FILED
APR 26 2022
NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP No. NC-21-1080-TBG
RS AIR, LLC,
Debtor. Bk. No. 20-51604
RS AIR, LLC,
Appellant,
v. MEMORANDUM1
NETJETS SALES, INC.; NETJETS
AVIATION, INC.; NETJETS SERVICES,
INC.,
Appellees.
Appeal from the United States Bankruptcy Court
for the Northern District of California
M. Elaine Hammond, Bankruptcy Judge, Presiding
Before: TAYLOR, BRAND, and GAN, Bankruptcy Judges.
INTRODUCTION
Chapter 11 2 debtor RS Air, LLC appeals the bankruptcy court’s order
granting creditors NetJets Sales, Inc., NetJets Aviation, Inc., and NetJets
1
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
2 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code,
11 U.S.C. §§ 101-1532, and all “Rule” references are to the Federal
Rules of Bankruptcy Procedure.
Services, Inc. (collectively, “NetJets”) relief from the automatic stay to
setoff mutual debts under § 553(a) and Ohio law. We discern no abuse of
discretion. Accordingly, we AFFIRM. 3
FACTS 4
A. Prepetition events
Pre-petition, RS Air purchased one-sixteenth interests in two aircraft,
a Citation X and an Encore+, from NetJets. With each, the parties executed
several agreements. Those are valid and binding. Each contains an Ohio
choice-of-law provision.
After the Citation X crashed, RS Air desired to end the relationship,
offering to sell its fractional interests in both airplanes back to NetJets
pursuant to the agreements’ terms. NetJets also wished to repurchase the
interests, and the parties began negotiations. Unable to reach a consensus,
NetJets eventually sued RS Air in Ohio state court (the “State Court
Action”). There, it sought to force specific performance of the sale and
3
The bankruptcy court’s order both granted stay relief to allow setoff and
adjudicated the merits of setoff. In some circumstances, that might be error. See Arkison
v. Griffin (In re Griffin),
719 F.3d 1126, 1128 (9th Cir. 2013) (“A proceeding to determine
eligibility for relief from a stay only determines whether a creditor should be released
from the stay in order to argue the merits in a separate proceeding.”). However, RS Air
does not raise the issue. And it waived the argument by consenting to indeed,
requesting the procedure below. See Trial Tr. 15:6–21, Feb. 25, 2021.
4 A more fulsome recitation of the parties’ relationship and attendant facts is set
forth in our concurrent disposition of Netjets’ appeal of the confirmation order. Below
are the facts most relevant to this appeal. All are undisputed. We also exercise our
discretion to take judicial notice of documents electronically filed in the bankruptcy
court, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293
2
repurchase and to recover unpaid fees for services performed and
damages.
B. RS Air’s bankruptcy, plan, and stay relief proceedings
RS Air’s Chapter 11 filing stayed that proceeding.5 Shortly after,
NetJets filed a $2,133,363 proof of claim. It stems from the rights and
obligations asserted in the State Court Action. Notably, no party has
objected.
After, NetJets moved for § 362(d) stay relief to continue the State
Court Action and to set off the funds it owes RS Air for the repurchase of
the fractional interests and operating fund credits against its proof of claim.
RS Air opposed. The bankruptcy court found NetJets established a right to
setoff and granted stay relief. RS Air timely appealed.
Sometime later, RS Air filed a third amended Chapter 11 plan.
Pertinent to the present discussion, it provides: “Upon confirmation . . . the
claim of NetJets . . . will be deemed allowed as filed and the Debtor’s
B.R. 227, 233 n.9 (9th Cir. BAP 2003).
