Opposition Brief — Pan Am Corp. v. Section 1110 Parties

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IN THE MAY 3 199)

Supreme Court of the United S —

October Term, 1990 —

In re: PAN AM CORPORATION; PAN AMERICAN WORLD AIRWAYS,

INC.; PAN AM SHUTTLE INC.; PAN AM EXPRESS, INC.; PAA CORP.;

ALLMAT INTERNATIONAL, INC.; ALERT MANAGEMENT SYSTEMS,

INC.; PAN AM COMMERCIAL SERVICES, INC.,

Debtors in Possession-Petitioners.

SECTION 1110 PARTIES; OMNIBUS SECTION 1110 PARTIES, PS GROUP,

INC.; GRAND CENTRAL PARTNERS NO. 1; GRAND CENTRAL

PARTNERS NO. 2; GRAND CENTRAL PARTNERS NO. 3; UNITED

STATES AIRLEASE, INC.; CL AIRCRAFT VII, INC; C.I.T. LEASING

CORPORATION; THE CIT GROUP/EQUIPMENT FINANCING, INC.;

UNITED STATES TRUST COMPANY OF NEW YORK, as icdenture trustee;

NMB LEASE NV; ORIX CORPORATION; NISSHO IWAI CORPORATION;

(Caption continued on inside cover)

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals For the Second Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

MARVIN E. JACOB

Counsel of Record

STEPHANIE R. SCHWARTZ

WEIL, GOTSHAL & MANGES

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

Attorneys for Respondents

Evergreen International Airlines, Inc.

and Cobblestone Corporation

STEPHEN H. Gross JOHN I. KARESH

WALTER, CONSTON, ALEXANDER & GREEN Jie Levi

90 Park Avenue >LTMAN, KARESH, MAJOR & FARBMAN

New York, New York 10016 — 152 West 57th Street

(212) 210-9400 New York, New York 10019

Attorneys for Respondents (212) 586-3800

PS Group, Inc., Attorr.cys for Respondents

Grand Central Par wnt No. I, Greyhound Financial Corporation

Grand Central Partners No 2 and De Nationale Investeringsbank N.V.,

Grand Central Partners No. 3 Credit Lyonnais/PK AIRFINANCE and

Aeron Aviation Corporation

(Additional Counsel continued on inside cover)

C. ITOH 7 CO., LTD.; CITIBANK, N.A.; CITICORP NORTH AMERICA,

INC., formerly doing business as Citicorp Industrial Credit Inc.; DE NATIONALE

INVESTERINGSBANK N.V.; GREYHOUND FINANCIAL CORPORATION;

PK FINANS INTERNATIONAL CORPORATION; WESTINGHOUSE CREDIT

CORPORATION; AERON AVIATION CORPORATION; IBJ SCHRODER

LEASING CORPORATION; U.S. CONCORD, INC.; LDI FINANCIAL

SERVICERS CORPORATION; PLC LEASING CORPORATION; PROGRESS

LEASING CORPORATION; BRITISH AEROSPACE, INC.; JET ACCEPT-

ANCE CORPORATION; ROLLS ROYCE CREDIT CORPORATION; ROLLS

ROYCE HOLDINGS, INC.; AVIONS DE TRANSPORT REGIONAL G.LE.,

on behalf of itself and Wilmington Trust Company; NEW ENGLAND

MERCHANT LEASING CORPORATION; MANHATTAN BAIL, G.LE.;

THE CONNECTICUT NATIONAL BANK; WESTINGHOUSE CREDIT

CORPORATION; MANHATTAN LEASE, G.I.E.; CHRYSLER CAPITAL

CORPORATION; BARCLAYS BANK; THE CONNECTICUT NATIONAL

BANK AND TRUST COMPANY, N.A.; PACIFIC HARBOR CAPITAL INC.;

G.M. AVIATION SERVICES S.A.; UNIBANK A/S, NEW YORK BRANCH;

INTEGRATED AIRCRAFT CORPORATION; NATIONAL WESTMINSTER

BANK; INTEGRATED AIRCRAFT CORPORATION; AERONAUTICS

FOUR-SEVEN A, INC.; AERONAUTICS I, INC.; THE BANK OF NEW

YORK, as Trustee; EVERGREEN INTERNATIONAL AIRLINES, INC.;

EVERGREEN VENTURES, INC.; COBBLESTONE CORPORATION; WIL-

MINGTON TRUST COMPANY; GENERAL ELECTRIC CAPITAL

CORPORATION; OFFICIAL UNSECURED CREDITORS COMMITTEE;

UNITED AVIATION SERVICES: WELLS FARGO BANK NATIONAL

ASSOCIATION,

Respondents,

- Vv. -

PAN AM CORPORATION,

Petitioner.

JON YARD ARNASON JAMES W. GIDDENS

JOHN J. REILLY Davip M. LEMAyY

ALAN HEBLACK HUGHES HUBBARD & REED

ANDREA FISCHER One Battery Park Plaza

HAIGHT, GARDNER, Poor & HAVENS New York, New York 10004

195 Broadway (212) 837-6000

New York, New York 10007 Attorneys for Respondent

(212) 341-7000 IBJ Schroder Leasing Corporation

Attorneys for Respondent

U.S. Concord, Inc.

CT AVATLARLE COPY

QUESTION PRESENTED

Whether the Court of Appeals for the Second Circuit erred

in affirming the order of the District Court for the Southern

District of New York that section 1110 of the Bankruptcy

Code, 11 U.S.C. § 1110, by its unqualified use of the terms

"lessor," "leased" and "lease" includes within its protection ~

lessors that have leased aircraft or equipment to a certificated

air carner in connection with a sale-leaseback transaction

which did not result in the acquisition by the air carrier of

aircraft or equipment "new" to its fleet?

PARTIES TO THE PROCEEDING

In addition to the parties identified in the caption, all amici

curiae (except Continental Airlines, Inc.) submitted briefs to

the Court of Appeals for the Second Circuit in opposition to

Debtors' appeal of the Opinion and Order of the District Court

for the Southern District for New York.*

* The following information is provided pursuant to Rule 29.1 of this

Court: Evergreen International Airlines, Inc. identifies Evergreen

International Aviation, Inc. as its parent company and has no nonwholly

owned subsidiaries; Cobblestone Corporation identifies its parent companies

as Franklin Leasing Corporation, Redes Corporation and Redes Holding

Corporation and has no nonwholly owned subsidiaries; U.S. Concord, Inc.

identifies Concord Leasing Inc. as its parent company and has no

nonwholly owned subsidiaries; Greyhound Financial Corporation identifies

Dial Corp. as its parent company and has no nonwholly owned subsidiar-

ies; De National Investeringsbank N.V. has no parent companies and no

nonwholly owned subsidiaries; Aeron Aviation Corporation has no parent

companies and identifies Newair Flight, Inc., Aeron Leasing International,

Inc. and Aero Leasing (USA), Inc. as its nonwholly owned subsidiaries;

Credit Lyonnais/PK AIRFINANCE identifies Credit Lyonnais and Nord

Banken as its parent companies and has no nonwholly owned subsidiaries;

PS Group Inc. has no parent companies and identifies Statex Petroleum,

Inc., USTravel Systems Inc. and Recontek, Inc. as its nonwholly owned

subsidiaries; Grand Central Partners No. 1 identifies GATX GCP

Corporation, DMC Aircraft Corporation No. 1 and SPB I Corp. as its

general partners and has no nonwholly owned subsidiaries; Grand Central

Partners No. 2 identifies GATX GCP Corporation, DMC Aircraft

Corporation No. 2 and SPB II Corp. as its general partners and has no

nonwholly owned subsidiaries; Grand Central Partners No. 3 identifies

GATX CP Corporation, DMC Aircraft Corporation No. 3, SPB III Corp. as

its general partners and has no nonwholly owned subsidiaries; and IBJ

Schroder Leasing Corporation identifies IBJ Schroder Bank & Trust

Company, The Industrial Bank of Japan, Ltd. and Schroders, Inc. as its

parent companies and has no nonwholly owned subsidiaries.

TABLE OF CONTENTS

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I. THERE IS NO REASON FOR THIS

COURT TO GRANT CERTIORARI

BECAUSE THE ORDER BELOW DOES

NOT RAISE SPECIAL AND IMPORTANT

REASONS UNDER 28 U.S.C. § 1254(1)

WARRANTING THIS COURT'S REVIEW ...

PAGE

A. Letting The Lower Court's Judgment

Stand Would Provide Certainty And

Predictability To Section 1110

oe aa eee we eee 6 eee 4

B. Debtors' Reading Of Section 1110 Defies

Logic And Only Creates Uncertainty And

The Likelihood Of Potential Litigation .... 7

C. Debtors Themselves Are Unable To Apply

Consistently The Construction Of Section

1110 They Urge Upon This Court ...... 8

D. The Application of Section 1110 Does

Not Conflict With Legislative Intent

Because Congress Clearly Recognized

The Impact Of Section 1110 On Airline

Reorganizations When It Enacted That

DO gc ees heehee wes avane ewes 9

Il. THERE IS NO REASON FOR THIS

COURT TO GRANT CERTIORARI

BECAUSE THERE IS NO CONFLICT

AMONG THE CIRCUITS OR OTHER

COMPELLING REASON WARRANTING

THIS COURT'S REVIEW ...........-- 12

A. This Case Involves A Straightforward

Application Of Statutory Construction.... = 12

PAGE

1. The Application Of The Plain Meaning

Rule Established By This Court

Mandates The Construction That The

Clear And Unambiguous Language Of

Section 1110 Apply Without Limitation

oe a ee ee ee 12

2. The Terms-"Lessor," "Leased" And

"Lease" Must Be Given Their Plain

And Ordinary Meaning, Separate From

The Terms "Purchase Money Equip-

ment Security Interest" And "Con-

ca oe US ews ws 16

B. The Second Circuit's Decision That

Section 1110 Is Clear And Unambiguous

On Its Face And Applies To All Lessors

Is Not In Conflict With Any Other Circuit

Co ee ee eres eee 19

C. The Literal Meaning Of Section 1110 Is

Consistent With The Congressional

Purpose And Its Implementation ...... 20

FR ree 20

2. The Legislative History Of Section

1110 Is Fully Consistent With The

Recognition Of Nonacquisition Sale-

Leasebac&&s As Section 1110 Trans-

RD b's 0 6b cewek be eee wee 22

PAGE

3. Nothing In The Legislative History

Warrants Departure From The Plain

Meaning Of Section 1110 ........ 23

D. The Petition Does Not Present Any Issues

Of Compelling Importance — This

Court's Review 2... ccc cece e rene 26

Ill. THIS COURT DOES NOT NEED TO SETTLE

THE QUESTION PRESENTED BECAUSE

ALL AUTHORITY HOLDS THAT NON-

ACQUISITION SALE-LEASEBACK TRANS-

ACTIONS -ARE ENTITLED TO THE

PROTECTIONS OF SECTION 1110 ...-.. 26

IV. THE APPELLATE COURT'S DECISION

ei) ty ee i 29

CONCLAIIS a Nw Sc diwwe ese e wee e eas waes 30

APPENDIX:

Appendix A: Opinion of the District Court for

District of Delaware in /n re

Continental Airlines, Inc., 91

Civ. 58 (RSG), slip op. (D. Del.

Mawch 26, 1D9R) . wee ese. la

Vii

TABLE OF AUTHORITIES

Cases PAGES

Braniff, Inc. v. Toren (In re Braniff, Inc.), 110 Bankr.

980 (Bankr. M.D. Fla. 1990) ........ 7, 13, 14, 27

California Chieftan v. Air Vermont, Inc. (In re Air

Vermont, Inc.), 761 F.2d 130 (2d Cir.

SOE KPA ANN SRSA OR ORE 13, 14, 15, 26

Caminetti v. United States, 242 U.S. 470 (1917) ... 16

Consumer Product Safety Comm'n v. GTE Sylvania, Inc.,

447 U.S. 102, 100 S.Ct. 2051, 64 L.Ed.2d 766

EE Ste a a a ee ee ae ee ae 15

Crooks v. Harrelson, 282 U.S. 55, 51 S.Ct. 49, 75

a er een ae ae 15

Demarest v. Manspeaxer, _U.S.__, 111 S.Ct. 599, 112

LOO GOB (RGRE) owe ecesn 13, 15, 26

Griffin v. Oceanic Contractors, Inc., 458 U.S. 564

es Stet CE oh eo Ae Cea 12

Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240

ee in EET Te eT eT ee Se 4

EPP CERT ESE CTE CT ORE Te CTT eee 22

ere et eee eee Pe en eee ee 13, 26

PAGES

In re Continental Airlines, Inc., No. 91 Civ. 58 (RSG),

slip op. (D. Del. March 26, 1991) .... 13, 17, 18, 26

Jarecki v. G.D. Searle & Co., 367 U.S. 303, 81 S.Ct.

