker agreed to provide training for two qualifiedpilots and two qualified maintenance personnel. (Premier Purchase Agreement at Specification andDescription, § 21; Hawker 4000 Purchase Agree-ment, at Specification and Description, § 25.) In re-turn, the customer agreed to indemnify and holdHawker harmless for “any ... liabilities [or] claims... including any claims for damage to the Aircraft... (excluding however, any liability or claim relat-ing to the manufacture of the Aircraft and exceptthe negligence or willful misconduct of Seller andtheir respective officers, employees, agents, and in-surers) and all expenses in connection therewith(including reasonable counsel fees) arising directlyor indirectly out of or in connection with the use ofthe Aircraft for the training described above.” (Premier Purchase Agreement at Specification andDescription, § 21; Hawker 4000 Purchase Agree-ment at Specification and Description, § 25.) In ad-dition, the customer agreed to “comply with all ex-port control laws and regulations ... that apply tothe Aircraft ... and indemnify Seller from andagainst the consequences of any failure by Buyer tocomply with all applicable laws and regulations.” (Aircraft Purchase Agreements at General Termsand Conditions, § 15.) FN3 The customer agreedthat its rights under the Aircraft Purchase Agree-ment “may not be assigned, in whole or in partwithout Seller's written consent.” (Id. at GeneralTerms and Conditions, § 27.) Finally, the customeragreed that, “the terms and conditions of thisAgreement ... may not be disclosed in any fashion,either in whole or in part, by Buyer to any thirdparty ... without the prior written consent of Seller.”(Id. at General Terms and Conditions, § 29.)

FN3. The two Aircraft Purchase Agree-ments included identical General Termsand Conditions.

*2 The parties further agreed that the material




breach of any term or condition permitted Hawkerto terminate the Aircraft Purchase Agreement:

Buyer's Default. Subject to a ten day cure period,Seller has the right to terminate this Agreementand retain all deposits previously paid by Buyeras liquidated damages if Buyer:

....

(E) breaches any term or condition contained inthis Agreement in any material respect.

(Id. at General Terms and Conditions, § 25.)

B. The Support Plus ProgramHawker also offered a program that covered

scheduled and unscheduled maintenance and re-placement of consumable parts for the aircraft (the“Support Plus Program”).FN4 Under the PremierSupport Plus Program, the customer agreed to payHawker for each period of twelve consecutive cal-endar months “the greater of actual aircraft flighttime or a minimum service charge based upon anannual minimum of 200 flight hours,” (PremierSupport Plus Agreement at Art. II, § 4.1), multi-plied by the Hourly Rate. (Id . at Art. II, § 4.3.1.)The customer was required to report its total air-craft utilization each month, (id. at Art. II, § 4.1.1),and pay for “all additional flight hours, over andabove any pre-paid flight hours, at the applicablerate for the balance of the Term [of the SupportPlus Program].” (Id. at Art. II, § 4.3.2.) In addition,the Premier Support Plus Agreement required thecustomer to pay numerous other charges. (E.g. id.at Art. IV, § 1 et seq.) The customer also had toproperly record various items of information in theaircraft log book and furnish the information andgrant access to Hawker upon reasonable request. (Id. at Art. IV, § 1.13.1.) Finally, the customeragreed to notify Hawker of any letters of investiga-tion or notices from any airworthiness authority, orany self-disclosure made to such an authority, relat-ing to maintenance services provided under thePremier Support Plus Program. (Id. at Art IV, §1.1.2.)

FN4. See Hawker Beechcraft CorporationSupport Plus Sample Agreement for Beech-craft Owner [of Premier Aircraft], attachedas Exhibit B1 to the Brief in Support(“Premier Support Plus Agreement”);Hawker Beechcraft Corporation Pre–PaidSupport Plus Sample Agreement For<Hawker 4000 Owner> (“Hawker 4000Support Plus Agreement ”), attached asExhibit B2 to the Brief in Support.

The Hawker 4000 Support Plus Programdiffered in only one material respect; the customerpre-paid for selected parts and labor coverage forscheduled and unscheduled maintenance. (Hawker4000 Support Plus Agreement, at Art. II, § 1.1.)The pre-payment assumed that the aircraft operated“an average of 1.25 flight hours per landing ... [but]if the Aircraft average flight hours to landings isless than 1.25 flight hours per landing in any twelve(12) month period from the effective date ... HBCwill invoice the Owner an Excess Landing Chargefor each hour flown in the prior twelve (12) monthperiod.” (Id. at Art. II, §§ 3.1.2–3.1.3.) The custom-er was required to submit monthly utilization re-ports, (id. at Art. V, § 1.1), and pay any excesscharges plus appropriate interest. (See id. at Art. V,§§ 1.2, 1.3.) As with the Premier Support Plus Pro-gram, the customer had to maintain an aircraft log-book and provide the same access to Hawker, (id. atArt. IV, § 1.13.1), pay certain additional charges, (id. at Art. IV), and notify Hawker regarding any let-ters of investigation and notices from, and self-disclosures to, airworthiness authorities concerningthe maintenance services provided under theHawker 4000 Support Plus Program. (Id. at Art. IV,§ 1.1.2.)

*3 Both Support Plus Program agreementsgave Hawker similar rights in the event the custom-er breached any of its obligations. Hawker couldterminate the Support Plus Program agreement, andif the breach included non-payment and Hawkerwas forced to sue, Hawker could recover its reason-able attorneys' fees, expenses and costs. (Premier




Support Plus Agreement, at Art. V, § 2.2.1; Hawker4000 Support Plus Agreement, at Art. V, §§ 1.4,2.2.1.)

C. Other Warranty ProgramsHawker also provided an “Upgrade and En-

hancement Program” offered only for Hawker 4000aircraft to improve their overall performance and tomaintain compliance with certain Federal AviationAdministration requirements, and a “Post DeliveryCommitments” program for post-delivery repairwork on various aircraft. (Rejection Motion at ¶ 8.)

D. The Bankruptcy

1. First Day Motions

On May 3, 2012, Hawker filed voluntarychapter 11 petitions with the goal of implementinga consensual debt-to-equity recapitalization andemerging as a standalone company. (See AmendedDisclosure Statement at 1.) Toward that end,Hawker had entered into a Restructuring SupportAgreement (“RSA ”) with its Senior SecuredLenders and Senior Noteholders. (See RSA at 1, at-tached as Exhibit A (pp. 60–84 of 245) to the De-claration of Robert S. Miller (I) In Support of Debt-ors' Chapter 11 Petitions and First Day Motionsand (II) Pursuant to Local Bankruptcy Rule1007–2, dated May 4, 2012 (“Miller Declaration ”)(ECF Doc. # 22).) The RSA permitted Hawker tomarket its assets and propose a plan involving asale transaction with a third party. (See id. at 14;Amended Disclosure Statement at 29–31.)