5 Its bankruptcy schedules disclose the State Court Action and assert that any
claim arising therefrom is “unliquidated, disputed, [and] subject to setoff.” Although
the Ninth Circuit has not decided whether bankruptcy schedules constitute judicial
admissions, we have noted that statements in bankruptcy schedules carry evidentiary
weight, and there exists a substantial body of case law holding that they amount to
binding judicial admissions. Campbell v. Verizon Wireless S-CA (In re Campbell),
336 B.R.
430, 436 (9th Cir. BAP 2005) (“Debtors’ admissions in their bankruptcy schedules can be
binding . . . .” (citing Heath v. Am. Express Travel Related Servs. Co. (In re Heath),
331 B.R.
424, 431 (9th Cir. BAP 2005)); see also In re Rolland,
317 B.R. 402, 421–23 (Bankr. C.D. Cal.
2004) (collecting cases). NetJets did not raise the issue here or below and so it is not
considered further.
3
counterclaims will be deemed waived.” That plan was eventually
confirmed. 6 As well, NetJets repurchased the Citation X and Encore+
aircraft interests from RS Air for $385,692.
JURISDICTION
The bankruptcy court had jurisdiction under
28 U.S.C. §§ 1334 and
157(b)(2)(G). We have jurisdiction under
28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court abused its discretion in granting
§ 362(d) stay relief to allow setoff.
STANDARDS OF REVIEW
We review a bankruptcy court’s order granting relief from the
automatic stay for an abuse of discretion. Kronemyer v. Am. Contractors
Indem. Co. (In re Kronemyer),
405 B.R. 915, 919 (9th Cir. BAP 2009). We also
review a bankruptcy court’s allowance of setoff for abuse of discretion.
Camelback Hosp., Inc. v. Buckenmaier (In re Buckenmaier),
127 B.R. 233, 236
(9th Cir. BAP 1991). A bankruptcy court abuses its discretion if it applies an
incorrect legal standard or its factual findings are illogical, implausible, or
without support in the record. TrafficSchool.com, Inc. v. Edriver Inc.,
653 F.3d
820, 832 (9th Cir. 2011).
We may affirm on any ground fairly supported by the record. Wirum
v. Warren (In re Warren),
568 F.3d 1113, 1116 (9th Cir. 2009).
6
Netjets appealed the bankruptcy court’s confirmation order. We affirm that
determination concurrently by separate order.
4
DISCUSSION
A. The applicable legal standards7
1. Relief from stay
Section 362(d)(1) provides that the bankruptcy court may grant relief
from the automatic stay upon a showing of “cause.” See § 362(d)(1).
“Cause” is undefined in the Bankruptcy Code. See § 101. Rather, it is a
discretionary determination made on a case-by-case basis. See In re
Kronemyer,
405 B.R. at 921. However, “by establishing a right of setoff, the
creditor has established a prima facie showing of ‘cause’ for relief from the
automatic stay under § 362(d)(1).” United States v. Gould (In re Gould),
401 B.R. 415, 426 (9th Cir. BAP 2009) (quotation omitted), aff’d,
603 F.3d
1100 (9th Cir. 2010).
2. Setoff
Setoff “allows entities that owe each other money to apply their
mutual debts against each other, thereby avoiding ‘the absurdity of making
A pay B when B owes A.’” Newbery Corp. v. Fireman’s Fund Ins.,
95 F.3d
1392, 1398 (9th Cir. 1996) (quoting Citizens Bank of Md. v. Strumpf,
516 U.S.
16, 19 (1995)).
Subject to exceptions not applicable here, § 553 provides that
bankruptcy does “not affect any right of a creditor to offset a mutual debt
7 RS Air does not dispute that the bankruptcy court identified and applied the
correct legal standard. Thus, our review is limited to whether the bankruptcy court’s
findings are illogical, implausible, or without support from the record. See
Trafficschool.com, Inc.,
653 F.3d at 832.
5
owing by such creditor to the debtor that arose before the commencement
of the case . . . against a claim of such creditor against the debtor that arose
before the commencement of the case[.]” § 553(a). So first, a creditor must
demonstrate a right of setoff under nonbankruptcy law. Biggs v. Stovin (In
re Luz Int’l, Ltd.),
219 B.R. 837, 843 (9th Cir. BAP 1998). Setoff under the
applicable Ohio law “is that right which exists between two parties, each of
whom under an independent contract owes a definite amount to the other,
to set off their respective debts by way of mutual deduction.” Witham v. S.
