Superior Air Charter, LLC

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

IN RE: ) Chapter 11

) Case No. 20-11007 (CSS)

SUPERIOR AIR CHARTER, LLC )

) Jointly Administered

Reorganized Debtor. )

) Docket No.: 263

OPINION!

TROUTMAN PEPPER HAMILTON AERLEX TAX SERVICES

SANDERS LLP Vicky Boladian

David B. Stratton 11900 W. Olympic Blvd

Evelyn J. Meltzer Suite 400

Marcy J. McLaughlin Smith Los Angeles, CA 90064

Hercules Plaza, Suite 5100

1313 N. Market Street, P.O. Box 1709 Counsel for Aerlex Tax Services

Wilmington DE 19899-1709

Counsel to the GUC Trustee SULLIVAN HAZELTINE

ALLINSON LLC

Jack Walton William D. Sullivan

Walton Technical Consulting, Inc. 919 North Market Street, Suite 420

625 Aviator Drive Wilmington, DE 19801

Fort Worth, TX76179

Pro se Attorneys for Richard Brown and

Julius Glickman

Kevin J. Kinsella

1134 Kline Street

La Jolla, CA 92037

Pro se

Date: April 9, 2021

{ CO —_—

Sontchi, C.J. (Lie ?

1 This Opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rules of

Bankruptcy Procedure 9014(c) and 7052.

INTRODUCTION2

JetSuite was an air service provider that generated income by promising to

provide consumers air services at locked-in hourly flight rates in exchange for consumers’

prepayments of money.3 JetSuite filed for bankruptcy protection after meeting financial

difficulties due to competition as well as the reduced demand caused by COVID-19.4

Consumers, inter alia, filed claims for the prepayments they made. The GUC

Trustee filed an Objection to some of the claims.5 Left before the Court are three matters:

(i) the disposition of the GUC Trustee’s Objection to the roughly fifty 507 Claims, (ii) the

disposition of the GUC Trustee’s Objection to the FET Claims, and (iii) the disposition of

the GUC Trustee’s Objection to the Accounting Claims.

For the reasons that follow, the Court grant, in part, and deny, in part, the

Objection.

JURISDICTION & VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334.

Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core

proceeding pursuant to 28 U.S.C. § 157(b)(2), and this Court has the judicial power to

enter a final order.

2 Capitalized terms used in this section are later defined.

3 D.I. 8 at p. 2–3 ¶¶6-8.

4 See, e.g., id.

5 The GUC Trustee brought the Objection pursuant to Section 502(b) of the Bankruptcy Code, Federal Rules

of Bankruptcy Procedure 3003 and 3007, and Local Rule 3007-1.

BACKGROUND & PROCEDURAL HISTORY

Superior Air Charter, LLC (“JetSuite” or “Reorganized Debtor”) was an air service

provider that filed for bankruptcy protection after meeting financial difficulties due to

competition as well as the reduced demand caused by COVID-19.6 JetSuite generated

income by providing and entering into boilerplate agreements7 with consumers to

provide to them future air services at locked-in hourly flight rates in exchange for large

prepayments of money.8

Most consumers were given the choice of prepaying $107,500, $268,750.00, or

$537,500.00.9 Larger payments were accompanied by a decrease in the contracted flight

hour price.10 While JetSuite did not hold these payments in trust, they were refundable

if it unilaterally terminated the agreement.11

6 D.I. 8 at p. 2–3 ¶¶6-8.

7 Overtime, JetSuite presented three substantially similar versions of the agreement to consumers: SuiteKey

Agreement 1.0 (“Agreement 1.0”), SuiteKey Agreement 2.0 (“Agreement 2.0”) and SuiteKey Agreement 3.0

(“Agreement 3.0” together with Agreements 1.0 and 2.0 the “Agreement”). See, e.g., D.I. 307 at p.12 ¶12.

Two differences are worth noting. First, Agreement 1.0 provides a lower payment range than Agreements

2.0 and 3.0. Compare Agreement 1.0, p. 1 (offering payment options of $53,750.00, $107,500.00, $215,000.00,

and $430,000.00) with Agreements 2.0 and 3.0 (offering payment options of $107,500, $268,750.00, and

$537,500.00) p. 1. Second, Agreement 1.0 does not impose a time limit within which consumers must use

or lose the amount of their account balance. Compare Agreement 1.0, Terms and Conditions (2)(b) with

Agreements 2.0 and 3.0 Terms and Conditions (2)(b). Approximately forty percent of the customers entered

into Agreement 1.0 with the remaining customers entering into Agreements 2.0 and 3.0. See e.g., D.I. 307 p.

12 ¶15.

8 See e.g., D.I. 307 p. 12 ¶15.

9 See, supra note 7.

10 D.I. 8 at p.5 ¶13.

11 Compare Agreements 1.0, 2.0 and 3.0, Terms and Conditions (2)(a) (“Member’s funds shall be treated as a

fully and irrevocably pre-paid purchase of services and payment of expenses hereunder and such payment

shall be irrevocable and non-refundable in all circumstances.”) with id. at (22) (“JetSuite Air may terminate

Member’s participation in the Program . . . . JetSuite Air will provide a refund of any remaining balance to

the Member after deduction of any amounts due.”) and Agreement 1.0, Terms and Conditions (14) (“[I]n the

After paying one of the prepayment options and signing the Agreement,

consumers became entitled to future air services at the locked-in contract prices.12 The

terms of the Agreement further required JetSuite to create an account in the name of each

consumer and maintain a notional account balance in said account.13 This notional

balance was not an actual reflection of cash but rather a non-cash representation of the

total prepayment consumers made.14 As consumers traveled, JetSuite was obligated to

adjust the consumers’ notional balance to reflect consumers’ initial payments less the

locked-in contract value of air services and related charges JetSuite actually provided.15

Consumers’ notional account balances were not marketable, transferable, or

assignable.16 And, in most cases, the prepayment amounts were required to be used in

their entirety within twenty four months or the unused portions were forfeit to JetSuite.17

As there were more consumers than available aircraft, consumers were required to make

flight reservations at least forty-eight hours prior to departure to guarantee availability.18

case of Termination initiated by JetSuite Air, a refund of any remaining balance to client after deduction of

any amounts due.”).