Simultaneously with the filing of the petitions,Hawker moved to continue certain Customer Pro-grams, including the Limited Warranty and SupportPlus Programs. (See Debtors' Motion for the Entryof Interim and Final Orders Authorizing the Debt-ors to Honor Certain Prepetition Obligations toCustomers and Otherwise Continue Certain Cus-tomer Programs and Practices in the OrdinaryCourse of Business, dated May 3, 2012 (“Motion toHonor ”) (ECF Doc. # 5).) Hawker explained thatthe Limited Warranty was “critically important” to

its “ongoing viability,” and since “competitors offercoverage of similar scope, and customers generallyexpect such programs to be available to reduce op-erating risk when purchasing an aircraft,” Hawker“would be at a significant competitive disadvantageif it were unable to continue to perform” under thiswarranty. (Motion to Honor at ¶ 9.) Likewise, manyof Hawker's competitors offered a program similarto the Support Plus Program, and if Hawker was notable to continue honoring its existing Support PlusProgram obligations, its “relationship with manyexisting customers would be severely damaged, andprospective customers would lose faith in the Sup-port Plus Program.” (Id. at ¶ 15.)

*4 Hawker's Chief Executive Officer Robert S.Miller amplified Hawker's reasoning explainingthat “in order to ensure continuing customer loyaltyand a successful reorganization” it is “essential”that Hawker

be permitted to honor, without interruption, ob-ligations related to their Customer Programs[including the Limited Warranty and SupportPlus Program] in accordance with their prepeti-tion practices and customers' expectations. Anyinterruption or discontinuation of the CustomerPrograms risks the permanent loss of certain cus-tomers. The aggregate cost to the Debtors to con-tinue the Customer Programs and perform andhonor prepetition obligations with respect theretois insignificant when compared to the enormousdetrimental impact their business would suffer ifthese programs are suspended or abandoned.

(Miller Declaration at ¶ 93.)

On May 4, 2012, the Court entered an interimorder permitting Hawker to continue the CustomerPrograms, including the Limited Warranty and Sup-port Plus Program, (Interim Order Authorizing theDebtors to Honor Certain Prepetition Obligationsto Customers and Otherwise Continue Certain Cus-tomer Programs and Practices in the OrdinaryCourse of Business, dated May 4, 2012 (“ InterimOrder to Honor ”) (ECF Doc. # 44)), which was




followed by a final order on May 30, 2012. (FinalOrder Authorizing the Debtors to Honor CertainPrepetition Obligations to Customers and Other-wise Continue Certain Customer Programs andPractices in the Ordinary Course of Business, datedMay 30, 2012 (“ Final Order to Honor ”) (ECFDoc. # 179).) Both orders provided that “[t]heDebtors are authorized, but not directed, in theirsole discretion, to honor and perform under theCustomer Programs and any other obligation relat-ing to the Debtors' customary business practice,without regard to whether the Debtors' CustomerPrograms arose before or after the Petition Date.” (Interim Order to Honor at ¶ 3; Final Order to Hon-or at ¶ 2.) Both orders also provided that the Mo-tion to Honor did not request assumption of anycontract, the orders did not authorize the assump-tion of any contract and Hawker reserved all of itsrights. (See Interim Order to Honor at ¶ 6; FinalOrder to Honor at ¶ 6.)

2. The PlanDuring the course of the case, Hawker pursued

a possible third party transaction with SuperiorAviation Beijing, Co., Ltd. (“Superior”), a China-based company. That proposal would have involvedthe sale of some or all of Hawker's jet product lines.When that transaction fell through, Hawker filed itsamended plan proposing a stand-alone plan underwhich Hawker will cease production of the Hawker4000 and Premier jet aircraft business and nolonger honor the warranty and support obligationscovering these product lines. (Amended DisclosureStatement at 37; see Debtors' Amended Joint Planof Reorganization Pursuant to Chapter 11 of theBankruptcy Code, dated Nov. 30, 2012 (“AmendedPlan ”) (ECF Doc. # 872).) The amended plan alsoprovides that any executory contract that is not as-sumed will be deemed rejected. (Amended Plan at33.)

3. The Rejection Motion*5 Notwithstanding the latter provision,

Hawker filed a separate motion to reject the Air-craft Purchase Agreements FN5 and Support Plus

Agreements for the Hawker 4000 and Premier air-craft and certain other warranty and support agree-ments. Hawker's restructuring expert ScottBrubaker of Alvarez & Marsal North America ex-plained that while continuing these Customer Pro-grams was initially necessary to maintain the“status quo” for its customers and to minimize dis-ruptions, the Motion to Honor was not intended to“permanently bind” Hawker to these programs, (seeDeclaration of Scott Brubaker in Support of Debt-ors' First Omnibus Motion for Entry of an OrderAuthorizing the Debtors to Reject Certain AircraftWarranty and Support Obligations Related toHawker 4000 and Premier I and IA Jets Effectiveas of November 15, 2012, dated Dec. 10, 2012 (“Brubaker Declaration ”) at ¶ 3),FN6 and their con-tinuation “would otherwise place substantial burdenon the Debtors' estates for years to come and thatthese costs would otherwise outweigh any net bene-fit the Debtors would receive from maintaining thecontractual obligations.” (Id. at ¶ 4.) Brubaker es-timated that Hawker's current projected liabilitythrough 2017 on the Premier Limited Warrantyranged between $5 million and $17 million, whilesimilar projections regarding the Premier SupportPlus Program ranged between zero (i.e., breakeven) and $60 million. (See Tr. at 44.) On theHawker 4000 side, the projected cost of the LimitedWarranty fell between $28 million and $100 mil-lion, and Brubaker estimated that the Support PlusProgram would cost Hawker between $32 millionand $65 million. (Id. at 45.) The substantial rangesin liability, which were greater than the correspond-ing costs estimated at the time of the Motion toHonor, were primarily due to the difficulty in pre-dicting the availability and costs of replacementparts after Hawker stopped manufacturing these air-craft. (Id. at 62–63.) Hawker also considered otherfactors, including the possible loss of non-warrantyrelated business, (Id. at 48, 64), and the related lossof good-will. (Id. at 51.) To ease the burden on itscustomers, Hawker stated its intention to work toreach an agreement with third party companies to“enhance the likelihood that owners of Hawker4000 and Premier I and IA aircraft are able to pur-




chase necessary service and maintenance on theiraircraft in the future.” (Rejection Motion at 6–7.)Post-rejection, Hawker would continue to providefee-based maintenance and support services to theextent practicable through Hawker-owned and affil-iated service centers. (Id.) Additionally, Premiercustomers who had prepaid for Support Plus Pro-grams would receive a pro-rated credit for parts andservices to be used at a Hawker service center. (Id.)

FN5. Although the Rejection Motion fo-cuses on the Limited Warranty, the Lim-ited Warranty is part of the Aircraft Pur-chase Agreement. Hence, the RejectionMotion is properly viewed as being direc-ted at the Aircraft Purchase Agreements.

FN6. The Brubaker Declaration is at-tached as Exhibit A to the Debtors' Omni-bus Reply to Objections to the Debtors'First Omnibus Motion for Entry of an Or-der Authorizing the Debtors to Reject Cer-tain Aircraft Warranty Obligations Relatedto Hawker 4000 and Premier I and IA JetsEffective as of November 15, 2012, datedDec. 10, 2012 (ECF Doc. # 908). TheBrubaker Declaration was receivedwithout objection as Brubaker's directtestimony. (See Transcript of Hearing,held Dec. 11, 2012 (“Tr. ”), at 40 (ECFDoc. # 935).)

