In Re Avianca Holdings S.A.

• Court: Court of Appeals for the Second Circuit
• Decided: February 3, 2025
• Docket: 24-255
• Status: Published

Opinion

24-255-bk In re Avianca Holdings S.A.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2024

(Argued: October 23, 2024 Decided: February 3, 2025)

Docket No. 24-255-bk

IN RE: AVIANCA HOLDINGS S.A., Debtor.

AVIANCA HOLDINGS S.A.,

Debtor-Appellant,

— v. —

BURNHAM STERLING & COMPANY LLC and BABCOCK & BROWN SECURITIES LLC,

Creditors-Appellees.*

B e f o r e:

WESLEY, LYNCH, and KAHN, Circuit Judges.

* The Clerk of Court is respectfully directed to amend the official caption in this case to conform to the caption above. __________________

Debtor-Appellant Avianca Holdings S.A. agreed to pay the Creditor- Appellees Burnham Sterling and Company LLC and Babcock & Brown Securities, LLC (the “Initiators”) additional rental payments on a fixed schedule in 20 different aircraft leases. Avianca failed to pay certain of those additional rental payments that came due more than 60 days after Avianca filed for bankruptcy but before the leases were assumed or rejected. The Initiators accordingly moved to compel payment under 11 U.S.C. § 365(d)(5), which requires the debtor-in-possession to “timely perform all of the obligations of the debtor . . . first arising from or after 60 days after the order for relief . . . under an unexpired lease of personal property . . . until such lease is assumed or rejected.” The bankruptcy court (Jones, J.) granted the motion, concluding that Avianca’s obligation to pay first arose when the additional rental payments came due under the fixed schedule in the leases. Avianca appealed, and the district court (Failla, J.) affirmed. Avianca now appeals to us, arguing that its obligation to pay the additional rental payments first arose pre-petition when the leases were executed. For the reasons discussed below, we agree with the bankruptcy court and hold that the additional rental payments first arose as they came due under the leases’ terms.

AFFIRMED.

MICHAEL F. HOLBEIN, (John G. McCarthy, on the brief), Smith, Gambrell & Russell, LLP, Atlanta, GA and New York, NY, for Debtor- Appellant Avianca Holdings S.A.

PETER FRIEDMAN, (Matthew P. Kremer and Nicole Molner, on the brief), O’Melveny & Myers LLP, New York, NY, for Creditors- Appellees Burnham Sterling and Company LLC and Babcock & Brown Securities LLC.

2 GERARD E. LYNCH, Circuit Judge:

When Debtor-Appellant Avianca Holdings S.A. filed for bankruptcy, it

stopped paying Creditors-Appellees Burnham Sterling and Company LLC and

Babcock & Brown Securities, LLC (the “Initiators”) additional rental payments

that it owed them under pre-set schedules contained in 20 unexpired airplane

leases. Under those schedules, certain of those additional rental payments came

due more than 60 days after Avianca filed for bankruptcy but before Avianca

assumed or rejected the operative leases. The Initiators moved to compel

payment of those additional rental payments on a priority basis under 11 U.S.C.

§ 365(d)(5). The bankruptcy court (David S. Jones, J.) granted the motion. On

appeal, the district court (Katherine P. Failla, J.) agreed with the bankruptcy

court’s decision and affirmed. Avianca now appeals to us. For the reasons

discussed below, we AFFIRM the judgment of the district court.

BACKGROUND

Debtor-Appellant Avianca Holdings S.A., one of the largest Latin

American airlines, filed for Chapter 11 bankruptcy on May 10, 2020, citing the

COVID-19 pandemic as the cause for its financial distress. During the pendency

of its bankruptcy, Avianca operated its airline business as a debtor-in-possession.

3 Accordingly, Avianca retained the statutory authority to decide whether to

assume or reject its unexpired airplane leases, through which Avianca obtained

“many of the aircraft it used to carry out its business operations.” In re Avianca

Holdings S.A. (“Avianca I”), 20-11133, 2023 WL 494255, at *2 (Bankr. S.D.N.Y. Jan.

