JPA No. 111 Co., Ltd.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re: Chapter 11

JPA NO. 111 CO., LTD. and

JPA NO. 48 CO., LTD., Case No. 21-12075 (DSJ)

(Jointly Administered)

Debtors.

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MEMORANDUM OF DECISION AND ORDER RESOLVING MOTION TO DISMISS

QUINN EMANUEL URQUHART & SULLIVAN, LLP

Counsel for FitzWalter Capital Partners (Financial Trading) Limited

One Penn Plaza

New York, NY 10019

By: Eric Winston, Esq.

Justin Griffin, Esq.

TOGUT, SEGAL & SEGAL LLP

Counsel for Debtors

One Penn Plaza

New York, NY 10019

By: Kyle J. Ortiz, Esq.

Jared Borriello, Esq.

John McClain, Esq.

VEDDER PRICE

Counsel for JP Lease Products and Services Company Limited

1633 Broadway, 31st Floor

New York, NY 10019

Michael J. Edelman, Esq.

SQUIRE PATTON BOGGS (US) LLP

Counsel for Mizuho Leasing

2550 M Street, NY

Washington, DC 20037

Christopher J. Giaimo, Esq.

CLIFFORD CHANCE US LLP

Counsel for Sumitomo Mitsui Trust Bank, Limited

31 West 52nd Street

New York, NY 10019

Robert Johnson, Esq.

DAVID S. JONES

UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion (the “Motion” or “Motion to Dismiss,” ECF No. 22) of

FitzWalter Capital Partners (Financial Trading) Limited (“FitzWalter”) to dismiss two jointly

administered, single-debtor bankruptcy cases. The two cases are materially identical. Each case

is brought by a Japanese single-purpose entity (respectively, JPA No. 111 Co., Ltd., and JPA No.

49 Co., Ltd., referred to in this Opinion generically as “JPA” or “Debtors”). Each Debtor is

wholly-owned and controlled by the same parent, JP Lease Products & Services Co. Ltd., a

Japanese company (referred to as “JP Lease” or “JPL”). Each Debtor purchased and owned one

Airbus A350-941 aircraft, which each Debtor indirectly leased (through an intermediate

lessee-lessor entity) to Vietnam Airlines (“VNA”). Each Debtor’s cash flow sharply decreased

along with the collapse of air travel during the COVID pandemic. In December 2021, FitzWalter,

which had only recently acquired substantial amounts of JPA debt and assumed the role of

“Security Agent” under the relevant financing agreements, began seeking foreclosure remedies in

England as to JPA’s contractual entitlements known as “Lease Assets”; FitzWalter has not

commenced foreclosure proceedings against the airplanes themselves. Upon discovering

FitzWalter’s foreclosure attempt, Debtors filed Chapter 11 bankruptcy petitions in this Court.

FitzWalter’s Motion asserts three grounds for dismissal: first, that each Debtor lacks any

legally meaningful ties to the United States and therefore may not be a debtor in a U.S. bankruptcy

proceeding under 11 U.S.C. § 109; second, that the petitions were filed in bad faith as improper

efforts to forestall legitimate and contractually specified foreclosure remedies available to

FitzWalter, warranting dismissal pursuant to 11 U.S.C. § 1112(b); and, third and alternatively, that

the Court should abstain under 11 U.S.C. § 305(a)(1). Debtors oppose, supported by their parent

JPL and by two holders of secured debt, all of whom argue that FitzWalter is engaging in

value-destructive enforcement efforts that will fail to compensate or satisfy the entitlements of

other holders of debt, unsecured creditors, and equity holders, notwithstanding that (in the Motion

opponents’ view) a full-payment outcome can be achieved by selling Debtors’ assets under the

auspices of Debtors’ Chapter 11 cases.

For reasons detailed below, the Motion is denied. Briefly, each Debtor satisfies the

eligibility requirements of section 109 because each owns “property” in the United States in the

form of an interest in a retainer deposit held in the bank account of Debtors’ counsel. And, having

considered substantial briefing, written evidence, and testimony during an all-day evidentiary

hearing conducted on January 26, the Court concludes that Debtors are in good faith using Chapter

11 processes to attempt to maximize creditor (and potentially equity holder) recoveries through a

contemplated Section 363 sale to an already-identified stalking horse bidder, subject to higher and

better offers, in the face of an unwanted effort by FitzWalter to pursue a fast-track foreclosure and

sale of a subset of each Debtor’s assets that Debtors and supporting parties believe is unlikely to

maximize recoveries of all creditors and parties in interest. FitzWalter rightly emphasizes that

many of the so-called C-TC factors1 that courts use to assess whether a filing was made in bad

faith point in favor of dismissal, but the overall circumstances here do not demonstrate a bad-faith

effort to improperly delay and frustrate the legitimate expectations of a secured creditor.

BACKGROUND

The Court has considered the record as a whole of the two bankruptcy cases; the parties’

written submissions in connection with the Motion, which are listed in an Agenda docketed at ECF

No. 85; and the record of a January 26 hearing on the Motion, including argument of counsel, 103

1 See In re C-TC 9th Ave. Partnership, 113 F.3d 1304 (2d Cir. 1997).

exhibits subject to certain exclusions stated on the hearing’s record (referred to as “JX __”

corresponding to an exhibit list provided by counsel at the hearing, a copy of which is docketed at

ECF No. 88), and expert and fact witness testimony. The Court received the transcript of the

January 26 hearing only on January 31, but it is nevertheless issuing this Opinion without delay

and without comprehensively detailing all record evidence, given the reported time sensitivity of

Debtors’ efforts to proceed with a prompt asset sale to identified proposed purchasers2 (the

“Stalking Horse Bidders,” sometimes referred to collectively as the “Stalking Horse Bidder”).

This Opinion reviews the case’s overall background, drawing in part from pleadings that were not

admitted into the evidentiary hearing record. Its Discussion section then includes findings of fact

as well as conclusions of law resulting from the January 26 hearing.

A. The Formation, Characteristics, and Ownership of JPA Entities

The Debtors are special purpose vehicles each formed, under Japanese Law, for the purpose

of acquiring and leasing an Airbus A350 aircraft. [ECF No. 3 (“First Day Declaration” or

“FDD”) ¶ 10]. Both Debtors are wholly-owned and managed by JPL. [Id. ¶ 10, Ex. A]. The

Debtors have no employees and are managed by Teiji Ishikawa, the President and CEO of JPL and

“Representative Director” of each Debtor, or indirectly through employees of non-debtor affiliates

acting under Ishikawa’s direction. [Id. ¶ 11]. Debtors do not have any independent offices, and

JPL maintains an office in Tokyo, Japan. [Id. ¶ 10, n. 2., Exs. C, H].

Debtor JPA No. 111 Co., Ltd. was formed in December 2017 to acquire an Airbus

A350-941 aircraft with serial number 067; Debtor JPA No. 49 Co., Ltd. was formed in August

2017 to acquire an Airbus A350-941 aircraft with serial number 173. [Id. ¶12]. Upon closing of

2 The Debtors have identified the Stalking Horse Bidders as Capitol Reef LLC and Isle Royale LLC. [ECF

No. 21 ¶ 18].

the aircraft financings, each Debtor acquired its respective aircraft, which each retail for over $150

million, using various interwoven debt financing and equity financing arrangements. [Id.].

