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 2023-07

In Re: Island Leasing, LLC v. Elizabeth Kane ( 2023 )


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  •                              NOT FOR PUBLICATION                         FILED
UNITED STATES COURT OF APPEALS                        JUL 27 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: HAWAII ISLAND AIR, INC.,                 No.    20-17371
Debtor,                            D.C. Nos.
______________________________                  1:19-cv-00655-LEK-WRP
1:19-cv-00681-LEK-WRP
ISLAND LEASING, LLC,
Appellant,                      MEMORANDUM*
v.
ELIZABETH A. KANE, Bankruptcy
Trustee; AAR SUPPLY CHAIN INC.,
Appellees.
Appeal from the United States District Court
for the District of Hawaii
Leslie E. Kobayashi, District Judge, Presiding
Argued and Submitted July 11, 2023
Seattle, Washington
Before: GRABER, GOULD, and FRIEDLAND, Circuit Judges.
Appellant Island Leasing, LLC, appeals a judgment of the district court
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
affirming, in relevant part,1 the bankruptcy court’s decision allowing the Chapter 11
trustee in this case to avoid, under
    11 U.S.C. § 547
    (b), a $400,000 pre-petition
payment that the debtor, Hawaii Island Air, Inc. (“Debtor”), made to Island Leasing,
and declaring that Island Leasing had no security interest in or title to certain aircraft
parts that it claims to have purchased from Debtor. The parties’ dispute turns on
whether Island Leasing’s purported purchase of these parts was, in reality, a loan to
Debtor for which Debtor’s subsequent $400,000 transfer was partial repayment.
After a three-day trial, the bankruptcy court determined that this transaction was a
loan.
We have jurisdiction over this timely appeal under
    28 U.S.C. § 1291
    . We
“review de novo the district court’s decision on appeal from a bankruptcy court.” In
re Tillman,
    53 F.4th 1160
    , 1166 (9th Cir. 2022) (citing Decker v. Tramiel (In re JTS
Corp.),
    617 F.3d 1102
    , 1109 (9th Cir. 2010)). “‘We apply the same standard of
review applied by the district court’ and ‘review [the] bankruptcy court decision
independently and without deference to the district court’s decision.’”
    Id.
     (quoting
Decker,
    617 F.3d at 1109
    ). Reviewing the bankruptcy court’s determination for
clear error, In re Straightline Invs., Inc.,
    525 F.3d 870
    , 880 (9th Cir. 2008); In re
Woodson Co.,
    813 F.2d 266
    , 270 (9th Cir. 1987), we affirm.
1
Neither party appealed the part of the district court’s order that reversed in part the
bankruptcy court.
2
We conclude that the bankruptcy court’s determination that Island Leasing’s
purported purchase of aircraft parts from Debtor for $800,000 was a loan was not
clearly erroneous. In determining whether a transaction is a true sale or a loan, the
“substance [of the transaction] control[s],” and the form by which the parties
denominated their transaction is not conclusive. Kawauchi v. Tabata,
    413 P.2d 221
    ,
228 (Haw. 1966); cf. S & H Packing & Sales Co. v. Tanimura Distrib., Inc.,
    883 F.3d 797
    , 802 (9th Cir. 2018) (en banc). Here, even though the parties expressly
denominated their transaction as an “assignment,” the bankruptcy court’s
determination that the substance of this transaction was a loan was “plausible in light
of the record viewed in its entirety[.]” In re The Vill. at Lakeridge, LLC,
    814 F.3d 993
    , 1002 (9th Cir. 2016) (quoting Anderson v. City of Bessemer,
    470 U.S. 564
    , 574
(1985)). The record reflected that: (1) Island Leasing was a significant shareholder
in Debtor; (2) Debtor needed $800,000 to cover an imminent payroll shortfall; (3)
Debtor agreed to “assign” the aircraft parts to Island Leasing in exchange for
$800,000 at the same time as payroll was due; (4) after the assignment, Debtor
continued to store the aircraft parts and attempted to find a buyer for them so that
Island Leasing could recoup the $800,000; and (5) after the parties found a third-
party buyer for most of the parts, Debtor stood to retain all the proceeds from that
sale in excess of the $800,000 that was to be returned to Island Leasing. Viewing
this evidence as a whole, the bankruptcy court permissibly concluded that the
3
purported sale was in substance an informal loan between related parties seeking to
cover Debtor’s acute and imminent financial needs and that Island Leasing has no
interest in or rights to the parts or any remaining payments from Debtor.
AFFIRMED.
4