Side Bldg. & Loan Ass’n of Lima,
15 N.E.2d 149, 150 (Ohio 1938).
If the state law right is established, the party seeking settoff must also
establish it should be preserved in bankruptcy under § 553. In re Luz Int’l,
Ltd.,
219 B.R. at 843. Setoff under § 553 requires the movant to prove timing
and mutuality. In re Buckemaier,
127 B.R. at 238 (citing Verco Indus. v.
Spartan Plastics (In re Verco Indus.),
704 F.2d 1134, 1139 (9th Cir. 1983)).
Under the timing prong, the claim sought to be offset must have arisen
before the filing of the bankruptcy petition. United States v. Carey (In re
Wade Cook Fin. Corp.),
375 B.R. 580, 594 (9th Cir. BAP 2007) (quoting
Newbery Corp., 95 F.3d at 1398). The mutuality prong requires the pre-
petition debts be in the same right, between the same individuals, standing
in the same capacity. In re Luz Int’l, Ltd.,
219 B.R. at 845.
B. The bankruptcy court did not abuse its discretion in granting
stay relief to allow NetJets to set off its debt to RS Air
RS Air argues that the bankruptcy court erred in granting stay relief
6
by finding that NetJets established the right under both § 553 and Ohio
law. In RS Air’s opinion, these flaws mandated denial of stay relief and
thus require reversal. We disagree.
1. The bankruptcy court did not err in determining that
NetJets established a right to setoff under § 553.
RS Air first challenges the bankruptcy court’s determination that
NetJets established a right to setoff under § 553. It argues NetJets’ claim
arose pre-petition and its claim post-petition so the debts are not mutual.
While RS Air entitles its challenge one of mutuality, it is really of timing.8
This requirement arises from, and so is analyzed under, the Bankruptcy
Code and federal law. See In re Wade Cook Fin. Corp.,
375 B.R. at 595.
The Code defines “debt” as a “liability on a claim.” § 101(12). And it
defines “claim” as a “right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured[.]” § 101(5). The term “’[d]ebt’ should be read as being
coextensive with the term ‘claim.’” In re Wade Cook Fin. Corp.,
375 B.R. at
595 (quoting United States v. Gerth,
991 F.2d 1428, 1433 (8th Cir. 1993)).
Together, “debt” and “claim” “encompass virtually any type of obligation
reducible to some monetary equivalence.” In re Luz Int’l,
219 B.R. at 844
8 RS Air does not dispute that the debts are in the same right and between the
same individuals standing in the same capacity. Rather, it contends that one debt arose
pre-petition and the other post-petition, so the timing element is not satisfied. We thus
address only that requirement.
7
(quotation omitted).
It is insignificant that RS Air characterizes the obligation presently at
issue as contingent on completion of the repurchase or unliquidated. It is
undisputable that NetJets’ right to repurchase and RS Air’s consequential
right to payment is an obligation reducible to some monetary equivalence.
It is consequently a “debt” or “claim” and therefore qualifies for setoff so
long as it arose pre-petition.
Id.
“For setoff purposes, a debt arises when all transactions necessary for
liability occur, regardless of whether the claim was contingent,
unliquidated, or unmatured when the petition was filed.” Gerth,
991 F.2d at
1433. The question before us is thus: When did all the transactions
necessary for NetJets’ obligation to pay RS Air for the fractional aircraft
interests’ repurchase occur?9
RS Air argues that NetJets’ debt arose post-petition because: (1) the
parties’ agreements create a repurchase option; (2) NetJets did not exercise
that option until after RS Air filed for bankruptcy; and (3) the post-petition
exercise of an option cannot be set off against a pre-petition debt. This
argument is unavailing.