Each Debtor leases its aircraft to an intermediate lessor, which in turn subleases the aircraft

to VNA. [Id. ¶¶ 13–14, Ex. A]. VNA’s lease payments are used by the Debtors to repay the debts

outstanding under their financing arrangements (set forth in more detail below). [Id. ¶ 14]. VNA

currently operates the aircraft actively and pays substantially all operating expenses. [Id. ¶ 15].

Prior to the Petition Date, the Debtors were negotiating with VNA to restructure their lease

arrangements. [Id.].

B. Financing of JPA Entities

To finance their acquisitions of each Aircraft, each Debtor entered into a complex set of

financing arrangements with various lenders, agents, and other parties specific to each aircraft

(collectively, the “Transaction Documents”). [Id. ¶ 19]. Each Debtor is financed by both senior

and junior loan facilities. Debtor JPA No. 111 entered into senior and junior facility agreements

providing for total committed loans up to $100 million and $15 million, respectively; Debtor JPA

No. 49 entered into senior and junior facilities providing for total commitments of up to

$111 million and $7.3 million, respectively. [Id. ¶¶ 20–22].

In connection with these debt financings, each Debtor entered into a substantially identical

proceeds agreement with their intermediate lessors, JPL, Credit Agricole Corporate & Investment

Bank (“CACIB”), and the various lenders. [Id. ¶ 22; ECF No. 23 Exs. 7, 14, JX 8, 15 (the

“Proceeds Agreements”)]. The Proceeds Agreements, inter alia, require each Debtor to lease the

aircraft to the applicable intermediate lessor who is in turn required to sublease them to VNA (with

VNA’s rent payments intended to fully cover all Debtors’ obligations to its secured lenders);

prohibits JPL from putting the Debtors into bankruptcy; provide for a “Security Agent” (then,

CACIB) to act on behalf of the lenders; and contain a payment waterfall for distribution of all

proceeds received by the Debtors, pre- or post- default. [See Proceeds Agr. §§ 3, 8; FDD ¶ 22].

To secure these obligations, the Debtors granted the Security Agent liens on the aircraft

pursuant to the aircraft mortgages [ECF No. 23 Exs. 11, 18, JX 12, 19 (the “Aircraft

Mortgages”)], and assigned the Security Agent interests in its rights under the Transaction

Documents, including the various leases, pursuant to the security agreements [ECF No. 23 Exs. 10,

17, JX 11, 18 (the “Security Agreements”)]. The Aircraft Mortgages are governed by New York

law and contain a New York forum selection clause, and the Security Agreements are governed

by English law. [Aircraft Mortgage § 12; Security Agr. § 19]. The Aircraft Mortgages give the

Security Agent and mortgagee enforcement remedies upon a default, including a foreclosure sale

governed by the New York UCC. [§ 6; see Motion at 10]. The Security Agreements give the

Security Agent enforcement rights as to the applicable interests under the Transaction Documents

including the right to “dispose of” such property “at the times, in the manner and on the terms it

thinks fit[.]” [Security Agr. § 6]. The parties and this Opinion refer to these interests as the “Lease

Assets”).

C. Cash Flow Difficulties Related to COVID-Associated Air Traffic Reductions;

Default and Lease Terminations

Prior to the COVID-19 pandemic, Vietnam Airlines was current on its lease obligations, but

since the outbreak has experienced ongoing financial challenges. [FDD ¶ 26]. Thus, in April and

October 2020 the intermediate lessors and VNA agreed to rent deferrals, the most recent and

controlling of which provided for reduced rent for April – December 2020 and for VNA to pay the

deferred rent in 18 equal monthly installments beginning in January 2021. [Id. ¶ 27]. In 2021,

VNA made payments averaging approximately $500,000 per month, but has not paid its full rent

obligations. [ECF No. 53-1, JX 59 ¶ 21]. As noted, the parties have been negotiating long-term

amendments to the leases and subleases, which would (according to the Debtors) extend their term

and provide for reduced rent payments that would step up to full rent over time. [FDD ¶ 28].

On December 1, 2021, CACIB as (then) Security Agent notified the Debtors, intermediate

lessors, and VNA that defaults had occurred under the leases and subleases, and the Security Agent

terminated such leases and subleases. [Motion at 8].

D. FitzWalter’s Acquisition of Secured Debt, Assumption of Role as Security Agent,

and Immediate Commencement of Foreclosure Actions as to Lease Assets

Also on December 1, 2021, FitzWalter acquired $128,227,903.53 in outstanding

obligations issued by Debtors: $115,778,525.00 in senior loans and $12,449,378.53 in a secured

claim relating to the termination of certain swap obligations arising in connection with the

Transaction Documents. [Motion at 9]. The next day, FitzWalter succeeded CACIB as Security

Agent under the Transaction Documents. [Id.].

On December 10, 2021, FitzWalter appointed Airborne Capital Limited (“Airborne”) to

conduct a sale of the Lease Assets, which FitzWalter contends were wholly and absolutely

assigned to it under the Security Agreements. [Id. at 6, 9]. FitzWalter did not notify the Debtors

of the foreclosure sale. [FDD ¶ 29]. The procedures for this proposed sale were entered as an

exhibit during the hearing and provided for, among other things, a bid deadline of December 17 at

4:00 p.m., a deadline for the successful bidder to fund the purchase price of December 17 at

midnight, and a closing date of December 20. [JX 94 at 4]. As of December 17, FitzWalter had

not commenced any foreclosure action against the aircraft themselves, and stated that any such

effort would involve a separate foreclosure process with separate procedures, different timelines,

and different advertisements. [Motion at 10].

E. Debtors’ Commencement of Chapter 11 Cases, and Debtors’ Attempt to Proceed

with a Court-Supervised Sale of Substantially All Debtors’ Assets

On December 17, 2021, the Debtors filed these Chapter 11 cases to trigger an automatic

stay of FitzWalter’s foreclosure sale, which Debtors contend would artificially deflate the price of

the Debtors’ assets and harm the Debtors and their creditors and equity holders; Debtors further

contend that the foreclosure sale was designed to benefit FitzWalter, prevent Debtors or JPL from

bidding, and ensure that FitzWalter affiliates would emerge as prevailing asset purchasers at a low

purchase price. [FDD ¶¶ 9, 37; Debtor’s Opp. ¶ 5]. Debtors state that they intend to market and

sell the Lease Assets and the aircraft under Court supervision pursuant to 11 U.S.C. § 363, arguing

such a sale would yield greater recovery for, and/or benefit to, all parties in interest. [FDD ¶¶ 38–

40; Debtors’ Opp. ¶¶ 6–7].

On December 31, 2021, the Debtors filed a motion for Court approval of, inter alia, bidding

procedures for the sale of substantially all of the Debtors’ assets under § 363, specified Stalking

Horse Bidders, and bid protections. [ECF No. 21, JX 51 (the “Bid Procedures Motion”)]. The

Debtors proposed, among other things, a purchase price that Debtors characterize as full payment

of all secured obligations (although FitzWalter later objected that not all asserted secured-lender

entitlements are included), plus $5 million cash for recovery to the equity interest holder, JPL.