26, 2023); see 11 U.S.C. §§ 365(a), 1107(a).1 This appeal centers on the

consequences of Avianca’s failure to pay Creditor-Appellees Burnham Sterling

and Company LLC and Babcock & Brown Securities, LLC (the “Initiators”) fixed

payments owed in exchange for the Initiator’s brokerage services and due

pursuant to unexpired airplane leases during the time between 60 days after the

order for relief in its bankruptcy case and Avianca’s decision to reject those

leases.2 Avianca nonetheless paid rent to the aircraft lessors pursuant to the same

leases.

1 The parties do not dispute the underlying facts found by the bankruptcy court. Accordingly, for purposes of resolving this appeal, we accept the bankruptcy court’s factual findings as true. 2 Avianca’s “commencement” of its voluntary Chapter 11 case “constitute[d] [the] order for relief.” 11 U.S.C. § 301(b); see also Bell v. Bell (In re Bell), 225 F.3d 203, 209 (2d Cir. 2000) (“The commencement of a voluntary case under Chapter 11 constitutes an order for relief.”). Accordingly, this opinion treats the petition date as the date of the order for relief.

4 I. The Unexpired Airplane Leases

To understand the parties’ dispute, we start at the beginning of the

contractual relationship between the Initiators and Avianca. Commencing in

2014, the Initiators provided brokerage services to Avianca, with the goal of

securing suitable airplanes for Avianca to lease. The Initiators proved quite

successful in this endeavor, brokering 20 aircraft leases on Avianca’s behalf. The

Initiators completed all that work before Avianca filed for bankruptcy. In other

words, Avianca entered all 20 of the brokered airplane leases pre-petition and

received no post-petition brokerage services from the Initiators.

Under the terms of the brokered aircraft leases, the Initiators were to be

compensated for the already rendered brokerage services by payments,

contractually characterized as “additional rental payment[s],” that Avianca was

required to pay on a pre-set schedule over the lifetime of the lease. Motion to

Compel Compliance ¶ 5, In re Avianca Holdings S.A., No. 20-11133, 2023 WL

494255 (Bankr. S.D.N.Y. Jan. 26, 2023), ECF No. 2657. The leases deemed those

additional rental payments to be the unconditional obligations of Avianca. As

relevant to the instant appeal, Avianca paid the actual lessors of the aircraft for

rent that came due under the leases’ schedules. But Avianca failed to pay the

5 Initiators those additional rental payments - the brokers fees the parties

contractually agreed to pay over time - that came due between 60 days after the

petition date and before Avianca made the decision of whether to assume or

reject the operative leases. Ultimately, over the course of two years, Avianca

gradually rejected all 20 airplane leases under which it owed additional rental

payments to the Initiators.

II. Proceedings Below

To safeguard their right to recover those additional rental payments, the

Initiators filed proofs of claim and moved to compel Avianca to pay the balance

due. The Initiators argued that their claims were entitled to priority treatment

under 11 U.S.C. § 365(d)(5), which requires the debtor-in-possession to “timely

perform all of the obligations of the debtor . . . first arising from or after 60 days

after the order for relief in a case under chapter 11 of this title under an

unexpired lease of personal property . . . until such lease is assumed or rejected.”3

3 The Initiators also argued that their claims were entitled to priority treatment under 11 U.S.C. § 503(b)(1), which grants administrative expense priority to “the actual, necessary costs and expenses of preserving the estate.” The bankruptcy court disagreed, holding that the Initiators were not entitled to an administrative expense claim because the Initiators did “not establish[] a post-petition transaction or benefit to the estate as required to support allowance of an administrative claim under section 503(b).” Avianca I, 2023 WL 494255, at *7.

6 The Initiators’ position was that Avianca’s obligation to pay the additional rental

payments first arose as the payments came due under the leases’ schedules,

which was at least 60 days after the petition date. The Initiators did not seek

priority treatment for payments that came due during the 60-day grace period.

Avianca objected. In its view, the “obligations” to pay the Initiators arose

pre-petition, not 60 days after the petition date, because the Initiators rendered all

of their brokerage services pre-petition and the payment terms in the leases were

set prior to Avianca’s bankruptcy filing. Avianca thus contended that the

Initiators were entitled only to a general unsecured claim.