Six entities filed objections to the RejectionMotion: Pace Aviation, LLC (“Pace”),FN7 Mc-Grath Air, LLC (“McGrath”),FN8 RCS Holdings,LLC (“RCS”),FN9 Biozyme Incorporated(“Biozyme”),FN10 Elegant Aviation Limited(“Elegant”) FN11 and Rotorwing, B.V.(“Rotorwing”).FN12 Virtually all of the objectorsargued that the Limited Warranty and Support PlusPrograms were not executory because the buyer hadno further duties. Hence, they were not subject torejection under 11 U.S.C. § 365. Several assertedthat Hawker should be judicially estopped fromnow taking the position that it made business senseto reject the warranty and support obligations in

light of the position it took at the time of the Mo-tion to Honor. In addition, McGrath, owner of aPremier aircraft, asserted that it entered into theSupport Plus Agreement after the petition date, andthe post-petition agreement was not subject to re-jection. (Id. at ¶ 16.) RCS, owner of a Premier air-craft, contended that Hawker improperly discrimin-ated by rejecting some of the warranty and supportobligations instead of ratably reducing all of them. (RCS Objection at 2–3.) Biozyme, the owner of aPremier aircraft under Limited Warranty and parti-cipant in the Support Plus Program, argued thatHawker's business judgment should be subjected toa heightened standard because the decision to rejectthe Limited Warranty and Support Plus Programobligations implicated aircraft safety. (Biozyme Ob-jection at ¶¶ 6–8.) Thus, the Court should “considerthe potential direct, negative consequences of theproposed rejection on public safety, which shouldbe readily apparent for airplanes that are no longercovered by warranties or for which necessary partsand/or service may no longer be available (or areonly available at significantly-higher costs).” (Id. at¶ 6.)

FN7. Limited Objection of Pace Aviation,LLC to Debtors' First Omnibus Motion forEntry of an Order Authorizing the Debtorsto Reject Certain Aircraft Warranty andSupport Obligations Related to Hawker4000 and Premier I and IA Jets Effectiveas of November 15, 2012, dated Dec. 3,2012 (“ Pace Objection ”) (ECF Doc. #875).

FN8. Objection of McGrath Air, LLC toDebtors' First Omnibus Motion for Entryof an Order Authorizing the Debtors to Re-ject Certain Aircraft Warranty and Sup-port Obligations Related to Hawker 4000and Premier I and IA Jets Effective as ofNovember 15, 2012, dated Dec. 3, 2012 (“McGrath Objection ”) (ECF Doc. # 876).

FN9. Objection of RCS Holdings, LLC toDebtors' First Omnibus Motion for Entry




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of an Order Authorizing the Debtors to Re-ject Certain Aircraft Warranty and Sup-port Obligations Related to Hawker 4000and Premier I and IA Jets Effective as ofNovember 15, 2012, dated Dec. 4, 2012 (“RCS Objection ”) (ECF Doc. # 884).

FN10. Objection of Biozyme Incorporatedto Debtors' First Omnibus Motion forEntry of an Order Authorizing the Debtorsto Reject Certain Aircraft Warranty andSupport Obligations Related to Hawker4000 and Premier I and IA Jets Effectiveas of November 15, 2012, dated Dec. 4,2012 (“Biozyme Objection ”) (ECF Doc. #885).

FN11. Joinder of Elegant Aviation Limitedin Objections to the Debtors' First Omni-bus Motion for Entry of an Order Author-izing the Debtors to Reject Certain Air-craft Warranty and Support ObligationsRelated to Hawker 4000 and Premier I andIA Jets Effective as of November 15, 2012,dated Dec. 4, 2012 (ECF Doc. # 889).

FN12. Objection of Rotorwing, B.V. toDebtors' First Omnibus Motion for Entryof an Order Authorizing the Debtors to Re-ject Certain Aircraft Warranty and Sup-port Obligations Related to Hawker 4000and Premier I and IA Jets Effective as ofNovember 15, 2012, dated Dec. 4, 2012 (“Rotorwing Objection ”) (ECF Doc. # 890).

*6 Rotorwing, the final objector, was in an en-tirely different position. Rotorwing, a Netherlandsentity, contended that it was not served properlywith the Rejection Motion. In addition, it is the less-ee of a Premier aircraft that was purchased as a re-sale, (i.e. Rotorwing's predecessor purchased a“used” aircraft from Hawker), without the LimitedWarranty that came with the purchase of a new air-craft. Instead, the warranty, discussed below, ismuch more limited, and Rotorwing maintained thatit was not executory.

Pace, McGrath, Biozyme and Elegant havewithdrawn their objections, and the only remainingobjections are those asserted by RCS and Rotor-wing.

DISCUSSIONA. Introduction

Section 365(a) states that “the trustee, subjectto the court's approval, may assume or reject anyexecutory contract or unexpired lease of the debt-or.” 11 U.S.C. § 365(a). The Bankruptcy Code doesnot define the term “executory contract.” CORRoute 5 Co. v. Penn Traffic Co. (In re Penn TrafficCo.), 524 F.3d 373, 379 (2d Cir.2008). The legislat-ive history regarding this section states that“[t]hough there is no precise definition of what con-tracts are executory, it generally includes contractson which performance remains due to some extenton both sides.” H.R.REP. NO. 95–595, at 347(1977); S.REP. NO. 95–989, at 58 (1978); accordNLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n.6 (1984); Penn Traffic, 524 F.3d at 379; E. AirLines, Inc. v. Ins. Co. of Penn. ( In re IonosphereClubs, Inc.), 85 F.3d 992, 998–99 (2d Cir.1996).Generally, executoriness is determined as of the pe-tition date. Penn Traffic, 524 F.3d at 381. Al-though the Second Circuit has thus far found it un-necessary to define the contours of the test for ex-ecutoriness, id. at 379, most courts and scholarshave looked to the test first articulated by ProfessorVern Countryman. ReGen Cap. I, Inc. v. Halperin (In re U.S. Wireless Data, Inc.), 547 F.3d 484, 488n. 1 (2d Cir.2008); Penn Traffic, 524 F.3d at 379;Route 21 Assocs. of Belleville, Inc. v. MHC, Inc.,No. 12 Civ. 5361(PAE), 2012 WL 6625280, at *5(S.D.N.Y. Dec. 19, 2012). According to the Coun-tryman definition, an executory contract is

a contract under which the obligation of both thebankrupt and the other party to the contract are sofar unperformed that the failure of either to com-plete performance would constitute a materialbreach excusing performance of the other.

Vern Countryman, Executory Contracts inBankruptcy: Part I, 57 Minn. L.Rev. 439, 460




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(1973); accord Penn Traffic, 574 F.2d at 379.

