Dolphin Leasco, Inc. v. Larimore (In re Florida Airlines, Inc.)

64 B.R. 199, 1986 Bankr. LEXIS 5618
CourtUnited States Bankruptcy Court, M.D. Florida
DecidedJuly 28, 1986
DocketBankruptcy No. 80-79; Adv. No. 84-352
StatusPublished
Cited by2 cases

This text of 64 B.R. 199 (Dolphin Leasco, Inc. v. Larimore (In re Florida Airlines, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Dolphin Leasco, Inc. v. Larimore (In re Florida Airlines, Inc.), 64 B.R. 199, 1986 Bankr. LEXIS 5618 (Fla. 1986).

Opinion

FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION

ALEXANDER L. PASKAY, Chief Judge.

THE MATTER before the Court in this Chapter 7 case is the above-captioned adversary proceeding, originally initiated by a Complaint For Damages For Conversion And For Use, filed by Chris C. Larimore, Trustee (Trustee) of the estate of Florida Airlines, Inc. (Debtor). The original Complaint named David Stempler (Stempler) and Southern International Airways, Inc. (SIA) as the Defendants. By order of this Court dated December 26, 1984, this adversary proceeding was consolidated with a contested matter arising from the Trustee’s Objection to the Claim filed by Dolphin Leasco, Inc. (Dolphin). The order of consolidation also directed that Part VII of the Bankruptcy Rules shall be applicable to the consolidated proceeding. As a result, the Trustee’s claim against Stempler and SIA was to be tried together with the claim of Dolphin for administrative expense allegedly incurred during the pendency of the Chapter 11 and prior to the conversion of this case to a Chapter 7 liquidation case. For the sake of procedural convenience, the parties were realigned; the Trustee was named a Defendant in the claim of Dolphin and a third-party Plaintiff against Stempler and SIA, as third-party Defendants.

Dolphin’s pre-petition claim was in the amount of $125,000 for damages as a result of rejection of leases of certain aircraft leased by the Debtor prior to and during the pendency of the Chapter 11 case. The administrative claim totaled $210,264.74 computed as follows: Price of replacement parts — $114,383.26; labor to install — $62,-486.00; attorney fees during bankruptcy proceeding through December 20, 1983— $8,347.08; costs incurred during bankruptcy proceedings through December 20, 1983 [202]*202—$440.69; and time differential computed pursuant to stipulation — $21,055.00.

Count I of the Trustee’s Complaint against Stempler and SIA seeks damages in excess of $176,869 to cover parts and labor for plane parts which were allegedly taken from planes leased to the Debtor and installed on planes owned by Stempler and flown by SIA.

Count II is an action against SIA in which the Trustee seeks damages for use of office and hangar space leased by the Debtor at a monthly cost of $6,950.60, and for rental of aircraft by SIA under an oral lease from the Debtor. In addition the Trustee contends that, while SIA paid rental to the Debtor, it did not pay the time differential and for the value of the parts used during that period by SIA but not replaced when the aircraft were returned. The Trustee contends that SIA owes the estate a reasonable rental for office furniture and equipment used by SIA, and that SIA benefitted from the Debtor’s hanger insurance in effect when SIA occupied the space, therefore, SIA should defray the cost of the insurance.

At the conclusion of the trial, the Trustee moved, ore tenus, to amend his pleadings, to conform to the evidence. The motion was granted, over the objection of Stem-pler and SIA, and the Complaint was amended to allege that Stempler, as president and director of the Debtor, breached his fiduciary duty to the Debtor and its creditors by not operating the business of the Debtor-in-Possession in a prudent and commercially reasonable fashion and by incurring debts beyond the Debtor’s ability to pay in the normal course of business. In addition, the Trustee contends, in support of this new theory, that Stempler knew or should have known that parts were removed from aircraft leased by the Debtor; the parts were installed in Stem-pier’s own plane when replacement parts were not readily available from the Debt- or’s parts inventory; and as a result, at the termination of the Debtor’s operations, Stempler’s aircraft was in flyable condition at the expense of the Debtor, whose aircraft leased from Dolphin were no longer operable.

The facts germane and relevant to the resolution of the merits of the respective claims asserted by the parties, as established at the trial, are as follows:

On March 28, 1979, the Debtor and Dolphin entered into lease agreements under which Dolphin agreed to lease two Martin 404 aircraft, N255S and N258S respectively, to the Debtor for a period of five years. (Plaintiff’s Exh. # 1 and # 2). Although after the conversion of the case the Trustee was granted an extension of time to assume or reject these leases, the Trustee failed to either accept or reject. As a result, these leases are deemed to have been rejected as of December 1, 1981 pursuant to § 365(d)(1) of the Bankruptcy Code. In due course, Dolphin filed a claim for the damages allegedly suffered as the result of the breach of these leases. However, this claim is not before the Court at this time but rather Dolphin’s claim for administrative expenses resulting from the use of the plane from the date of filing, January 14, 1980 through December 1, 1981, the date when the leases were rejected. The items claimed as administrative expenses are as follows: Price of replacement parts — $114,-383.26; labor to install — $62,486.00; attorneys fees and costs incurred by Dolphin during the bankruptcy proceeding and time differential payments pursuant to the lease —$21,055.00. The Debtor stipulated to the allowance of the claim as it pertained to time differentials and the parties agreed to address the elements of attorneys fees and costs claimed upon motion and hearing at a later date. The only contested element of this claim of Dolphin to be addressed at this time is the price of replacement parts and labor required to install them.

The record reveals that the Debtor and Dolphin performed according to the terms of the leases until January 14, 1980 when the Debtor filed its Petition under Chapter 11 of the Bankruptcy Code. In December of 1980, as part of the Debtor’s reorganization efforts, the previous management was removed and Stempler became president of [203]*203the Debtor and remained in that position until the case was converted to a Chapter 7. On September 10, 1981, the Chapter 11 case was converted to a Chapter 7 case due to the inability of the Debtor to proceed with its efforts to achieve reorganization. The Debtor continued to make minimum rent payments to Dolphin from the time of its initial filing through December 1, 1981 when the lease was rejected by operation of law. It is without dispute that while Stempler was in control of the Debtor’s affairs, parts were removed from Dolphin’s Martin 404 plane, I.D. No. N258, and placed in other planes used by the Debtor.

The record further reveals that the other Martin 404 plane, I.D. No. N255, was flown by the Debtor throughout the period in which the Debtor was in Chapter 11 and was also used by Stempler’s other company, SIA, after the case converted to Chapter 7. The Martin N258 was damaged in an accident in Sarasota during the Chapter 11 case and was flown to Sekman Aviation in Miami for repairs in April of 1981. On November 5, 1981, both planes were returned to Dolphin. The Martin N255 was returned in a flyable condition, although not certifiable. It was ultimately repaired and sold. The Martin N258 was not flyable and was not repaired. The evidence is uncontroverted that while Stempler did not specifically direct or authorize that parts be removed from the two Martins and installed in his own aircraft (ultimately increasing the liability to Dolphin), he was well aware that the practice of cannibalizing one aircraft by removing parts to benefit another aircraft continued and Stempler made no effort to discontinue the practice.

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Bluebook (online)
64 B.R. 199, 1986 Bankr. LEXIS 5618, Counsel Stack Legal Research, https://law.counselstack.com/opinion/dolphin-leasco-inc-v-larimore-in-re-florida-airlines-inc-flmb-1986.