Ultimately, the bankruptcy court sided with the Initiators based on “both

the plain meaning of [Section 365(d)(5)] and the commercial realities of the

parties’ arrangement.” Avianca I, 2023 WL 494255, at *4. Specifically, the

bankruptcy court observed that the statutory text “refers to plural ‘all obligations’

of the debtor ‘arising’ under ‘a lease’ (a singular noun),” which the bankruptcy

court interpreted as “signal[ing] that each separate payment requirement under

‘a’ lease constitutes a separate ‘obligation,’ not merely one portion of a singular,

Neither party appealed that portion of the bankruptcy court’s decision, so it is not before us.

7 overarching ‘obligation’ embodied in the underlying lease document.” Id. And

per the terms of the leases, “no payment was due – and thus the debtor had no

payment obligation as to any future scheduled payment – until and unless its due

date was reached.” Id. With those two observations in hand, the bankruptcy

court concluded that Avianca’s obligation to pay the relevant additional rental

payments arose, for purposes of Section 365(d)(5), on the dates specified in the

schedule in the leases. Id. at *4–5. Accordingly, the bankruptcy court granted the

Initiators’ motion to compel and ordered Avianca to pay the Initiators

$4,338,484.66. See Avianca I, 2023 WL 494255, at *1, 8; Order at 2, In re Avianca

Holdings S.A., No. 20-11133 (Bankr. S.D.N.Y. Jan. 31, 2023), ECF No. 2714.

Avianca appealed that decision to the district court. The district court

affirmed the bankruptcy court’s decision, concluding that “[t]he natural reading

of the statute, in concert with the text of the Lease Agreements, dictates that

[Avianca’s] obligation to make the disputed payments arose when each such

payment came due.” In re Avianca Holdings S.A., 23 Civ. 1211, 2023 WL 9016495,

at *5, *8 (S.D.N.Y. Dec. 29, 2023). The district court added that Avianca’s

obligation to pay the full amount owed followed “their strategic decision to

neither reject nor assume the [l]eases during the prescribed sixty-day grace

8 period.” Id. at *7. Had Avianca acted within that grace period, the Initiators

would have been left with an unsecured pre-petition claim. See id. This timely

appeal ensued.

DISCUSSION

This appeal presents a single question: did Avianca’s obligation to pay the

additional rental payments “first aris[e] from or after 60 days after the order for

relief in a case under chapter 11 of this title”? See 11 U.S.C. § 365(d)(5). Avianca

contends that the answer is no because its payment obligations arose pre-petition

when the leases were executed and the Initiators services were complete. The

Initiators, on the other hand, insist that the answer is yes because Avianca’s

payment obligations arose as the additional rental payments came due under the

payment schedules in the aircraft leases. Ultimately, the parties’ dispute centers

on the proper interpretation of Section 365(d)(5), an issue of law we review de

novo. See Anderson v. Credit One Bank, N.A. (In re Anderson), 884 F.3d 382, 387 (2d

Cir. 2018). For the reasons discussed below, we agree with the Initiators and hold

that Avianca’s “obligations” to pay the relevant additional rental payments arose

when they came due pursuant to the leases.

9 I. Statutory Background

To contextualize the narrow legal issue we are tasked with resolving, it is

necessary to understand the basic mechanics of assumption and rejection. As a

general rule, a debtor-in-possession is permitted to “assume or reject any

executory contract or unexpired lease of the debtor” with the bankruptcy court’s

approval. COR Route 5 Co., LLC v. Penn Traffic Co. (In re Penn Traffic Co.), 524 F.3d

373, 378 (2d Cir. 2008). Assumption means that the debtor is electing to “continue

performance,” id., while rejection means the debtor is “repudiating any further

performance of its duties,” Mission Prod. Holdings, Inc. v. Tempnology, LLC, 587

U.S. 370, 374 (2019). The debtor-in-possession is granted such flexibility so that it

may reject contracts that are “burdensome” to the estate but assume beneficial

contracts when it would like to “force [its contractual counterparties] to continue

to do business with it when the bankruptcy filing might otherwise make them

reluctant to do so.” Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d

944, 954–55 (2d Cir. 1993) (quotation marks omitted); see also ReGen Cap. v.

Halperin (In re Wireless Data, Inc.), 547 F.3d 484, 488 (2d Cir. 2008).

