Hawker Beechcraft, Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------------------X 	FOR PUBLICATION
In re: 	:
:
HAWKER BEECHCRAFT, INC., et al., 	: 	Chapter 11
: 	Case No.: 12-11873 (SMB)
Debtors. 	: 	Jointly administered
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MEMORANDUM DECISION PARTIALLY GRANTING AND
PARTIALLY DENYING DEBTORS’ REJECTION MOTION
A P P E A R A N C E S:
KIRKLAND & ELLIS LLP
Attorneys for the Debtors and Debtors in Possession
601 Lexington Avenue
New York, NY 10022
James H.M. Sprayregen, Esq.
Paul M. Basta, Esq.
Patrick J. Nash, Jr., Esq.
Ross M. Kwasteniet, Esq.
Of Counsel
AKIN GUMP STRAUSS HAUER & FELD LLP
Attorneys for Official Committee of Unsecured Creditors
One Bryant Park
New York, NY 10036
Daniel H. Golden, Esq.
David H. Botter, Esq.
Alexis Freeman, Esq.
Of Counsel
CRAVATH, SWAINE & MOORE LLP
Attorneys for Ad Hoc Committee of Hawker 4000 Customers
WorldWide Plaza, 825 Eighth Avenue
New York, NY 10019
Richard Levin, Esq.
Of Counsel
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WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Ad Hoc Group of Senior Lenders
51 West 52nd Street
New York, NY 10019
Richard G. Mason, Esq.
Of Counsel
GREENBERG TRAURIG, LLP
Attorneys for Rotorwing B.V.
200 Park Avenue
New York, NY 10166
Denise J. Penn, Esq.
Of Counsel
KEMP KLEIN
Attorneys for Pace Aviation, LLC
201 West Big Beaver Road, Suite 600
Troy, MI 48084
Norman D. Orr, Esq.
Of Counsel
CAHILL GORDON & REINDEL LLP
Attorneys for Biozyme Incorporated
Eighty Pine Street
New York, NY 10005
Richard A. Stieglitz Jr.
Of Counsel
LEWIS GLASSER CASEY & ROLLINS, PLLC
Attorneys for RCS Holdings, LLC
300 Summers Street, Suite 700
P.O. Box 1746
Charleston, WV 25326
Spencer D. Elliott, Esq.
Of Counsel
HOGAN LOVELLS US LLP
Attorneys for Elegant Aviation Limited
875 Third Avenue
New York, NY 10022
Peter A. Ivanick, Esq.
Hugh F. Hill, Esq.
Of Counsel
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BARNES & THORNBURG LLP
Attorneys for McGrath Air, LLC
171 Monroe Avenue, NW, Suite 1000
Grand Rapids, MI 49503
John T. Gregg, Esq.
Of Counsel
STUART M. BERNSTEIN
United States Bankruptcy Judge:
The Debtors (collectively “Hawker” or “HBC”), manufacture, sell and service jet and
non-jet aircraft. Hawker plans to terminate most of its jet aircraft production business, and has
moved to reject certain agreements relating to the Hawker 4000 and Premier I and IA
(collectively, “Premier”) jet aircraft that impose continuing warranty and support obligations.
(See Motion for Entry of An Order Authorizing the Debtors to Reject Certain Aircraft Warranty
and Support Obligations Related to Hawker 4000 and Premier I and IA Jets Effective as of
November 15, 2012, dated Nov. 15, 2012 (“Rejection Motion”) (ECF Doc. # 777).) Various
parties filed objections, but all save two have been withdrawn. For the reasons that follow, the
Rejection Motion is granted in part and denied in part.