12 Id.

13 Id.

14 Id.

15 Id.

16 Agreement 3.0, Terms and Conditions (32) (“Member shall not re-market, transfer, assign, or otherwise re-

sell any services provided by JetSuite Air . . . .”); Agreement 2.0, Terms and Conditions (32) (same);

Agreement 1.0 Terms and Conditions (24) (same).

17 Agreements 2.0 and 3.0, Terms and Conditions (2) (“The Initial [sic] Deposit and any subsequent Deposits

(‘Deposits’) are non-refundable and are available for use by Member for the initial 24 months after the Start

Date. After the intial [sic] 24 months of this Agreement, any unused Deposits will be retained by JetSuite

Air and no longer available to Member . . . .”). But see Agreement 1.0 (lacking any time constraints).

18 See e.g., D.I. 8 at p. 4 ¶11 and p. 2 ¶6 (Debtor operated twelve aircraft prior to filing). Agreements 2.0

and 3.0, Terms and Conditions (4) (“Members must reserve a Flight Segment originating and terminating

inside of the contiguous U.S. at least 48 hours prior to departure in order to guarantee availability.”).

On April 20, 2020, JetSuite commenced its reorganization by filing a voluntary

petition for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy

Code”).19 On July 20, 2020, JetSuite filed its Amended Chapter 11 Combined Plan &

Disclosure Statement (the “Plan”).20 On September 4, 2020, the Court confirmed the Plan

which became effective on September 18, 2020.21 The Court’s confirmation order also

approved Gavin/Solmonese, LLC as the GUC Trustee.22

On June 24, 2020, the Court entered an order establishing July 27, 2020, as the

general claims bar date.23 On February 11, 2021, the Court extended the claim objection

deadline from March 17, 2021 to December 31, 2021.24 On November 13, 2020, the GUC

Trustee filed its Second Omnibus Objection to Claims (the “Objection”).25 The Objection

seeks to disallow, in whole or in part, three categories of claims.26 First, certain no liability

claims attached to Exhibit A.27 Second, certain misclassified claims (the “507 Claims”)

attached to Exhibit B.28 Third, certain overstated claims attached to Exhibit C.29

19 D.I. 1.

20 D.I. 168.

21 D.I. 212 (order confirming the plan); D.I. 226 (notice of effective date).

22 Id. at p. 18 ¶12.

23 D.I. 125 and D.I. 131.

24 D.I. 318.

25 D.I. 162 (First Omnibus Objection to Claims); D.I. 263 (Second Omnibus Objection to Claims).

26 D.I. 263 at p. 1.

27 Id. at p. 4 ¶13.

28 Id. at ¶15.

29 Id. at p. 5 ¶17.

The GUC Trustee resolved three of the five responses it received to its Objection.30

The first unresolved response was filed on November 30, 2020, by claimants Richard

Brown and Julius Glickman and amended on December 1, 2020.31 The second unresolved

response was filed by claimant Kevin Kinsella on December 2, 2020.32 After a December

17, 2020 hearing, the Court entered an order granting the Objection for the Exhibit A, no

liability claims, and adjourning the 507 Claims and claims 89, 105, 118, 119, 156, 245, 285,

290,33 296, 298, and 314 (together with the 507 Claims the “Adjourned Claims”) for

disposition after further briefing and a hearing.34 On January 15, 2021, the GUC Trustee

filed its Reply supporting its Objection.35 In its Reply, the GUC Trustee withdrew its

objections to claims 89, 118, 298, 314, 285, and 296.36 Finally, on January 21, 2021, the

Court held a hearing on the disposition of the Adjourned Claims.37

Left before the Court are three matters: (i) the disposition of the GUC Trustee’s

Objection to the roughly fifty claimants who filed 507 Claims,38 (ii) the disposition of the

GUC Trustee’s Objection to the federal excise tax portion of claims 119, 156, and 245 (the

30 See D.I.s 269—273; D.I. 289 p. 1-2 at ¶3. The GUC Trustee withdraws its objections to the claims 298 and

118 of Aerlex Tax Services, LLC and Phillips 66 Company respectively. D.I. 289 p. 1-2 at ¶3. The GUC

Trustee represented under certificate of counsel that it contacted Walton Technical Consulting, Inc., and

Walton Technical Consulting, Inc. does not oppose the relief sought in the GUC Trustee’s Objection. Id.

31 D.I. 269 and D.I. 271 (507 Response).

32 D.I. 272.

33 D.I. 290 p. 2 ¶4. The order incorrectly states claim “90” instead of claim “290.”

34 D.I. 290.

35 D.I. 307.

36 See id. at p. 4–9.

37 D.I. 314.

38 D.I. 263 at Exhibit B; See D.I. 290 at p. 2 ¶3.

“FET Claims”), and (iii) the disposition of the GUC Trustee’s Objection to the portions of

claims 105, 119, and 290 that arise from accounting discrepancies (the “Accounting

Claims”) between Reorganized Debtor and claimants. Facts specific to these matters are

set forth below.

ANALYSIS

A. Claims Objection and Burden of Proof

Section 502(b) of the Bankruptcy Code states that the Court shall allow a claim,

except to the extent “such claim is unenforceable against the debtor and property of the

debtor, under any agreement or applicable law for a reason other than because such claim

is contingent or unmatured. . . .“39 The filing of a proof of claim constitutes prima facie

evidence of the validity of the claim.40 Once established, the objector then has the burden

“to produce evidence sufficient to negate the prima facie validity of the filed claim.”41

B. The 507 Claims

The parties disagree as to whether the prepayments that consumers made to

JetSuite should be considered deposits under 11 U.S.C. section 507(a)(7). The consumer

claimants argue that that they payments they made for unreceived flight services were

deposits under the consumer priority statute and should be granted 507(a)(7) priority.42

39 11 U.S.C.A. § 502(1).

