Macauley Law

In re Northwest Airlines

While at Zuckerman Spaeder, Mr. Macauley was the lead attorney for Penta Aviation LLC ("Penta"), the beneficial owner of a commercial aircraft whose lease was rejected, that is, repudiated, by Northwest Airlines ("Northwest") at the beginning of its chapter 11 case filed in the U.S.Bankruptcy Court for the Southern District of New York. The aircraft was subject to a lien in favor of Penta's lender, and the lender's agent gave notice to Penta and foreclosed on the aircraft several months after the lease rejection. A dispute between Penta and the lender arose as to whether the foreclosure applied also to Penta's valuable claim against Northwest Airlines for damages arising from the lease rejection. The parties filed briefs, engaged in oral argument and then submitted stipulated facts to the Court.

Judge Allan Gropper concluded that Penta's lender had not foreclosed on the claim. First, the Court found that the notice was limited in scope to the aircraft and did not apply to the claim. Second, the Court held that the lease (and the accompanying claim) was not conveyed as a matter of law with the transfer of the aircraft. Accordingly, the Court concluded that Penta was the rightful owner of the claim, albeit subject to the lender's lien.

This was an important win for Penta because, at the time of the litigation, the combined value of the aircraft and the claim substantially exceeded the amount of the lender's claim. Had the lender been successful in the dispute, Penta would not have recovered anything from Northwest.

Judge Gropper's written opinion is reported at 383 B.R. 575 (Bankr. S.D.N.Y. 2008). Click here for a copy of the opinion.