Brandt v. Charter Airlines LLC

Filing 15

Enter MEMORANDUM, OPINION AND ORDER: The Plan Administrators objections to the bankruptcy courts Proposed Findings of Fact and Conclusions of Law are sustained in part and overruled in part. The case is remanded for the bankruptcy court for further proceedings not inconsistent with this opinion. Civil case terminated. Signed by the Honorable Virginia M. Kendall on 8/12/2015.Mailed notice(tsa, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

WILLIAM A. BRANDT, JR. not individually
but solely in his as plan administrator of
Equipment Acquisition Resources, Inc.,
Plaintiff,
v.
CHARTER AIRLINES, LLC,
Defendant.

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14 C 5102
Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER
Before the Court are the Proposed Findings of Fact and Conclusions of Law from the
bankruptcy court with respect to this adversary proceeding. In the bankruptcy court, Defendant
Charter Airlines and William A. Brandt Jr., Plan Administrator for the debtor, Equipment
Acquisition Resources, Inc. (“EAR”), cross moved for summary judgment under Federal Rule of
Bankruptcy Procedure 7056. The bankruptcy judge recommended that this Court deny the Plan
Administrator’s motion for summary judgment and grant Charter Airlines’ motion for summary
judgment. See In re Equip. Acquisition Res., 511 B.R. 527 (Bankr. N.D. Ill. 2014). The Plan
Administrator filed objections to both of these recommendations. For the following reasons, the
Court adopts the bankruptcy court’s Proposed Findings of Fact and Conclusions of Law with
respect to the Plan Administrator’s motion for summary judgment, but sustains the objection
with respect to Charter Airlines’ motion for summary judgment. The case is remanded to the
bankruptcy court for a determination of the extent to which Charter Airlines gave value to the
debtor.

BACKGROUND
The underlying facts are not largely in dispute and were well stated by the bankruptcy court:
EAR had been continuously insolvent since October of 2005. (Plan Administrator
7056–1 Statement at ¶ 9.) From 2007 until October 8, 2009, it engaged in a
massive fraud whereby it misrepresented the value of equipment, sold it at
artificially inflated prices, leased the equipment back from various lenders, and, in
certain cases, pledged the same equipment multiple times to secure financing. (Id.
at ¶ 8.) During this period of time, one or more of the officers, directors, and
shareholders of EAR knew that EAR was engaged in this fraud, and EAR paid
substantial amounts of money to its board of directors, officers, and others
detailed below (Id.)
Ms. Malone and Mr. Anstett were officers of EAR, and both resigned their
positions on October 8, 2009. (Id. at ¶ 10.) Mr. Player was married to Ms.
Malone, and he played an integral role in structuring and effectuating the
transactions which constituted the fraud described above. (Id. at ¶ 11.) In addition,
Mr. Player had the power, authority, and/or ability to sign checks on EAR's
accounts. (Id.) EAR paid Mr. Player substantial sums throughout the four-year
period prior to the petition date. (Id.)
James Walker and his wife are the co-owners of Charter Airlines (Charter
Airlines 7056–1 Statement at ¶ 2), a Nevada limited liability company. (Plan
Administrator 7056–1 Statement at ¶ 3.) Mr. Walker has been the director of
operations, chief pilot, and the captain on every of Charter's flights for the past
forty years. (Charter Airlines 7056–1 Statement at ¶ 2.) The parties do not dispute
that Charter Airlines was engaged to fly Mr. Player, Mr. Anstett, and Ms. Malone
to various locations across the country. All of the chartered flights were initially
charged to an American Express credit card in the name of EAR. (Id. at ¶ 5.) To
save money and avoid credit card fees, Mr. Player then began paying Charter
Airline’s invoices by EAR company checks. (Id.)
The following EAR checks were given to Charter Airlines for various flights
taken by Mr. Player, Mr. Anstett, and Ms. Malone:
Check No. 906947 dated July 17, 2008 in the amount of $16,000
Check No. 1055 dated September 7, 2008 in the amount of $14,000
Check No. 907730 dated September 28, 2008 in the amount of $24,000
Check No. 1075 dated October 6, 2008 in the amount of $24,000
Check No. 1062 dated October 29, 2008 in the amount of $28,000
Check No. 908310 dated December 17, 2008 in the amount of $24,000
Check No. 1129 dated December 26, 2008 in the amount of $24,000