[See id. ¶ 20]. Debtors argue that selling the Lease Assets and aircraft together would maximize

their value and lead to greater recovery for all parties in interest. [Id. ¶ 49].

F. FitzWalter’s Motion to Dismiss

On January 2, 2022, FitzWalter filed its Motion to dismiss these cases. [ECF No. 22]. The

Motion alleges, among other things, the following. After the leases were terminated on

December 1, 2021, VNA had no right to fly the aircraft but nevertheless has continued to do so,

resulting in diminution of the Aircraft’s value. [Id. at 8–9]. Moreover, FitzWalter as Security

Agent owns all the Lease Assets, including any damages claims against Vietnam Airlines, and

Debtors have only contingent reversionary interests in such Lease Assets after all secured loans

are paid in full. [Id.]. FitzWalter contends that Debtors filed these cases, in violation of § 3.1.3 of

the Proceeds Agreements, to prevent FitzWalter from exercising its contracted-for remedies over

the Lease Assets, assets that are not properly part of the Debtors’ bankruptcy estates—and, in

short, the Debtors seek to sell assets they do not own. [Id. at 10–12].

The Motion argues, among other things, as follows in support of dismissal or abstention.

The Debtors are ineligible for bankruptcy protection under §109 because the retainers on which

Debtors rely to establish eligibility were paid by JPL, and thus are not property interests of the

Debtors, and none of their other assets are located in the United States. [Id. at 13–14]. Further,

“cause” exists to dismiss the case under § 1112(b) because the cases were filed in bad faith. [Id.

at 14–28]. Specifically, application of the C-TC factors shows that the Debtors filed their cases

with subjective bad faith, [id. at 16–19 (citing, inter alia, C-TC and In re Taberna Preferred

Funding IV, Ltd., 594 B.R. 576 (Bankr. S.D.N.Y. 2018)], and Debtors’ filing is objectively futile

because they have no prospect for reorganization (having no business to reorganize) and no

reorganizational purpose, and the Debtors do not seek a discharge. [Id. at 25–27]. Finally, in the

alternative, the Court should abstain from hearing the cases under 11 U.S.C. § 305 because, among

other things, the Proceeds Agreements already provide for an alternative means of equitably

distributing the assets more economically and efficiently than through the Bankruptcy Code,

especially considering the Debtors’ and their creditors’ lack of ties to the U.S. [Id. at 28–30].

On January 13, Debtors filed their opposition to the Motion. [ECF No. 53]. Two secured

creditors joined in the Debtors’ Opposition to the Motion to Dismiss and in support of the Bid

Procedures Motion [ECF Nos. 51 and 54], as did JPL [ECF No. 55]. On January 18, FitzWalter

filed its reply to the Debtors’ Opposition. [ECF No. 67 (“FitzWalter Reply”)]. Following

discovery and the filing of additional pleadings, declarations, and exhibits, the Court heard

argument and conducted an evidentiary hearing on the Motion to Dismiss on January 26, and

reserved judgment. As noted, the Court’s key factual findings resulting from the January 26

hearing are detailed and discussed within this Opinion’s Discussion section, infra.

DISCUSSION

I. Jurisdiction

As the parties do not dispute, the Court has jurisdiction over bankruptcy cases filed in this

District pursuant to statute and the standing order of reference to this Court of all cases

commenced under title 11 and all proceedings arising under title 11 or arising in or related to a

case under title 11. See 28 U.S.C. §§ 157, 1334; Amended Standing Order of Reference M-431,

dated January 31, 2020 (Preska, C.J.). Consideration of the Motion is a matter concerning the

administration of the estate, and therefore is a core proceeding. See 28 U.S.C. § 157(b)(2)(A).

II. Debtors Have Property in the United States and Therefore “May Be a Debtor”

Under Title 11

FitzWalter first argues that dismissal is required because Debtors assertedly do not meet

the eligibility requirements of section 109 of the Bankruptcy Code, namely, that “only a person

that resides or has a domicile, a place of business, or property in the United States . . . may be a

debtor under this title.” 11 U.S.C. § 109(a).

FitzWalter is correct that Debtors have few ties to the United States. They are Japanese

companies; they have no offices or employees here (or anywhere); they have no regular operations

and do no ordinary-course business here; they lease their airplanes to a foreign carrier; and the

airplanes that they own have never flown to or been in the United States.

Nevertheless, Debtors meet the requirements of Section 109 because they “ha[ve] . . .

property in the United States,” in the form of entitlements associated with separate retainer

deposits, one for each Debtor and each in the amount of $250,000, that are in accounts established

by their U.S. bankruptcy counsel for the purpose of funding legal services in connection with

Debtors’ bankruptcy proceedings here. [See Debtors’ Opposition to Motion to Dismiss (“Debtors’

Opposition”), ECF No. 53, JX 87 ¶¶ 11–15, Ex. B; ECF No. 75, Exs. B and C]. Moreover, any

unused funds contained in the retainer accounts are contractually required to be returned to

Debtors. [Hearing Tr. at 50:11–18; see ECF No. 75, ¶ 17 and Exs. B and C3].

For a foreign corporation to qualify as a debtor under Section 109, courts have required

“only nominal amounts of property to be located in the United States, and have noted that there is

‘virtually no formal barrier’ to having federal courts adjudicate debtors’ bankruptcy proceedings.”

In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235, 249 (S.D.N.Y. 2004). Further, the

statute unqualifiedly uses the word “property” without any minimum value requirement, and courts

agree that “there is no statutory requirement as to the property’s minimum value.” In re Paper I

Partners, L.P., 283 B.R. 661, 674 (Bankr. S.D.N.Y. 2002).

Consistent with these general considerations, funds that are held in the United States to pay

for law firm services for a debtor constitute a debtor’s property that is located in the United States,

and that thus satisfy the requirements of Section 109. See, e.g., In re Serviços de Petróleo

Constellation S.A., 600 B.R. 237, 268 (Bankr. S.D.N.Y. 2019) (“Courts in this Circuit have held

3 This citation is to the retention application of Debtor’s counsel, filed 6 days before the hearing. [ECF

No. 75]. Although not received in evidence at the hearing, the application and exhibits thereto corroborate

Debtors’ counsel’s statement at the hearing that any portions of the retainers undrawn at the end of this case

are to be returned to the Debtors (not JPL).

that Section 109(a) can be satisfied by bank accounts in the United States, including by an undrawn

retainer.”); In re U.S. Steel Canada Inc., 571 B.R. 600, 610 (Bankr. S.D.N.Y. 2017) (same).

FitzWalter does not contest the legal proposition that interests in legal retainers can

constitute property in satisfaction of section 109’s requirements. Rather, FitzWalter observes that

the transfer of funds to Debtors’ counsel was made directly by Debtors’ parent entity, non-debtor

JPL, which FitzWalter contends renders the deposits not Debtor property. FitzWalter further

objects that Debtors have not established their entitlements to the escrow deposits by competent

evidence, particularly given that Debtors’ petitions or schedules do not list the law firm escrow

balances as assets, which FitzWalter contends should be deemed a binding admission of a lack of

this form of U.S. property.