BACKGROUND
A. 	The Purchase Agreements
At all relevant times, Hawker was engaged in the manufacture, sale and servicing of jet
and non-jet special mission and trainer-attack aircraft. (See Amended Disclosure Statement for
Debtors’ Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy
Code, dated Nov. 28, 2012 (“Amended Disclosure Statement”), at 1 (ECF Doc. # 849).) When
Hawker sold a new Hawker 4000 or Premier jet, the purchase agreement included a limited
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warranty that covered defects in materials and workmanship (the “Limited Warranty”).1 (See
Premier Purchase Agreement at Specification and Description, § 20; Hawker 4000 Purchase
Agreement at Specification and Description, § 24.) The Limited Warranty included terms and
conditions that, among other things, required that the customer (1) maintain, operate and store
the aircraft in accordance with certain manuals and other written instructions, (2) not remove
certain identifying marks and serial numbers from the aircraft, or alter the aircraft other than as
allowed under the warranty and (3) not use the aircraft for unspecified purposes. (Premier
Purchase Agreement at Specification and Description, § 20; Hawker 4000 Purchase Agreement
at Specification and Description, § 24.) The typical Limited Warranty lasted anywhere between
five to ten years or 3,000 to 10,000 air flight miles, depending on the aircraft model type.2
The Hawker 4000 and Premier Purchase Agreements also imposed duties on the
customer unrelated to the Limited Warranty. For example, Hawker agreed to provide training
for two qualified pilots and two qualified maintenance personnel. (Premier Purchase Agreement
at Specification and Description, § 21; Hawker 4000 Purchase Agreement, at Specification and
Description, § 25.) In return, the customer agreed to indemnify and hold Hawker harmless for
“any . . . liabilities [or] claims . . . including any claims for damage to the Aircraft . . . (excluding
however, any liability or claim relating to the manufacture of the Aircraft and except the
1 	See Premier I and IA Aircraft Purchase Agreement (“Premier Purchase Agreement”), attached as Exhibit
A1 to Debtors’ Brief in Support of the Debtors’ First Omnibus Motion for Entry of an Order Authorizing the
Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and Premier I and IA
Jets Effective as of November 15, 2012, dated Dec. 21, 2013 (“Brief in Support”); Hawker 4000 Aircraft Purchase
Agreement (“Hawker 4000 Purchase Agreement”), attached as Exhibit A2 to the Brief in Support, (collectively
“Aircraft Purchase Agreements”) (ECF Doc. # 971). In some cases, the manufacturer of a component or system
(engine, avionics) provided its own warranty and that warranty is not affected by the Rejection Motion. (Rejection
Motion at ¶ 8.)
2 The Premier Limited Warranty ran for five years or 3,000 hours of aircraft operation, whichever occurred
sooner, and the Hawker 4000 Limited Warranty lasted for ten years or 10,000 hours of aircraft operation, whichever
occurred sooner. (See Premier Purchase Agreement at Specification and Description, § 20; Hawker 4000 Purchase
Agreement at Specification and Description, § 24; Brief in Support at 5 n.14.)
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negligence or willful misconduct of Seller and their respective officers, employees, agents, and
insurers) and all expenses in connection therewith (including reasonable counsel fees) arising
directly or indirectly out of or in connection with the use of the Aircraft for the training described
above.” (Premier Purchase Agreement at Specification and Description, § 21; Hawker 4000
Purchase Agreement at Specification and Description, § 25.) In addition, the customer agreed to
“comply with all export control laws and regulations . . . that apply to the Aircraft . . . and
indemnify Seller from and against the consequences of any failure by Buyer to comply with all
applicable laws and regulations.” (Aircraft Purchase Agreements at General Terms and
Conditions, § 15.) 3 The customer agreed that its rights under the Aircraft Purchase Agreement
“may not be assigned, in whole or in part without Seller’s written consent.” (Id. at General
Terms and Conditions, § 27.) Finally, the customer agreed that, “the terms and conditions of this
Agreement . . . may not be disclosed in any fashion, either in whole or in part, by Buyer to any
third party . . . without the prior written consent of Seller.” (Id. at General Terms and
Conditions, § 29.)
The parties further agreed that the material breach of any term or condition permitted
Hawker to terminate the Aircraft Purchase Agreement:
Buyer’s Default. Subject to a ten day cure period, Seller has the right to
terminate this Agreement and retain all deposits previously paid by Buyer as
liquidated damages if Buyer:
. . . .
