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In re Flying W. Airways Inc.

decided: May 11, 1971.

IN THE MATTER OF FLYING W. AIRWAYS, INC., DEBTOR. APPEAL OF GIRARD TRUST BANK, APPELLANT IN NO. 19504. APPEAL OF FARMERS BANK OF THE STATE OF DELAWARE, APPELLANT IN NO. 19505


Ganey, Van Dusen and Gibbons, Circuit Judges.

Author: Van Dusen

Opinion OF THE COURT

VAN DUSEN, Circuit Judge.

This is an appeal from a September 25, 1970, order of the United States District Court for the Eastern District of Pennsylvania denying, after a hearing, a secured creditor's motion to vacate a turnover order entered ex parte in a reorganization proceeding under Chapter X of the Bankruptcy Act.*fn1

On September 21, 1970, agents of the appellants, Girard Trust Bank and Farmers Bank of the State of Delaware ("the Banks"), took possession in Alaska of two airplanes belonging to Flying W. Airways, Inc. ("Flying W"). The Banks had security interests in these airplanes, and Flying W was in default under the security agreements. Flying W immediately brought a replevin action in an Alaska state court, and obtained a temporary restraining order restraining the Banks from removing the airplanes from Alaska. On September 24, 1970, Flying W filed a petition in the United States District Court for the Eastern District of Pennsylvania for reorganization under Chapter X of the Bankruptcy Act. On the same day, the district court entered ex parte an order approving the petition for reorganization and appointing trustees for the debtor's estate. Paragraph 4 of that order provided in relevant part:

That Robert C. * * *, Esq., and Eugene M. * * * be and are hereby appointed trustees of the estate of the said Debtor and that the said trustees upon filing a bond as hereafter provided shall be vested with all of the right, title and interest of the Debtor, as of the date of the filing of the said Petition for Reorganization, in all of its property, * * *

Paragraph 5 of that order provided in relevant part:

That the said trustees shall qualify by entering into bond to the United States in the sum of $100,000. -- with such sureties as shall be approved by the Court, * * *

Paragraph 11 of that order provided:

That the said trustees shall be vested with full power and authority, and he is hereby instructed and directed to take all of the properties, assets and business of the Debtor, real and personal, wherever situated and of whatever nature, into his exclusive possession and control, and the Girard Trust Bank, Farmers Bank of the State of Delaware, PSL Air Lease Corporation, or any other person, their officers, directors, agents, employees, attorneys, nominees, successors, assigns, or other representatives, be and they are hereby jointly and severally, ordered and directed to surrender and turn over to the possession and control of the trustee any of the above properties, assets and business of the Debtor, real, personal or mixed, now in its or their possession and control, and the said Girard Trust Bank, Farmers Bank of the State of Delaware, PSL Air Lease Corporation, or any other person, and each and every of its or their said officers, directors, agents, employees, attorneys, nominees, successors, assigns and other representatives, be and they hereby are jointly and severally restrained, enjoined and stayed from, in any manner whatsoever, interfering with or disturbing the trustee's right to exclusive possession and control of said properties, assets and business, real, personal or mixed.

Counsel for Flying W delivered a copy of the September 24 order to an officer of Girard Trust Bank about noon on September 24, and advised Alaska counsel for the Banks of the substance of the September 24 order. Counsel for Flying W also advised the Alaska state court in which the replevin action was pending of the substance of the September 24 order; and later on September 24 that court vacated the temporary restraining order which it had issued on September 21. Late in the afternoon of September 24, after vacation of the temporary restraining order, and with notice of the district court order of September 24, the Banks caused the airplanes to be flown from Alaska to Wilmington, Delaware.

On September 25, 1970, the trustees petitioned the district court to order the Banks to return the airplanes to Alaska at the Banks' expense. On the same day, approximately five minutes before a hearing on the petition, a copy of the petition was served on counsel for the Banks. At the hearing, counsel for the Banks moved to vacate the turnover portion of the September 24 order, and sought a plenary hearing on their motion to vacate. The district court conducted a brief hearing, refused to conduct a plenary hearing, denied the motion to vacate the turnover order, and entered an order requiring the Banks to return the airplanes to Alaska at their "sole cost and expense." The Banks promptly caused the airplanes to be returned to Alaska, and the cost of such return was $16,185.65. From the September 25, 1970, order requiring the Banks (a) to turn over the aircraft to the trustees, and (b) to return the airplanes at their own expense to Alaska, the Banks appeal.*fn2 The briefs make clear that appellants' appeal also challenges the district court's disregard on September 25, 1970, of the motion to vacate such turnover portions of the September 24, 1970, order. The September 25, 1970, order effectively denied such Motion to Vacate.

The Banks contend that before disregarding their motion to vacate the ex parte turnover order the district court should have conducted a plenary hearing to determine the justification for and the desirability of the transfer of possession from the secured creditor to the trustees. Specifically, the Banks urge that among the factors the district court should have considered at a plenary hearing are the probability of success of the reorganization; the value of and interests of the secured creditor and the debtor in the airplanes;*fn3 the sources and the probable amounts of the income, costs, profits or losses, as well as the hazards, from the operations in which the trustees propose to use the airplanes; the use of such income or profits; the existence of adequate insurance coverage for ...


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