Assumption and rejection have vastly different consequences for a debtor’s

contractual creditors. Section 365 of the Bankruptcy Code delineates those

10 consequences for “executory contracts,” generally, and “unexpired leases,” more

specifically. If the debtor assumes an executory contract, the debtor must cure, or

provide adequate assurances that it will cure, most outstanding contractual

defaults. In re Penn Traffic, 524 F.3d at 378; 11 U.S.C. § 365(b)(1)(A). And once

assumed, the debtor must pay the amounts that come due under the contract as

administrative expenses of the estate. See N.L.R.B. v. Bildisco & Bildisco, 465 U.S.

513, 531–32 (1984); Chateaugay, 10 F.3d at 955. On the other hand, if a debtor

rejects an executory contract, the rejection is treated as a breach of that contract

that occurred “immediately before the date of the filing of the petition.” 11 U.S.C.

§ 365(g)(1); see also Med. Malpractice Ins. Ass’n v. Hirsch (In re Lavigne), 114 F.3d

379, 387 (2d Cir. 1997); 11 U.S.C. § 502(g)(1). As a result, a creditor whose claim

arises from a rejected executory contract will have only “an unsecured

prepetition claim against the estate” for the breach. In re Penn Traffic, 524 F.3d at

378; see also Mission Prod. Holdings, 587 U.S. at 374. The ultimate result is that a

creditor owed payment under an assumed contract is in a much better position to

recover in full than a creditor owed payment under a rejected contract.

Although the decision of assumption or rejection has rippling

consequences for creditors, the debtor is generally not required to make a

11 decision about its executory contracts immediately after filing for Chapter 11, or

even within any set time frame before plan confirmation. See 11 U.S.C.

§ 365(d)(2); Theatre Holding Corp. v. Mauro, 681 F.2d 102, 104–05 (2d Cir. 1982).

Consequently, as occurred here, time will often elapse between when the debtor

files for bankruptcy and when the debtor makes a decision with respect to its

assumption or rejection of certain contracts. During that waiting period, creditors

sit in limbo with respect to the ultimate status of their executory contracts with

the debtor, as the automatic stay prevents creditors from terminating those

contracts. See Lehman Bros. Special Fin. Inc. v. Branch Banking & Trust Co. (In re

Lehman Bros. Holdings, Inc.), 970 F.3d 91, 101–02 (2d Cir. 2020). And, generally

speaking, those creditors will receive a payment during this waiting period only

“[i]f the debtor-in-possession elects to continue to receive benefits from” them

under the contract. Bildisco & Bildisco, 465 U.S. at 531. However, in such

circumstances, “the debtor-in-possession is obligated to pay [only] for the

reasonable value of those services,” which may or may not equal the amount

“specified in the contract.” Id.

Creditors owed money under unexpired leases of nonresidential real

property or personal property, however, are granted enhanced protections

12 during the waiting period following the initial bankruptcy filing. For those types

of unexpired leases, the debtor must resume making any contractually-set

payments that arise after a certain period of time during the bankruptcy before

the relevant lease is assumed or rejected, regardless of whether the debtor is

receiving a post-petition benefit. See 11 U.S.C. § 365(d)(3), (d)(5). Specifically, for

unexpired leases of nonresidential real property, the debtor-in-possession must

“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.” 11 U.S.C. § 365(d)(3). Similarly, for

unexpired leases of personal property, Section 365(d)(5) requires the debtor-in-

possession to:

timely perform all of the obligations of the debtor, except those specified in section 365(b)(2), first arising from or after 60 days after the order for relief in a case under chapter 11 of this title under an unexpired lease of personal property . . . until such lease is assumed or rejected notwithstanding section 503(b)(1) of this title, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise with respect to the obligations or timely performance thereof.

11 U.S.C. § 365(d)(5).

13 Given the above statutory scheme, the Initiators’ sole path to a priority

claim here is through Section 365(d)(5), rather than Section 503(b), because it is

undisputed that the Initiators did not provide any post-petition services to

Avianca. However, that requires the Initiators to show that Avianca’s obligation

to pay the additional rental payments first arose at least 60 days after the petition

date. Otherwise, the Initiators will be left holding a general unsecured claim for

the breach of the operative leases. The distinction between a priority claim and a

general unsecured claim will be consequential for the Initiators, as it is the

difference between payment in full and recovering pennies on the dollar.