Under Countryman's “material breach” test, aprepetition contract is executory when both sidesare still obligated to render substantial perform-ance, Enter. Energy Corp. v. United States (In reColumbia Gas Sys. Inc.), 50 F.3d 233, 239 (3dCir.1995); Mitchell v. Streets (In re Streets & BeardFarm P'ship), 882 F.2d 233, 235 (7th Cir.1989); Inre 375 Park Ave. Assocs., 182 B .R. 690, 697(Bankr.S.D.N.Y.1995), and contingent obligationsare sufficient to render a contract executory. In reSafety–Kleen Corp., 410 B.R. 164, 168(Bankr.D.Del.2009) (citing cases). If performanceremains due on only one side, the contract is notexecutory, and hence, neither assumable nor cap-able of rejection. In re Riodizio, Inc., 204 B.R. 417,421 (Bankr.S.D.N.Y.1997); see In re ChateaugayCorp., 102 B.R. 335, 345 (Bankr.S.D.N.Y.1989).The materiality of the breach is a question of statelaw.FN13 See Columbia Gas, 50 F.3d at 240 n. 10.

FN13. The Aircraft Purchase Agreementsand the Support Plus Agreements are gov-erned by Kansas Law. Under Kansas law,“[a] material breach is one in which thepromisee receives something substantiallyless or different than he or she bargainedfor. a material breach occurs where thefailure to perform is so substantial that itdefeats the parties' object in making theagreement.” Dexter v. Brake, 269 P.3d846, 856 (Kan.Ct.App.2012).

*7 In applying Countryman's “material breach”test, one must distinguish between a failure of con-dition and a breach of duty. “Non-occurrence of acondition is not a breach by a party unless he is un-der a duty that the condition occur.” RESTATE-MENT (SECOND) OF CONTRACTS § 225(3)(1981); accord Columbia Gas, 50 F.3d at 241.Thus, “while a contracting party's failure to fulfill acondition excuses performance by the other partywhose performance is so conditioned, it is not,without an independent promise to perform the con-dition, a breach of contract subjecting the nonful-

filling party to liability for damages.” Merritt HillVineyards, Inc. v. Windy Heights Vineyard, Inc.,460 N.E.2d 1077, 1081–82 (N.Y.1984) (citing RE-STATEMENT (SECOND) OF CONTRACTS §225(1) & (3)); accord Columbia Gas, 50 F.3d at241. Nevertheless, a contract party may impliedlypromise to use reasonable efforts to cause the con-dition to occur when its occurrence is within thecontrol of that party. JOSEPH M. PERILLO,CALAMARI & PERILLO ON CONTRACTS §11.11, at 368–69 (6th ed.2009).

The current dispute fulfills the prophecy, atleast in the case of a rejection motion, that the timeexpended searching for executoriness can be spentmore fruitfully doing almost anything else. See Ri-odizio, 204 B.R. at 419. Rejection signifies that thedebtor will breach the contract and not perform.Penn Traffic, 524 F.3d at 378. If the contract is ex-ecutory and the debtor rejects it, the non-debtorparty is left with a pre-petition unsecured claim forbreach of contract. Id.; In re Child World, Inc., 147B.R. 847, 852 (Bankr.S.D.N.Y.1992); see 11U.S.C. § 365(g)(1). If, on the other hand, the con-tract is not executory and the debtor chooses not toperform, the non-debtor party gets the same pre-petition claim for breach of contract. See In reBradlees Stores, Inc., No. 02 Civ. 0896(WHP),2003 WL 76990, at *3 (S.D.N.Y. Jan. 9, 2003),aff'd, 78 F. App'x. 166 (2d Cir.2003); Pearl–PhilGMT (Far East) Ltd. v. Caldor Corp., 266 B.R.575, 582 (S.D.N.Y.2001); Riodizio, 204 B.R. at 424n. 6. In other words, the rejection of an executorycontract is the economic equivalent of the debtor'srefusal to perform a non-executory contract givingrise to the same unsecured claim. The only practicaldifference concerns the deadline for filing the non-debtor contract party's unsecured claim. If thebreached contract is not executory, the non-debtorparty must file its breach claim by the general bardate. If the contract is executory and rejected, thenon-debtor party will get additional time to file itsrejection damage claim if the bar date has alreadyexpired. See FED. R. BANKR.P. 3003(c)(3)(incorporating FED. R. BANKR P. 3002(c)(4)).





















































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Ironically, a non-debtor contract party who con-vinces a bankruptcy court that its contract is not ex-ecutory and has not yet filed a proof of claim mayfind that its claim is time-barred.

*8 The Rejection Motion was unnecessary foran additional reason. Hawker's plan provides thatunless an unexpired contract is expressly assumed,it will be deemed rejected. See 11 U.S.C. §1123(b)(2) (a plan may provide, subject to Bank-ruptcy Code § 365, “for the assumption, rejection,or assignment of any executory contract or unex-pired lease of the debtor not previously rejected un-der such section.”). If Hawker does not expresslyassume the contracts containing the Hawker 4000and Premier warranty and support obligations, theywill be deemed rejected upon confirmation withoutregard to the Rejection Motion. And if the obliga-tions are not executory, as most of the objectingparties contended, Hawker would not have to doanything. In that case, the obligees would hold pre-petition claims for breach. While the Rejection Mo-tion makes clear to these obligees that Hawker willnot honor these Hawker 4000 and Premier Custom-er Programs, the Amended Disclosure Statementsent the same message.

Despite the conclusion that the Rejection Mo-tion was unnecessary, Hawker made it, the remain-ing objectors objected to it and the Court must de-cide it. No one disputes that Hawker had materialunfulfilled Hawker 4000 and Premier Limited War-ranty and Support Plus Program obligations as ofthe petition date. Instead, the question is whetherthe non-debtor contract parties did too. Certain ofthe objectors imply that warranty obligations arenot or cannot be executory, citing In re GEC Indus.,Inc., 107 B.R. 491 (Bankr.D.Del.1989) and In reShada Truck Leasing, Inc., 31 B.R. 97(Bankr.D.Neb.1983). So sweeping a statement can-not be right because the question of executorinessdepends on the terms of the agreement containingthe warranty or support obligations. Thus, withoutcommenting on the correctness of the objectors' au-thorities, they are inapposite and do not provide

guidance in deciding the issues presented by theRejection Motion.

B. Executoriness

1. Aircraft Purchase Agreements

As discussed earlier, the Aircraft PurchaseAgreements impose numerous terms and conditionson the buyer of an aircraft; some of these terms andconditions do not necessarily relate to the LimitedWarranty obligations. Nevertheless, because a debt-or must assume or reject an entire contract, andcannot cherry-pick the provisions it does not like, acourt must consider the entire agreement. Some ofthe terms in the Aircraft Purchase Agreements ap-pear to be conditions rather than duties; their non-occurrence may excuse Hawker's performance butdo not constitute breaches, let alone materialbreaches, of these agreements. For example,Hawker may be discharged from honoring the Lim-ited Warranty if the customer fails to maintain, op-erate or store the aircraft in accordance with certainmanuals and other written instructions. Neverthe-less, the buyer does not undertake a duty to Hawkerto maintain, operate or store the aircraft in any par-ticular manner, and Hawker does not suffer an in-jury if the buyer does so in a manner inconsistentwith Hawker's manuals and instructions.