IS7O. 6 LEGO GSP IGS). ecco cee. 18

Kaiser Aluminum & Chemical Corp. v. Bonjorno, 110

S.Ct. 1570, 108 L.Ed.2d 842 (1990) ........ 15

Keller v. Adams-Campbell Co., 264 U.S. 314

RG RG eT Nas tes erica ee an nal aa ag rer ga 20

Layne & Bowler Corp. v. Western Well Works, Inc., 261

ee ee I a oc sa aa a ae hee eae oe 20

Mansell v. Mansell, 490 U.S. 581 (1989) ........ 26

Rodriguez v. United States, 480 U.S. 522 (1987) ... 16

Russell Motor Car Co. v. United States, 261 U.S. 514,

43 S.Ct. 428, 67 L.Ed. 778 (1923) ......... 17

Smith v. Fidelity Consumer Discount Co., 898 F.2d

gg A RN ae ee ee 26

Sun Oil Co. v. CLR., 562 F.2d 258 (3d Cir. 1977),

cert. denied, 436 U.S. 944 (1978) ............ 5

Tennessee Valley Authority v. Hill, 437 U.S. 153, 98

SAX. 2279, ST L.be26 1RT GSTS) ow wc cc ees 15

United States v. American Trucking Ass'ns, Inc., 310

a ee ape a oe 15

PAGES

United States v. Ron Pair Enterprises, Inc., 489 U.S.

235, 109 S.Ct. 1026, 103 L.Ed.2d 290

CN a8 ac hee RC a ale ae oe 12, 15, 16, 26

West Virginia University Hospitals, Inc. v. Casey,

__ US. __, 111 S.Ct. 1138 (1991) ....... 16, 26

Wisconsin Elec. Co. v. Dumore Co., 282 U.S. 813

A ain ah ek orang Sarre Liaraa ae dae 20

Yorkshire Ry. Wagon Co. v. Maclure, 21 Ch. D. 309

SS or eA ts oe a es oo ee EO 3

Statutes and Rules

ar eg L278 a AS SER A a ag 5, 10

eR fe 0 eee are ee 25

Teoh se 5 EPs ere erat are ener or 10

Pe ee eo acl's sy bs oar ale eae a ee a oo

ee ES hoe swne oak wee oe ee 11

Tete oo 0. Re rer a ar ee 11, 25

ER 8 2 ere ae 25

Li USA. 8 Pepe 1 eee See er err Oe 24

Pe ee eer ee eee ee 24

BRE A 0 , eee re ee 11

ee 8 ot i ee ae eer ae Passim

FEF 5) err

es ins ko ook 6 oe oo ow Oe ee 19

, Re ag” ae eae ae 4

ee a ee ED fee ee es eee iea venues 4

Se eo A ae eo eae eee 4, 20

PAGES

Legislative History

H.R. Rep. No. 1283, 74th Cong., Ist Sess. 4, 6

I Ol ee ee ee eS 20

H.R. Rep. No. 944, 85th Cong., Ist Sess. 1, 2

reprinted in 1957 U.S. Code Cong. & Admin.

SD SO IEE se CA's « Oik6.5 Ke es 20, 21, 22, 28

H.R. Rep. No. 595, 95th Cong., Ist Sess. 239-40,

reprinted in 1978 U.S. Code Cong. & Admin.

PS I ne ee we we we 19, 21, 23

H.R. Rep. No. 595, 95th Cong., 2d Sess. 238-40,

reprinted in 1978 U.S. Code Cong. & Admin.

POO ns RNs 6 hc a ee ob cence 5, 9, 10

S. Rep. No. 1032, 85th Cong., Ist Sess. 1,2 .... 20, 21

S. Rep. No. 989, 95th Cong., 2d Sess. 116-7,

reprinted in 1978 U.S. Code Cong. & Admin.

a ge ee, ee 24

Treatises

2A Sutherland Statutory Construction, § 47.16 (4th

AAS eure are aaa ree 17

5 Collier on Bankruptcy { 1110.01 (L. King 15th ed.

Es 4 ee oe OE Oo a RES 22

PAGES

B. Fritch, A. Reisman & I. Shrank, ] Equipment

Leasing and Leverage Leasing 834 (3d Ed.

eee eee rr ee Se ere ree eee 25

Gerstell & Hoff-Patrinos, Aviation Financing Problems

Under Section 1110 of the Bankruptcy Code, 61

Aus. Ter, Le. 1, BO CE) ce ce wee es 13, 21

Kruft, Leverage Aircraft Leases: The Lender's

Perspective, 44 Bus. Law. 737 (1989) ......... 6

Respondents, Evergreen International Airlines, Inc.,

Cobblestone Corporation, U.S. Concord, Inc., Greyhound

Financial Corporation, De Nationale Investeringsbank N.V.,

Aeron Aviation Corporation, Credit Lyonnais/PK

AIRFINANCE, PS Group, Inc., Grand Central Partners No. 1,

Grand Central Partners No. 2, Grand Central Partners No. 3

and IBJ Schroder Leasing Corporation ("Respondents"),

respectfully request that this Court deny the petition for a writ

of certiorari to the United States Court of Appeals for the

Second Circuit seeking review of its opinion entered on April

2, 1991 (the "Petition").!

STATEMENT OF THE CASE

Background

The Court of Appeals for the Second Circuit, the District

Court for the Southern District of New York and _ the

Bankruptcy Court for the Southern District of New York have

all rejected the argument in the Petition that the unqualified

terms "lessor," "leased" and "lease" as used in section 1110

of chapter 11, title 11 of the United States Code (the

"Bankruptcy Code") should be construed to exclude from the

coverage of section 1110 all leases that do not result in the

acquisition by Debtors of aircraft or equipment "new" to

Debtors' fleet.

Proceedings Below

A. The Bankruptcy Court

On February 22, 1991, petitioners, Pan Am Corporation

and affiliated e.tities ("Debtors"), filed a motion in the United

States Bankruptcy Court for the Southern District of New York,

seeking a determination, inter alia, that sale-leaseback

transactions entered into between Respondents and certain

Debtors were not entitled to the protection of section 1110

(the "section 1110 motion"). After a hearing on March 7,

1991, the Bankruptcy Court denied Debtors' section 1110

L. “Pee. " refers to the Petition.

motion and rendered a bench decision, followed by a written

decision entered on March 18, 1991, in which it held, inter

alia, that the term "Jessors" as used in section 1110 includes

lessors under nonacquisition sale-leaseback transactions. On

March 8, 1991, the Bankruptcy Court entered an order (the

"section 1110 order"), which provides in paragraph five

thereof as follows:

Transactions designated by the Debtors as "non-

acquisition sale/leaseback transactions" are not

disqualified from the protection of Section 1110

solely because they are "non-acquisition sale/

leaseback transactions". .

A. 470.?

B. The District Court

Debtors filed a Notice of Appeal in the District Court for

the Southern District of New York and sought expedited

review, together with a stay of the order pending the appeal.

The District Court granted an expedited appeal, but denied a

stay pending appeal "for failure to show likelihood of success

on the merits.". A, 472. On March 18, 1991, the District

Court rendered its opinion and order, holding that section

1110 is unambiguous and, therefore, applies to all lessors,

including those who lease aircraft and equipment pursuant to

nonacquisition sale-leaseback transactions.

The terms "lessor," "leased" and "lease" are not

modified in any way which suggests that the statute

was not meant to apply to lessors in a sale-leaseback

transaction.

Pet. 17a.

a "Re " refers to the Appendix filed in connection with the decision

C. The Court of Appeals

On March 19, 1991, Debtors received permission of the

Court of Appeals for the Second Circuit for expedited review

and were granted a stay of the District Court's order pending

such review. After oral argument on April 2, 1991, the Court

of Appeals affirmed, in a per curiam opinion, but stayed its

order until 12:00 noon, Fnday, Apnl 5, 1991, to permit

Debtors to seek a stay from this Court.

D. This Court

On April 5, 1991, Justice Thurgood Marshall denied

Debtors' application for a stay.

REASONS FOR DENYING THE WRIT

Introduction

Debtors' construction of section 1110 is totally without

merit and certiorari should be denied. Section 1110 is clear

and unambiguous on its face and the plain and ordinary

meaning of such section is not at odds with the legislative

intent. Using a principle of statutory construction established

by this Court, five federal courts have uniformly so held.

Debtors have failed to demonstrate any support for their

analysis other than a short bench decision of a Bankruptcy

Judge which has been reversed. Moreover, the judicial

rewriting of section 1110 that Debtors seek would have a

chilling effect on the raising of low cost capital by the airline

industry, generate myriad issues which, undoubtedly, would

leave the law in confusion and open a floodgate of potential

litigation. Accordingly, as demonstrated: below, there is no

reason for this Court to grant certiorari.

I. THERE IS NO REASON FOR THIS COURT TO

GRANT CERTIORARI BECAUSE THE ORDER

BELOW DOES NOT RAISE SPECIAL AND

IMPORTANT REASONS UNDER 28 _ U.S.C.

§ 1254(1) WARRANTING THIS COURT'S REVIEW

28 U.S.C. § 1254 provides, in pertinent part, as follows:

Cases in the courts of appeals may be reviewed by

the Supreme Court by the following methods:

(1) By wnit of certiorari granted upon the petition

of any party to any civil or criminal case, before or

after rendition of judgment or decree; . . .

28 U.S.C. § 1254(1) (1991).

As the Supreme Court Rules provide, "[a] review on wmit of

certiorari is not a matter of night, but of judicial discretion. A

petition for a writ of certiorari will be granted only when there

are special and important reasons therefor." Sup. Ct. R. 10.

Indeed, it is well-settled that certioran jurisdiction is "to be

exercised sparingly, and only in cases of peculiar gravity and

general importance, or in order to secure uniformity of deci-

sion." Hamilton-Brown Shoe Co. v. Wolf Bros. & Co., 240

U.S. 251, 258 (1916). Accordingly, as demonstrated below,

on the state of the record before this Court, there are no

reasons in this case warranting this Court's review; nor does

any lack of uniformity exist in any decisions that have been

rendered to date.

A. Letting The Lower Court's Judgment Stand

Would Provide Certainty And Predictability To

Section 1110 Transactions

Section 1110 of the Bankruptcy Code provides special

protection to certain lenders and all lessors of qualified equip-

ment to certificated air carriers. Section 1110 and its prede-

cessors have permitted lessors and conditional vendors (and,

from 1978, holders of purchase money equipment security

interests), to exercise their contractual nghts to repossess their

leased or financed equipment, notwithstanding otherwise

applicable provisions of the Bankruptcy Code or the former

Bankruptcy Act.

Since at least 1957, financiers have engaged in aircraft

sale-leaseback transactions and relied on the benefits of section

1110 and its predecessors. S.A. 184-187.‘ The legislative

history expressly shows that Congress was keenly aware that

financiers in the airline industry, as well as financiers in the

railroad and water transport industries, greatly relied upon

such benefits in extending financing to such industries. H.R.

Rep. No. 595, 95th Cong., 2d Sess. 238-39, reprinted in

1978 U.S. Code Cong. & Admin. News 5963, 6198.°

3. Contrary to Debtors’ assertion, section 1110 is not an anomalous

provision of the Code because it bypasses the automatic stay. Pet. 3. In

fact, section 362 of the Bankruptcy Code, which imposes the automatic

stay and which Debtors have erred in citing as section 365 (Pet. 3),

contains 17 exceptions to the automatic stay after the 1990 amendments to

the Bankruptcy Code. Section 1168 of the Bankruptcy Code also provides

certain financiers of railroad equipment protection analogous to that

provided in section 1110. Moreover, section 1110 was enacted for the

benefit of air carriers (Pet. 11), and Debtors did not complain about the

"anomaly" of section 1110 when they enjoyed its benefits outside of

chapter 11 in their dealings with lessors and lenders who relied on the

protections the statute provides.

4. "S.A. " refers to the Supplemental Appendix filed in connection

with the decision below.

5. Sale-leaseback transactions are of an ancient vintage. Yorkshire Ry.

Wagon Co. v. Maclure, 21 Ch. D. 309 (1882). See, e.g., Sun Oil Co. v.

C.LR., 562 F.2d 258, 268-69 (3d Cir. 1977), cert. denied, 436 U.S. 944

(1978) ("we recognize that sale-leaseback arrangements play a useful and

accepted role in our economy").

Sale-leaseback transactions are currently the predominant

form of aircraft leasing transactions employed in the United

States airline industry and provide a major source of reliable

low-cost financing to the industry.° S.A. 185-186. Indeed,

billions of dollars in financing are provided every year through

sale-leaseback transactions, accounting for a substantial portion

of the financing of the industry's aircraft fleet. S.A. 184-185.

Because of the benefits of sale-leaseback transactions and the

protections provided by section 1110, domestic airlines are

able to compete with other borrowers in the world capital

markets at a time when credit is scarce. If the special

protections accorded by section 1110 were no longer available

to financiers, the uncertainty of whether financiers would have

any predictable remedy would have a major impact on the cost

of equipment financing to the airline industry and, in all

likelihood, would make _— sale-leaseback transactions

prohibitively expensive, if at all feasible. Contrary to Debtors'

assertions, any reversal of the Court of Appeals' decision

would further the interests of only chapter 11 debtors that

already enjoyed the benefits of section 1110. Pet. 13.

However, the consequences of the judicial rewriting of section

1110 that Debtors seek would be severely adverse to the

airline industry, would no doubt increase dramatically the

industry's cost of financing and would dry up the current

sources of capital upon which the industry is dependent for its

continued growth, modernization and self-sufficiency.