II. When Obligations Arise Under 11 U.S.C. § 365(d)(5)

With the basic mechanics and stakes clarified, we turn to the immediate

task at hand: interpreting the text of Section 365(d)(5) to determine when

Avianca’s obligation to pay the additional rental payments arose. At first glance,

the question seems straightforward, but lurking beneath the surface is a deep,

pre-existing split of authority regarding the proper method for determining

when a debtor’s obligation arises.4 On the one hand, the “accrual” approach,

4 The split has crystallized in the context of Section 365(d)(3), applicable to leases of real property, which is similar to Section 365(d)(5) in relevant part in that it also requires the debtor-in-possession to “timely perform all the obligations of

14 which aligns with Avianca’s position on appeal, requires the debtor to pay only

those obligations that accrued post-petition, irrespective of when those

obligations come due under the operative lease.5 On the other hand, the “billing

date” approach, which the Initiators advocate here, requires the debtor to pay

obligations once they come due under the operative lease, regardless of when the

obligation can be said to have accrued.6

the debtor . . . arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected.”11 U.S.C. § 365(d)(3); see CIT Communications Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229, 234 (4th Cir. 2005) (noting the statutory provision applicable to unexpired leases of personal property “is modeled on a very similar provision of the Code, § 365(d)(3).”). 5 See In re Ames Dep’t Stores, Inc., 306 B.R. 43, 63–65 (Bankr. S.D.N.Y. 2004); Child World, Inc. v. Campbell/Mass. Trust (In re Child World, Inc.), 161 B.R. 571, 573–77 (S.D.N.Y. 1993); Newman v. McCrory Corp. (In re McCrory Corp.), 210 B.R. 934, 939–40 (S.D.N.Y. 1997); In re Stone Barn Manhattan LLC, 398 B.R. 359, 365–68 (Bankr. S.D.N.Y. 2008); In re Victory Mkts., Inc., 196 B.R. 6, 8–10 (Bankr. N.D.N.Y. 1996); In re Door to Door Storage, Inc., C17-1385, 2018 WL 1899361, at *2 (W.D. Wash. Apr. 20, 2018); El Paso Props. Corp. v. Gonzales (In re Furr’s Supermarkets, Inc.), 283 B.R. 60, 62 (B.A.P. 10th Cir. 2002); In re Handy Andy Home Improvement Ctrs., Inc., 144 F.3d 1125, 1126–29 (7th Cir. 1998). 6 See Centerpoint Props. v. Montgomery Ward Holding Corp. (In re Montgomery Ward Holding Corp.), 268 F.3d 205, 209–12 (3d Cir. 2001); Burival v. Creditor Comm. (In re Burival), 406 B.R. 548, 550, 551–54 (B.A.P. 8th Cir. 2009); Koenig Sporting Goods, Inc. v. Morse Road Co. (In re Koenig Sporting Goods, Inc.), 203 F.3d 986, 989–90 (6th Cir. 2000); Bullock’s Inc. v. Lakewood Mall Shopping Ctr. (In re R.H. Macy & Co., Inc.), 93 Civ. 4414, 1994 WL 482948, at *10–13 (S.D.N.Y. Feb. 23, 1994) (Sotomayor, J.);

15 In addressing this question, we begin with the text of the relevant

provision. Section 365(d)(5) states, in relevant part, that the debtor-in-possession

“shall timely perform all of the obligations of the debtor . . . first arising from or

after 60 days after the order for relief in a case under chapter 11 of this title under

an unexpired lease of personal property . . . until such lease is assumed or

rejected notwithstanding section 503(b)(1) of this title.” 11 U.S.C. § 365(d)(5). The

crux of the parties’ dispute hinges on the meaning of the word “arise.” Avianca

contends that an obligation arises when it becomes unconditional, which in this

case was when the leases were executed pre-petition. The Initiators, meanwhile,

argue that an obligation arises when it comes due under the terms of the lease,

which here was more than 60 days after the petition date, per the fixed schedule

in the leases.

At first blush, both parties have put forward plausible interpretations of

the word “arise” because Section 365(d)(5) does not explicitly specify when an

obligation can be said to have arisen. Where particular words are susceptible to

multiple interpretations, “we must . . . ‘interpret the relevant words not in a

Urban Retail Props. v. Loews Cineplex Ent. Corp., 01 Civ. 8946, 2002 WL 535479, at *5–8 (S.D.N.Y. Apr. 9, 2002); HA-LO Indus., Inc. v. CenterPoint Props. Trust, 342 F.3d 794, 796, 798–800 (7th Cir. 2003).