40 See 11 U.S.C. § 502(a).

41 Id.

42 D.I. 272 (“{T]here should be no dispute that [Claimant’s] payments to JetSuite represent a deposit of

money paid in advance for flight services which JetSuite promised to deliver.”)

Conversely, the GUC Trustee argues that the consumer claimants’ payments were not

deposits because they were (i) nonrefundable or (ii) were payments, not for future air

services, but for membership, a notional account balance, or both and as such, do not

qualify for § 507(a)(7) priority treatment.43

The issue before the court is whether the prepurchase payments the claimants

made to JetSuite qualify for section 507(a)(7) priority.

1. § 507(a)(7) Is Unambiguous

In interpreting the terms of a statute, courts “start, of course, with the statutory

text, and proceed from that understanding that unless otherwise defined, statutory terms

are generally interpreted in accordance with their ordinary meaning.”44 Ordinary

meaning, is ascertained by referring to standard dictionaries.45

If, after interpretation, the Court determines that a statute’s meaning is

unambiguous, “no construction is permissible.”46 As such, the general rule of statutory

construction that bankruptcy priorities “are to be narrowly construed”47 “should not

apply absent statutory ambiguity.”48 But even where ambiguity exists, the maxim of

43 D.I. 307 at p. 10.

44 Sebelius v. Cloer, 569 U.S. 369, 376 (2013).

45 Pennsylvania, Dep't of Pub. Welfare v. U.S. Dep't of Health & Hum. Servs., 647 F.3d 506, 511 (3d Cir. 2011)

(omitting internal quotation marks and citations) (quoting United States v. Geiser, 527 F.3d 288, 294 (3d Cir.

2008)).

46 Marmon v. R.R. Ret. Bd., 218 F.2d 716, 718 (3d Cir. 1955).

47 Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651, 667–68 (2006) (citing 2 Collier Bankruptcy

Manual ¶ 507.01, p. 507-4 (rev.3d ed.2005) (“[P]riorities under the Code are to be narrowly construed.”)); 4

Collier on Bankruptcy P 507.01 (16th 2020) (“Because priorities grant special rights to the holders of priority

claims, priorities under the Code are to be narrowly construed.”).

48 3 Sutherland Statutory Construction § 58:1 (8th ed.).

strict or narrow construction of bankruptcy priorities may not perversely narrow, limit,

or restrict the intent of the legislature found in the ordinary and natural meaning of the

words they employ.49

11 U.S.C. § 507(a)(7) provides consumer priority protection as follows:

(a) The following expenses and claims have priority in the

following order:

(7) Seventh, allowed unsecured claims of individuals, to the

extent of $3,02550 for each such individual, arising from the

deposit, before the commencement of the case, of money in

connection with the purchase, lease, or rental of property, or

the purchase of services, for the personal, family, or

household use of such individuals, that were not delivered or

provided.

As the legislature chose not to define the term deposit, the Court turns to standard

references to confirm the ordinary meaning of the statute. Deposit, inter alia, means:

1. The act of giving money or other property to another who

promises to preserve it or to use it and return it in kind; esp.,

the act of placing money in a bank for safety and convenience.

— Also termed (when made at a bank) bank deposit.

2. The money or property so given.

3. Money placed with a person as earnest money or security

for the performance of a contract. • The money will be

forfeited if the depositor fails to perform. — Also

termed security deposit.51

49 United States v. Wiltberger, 18 U.S. 76, 95–96 (1820) (emphasis added); See also, N. Sec. Co. v. United States,

193 U.S. 197, 358 (1904).

50 Adjusted from $2,850 to $3,025 for cases filed after April 1, 2019. Compare 11 U.S.C. § 104 (requiring the

Judicial Conference of the United States to publish in the Federal Register the new 507(a) dollar amounts

effective on April 1) with Notice re: Revision of Certain Dollar Amounts in the Bankruptcy Code Prescribed

Under Section 104(a) of the Code, 84 Fed. Reg. 3488 (Feb. 12, 2019).

51 Deposit, Black's Law Dictionary (11th ed. 2019) (emphasis in original).

The first and second definitions of deposit strike the Court as natural, ordinary

readings of the term deposit used in the context of section 507(a)(7) with the first

definition applying somewhat more naturally than the second. Under the first definition,

a deposit is “the act of giving money to another who promises” (1) to preserve it or (2) to

use it and return it in kind.52 To return money in kind is to return it “[i]n goods or services

rather than money.”53 Consequently, a deposit under § 507(a)(7) is naturally read to mean

the giving of money to another who promises to use the money and return it in the form

of goods or services. The Court finds this definition to most comfortably comport with a

natural reading of the remaining terms in the statute.

Conversely, the third definition of deposit strikes the Court as unnatural in the

context of the statute for two reasons. First, section 507(a)(7) priority protection extends

only to unsecured claims while claims arising from deposits that are held in trust, given

as pledges, or as security, are more likely to be secured claims than unsecured claims.

Second, the third definition focuses on situations where the depositor forfeits money by

failing to perform rather than the situations the consumer priority statute seeks to address

where the depositor has a claim from the depositee’s failure to perform despite the

depositor’s performance. As such, to force a reading of the term deposit used in section

507(a)(7) to require deposits to be held in trust, given as pledges, as security requirement,

52 Id. United States v. Woods, 571 U.S. 31, 45 (2013) (“[T]he operative terms are connected by the conjunction

‘or.’ . . . [That term's] ordinary use is almost always disjunctive, that is, the words it connects are to 'be given

separate meanings.’”) (citations omitted).