Moreover, as District Judge Mukasey noted, the folly of

Debtors' position is brought into sharp focus when it is

realized that their position does not preclude the application of

6. Air carriers favor these transactions to avoid debt on their balance

sheets when they can no longer use tax benefits associated with ownership

of the property and to procure financial benefits when the cost of leasing is

lower than the cost of borrowing. See Kruft, Leveraged Aircraft Leases: The

Lender's Perspective, 44 Bus. Law. 737, 738 (1989).

section 1110 to transactions that are functionally equivalent to

nonacquisition sale-leaseback transactions, but only makes

obtaining such protection more expensive and cumbersome.

Pet. 24a. For example, selling an aircraft to a purchaser and

leasing a virtually identical aircraft from that purchaser is no

different than a conventional sale-leaseback. Under Debtors'

facile analysis, only the first transaction involving a sale and

lease, and not the sale-leaseback transaction, would have the

benefit of section 1110. The bottom line is that Debtors

would be in the same position as if they had done a

conventional sale-leaseback, except that Debtors' transaction

costs would be much higher. Such a result should not be

sustained by this Court and denial of certiorari seems

compelling.

B. Debtors' Reading Of Section 1110 Defies Logic

And Only Creates Uncertainty And The Likeli-

hood Of Potential Litigation

The judicial rewriting of section 1110 that Debtors seek, if

adopted, would create confusion by generating myriad issues

and leaving the law in disarray. As District Judge Mukasey

recognized:

The distinction Pan Am would draw, based on legis-

lative history, between sale-leasebacks and conven-

tional leases would generate numerous additional

issues that could not be resolved by that legislative

history. In the future, there would likely be

litigation on whether the words Pan Am hopes to

read into the statute through references to selected

legislative history limit the protection of § 1110 to

lessors of brand new equipmeni, lessors of

equipment new to the debtor airline, lessors of

equipment new to the debtor airline and also new to

any predecessor of the debtor airline, see Braniff,

110 B.R. at 985, or some other category. In

addition, it would be unclear whether the statute

applies to lease renewals if the equipment was new

to the airline at the beginning of the initial lease

term. As mentioned, Pan-Am_ concedes for

purposes of this motion that § 1110 applies to

leases of used equipment so long as that equipment

is new to the airline. Yet this concession itself does

not seem to arse from anything in the legislative

history. ... [T]he benefit sought to be achieved by

a statute like § 1110 -- the prospect of a quick and

predictable remedy that encourages _ potential

financiers to be forthcoming -- will be lost in a

miasma of potential litigation.

Pet. 23a-24a. (Footnote omitted).

There is no reason why this Court should grant certiorari

where any determination other than affirmance of the

judgment below would create issues rather than resolve an

issue that, in our view, is nonexistent because of the clarity of

secton 1110.

C. Debtors Themselves Are Unable To Apply Con-

sistently The Construction Of Section 1110 They

Urge Upon This Court

As fully explained by the District Court, Debtors have

urged upon this Court a contorted construction of section

1110 that has no basis for a consistent application. Debtors

have patently failed to demonstrate that- their proposed

construction can be applied -- and, indeed, Debtors themselves

are unable to apply their construction -- in a uniform manner

consistent with what they perceive to be the legislative

purpose.

For example, the Bankruptcy Court held that lease exten-

sions and renewals and replacement leases are entitled to the

protection of section 1110. Pet. 48a. Debtors appealed the

section 1110 order with respect to sale-leaseback transactions

but did not challenge the section 1110 order on lease exten-

sions or renewals or replacement leases, although all such

leases involve equipment that is not new to Debtors. S.A.

473. Debtors have completely failed to provide a rational

explanation for the inconsistent application of the very

principle they now ask this Court to validate.

Debtors have also failed to explain the basis for their

contention that section 1110 requires that leased aircraft need

not be new or modern but only that such aircraft, although

used, old or even obsolete, be "new" to Debtors. Debtors'

attempt to find support for this contention in the legislative

history completely fails. As noted by Judge Mukasey, the

construction urged by Debtors is not founded upon anything in

the legislative history. Pet. 24a. It is incomprehensible how

Debtors can urge that the purpose of section 1110 is to

provide for new and modern equipment and also argue that

such purpose is satisfied so long as the leased equipment is

"new" to Debtors.

D. The Application of Section 1110 Does Not

Conflict With Legislative Intent Because

Congress Clearly Recognized The Impact Of

Section 1110 On Airline Reorganizations When

It Enacted That Section

Congress was acutely aware of the impact of the special

protections afforded to lessors of aircraft under section 1 16(5)

of the former Bankruptcy Act, the predecessor to section

1110, which permitted financiers to repossess their collateral

immediately without regard to the filing or pendency of a

reorganization case. H.R. Rep. No. 595, 95th Cong., 2d

Sess. 239-40, reprinted in 1978 U.S. Code Cong. & Admin.

News 5963, 6198. The legislative history clearly reveals that

the enactment of section 1110 was, in fact, intended to be a

compromise between the reorganization policy of the

Bankruptcy Code and a lessor's interest in protecting its

——

investment. To mitigate the immediate impact of section

116(5) of the former Bankruptcy Act, Congress struck a

balance between such competing interests by giving the debtor

60 days to determine whether particular leased aircraft and

equipment are essential to its reorganization efforts and by

leaving the choice to the debtor of whether to return

equipment to the lessor or to make payment and retain the

equipment. Thus, Congress explained that:

The protection afforded the financier is similar to

that contained in other sections of the bill governing

use of collateral by the estate and the treatment of

executory contracts and unexpired leases... .

Under those sections, ... [a] lessor is entitled to

lease payments under the terms of the lease, and to

the curing of past defaults, if the trustee elects to

assume a lease. ... In the case of a lease, the

protection is the same afforded other lessors, but the

trustee is required to make a decision within 60 days

of the order for relief. This should not impose an

undue burden on the trustee, because transportation

equipment in any major transportation company

reorganization is one of the most important assets. A

decision must be made quickly if the business is to be

kept operating and be rehabilitated.

H.R. Rep. No. 595, 95th Cong., 2d Sess. 239-40, reprinted in

1978 U.S. Code Cong. & Admin. News 5963, 6199

(emphasis added). The foregoing language clearly reveals that

Congress considered that the effect of section 1110 on the

reorganization of the debtor would be the same as the effect of

the sections of the Bankruptcy Code governing the treatment of

executory contracts and unexpired leases (e¢.g., §§ 362, 363(e)

and 365), notwithstanding that, under section 1110, the

debtor would have a strict 60-day period in which to decide

whether to cure defaults with respect to its aircraft and

equipment. Moreover, that language also clearly reveals that

Congress believed that lessors of aircraft deserved the same

protection afforded other lessors under the Bankruptcy Code.

For example, the strict 60-day decision period imposed on the

debtor with respect to a lease of aircraft is similar to the time

restrictions imposed upon the debtor with respect to non-

residential realty leases.’ Yet, the importance of the airline

transportation industry, the potential impact on the public at

large, the sheer dollar amount of the aircraft and equipment at

stake, and the rate at which such equipment deteriorates in

value through usage present far greater exigencies than those

encountered with respect to commercial realty leases.

In sum, Debtors have failed to present any special and

important reasons in the Petition that would require review by

this Court. Indeed, as demonstrated below, the only issue

raised in the Petition is the simple issue of statutory

construction, which neither raises any Constitutional concerns

nor involves any conflict among the courts of appeals

warranting this Court's review.

7. Section 365(d)(3) of the Bankruptcy Code states in relevant part:

(3) The trustee shall timely perform all the obligations of

the debtor, except those specified in section 365(b)(2), arising

from and after the order for relief under any unexpired lease

of nonresidential real property, until such lease is assumed or

rejected, notwithstanding section 503(b)(1) of this title. The

court may extend, for cause, the time for performance of any

such obligation that arises within 60 days after the date of the

order for relief, but the time for performance shall not be

extended beyond such 60-day period. This subsection shall not

be deemed to affect the trustee's obligations under the

provisions of subsection (b) or (f) of this section. Acceptance

of any such performance does not constitute waiver or

relinquishment of the lessor's rights under such lease or under

this title.

il. THERE IS NO REASON FOR THIS COURT TO

GRANT CERTIORARI BECAUSE THERE IS NO

CONFLICT AMONG THE CIRCUITS OR OTHER

COMPELLING REASON WARRANTING THIS

COURT'S REVIEW

A. This Case Involves A Straightforward Application

Of Statutory Construction

1. The Application Of The Plain Meaning Rule

Established By This Court Mandates The

Construction That The Clear And Unambiguous

Language Of Section 1110 Apply Without

Limitation To Ali Lessors

Section 1110 protects the night of a "lessor" of aircraft and

aircraft equipment "leased" to a certificated air carrier to take

possession of such equipment pursuant to the terms of its

"lease." Contrary to Debtors' assertions, the plain and

ordinary meaning of the terms "lessor," "leased" and "lease"

as used in section 1110 is neither ambiguous nor qualified by

any restrictive language in the statute.

Finding that the question presented here is a straight-

forward application of statutory construction, the District Court

reached its conclusion that the terms "lessor," "leased" and

"lease" do not implicitly or explicitly exclude nonacquisition

sale-leaseback transactions by applying equally straightforward

principles of statutory interpretation:

"The plain meaning of legislation should be

conclusive, except in the ‘rare cases [in

which] the literal application of a statute will

produce a result demonstrably at odds with

the intention of its drafters.'"

United States v. Ron Pair Enterprises, Inc., 489 U.S.

235, 242, 109 S.Ct. 1026, 1031 (1989) (quoting

Griffin v. Oceanic Contractors, Inc., 458 U.S.

964, 571 (1982)) (brackets in original). See also

Demarest v. Manspeaker, 111 S.Ct. 599, 604

(1991); In re Chateaugay Corp., 920 F.2d 183,

184 (2d Cir. 1990).

Pet. 16a.

The District Court, concluding that such terms are clear

and unambiguous and must be literally construed, followed the

mandate of the Court of Appeals for the Second Circuit:

This basic rule of statutory construction has been

applied to interpret the very statute at issue here,

$1110. In re Air Vermont, 761 F.2d 130, 134 (2d

Cir. 1985) ("[where] the statute is unambiguous on

its face ... the statute's literal meaning must be

applied" unless "there is something to make plain

the intent of Congress that the letter of the statute is

not to prevail"). In Air Vermont, the Second

Circuit, noting that "the statute's literal meaning

must be applied," reversed an order of the

bankruptcy court which read into §1110 an

additional, unstated statutory requirement that a

conditional seller perfect its security interest by fil-

ing its contract with the Federal Aviation

Administration. /d. at 134.

Pet. 17a. Accord In re Continental Airlines, Inc., 91 Civ. 58

(RSG), slip op. (D. Del. March 26, 1991) (literal reading of

section 1110 not at odds with Congressional purjose)*;

Braniff, Inc. v. Toren (In re Braniff, Inc.), 110 Bankr. 980,

985 (Bankr. M.D. Fla. 1990) (literally construed, section

1110 applies to all leases); see also Gerstell & Hoff-Patrinos,

8. The Continental decision has been appealed to the United States Court

of Appeals for the Third Circuit. The Court of Appeals heard oral

argument on May !, 1991. No decision has been made.

Aviation Financing Problems Under Section 1110 of the

Bankruptcy Code, 61 Am. Bankr. L.J. 1, 24-25 (1987).

Moreover, Debtors have urged the Bankruptcy Court, the

District Court and the Court of Appeals judicially to rewrite

section 1110 by superimposing an acquisition element on

leases in derogation of the plain meaning of the Statute. Each

of those courts unequivocally rejected Debtors' request

because courts may not superimpose additional conditions on

the requirements specified in section 1110. Braniff, Inc. v.

Toren (In re Braniff, Inc.), 110 Bankr. 980, 984 (Bankr. M.D.

Fla. 1990) (no acquisition element for leases may be imposed

as an additional requirement); California Chieftan v. Air Ver-

mont, Inc. (In re Air Vermont, Inc.), 761 F.2d 130, 134 (2d

Cir. 1985) (perfection of a security interest may not be

supenmposed on the requirements specified in section 1110).

In Air Vermont, the Court of Appeals for the Second Circuit

faced the question of whether a conditional vendor that had

failed to perfect its security interest in an aircraft by recording

the contract was entitled to repossess such aircraft pursuant to

section 1110. /d. at 130. The debtor argued that the right of

a secured party with a purchase money equipment security

interest in aircraft to take possession should be construed to

apply only to perfected security interests. The Court of

Appeals, however, found that section "1110 makes no

mention whatsoever that a conditional sales contract must be

recorded in order for § 1110 to apply. Rather, § 1110, on its

face, empowers a vendor of aircraft pursuant to a conditional

sales contract to repossess the aircraft provided only that

elements of the section are satisfied." Id. at 134 (emphasis

added). The Court of Appeals concluded that:

{S]ince the statute is unambiguous on its face in this

respect, and since this is not one of those "rare and

exceptional circumstances [when there is] something

to make plain the intent of Congress that the letter

of the statute is not to prevail," ... the statute's

literal meaning must be applied, and no condition of

recording may be superimposed on the requirements

explicitly specified in order for § 1110 to apply.

Id. at 134 (quoting Tennessee Valley Authority v. Hill, 437

U.S. 153, 187 n.33, 98 S.Ct. 2279, 2298 n.33, 57 L.Ed.2d

117 (1978), quoting Crooks v. Harrelson, 282 U.S. 55, 60, 51

S.Ct. 49, 50, 75 L.Ed. 156 (1930)) (emphasis added).