FitzWalter’s objections are not well taken. First, it is of no moment that JPL directly

transferred the escrowed funds. The record corroborates Debtors’ counsel’s receipt of the funds

for purposes of paying for legal services to be rendered to Debtors in these bankruptcy cases, and

that Debtors are entitled to the return of any unused funds at the end of the representation. [Hearing

Tr. at 50:11–18; see ECF No. 75, ¶ 17 and Exs. B and C]. And the existence of funds from which

a client is entitled to fund U.S. legal services is sufficient to satisfy Section 109, whoever sent the

funds to counsel. See In re Glob. Ocean Carriers Ltd., 251 B.R. 31, 39 (Bankr. D. Del. 2000)

(“The retainers were paid on behalf of all the Debtors and, therefore, all the Debtors have an

interest in those funds. It is not relevant who paid the retainer, so long as the retainer is meant to

cover the fees of the attorneys for all the Debtors, as it clearly was in these cases”); cf. 2 Collier

on Bankruptcy (“Collier”) ¶ 109.02 (“the debtors’ interests in the unearned portions of retainers

paid to their U.S. counsel were property of the debtors’ estates and constituted property in the

United States that rendered all of the debtors eligible”); In re Indep. Eng'g Co., Inc., 232 B.R. 529

(B.A.P. 1st Cir.), aff'd, 197 F.3d 13 (1st Cir. 1999) (corporate debtor held property interest in

unearned portion of the retainer paid to debtor’s attorney by debtor’s principal, where unearned

portion of the retainer would be returned to debtor; retainer was thus property of the estate).

The Court rejects FitzWalter’s contention that Debtors have failed to present evidence to

corroborate that they have a property interest in the form of U.S. deposits of funds to pay Debtors’

counsel here. The evidentiary record of the January 26 hearing includes a receipt of the wire

transfers and the funds transfer confirmation for the retainers [see Debtors’ Opp. Ex. B; JX 98],

and FitzWalter has not challenged the accuracy or truthfulness of Debtors’ evidence and explicit

representation that two $250,000 deposits existed as of December 17, 2021, the date these cases

were filed (the “Petition Date”), to fund each Debtor’s bankruptcy legal fees. Further, the Court

declines to hold that the omission of these fee deposits from Debtors’ petitions or schedules

compels the conclusion that no such property interest exists. To do so would be to improperly

elevate form over substance where the evidence establishes the existence of U.S.-based property,

especially because, if necessary, the Court could and would be inclined to allow an amendment of

Debtors’ schedules, a concept that Debtors’ counsel embraced during the January 26 hearing.

[Hearing Tr. 49:1–25].

The Court acknowledges but does not decide a second and independent theory advanced

by Debtors as to why they satisfy section 109, namely that they possess another qualifying property

interest in the form of “contract rights” to have a New York forum apply New York law to any

disputes under aircraft mortgages to which they are a party. [Debtors’ Opp. ¶ 16 (citing In re

Berau Capital Res. PTE Ltd., 540 B.R. 80, 83-84 (Bankr. S.D.N.Y. 2015))]. FitzWalter does not

dispute that contractual choice of law and forum selection provisions can give rise to property

rights that are estate property, but FitzWalter argues that the situs of any such property interest of

Debtors is in Japan, not the United States. [See FitzWalter Reply at 6–8; Hearing Tr. at 29:21–

30:1]. The Court need not and does not decide the disputed situs of the property interest arising

from the forum selection clauses in light of its holding based on the fee deposits in New York that

are used to fund Debtors’ legal representation in these cases.

III. Dismissal on Grounds of Bad Faith Pursuant to Section 1112(b)

1. Findings of Fact

The Court finds the following facts that are particularly significant to its holding that the

petition should not be dismissed as a bad-faith filing:

At all relevant times prior to December 2021, each JPA entity owned one commercial

airplane, and received lease revenues from an intermediate lessor entity which in turn received

lease payments from VNA. Each JPA entity was fully owned by JPL, had no employees or

physical location independent of JPL, and existed solely to own and lease its respective Airbus

A350. Each JPA entity’s assets included lease payment and other contractual rights associated

with its ownership of the aircraft, referred to as “Lease Assets,” as well as the aircraft itself.

Prior to the COVID pandemic, VNA met all or essentially all its lease payment obligations

on the JPA-owned aircraft that it leased. VNA’s operations and revenues were severely affected

by the pandemic, and VNA was unable to meet its scheduled lease payment obligations, although

record evidence including the testimony of Heinrich Loechteken credibly established that VNA

paid, on average, approximately $500,000 per month toward its lease obligations for at least a

portion of the last two years. [ECF No. 53-1, JX 59 ¶ 21; see Hearing Tr. at 169:19–170:10, and

JX 82 (“Loechteken Depo. Tr.”) at 34:16–35:3]. Again based on the testimony of Mr.

Loechteken, which I credit, JPA considered it commercially important to maintain its relationship

with VNA and to attempt to restructure the lease obligations as VNA restored operations and

regained revenue, particularly because the commercial market for widebody aircraft was extremely

“soft,” the costs of repossessing and storing the aircraft and associated paperwork would be high

with significant challenges to enforcement actions against VNA and/or the aircraft, and the

prospects of negotiating a sufficiently lucrative replacement lease or sale of the aircraft were poor.

[See Hearing Tr. at 166:1–171:10; ECF No. 53-1, JX 59 ¶¶ 12–24]. JPA and its parent JPL wished

to pursue this strategy not only as to the two leases of the Debtors, but also as to a third Airbus

owned by a third, non-debtor JPA entity that is also leased to VNA.

The Debtors are financed by two tiers of secured debt. Their credit facility involved the

participation of a senior majority lender, termed the “Security Agent” under governing agreements,

who was contractually authorized to act on behalf of all holders of secured debt of the JPA

enterprises at issue. Debtors have represented, and FitzWalter has not contested, that the Security

Agent does not owe fiduciary duties to other lenders or any other party in the transactions. Until

early December 2021, CACIB served as Security Agent. The distribution of revenues or other

financial recoveries, including upon enforcement action or termination of the leases, was governed

by the applicable Proceeds Agreement, which among other things specified a payment “waterfall”

or priority scheme of distributions to participating lenders, including a senior and a junior class of

secured lenders. [Proceeds Agr. §§ 2, 8.3].

Under the relevant Security Agreements, the Debtors assigned security interests (discussed

in greater detail below) in all the Debtors’ rights under the various “Transaction Documents,”

including the “Lease Assets” (again, entitlements in connection with the lease of each aircraft), to

the Security Agent (in its capacity as security agent on behalf of all secured lenders). [See Security

Agr. § 3]. The secured lenders, via the Security Agent, had contractually specified enforcement

rights in the event of a default. Specifically, again acting by and through the Security Agent, they

were entitled under the Security Agreements to seek foreclosure remedies in England with respect

to the Lease Assets [see Security Agr. § 6], and they were entitled under the Aircraft Mortgages

(which were subject to New York law and a New York forum selection clause) to seek foreclosure

remedies4 with respect to the aircraft themselves (albeit under different terms and pursuant to

separate requirements) [see Aircraft Mortgage § 6].