The relevant provision of each aircrafts’ purchase agreement
9
RS Air’s claim (and NetJets’ debt) is for: (1) the proceeds from NetJets’
repurchase of the fractional aircraft shares; and (2) operating fund credits arising from
RS Air’s participation in NetJets’ fractional ownership program. RS Air does not
disagree that its entitlement to the operating fund credits arose pre-petition. Instead, its
assignment of error is limited only to the bankruptcy court’s determination that NetJets’
8
provides: 10
[RS Air] hereby acknowledges and agrees that [NetJets] shall
have the right and option, in addition to any other remedies
[NetJets] may be entitled to, upon a material default by [RS Air]
under any of the Operative Documents which results in the
termination of the Management Agreement by [NetJets] or
expiration of the Management Agreement in accordance with
its terms, [to] repurchase [RS Air’s] Interest in the Aircraft for
the then Fair Market Value of the Aircraft multiplied by the
percentage equivalent of the interest . . . .
In the event of a repurchase of [RS Air’s] Interest hereunder,
[NetJets] shall have ninety (90) days after receipt or giving of
such notice to cause the repurchase to occur . . . .
So NetJets’ debt to RS Air accrued upon: (1) either (a) RS Air’s
material default under the parties’ agreements; or (b) expiration of the
management agreement by its terms; and (2) NetJets’ election to
repurchase. At that point, either could seek specific performance.
Both the Citation X’s and the Encore+’s management agreements
were negotiated, drafted, executed, and expired by their term pre-petition.
repurchase of the aircraft shares is a pre-petition obligation.
10 To the extent RS Air asserts that the Citation X interest’s repurchase is
governed by paragraph 20, that provision weakens rather than strengthens its
argument. The Citation X crashed in July 2017. Sometime after, but long before RS Air’s
bankruptcy filing, NetJets declared the airplane a total loss. Under paragraph 20,
NetJets had 30 days to elect to replace the aircraft. If it did not exercise the replacement
option, paragraph 20 mandates without option that NetJets repurchase RS Air’s Citation
X interest. RS Air does not contend that NetJets ever exercised the replacement option.
So, upon expiration of 30 days, its obligation to repurchase (and the resultant debt)
became absolutely owing. And it is undisputable that this occurred pre-petition.
9
The expiration of each, followed by NetJets’ letter seeking to repurchase the
shares, triggered its right of repurchase. RS Air apparently also sought to
cause the repurchase and the parties began negotiating terms. After that
failed, NetJets initiated the State Court Action seeking specific performance
of the sale. All of these events took place long before RS Air filed for
bankruptcy in November 2020.
Because all transactions necessary for liability are firmly rooted
indeed, occurred in the parties’ pre-petition dealings, the resultant debt
arose pre-petition.
RS Air argues against this result for two reasons. First, it contends
that because the transaction was ultimately not consummated until after
filing, the obligation transforms from pre-petition to post-petition. This, it
says, is because the debt was contingent or unliquidated. RS Air’s
argument is misplaced.
“Dependency on a postpetition event does not prevent a debt from
arising prepetition.” In re Wade Cook Fin. Corp.,
375 B.R. 595 (quoting Gerth,
991 F.2d at 1433). And “[t]he character of a claim does not transform from
prepetition to postpetition because that claim is contingent, unliquidated or
unmatured when the debtor files its petition.”
Id. (citing Braniff Airways,
Inc. v. Exxon Co., U.S.A.,
814 F.2d 1030, 1036 (5th Cir. 1987)). Thus, a “debt
can be absolutely owing prepetition even though that debt would never
have come into existence except for postpetition events.” Gerth,
991 F.2d at
1434. The fact that the transaction was not consummated until after
10
RS Air’s filing does not transform the debt into a post-petition one. See
Id.
Second, RS Air argues that even if NetJets had a right that accrued
pre-petition, it was forfeited by expiration, waiver, or excusal. It provides
little analysis of these arguments, likely constituting waiver. 11 Because they
may be substantively denied, however, we briefly address each in turn.