(E) 	breaches any term or condition contained in this Agreement in any material
respect.
(Id. at General Terms and Conditions, § 25.)
3 	The two Aircraft Purchase Agreements included identical General Terms and Conditions.
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B. 	The Support Plus Program
Hawker also offered a program that covered scheduled and unscheduled maintenance and
replacement of consumable parts for the aircraft (the “Support Plus Program”). 4 Under the
Premier Support Plus Program, the customer agreed to pay Hawker for each period of twelve
consecutive calendar months “the greater of actual aircraft flight time or a minimum service
charge based upon an annual minimum of 200 flight hours,” (Premier Support Plus Agreement at
Art. II, § 4.1), multiplied by the Hourly Rate. (Id. at Art. II, § 4.3.1.) The customer was required
to report its total aircraft utilization each month, (id. at Art. II, § 4.1.1), and pay for “all
additional flight hours, over and above any pre-paid flight hours, at the applicable rate for the
balance of the Term [of the Support Plus Program].” (Id. at Art. II, § 4.3.2.) In addition, the
Premier Support Plus Agreement required the customer to pay numerous other charges. (E.g. id.
at Art. IV, §1 et seq.) 	The customer also had to properly record various items of information in
the aircraft log book and furnish the information and grant access to Hawker upon reasonable
request. (Id. at Art. IV, § 1.13.1.) Finally, the customer agreed to notify Hawker of any letters
of investigation or notices from any airworthiness authority, or any self-disclosure made to such
an authority, relating to maintenance services provided under the Premier Support Plus Program.
(Id. at Art IV, § 1.1.2.)
The Hawker 4000 Support Plus Program differed in only one material respect; the
customer pre-paid for selected parts and labor coverage for scheduled and unscheduled
maintenance. (Hawker 4000 Support Plus Agreement, at Art. II, § 1.1.) The pre-payment
4 See Hawker Beechcraft Corporation Support Plus Sample Agreement for Beechcraft Owner [of Premier
Aircraft], attached as Exhibit B1 to the Brief in Support (“Premier Support Plus Agreement”); Hawker Beechcraft
Corporation Pre-Paid Support Plus Sample Agreement For <Hawker 4000 Owner> (“Hawker 4000 Support Plus
Agreement”), attached as Exhibit B2 to the Brief in Support.
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assumed that the aircraft operated “an average of 1.25 flight hours per landing . . . [but] if the
Aircraft average flight hours to landings is less than 1.25 flight hours per landing in any twelve
(12) month period from the effective date . . . HBC will invoice the Owner an Excess Landing
Charge for each hour flown in the prior twelve (12) month period.” (Id. at Art. II, §§ 3.1.2-
3.1.3.) The customer was required to submit monthly utilization reports, (id. at Art. V, § 1.1),
and pay any excess charges plus appropriate interest. (See id. at Art. V, §§ 1.2, 1.3.) As with the
Premier Support Plus Program, the customer had to maintain an aircraft logbook and provide the
same access to Hawker, (id. at Art. IV, § 1.13.1), pay certain additional charges, (id. at Art. IV),
and notify Hawker regarding any letters of investigation and notices from, and self-disclosures
to, airworthiness authorities concerning the maintenance services provided under the Hawker
4000 Support Plus Program. (Id. at Art. IV, § 1.1.2.)
Both Support Plus Program agreements gave Hawker similar rights in the event the
customer breached any of its obligations. Hawker could terminate the Support Plus Program
agreement, and if the breach included non-payment and Hawker was forced to sue, Hawker
could recover its reasonable attorneys’ fees, expenses and costs. (Premier Support Plus
Agreement, at Art. V, § 2.2.1; Hawker 4000 Support Plus Agreement, at Art. V, §§ 1.4, 2.2.1.)