In early December 2021, FitzWalter acquired a substantial share of the secured JPA debt

that had been issued by the two Debtor entities in this case, and succeeded CACIB as Security

Agent. [See, e.g., Motion at 9]. On December 1, 2021, the day before FitzWalter took over its

role as Security Agent, CACIB as (then) Security Agent declared a default on the relevant debt

and leases, terminated the leases, and directed that future payments be made directly to it. [See,

e.g., Gray Decl. Exs. 31 and 32; ECF No. 80-1, 80-2, JX 39, 40]. CACIB also sold at least the

majority of the secured debt of the two JPA entities to FitzWalter, which then became Security

Agent. [See Gray Decl. ¶¶ 76–80]. All of these steps were consistent with the secured lenders’

contractual entitlements and the procedures set forth in the governing agreements.

On December 10, 2021, FitzWalter took steps to commence a foreclosure process in

England against the JPA entities’ “Lease Assets,” but not the aircraft themselves. [Gray Decl.

¶¶ 81–83]. FitzWalter did not notify JPA of its pursuit of foreclosure remedies. [Hearing Tr. at

231:9–23]. FitzWalter retained a firm with experience in the aviation industry, Airborne Capital

Limited (“Airborne”), to serve as its agent in pursuing remedies with respect to the defaulted debt.

4 FitzWalter states in its Motion, with respect to a foreclosure sale of the aircraft, that “the sales process for

the Lease Assets that Airborne had commenced did not include a sale of the Aircraft. The sale of the Aircraft

would involve a separate foreclosure process pursuant to the New York Uniform Commercial Code, which

requires the sale be ‘commercially reasonable.’ A sale of the Aircraft would necessarily require separate

procedures, different timelines and advertisements that would be appropriate for the sale of an airplane (as

opposed to the sale of contractual rights).” [Motion at 10 (citations omitted) (emphasis added)].

[See, e.g., Gray Decl. ¶ 81]. Again, these steps have not been alleged to be inconsistent with

FitzWalter’s contractual entitlements in its capacity as Security Agent or a holder of secured JPA

debt.

On a date that is disputed but, based on an early-morning email dated December 14, appears

likely to have been December 13 and no later than early on December 14, 2021, the JPA entities

became aware through industry press of ongoing efforts to sell their aircraft and/or take foreclosure

action or seek other remedies affecting them. [See JX 100, corroborated generally by testimony of

Heinrich Loechteken]. They promptly made inquiries and attempted to determine an appropriate

course of action. They did not initiate discussions with FitzWalter even after learning that

FitzWalter had commenced a foreclosure and sale process with respect to the Lease Assets. Mr.

Loechteken testified credibly that in his view and that of JPL leadership with whom he was

working, FitzWalter was engaged in an expedited, value-destroying, likely self-serving course of

action, he believed intended to permit a FitzWalter affiliate to emerge with control of JPA’s assets

at a suppressed price, such that any bid by JPA or JPL through the process being run by FitzWalter

was doomed to fail. [See Hearing Tr. at 164:16–167:13, 260:4–261:15]. The Court credits Mr.

Loechteken’s testimony concerning his and JPL’s reasoning, but does not make an affirmative

finding regarding FitzWalter’s commercial motivations because Mr. Loechteken’s testimony,

while plausible, is speculative and not backed by concessions from any FitzWalter source.

As noted, both JPA Debtor entities filed Chapter 11 petitions in this Court on December 17,

2021. As of the Petition Date, FitzWalter had begun but had not completed a foreclosure process

in England as to the JPA Lease Assets, and no foreclosure action had been commenced as against

the two JPA-owned aircraft themselves. Under the Proceeds Agreements, JPL had contractually

agreed not to file or direct the filing of bankruptcies by the JPA entities [see Proceeds Agr. § 3.1.3],

and, given JPL’s actions in support of the JPA entities’ filing here, JPL appears to have acted

inconsistently with that contractual provision, unless some consideration renders that limitation

inapplicable—a question that this Court need not and does not reach.

On December 31, 2021, JPA filed a motion seeking approval of bid procedures and a

Stalking Horse Bidder that has committed to buy substantially all of the JPA Debtors’ assets for

the total amount due on account of the two JPA entities’ secured debt (although FitzWalter objects

that not all obligations on account of the security agreements are included), plus $5 million. [See

ECF No. 21]. I credit Mr. Loechteken’s testimony that this proposed transaction, if finalized, will

represent the realization of JPA’s strategy of maximizing value and recoveries, in anticipation of

reinstating its relationship with VNA and restructuring financial arrangements based on anticipated

improved future VNA lease revenues. [See, e.g., Hearing Tr. at 115:1–120:1, 170:18–173:1; ECF

No. 53-1, JX 59 ¶¶ 13–24]. I further credit Mr. Loechteken’s testimony and JPA’s contention that,

in his and in JPA’s judgment, this strategy is the most reliable way to maximize recoveries for all

parties in interest, and that, by contrast, FitzWalter’s approach appears likely to realize a lower

total recovery, and to come at the expense of other secured creditors and other parties in interest.

[See Hearing Tr. at 164:16–167:13, 260:4–261:15; ECF No. 53-1, JX 59 ¶¶ 13–24]. Two secured

creditors as well as JPL have filed joinders to JPA’s opposition to the Motion and its request to

proceed with an asset sale [ECF Nos. 51, 54, and 55], lending credence to JPA’s contentions and

Mr. Loechteken’s testimony. And FitzWalter could have, but did not, present evidence concerning

the likely total return on its intended foreclosure sale of the Lease Assets, nor did it present

evidence regarding the likely outcome of any eventual foreclosure proceeding or other remedy it

envisioned as to the aircraft, lending further credence to, at least, the plausibility of JPA’s

suspicions about FitzWalter’s course of conduct.

At bottom, the Court finds that JPA’s bankruptcy petition was filed in a subjectively

good-faith effort to maximize recoveries of all stakeholders by making the best of a difficult

commercial situation. Indeed, the term sheet between JPA and its Stalking Horse Bidder set

consideration on the proposed asset sale in the amount necessary to satisfy at least the bulk of the

Debtors’ obligations to their secured creditors, plus $5 million cash [see ECF No. 21 Ex. B, JX 54

(“Term Sheet”) § 3; Bid Procedures Motion ¶ 20, n. 5], which, although disputes will remain,

guards against a possible ultimate shortfall in funds available to satisfy secured claims, and which

appears likely to constitute a monetarily superior outcome when compared to the likely outcome

of FitzWalter’s foreclosure process. The Court further finds that FitzWalter, although acting

consistently with its contractual entitlements, is not contractually restrained from pursuing a course

that will yield a lesser recovery that is likely to harm parties other than itself; nor has FitzWalter

presented evidence challenging JPA’s testimony that JPA’s preferred approach will yield a

superior financial outcome compared to FitzWalter’s. Finally, while JPA plausibly argues that

FitzWalter is motivated by an intention to divide estate assets and cause depressed-price sales to

be made to FitzWalter affiliates that will reap a windfall, the Court makes no finding with respect

to FitzWalter’s subjective intent, as the evidentiary basis for such a conclusion does not include

direct evidence from FitzWalter employees or agents, and no factual finding about FitzWalter’s

subjective intentions is required to support the Court’s conclusions herein.