RS Air’s first argument that NetJets’ repurchase right expired pre-
petition, is no longer enforceable, and so cannot be setoff hinges on the
assertion that NetJets failed to consummate the transaction within the
90 days contemplated under paragraph 6 of the purchase agreements. This
argument is flawed for at least two reasons.
One, the record supports the bankruptcy court’s conclusion that
NetJets took all necessary steps to timely cause the repurchase, including
suing RS Air for specific performance. Two, in Ohio, the general rule as to
contracts is that time of performance is not of the essence unless the parties
include an express stipulation or such requirement can be implied from the
entire nature or circumstances of the contract. Franklin Mgmt. Indus., Inc. v.
Far More Props., Inc.,
25 N.E.3d 416, 421 (Ohio. Ct. App. 2014) (citations
11
Failure to “specifically and distinctly” address issues in an opening brief is a waiver.
See Alcaraz v. INS,
384 F.3d 1150, 1161 (9th Cir. 2004). Contentions must be accompanied
by reasons. See Indep. Towers of Wash v. Washington,
350 F.3d 925, 929–30 (9th Cir. 2003)
(“’[A] bare assertion of an issue does not preserve a claim’” rather “[w]e require
contentions to be accompanied by reasons.”) (quoting D.A.R.E. Am. v. Rolling Stone
Magazine,
270 F.3d 793, 793 (9th Cir. 2001)). “We cannot ‘manufacture arguments for an
appellant.’”
Id. at 929 (citing Greenwood v. Fed. Aviation Admin.,
28 F.3d 971, 977 (9th Cir.
1994)). If an argument is not properly argued and explained, the argument is waived.
Id.
11
omitted). Here, neither purchase agreement expressly makes time of the
essence. Nor can such a requirement be implied from the nature or
circumstances of the contract; to do so would allow RS Air to effectively
destroy NetJets’ repurchase right through its own hinderance or delay.
That would be inimical to the nature and circumstances of a contract
expressly reserving that right.
Next, nothing in the record supports RS Air’s argument that NetJets
waived its right to repurchase the shares. Almost simultaneously to the
Citation X and Encore + management agreements’ expiration, NetJets
informed RS Air of its desire and intention to repurchase each aircraft’s
fractional interest. The parties then negotiated the repurchase. And when
those discussions failed, NetJets sought to compel the repurchase by
bringing the State Court Action. It prosecuted its case up to trial when
RS Air’s bankruptcy filing stayed the action. So, the bankruptcy court’s
finding that NetJets never acted inconsistently with its intent to claim its
right to force the repurchase is well supported.
Finally, RS Air’s argument that NetJets’ conduct excused its
performance is unavailing. The bankruptcy court found that nothing in the
record supported a finding that NetJets had prevented either party’s
performance. RS Air fails to address, let alone establish, how this was in
error. For that reason, the argument is rejected.
In sum, NetJets’ debt to RS Air was absolutely owing pre-petition.
The fact that the repurchase was not completed until post-petition does not
12
change this result. And none of RS Air’s thinly argued contentions
regarding expiration, waiver, or excusal of the repurchase right are
meritorious. The bankruptcy court did not abuse its discretion in
determining that NetJets established a right to setoff under § 553.
2. The bankruptcy court did not err in determining that
NetJets established a right to setoff under Ohio law.
Second, RS Air challenges the bankruptcy court’s determination that
NetJets established a right to setoff under Ohio law as neither claim has
been liquidated. This, it avers, is violative of Ohio’s requirement that each
party owe a “definite amount” to the other.
The bankruptcy court determined that it was insignificant that
neither claim or debt has been liquidated in the traditional sense, meaning
reduced to judgment. It noted that there was no dispute as to either the
liability or the amount owed by each party to the other here. That is, RS Air
had not objected to NetJets’ proof of claim giving it presumptive validity.
And NetJets consented to the value of RS Air’s claim. So it found that debts
were sufficiently definite. We agree.