16 vacuum, but with reference to the statutory context,’” which includes the terms

surrounding the relevant words. Torres v. Lynch, 578 U.S. 452, 459 (2016), quoting

Abramski v. United States, 573 U.S. 169, 179 (2014); see Southwest Airlines v. Saxon,

596 U.S. 450, 455 (2022). Situating Section 365(d)(5) in its appropriate statutory

context, we conclude that an obligation first “arises” when payment comes due

under the terms of a lease.

We find two contextual clues most helpful in this endeavor. First,

Subsection 365(d)(5) requires the debtor to “timely perform” its obligations. 11

U.S.C. § 365(d)(5). “Perform” means “to carry into effect, [or] discharge (a service,

duty, etc.).” Perform, OXFORD ENGLISH DICTIONARY,

https://www.oed.com/search/dictionary/?scope=Entries&q=perform (last visited

Jan. 9, 2025); see also Perform, MERRIAM WEBSTER UNABRIDGED,

https://unabridged.merriam-webster.com/unabridged/perform (last visited Jan. 9,

2025) (“to adhere to the terms of: treat as an obligation: implement, fulfill”). The

use of the word “perform,” therefore, is telling, as it requires the existence of

some presently existing duty that the debtor must fulfill. Second, when Section

365(d)(5) refers to the debtor’s “obligations,” what it means is “[a]n act or course

of action to which a person is . . . legally bound,” Obligation, OXFORD ENGLISH

17 DICTIONARY,

https://www.oed.com/search/dictionary/?scope=Entries&q=obligation (last

visited Jan. 9, 2025). See also Obligation, MERRIAM WEBSTER UNABRIDGED,

https://unabridged.merriam-webster.com/unabridged/obligation (last visited Jan.

9, 2025) (“a duty arising by contract: a legal liability”).

With those other terms in mind, the phrase “first arising from or after 60

days after the order for relief,” 11 U.S.C. § 365(d)(5), is best understood as

specifying that the duty the debtor must perform has to “originate from” or

“come into being” under an unexpired lease of personal property 60 days after

the order for relief or later. See Arise, MERRIAM WEBSTER UNABRIDGED,

https://unabridged.merriam-webster.com/unabridged/arise (last visited Jan. 10,

2025); see also Arise, BLACK’S LAW DICTIONARY (12th ed. 2024) (“To originate; to

stem (from)” or “[t]o result (from)”). Otherwise, there would be no presently

existing duty for the debtor to perform. Putting it all together then, Section

365(d)(5) requires the debtor-in-possession to perform the debtor’s contractual

duties that come into being under an unexpired lease of personal property at

least 60 days after the order for relief. That is the “billing date” approach.

18 The broader statutory scheme confirms that we have landed on the

appropriate interpretation of the text. First, our approach recognizes the critical

difference between when a creditor’s claim arises and when a debtor’s obligation

arises, while Avianca’s position conflates them. Second, our interpretation

comports with the statutory directive that a creditor is entitled to payment under

Section 365(d)(5) (the specific rule applicable to leases of personal property)

without complying with the requirements of Section 503(b)(1) (a general

provision covering administrative expenses of the bankruptcy estate), while

Avianca’s approach would reimpose Section 503(b)(1)’s requirement that there be

a post-petition benefit to the estate.

To understand the first structural point, we provide a brief overview of

how the Bankruptcy Code instructs us to determine whether a creditor’s claim

has arisen pre-petition. We start with the statutory definitions of “creditor” and

“claim.” A “creditor” is an “entity that has a claim against the debtor that arose at

the time of or before the order for relief concerning the debtor,” 11 U.S.C. § 101(10)(A)

(emphasis added), and a “claim” is defined, in relevant part, as a “right to

payment, whether or not such right is reduced to judgment, liquidated,

unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,

19 legal, equitable, secured or unsecured,” 11 U.S.C. § 101(5)(A). In other words, “[a]

claim is (1) a right to payment (2) that arose before the filing of the petition.”

Elliott v. Gen. Motors LLC (In re Motors Liquidation Co.), 829 F.3d 135, 156 (2d Cir.