C. 	Other Warranty Programs
Hawker also provided an “Upgrade and Enhancement Program” offered only for Hawker
4000 aircraft to improve their overall performance and to maintain compliance with certain
Federal Aviation Administration requirements, and a “Post Delivery Commitments” program for
post-delivery repair work on various aircraft. (Rejection Motion at ¶ 8.)
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D. 	The Bankruptcy
1. 	First Day Motions
On May 3, 2012, Hawker filed voluntary chapter 11 petitions with the goal of
implementing a consensual debt-to-equity recapitalization and emerging as a standalone
company. (See Amended Disclosure Statement at 1.) Toward that end, Hawker had entered into
a Restructuring Support Agreement (“RSA”) with its Senior Secured Lenders and Senior
Noteholders. (See RSA at 1, attached as Exhibit A (pp. 60-84 of 245) to the Declaration of
Robert S. Miller (I) In Support of Debtors’ Chapter 11 Petitions and First Day Motions and (II)
Pursuant to Local Bankruptcy Rule 1007-2, dated May 4, 2012 (“Miller Declaration”) (ECF
Doc. # 22).) The RSA permitted Hawker to market its assets and propose a plan involving a sale
transaction with a third party. (See id. at 14; Amended Disclosure Statement at 29-31.)
Simultaneously with the filing of the petitions, Hawker moved to continue certain
Customer Programs, including the Limited Warranty and Support Plus Programs. (See Debtors’
Motion for the Entry of Interim and Final Orders Authorizing the Debtors to Honor Certain
Prepetition Obligations to Customers and Otherwise Continue Certain Customer Programs and
Practices in the Ordinary Course of Business, dated May 3, 2012 (“Motion to Honor”) (ECF
Doc. # 5).) Hawker explained that the Limited Warranty was “critically important” to its
“ongoing viability,” and since “competitors offer coverage of similar scope, and customers
generally expect such programs to be available to reduce operating risk when purchasing an
aircraft,” Hawker “would be at a significant competitive disadvantage if it were unable to
continue to perform” under this warranty. (Motion to Honor at ¶ 9.) Likewise, many of
Hawker’s competitors offered a program similar to the Support Plus Program, and if Hawker was
not able to continue honoring its existing Support Plus Program obligations, its “relationship
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with many existing customers would be severely damaged, and prospective customers would
lose faith in the Support Plus Program.” (Id. at ¶ 15.)
Hawker’s Chief Executive Officer Robert S. Miller amplified Hawker’s reasoning
explaining that “in order to ensure continuing customer loyalty and a successful reorganization”
it is “essential” that Hawker
be permitted to honor, without interruption, obligations related to their Customer
Programs [including the Limited Warranty and Support Plus Program] in
accordance with their prepetition practices and customers’ expectations. Any
interruption or discontinuation of the Customer Programs risks the permanent loss
of certain customers. The aggregate cost to the Debtors to continue the Customer
Programs and perform and honor prepetition obligations with respect thereto is
insignificant when compared to the enormous detrimental impact their business
would suffer if these programs are suspended or abandoned.
(Miller Declaration at ¶ 93.)
On May 4, 2012, the Court entered an interim order permitting Hawker to continue the
Customer Programs, including the Limited Warranty and Support Plus Program, (Interim Order
Authorizing the Debtors to Honor Certain Prepetition Obligations to Customers and Otherwise
Continue Certain Customer Programs and Practices in the Ordinary Course of Business, dated
May 4, 2012 (“Interim Order to Honor”) (ECF Doc. # 44)), which was followed by a final order
on May 30, 2012. (Final Order Authorizing the Debtors to Honor Certain Prepetition
Obligations to Customers and Otherwise Continue Certain Customer Programs and Practices in
the Ordinary Course of Business, dated May 30, 2012 (“Final Order to Honor”) (ECF Doc.