This basic rule of statutory construction employed in Air

Vermont and by the courts below has been established and

consistently applied by this Court. E.g., Kaiser Aluminum &

Chemical Corp. v. Bonjorno, 110 S.Ct. 1570, 1575, 108

L.Ed.2d 842 (1990) (absent clearly expressed legislative

intent to the contrary, the statutory language is conclusive);

United States v. Ron Pair Enterprises, Inc., 489 U.S. 235,

242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989) (the

plain meaning of legislation should be conclusive, except in the

rare cases in which the literal application of a statute will pro-

duce a result demonstrably at odds with the intention of its

drafters); Consumer Product Safety Comm'n v. CTE Sylvania,

Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d

766 (1980) ("[T]he starting point for interpreting a statute is

the language of the statute itself."); Demarest v. Manspeaker,

_US._, 111 S.Ct. 599, 604, 112 L.Ed.2d 608, 616

(1991) ("When we find the terms of a statute unambiguous,

judicial inquiry is complete except in rare and exceptional cir-

cumstances."); United States v. American Trucking Ass'ns, Inc.,

310 U.S. 534, 543 (1940) ("There is, of course, no more

persuasive evidence of the purpose of a statute than the words

by which the legislature undertook to give expression to its

wishes. ... In such cases we have followed their plain

meaning.").

aati le

As this Court held recently in West Virginia University

Hospitals, Inc. v. Casey, ___ U.S. __, 111 S.Ct. 1138, 1147

(1991):

As we have observed before, however, the purpose

of a statute includes not only what it sets out to

change, but also what it resolves to leave alone.

See Rodriguez v. United States, 480 U.S. 522, 525-

526 (1987). The best evidence of that purpose is

the statutory text adopted by both Houses of

Congress and submitted to the President. Where

that contains a phrase that is unambiguous -- that

has a clearly accepted meaning in both legislative

and judicial practice -- we do not permit it to be

expanded or contracted by legislators or committees

during the course of the enactment process. See

United States v. Ron Pair Enterprises, Inc., 489 U.S.

235, 241 (1989) ("[W]here, as here, the statute's

language is plain, 'the sole function of the court is

to enforce it according to its terms.'"), quoting

Caminetti v. United States, 242 U.S. 470, 485

(1917).

Here, too, section 1110 is clear and unambiguous and

should be enforced "according to its terms."

2. The Terms "Lessor," "Leased" And "Lease"

Must Be Given Their Plain And Ordinary

Meaning, Separate From The Terms "Purchase

Money Equipment Security Interest" And

"Conditional Sale"

Debtors perceive the term "lease" as ambiguous because it

is grouped with the terms "conditional vendor" and "purchase

money security interest," both of which possess an acquisition

‘element. Pet. 18. In an attempt to support their distorted

perception, Debtors unavailingly rely on noscitur a sociis, a

maxim of statutory construction whereby the meaning of one

term or phrase may be determined by reference to its

association with the statute's other words and phrases. But

"(t]he rule will not be applied where there is no ambiguity, or

to thwart the legislative intent, or to make general words

meaningless. The maxim is only an extrinsic aid and should

only be used when the clear meaning of the words used in the

statute is doubtful." 2A Sutherland Statutory Construction,

§ 47.16 at 161 (4th ed. 1984). This Court long ago

determined that noscitur a sociis would only be applicable

when ambiguity surrounds a term or phrase. This Court said:

Tha. a word may be known by the company it keeps

is, however, not an invariable rule, for the word

may have a character of its own not to be

submerged by its association. Rules of statutory

construction are to be invoked as aids to the

ascertainment of the meaning or application of

words otherwise obscure or doubtful. They have no

place, as this Court has many times held, except in

the domain of ambiguity.

Russell Motor Car Co. v. United States, 261 U.S. 514, 43

S.Ct. 428, 67 L.Ed. 778 (1923).

Debtors have consistently attempted to create ambiguity

where none exists. As District Judge Mukasey found, “[o]n its

face, the statute is unambiguous." Pet. 17a. Similarly,

Bankruptcy Judge Blackshear in his opinion emphasized:

"The statute clearly and unambiguously refers to "lease" and

"lessor" without modifying or restricting those words; that is

how this Court shall read section 1110." Pet. 48a. In

accord, the District Court in /n re Continental Airlines, Inc.

concluded:

In short, because the words "lease" and "lessor"

in §1110 are’ unrestricted and facially

unambiguous, with a meaning fully ascertainable

without reference to the related terms, the simple

observation -- that the lease is, in one respect, not

like the conditional sale and the PMESI -- is of no

moment in ascertaining the plain meaning of these

words. Nothing on the face of the statute suggests

that each word in the grouping was not intended to

have its clear ordinary meaning.

App. 14a.?

Furthermore, in Jarecki v. G.D. Searle & Co., 367 U.S.

303, 81 S.Ct. 1579, 6 L.Ed.2d 859 (1961), this Court held

that noscitur a sociis is best used where the ambiguous word is

capable of many meanings; thus, looking at the surrounding

terms best defines the correct usage. Here, however, the

words "lease," "leased" and "lessor" have an ordinary and

plain meaning. If Congress wanted to deviate from that

meaning, it could have inserted terms such as "new" or

"acquisition" to modify the words. It chose not to do so. As

the District Court in Jn re Continental Airlines, Inc. found,

conditional sale contracts, purchase money equipment security

interests and leases are dissimilar (App. 14a) and attempts to

find complete symmetry among such terms _ introduces

complexities and ambiguities into the statute where they do not

otherwise exist. Plainly, noscitur a sociis is not an appropriate

rule of statutory construction to be applied in this case.

Debtors also make the anomalous argument that the re-

quirement that a lease be a "true lease," somehow renders the

term "lease" ambiguous.’® Pet. 18. However, section 1110

9. "App. ___" refers to the appendix annexed to this brief in opposition

to the Petition. .

10. Similarly, Debtors argue that a nonacquisition sale-leaseback

transaction is substantively identical to a general mortgage. Pet. 14-15.

However, the purchase of an aircraft is not a loan; and a lease of such

(continued...)

protection extends only to leases, not to transactions that take

the form of leases that are disguised financings. Congress

considered this point when enacting section 1110. See H.R.

Rep. No. 595, 95th Cong., lst Sess. 240, reprinted in 1978

U.S. Code Cong. & Admin. News 5963, 6199. The strict

application of section 1110 to leases does not create

ambiguity; on the contrary, it shows preciseness and clarity of

intent by the drafters of the statute to exclude any transaction

from its coverage that is a mortgage, not a "lease." The

drafters recognized that "some leases are merely disguised

security agreements," and are to be so treated. /d.

Accordingly, there is no reason for this Court to grant

certioran. because section 1110 has been uniformly held to be

clear and unambiguous.

B. The Second Circuit's Decision That Section

1110 Is Clear And Unambiguous On Its Face

And Applies To All Lessors Is Not In Conflict

With Any Other Circuit Court Decision

In determining whether to grant a petition for a wnt of

certiorari, this Court has often required that the decision sub-

ject to review be in direct conflict with a decision of another

court of appeals. This Court has, on occasion, dismissed a

writ of certiorari as improvidently granted where it has later

been determined that the alleged conflict between decisions of

the courts of appeals does not in fact exist. See, eg.,

10. (...continued)

aircraft back to a seller is not a mortgage. A lease differs in many

important ways, both legal and economic, from a loan. For example, a

lessor owns the property and, upon lease expiration, has the right to sell,

release or use the equipment. In contrast, a lender generally enjoys no

residual rights in the property financed and has no ability to participate in

the aircraft's appreciation. As an owner, a lessor is also entitled to the tax

benefits of ownership, such as depreciation deductions. 26 U.S.C. § 168.

Wisconsin Elec. Co. v. Dumore Co., 282 U.S. 813 (1931);

Keller v. Adams-Campbell Co., 264 U.S. 314 (1924); Layne &

Bowler Corp. v. Western Well Works, Inc., 261 U.S. 387

(1923). Moreover, Rule 10 of the Supreme Court Rules

specifically provides that one reason for granting certiorari is

"{wl]hen a United States court of appeals has rendered a

decision in conflict with the decision of another United States

court of appeals on the same matter.... Sup. Ct. R. 10

(emphasis added).

Our research has not revealed any opinion by any other

court of appeals which addresses the issue presented by the

Petition, although, as indicated supra, the Court of Appeals for

the Third Circuit has heard argument but not yet decided the

issue. Indeed, Debtors do not cite a single circuit or district

court decision which is at odds with the decision below. The

granting of review by this Court at this time is, accordingly,

unwarranted.

C. The Literal Meaning Of Section 1110 Is Con-

sistent With The Congressional Purpose And Its

Implementation

1. Background

As the lower courts correctly found, the legislative history

from the enactment of section 77} of the former Bankruptcy

Act through the enactment of the Bankruptcy Reform Act of

1978 reveals clearly an intent that section 1110 applies to all

leases. Congress' intention to promote financing of the airline

industry in the way it did was firmly rooted in the concept of

"title." Sections 77j and 116(5) of the former Bankruptcy Act

exempted lessors and conditional sales vendors from the

restraints imposed by the automatic stay because title to the

equipment remained in the lessors or conditional sales

vendors. See H.R. Rep. No. 1283, 74th Cong., Ist Sess. 4, 6

(1935); S. Rep. No. 1032, 85th Cong., Ist Sess. 1 (1957);

H.R. Rep. No. 944, 85th Cong., Ist Sess. 1, reprinted in

1957 U.S. Code Cong. & Admin. News 1926, 1927.

Congress clearly recognized that where title is outside the

debtor, it is "appropriate to exclude what is not property of

the estate from the automatic stay in a reorganization case."

H.R. Rep. No. 595, 95th Cong., Ist Sess. 240, reprinted in

1978 U.S. Code Cong. & Admin. News 5963, 6199."

Moreover, by its terms, section 116(5) protected the "title

of any owner" to aircraft equipment "leased, subleased or

conditionally sold to any air carner." "Title" is simply not,

and has never been, a "purchase-money" or "acquisition"

concept. A sale-leaseback transaction, for example, whenever

it might be consummated, would unquestionably place "title"

in the lessor.

The legislative history of the 1957 statute is quite short and

simple. The relevant committees in both houses of Congress

stated that the bill's purpose was to "permit the parties to a

lease or conditional sale of specified aircraft equipment to

render immune from the provisions of chapter X of the

Bankruptcy Act the title and right to possession of such prop-

erty." S. Rep. No. 1032, 85th Cong., Ist Sess. 2 (1957);

H.R. Rep. No. 944, 85th Cong., Ist Sess. 2, reprinted in

1957 U.S. Code Cong. & Admin. News 1926.

11. Debtors' argument as to the historical relationship between after-

acquired property clauses and leases is misplaced. Pet. 22. The advent of

after-acquired property clauses created the problem of carving out an

exception to the lien in after-acquired property for subsequent purchase

money security interests, not for leases. Gerstell and Hoff-Patrinos,

Aviation Financing Problems Under Section 1110 of the Bankruptcy Code,

61 Am. Bankr. L.J. 1, 5 (1987). The exemption for leases in section

1110 and its predecessors had nothing to do with after-acquired property

clauses. Instead, Congress’ rationale for the exemption was that title to

leased equipment remains in the lessor outside the estate and the automatic

stay should not apply.

2. The Legislative History Of Section 1110 Is Fully

Consistent With The Recognition Of

Nonacquisition Sale-Leasebacks As Section 1110

Transactions

Sale-leaseback transactions are consistent with the legis-

lative intent to encourage financing in the airline industry at

lower costs. The Report of the House Bankruptcy

Subcommittee states:

Testimony before the Bankrupt.y Subcommittee of

this committee indicated that the smaller [air]lines

are presently unable to attract the capital necessary

for their current reequipment requirements.

Testimony also indicated that the enactment of this

bill would result in an increased availability of

capital and at a lower interest rate than would be

demanded under present conditions. The reason for

this is the greater security afforded conditional sales

vendors and lessors by the amendment to chapter X

made in this bill.

H.R. Rep. No. 944, 85th Cong., Ist Sess. 1, reprinted in

1957 U.S. Code Cong. & Admin. News 1926, 1927

(emphasis added); see also In re Airlift Intern., Inc., 761 F.2d

1503, 1507 (11th Cir. 1985) (the purpose of section 116(5)

was "to enhance the borrowing ability of airlines"); 5 Collier

on Bankruptcy 4 1110.01, at 110-3 (L. King 15th ed. 1990)

(the predecessors to section 1110 "were designed to afford

equipment financiers greater certainty than existed under the

other provisions of the former Bankruptcy Act concerning such

financiers").

[t is clear that facilitating the financing of the aircraft

industry was a prime Congressional purpose behind the

amendment of section 116(5) of the Bankruptcy Act in 1957

and that it remained an important object've of that section's

reenactment and expansion as section 1110 of the Bankruptcy

Code in 1978, H.R. Rep. No. 595, 95th Cong., Ist Sess. 239

(1977), reprinted in 1978 U.S. Code Cong. Admin. News.

5963, 6198-6199. While we do not challenge Debtors'

contention that one of Congress' purposes in enacting section

1110 and its predecessors was to enable domestic certificated

air carriers to acquire modern equipment, that certainly was

not Congress' only purpose. Moreover, to adopt Debtors'

position would only frustrate the purpose Debtors are urging

upon this Court, since the requirement that equipment be

"new" to Debtors does not, as Debtors concede, mandate that

equipment itself be new or modern.