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(Plan Administrator 7056–1 Statement at ¶ 12.) The aggregate amount of the
payments within the two-year period prior to the petition date, October 23, 2007
to October 23, 2009, was $161,500. 1 (Id. at ¶ 14.)
Mr. Walker never asked and was never informed whether the chartered flights
were booked for business or personal purposes. (Charter Airlines 7056–1
Statement at ¶ 6.) At the time the chartered flights were booked, Mr. Walker was
not aware that EAR was insolvent or that EAR, Mr. Player, Mr. Anstett, and/or
Ms. Malone were engaged in a fraudulent scheme. (Id. at ¶ 8.) The price Charter
Airlines charged for each flight was the fair market value for a charter airline
flight, taking into account the market value of fuel at the time. (Id. at ¶ 9.)
EAR filed its Chapter 11 bankruptcy case on October 23, 2009. On July 15, 2010,
the Court approved EAR’s plan of liquidation pursuant to which EAR executed
the Plan Administrator agreement that named the Plan Administrator. The instant
adversary proceeding was filed on October 17, 2011. In his one-count complaint,
the Plan Administrator alleges that the above-referenced transfers were made for
less than reasonably equivalent value during a time when EAR was insolvent and
thus are avoidable fraudulent transfers under 11 U.S.C. § 548(a)(1)(B) and
recoverable under 11 U.S.C. § 550.
See Equip. Acquisition Res., 511 B.R. at 533-34 (footnote in original).
The bankruptcy court recommended that this Court deny the Plan Administrator’s motion
for summary judgment, but grant Charter’s motion. See id. at 531. In the bankruptcy judge’s
view, summary judgment in the Plan Administrator’s favor was not appropriate because the
bankruptcy court “would have to conduct a trial on the issue of whether EAR received
reasonably equivalent value.” Id. at 535. The bankruptcy court, however, did not believe that any
factual disputes stood in the way of Charter’s summary judgment motion. Charter was not aware
of the Officers’ fraudulent scheme or EAR’s insolvency and there was no question that Charter
actually operated the flights for which it received payment. Thus, the bankruptcy court urged this
Court to find that Charter had demonstrated that it had taken the payment in good faith and for
value, entitling it to the protection of § 584(c).

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The seven checks referenced above total $154,000 not $161,500. It is unclear to the Court how the parties have
arrived at the $161,500 sum. For purposes of these motions, however, the Court need not determine the exact sum.

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The Plan Administrator timely objected to the bankruptcy court’s proposed findings of
fact and conclusions of law. (Dkt. No. 1). The Plan Administrator argued that the evidence did
not support a grant of summary judgment in favor of Charter because there was no evidence in
the record that EAR received any value from the transaction. The Plan Administrator also argued
that this Court should grant summary judgment in its favor because the bankruptcy court relied
on inadmissible hearsay in finding that a question of fact existed as to whether EAR received
reasonably equivalent value for its payments to Charter.
STANDARD OF REVIEW
In noncore proceedings not directly related to matters arising under the Bankruptcy Code,
a bankruptcy judge must submit proposed findings of fact and conclusions of law to the district
court. See 28 U.S.C. § 157(c)(1). Review in this Court is de novo with respect to any portion of
the findings of fact or conclusions of law to which specific written objection has been made. See
Fed. R. Bankr. P. 9033(d); see also Executive Benefits Agency v. Arkinson, 134 S. Ct. 2165, 2173
(2014). The Court may accept, reject, or modify the proposed findings of fact or conclusions of
law, receive further evidence, or recommit the matter to the bankruptcy judge with instructions.
DISCUSSION
A.