FitzWalter and JPA each presented expert testimony concerning English law and the nature

of the security interest held by FitzWalter [see ECF No. 79, JX 68; ECF No. 68 Ex. A., JX 91], in

light of a contention by FitzWalter that JPA’s proposed Section 363 sale cannot go forward

because the Lease Assets have been absolutely assigned to the Security Agent and other secured

debtholders, such that the Lease Assets are not estate property capable of being sold [see, e.g.,

Motion at 20–21]. The Court found the testimony of each side’s expert—respectively, Akhil Shah

on behalf of FitzWalter and Francis Tregear on behalf of JPA—helpful, informed, credible, and

largely consistent except on the debatable legal question of whether the Lease Assets have been

absolutely assigned to secured creditors, or rather whether, in English legal parlance, those assets

are merely subject to a security interest known as a “charge.” The Court declines to find whether

an absolute assignment or a mere “charge” was effected under the governing agreements, because

no such finding is necessary to resolve the dispute before the Court. Mr. Shah acknowledged (and

Mr. Tregear agreed) that, at a minimum, JPA possesses an “equity of redemption,” meaning

roughly speaking an equitable right to redeem and recover the pledged or assigned property upon

repayment of the secured debt; and Mr. Shah explicitly acknowledged that JPA possessed this

equity of redemption both on the Petition Date, and now. [Hearing Tr. at 109:20–111:7, 204:5–

206:11, 211:8–212:7]. Thus, as a matter of bankruptcy law which was not the subject of the

English law experts’ testimony, there can be no serious dispute that JPA’s equity of redemption

constitutes property of the estate under Bankruptcy Code section 541, which, as such, can be

included in an asset sale.

Further, the Term Sheet supporting JPA’s proposed asset sale states that what is being sold

is all of JPA’s right, title and interest associated with the aircraft—which, even if limited to the

aircraft and JPA’s equity of redemption with respect to the Lease Assets, remains conveyable

estate property appear sufficient to permit the completion of the proposed sale.5 Accordingly, the

5 During the hearing, FitzWalter elicited testimony suggesting that rights as against VNA are held directly

by the non-debtor intermediate lessor entities, not JPA, such that JPA may not even directly own the “equity

of inclusion” that both retained English-law experts agree accompany even an absolute assignment by way

of security. [See, e.g., Hearing Tr. at 231:18–232:7]. This consideration, however, does not mean that JPA

has no pertinent rights that can be conveyed or exercised, as is confirmed by the terms of the Stalking Horse

Term Sheet providing that the bidder will fully satisfy JPA’s secured debt and pay an additional $5 million

in cash upon the transaction’s close, in exchange for all of Debtors’ right, title, and interest in property

Court finds that the evidence contradicts FitzWalter’s contention that JPA’s proposed course of

action depends on a purported sale of property that it does not own, and therefore cannot be a good

faith course of conduct.

Finally, a further development, although not relied upon by the Court as a basis for the

factual findings outlined above because it occurred after the hearing’s close, provides additional

reassurance that the course proposed by JPA remains potentially viable and, at a minimum, a good-

faith effort to maximize value for all parties in interest. At the conclusion of the January 26

hearing, during which the parties’ contentions and the nature of JPA’s property interests were

thoroughly reviewed, the Court asked JPA to inform the Court whether the Stalking Horse Bidder

remained committed to go forward with the transaction it had negotiated, or some variation thereof.

The Court commented that, if the Stalking Horse Bidder determined that the hearing revealed facts

or considerations that made the Stalking Horse Bidder unwilling to proceed, the Court wished to

be informed because that might affect its assessment of the viability of Debtors’ plan to proceed

with a prompt Section 363 asset sale to achieve prompt payment to creditors to the greatest extent

possible. On January 28, 2022, Debtors filed a statement in response, reporting among other things

that the Stalking Horse Bidder “has reaffirmed to the Debtors” its support of JPA’s proposed

transaction, and represents that it will “complete the purchase of the Purchased Assets” if it prevails

in the auction contemplated by the Bid Procedures Motion. [ECF No. 90]. The same statement

also “confirmed” that the negotiated purchase consideration is worded such that it will cover the

amount of all secured claims against the JPA estates, plus $5 million in cash. [Id.]. FitzWalter

filed a response that raised numerous criticisms of JPA’s statement and, specifically, objected that

relating to the aircraft—without precisely defining what that “right, title, and interest” consists of. [See

Term Sheet §§ 1–3].

the Stalking Horse Bidder’s commitment did not cover all entitlements that FitzWalter asserts are

due on account of security interests and associated entitlements. [ECF No. 91]. FitzWalter’s

response, which like JPA’s post-hearing statement is not part of the hearing’s record, fails to

identify a reason that the bankruptcy proceeding is “objectively futile” or subjectively in bad faith,

and instead foreshadows a dispute that likely will need to be addressed as the case progresses.

2. Legal Analysis

Upon motion by a party in interest, a court shall dismiss a chapter 11 case or convert it to

chapter 7, “whichever is in the best interests of creditors and the estate, for cause.” 11 U.S.C.

§ 1112(b).6 Broadly speaking, this provision guards against abusive bankruptcy filings and

unjustified harms that might otherwise flow from the commencement of a bankruptcy case. As

the Second Circuit has put it, “When it is clear that, from the date of the filing, the debtor has no

reasonable probability of emerging from the bankruptcy proceedings and no realistic chance of

reorganizing, then the Chapter 11 petition may be frivolous.” In re C-TC, 113 F.3d at 1310 (citing

In re Cohoes Indus. Terminal, Inc., 931 F.2d 222, 227 (2d Cir. 1991)). Further, “‘an entity may

not file a petition for reorganization which is solely designed to attack a judgment collaterally—

the debtor must have some intention of reorganizing.’” In re C-TC, 113 F.3d at 1310 (quoting In

re Cohoes, 931 F.2d at 227). Thus, in this Circuit, “a bankruptcy petition will be dismissed if both

objective futility of the reorganization process and subjective bad faith in filing the petition are

found.” In re Kingston Square Assocs., 214 B.R. 713, 725 (Bankr. S.D.N.Y. 1997); In re AAGS

Holdings, 608 B.R. at 384 (same).

6 Unless the court appoints a chapter 11 trustee under section 1104 or a statutorily specified exception

applies. 7 Collier ¶ 1112.04.