2016). We have explained that “[a] claim will be deemed to have arisen pre-

petition if the relationship between the debtor and the creditor contained all of

the elements necessary to give rise to a legal obligation – ‘a right to payment’ –

under the relevant non-bankruptcy law.” Olin Corp. v. Riverwood Int’l Corp. (In re

Manville Forest Prods. Corp.), 209 F.3d 125, 129 (2d Cir. 2000) (quotation marks

omitted). As applied specifically to contractually grounded claims, we have held,

for example, that a contractual right to indemnification was a claim arising pre-

petition because “[u]nder contract law, a right to payment based on a written

indemnification contract arises at the time the indemnification agreement is

executed.” Id.

That explanation lays bare Avianca’s gambit on appeal. Avianca’s position,

that its obligation arose pre-petition because the obligation to pay the Initiators

was unconditional upon execution of the leases, mirrors almost exactly the logic

for determining whether a contractual claim has arisen pre-petition. But we must

be mindful that Section 365(d)(5) speaks in terms of the debtor’s obligations, not the

20 creditor’s claims. That is because “Congress’s use of ‘certain language in one part

of the statute and different language in another’ can indicate that ‘different

meanings were intended.’” Sebelius v. Auburn Regional Med. Ctr., 568 U.S. 145, 156

(2013), quoting Sosa v. Alvarez-Machain, 542 U.S. 692, 711 n.9 (2004); see also

Pulsifer v. United States, 601 U.S. 124, 149 (2024) (“In a given statute, the same

term usually has the same meaning and different terms usually have different

meanings.”). We accordingly decline Avianca’s invitation to adopt a reading of

Section 365(d)(5) that would conflate when a creditor’s claim arises with when a

debtor’s obligation arises. Instead, to account for the variation in terminology, we

apply a different test to determine when a debtor’s obligation arises, namely,

whether payment has come due under the terms of the lease.

We now turn to the second structural point: that Section 365(d)(5) should

be interpreted to impose different requirements for priority treatment than those

imposed by Section 503(b)(1) for administrative expense priority. Section

365(d)(5) explicitly requires priority payment of the debtor’s obligations first

arising 60 days post-petition “notwithstanding section 503(b)(1) of this title.” 11

U.S.C. § 365(d)(5) (emphasis added). The text therefore exempts creditors from

the following requirements under Section 503(b)(1): providing notice; attending a

21 hearing; and showing that the payments at issue constitute “the actual, necessary

costs and expenses of preserving the estate,” meaning that the debtor received a

post-petition benefit from the creditor’s services. 11 U.S.C. § 503(b)(1)(A); Nostas

Assocs. v. Costich (In re Klein Sleep Prods., Inc.), 78 F.3d 18, 22 (2d Cir. 1996); Supplee

v. Bethlehem Steel Corp. (In re Bethlehem Steel Corp.), 479 F.3d 167, 172 (2d Cir.

2007). Avianca’s position, “that the estate should not bear an expense for which it

receives no benefit,” Appellant Br. at 17, advocates for a post-petition benefit

requirement. That position is directly at odds with the text of Section 365(d)(5).

Avianca’s veiled advocacy for the imposition of a post-petition benefit

requirement reveals an even deeper flaw with the accrual approach. The accrual

approach “adhere[s] to the long-standing, pre-1984 practice of prorating payment

of a debtor’s obligations under a lease, regardless of the billing date” that

developed under Section 503(b)(1). McCrory, 210 B.R. at 937. Adherence to such a

past practice, however, is proper only if Congress has not provided “a clear

indication that [it] intended . . . a departure” from past practice. Hamilton v.

Lanning, 560 U.S. 505, 517 (2010), quoting Travelers Casualty & Surety Co. of

America v. Pac. Gas & Elec. Co., 549 U.S. 443, 454 (2007). Here, we read the

language of Section 365(d)(5), with its express provision that it applies

22 “notwithstanding [S]ection 503(b)(1),” as providing precisely such a clear and

explicit instruction to depart from the prior practice under the latter provision.7

Section 365(d)(5) breaks with the requirements of Section 503(b)(1) and refocuses

the relevant inquiry on whether the debtor has a performance obligation, instead

of on whether the debtor receives a post-petition benefit. In sum, we conclude

that the “billing date” approach, not the accrual approach, best comports with

the broader statutory scheme.