EAR is not entitled to summary judgment
The bankruptcy judge recommended that the Court deny the Plan Administrator’s motion

for summary judgment because a dispute exists as to whether EAR received reasonably
equivalent value from the transaction. The Bankruptcy Code allows a trustee to avoid a transfer
if, among other factors not in dispute, the debtor “received less than a reasonably equivalent
value in exchange for such transfer or obligation.” 11 U.S.C. § 548(a)(1)(B)(i). “Reasonably
equivalent should be understood to mean not part payment but that the debtor received or will

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receive value for the property that he transferred that is as close to true equivalence as
circumstances permit.” 1756 W. Lake Street LLC v. Am. Chartered Bank, 787 F.3d 383, 387 (7th
Cir. 2015). To determine whether a debtor has received reasonably equivalent value, a reviewing
court must determine the value of what was transferred and compare that value to the value the
debtor received. See Creditor’s Comm. of Jumer’s Castle Lodge, Inc. v. Jumer, 472 F.3d 943,
947 (7th Cir. 2007). Whether reasonably equivalent value has been given is a question of fact.
Barber v. Golden Seed Co. Inc., 129 F.3d 382, 387 (7th Cir. 1997).
The Plan Administrator objects on the ground that the bankruptcy court relied on
statements for which Charter Airlines did not lay the proper foundation and that constituted
inadmissible hearsay in reaching the conclusion that a genuine dispute existed as to whether
EAR received reasonably equivalent value from the transaction. Both evidentiary objections
relate to a single statement in the affidavit of James Walker, Charter Airlines’ Chief Pilot and
Director of Operations. In his affidavit, Walker stated “Player was constantly talking on his cell
phone for what appeared to be business purposes, discussing financing, loans, and acquisitions.”
(Walker Aff. ¶ 5). The affidavit does not disclose when or where Walker overheard Player’s
conversations. The objection is overruled.
The affidavit contains sufficient information to lay a foundation for Walker’s personal
knowledge and the relevance of the conversations. “[E]vidence offered to support or oppose
summary judgment must be admissible at trial, and affidavits and declarations must be made
with personal knowledge.” Johnson v. Holder, 700 F.3d 979, 982 (7th Cir. 2012). The Court
notes that “no rule of evidence requires a ‘foundation’; ‘foundation’ is simply a loose term for
preliminary questions designed to establish that the evidence is admissible.” A.I. Credit Corp. v.
Legion Ins. Co., 265 F.3d 630, 638 (7th Cir. 2001). The threshold question here is one of

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temporal relevance: did the conversations take place at a time that would suggest the flights in
question were business related? The bar for relevance is low. The evidence need only have “any
tendency to make a fact more or less probable.” Fed. R. Evid. 401. In evaluating Plan
Administrator’s motion for summary judgment, the Court must draw all reasonable inferences in
Charter Airlines’ favor. Walker was a pilot and executive at Charter Airlines. Walker was
familiar with the adversary complaint in this case and the flights in question. Nothing in the
record suggests that Walker, Charter Airlines, EAR, or Player had any relationship beyond the
occasional provision of business travel. The Plan Administrator does not deny Walker has been
the pilot on every Charter Airlines flight for the past 40 years. From these facts, it is reasonable
to infer that the conversations took place on, just before, or just after, the Charter Airlines flights
for which the Plan Administrator seeks recovery. In other words, the fact that Walker overheard
Player’s apparently business related conversations is relevant to the purpose of the flight and the
value EAR received.
The passengers’ statements are not hearsay because they are not admitted for the truth of
the matter asserted. See Malin v. Hospira, Inc., 762 F.3d 552, 555 (7th Cir. 2014) (statement
“was not a statement of fact being offered to prove the truth of any matter asserted, so it was not
hearsay at all”). Walker’s affidavit states that he overheard EAR executives making phone calls
regarding acquisitions, financing, and other business topics. The statements were admitted to
show that the passengers were engaged in business activities while in flight, not for the truth of
the statements themselves. The statements on which the bankruptcy judge relied were admissible
and the Plan Administrator’s objection is overruled.