The Code explains that “the term ‘cause’ includes” the circumstances listed in the subparts

of section 1112(b)(4). Those listed grounds do not identify “bad faith” as constituting “cause,”

but the statutory list is illustrative and not exhaustive; a finding that a case was filed in bad faith

supports a dismissal for cause under section 1112(b). See, e.g., In re AAGS Holdings LLC, 608

B.R. 373, 382 (Bankr. S.D.N.Y. 2019). A case is filed in bad faith “if it is clear that on the filing

date there was no reasonable likelihood that the debtor intended to reorganize and no reasonable

probability that it would eventually emerge from bankruptcy proceedings.” Id. (cleaned up). And,

as noted above, particularly in single asset cases, courts refer to the C-TC factors to assess whether

a Chapter 11 case was filed in bad faith. In all cases, however, these factors are not to be applied

mechanically, and courts consider “the entire view of the facts and circumstances—no one factor

is determinative.” AAGS Holdings, 608 B.R. at 382.7

The parties disagree about who bears what burden on motions to dismiss for cause. Debtors

contend that the moving party has the burden of establishing cause, and, further, observe (as

FitzWalter seemingly accepts) that bankruptcy judges have “wide discretion” to determine whether

cause exists. [See, e.g., Hearing Tr. at 56:1–58:7, 218:5–15; In re BH S & B Holdings, LLC, 439

B.R. 342, 346 (Bankr. S.D.N.Y. 2010) (“[t]he moving party has the burden of demonstrating cause

for dismissal”) (citing In re Loco Realty Corp., No. 09–11785(AJG), 2009 WL 2883050, at *2

(Bankr. S.D.N.Y. June 25, 2009))]. FitzWalter counters that, at least if the issue is whether the

petition was filed in good faith, the movant bears the initial burden to make a prima facie showing

to support the allegation of bad faith, but, if the movant does so, the ultimate burden rests on the

7 Where the Court does find cause, it must determine whether dismissal or conversion (or appointment of a

trustee) is in the best interest of creditors and the estate, considering various factors that relevant case law

identifies. Id.; BH S & B Holdings, 439 B.R. at 346–47.

petitioner to demonstrate good faith. [Motion at 14–15 (citing In re Syndicom Corp., 268 B.R. 26,

47 (Bankr. S.D.N.Y. 2001)); see, e.g., 7 Collier ¶ 1112.04]. In light of the findings of fact set forth

above, even assuming that FitzWalter has made a prima facie showing of bad faith and that the

burden has shifted to Debtors, Debtors have made a showing that more than meets the burden that

FitzWalter contends they bear.

Neither “cause” for dismissal nor “subjective bad faith” has been shown here. First, there

is no “objective futility of the reorganization process,” an overarching consideration if not a

required state of affairs for dismissal to be warranted under In re Kingston and In re AAGS

Holdings. To the contrary, Debtors are seeking to proceed as expeditiously as possible with a sale

that will satisfy all claims and, they say, will even generate a recovery for equity holders. The

potential viability of that course is confirmed by multiple considerations beyond Debtors’ say-so:

First, the existence and Debtors’ energetic pursuit of prompt approval of the Stalking Horse Bidder

and the parties’ negotiated Term Sheet, and, second, the opposition to FitzWalter’s Motion and

support of Debtors’ sale efforts from two holders of secured debt, and from JPL. [ECF Nos. 51,

54, 55]. Further, the Court credits JPA’s showing that the solution it is pursuing in this Court is

likely to be more protective of all parties in interest than will FitzWalter’s effort to exercise its

contractual rights elsewhere, especially given FitzWalter’s asserted (and undisputed) lack of

fiduciary duties to other affected parties, the credible testimony of Mr. Loechteken that a sale of

disaggregated assets very likely will be less lucrative than an all-asset sale, and JPA’s showing at

the hearing that FitzWalter has already asserted entitlement to $2.4 million in professional

expenses as part of its entitlements under the Security Agreements. Further, it cannot be seriously

contended that an expedited sale process aimed at fully compensating all parties in interest is an

“objectively futile” use of bankruptcy processes, whether the ultimate post-sale outcome will be

some form of liquidation (as the Court suspects is likely), or a reorganization of the remaining

post-sale Debtor entity and any assets it may retain. See, e.g., In re Soundview Elite, Ltd., 503

B.R. 571, 580 (Bankr. S.D.N.Y. 2014) (“it is not bad faith to file a chapter 11 petition for the

purpose of a more orderly liquidation”) (citing 6 Collier ¶ 1112.07[6][b][i]); In re Crown Vill.

Farm, LLC, 415 B.R. 86, 92–93 (Bankr. D. Del. 2009) (“[a] proper bankruptcy purpose” in a

Chapter 11 case evidencing good faith “includes maximizing the value of the debtor’s sole asset

as is the case here where the Debtor will market the [Property] and subject it to an auction process

for sale to the highest and best bid”).

FitzWalter emphasizes that many of the C-TC factors that characterize bad-faith filings of

single-asset debtors are present here, and JPA emphasized its overarching good faith more than it

debated the applicability of specific C-TC factors. The Court nevertheless concludes that not every

C-TC factor is met, and, particularly because it finds that JPA’s intended course of action appears

potentially viable and protective of all parties in interest, the Court concludes in weighing the C-

TC factors that Debtors did not file their petitions in bad faith.

Proceeding in numerical order through the factors (see In re C-TC, 113 F.3d at 1311), the

Court finds:

Factor 1 – the debtor has only one asset – is largely but not entirely satisfied. The Debtors

in substance are one-asset concerns that each owns a physical asset (here, an airplane) and

associated lease and contract rights. However, as of the Petition Date, FitzWalter was pursuing

foreclosure of the Lease Assets but not the aircraft, demonstrating that Debtors’ assets can be

disaggregated and conveyed in constituent parts.

Factor 2 – the debtor has few unsecured creditors whose claims are small in relation to

those of the secured creditors – is satisfied here. Secured creditors are owed something in the

neighborhood of $200 million, with the exact amount in apparent dispute; Debtors list almost no

unsecured creditors with specific amounts owed. Debtors’ largest listed unsecured claim is for

less than $2 million, and belongs to JPA’s parent, JPL.

Factor 3 -- the debtor's one asset is the subject of a foreclosure action as a result of

arrearages or default on the debt – is not met according to the literal terms of this test. The Lease

Assets are subject to a foreclosure action by FitzWalter, but the aircraft themselves are not.

Factor 4 – the debtor's financial condition is, in essence, a two-party dispute between the

debtor and secured creditors which can be resolved in the pending state foreclosure action – is

correctly disputed by JPA. Two secured creditors and JPL have all filed statements opposing the

Motion and supporting the proposed Section 363 sale. Nor will all parties’ disputes be resolved

by the “pending” foreclosure action in England, because that action (or non-judicial foreclosure

process) concerns the Lease Assets but not the aircraft.

Factor 5 – the timing of the debtor's filing evidences an intent to delay or frustrate the

legitimate efforts of the debtor's secured creditors to enforce their rights – is satisfied. It is true

(and explicitly conceded) that Debtors’ filings were motivated by a desire to stop FitzWalter’s

foreclosure efforts, and instead to bring about what Debtors consider a value-maximizing approach

through a sale supervised by this Court. However, courts recognize that the mere fact that a debtor

files for bankruptcy protection even on the eve of a foreclosure does not alone evidence bad faith

or an improper application of the bankruptcy laws. See In re Cohoes, 931 F.2d at 228 (“there is a

considerable gap between delaying creditors, even secured creditors, on the eve of foreclosure and

the concept of abuse of judicial process”); In re AAGS Holdings, 608 B.R. at 383 (same (quoting

Cohoes)).

Factor 6 – the debtor has little or no cash flow – is satisfied here, particularly after

FitzWalter terminated the leases and directed that payments be made directly to secured lenders.

