# Superior Air Charter, LLC

> United States Bankruptcy Court, D. Delaware · April 9, 2021

URL: https://www.frixlaw.com/law-library/cases/10455997

## Case

- **Court:** United States Bankruptcy Court, D. Delaware
- **Decided:** April 9, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10455997. Public record. Not legal advice.