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B.

Charter Airlines is not entitled to summary judgment
The bankruptcy court held that notwithstanding a question of fact as to whether EAR had

received reasonably equivalent value in exchange for its payment to Charter Airlines, Charter
Airlines was entitled to summary judgment based on its § 548(c) affirmative defense because it
was undisputed that Charter Airlines had actually operated the flights, in other words that it had
“given value.” Section 548(c) states: “Except to the extent that a transfer or obligation voidable
under this section is voidable under section 544, 545, or 547 2 of this title, a transferee or obligee
of such a transfer or obligation that takes for value and in good faith has a lien on or may retain
any interest transferred or may enforce any obligation incurred, as the case may be, to the extent
that such transferee or obligee gave value to the debtor in exchange for such transfer or
obligation.” The Plan Administrator objects to the bankruptcy court’s construction of § 548(c),
which found that the proper inquiry at this stage was solely whether Charter Airlines had given
value, not whether EAR had received anything of value. The Plan Administrator does not object
to the bankruptcy judge’s finding of good faith on the part of Charter Airlines and the Court
adopts the Proposed Findings of Fact and Conclusions of Law with respect to the finding that
Charter Airlines entered into the transactions in good faith. The Court agrees with the Plan
Administrator’s construction of § 548(c) and sustains the objection.
The plain language of the Bankruptcy Code primarily drives the Court’s construction. See
In re B.R. Brookfield Commons No. 1 LLC, 735 F.3d 596, 589 (7th Cir. 2013). The plain
language of § 548(c) suggests that its protection of transferees is not an all or nothing
proposition. Good faith transferees are protected only “to the extent that such transferee or oblige
gave value to the debtor in exchange for such transfer or obligation.” § 548(c); see also In re
Veluchamy, 524 B.R. 277, 308 (Bankr. N.D. Ill. 2014) (Ҥ 548(c) of the Code reduces a
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None of these sections is at issue here.

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transferee’s liability by any value given by the transferee”) (emphasis added); In re Am. Hous.
Found., 785 F.3d 143, 163 (5th Cir. 2015). The final clause of § 548(c) asks not whether the
transferee gave value to any party, but the extent to which the transferee gave value to the debtor.
A construction of § 548(c) that completely protect transferees who have given unquantified value
to unidentified sources would render that final portion of the statute superfluous. See Yates v.
United States, 135 S. Ct. 1074, 1085 (2015) (“The canon against surplusage is strongest when an
interpretation would render superfluous another part of the same statutory scheme.”) (quotation
marks and citation omitted). The determination of value received “is largely a question of fact.”
In re Am. Hous. Found., 758 F.3d at 163. (quotation marks and citation omitted).
A genuine dispute as to the extent to which Charter Airlines gave value to EAR in
operating the relevant flights exists for the same reasons that there is a genuine dispute as to
whether EAR received a reasonably equivalent value. The Plan Administrator’s affidavit states
that the flights in question had no business purpose and EAR received no value. Walker’s
affidavit states otherwise. The dispute is material; if the plan administrator is correct that EAR
did not receive a reasonably equivalent value, then EAR will be successful in its avoidance of the
transaction and the protection of § 548(c) will be unavailable to Charter Airlines. See In re Roti,
271 B.R. 281, 299 (Bankr. N.D. Ill. 2002) (inability to establish reasonably equivalent value
under § 548(a) is grounds for denial of § 548(c) protection). If EAR received some, but less than
reasonably equivalent value, § 548(c) will determine the extent to which Charter Airlines is
protected. On remand, the bankruptcy court should determine the extent to which Charter
Airlines gave value to EAR because Charter Airlines is protected only “to the extent that [it] gave
value to the debtor.” § 548(c).

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CONCLUSION
The Plan Administrator’s objections to the bankruptcy court’s Proposed Findings of Fact
and Conclusions of Law are sustained in part and overruled in part. The case is remanded for the
bankruptcy court for further proceedings not inconsistent with this opinion.

________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: August 12, 2015

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