*9 Other obligations, however, clearly imposeduties on the buyer. As discussed, the buyer mustindemnify Hawker under certain circumstances inconnection with the pilot and crew training programor if it fails to comply with export control regula-tions, it must follow certain protocols with respectto the assignment of its rights, and it must maintainthe terms and conditions of the Aircraft PurchaseAgreement in confidence. Ordinarily, the material-ity of these promises would be a question of fact re-quiring a trial. Almena State Bank v. Enfield, 954P.2d 724, 727–28 (Kan.Ct.App.1998). However, ifthe parties contractually agree that some or all ofthe terms are sufficiently important to dischargeany further obligations imposed on the party ag-grieved by a breach, their intent will govern. See




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Gen. Datacomm Indus., Inc. v. Arcana (In re Gen.Datacomm Indus., Inc), 407 F.3d 616, 623–24 (3dCir.2005) (provision in Benefit Plan that allowedcorporation to terminate the employee's rights if hefailed to comply with certain covenants, includingthe agreement not to compete and to maintain con-fidentiality, rendered those covenants material);Dunkin' Donuts of Am., Inc. v. Middletown DonutCorp., 495 A.2d 66, 75 (N.J.1985) (enforcing pro-vision in franchise agreement that rendered under-reporting of sales a material breach of contract thatallowed franchisor to terminate franchise and suefor damages); 23 RICHARD A. LORD, WILLIS-TON ON CONTRACTS § 63:3 (4th ed. 2002)(“Where the contract itself is clear in making a cer-tain event a material breach of that contract, a courtmust ordinarily respect that contractual provi-sion.”); cf. Dexter v. Drake, 269 P.3d at 856 (“Thedoctrine of substantial performance does not applywhere the parties, by the terms of their agreement,make it clear that only complete performance willbe satisfactory.”).

Here, the parties contractually agreed that thebuyer's material breach of any term, even an imma-terial term, would allow Hawker to terminate theAircraft Purchase Agreement and sue for specificperformance. The failure to indemnify Hawker ormaintain the confidentiality of the terms and condi-tions of the Aircraft Purchase Agreement wouldconstitute material breaches of the indemnity andconfidentiality provisions. Similarly, the assign-ment of the Aircraft Purchase Agreement withoutHawker's written consent was prohibited and wouldmaterially breach that provision. (See Aircraft Pur-chase Agreement, at General Terms and Condi-tions, § 27(A).) In short, a buyer could commit amaterial breach of the Aircraft Purchase Agreementeven after delivery of the aircraft that would allowHawker to terminate the agreement and sue. Ac-cordingly, the Aircraft Purchase Agreements areexecutory.

2. Support PlusThe Support Plus Agreements are also execut-

ory. The Premier customer must make periodic pay-ments. The Hawker 4000 customer pre-paid for theSupport Plus Program, but was still obligated to payan Excessive Landing charge if the ratio of flighttime to landings fell below a certain number. In ad-dition, the buyers under both programs had addi-tional obligations, including submitting utilizationreports, paying various other charges, maintaining alogbook, providing access to Hawker and reportingcertain airworthiness issues relating to the mainten-ance performed under the Support Plus Program. Ifthe customer fails to pay as required and Hawkersues to recover the unpaid charges, the customer isalso liable for Hawker's reasonable attorneys' fees,costs and expenses. Finally, Hawker has the right toterminate the Support Plus Agreement if the cus-tomer breaches any of the terms or conditions, in-cluding these affirmative duties.

3. Other Warranties*10 Immediately following the hearing, the

Court denied the Rejection Motion to the extent ofCustomer Programs other than those pertaining tothe Hawker 4000 and Premier Limited Warrantyand Support Plus Program. Hawker failed to pro-duce the other underlying Customer Program agree-ments, and hence, failed to demonstrate that theywere executory. (Tr. at 67–68.)

C. Business JudgmentThe decision to assume or reject an executory

contract involves the exercise of business judgment.See In re Orion Pictures Corp., 4 F.3d 1095, 1099(2d Cir.1993). Here, Hawker demonstrated that thedecision to reject the Limited Warranty and SupportPlus Programs represents the exercise of soundbusiness judgment, flowing naturally from the de-cision, which no one questions, to stop manufactur-ing and selling the Hawker 4000 and Premier air-craft. The decision to stop manufacturing maycause parts manufacturers to withdraw from themarket or deal with Hawker on less favorableterms. At the high end, it could cost Hawker morethan $240 million to perform these obligationsthrough 2017. Hawker also considered the possible


















cost of a spill over loss of business, and the de-cision reflects Hawker's business judgment that thebenefits of rejection outweigh the benefits of per-formance.

This conclusion necessarily rejects the argu-ment that Hawker must show something more thanordinary business judgment because the operationof aircraft involves public safety. No cases are citedsuggesting that the decision to reject an aircraftwarranty or maintenance agreement is subject to ahigher standard. Nor does the decision to rejectconflict with any federal statutory or regulatoryscheme governing aircraft. The aircraft owner—notthe manufacturer—bears the responsibility formaintaining the aircraft. See 14 C.F.R. § 91.403(a)(2012) (“The owner or operator of an aircraft isprimarily responsible for maintaining that aircraftin an airworthy condition....”); Id. § 91.405(a)(“Each owner or operator of an aircraft—[s]hallhave that aircraft inspected as prescribed in subpartE of this part and shall between required inspec-tions, except as provided in paragraph (c) of thissection, have discrepancies repaired as prescribedin part 43 of this chapter”); Id. § 91.7(a) (providingthat “no person may operate a civil aircraft unless itis an airworthy condition”); Id. § 91.7(b) (providingthat “the pilot in command of a civil aircraft is re-sponsible for determining whether the aircraft is incondition for safe flight.”).

The argument also makes no sense given thelimited nature of the limited nature of the warrantyand support obligations. They will eventually ex-pire. The owners will then have to pay for mainten-ance and support, or stop flying their aircraft.Hawker's decision not to honor the Hawker 4000and Premier Limited Warranty and Support PlusPrograms is not a public safety issue. It is a monet-ary issue that forces the owners to pay for the main-tenance and support sooner and possibly at a highercost, but they can still purchase that maintenanceand support from Hawker or from third-parties.

D. Judicial Estoppel*11 “Judicial estoppel is designed to prevent a

party who plays fast and loose with the courts fromgaining unfair advantage through the deliberate ad-option of inconsistent positions in successive suits.”Wight v. BankAmerica Corp., 219 F.3d 79, 89 (2dCir.2000); accord Zedner v. United States, 547 U.S.489, 504 (2006); New Hampshire v. Maine, 532U.S. 742, 749 (2001); Bates v. Long Island R.R.Co., 997 F.2d 1028, 1037 (2d Cir.1993). The doc-trine serves two purposes: “to preserve the sanctityof the oath by demanding absolute truth and con-sistency in all sworn positions,” and to “protect ju-dicial integrity by avoiding the risk of inconsistentresults in the two proceedings.” Bates, 997 F.2d at1037–38.

The application of judicial estoppel is discre-tionary, and three factors generally inform thecourt's discretion. First, the party's position must be“ ‘clearly inconsistent’ with its earlier position”;second, the party must have “succeeded in persuad-ing a court to accept that party's earlier position”;and third, “the party seeking to assert an inconsist-ent position would derive an unfair advantage orimpose an unfair detriment on the opposing party ifnot estopped.” New Hampshire v. Maine, 532 U.S.at 750–51; accord Zedner, 547 U.S. at 504; see Uz-davines v. Weeks Marine, Inc., 418 F.3d 138, 148(2d Cir.2005). The Second Circuit has taken a fairlynarrow view of the doctrine, stating that judicial es-toppel is limited “to situations where the risk of in-consistent results with its impact on judicial integ-rity is certain.” Uzdavines, 418 F.3d at 148(quoting Simon v. Safelite Glass Corp., 128 F.3d68, 72 (2d Cir.1997)).

