486 B.R. 264
Bankr. S.D.N.Y.2013Background
- Hawker Beechcraft Corporation filed for Chapter 11 and sought to reject certain warranty and support obligations related to Hawker 4000 and Premier I/IA jet aircraft.
- The purchase agreements included a Limited Warranty and non-warranty covenants (training, export compliance, confidentiality, assignment restrictions).
- The Support Plus Programs provided ongoing maintenance coverage with monthly utilization reporting and various charges; the Hawker 4000 variant prepaid for some parts/labor with excess charges if utilization dropped.
- Hawker obtained interim and final court orders to honor prepetition customer programs in the ordinary course, while reserving all rights and not assuming contracts.
- The Amended Plan provides for rejection of unassumed executory contracts; Hawker filed a separate Rejection Motion to reject specific warranty and support agreements notwithstanding the plan language.
- Several objections were filed; most were withdrawn, leaving RCS Holdings and Rotorwing as the remaining objectors with distinct issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the Aircraft Purchase and Support Plus Agreements executory contracts? | RCS/Rotorwing contendy agreements are non-executory. | Hawker maintains these are executory due to ongoing duties and termination rights upon breach. | Yes, the Aircraft Purchase Agreements and Support Plus Agreements are executory. |
| Is rejection under 365(a) proper given business judgment and public-safety considerations? | Debtor argues ordinary business judgment governs; public-safety concerns are not a higher standard. | Objectors argue heightened scrutiny due to aircraft safety. | Rejection is governed by ordinary business judgment; no heightened safety standard applies. |
| Does judicial estoppel prevent Hawker’s current rejection position? | Objectors claim Hawker relied on a different stance in the Motion to Honor. | Court should not apply estoppel because positions reflect changed circumstances. | Hawker is not judicially estopped. |
| Does unfair discrimination bar rejection of some warranties but not all? | RCS argues disparate treatment among similar warranty holders. | Plan and rejection rights permit selective rejection consistent with business judgment. | Not unfair discrimination given plan structure and non-uniform contracts. |
| Is the Resale Agreement with Lider/Rotorwing executory or service-protective? | Resale Agreement may impose post-petition burdens; materiality of obligations is contested. | Exemption for Lider warranty and limited post-petition obligations reduce executory scope. | Hawker’s position on executory status of Resale Agreement requires a hearing; not resolved here. |
Key Cases Cited
- In re Columbia Gas Sys., Inc., 50 F.3d 233 (3d Cir. 1995) (test for executory contract based on Countryman material breach framework)
- In re Streets & Beard Farm P’ship, 882 F.2d 233 (7th Cir. 1989) (material breach and executory status considerations)
- In re Ionosphere Clubs, Inc., 85 F.3d 992 (2d Cir. 1996) (definition of executory contracts and non-occurrence of conditions)
- Penn Traffic Co., 524 F.3d 373 (2d Cir. 2008) (countryman material breach/contract executory framework)
- Ackermann v. Levine, 788 F.2d 830 (2d Cir. 1986) (service of process in Hague Convention context—postal channels)
- New Hampshire v. Maine, 532 U.S. 742 (2001) (judicial estoppel factors and discretion)
- Dexter v. Brake, 269 P.3d 846 (Kan. App. 2012) (Kansas law on material breach in contracts)