There is a dearth of caselaw on the issue of what satisfies the
“definite amount” element of setoff. Many cases recite the language, which
stems from Witham, 15 N.E.2d at 150. But we can find none which analyze
or discuss what does or does not qualify. Nonetheless, we analyze the issue
as it is presented by RS Air on appeal: whether the parties’ debts are in a
“definite amount” where neither has been reduced to judgment.
13
As to NetJets’ claim, neither party disputes the validity or amount.
NetJets timely filed its $2,133,623.15 claim. Proof of Claim No. 1-1. A
properly filed proof of claim constitutes “prima facie evidence of the
validity and amount of the claim.” Rule 3001(f). The claim “is deemed
allowed unless a party in interest objects.” Lundell v. Anchor Constr.
Specialists, Inc.,
223 F.3d 1035, 1039 (9th Cir. 2000). To date, no party has
objected to NetJets’ claim. It is therefore deemed allowed and
presumptively valid as to its nature and amount.12 For that reason, the
bankruptcy court did not abuse its discretion in determining NetJets’ claim
was in a “definite amount” for purposes of setoff under Ohio law.
The debt owed to RS Air is sufficiently definite for the same reason
and more. There is no dispute over liability or amount. That is, the parties
agree that NetJets owed RS Air something for the aircrafts’ fractional
interests. This is readily evidenced by their negotiations, the State Court
Action, and their conduct in the bankruptcy case. Although there appears
to have been some dispute over the amount of that debt, NetJets was
willing to and did concede to RS Air’s own valuation. So as with RS Air’s
debt to NetJets, this one too is undisputed as to validity or amount.
Without dispute, the bankruptcy court did not abuse its discretion in
12
Further, RS Air’s third amended plan expressly provides that “[u]pon confirmation
the claim of NetJets . . . will be deemed allowed as filed and [RS Air’s] counterclaims
will be deemed waived.” That plan was confirmed on October 7, 2021. We now affirm
that ruling in a separate decision. On RS Air’s own admission then, NetJets’ claim is
now liquidated and undisputed.
14
determining that the debt was in a “definite amount” for setoff purposes.
Further, we do not see that NetJets’ debt is in fact unliquidated as
RS Air claims. In Ohio, “[a] liquidated claim is one that can be determined
with exactness from the agreement between the parties or by arithmetical
process or by the application of definite rules of law.” Huo Chin Yin v.
Amino Prods. Co.,
46 N.E.2d 610, 613-14 (Ohio 1943) (citations omitted). And
a claim may be considered liquidated, even if it is disputed or where one
party may assert counterclaims or defenses to payment.
Id. at 614.
Here, the amount of NetJets’ debt to RS Air can be determined with
exactness from the parties’ agreements and by mathematical formula.
Specifically, paragraph 6 of the aircrafts’ purchase agreements provides
that NetJets may repurchase the interests for “the then Fair Market Value
of the Aircraft multiplied by the percentage equivalent of [RS Air’s]
Interest[.]” Because of this, RS Air’s challenge must fail.
Dunkin’s Diamonds, Inc. v. Chavis, the lone case cited by RS Air on
appeal in support of its argument, does not save it. In determining whether
setoff was appropriate, the Dunkin’s Court noted that the definite amounts
requirement was satisfied where one party admitted it owed the other a
sum certain debt under the parties’ agreement and the other debt had been
previously liquidated. No. 12CVH-10776,
2015 Ohio Misc. LEXIS 22969, at
*67–68 (C.P., May 18, 2015). The facts of this case are analogous. NetJets
admits that it owes RS Air a debt ascertainable by reference to the aircrafts’
purchase agreements and mathematical formula. Notably, the parties have
15
apparently already undertaken application of that formula and reached a
result. And neither party can now dispute the validity and amount of
RS Air’s debt to NetJets. Thus, Dunkin’s supports, rather than contradicts,
the bankruptcy court’s decision.
Accordingly, the bankruptcy court did not abuse its discretion in
determining NetJets established its right to setoff under Ohio law.
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s order
granting § 362(d) stay relief.
16