#179).) 	Both orders provided that “[t]he Debtors are authorized, but not directed, in their sole
discretion, to honor and perform under the Customer Programs and any other obligation relating
to the Debtors’ customary business practice, without regard to whether the Debtors’ Customer
Programs arose before or after the Petition Date.” (Interim Order to Honor at ¶ 3; Final Order
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to Honor at ¶ 2.) Both orders also provided that the Motion to Honor did not request assumption
of any contract, the orders did not authorize the assumption of any contract and Hawker reserved
all of its rights. (See Interim Order to Honor at ¶ 6; Final Order to Honor at ¶ 6.)
2. 	The Plan
During the course of the case, Hawker pursued a possible third party transaction with
Superior Aviation Beijing, Co., Ltd. (“Superior”), a China-based company. That proposal would
have involved the sale of some or all of Hawker’s jet product lines. When that transaction fell
through, Hawker filed its amended plan proposing a stand-alone plan under which Hawker will
cease production of the Hawker 4000 and Premier jet aircraft business and no longer honor the
warranty and support obligations covering these product lines. (Amended Disclosure Statement
at 37; see Debtors’ Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the
Bankruptcy Code, dated Nov. 30, 2012 (“Amended Plan”) (ECF Doc. # 872).) The amended
plan also provides that any executory contract that is not assumed will be deemed rejected.
(Amended Plan at 33.)
3. 	The Rejection Motion
Notwithstanding the latter provision, Hawker filed a separate motion to reject the Aircraft
Purchase Agreements 5 and Support Plus Agreements for the Hawker 4000 and Premier aircraft
and certain other warranty and support agreements. Hawker’s restructuring expert Scott
Brubaker of Alvarez & Marsal North America explained that while continuing these Customer
Programs was initially necessary to maintain the “status quo” for its customers and to minimize
5 	Although the Rejection Motion focuses on the Limited Warranty, the Limited Warranty is part of the
Aircraft Purchase Agreement. Hence, the Rejection Motion is properly viewed as being directed at the Aircraft
Purchase Agreements.
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disruptions, the Motion to Honor was not intended to “permanently bind” Hawker to these
programs, (see Declaration of Scott Brubaker in Support of Debtors’ First Omnibus Motion for
Entry of an Order Authorizing the Debtors to Reject Certain Aircraft Warranty and Support
Obligations Related to Hawker 4000 and Premier I and IA Jets Effective as of November 15,
2012, dated Dec. 10, 2012 (“Brubaker Declaration”) at ¶ 3),6 and their continuation “would
otherwise place substantial burden on the Debtors’ estates for years to come and that these costs
would otherwise outweigh any net benefit the Debtors would receive from maintaining the
contractual obligations.” (Id. at ¶ 4.) Brubaker estimated that Hawker’s current projected
liability through 2017 on the Premier Limited Warranty ranged between $5 million and $17
million, while similar projections regarding the Premier Support Plus Program ranged between
zero (i.e., break even) and $60 million. (See Tr. at 44.) On the Hawker 4000 side, the projected
cost of the Limited Warranty fell between $28 million and $100 million, and Brubaker estimated
that the Support Plus Program would cost Hawker between $32 million and $65 million. (Id. at
45.) The substantial ranges in liability, which were greater than the corresponding costs
estimated at the time of the Motion to Honor, were primarily due to the difficulty in predicting
the availability and costs of replacement parts after Hawker stopped manufacturing these aircraft.
(Id. at 62-63.) Hawker also considered other factors, including the possible loss of non-warranty
related business, (Id. at 48, 64), and the related loss of good-will. (Id. at 51.) To ease the burden
on its customers, Hawker stated its intention to work to reach an agreement with third party
companies to “enhance the likelihood that owners of Hawker 4000 and Premier I and IA aircraft
6 	The Brubaker Declaration is attached as Exhibit A to the Debtors’ Omnibus Reply to Objections to the
Debtors’ First Omnibus Motion for Entry of an Order Authorizing the Debtors to Reject Certain Aircraft Warranty
Obligations Related to Hawker 4000 and Premier I and IA Jets Effective as of November 15, 2012, dated Dec. 10,
2012 (ECF Doc. #908). The Brubaker Declaration was received without objection as Brubaker’s direct testimony.