To arrive at the conclusion urged by Debtors, the broader

explicit goals that Congress intended must be completely

ignored. Such a myopic reading would raise more questions

than it resolves. The District Court recognized that:

In cases such as this where the legislative history

appears to reflect many seemingly different but

consistent goals, courts should be reluctant to

rewrite the words of a statute unless the plain

meaning of those words leads to a result clearly

contrary to Congress' expressed intention.

Pet. 24a.

3. Nothing In The Legislative History Warrants

Departure From The Plain Meaning Of Section

1110

Debtors are unable to cite any legislative history that states

that the term "lease" for the purposes of section 1110

excludes sale-leaseback transactions which do not provide the

acquisition of equipment "new" to an air carrer or only

includes leases providing the acquisition of equipment "new"

to the air carrier. In fact, the distinction between transactions

that provide a new acquisition of equipment to the air carner

and those that do not was recognized by Congress when

section 1110 was adopted. Carefully distinguishing between

acquisition and nonacquisition transactions, Congress added

the concept of a “purchase money equipment security

interest" to what became section 1110, thus limiting the class

of lenders protected by section 1110, but imposed no similar

limitation on the class of lessors eriitled to the protection of

section 1110. This is itself a persuasive indication of

Congress' intent regarding the meaning of "lease" and

"lessor" under section 1110. The legislative history reveals

that:

This section [1110], to a large degree, preserves

the protection given lessors and conditional vendors

of aircraft to a certified water carrier under section

116(5) and 116(6) of present Chapter X. It is

modified to conform with the consolidation of

Chapter X and XI and with the new chapter 11

generally. It is also modified to give the trustee in a

reorganization case an opportunity to continue in

possession of the equipment in question by curing

defaults and by making the required lease or

purchase payments. This removes the absolute veto

power over a reorganization that lessors and condi-

tional vendors have under present law, while

entiting them to protection of their investment.

S. Rep. No. 989, 95th Cong., 2d Sess. 116-17, reprinted in

1978 U.S. Code Cong. & Admin. News 5787, 5902, 5903.

If Congress wanted to restrict the operation of section 1110

to acquisition leases, it clearly would have done so through the

express words of the statute. Congress knew how to distin-

guish among categories, and subcategories, of lessors and

leases when it so desired. See, ¢.g., section 502(a)(6) (limiting

the damage claims only with respect to leases "a lease of real

property") (emphasis added); section 365(h) (limiting

consequences to lessee of rejection by trustee of "an

unexpired lease of real property under which the debtor is the

ott eed.

lessor") (emphasis added); section 365(d)(3)-(4) (special rules

for the timing of rejection of, and the performance of post-peti-

tion obligations under, "an unexpired lease of non-residential

real property") (emphasis added); section 362(b)(10) (excepting

from the automatic stay acts of a lessor under an expired lease

! of non-residential real estate). As indicated above, Congress

knew how and, in fact, did provide an acquisition limitation in

section 1110 on purchase money equipment security interest

financing; by contrast, Congress left alone, notwithstanding

repeated amendments to section 1110 and its predecessors,

the all-encompassing and unqualified terms "lessor," "leased"

and "lease."

If adopted, Debtors' view of section 1110 would eliminate

the dominant type of financing needed by airlines in troubled

financial circumstances (such as currently exist throughout the

airline industry), namely, the use of a debtor's equity to obtain

additional funds. B. Fritch, A. Reisman & I. Shrank, 1

Equipment Leasing and Leveraged Leasing 834 (3d ed. 1988).

The preeminent legal authority in the equipment leasing field

concludes:

The better view from a policy standpoint, and

certainly a less strained interpretation of the statute,

is that §§ 1110 and 1168 [railroads] should apply

to all equipment leases and conditional sales

(including leveraged leases and _ sale-leasebacks)

where there has been a change in ownership.

Id.

We respectfully submit that a review of the legislative

history shows that Congress’ purposes were multiple and that

focusing on any single objective to the exclusion of others will

imperil Congress' overriding policy, which was to enhance the ~

airline industry's ability to raise capital at a cost the airlines

could afford.

)

Given the absence of a clear and unequivocal indication

that the inclusion of nonacquisition sale-leasebacks within the

protection of section 1110 "will produce a result demonstrably

at odds with the intention of [the] drafters", United States v.

Ron Pair Enterprises, Inc., 489 U.S. at 242, or "would thwart

the obvious purposes of the ... statute," Smith v. Fidelity

Consumer Discount Co., 898 F.2d 907, 910 (3d Cir. 1999)

(quoting Mansell v. Mansell, 490 U.S. 581, 592 (1989), this

Court should sustain the plain and unambiguous text of section

1110 and afford the aircraft lessors in sale-leasebacks their

protection thereunder. See, e.g., West Virginia University

Hospitals, Inc. v. Casey, 111 S.Ct. at 1147; Demarest v.

Manspeaker, 111 S.Ct. at 604; In re Chateaugay Corp., 920

F.2d at 184; Air Vermont, 761 F.2d at 134.

D. The Petition Does Not Present Any Issues Of

Compelling Importance Warranting This Court's

Review

As stated, the dispute herein is solely an issue of statutory

construction. Although the plain meaning of this statute may

not fit with Debtors' view of the legislative purpose, it can

hardly be said that the issue presented by this appeal rises to

the level of importance justifying review by this Court in the

absence of other compelling reasons to grant certiorari.

Ill. THIS COURT DOES NOT NEED TO SETTLE THE

QUESTION PRESENTED BECAUSE ALL

AUTHORITY HOLDS THAT NONACQUISITION

SALE-LEASEBACK TRANSACTIONS ARE

ENTITLED TO THE PROTECTIONS OF SECTION

1110

The decisions below by Judges Lumbard, Winter and

Walker of the Second Circuit, Judge Mukasey of the District

Court and Judge Blackshear of the Bankruptcy Court are

consistent with all judicial authority on this issue: Jn re

Continental Airlines, Inc., 91 Civ. 58 (RSG), slip op. (D. Del.

tp cwbab) eh wed

COE rte ders a a! ee

March 26, 1991), and Braniff, Inc. v. Toren (In re Braniff,

Inc.), 110 Bankr. 980 (Bankr. M.D. Fla. 1990).

As Debtors do here, Continental and Braniff urged that the

legislative history of section 1110 demonstrates that Congress

intended the statute to apply only where a lessor leases aircraft

new to an airline. Both courts unequivocally rejected that

claim.

In Braniff, for example, the court began with an examina-

tion of the statute itself:

The language of Section 1110 is clear and

unambiguous; according to the statute, the benefits

that Section 1110 provides are applicable when the

enumerated, plainly stated elements are present and

satisfied, as they obviously have been satisfied here.

Id. at 982-83 (emphasis added).

The court then rejected Braniff's claim that Congress

proposed the legislation solely to encourage acquisition of

equipment new to the airlines and, the plain language of the

statute notwithstanding, intended to limit the scope of section

1110 to acquisition leases. The court especially criticized

Braniff's analysis of section 1110's legislative history because,

like Debtors' identical analysis here, it focused solely on the

Congressional debate of a recent amendment expanding

section 1110 to cover purchase money financing. The court

stated:

It is not surprising, therefore, that references to new

acquisitions were featured prominently in the

Congressional debates and reports constituting the

legislative history of the 1978 expansion. But

focusing on the 1978 legislative history that

discusses the purposes for a particular expansion of

the statute without also examining the earlier base

from which the expansion was being made distorts

the conclusion.

Id. at 983 (emphasis added).

This "earlier base" is quite revealing. The court

continued:

In the legislative history before the 1978 expansion

into purchase money financing, there appears no

support for the proposition that new acquisitions

were intended to underlie, and be a necessary

prerequisite for, the protection afforded to lessors by

Section 1110's predecessors.

Id. (emphasis added).

The Braniff court quoted from House Report No. 944 to

conclude that, in fact, no acquisition of any sort was required

for section 1110 protection:

Testimony also indicated that the enactment of this

bill would result in an increased availability of

capital and at a lower interest rate than would be

demanded under present conditions.

Id. at 983-84 (emphasis added).

The court then pointed out the true purpose of the bill:

[T]he stated purpose of the bill -- protecting lessors

and conditional sellers -- facilitates the reduction of

capital costs to an airline regardless of whether the

transaction contemplates the acquisition of new

equipment (by a new lease, for example) or the

refinancing of existing equipment (by the renewal of

an existing lease, for example).

Id. at 984 (emphasis added). Finally, after a review of the

entire history, the court concluded:

i a iia eel

ante ts

Certainly the history provides no express legislative

intent that is contrary to the plain language of the

statute, which omits any "acquisition" element for

leases, that would justify the Court's inclusion of this

additional requirement.

Id. at 984 (citations and footnote omitted) (emphasis added).

IV. THE APPELLATE COURT'S DECISION IS

CORRECT

The courts below correctly declined Debtors’ invitation to

judicially rewrite section 1110. The Court of Appeals

affirmed the District Court's order "for substantially the

reasons stated by Judge Mukasey." Pet. 8a.

The District Court found the words "lessor," "leased" and

"lease" in section 1110 to be unambiguous and unrestricted:

such words "are not modified in any way which suggests that

the statute was not meant to apply to lessors in a sale-

leaseback transaction." Pet. 17a. After an extensive review,

the District Court was satisfied that the legislative history failed

to demonstrate the requisite clarity to justify a deviation from

the statutory language. Judge Mukasey found that "the

legislative history appears to reflect many seemingly different

but consistent goals." Pet. 24a (emphasis added). The

District Court also rejected Debtors' argument that an

acquisition limitation should be read into leases because

section 1110 contains an explicit acquisition limitation for

security interests. This argument "contradicts both logic and

rules of statutory construction. Congress placed explicit

limitations on one group [security interests].... That

difference suggests the logical conclusion that Congress

actually did not intend so to restrict the class of protected

lessors." Pet. 22a (emphasis in original).

CONCLUSION

For all the foregoing reasons, a writ of certiorari should

be denied.

Dated: May 3, 1991.

Respectfully Submitted,

MARVIN E. JACOB

Counsel of Record

JAMES W. CIDDENS STEPHANIE R. SCHWARTZ

DAVID M. LEMAY WEIL, GOTSHAL & MANGES

HUGHES HUBBARD & REED 767 Fifth Avenue

One Battery Park Plaza New York, New York 10153

New York, New York 10004 (212) 310-8000

(212) 837-6000 Attomeys for Respondents

Attomeys for Respondent Evergreen International

IBJ Schroder Leasing Corporation Airlines, Inc. and

Cobblestone Corporation

JOHN I. KARESH JON YARD ARNASON

JILL LEVI ‘ JOHN J. REILLY

FELTMAN, KARESH, MAJOR & ALAN HEBLACK

FARBMAN ANDREA FISCHER

152 West 57th Street HAIGHT, GARDNER, POOR

New York, New York 10019 & HAVENS

(212) 586-3800 195 Broadway

Attomeys for Respondents New York, New York 10007

Greyhound Financial Corporation, (212) 341-1000

De Nationale Investeringsbank N.V., Attorneys for Respondent

Credit Lyonnais/PK AIRFINANCE U.S. Concord, Ine.

and Aeron Aviation Corporation

STEPHEN H. GROSS

WALTER, CONSTON, ALEXANDER & GREEN

90 Park Avenue

New York, New York 10016 y

(212) 210-9400 .

Attomeys for Respondents

PS Group, Inc., Grand Central Partners No. 1,

Grand Central Partners No. 2 and Grand Central Partners No. 3

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

: Case Nos. 90-932

CONTINENTAL AIRLINES, INC. : through 90-984

et al., :

: Civl Action No. 91-58

Debtors.

OPINION

GAWTHROP, J.' March 26, 1991

This is a consolidated appeal? from a bench opinion

issued by the Honorable Helen S. Balick, Judge of the United

States Bankruptcy Court for the District of Delaware, on

January 30, 1991, in which Judge Balick ruled that creditors

leasing aircraft equipment by "sale-leaseback" transactions are

not entitled to nghts under § 1110 of the bankruptcy code.

See 11 U.S.C. § 1110. Appellants are creditors who lease

aircraft under sale-leaseback leases to appellees and debtors,

Continental Airlines, Inc., et al.. Five other airlines--America

West Airlines, Inc., American Airlines, Inc., Northwest

Airlines, Inc., United Air Lines, Inc., and USAir, Inc.--as weil

as the American Association of Equipment Lessors--have filed

as amicus curiae in support of the appellants' position.

1. Robert S. Gawthrop, III, United States District Judge for the Eastern

District of Pennsylvania, sitting by designation.

2. Sixty-one creditors took twelve separate appeals, (Nos. 91-58, 91-98

through 91-104, 91-107 through 91-110, and 91-113). These appeals,

which all raise the same legal question, were consolidated by the court,

upon stipulation of counsel.

Appellants and amici urge this court to reverse the bankruptc

court and hold that leases resulting from sale-leasebac

transactions are entitled to § 1110 protection. For th

following reasons, I shall so hold.