53 In Kind, Black's Law Dictionary (11th ed. 2019).

or to be otherwise refundable almost certainly restricts the legislative intent expressed in

the most natural reading of the words the legislature employed.54

The Court finds section 507(a)(7) to be unambiguous. Legislative intent is

apparent from the natural reading of the statute. No examination of legislative history is

required. Importantly, even if this statute were to be found to be ambiguous and the

strict or narrow rule of construction for bankruptcy priority statutes were to apply, the

above reading of the statute comports with a strict or narrow construction of the statute

as it gives full force to the natural and ordinary meanings legislature’s employed words.55

2. A Cursory Examination of § 507(a)(7)’s Legislative History Confirms This

Court’s Reading

Nevertheless, as courts disagree56 about the circumstances under which consumer

priority protection should be granted, and out of an abundance of caution, the Court will

ensure that its reading does not “produce a result demonstrably at odds with the

intentions of its drafters.”57

The consumer priority statute was first introduced as House Bill 8200, was

discussed on September 08, 1977 in House of Representatives Report 95—595 (the

54 See, e.g., United States v. Wiltberger, 18 U.S. 76, 95–96 (1820) (emphasis added); See also, N. Sec. Co. v. United

States, 193 U.S. 197, 358 (1904). While this definition does not require deposits to be refundable, the

payments at issue are refundable as JetSuite was (i) required to refund the payments if it unilaterally

terminated the Agreement and (ii) contractually obligated to use the money in exchange for its promise to

return it to the 507 Claimants in the form of future air services.

55 Id.

56 For example, the City Sports and WW Warehouse courts disagreed as to whether the language of the

consumer priority statute protects consumer gift card holders.

57 United States v. Ron Pair Enter. Inc., 489 U.S. 235, 242 (1989).

“Report”), passed, as amended, on November 6, 1978, effective on October 1, 1979, and

codified at 11 U.S.C. § 507(a)(5).58 The statutory language passed in 1978 is virtually

identical to the current § 507(a)(7).59 The Court will look to the Report as “the document[]

prepared by Congress when deliberating.”60

The legislative intent shown in the Report is in harmony with this Court’s reading

of the ordinary language of the statute. The Report shows that Congress intended to

modernize the bankruptcy priority statute to protect the priority of consumer creditors

of a bankrupt business at a time when the amount and kinds of credit transactions were

increasing.61 Congress specifically stated that its discussion of priorities “will not be

exhaustive”62 and highlighted several examples of types of consumer creditors that

should be granted priority including those who: (i) pay money on layaway plans; (ii) pay

58 See generally, H.R. REP. 95-595 (1978). P.L. 95-598 (HR 8200), 92 Stat. 2541, § 401 (November 6, 1978)

(“[T]his Act shall take effect on October 1, 1979.”). See 11 U.S.C. § 507(a)(5) (1982).

59 Only the amount has changed pursuant to 11 U.S.C. § 104.

60 See e.g., Gustafson v. Alloyd Co., 513 U.S. 561, 580 (1995) (“If legislative history is to be considered, it is

preferable to consult the documents prepared by Congress when deliberating.”).

61 H.R. REP. 95-595, at p. 3—4, 188 (1978) (“The major purpose of this bill is the modernization of the

bankruptcy laws. The substantive law of bankruptcy and the current bankruptcy system was designed in

1898, in the horse and buggy era of the consumer and commercial credit, and was last overhauled in 1939,

nearly 40 years ago. It has only been since 1938 that the consumer credit industry has grown; and it has

only been since the widespread adoption of the Uniform Commercial Code in the early 1960’s that

commercial credit has grown to its present magnitude . . . . In order to remedy this problem and to

reorganize the position of consumer creditors as different from that of business creditors, the bill provides

a priority for consumer creditors of a bankrupt business.”) (emphasis added).

62 Id. at p. 174 (1978) (“The enormous increase in the amount and kinds of credit transactions that take

place in our credit economy, the wide-spread adoption of the Uniform Commercial Code, and the general

growth in the number and complexity of businesses seeking bankruptcy relief necessitate a modernization

of the substantive law. The discussion in this chapter will not be exhaustive, but rather will highlight some

of the more important changes proposed by the bill . . . .”) (emphasis added).

money as deposits on goods; or (iii) buy service contracts, contracts for lessens or gym

memberships.63

In short, Congress intended to protect the rights of unsecured consumer creditors

from bankrupt businesses and the Court’s understanding that the deposit of money

under § 507(a)(7) constitutes the giving of money to another who promises to use the

money and return it in the form of goods or services does not “produce a result

demonstrably at odds with the intentions of its drafters.”64

3. Consumers’ Prepurchase Payments Under the Terms of the Agreement

Constitute § 507(a)(7) Deposits.

The issue of what constitutes a deposit under 507(a)(7) has been widely discussed

by courts. Below are some of the cases mentioned by the parties in their briefs.

In In re Salazar, a family’s full payment for the construction of a residential pool to

a contractor who filed for bankruptcy prior to completing the pool was held to be a

deposit under section 507(a)(7) because a deposit “may include the advance handing over

of full payment for consumer goods or services”65

In In re WW Warehouse, the Delaware bankruptcy court found that consumer

purchases of gift cards were deposits under 507(a)(7) because the purchases were not

63 Id. at p. 188 (1978) (“A consumer that pays money on a lay-away plan or as a deposit on merchandise, or

that buys a service contract or a contract for lessons or a gym membership, is a general unsecured creditor of

the business to which he has given his money . . . .”) (emphasis added).