Factor 7 – the debtor can't meet current expenses including the payment of personal

property and real estate taxes – has not been shown to apply here, because the JPA Debtors do not

have payroll or other fixed expenses, and so cannot be said not to be meeting those expenses.

Meanwhile, no evidence has been shown to the Court suggesting that Debtors are administratively

insolvent, and they appear able to meet their legal expenses, at least in part due to the retainers that

have been deposited for that purpose.

Factor 8 – the debtor has no employees – is satisfied here.

Thus, in sum, the Court finds that the third, fourth, and seventh C-TC factors are not

satisfied here, while the first (to a qualified extent), second, sixth, and eighth are satisfied. The

fifth is satisfied but its significance is limited given case law recognizing that a filing immediately

before a foreclosure, even for the purpose of avoiding a foreclosure, is not necessarily an improper

or bad-faith use of the bankruptcy laws.

Whatever the one-by-one tally of C-TC factors reveals, however, the totality of the record

before the Court gives an overwhelming impression of a good-faith effort to use bankruptcy

remedies to achieve a superior outcome for all parties in interest—with the possible exception of

FitzWalter, which stands to be fully paid (with the possible exception of certain disputed amounts

beyond principal and interest) on account of its secured debt if the bankruptcy sale goes forward,

but which may lose profit it could otherwise achieve if its own foreclosure process allows it to

emerge with lower-cost ownership of JPA’s valuable assets. Again, courts are “not to apply [the

CT-C] factors mechanically,” but must “consider the entire view of the facts and circumstances.”

In re AAGS Holdings, 608 B.R. at 383 (cleaned up) (quoting In re 68 W. 127th St. LLC, 285 B.R.

838, 844 (Bankr. S.D.N.Y. 2002), and citing In re Encore Prop. Mgmt. of W. New York, LLC, 585

B.R. 22, 30 (Bankr. W.D.N.Y. 2018)). Thus, as was the case in In re AAGS Holdings, the Court

concludes that, whatever the C-TC factors may suggest, “the totality of the circumstances show

that Debtor[s] ha[ve] not filed . . . in bad faith but instead, ha[ve] properly invoked a protection

provided for in the Bankruptcy Code to pay [their] creditors” and reorganize or liquidate through

legally available provisions of the bankruptcy laws. 608 B.R. at 384. Debtors have done so in a

manner that is not objectively futile and that evinces their good faith.

Two cases that FitzWalter emphasizes merit discussion. First, FitzWalter argues that this

case is controlled by In re Taberna Preferred Funding IV, Ltd., 594 B.R. 576 (Bankr. S.D.N.Y.

2018), which dismissed an involuntary bankruptcy petition filed by certain creditors for cause

because the Court found the petition to be an attempt to force an accelerated liquidation for the

petitioning creditors’ “own benefit at the expense of the larger creditor community,” in

contravention of “the prime bankruptcy policy of equality of distribution among creditors.” 594

B.R. at 604 (quoting In re Murray, 543 B.R. 484, 495 (Bankr. S.D.N.Y. 2016)). FitzWalter is

correct that a number of C-TC factors were present in Taberna in ways that parallel JPA’s case.

That is immaterial, however, because the overarching consideration that drove the dismissal for

cause in Taberna was the petitioning creditors’ attempt to game the bankruptcy system to force an

outcome that would disproportionately benefit them at the unjust expense of other parties in

interest—a description that, if anything, fits FitzWalter’s approach here more than it does Debtors’.

Second, FitzWalter argues that dismissal is mandated by In re Loco Realty Corp.,

No. 09-111785 (AJG), 2009 WL 2883050 (Bankr. S.D.N.Y. June 25, 2009), which dismissed a

bankruptcy case for cause where the debtor’s proposed plan depended on rent revenues that it had

alienated and that were not property of the estate to fund the plan, such that “the prospects of

reorganization for Debtor are unrealistic” and the debtor “ha[d] no realistic chance of successfully

emerging from bankruptcy.” Id. at *5. Were FitzWalter correct that the limitations on Debtors’

property rights precluded their proceeding with their contemplated Section 363 sale, In re Loco

would indeed support dismissal here. But, as explained above, Debtors here retain sufficient

property interests to go forward with their contemplated sale, or, at a minimum, it cannot be said

that there is “no realistic chance” of their doing so.

IV. Abstention Under Section 305 Is Not Warranted

Section 305(a)(1) of the Bankruptcy Code authorizes a bankruptcy court to dismiss or

suspend all proceedings in a bankruptcy case under any chapter if “the interests of creditors and

the debtor would be better served by such dismissal or suspension.” 11 U.S.C. § 305(a)(1). Courts

have held that abstention under Section 305 is “an extraordinary remedy” appropriate only “where

the court finds that both creditors and the debtor would be better served by a dismissal.” In re

Selectron Mgmt. Corp., No. 10-75320-DTE, 2010 WL 3811863, at *5 (Bankr. E.D.N.Y. Sept. 27,

2010). The burden to demonstrate that the interests of the debtor and its creditors would benefit

from dismissal lies on the moving party. Id. Courts in this Circuit have identified factors relevant

to this inquiry: (1) the economy and efficiency of administration; (2) whether another forum is

available to protect the interests of both parties or there is already a pending proceeding in state

court; (3) whether federal proceedings are necessary to reach a just and equitable solution;

(4) whether there is an alternative means of achieving an equitable distribution of assets; (5)

whether the debtor and the creditors are able to work out a less expensive out-of-court arrangement

which better serves all interests in the case; (6) whether a non-federal insolvency has proceeded

so far in those proceedings that it would be costly and time consuming to start afresh with the

federal bankruptcy process; and (7) the purpose for which bankruptcy jurisdiction has been sought.

Id.

FitzWalter has not carried its burden to demonstrate the necessity of this “extraordinary

remedy.” The fact that there is no proceeding pending elsewhere seeking to foreclose upon or

determine parties’ entitlements to the aircraft (as opposed to the Lease Assets) shows or at least

strongly suggests that the first, second, and fourth factors are not met here. The Court’s factual

findings set forth above suggest that these proceedings provide a federal forum that is, at a

minimum, a potentially viable means to “a just and equitable solution” as called for by the third

factor. And the sixth factor is not met because there is no advanced non-federal insolvency

proceeding, but merely a nascent English foreclosure process that was underway for roughly one

week before the Petition Date as to the Lease Assets, and no foreclosure proceeding pending as to

the aircraft. Finally, as held above, the “purpose for which bankruptcy jurisdiction has been

sought” has not been shown to be either subjectively in bad faith, or clearly meritless or incapable

of a successful bankruptcy resolution—particularly in light of non-Debtors’ support for Debtors’

position and their opposition to the Motion. Accordingly, the Court cannot conclude that both

creditors and Debtors would be better served by a dismissal, and, so, the Motion’s alternative

request for abstention is denied.

CONCLUSION

For the reasons stated above, the Motion is DENIED.

The parties are to promptly contact chambers to schedule a continuation of the hearing on

Debtors’ pending motion for approval of proposed bidding procedures and related relief in

connection with their contemplated Section 363 sale.

IT IS SO ORDERED.

Dated: New York, New York

February 1, 2022

s/ David S. Jones

Honorable David S. Jones

United States Bankruptcy Judge