BACKGROUND

Continental Airlines, like other major airlines in the Unite:

States, holds a significant number of its aircraft by lease, an

does so, in large part, by so-called "sale-leaseback

transactions. Airplane leases are generally of two types: (1

acquisition leases, under which an airline acquires aircraft fo

its fleet, and (2) non-acquisition leases, under which an airlin

sells aircraft from its existing fleet, and then leases the sam

aircraft back from the purchaser. These latter, widely used

sale-leaseback transactions, allow an airline to obtain operatin

capital, in exchange for a promise to pay a rental annuity

The annuity, combined with the residual value of the aircrai

so leased, is calculated to bring the lessor a profit over th

purchase price.

On December 3, 1990, Continental filed a voluntar

petition in bankruptcy under Chapter 11. On January 16

1991, Continental filed a motion before the bankruptcy cour

asking the court to find that the leases that debtors hold unde

sale-leaseback transactions are not subject to § 1110 of th

bankruptcy code.

Section 1110, in effect, exempts persons, who hav

specified interests in aircraft or aircraft equipment from th

automatic stay of the bankruptcy code, which stay orde

attaches to a debtor's property upon the filing of a bankruptc

petition. See 11 U.S.C. § 362(a). The stay ordinaril

prevents creditors from moving against any property of th

debtor to recover on any debts owed, until granted permissio

to do so by the bankruptcy court. /d. Parties within th

ll: eh

protection of § 1110, however, may repossess aircraft and

aircraft equipment in which they have an interest, despite the

e automatic stay, if the debtor does not agree to pay all

obligations and cure all defaults within 60 days. By its terms,

§ 1110 protects "lessors", "conditional vendors", and parties

with "purchase money equipment security interest[s]" (PMESIs).°

. 3. Section 1110 provides in relevant part:

) Aircraft equipment and vessels

- (a) The right of a secured party with a purchase-money

p equipment security interest in, or of a ‘essor or conditional

’ vendor of, whether as trustee or otherwise, aircraft, aircraft

engines, propellers, appliances, or spare parts ... that are

B subject to a purchase-money equipment security interest

. granted by, leased to, or conditionally sold to, a debtor that is

t an air carrier .. ., to take possession of such equipment in

e compliance with the provisions of a purchase-money equipment

security agreement, lease, or conditional sale contract, as the

case may be, is not affected by section 362 or 363 of this title

or by any power of the court to enjoin such taking of

Y possession, unless--

, (1) before 60 days after the date of the order for

relief under this chapter, the trustee, subject to the

e court's approval, agrees to perform all obligations of

the debtor that become due on or after such date

under such security agreement, lease, or conditional

. sale contract, as the case may be; and

€ (2) any default, other than a default of a kind

r specified in section 365(b)(2) of this title, under such

y security agreement, lease, or conditional sale contract,

y as the case may be--

z (A) that occurred before such date is cured before

. the expiration of such 60-day period; and

e€

(continued...)

Continental sought authority from the bankruptcy court to

cure defaults and meet obligations on various transactions that

Continental determined to fall within § 1110. Payments due

on these transactions total approximately $108 million.

Continental did not seek similar authority to cure payments

due under non-acquisition leases. Asserting that non-

acquisition leases are not within § 1110, Continental seeks the

continued use of aircraft so leased without having to pay the

amounts now due on these leases, which totals approximately

$58 million.

On January 30, 1990, after hearing oral argument from

both parties, the bankruptcy court ruled that, unless non-

acquisition leases are part of an acquisition package, they are

not "leases" within the meaning of § 1110: i.e. only if an

airline arranges to buy an aircraft, with the design of

immediately selling it to, and leasing it back from, a financier,

is the non-acquisition lease a "lease" within § 1110. See Tr.

at 116 (Nos. 90-932 through 980, January 30, 1990). In

reaching this conclusion, the bankruptcy court observed that

the other transactions covered by § 1110--the PMESI and the

conditional-sale contract--involve acquisitions. The court

concluded that there was no basis for construing "lease" more

broadly than these related terms. See id., at 115-116.

3. (...continued)

(B) that occurs after such date is cured before the

later of--

(i) 30 days after the date of such default; and

(ii) the expiration of such 60-day period.

DISCUSSION

I. Jurisdiction over Appeal

Parties adversely affected by "final judgments, orders and

decrees" of bankruptcy courts, may appeal, as of right, to the

district court in the relevant jurisdiction. 28 U.S.C. § 158(a).

Parties adversely affected by interlocutory orders may appeal

by leave of court. /d. Continental argues that Judge Balick's

order was not final, and that leave to appeal is inappropriate

in this case. I do not address whether leave is appropriate, as

I find that the order was final.

Since bankruptcy proceedings involve many parties and are

frequently protracted, a strict finality requirement in the

bankruptcy context, allowing appeal by right only after a

reorganization plan is confirmed, could cause substantial was:e

of time and resources in particular cases. See In re Amatex

Corp., 755 F.2d 1034, 1039 (3rd Cir. 1985). Thus, the

Third Circuit has declared that courts faced with bankruptcy

appeals should take a pragmatic approach to the finality

requirement, and treat as final, orders that in other contexts

might be considered interlocutory. Walsh Trucking v.

Insurance Co. of North America, 838 F.2d 698, 701 (3rd Cir.

1988).

The factors to be considered in determining whether the

order of a bankruptcy court is final include: the impact of the

issue on the assets of the bankruptcy estate, the necessity for

additional fact-finding on remand, the preclusive effect of a

decision on the merits of subsequent litigation, and the

furtherance of judicial economy. See Wheeling-Pittsburgh Steel

Corp. v. McCune, 836 F.2d 153, 158 (3rd Cir. 1987) (citing

In re Mevertech, 831 F.2d 410, 414 (3rd Cir. 1987). The

§ 1110 issue pressed here is one of law, requires no

factfinding, affects the distribution of $58 million from the

bankruptcy estate, and, when decided, will have preclusive

effect on actions by future parties to sale-leaseback

transactions.

Continental argues that the bankruptcy court's order,

finding § 1110 not to apply to sale-leaseback transactions, is

not final, because it merely postpones, rather thay forecloses,

the creditors' nights in their collateral. See First American

Bank of New York v. Century glove, Inc., 64 B.R. 958, 959

(D.Del. 1986). This is a mischaracterization. Section 1110

grants certain creditors the right to be free from the automatic

stay of the bankruptcy code. The bankruptcy court's order in

this case deprives appellants of these nights forever. Although

the lessors retain rights in their property, these rights are

fundamentally altered when subjected to the operation of the

bankruptcy code. This is the essence of a final decision. This

court has jurisdiction thereby.

II. Sale-Leaseback Transactions and § 1110

The substantive issue before the court is solely one of

statutory construction: whether the terms "lessor" and "lease"

in § 1110 cover lessors who purchase from an airline the very

aircraft or aircraft equipment that they lease back to the

airline. Before addressing this question, it is important to note

a related issue not being decided.

Under the Uniform Commercial Code, financing

transactions denominated as leases, but designed to create

security interests, are not treated as bona fide leases, but

rather are treated as security agreements for sale. See In re

Aspen Impressions, Inc., 94 B.R. 861, 864 (Bankr.E.D.Pa.

1984) (citing § 1-207(37) of the U.C.C.). Continental has

argued that many, if not all, of the sale-leaseback leases in

question on this appeal are not bona fide leases but are

properly characterized as security agreements for sale, and

thus not entitled to protection under § 1110 as leases.‘

Further, Continental suggests that since these sale-leaseback

transactions create secunty interests that are not "purchase-

money equipment security interests", as that term is used in

§ 1110,° they are not subject to the protection of § 1110 at

all.

However, this characterization issue, which Continental has

vowed to press with respect to each of its non-acquisition

leases, should it lose this appeal, is not now before me.®

Here, I assume that the non-acquisition leases in question are

bona fide leases, and thus address the legal question whether

such leases are nevertheless outside the protection of § 1110,

because they did not bring new airplanes to Continental's fleet.

Two courts have already wmitten on this question, both

finding that non-acquisition leases are covered by § 1110.

See In re Pan Am Corporation, No. 91-1659, slip op.

(S.D.N.Y. March 18, 1991); In re Braniff, Inc., 110 B.R.

980, 985 (Bankr.M.D.Fla. 1990). These opinions are

instructive. However, due to the importance of the question,

4. Continental urges, in effect, that the word "lease" within § 1110 be

read to include only "bona fide leases." Although the court is aware of no

cases so holding with respect to § 1110, there is case law holding that the

word "lease" in other sections of the bankruptcy code includes only bona

fide leases. See In re PCH Associates, 804 F.2d 193 (2nd Cir. 1986)

(addressing 11 U.S.C. §§ 365(d) and 502(b)(6)).

5. "Purchase money equipment security interest" is not defined in

§ 1110. The legislative history behind the section links this phrase to the

concept as developed by the U.C.C. in § 9-107. See H.R.Rep.No. 595,

95th Cong., ast Sess. 240, reprinted in 1978 U.S.Code & Adm.News at

6199. See also footnote 10.

6. Nor does the in terrorem intimation of Continental, regarding the

incremental judicial labor that such a holding could engender, have any

impact on the task of fairly and accurately construing the statute.

and the difference of opinion from the court below, I will take

a fresh look.

Continental asserts that the word "lease" in § 1110, when

read in the context of surrounding words in the section, and in

the light of the purposes of the bankruptcy code as a whole,

can only be taken to include those "leases" that are designed

to augment a carrier's fleet and equipment supply.

Continental contends that this result is dictated by the

principle of statutory construction known as noscitur a sociis,

and by the legislative history behind § 1110. I shall address

each in turn.

A. Noscitur A Sociis

Noscitur a sociis means, literally, that a thing may be known

by its associates. In the context of statutory construction, it is

invoked for the proposition that the meaning of a word may be

derived from the meaning of accompanying words. See Jarecki

v. G.D. Searle & Co., 367 U.S. 303, 307 (1961); see also

Black's Law Dictionary at 956 (Sth Ed., 1979). This

principle has been applied by the Supreme Court, Jarecki, 367

U.S. at 307, and recently by the Third Circuit. Balley v. Legg

Mason Wood Walker, Inc., 925 F.2d 682 (3rd Cir. 1991).

Elsewhere the Supreme Court has expounded the similar

principle that "words grouped in a list should be given related

meaning". See Massachusetts v. Morash, 490 U.S. 107, 114-5

(1988); see also Third National Bank v. Impac Limited, Inc.,

432 U.S. 312, 322 and n. 16 (1977) (equating noscitur a

sociis with principle that grouped words are to be given related

meaning).

Continental urges the court to apply noscitur a sociis to

§ 1110, and rule that "lease" means acquisition lease,

because the other words in the list: "conditional sales" and

"purchase money equipment security agreements" necessarily

involve acquisitions. I find to the contrary that noscitur a

sociis is no aid in this context.

Maxims of statutory construction are aids in ascertaining

the plain meaning of a statute, not tools to contradict plain

meaning. Simply because Congress places a word in a

statutory list, does not mean that the word is intended to be

treated like its fellows in all respects. Indeed, the Supreme

Court has recognized that when words are grouped by the

disjunctive "or", they are ordinarily to be given separate

meaning. See Garcia v. United States, 469 U.S. 70, 73

(1984). Because a word in a list "may have a character of its

own not to be submerged by its association," noscitur a sociis

should be applied, as a general rule, only where the meaning

of the word is "obscure" or "doubtful". Russel Motor Car Co.

v. United States, 261 U.S. 514, 519 (1923). See also Jarecki,

367 U.S. at 307 and Balley, 925 F.2d at 682 (noscitur a

sociis is "wisely applied where a word is capable of many

meanings").

The word "lease", as used in § 1110, suffers from no

apparent ambiguity. Although a "lease" may arise in many

contexts, the word is generally limited to specific transactions

in property, under which an owner/lessor conveys property to

a lessee for a term of years, in exchange for the lessee's

promise to pay a fixed rent. See generally Webster's Third New

International Dictionary at 1286 (1986). Sale-leaseback

leases are leases within this definition. The fact that an airline

sells a lessor an aircraft, before entering an agreement to lease

the same aircraft back from the lessor, does not mean that the

agreement is not a "lease", as the term is commonly

understood. See eg. Frank Lyon Co. v. United States, 435

U.S. 561, 581 (1978) (taxpayer leasing building under sale-

leaseback transaction is treated as owner/lessor under a

standard lease transaction and is entitled to tax benefits from

depreciation).

10a

Continental points to no ambiguity inherent to the term

"lease" as used in § 1110. Rather, Continental suggests that

the meaning of lease must be restricted to avoid a clash with

the meaning of the other two terms in the list. However, the

fact that lease transactions need not involve new acquisitions,

while conditional sales or PMESIs_ necessarily involve

acquisitions, does not mean that the three terms were not

intended to have their full and ordinary meaning. Indeed,

absent clear indication to the contrary, the plain meaning of

the terms controls. See Demarest v. Manspeaker, 498 U.S.

___, 111 S.Ct. 599, 112 L.Ed.2d 608, 616 (1991).

Continental relies on a number of cases where the Supreme

Court applied noscitur a sociis, explicitly or implicitly, te

restrict the meaning of a statutory term. See Morash, 490

U.S. at 107; Schreiber v. Burlington Northern, Inc., 472 U.S. 1

(1985); Third National Bank, 432 U.S. at 312; Jarecki, 367

U.S. at 303. These cases are fact-specific, demonstrating

circumstances where the principle of noscitur a sociis can be

helpful to elucidate a statute's meaning, but adhering to no

particular rule of thumb for its application. Having considered

these cases separately and in some length, I find none to be

apposite to the case at bar.