64 United States v. Ron Pair Enter. Inc., 489 U.S. 235, 242 (1989).

65 In re Salazar, 430 F.3d 992, 994 (9th Cir. 2005).

“ultimate purchases,” or, phrased another way, consumers were not just paying for gift

cards but for the right to use the gift cards to purchase property from the seller.66

In In re City Sports, the Delaware bankruptcy court disagreed with its prior

decision in In re WW Warehouse finding that when money is contemporaneously

exchanged for a gift card, the transaction is complete and is not a deposit under

507(a)(7).67 Thus, consumers who contemporaneously receive a gift card at the time they

pay for it are not entitled to consumer priority protection because the property they

purchased—the gift card—has been delivered.68

In In re Worley, consumers’ joined an energy providers budget program that

allowed them to pay a fixed monthly fee credited towards their total fuel balance.69 When

the energy provider filed for bankruptcy protection, some consumers, despite making the

monthly budget payments and having positive account balances did not receive their fuel

deliveries.70 The Worley court found that these budget payments were deposits under

section 507(a)(7).71 Crucially, the Worley court found that unlike the purchase of a gift

card deemed by City Sports to be a “short transaction without a temporal relationship,”

66 In re WW Warehouse, Inc., 313 B.R. 588, 595 (Bankr. D. Del. 2004); see e.g., In re City Sports, Inc., 554 B.R.

329, 335 (Bankr. D. Del. 2016).

67In re City Sports, Inc., 554 B.R. 329, 338 (Bankr. D. Del. 2016) (“In the case of a money order, a store credit,

or a gift card, the transaction is complete once those instruments are issued. Therefore, those instruments

do not come under the definition of “deposit,” and section 507(a)(7) does not afford them priority status.

The Court disagrees with the holding of WW Warehouse in regard to the application of section 507(a)(7) to

gift cards.”).

68 Id. at 335–36.

69 In re Worley & Obetz, Inc., 615 B.R. 752, 753–54 (Bankr. E.D. Pa. 2020).

70 Id. at 754.

71 Id. at 756–58.

the budget payments were open transactions that depended on the energy provider

ultimately providing the fuel to the consumers during the heating season.72

In In re Palmas, individuals’ membership deposit payments made to a club for

membership were found not to be deposits under section 507(a)(7) because (i) they were

not held in trust or treated as a security and (ii) the membership gave individuals the

right to be club members—but not the right to (i) access club facilities or (ii) enjoy the

goods or services provided by club facilities.73 Instead, to access facilities or enjoy facility

goods or services club members were required to make separate, additional payments.74

In In re Nittany, an individual paid a retailer for a three-year right to (i) access a

physical catalogue at a certain store and (ii) order goods from it.75 The court found the

payment not to be a deposit because the individual’s payment was not refundable, and

the services were delivered as the individual’s rights under the agreement vested

immediately upon payment.76

The GUC Trustee, relies on the bankruptcy court decisions of Palmas del Mar,

Nittany, and City Sports77 to argue that the prepurchase payments are analogous to gift

72 Id. at 757.

73 In re Palmas del Mar Country Club, Inc., 443 B.R. 569, 570–71 (Bankr. D.P.R. 2010).

74 Id. at 574–75.

75 In re Nittany Enterprises, Inc., 502 B.R. 447, 450, 453–54 (Bankr. W.D. Va. 2012).

76 Id. at 456.

77 See D.I. 307 p. 13–18.

card purchases or membership purchases and are not deposits because the consumer

claimants’ rights to use the flight services immediately vested.78

As a factual matter, the Court disagrees that the payments at issue are factually

similar to standalone membership purchases or the purchase of gift cards. Unlike the

payments for club membership in In re Palmas, or the purchase of gift cards in In re City

Sports, where payments was made in closed transactions and the gift cards or

memberships had independent value as (i) membership granted to individuals the

standalone right to be a member of the club and (ii) gift cards could be gifted, sold in

secondary markets, redeemed for goods or services, or transferred, here, membership is

provided as part of a dependent, open transaction and contains no independent value

because it only serves to facilitate the fulfillment of JetSuite’s obligations under the

Agreement.79 The Court considers the In re Nittany case to be more similar to the

purchase of services than a membership purchase.

Instead, the Court finds the facts and context of the case at hand to be similar to

contracts for the provision of services.80 Here, consumer claimants paid for JetSuite’s

obligation to provide flight services at their convenience at locked-in contract prices.81

Thus, the consumer claimants’ prepayments were made in the context of an open

78 Id. at p. 17–18 ¶23.

79 Agreement 3.0, Terms and Conditions (32) (“Member shall not re-market, transfer, assign, or otherwise re-

sell any services provided by JetSuite Air . . . .”); Agreement 2.0, Terms and Conditions (32) (same);

Agreement 1.0 Terms and Conditions (24) (same).

80 Where a membership has no independent value, it will likely be a contract for the provision of services.

81 See supra p. 3–4 and accompanying notes.

transaction, with JetSuite obligated to provide services or refund the prepayment upon

its unilateral termination of the Agrement.82 The facts in In re Salazar, likewise, reveal an

open transaction where a consumer made full payment to a service provider for its

unfulfilled promise to provide services. Similarly, in In re Worley, the budget payments

at issue were found to be open transactions because the energy provider was under an

ongoing obligation to deliver fuel to the consumers under the terms of the budget

program.83 Similar facts in, In re Nittany, are dealt with differently. In Nittany, an

individual’s payment for a merchant’s promise to allow the individual the immediate

and future right to access and order goods from a catalogue was not considered a deposit

despite the fact that the transaction remained open due to the merchant’s unfulfilled

obligations.84

The In re Nittany court’s decision rests on the assumption that the term deposit

requires a connotation of “a temporal relationship between the time consideration is

given and the time the right to use or possess is vested in the individual giving the

consideration”85 This assumption is incorrect for because it unnecessarily restricts the

plain and ordinary reading of the statute. 86

82 Supra note 11.

83 In re Worley & Obetz, Inc., 615 B.R. 752, 757 (Bankr. E.D. Pa. 2020).

84 In re Nittany Enterprises, Inc., 502 B.R. 447, 456–57 (Bankr. W.D. Va. 2012) (allowing the claim while

denying priority).

85 Id. at 455.

86 See, e.g., United States v. Wiltberger, 18 U.S. 76, 95–96 (1820) (emphasis added). See also, N. Sec. Co. v. United

States, 193 U.S. 197, 358 (1904).