Some of the objecting parties argued thatHawker is attempting to take a position on the Re-jection Motion inconsistent with the one it success-fully took on the Motion to Honor. For example,McGrath pointed to Hawker's earlier statementsthat the warranty and support obligations did not re-quire significant cash expenditures in most in-stances, were critical to maintaining certain aspectsof Hawker's revenue and ongoing viability andwere necessary to assure its customers and potential




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future customers that its reorganization wouldcause minimal disruptions to its operations. (Mc-Grath Objection at ¶ 18.) According to Pace,Hawker previously argued that “performance oftheir warranty obligations were critical to the re-structuring of the Debtors and to future sales.” (Pace Objection at ¶ 20.) McGrath and Pace havewithdrawn their objections, but before then, RCSjoined in and adopted those objections as its own. (RCS Objection at 3.)

Hawker's position at the time of the Motion toHonor is not “clearly inconsistent” with its currentposition on the Rejection Motion, and will not leadto an inconsistent result. Hawker's earlier state-ments were made when it was still possible thatHawker might sell or continue some or all of its jetproduct lines and honor associated warranty andsupport obligations. As a result, Hawker decided atthat time that it was important to maintain the loy-alty of its jet customer base, and to continue on adiscretionary basis to honor the Customer Programspertaining to the Hawker 4000 and Premier aircraft.Nevertheless, Hawker did not unconditionally com-mit itself. The Motion to Honor and resulting ordersauthorized but did not direct Hawker to honor anyof the Customer Programs, left the decision to itssole discretion, did not assume any executory con-tracts and reserved all of Hawker's rights.

*12 Hawker eventually found itself left withonly one option. It proposed a plan under which itwill terminate the production of all or substantiallyall of its jet product lines, including the Hawker4000 and Premier aircraft. Although Hawker under-standably feels an obligation to continue to supportall of its former customers, it decided to reject theHawker 4000 and Premier warranty and support ob-ligations based upon its decision to stop producingthese aircraft, the substantial cost to Hawker ofhonoring the obligations and the implicit conclu-sion that any possible spillover effect on its otherbusiness did not justify a different outcome. Thetwo positions are not inconsistent; rather they re-flect changed circumstances and different consider-

ations that necessarily informed Hawker's businessjudgment at different times.

The evidence also fails to disclose that Hawkergained an unfair advantage or imposed an unfairdetriment on the Hawker 4000 and Premier buyersthat hold rights under a Limited Warranty or Sup-port Plus Program. Hawker's early decision to hon-or these warranty and support obligations resultedin a cost to Hawker without a corresponding mater-ial benefit. To the extent Hawker provided warrantyor support services post-petition under pre-petitionagreements that it did not assume, the beneficiariesobtained an advantage by receiving a “distribution”on their unsecured contract claims. Furthermore,even if the results of the Motion to Honor inducedsomeone to buy a Hawker 4000 or Premier jet,Hawker cannot reject a post-petition Aircraft Pur-chase Agreement or Support Plus Agreement any-way. Accordingly, I conclude that Hawker is not ju-dicially estopped in taking its current position.

E. Unfair DiscriminationRCS charged Hawker with discriminating

against similarly-situated holders of warranty andsupport rights by rejecting some but not all of itswarranty obligations. Instead, Hawker “could rat-ably reduce warranty benefits to all plane models inorder to avoid preferring certain model owners overothers.” (RCS Objection at 3.)

This argument is frivolous. No principle ofbankruptcy law requires a debtor to assume or re-ject all of its similar contracts. Furthermore, RCS'sreference to the “confirmation requirements thatsimilarly situated creditors receive similar treat-ment,” (id .), is misguided. The requirement con-tained in 11 U.S.C. § 1123(a)(4) that the planprovide the same treatment to each claim in a par-ticular class, unless the holder of the claim agreesto less favorable treatment, simply means that RCS,as a member of the unsecured class, will receive thesame distribution as the other members of its class,unless it agrees to take something less. The require-ment under 11 U.S.C. § 1129(b) that the plan can-not unfairly discriminate against a rejecting class




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only applies in a cram down, and requires the courtto compare the rights granted under the plan to sim-ilar classes, at least one of which has rejected theplan. The Rejection Motion is not governed by sec-tions 1123(a)(4) or 1129(b) (or section 547 whichRCS also cites), and these provisions do not requireHawker to assume all of its warranty and supportobligations or spread the hurt ratably among simil-arly-situated non-debtor contract parties.

F. The Rotorwing Objection

1. Background

*13 On or around November 12, 2009, LiderInternational Aviation, B.V. (“Lider”) entered intoan agreement with Hawker to buy a used Premieraircraft for $3,900,000. (See Rotorwing Objectionat ¶ 4; Resale Aircraft Purchase Agreement(“Resale Agreement ”) .) FN14 The Resale Agree-ment incorporated several documents by reference,including General Terms and Conditions (“GeneralTerms ”), a warranty (the “Lider Warranty”), andan Addendum to Resale Agreement (“Addendum ”).The Lider Warranty provided that from the date ofthe original retail sale—March 4, 2008—Hawkerwarranted the factory manufactured parts and sup-plier systems and components for five years,Collins Avionics for five years, Williams–Rolls En-gines for three years or 1,500 hours from first use,whichever occurred first, and exterior paint and in-terior finish items for two years. The GeneralTerms also imposed several obligations on the buy-er which are discussed below.

FN14. The Resale Agreement is attached asExhibit A to the Rotorwing Objection. Theother contract documents discussed in thissection are attached either as exhibits tothe Resale Agreement or as a separate Ex-hibit B to the Rotorwing Objection.

The parties consummated the sale on Novem-ber 30, 2009, at which time Hawker transferred titleto the aircraft and Lider paid the balance of the pur-chase price. (Rotorwing Objection at ¶ 5.) On Au-

gust 26, 2010, Lider sold the aircraft to HelicoptorFinance, LLC, and on the same day, the latterleased the aircraft to Rotorwing with an option topurchase it. (Id. at ¶¶ 6–7.)

2. Rotorwing's ObjectionRotorwing raised three objections to the Rejec-

tion Motion: (1) the Court lacks personal jurisdic-tion over Rotorwing because it was not properlyserved, (2) the Resale Agreement, which includesthe Lider Warranty that Hawker seeks to reject, isnot executory, and (3) the doctrine of judicial es-toppel bars Hawker from rejecting its CustomerPrograms for Hawker 4000 and Premier aircraft.The Court has already overruled the last point andproceeds to the other two.

a. Sufficiency of ServiceRotorwing is an entity located in the Nether-

lands. According to Hawker's affidavit of service, itserved the Rejection Motion on Rotorwing by ad-dressing it to the attention of the “president or legaldepartment,” and enclosing it “securely in [a] sep-arate postage pre-paid envelop[e] and delivered viaovernight mail.” (Affidavit of Service, sworn toNov. 27, 2012 (ECF Doc. # 833).)