Morash and Jarecki illustrate the classic circumstance for

the application of noscitur a sociis: in each, the language in

question contained an ambiguity, or constructural conundrums,

that could not be solved without reference to related words.

In Morash, 490 U.S. at 107, the Court was called upon to

decide whether policies of employers to pay employees for

accrued but unused vacation days are "vacation benefit plans"

within the meaning of § 3(3) of the Employee Retirement

Income Security Act, (ERISA), see 29 U.S.C. § 1023(3).

Section 3(3) provides that “any plan, fund, or program"

maintained to provide "medical, surgical, or hospital care or

benefits, or benefits in the event of sickness, accident,

lla

disability, death or unemployment, or vacation benefits,

apprenticeship or other training programs, or day care centers,

scholarship funds, or prepaid legal services" are welfare

benefit plans subject to ERISA's regulatory scope. See 11

U.S.C. § 1023(3) (emphasis added). Despite the specific

inclusion of “vacation benefits" within the section, the

Supreme Court held that vacation accrual plans "payable on a

regular basis frum the general assets of the employer" are not

benefit plans subject to ERISA's requirements.

Looking to the characteristics of the other "listed" benefits,

the Court determined that Congress intended to regulate only

those plans which give an employee nghts that are contingent

on future occurrences, or which subject an employee to risks

different from the normal employment risk. 490 U.S. at 116.

In so doing, the Court tacitly acknowledged that the term

"vacation benefit plan", within the definition section of

ERISA, could not be interpreted without reference to the other

terms in that section. This is in marked contrast to the term

"lease" as it appears in § 1110. "Vacation benefit plan" is a

statutory construct, created by Congress to refer to a certain

class of employee benefit plans. "Lease", on the other hand,

is a word not invented by the bankruptcy code, and not

dependent on the other provisions of the code for its meaning.

Rather, it has a long history in the English language and in the

common law.

The Court's opinion in Jarecki, 367 U.S. at 303, is similar.

There, the Court was asked to address a section of the Excess

Profits Tax Act of 1950, which excluded from the excise tax,

"income resulting from exploration, discovery, or prospecting".

See 367 U.S. at 305. A group of taxpayers asserted that the

word "discovery" included the "discovery" or invention of

new products. The Court disagreed, finding the term to be

limited to income generated in the oil and gas and mining

industries. 367 U.S. at 307. In doing so the court

12a

specifically recognized that "discovery" is a word capable of

many meanings that could only be interpreted with reference

to the surrounding terms "exploration" and "prospecting". /d.

The two other Supreme Court cases cited by Continental

are distinguishable for other reasons. In Schreiber v.

Burlington Northern, Inc., 472 U.S. at 1, the Court considered

whether the prohibition against "manipulative" practices in

tender offers, contained in § 14(e) of the Williams Act, covers

practices that artificially affect the price of stock, but which are

fully disclosed. Section 14(e) prevents persons from engaging

in "fraudulent, deceptive, or manipulative acts". Noting that

"fraudulent" and "deceptive" acts both involve some element

of misrepresentation, the Court read "manipulative" acts to

require misrepresentation as well. See 472 U.S. at 8. At the

same time, the court noted that this definition of

"manipulative" was in accord with the word as used as a term

of art in common law, and as defined in the dictionary. See

472 U.S. at 7. In short, although the Court referred to

noscitur a sociis to strengthen its holding, it did se not to vary

the plain meaning of the term, but to confirm it.

In Third National Bank, 432 U.S. at 312, the Court ruled

that courts may preliminarily enjoin federal banks from

foreclosing on mortgages, despite the language of 12 U.S.C.

§ 91, which states that no "attachment, injunction, or

execution" may issue against a bank of the United States. The

Court's holding limits the application of the statute to

injunctions that would have the effect of seizing a bank's

property, and is based, in part, on the Court's recognition that

the wnits of "attachment" and "execution", which "sandwich"

the word "injunction" in the statute, are writs used by

creditors to seize bank property, while the writ of garnishment,

used by banks to move against the property of others, was

"conspicuously absent" from the statute's terms. 432 U.S. at

322-23.

l3a

At first blush, the Court appears to be using noscitur a

sociis to vary the meaning of a word--"injunction"--which is

otherwise without ambiguity. However, this was an

extraordinary case. Historical evidence before the Court

suggested a reason for preventing creditors from obtaining

injunctions against and seizing property from national banks,

before a judgment is entered: viz. the threat of insolvency and

the need to preventing creditors from gaining preferences. Yet

the Court could find no "national or local" interest to be

served in forbidding injunctions against national banks,

preventing the banks themselves from moving against

noncreditors. 432 U.S. at 323. Indeed, the Court found that

if courts were not allowed to preliminarily enjoin aggressive

actions by national banks, the only result would be to give

these banks a "license to inflict irreparable injury against

others." In short, the Court invoked noscitur a sociis to avoid

an irrational reading of the statute.

Continental argues that a restrictive reading of § 1110--i.e.

one that excludes non-acquisition leases--would further the

public policy in favor or reorganization, which is embodied

within the bankruptcy code. Nevertheless, Continental does

not and cannot suggest that an expansive reading of § 1110 to

cover non-acquisition leases is irrational. The policy question

here concerns the trade-off of pre-bankruptcy benefits for post-

bankruptcy burdens. If sale-leasebacks are afforded § 1110

protection, solvent airlines are benefitted with a means to

obtain inexpensive financing, enabling them to upgrade

operations and stave off insolvency during a credit crunch. At

the same time, if the airline goes into bankruptcy, it will be

faced with the obligation of having to make payments on the

sale-leaseback leases if it wishes to keep operating the aircraft

held under these leases. The national economic implications

of this dynamic, while subject to debate, are not so clearly

undesirable to require that § 1110 be read contrary to its

literal terms.

l4a

In short, because the words "lease" and "lessor" in

§ 1110 are unrestricted and facially unambiguous, with a

meaning fully ascertainable without reference to the related

terms, the simple observation--that the lease is, in one respect,

not like the conditional sale and the PMESI--is of no moment

in ascertaining the plain meaning of these words. Nothing on

the face of the statute suggests that each word in the grouping

was not intended to have its clear ordinary meaning. Thus I

turn to Continental's argument with respect to legislative

history.

RB. Legislative History

1. Relevance to Interpretation of § 1110

Review of legislative history is appropriate in interpreting a

statute, even when the statutory language is professed to be

plain on its face. Watt v. Alaska, 451 U.S. 259, 266 (1981);

Train v. Colorado Public Interest Research Group, 426 U.S. 1,

10 (1976); Smith v. Fidelity Consumer Discount Co., 898 F.2d

907, 910 (3rd Cir. 1990); Paskel v. Heckler, 768 F.2d 540,

543 (3rd Cir. 1985). This is not to say that plain language

can be ignored. To the contrary, the words the legislature

chooses are the most persuasive evidence of a statute's

purpose and must be treated accordingly. See Smith, 898

F.2d at 910 (citing Griffin v. Oceanic Contractors, Inc., 458

U.S. 564, 570 (1982); United States v. American Trucking

Ass'n. Inc., 310 U.S. 534, 543 (1940)). Wen the words are

"clear and plain" a court must follow them, unless a literal

reading produces results that are "demonstrably at odds with

the intention of the drafters". United States v. Ron Pair

Enterprises, 489 U.S. 235, 242 (1989); Smith, 898 F.2d 2

910.

The party who would vary the literal reading of a statute

faces the heavy burden of demonstrating that the literal

15a

reading is demonstrably at odds with the legislative intent. See

Paskel, 768 F.2d at 543. This burden is high because the

statutory language, as the embodiment of the law, contains a

significance not present in the words of legislative reports. Not

only does Congress place more thought on the future

implications of the actual language of a statute, see Paskel, 768

F.2d at 544, but that language is the guide by which citizens

are expected to order their affairs.

Continental contends that. this stringent standard does not

apply here, because it is not attempting to vary the meaning of

§ 1110. Continental states that the meaning of the statute,

properly understood, is that meaning suggested by application

of the doctrine noscitur a sociis. While I have rejected the

view that noscitur a sociis alone can be applied to vary the

statute's literal meaning, I acknowledge that this principle may

provide some support for Continental's ciaim if consistent with

the legislative history. Nevertheless, this does not mean that

Continental can create an ambiguity with noscitur a sociis when

none otherwise exists. The heavy burden attaches whenever a

party would vary the literal reading of the statute. Paskel, 768

F.2d at 544. That a party can point to a maxim of statutory

construction, to support a meaning other than the literal

reading, is irrelevant. m

Thus while I look to the legislative history, | bear in mind

the limited purpose of the search. The question here is

whether a literal reading of the statute to include non-

acquisition leases produces a result "demonstrably at odds"

with the legislators' intent, as manifest in the legislative history.

Ron Pair, 489 U.S. at 24; Smith, 898 F.2d at 910.

l6a

2. Historical Development

a. Section 77(j)

Section 1110 of the current bankruptcy code has its ongin

in like provisions of previous codes. The first such provision,

§ 77(j), appeared in 1935, for the benefit of equipment

financiers in the railroad industry. See Act of August 27,

1935, Pub.L.No. 74-381, ch. 774, 49 Stat. 911 (codified at

11 U.S.C. § 205(j), repealed). Amending the then existing

law regarding the reorganization of railroads, Congress added

a clause that exempts lessors and conditional vendors of rolling

stock equipment from the court's power in bankruptcy to

enjoin repossession of such equipment. See id..’

The purpose of this exemption, as articulated in the House

Report accompanying the legislation, was to preserve the rights

of trustees under "typical equipment trust agreement{s]", see

H.R.Rep.No. 1283, 74th Cong., Ist Sess. at 4 (1935).

Equipment trusts were financing devices used by the railroad

industry in which trustees purchased equipment from a

manufacturer, and then leased equipment to railroad

companies. See Black's Law Dictionary at 482 (Sth ed.

1979). The advantage of the equipment trust for financiers

7. Section 77(j) provides in relevant part, that:

... the judge may enjoin or stay the commencement or

continuation of suits against the debtor until after final decree;

and may, upon notice and for cause shown, enjoin or stay the

commencement or continuance or any judicia) proceeding to

enforce any lien upon the estate until after final decree:

Provided, . . . [that] [t}he title of any owner, whether as trustee

or otherwise, in rolling stock equipment leased or conditionally

sold to the debtor, and any right of such owner to take

possession of such property in compliance with the provisions

of an such lease or conditional sale contract, shall not be

affected by the provisions of this section.

17a

was that it gave the financier/trustee priority over claims to the

equipment by holders of mortgages containing after-acquired

equipment clauses.* However, before the passage of § 77(j),

it was unclear whether the trustees’ title in railroad equipment

was also free from the powers of the bankruptcy court. There

was case law at the time suggesting that the trust agreement

should be treated, in reorganization proceedings, like a general

mortgage. See H.R.Rep.No. 1283, 74th Cong., Ist Sess. at 4.

In deciding to resolve the doubt in favor of an exemption

for equipment financiers, and in favor of the validity of the

equipment trust "as a means of financing equipment

purchases," the drafters of the house report noted the need to

make equipment financing readily available

. at a time when the development of the

transportation art is providing new forms of

equipment, particularly in the passenger field, /

which, in interests of efficiency and economy, the

carriers should be able to avail themselves, and

because, after a depression the carriers are usually

required to make !arge expenditures for equipment

in order to accommodate the improved traffic . . .

See id., at 4. The design of § 77(j) was thus to preserve for

financiers and railroads, the benefits of an established form of

financing equipment purchases. By preserving the financiers'

rights to repossess equipment, § 77(j) provided low-cost

financing for railroad equipment purchases.

8. The theory behind the trustee's priority is not entirely clear. Under

both leases and conditional sales the lender retains title to the equipment.

Since the equipment thus does not become property of the railroad, it is

isolated from general mortgages thereon. However, it also appears that

equipment financiers could obtain priority over general mortgages simply

by virtue of having a purchase-money claim. See generally 2 Gilmore,

Securizy Interests in Personal Property, § 28.2 at 748.

18a

b. Section 116(5)

In 1957, Congress added a similar clause to the

bankruptcy code to encourage equipment financing in the

airline industry. See Act of September 4, 1957, Pub.L.No.

85-295, ch. 681, 71 Stat. 617, reprinted in 1957 U.S.Code

Cong. & Admin.News 681 (codified at 11 U.S.C. § 516(5),

repealed). Section 116(5) rendered the then-existing

provisions of Chapter X, and the court's power to issue

injunctions thereunder, inapplicable to property claims of

lessors and conditional vendors of certain aircraft equipment.?