The ordinary language of section 507(a)(7) provides priority protection to the

“allowed unsecured claims of individuals . . . arising from the deposit . . . of money in

connection with the purchase . . . of property or . . . services . . . that were not delivered

or provided.”87 The statute does not focus on when an individual’s right to use or possess

vests. Instead, the statute focuses on the purchase of property or services that were not

delivered or provided. This focus supports an examination of a seller’s obligation to

deliver or provide over an examination of whether an individual’s right to use or possess

has vested.

The “vested rights” reading results in an artificial distinction between consumers

who give money for both an immediate and future right to services (not a deposit), and

those who give money for a future right, alone, to services (a deposit). For example, a

consumer’s payment for a year-long gym membership would not be a deposit despite the

gym’s immediate and future obligation to provide services, because the individual’s right

to use the gym facilities vests immediately upon payment. Yet, Congress specifically

intended to provide priority protection for consumers who buy gym memberships.88

Thus, the Court rejects the “vested right” approach. Remember, a deposit under

§ 507(a)(7) is naturally read to mean the giving of money to another who promises to use

the money and return it in the form of goods or services.89 In line with this understanding

of deposit, to determine whether goods or services were provided the focus should be on

87 11 U.S.C. § 507(a)(7).

88 See supra note 63.

89 See supra p. 8.

whether the service provider or merchant’s obligations to provide services or deliver

goods have been entirely fulfilled. If obligations remain, the transaction is open and the

payment is more likely to be a deposit under § 507(a)(7).

For the above reasons, the Court finds that the consumer claimants’ prepayments

were deposits under section 507(a)(7) because (i) the consumer claimants gave money to

JetSuite for JetSuite’s promise to return the money in the form of flight services and (ii)

JetSuite failed to fulfill its obligation to provide services to the consumer claimants.

Consequently, the GUC Trustee has failed to produce evidence sufficient to negate the

validity of the consumer claimants’ filed claims.

C. The Federal Excise Tax (“FET”) Claims

The Burchard Group, in claim 119, attaches a record of its October 7, 2019, $107,500

wire transfer to JetSuite.90 The copies of the customer statement The Burchard Group

provide show that only $100,000 of this transfer was applied to claimant’s customer

statement.91 Aki Korhonen, in claim 156 states that the basis of the claim is “[p]repaid

fees for services and prepaid federal excise taxes.”92 Ernst Ohnell, in claim 245 states that

the basis of the claim is for “prepaid flight time & tax.”93 Together, claims 119, 156, and

90 Claim 119, at p. 2, 6 https://cases.stretto.com/public/x069/10254/CLAIM/10254050220320055100001.

pdf Last visited April 9, 2021.

91 Id. at p. 11.

92 Claim 156, at p. 2 https://cases.stretto.com/public/x069/10254/CLAIM/10254052820324235000001.pdf

Last visited April 9, 2021.

93 Claim 245, at p.2 https://cases.stretto.com/public/x069/10254/CLAIM/10254062320327080400001.pdf

Last visited April 9, 2021.

245 represent requests for a refund of federal excise tax (“FET”) that were prepaid but

not utilized (the “FET Claims”).

The GUC Trustee does not argue that the claimed FET payments were not paid—

only that they do not need to be returned under the terms of the Agreement.94 Essentially,

the argument is that (i) these payments were made under the terms of the Agreement, (ii)

under the terms of the Agreement, the FET payments do not become a part of a member’s

notional balance, and (iii) consumers were not entitled to flights for this amount or a

refund of any portion of this amount if flights were not taken.95 While the terms of the

Agreement are not disputed, the Court must, nevertheless, interpret them to determine

whether they are consistent with the GUC Trustee’s reading. Each of the three claimants

entered into the same version of the Agreement which is governed by Texas law.96 In

Texas, unambiguous contracts are construed as a matter of law.97

A contract is considered ambiguous when its meaning is

uncertain and doubtful or it is reasonably susceptible to more

than one interpretation. When construing a contract, the

terms are typically given “their plain, ordinary, and generally

accepted meaning.” Courts may look to dictionaries to

discern the meaning of a commonly used term that the

contract does not define. An unambiguous document will be

enforced as written.98

94 D.I. 307 at p.4—5, 7. JetSuite presented new versions of the agreement to consumers overtime. See, e.g.,

D.I. 307 at p.12 ¶12.

95 Id.

96 Agreement 2.0(31) (“shall be governed by and construed in accordance with the laws of the Texas,

without giving effect to conflict of law principles.”).

97 Cmty. Health Sys. Prof'l Servs. Corp. v. Hansen, 525 S.W.3d 671, 681 (Tex. 2017) (“We construe unambiguous

contracts as a matter of law.”) (citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).

98 In re Davenport, 522 S.W.3d 452, 456–57 (Tex. 2017)

Provisions of the Agreement relevant to the FET:

Payment:

Member is making a payment of (check one):

$100,000 [$250,000, or $500,000] plus FET allowance, such

payment to be treated as a Non-Refundable Pre-Purchase

Payment . . . .

The Payment referenced under “Payment Information” on

the following page is a Non-Refundable Pre-Purchase

Payment . . . .

Payment Information:

Please send wire or check inclusive of 7.5% Federal Excise

Tax (FET) allowance in the amount of:

For $100,000: $107,500.00

For $250,000: $268,750.00

For $500,000: $537,500.0099

a. Purchase. To become a Member in the Program, Member

must promptly deliver to JetSuite Air the funds necessary to

establish a JetSuite SuiteKey account . . . . JetSuite Air shall

create an account in the name of Member

(“Account”) . . . . However, JetSuite Air shall maintain a

notional balance in the Member’s Account equal to the Non-

Refundable Pre-Purchase Payment minus the value of

services performed and expenses and charges

incurred . . . . ‘Funds’ refers only to the cash payment(s) made

by Member.