Bankruptcy Rule 6006 governs the procedurefor assuming or rejecting an executory contract. Itmakes Bankruptcy Rule 9014 applicable, FED. R.BANKR.P. 6006(a), and the Rejection Motionmust, therefore, be served in the manner providedfor the service of the summons and complaint underBankruptcy Rule 7004. See FED. R. BANKR.P.9014(b). Bankruptcy Rule 7004(b)(3) authorizesservice on a corporation by first class mail, but islimited to mailing within the United States.However, Bankruptcy Rule 7004(a) incorporatesthe provisions of rules 4(f) and 4(h) of the FederalRules of Civil Procedure (“Federal Civil Rules”),which govern service in a foreign country.

*14 Federal Civil Rule 4(f), which governs ser-vice on an individual in a foreign country, provides:

Unless federal law provides otherwise, an indi-






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vidual—other than a minor, an incompetent per-son, or a person whose waiver has beenfiled—may be served at a place not within anyjudicial district of the United States:

(1) by any internationally agreed means of ser-vice that is reasonably calculated to give no-tice, such as those authorized by the HagueConvention on the Service Abroad of Judicialand Extrajudicial Documents;

(2) if there is no internationally agreed means,or if an international agreement allows but doesnot specify other means, by a method that isreasonably calculated to give notice:

(A) as prescribed by the foreign country's lawfor service in that country in an action in itscourts of general jurisdiction;

(B) as the foreign authority directs in responseto a letter rogatory or letter of request; or

(C) unless prohibited by the foreign country'slaw, by:

(i) delivering a copy of the summons and of thecomplaint to the individual personally; or

(ii) using any form of mail that the clerk ad-dresses and sends to the individual and that re-quires a signed receipt; or

(3) by other means not prohibited by interna-tional agreement, as the court orders.

Federal Civil Rule 4(h), which governs serviceon a corporation, states in relevant part that“[u]nless federal law provides otherwise ... a do-mestic or foreign corporation ... must be served ...(2) at a place not within any judicial district of theUnited States, in any manner prescribed by Rule4(f) for serving an individual, except personal de-livery under (f)(2)(C)(i).” Thus, with the exceptionof personal delivery, Rule 4(h) incorporates Rule4(f) and permits service in accordance with theHague Convention on the Service Abroad of Judi-

cial and Extrajudicial Documents (“Hague Conven-tion”). Rotorwing was served in the Netherlands,and the Netherlands is a party to the Hague Con-vention. See Tinsley v. ING Grp., No. Civ.A.05–808–KAJ, 2006 WL 533375, at *1 (D.Del. Mar.3, 2006).

Article 10(a) of the Hague Convention statesthat “[p]rovided the State of destination does notobject, the present Convention shall not interferewith-(a) the freedom to send judicial documents, bypostal channels, directly to persons abroad.” TheNetherlands has not objected to sending judicialdocuments by “postal channels,” Tinsley, 2006 WL533375, at *1, and consequently, service of processthrough a “postal channel” on a corporation in theNetherlands is permissible, even if it does not com-ply with the requirements of Federal Civil Rule 4.See Ackermann v. Levine, 788 F.2d 830, 840–41(2d Cir.1986).

Although this conclusion appears to dispose ofRotorwing's objection to service, a question re-mains. The affidavit of service does not indicatethat Hawker sent the Rejection Motion using theUnited States Postal Service or that it was routed toRotorwing by an equivalent organization in theNetherlands. I infer that Hawker used a privateovernight international mail courier service such asFederal Express. The question is whether a privatecourier is a “postal channel” within the meaning ofArticle 10(a).

*15 “Postal channels” is not defined in Article10(a). Richard J. Hawkins, Dysfunctional Equival-ence: The New Approach to Defining “PostalChannels” Under the Hague Service Convention,55 UCLA L.Rev. 205, 223 (2007). Nevertheless,

In 2006, the Permanent Bureau of the HagueConference on Private International Law(Permanent Bureau), the intergovernmental or-ganization that acts as the Convention's secret-ariat, took a position that transmission of docu-ments via postal channels can include transmis-sion by modern commercial and technological


























means, provided that transmission throughthese alternative means constitutes the“functional equivalent” of a postal channel.

Id. at 207–08.

The use of a courier service is the functionalequivalent of sending the Rejection Motion throughthe United States Post Office. Here, Rotorwing re-ceived what Hawker sent. Moreover, some courtshave concluded that service by private internationalcourier satisfies Article 10(a) provided that the re-ceiving nation has not objected. R. Griggs Grp. Ltd.v. Filanto Spa, 920 F.Supp. 1100 (D.Nev.1996)(upholding service by Federal Express under Art-icle 10(a) of the Hague Convention); Power Integ-rations, Inc. v. Sys. Gen. Corp., No. C 04–02581JSW, 2004 WL 2806168, at *2 n. 3 (N.D.Cal. Dec.7, 2004) (stating that Griggs found that Federal Ex-press was a “postal channel” for purposes of theHague Convention); cf. Kelley v. Cinar Corp. (In reCinar Corp. Sec. Litig.), 186 F.Supp.2d 279,303–04 (E.D.N.Y.2002) (questioning but not decid-ing whether Purolator Courier is a postal channelwithin the meaning of Article 10(a) of the HagueConvention). In addition, the use of an internationalcourier service is consistent with due process, seeDee–K Enter., Inc. v. Heveafil Sdn. Bhd., 174F.R.D. 376, 381–82 (E.D.Va.1997) (upholding ser-vice of process by DHL courier in Indonesia andMalaysia), and Rotorwing has not suggested other-wise. Accordingly, the Court concludes that serviceby overnight international courier on Rotorwingcomplies with Article 10(a) of the Hague Conven-tion and the requirements of due process under thelaw of the United States, and Rotorwing's objectionbased on the sufficiency of service is overruled.

In re Teknek, LLC, 512 F.3d 342 (7th Cir.2007), on which Rotorwing relies, is distinguishable.There, a creditor commenced a contested mattermoving to hold Hamilton in contempt. Hamiltonlived in Scotland, and instead of serving Hamiltonwhere she lived, the creditor mailed a copy of themotion to Hamilton's lawyer in Chicago. The Courtof Appeals stated that under the Hague Convention,

service by mail is not allowed, and suggested thatHamilton had to be served personally in Scotland.Id. at 345–46.

While the Court of Appeals correctly con-cluded that service on Hamilton's attorney in Chica-go was insufficient under Bankruptcy Rules9014(b) and 7004, its statement that service by mailunder the Hague Convention is never permissibleconflicts with the Second Circuit's ruling in Acker-mann. To the contrary, service by mail on a corpor-ation is permissible under the Hague Conventionwhere, as in the case of the Netherlands, the nationin which service is made does not object to the useof “postal channels.” FN15

FN15. International service by courier oreven by first class mail is arguably insuffi-cient under the internal law of the Nether-lands. See Tinsley, 2006 WL 533375, at *1(noting that in the Netherlands, “[s]erviceof process by international registered mailis permitted under Dutch law in adminis-trative, civil and criminal cases” (quotingThe Netherlands Judicial Assistance,available at http://travel.state.gov/law/info/judicial).However, the focus is on the requirementsof service in federal court under the HagueConvention—an international treaty—notthe rules governing the service of processin proceedings in the Netherlands. Regard-ing the former, the Netherlands has neverobjected to service through “postal chan-nels,” and Rotorwing does not contend thatservice under Article 10(a) must complywith the Netherlands' own internal rules.

b. Executoriness*16 The principles governing the question of

executoriness are set out above. The Resale Agree-ment did not incorporate the broader Limited War-ranty contained in the Premier Aircraft PurchaseAgreement. Furthermore, the Lider Warranty hadlargely expired by the petition date, and Hawker'sonly remaining obligations related to the factory




























manufactured parts and systems and componentssupplied by Collins Avionics.