Finally, our interpretation of Section 365(d)(5) aligns with sound

bankruptcy policy, despite Avianca’s protestations to the contrary. At bottom,

“the purpose [of] § 365 is to balance the state law contract right of the creditor to

receive the benefit of his bargain with the federal law equitable right of the

debtor to have an opportunity to reorganize.” Coleman Oil Co. v. Circle K Corp. (In

re Circle K Corp.), 190 B.R. 370, 376 (B.A.P. 9th Cir. 1995). Balances, of course, can

be struck in different ways. As the House Report explains, Section 365(d)(5), in

7 We further note that Section 365(d)(5) was added to the code in 1994, after Section 503(b)(1) had already been promulgated as part of the initial restructuring of the Bankruptcy Code in 1978. See Bankruptcy Reform Act of 1994, Pub. L. 103-394, § 219, 108 Stat. 4106, 4128–29; Bankruptcy Act of 1978, Pub. L. 95-598, § 503, 92 Stat. 2549, 2581. That provides additional evidence that Congress enacted Section 365(d)(5) to exempt creditors under unexpired leases of personal property from the requirements of Section 503(b)(1).

23 particular, was designed to tip the balance slightly in favor of creditor protection

as compared to the baseline rules set out elsewhere in the Code:

Under current law, when a debtor files for bankruptcy, it has an unspecified period of time to determine whether to assume or reject a lease of personal property. Pending a decision to assume or reject, lessors are permitted to petition the court to require the lessee to make lease payments to the extent use of the property actually benefits the estate. Section 220 responds to concerns that this procedure may be unduly burdensome on lessors of personal property, while safeguarding the debtors ability to make orderly decisions regarding assumption or rejection. The section amends section 365(d) to specify that 60 days after the order for relief the debtor must perform all obligations under an equipment lease, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise. This will shift to the debtor the burden of bringing a motion while allowing the debtor sufficient breathing room after the bankruptcy petition to make an informed decision.

H.R. Rep. No. 103-835, at 50 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3359.

Accordingly, Section 365(d)(5) is best understood as a specific intervention

that grants creditors under unexpired leases of personal property priority

treatment, over other general unsecured creditors, and that shifts the burden to

the debtor to bring a motion if that priority treatment will result in inequities in

order to ameliorate the unique burdens that creditors under unexpired leases of

personal property face. Specifically, Section 365(d)(5) requires the debtor to

automatically resume making timely payments under its unexpired personal

24 property lease for obligations that arise 60 days post-petition, without the

relevant creditors seeking priority treatment.

At the same time, however, the debtor is granted two safety valves in case

the automatic resumption of payments interferes with the administration of the

estate. The first is that the debtor has a 60 day grace period during which it can

make a decision about assumption or rejection before it has to resume making

timely payments under the lease. The second is that the debtor can petition the

bankruptcy court for a hearing to amend its payment obligations after the 60 day

grace period elapses. At such a hearing, the debtor could raise the exact concern

that Avianca emphasizes as supporting its position on appeal: that resuming

payments would constitute a windfall to certain creditors who completed all

their services pre-petition.

Tellingly, Avianca chose not to use either of the safety valves that Congress

built into Section 365(d)(5) to remedy any inequities that may stem from

requiring it to resume making its payments under the terms of the aircraft leases.

Instead, Avianca decided to pick and choose amongst its contractual creditors,

paying the lessors of the aircraft but not the Initiators, and then cried foul after

the fact by raising the specter of an undue windfall to the Initiators at the expense

25 of other general unsecured creditors. To the extent any windfall exists, it is the

result of Avianca’s own choice not to assume or reject the unexpired leases

promptly or petition for a hearing to amend its payment obligations to the

Initiators after the grace period expired. We decline Avianca’s invitation to bend

the statutory language beyond recognition to save Avianca from the

consequences of its own choices which will require it to pay the Initiators on a

priority basis. Therefore, we hold that the billing date approach is the approach

most consistent with the text of Section 365(d)(5), the Bankruptcy Code as a

whole, and sound bankruptcy policy.

CONCLUSION

We have considered the Avianca’s remaining arguments and find them to

be without merit. We accordingly AFFIRM the judgment of the district court.