JetSuite Air hereby indemnifies Member from the 7.5% FET

liability incurred under this Agreement, and shall pay any

and all applicable FET as it is due on Member’s behalf from

the total prepayment amount. JetSuite Air shall absorb or

retain any difference between the allowance and actual FET

paid.100

99 Agreements 1.0, 2.0, and 3.0 at p. 1–2.

100 Agreements 2.0 and 3.0, Terms and Conditions (25); Agreement 1.0, Terms and Conditions (17) (same).

The Court finds the Agreement to be unambiguous. The Agreement requires

JetSuite to pay FET “as it is due on Member’s behalf from the total prepayment

amount”101 and clarifies that a “Payment” is the amount of $100,000, $250,000, or $500,000

plus an FET allowance—of 7.5% of the specified payment amount and refers to this

payment as a “Non-Refundable Pre-Purchase Payment.”102 The term “total prepayment

amount” must be synonymous.103

The Agreement further requires JetSuite to “create an Account in the name of the

Member (the ‘Account’)”104 and “maintain a notional balance in the Member’s Account

equal to the Non-Refundable Pre-Purchase Payment . . . . ”105 Because the total

prepayment amount is defined to be a specified amount plus the 7.5% FET allowance,

JetSuite must maintain a notional balance in the name of each Member equal to the

specified payment and the FET allowance. Accordingly, the FET allowance the claimants

paid must be included in their accounts’ notional balances and is to only be accessed by

JetSuite to pay the FET “as it is due on Member’s behalf from the total prepayment

amount.”106

101 Agreements 2.0 and 3.0, Terms and Conditions (25); Agreement 1.0, Terms and Conditions (17) (same).

102 Agreements 1.0, 2.0, and 3.0 at p. 1–2. The Agreement refers to the idea of the total prepayment amount

with varying terms including: “the funds necessary to establish a JetSuite Account,” “Member’s funds,”

“notional balance,” “Funds in the Account (whether actual or notional),” “Member’s Account,” “Intial [sic]

Deposit,” “Deposits,” “Payment” “program funds,” “required funds,” etc. See generally the Agreements.

103 See supra note Error! Bookmark not defined..

104 Agreements, Terms and Conditions (2)(a).

105 Agreements 1.0, 2.0, and 3.0 at (2)(a).

106 Agreements 2.0 and 3.0, Terms and Conditions (25); Agreement 1.0, Terms and Conditions (17) (same).

Where a portion of claimants’ FET allowance remains unused, the GUC Trustee

has failed to “produce evidence sufficient to negate the prima facie validity of the filed

claim.”107 Because claimants’ customer statements contain at least two types of funds: (i)

those which claimants paid an FET allowance on, and (ii) those which claimants did not

pay an FET allowance on—such as referral credits—the Court denies, in part, the

Objection for type (i) funds, and grants, in part, the Objection for type (ii) funds.

D. The Accounting Claims

a. Claim 105—Freedman Trust Properties108

The Freedman Trust Properties (“Freedman”) filed claim 105 for $80,000 and in

support, provides a copy of its customer statement as of September 17, 2019.109 The

statement shows a beginning balance of $97,857.49 as of August 31, 2018 and, after three

trips, an end balance of $73,201.24 as of September 17, 2019.110

The GUC Trustee’s original objection sought to reduce Freedman’s $80,000 claim

amount—as overstated by $15,476.36—to $64,526.64.111 Now the GUC Trustee seeks to

further reduce the claim amount—as overstated by $41,770.50—to $38,229.50.112 The

107 In re Allegheny Int’l, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992) (citations omitted).

108 Claim 105 https://cases.stretto.com/public/x069/10254/CLAIM/10254051120322971800001.pdf. Last

visited April 9, 2021.

109 Id. at p. 6.

110 Id.

111 D.I. 307 at p. 6.

112 Id.

GUC Trustee provides a copy of Freedman’s customer statement as of April 28, 2020.113

This copy shows a beginning balance of $97,857.49 as of April 29, 2019, and, after seven

trips and a $500 credit, an end balance of $38,229.50 as of April 28, 2020.114 The GUC

Trustee represents that it spoke with a representative of the claimant and explained why

Reorganized Debtor only owes claimant $38,229.50—not $80,000 and that the claimant’s

representative had no questions or comments in response to the GUC Trustee.115

The Court grants the GUC Trustee’s Objection to claim 105 as it has satisfied its

burden in showing that claim 105 was overstated by the amount of $41,770.50. Claim 105

is allowed as an unsecured claim in the amount of $38,229.50.

b. Claim 119—The Burchard Group

The Burchard Group (the “Group”) filed claim 119 for more than $106,000 and, in

support, provided (i) a copy of its customer balance showing a total balance of $75,264.56,

(ii) documents to show it incorrectly paid twice for the same flight; and (iii) records

showing that JetSuite failed to account for $7,500 of the $107,500 claimant wired to

JetSuite as an account deposit on October 8, 2019. 116 The documents include email

exchanges, a quote, records of a wire transfer, and copies of the customer statements (the

113 D.I. 307 Exhibit 4 at p. 1.

114 Id.

115 D.I. 307 p. 7.

116 Claim 119 and its supporting documents are located online in the form of an 11 page PDF document at:

https://cases.stretto.com/public/x069/10254/CLAIM/10254050220320055100001.pdf Last visited April

9, 2021.

“First Account”) JetSuite sent to it on two different dates.117 The $7,500 FET related

portion of claim 119 is discussed in a later section.

The Group provides copies of its customer statement current as of March 12, 2019

and April 30, 2020.118 On both dates, the customer statement was addressed to the Group

on JetSuite letterhead.119 Two facts from the March 12, 2019 copy are relevant. First, is a

single charge on February 2, 2019 for a $24,075 flight from MIA to TJSJ under the

description “15022804.”120 Second, is the total balance of the account as of March 12, 2019

of $20,245.14.121 Likewise, two facts from the April 2020 are relevant. First, the statement

reveals an April 29, 2019 beginning balance of $20,245.14.122 Second, the statement ends

on October 20, 2019, with a remaining balance of $75,264.56.123

Additionally, the Group provides a series of emails sharing the subject: “Partner

Quote #15022804 | MIA–TJSJ | 2/2” between Denise Burchard and Anissa Godby, an

account manager at JetSuite including a (i) 6:52 pm Jan 30th email from Ms. Godby to Ms.