The Resale Agreement also imposed obliga-tions on the buyer beyond payment. It contained aconfidentiality provision that, with certain excep-tions, prohibited either side from disclosing itsterms to a third party without the express writtenapproval of the other party. (Resale Agreement, atGeneral Terms, at § IV, ¶ 10 .) The buyer alsoagreed that would not register or allow any registra-tion against the aircraft pursuant to the Cape TownTreaty as defined in the General Terms without theseller's written authorization. (Id. at § IV, ¶ 11.) Inthe event the buyer intended to export the aircraft,it promised to comply with all United States exportlaws and indemnify the seller for any consequencesarising from the failure to comply with those laws. (Id. at § IV, ¶ 12.) The parties agreed that any workneeded to meet the requirements for obtaining anexport certificate of airworthiness, aircraft registra-tion or airworthiness certification from any aviationauthority other than the United States Federal Avi-ation Administration would be borne by the buyer,and the buyer agreed to indemnify the seller for anysuch costs. (Id. at § IV, ¶ 15.) Finally, the buyeragreed to indemnify the seller and others from anyliability, except for willful misconduct or grossnegligence, arising directly or indirectly out of or inconnection with the aircraft familiarization andtraining program provided under the Resale Agree-ment. (Resale Agreement, at Addendum, § 2(b).)

Unlike the Aircraft Purchase Agreements, theResale Agreement did not include a provision thatmade any breach of its terms and conditions materi-al. Because materiality is a question of fact, the ab-sence of such a clause precludes the Court from de-ciding as a matter of law that Rotorwing had mater-ial obligations remaining as of the petition date thatwould render the Resale Agreement executory. Ahearing is necessary to resolve this question, al-though for the reasons stated earlier, is unnecessaryto free Hawker from the duty to provide warrantyor support services to Rotorwing under the Resale

Agreement. In the event that Hawker desires a hear-ing, it should consult with Rotorwing and contactchambers to schedule one.

CONCLUSIONThe Rejection Motion is granted with respect to

the Aircraft Purchase Agreements and Support PlusAgreements pertaining to the Hawker 4000 andPremier aircraft. It is denied with respect to anyother Customer Programs because Hawker hasfailed to show that the relevant agreements are ex-ecutory. Finally, a hearing is necessary to decidewhether the Resale Agreement is executory. Settleorder on notice.

Bkrtcy.S.D.N.Y.,2013.In re Hawker Beechcraft, Inc.--- B.R. ----, 2013 WL 310034 (Bkrtcy.S.D.N.Y.)

END OF DOCUMENT




UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE

In re:

Kingsbury Corporation Donson Group, Ltd. Ventura Industries, LLC

Debtors.

Bk. No. 11-13671-JMD Bk. No. 11-13700-JMD Bk. No. 11-13687-JMD

Jointly Administered

CERTIFICATE OF SERVICE

I, Aubrey Cummings, being over the age of eighteen and an employee of Bernstein, Shur,

Sawyer & Nelson, P.A. in Portland, Maine, hereby certify that on today’s date I caused the

Supplement to Motion for Authority to Reject Settlement Agreement Between Kingsbury

Corporation and City of Keene Pursuant to 11 U.S.C. § 365 to be filed via the Court’s CM/ECF

electronic filing system. Parties served electronically through CM/ECF are listed below.

Dated: January 30, 2013 /s/ Aubrey Cummings

Aubrey Cummings, Legal Assistant

BERNSTEIN, SHUR, SAWYER & NELSON, P.A. 100 Middle Street, P.O. Box 9729 Portland, ME 04104-5029 Telephone: (207) 774-1200 Facsimile: (207) 774-1127

Case: 11-13671-JMD Doc #: 553-1 Filed: 01/30/13 Desc: Certificate of Service Page 1 of 3

2

SERVICE LIST

VIA CM/ECF:

Christopher J. Allwarden on behalf of Creditor Public Service Company of NH [email protected] Michael S. Askenaizer on behalf of Witness PPL Group, LLP [email protected] John R. Baraniak on behalf of Creditor Liberty Mutual Insurance Company [email protected], [email protected] Fred W. Bopp on behalf of Creditor Highlands Fuel Delivery, LLC, d/b/a Irving Energy Distribution and Marketing [email protected], [email protected];[email protected];[email protected] Maire B. Corcoran on behalf of Debtor Donson Group, Ltd. [email protected], [email protected];[email protected] Nicole Horberg Decter on behalf of Creditor United Auto Workers Local 2232 [email protected], [email protected];[email protected] Ann Marie Dirsa on behalf of U.S. Trustee Office of the U.S. Trustee [email protected] John D. Finnegan on behalf of Creditor City of Keene [email protected] Edmond J. Ford on behalf of Creditor TD Bank, N.A. [email protected] Joseph A. Foster on behalf of Creditor Diamond Business Credit, LLC [email protected], [email protected] Honor S. Heath on behalf of Creditor Public Service Company of NH [email protected] Geraldine Karonis on behalf of U.S. Trustee Office of the U.S. Trustee [email protected], [email protected] Robert J. Keach on behalf of Debtor Donson Group, Ltd. [email protected], [email protected];[email protected];[email protected]


mailto:[email protected]





mailto:[email protected];[email protected];[email protected]



mailto:[email protected];[email protected]













3

Robert J. Kerwin on behalf of Creditor City of Keene [email protected] Jessica A. Lewis on behalf of Debtor Donson Group, Ltd. [email protected] Benjamin E. Marcus on behalf of Creditor Optimation Technology, Inc. [email protected], [email protected];[email protected];[email protected] Thomas P. Mullins on behalf of Creditor City of Keene [email protected] Andrew S. Nicoll on behalf of Witness PPL Group, LLP [email protected] Office of the U.S. Trustee [email protected] Marc S. Pfeuffer on behalf of Creditor Pension Benefit Guaranty Corporation [email protected], [email protected] Jeffrey T. Piampiano on behalf of Creditor Optimation Technology, Inc. [email protected], [email protected];[email protected] Steven C. Reingold on behalf of Creditor Committee Official Committee of Unsecured Creditors [email protected], [email protected] Jennifer Rood on behalf of Debtor Donson Group, Ltd. [email protected], [email protected] Peter C.L. Roth on behalf of Interested Party State of New Hampshire Dept. of Labor [email protected], [email protected] Timothy P. Smith [email protected] Timothy P. Smith on behalf of Creditor United Auto Workers Local 2232 [email protected] Mark F. Weaver on behalf of Creditor TD Bank, N.A. [email protected], [email protected]





