The house report accompanying this amendment likened

§ 116(5) to § 77(j), and "contemplated" that the enactment of

§ 116(5) would "result in extensive use of equipment trust

financing as the financial basis for a major reequipment

program [in the airline industry]." See H.R.Rep.No. 944,

85th Cong., Ist Sess. at 2 (1957), reprinted in 1957 U.S.Code

Cong. & Admin.News 1926, 1927. The report also noted

tesimony before the house judiciary committee, which

established that "smaller [air]lines" were having trouble

attracting capital for reequipment requirements, and _ that

enactment of § 116(5) would increase the availability of

capital at lower rates of interest, due to the "greater security"

thereby provided to lessors and conditional vendors. The

9. Section 116(5) provided, with citations omitted, that:

Notwithstanding any other provisions of chapter X, the title of

any owner, whether as trustee or otherwise, to aircraft, aircraft

engines, propellers, appliances and spare parts .. . leased,

sub-leased or conditionally sold to any air carrier . . . and any

right of such owner or of any other lessor to such air carrier to

take possession of such property in compliance with the

provisions of any such lease or conditional sale contract shall

not be affected by the provisions of chapter X if the terms of

such lease or conditional sale so provide.

19a

report thus suggested that in enacting § 116(5), Congress was

concerned with encouraging a financial climaie in the airline

industry that would allow carriers to obtain financing to

acquire new aircraft and equipment.

In 1968, Congress enacted a similar provision, § 116(6),

to aid financing in the shipping industry. See Act of October

17, 1968, Pub.L.No. 90-586, 82 Stat. 1149, reprinted in

1968 U.S.Code Cong. & Admin.News 1322 (codified at 11

U.S.C. § 516(6), repealed). The house report accompanying

this legislation noted that both the railroads and airlines

already had "equipment trust" financing, which were exempt

from the operations of the bankruptcy code. H.R.Rep.No.

1932, 90th Cong., 2nd Sess. (1968), reprinted in 1968

U.S.Code Cong. & Adm.News 4279.

c. Section 1110

In 1978, when Congress passed an entirely new

bankruptcy code, the protection afforded lessors and

conditional vendors in §§ 77(j), 116(5) and 116(6) of the old

code, were in large part retained. See 11 U.S.C. § 1168

(railroads) and 11 U.S.C. § 1110 (shipping and airlines). Two

important changes, however, were made. Under §§ 1168 and

1110, parties holding PMESIs are added to the protected

class, and all parties with protected interests are required to

wait 60 days, in which the airline can move to cure defaults,

before moving to repossess.

In addressing the new transportation equipment exceptions,

the drafters of the 1978 house report first summarized the

old, stating that the railroad exemption was originally enacted

to "protect a form of financing that had obtained in the rail

industry for several decades before the enactment of the first

railroad reorganization provision", while the airplane and ship

exemptions were enacted to "encourage|] new financing in the

20a

relevant industries." See H.R.Rep.No. 595, 95th Cong., Ist

Sess. at 239 (1977), reprinted in 1978 U.S.Code Cong. &

Admin.News at 1698. The drafters also explained that the old

provisions exempted only "leases and conditional sales" on the

theory that under these transactions "title of the property does

not pass to the debtor, but remains in the financier". Where

property is not part of the debtor's estate, the report states, "it

is appropriate to exclude [it] from the automatic stay in a

reorganization case". /d. at 240, reprinted in 1978 U.S.Code

Cong. & Admin.News at 6199.

The report suggests that Congress retained the old

provisions, not so much to reaffirm their initial purposes, as to

preserve a system of financing to which the industry had

grown accustomed. "Whether or not there was an initial need

for these provisions," the report states, "their existence has

become largely addicting to the financing industry, and now

the industry claims it would simply cease financing of the

relevant equipment if the protections were removed." /d. at

239, reprinted in 1978 U.S.Code Cong. & Admin.News at

6198. -

While thus acceding to the industry's desire that the

exemptions remain, Congress did see a need to soften their

impact and modernize their effect. Noting that the absolute

exemptions were "harsh in... application", the drafters of

the house report explained that the 60-day grace period was to

take the edge off the old provisions, and "accommodate the

joint interests of the equipment financiers and ... the

reorganization process". /d. at 240, reprinted in 1978

U.S.Code Cong. & Admin.News at 6199. The drafters further

explained that the PMESI was included within the exemption

to avoid having financing transactions "unnecessarily force[d]

. . . into outmoded forms," and to accommodate new forms of

equipment financing "more consonant with modern law". I/d.

at 240, reprinted in 1978 U.S.Code Cong. & Admin.News at

2la

6199. The report, however, is careful to state that the

addition of "equipment security interest[s]" included "only

secunity interests that were granted to finance the acquisition

of the covered equipment" and excluded "general

mortgage[s]". Jd. at 240, reprinted in 1978 U.S.Code Cong.

& Admin.News at 6199.'°

10. Because the parties disagree as to the precise meaning of this portion

of the legislative history, I reproduce it at length:

An attempt was made to preserve the limitations on the right of the

financier contained in current law. However, certain changes were

made. First, the proposed sections provide protection for equipment

security interests. The term includes only security interests that were

granted to finance the acquisition of the covered equipment. A

general mortgage is excluded. Under present law, the protection

applies only to leases and conditional sales of equipment. The

theory behind the present limitation is that under leases and

conditional sales, title of the property does not pass to the debtor,

but remains in the financier. Thus, it is appropriate to exclude what

is not property of the estate from the automatic stay in the

reorganization case.

Changes in financing practices and in the bankruptcy laws have

suggested that the former limitation be deleted, and that the

protection be expanded to cover equipment security interests. Since

the adoption of the original sections, there has been universal

adoption of Article 9 of the Uniform Commercial Code, which

abolishes conditional sales contracts, and substitutes security

agreements and security interests instead. changes in the bankruptcy

laws provide similar restraints for lessors of property to the debtor as

exist for mortgages of secured creditors. Indeed, the Uniform

commercial code acknowledges that some leases are merely

disguised security agreements, and directs that they be so treated.

Because retention of the prior limitation would unnecessarily force

equipment financing into outmoded forms, protection of security

interests was added to make financing forms more flexible and more

consonant with modern law.

22a

3. Interpretation

In summary, the legislative history behind § 1110 reveals

the following: The notion of an equipment financing

exemption was first adopted into law in the railroad industry,

in § 77(j), to preserve for financiers the benefits of what was

known as "equipment-trust financing", because the availability

of such financing would provide inexpensive capital to

railroads, allowing them to reequip and begin to pull out of the

Great Depression. H.R.Rep.No. 1283 at 4. Congress later

extended the exemption to the airline industry, in § 116(5), to

bring equipment trust financing to air carriers, and particularly

to aid "smaller" carriers in obtaining capital to reequip their

fleets. H.R.Rep.No. 944 at 2, reprinted in 1957 U.S.Code

Cong. & Admin.News at 1926. Congress made _ these

exemption applicable to leases and conditional sales, on the

theory that when title remains with the creditor, as when

equipment is leased or sold conditionally, the property is not

properly part of the debtor's estate when reorganization is

attempted. H.R.Rep.No. 595 at 240, reprinted in 1978

U.S.Code Cong. & Admin.News at 6199.

Congress continued the protection provided by § 116(5)

when enacting § 1110. Congress did so in apparent

acquiescence to the financing industry's "addiction" to

equipment trust financing. /d. at 239, reprinted in 1978

U.S.Code Cong. & Admin.News at 6198. Congress added

PMESIs to the list of protected transactions, despite the fact

that the holders of such interests do not hold title to the

secured property, because conditional sales, under modern

commercial law, have been discredited in favor of the PMESI.

Id. at 240, reprinted in 1978 U.S.Code Cong. & Admin.News

at 6199. In adding security interests to the protected

category, Congress was careful to include only purchase

money interests, and not general mortgages.

23a

To interpret the legislative history of § 1110, Continental

focuses on the fact that leases and conditional sales, and

equipment-trust financing in general, were the means by which

carners traditionally acquired new equipment. Continental

further notes Congress's design to include, within the

protection of § 1110, the modern form of acquisition

financing--transactions creating purchase money security

interests--while excluding general mortgage financing, aimed at

raising operating capital. From this Continental gleans a

Congressional intent to include only acquisition financing in

the exemption, and to exclude lease transactions that do not

bring new equipment to an airline, but which are used instead

to bring in operating capital.

[ agree that the legislative history demonstrates tha

Congress was concerned with facilitating acquisition financing.

However, I am unable to also find that Congress was

concerned only with facilitating acquisition financing, and

intended § 1110 to be so limited. The legislative reports from

§ 1110 and its predecessors contain various remarks

regarding the encouragement of financing in general. The

legislative reports also show that Congress favored inexpensive

financing, at least in part, because it would promote

acquisition of new equipment and modernization within the

transportation industries. However, Continental has pointed to

no statements, in any of the predecessor statutes or the

accompanying legislative reports, that manifest a Congressional

desire to limit the exemption for lease financing to the goal of

promoting acquisitions.

Continental contends that this function is performed by the

phrase from the 1978 report, in which the drafters assert that:

"A general mortgage is excluded". /d., reprinted in 1978

U.S.Code Cong. & Admin.News at 6199. However, this

comment was made in the discussion of the addition of

security interests to the airplane equipment exemption, and

24a

was apparently used to distinguish common secuntty interests

from purchase money security interests."' Further, even if

this comment is read more broadly, it does not mean that non-

acquisition leases must be excluded from the protection of

§ 1110. Continental argues for such a result by analogizing

non-acquisition leases to general mortgage financing. Yet a

mortgage is not a lease. It is one thing to say that mortgages

are excluded, and quite another to say that all transactions

behaving like mortgages are excluded. There is nothing in the

legislative history asserting the latter. Indeed, the house report

to § 1110 notes that the exemptions are based on a title

theory, which applies whether or not the lease is an acquisition

lease.

Further, the inclusion of non-acquisition leases within the

exemption can be seen to be consonant with the legislative

goal of encouraging acquisitions. While non-acquisition leases

do not directly result in new aircraft or equipment for a

carrier, the conversion of ownership interests in existing

aircraft to leasehold interests, frees up capital that an airline

can use to facilitate the acquisition of such aircraft. See Pan

Am, No. 91-1659, Slip Op. at 8.

in so noting, I recognize that the equipment financing

exemption in § 1110 is at cross purposes with the automatic

stay in § 362(a). As § 1110 is read more broadly, the size of

the debtors' estate protected for reorganization by § 362(a) is

narrowed. Since parts or sections of statutes are not to be

read in isolation, but in view of the statute as a whole, see

United States v. Morton, 467 U.S. 822, 828 (1984), it is

axiomatic that statutory exemptions should not be read to

emasculate the provisions that they vary. On the other hand,

the inclusion of non-acquisition leases within § 1110

diminishes the protections of the automatic stay, not generally,

11. See footnote 10.

25a

but only in the airline and shipping industries. Congress

certainly knew that the inclusion of equipment leases within

§ 1110 would limit the resources available for airlines during

reorganization. That Congress nevertheless failed to restrict

the type of leases exempted, and failed to suggest a need for

such restriction in legislative reports, is evidence that Congress

meant what it said.'?

The legislative history demonstrates that Congress had a

goal of encouraging equipment financing in the airline

industry. Under the terms of § 1110, Congress chose to

exempt equipment leases, without exception, from the

automatic stay, as a means to achieve this goal. Continental

argues that the goal would be better served if only acquisition

leases were exempted. Yet it can also be argued that

Congressional purposes would be better achieved if the

exemption were limited to acquisition leases on new

equipment, excluding leases acquiring older aircraft, because

Congress was concerned with modernization. Likewise, it can

be argued that the exemption should be limited to persons

leasing to "smaller carriers", because Congress only

12. Congress's knowledge of the use of sale-leaseback transactions in the

transportation industries is not certain. Sale-leaseback transactions,

however, are not new t the financing industry. See eg. Yorkshire Ry.

Wagon Co. v. Maclure, 21 Ch.D. 309, 51 L.J.Ch. 857, 47 L.T. 290, 10

Digest (Rept.) 756 (1882) (addressing sale leaseback of "locomotives and

wagons"); Brodsky v. Perth Amboy National Bank, 259 F.2d 705 (3rd Cir.

1958) (addressing sale leaseback on real property); see also Sun Oil Co. v.

CIR., 562 F.2d 258, 268-9 (3rd Cir. 1977) (recognizing that "sale-

leaseback arrangements play a useful and accepted role in our economy").

In construing a statute, courts may look to the conditions of the times when

it was passed. See Stern v. United States Gypsum, 547 F.2d 1329, 1335

(7th Cir. 1977). Legislators are presumed to have knowledge of those

conditions. See Crosby v. United States, 8 Cl.Ct. 428 (1985). That sale-

leaseback transactions were used in and prior to 1978, and Congress did

not act to exclude them from the coverage of § 1110, is evidence that

Congress intended them to be included.

26a

specifically identified these carriers as having trouble obtaining

financing. In short, there are numerous ways Congress could

have written § 1110 in order to further its apparent goal.

However, the judicial task is to give effect to what Congress

actually did.

Since the legislative history here does not demonstrate a

Congressional purpose at odds with a literal reading of the

statute, | am compelled to find that Congress mean what it

said, and hold that non-acquisition leases are entitled to

§ 1110 protection.

An order follows.

27a

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF DELAWARE

IN RE: :

: Case Nos. 90-932

CONTINENTAL AIRLINES, INC. : through 90-984

et al., :

: Civil Action No. 91-058

Debtors.

ORDER

AND NOW, this 29th day of March, 1991, in

consideration of the appeals taken from the bench opinion and

order issued on January 30, 1991, by the Honorable Helen S.

Balick, United States Bankruptcy Judge, it is hereby

ORDERED that the order is REVERSED.

BY THE COURT

l WwW iI

Robert S. Gawthrop, III, J.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.