Burchard explaining that JetSuite is no longer available for flight to Puerto Rico (TJSJ) and

that Ms. Godby’s charter team is sourcing alternative options through its network,124 (ii)

4:56 pm Jan 31st email from Ms. Godby attaching (a) a quote of $17,124 for a February 2nd

117 Id. at p. 6–11.

118 Id. at p. 7, 11.

119 Id.

120 Id. at p. 7.

121 Id.

122 Id. at p. 11.

123 Id.

124 Id. at p. 9.

flight from MIA to TSJS125 and (b) Ms. Godby’s request that Ms. Burchard “send separate

payment since we are not operating the trip ourselves—and SuiteKey funds are reserved

for in fleet trips,”126 and (iii) 7:49 pm January 31, 2019 email from Ms. Burchard to Ms.

Godby stating: “I’ll get the wire scheduled right now to Jetsuite in the instructions in the

pdf below and send you the confirmation email.”127 Immediately afterward, Ms.

Burchard forwarded the confirmation email to Ms. Godby with the subject line: “Funds

Transfer Request #253923988 Has Been Scheduled” to which Ms. Godby responds “[t]his

is perfect.”128 Moreover, the Group attaches to the claim a quote dated January 31, 2019,

made on JetSuite letterhead.129 The quote is quote number 15022804, and details a

February 2, 2019 trip from Miami, Florida (KMIA) to San Juan (TJSJ) for $17,124.130

Finally, the Group provides a record of its wire transfer to JetSuite on February 1, 2019

for $17,124.131

The GUC Trustee, after reviewing the Reorganized Debtor’s books and records

discovered that the Group had not one account—but at least two.132 The first account is

reflected in the copies of the customer statements the Group provided. The second

125 Id.

126 Id.

127 Id.

128 Id. at p. 10.

129 Id. at p. 8.

130 Id. at p. 8.

131 Id. at p. 6.

132 See, e.g., D.I. 307 at p.8 (“[A]dd $17,823.97 for the balance of the claimant’s second account . . . .”); id.

Exhibit 5 at p. 2 (indicating there may be charges to old accounts that the current customer statement fails

to account for.).

account, current as of April 28, 2020, contains an additional balance of $17,823.97 which

results from the following: (i) a December 31, 2018 beginning balance of $199.97, (ii) a

deposit on February 1, 2019, of $17,124, and (iii) a $500 flight credit added on February 1,

2020.133

In addition, the GUC Trustee provides a copy of the first account, current as of

April 28, 2020, according to JetSuite’s books and records. The GUC Trustee’s copy, with

a total balance of $75,264.56—the equivalent balance of the customer statement The

Burchard Group provided, (i) appears to have begun on January 31, 2019, (ii) fails to

include a charge of $24,075, but does include a March 13, 2019 “Transfer to Old Account”

in the amount of $56,890.28, and (iii) ends with a total balance of $75,264.56.134

The facts paint the compelling picture that on February 1, 2019, the Group wired

$17,124 to JetSuite for a February 2, 2019 flight from Miami to Puerto Rico in accordance

with the terms of quote number 15022804 and on February 2, 2019, JetSuite charged the

Group’s customer account $24,075 for what appears to be the same trip. The Group’s

evidence provides strong support for concluding that it was incorrectly charged $24,075

for a flight that it already wired, in full, to JetSuite in the amount of $17,124. The GUC

Trustee has failed to produce evidence that negates the validity of the Group’s claim that

(i) it should have paid $17,124, not $24,075 for the flight and (ii) it wired $17,124 to

JetSuite.

133 D.I. 307 Exhibit 5 at p. 1.

134 Id. at p. 2.

The Group is entitled to an allowed claim of $100,039.53 for the double charge. To

calculate this amount, (i) add the second account balance of $17,823.97 to the first account

balance of $75,264.56; (ii) subtract $17,124 from the result; and (iii) add $24,075. Thus, the

Court, without considering the FE portion of the claim, denies the GUC Trustee’s

Objection and finds that claim 119 is allowed in the amount of $100,039.53.

c. Claim 290—Estate of David P. Cradick

The Estate of David P. Cradick (the “Estate”) filed a claim in the amount of

$6,571.29 on behalf of the decadent.135 The Estate does not attach any documents in

support of the amount of the claim.136 The GUC Trustee attaches a customer statement

made to David Cradick as of April 28, 2020 showing a remaining balance of $3,571.29.137

The GUC Trustee does not argue that future services are non-transferrable.138 The Court

finds that The GUC Trustee has met the required burden of proof. Claim 290 is adjusted

to a total amount of $3,571.29.

CONCLUSION

The Court grants the GUC Trustee’s Objection to claims 105 and 290. Claim 105 is

allowed as an unsecured claim in the amount of $38,229.50. Claim 290 is allowed as an

unsecured claim in the amount of $3,571.29.

135 Claim 290 at p. 2 https://cases.stretto.com/public/x069/10254/CLAIM/10254062320327072500001.pdf

Last visited April 9, 2021.

136 Id.

137 D.I. 307

138 Id. at p. 9 table.

The Court denies the GUC Trustee’s Objection to the accounting related amount

of Claim 119. The accounting portion of Claim 119 is allowed in the amount of

$100,039.53.

The Court denies the GUC Trustee’s Objection to the FET portion of claims 119,

156, and 245 and allows the FET portion of these claims up to the full extent of prepaid,

but not incentive, funds remaining in the FET claimants’ notional balances.

The Court denies the GUC Trustee’s Objection to the 507 Claims and allows them

as priority unsecured claims under 11 U.S.C. § 507(a)(7) up to $3,025 cap per claimant.

The Court directs the Reorganized Debtor to submit a proposed order under

certification of counsel reflecting the Court’s ruling.