(See Transcript of Hearing, held Dec. 11, 2012 (“Tr.”), at 40 (ECF Doc. # 935).)
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are able to purchase necessary service and maintenance on their aircraft in the future.”
(Rejection Motion at 6-7.) Post-rejection, Hawker would continue to provide fee-based
maintenance and support services to the extent practicable through Hawker-owned and affiliated
service centers. (Id.) Additionally, Premier customers who had prepaid for Support Plus
Programs would receive a pro-rated credit for parts and services to be used at a Hawker service
center. (Id.)
Six entities filed objections to the Rejection Motion: Pace Aviation, LLC (“Pace”),7
McGrath Air, LLC (“McGrath”),8 RCS Holdings, LLC (“RCS”),9 Biozyme Incorporated
(“Biozyme”),10 Elegant Aviation Limited (“Elegant”)11 and Rotorwing, B.V. (“Rotorwing”).12
Virtually all of the objectors argued that the Limited Warranty and Support Plus Programs were
not executory because the buyer had no further duties. Hence, they were not subject to rejection
under 11 U.S.C. § 365. Several asserted that Hawker should be judicially estopped from now
taking the position that it made business sense to reject the warranty and support obligations in
7 Limited Objection of Pace Aviation, LLC to Debtors’ First Omnibus Motion for Entry of an Order
Authorizing the Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and
Premier I and IA Jets Effective as of November 15, 2012, dated Dec. 3, 2012 (“Pace Objection”) (ECF Doc. # 875).
8 Objection of McGrath Air, LLC to Debtors’ First Omnibus Motion for Entry of an Order Authorizing the
Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and Premier I and IA
Jets Effective as of November 15, 2012, dated Dec. 3, 2012 (“McGrath Objection”) (ECF Doc. # 876).
9 Objection of RCS Holdings, LLC to Debtors’ First Omnibus Motion for Entry of an Order Authorizing the
Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and Premier I and IA
Jets Effective as of November 15, 2012, dated Dec. 4, 2012 (“RCS Objection”) (ECF Doc. # 884).
10 Objection of Biozyme Incorporated to Debtors’ First Omnibus Motion for Entry of an Order Authorizing the
Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and Premier I and IA
Jets Effective as of November 15, 2012, dated Dec. 4, 2012 (“Biozyme Objection”) (ECF Doc. # 885).
11 Joinder of Elegant Aviation Limited in Objections to the Debtors’ First Omnibus Motion for Entry of an
Order Authorizing the Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000
and Premier I and IA Jets Effective as of November 15, 2012, dated Dec. 4, 2012 (ECF Doc. # 889).
12 Objection of Rotorwing, B.V. to Debtors’ First Omnibus Motion for Entry of an Order Authorizing the
Debtors to Reject Certain Aircraft Warranty and Support Obligations Related to Hawker 4000 and Premier I and IA
Jets Effective as of November 15, 2012, dated Dec. 4, 2012 (“Rotorwing Objection”) (ECF Doc. # 890).
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light of the position it took at the time of the Motion to Honor. In addition, McGrath, owner of a
Premier aircraft, asserted that it entered into the Support Plus Agreement after the petition date,
and the post-petition agreement was not subject to rejection. (Id. at ¶ 16.) RCS, owner of a
Premier aircraft, contended that Hawker improperly discriminated by rejecting some of the
warranty and support obligations instead of ratably reducing all of them. (RCS Objection at 2-3.)
Biozyme, the owner of a Premier aircraft under Limited Warranty and participant in the Support
Plus Program, argued that Hawker’s business judgment should be subjected to a heightened
standard because the decision to reject the Limited Warranty and Support Plus Program
obligations implicated aircraft safety. (Biozyme Objection at ¶¶ 6-8.) Thus, the Court should
“consider the potential direct, negative consequences of the proposed rejection on public safety,
which should be readily apparent for airplanes that are no longer covered by warranties or for
which necessary parts and/or service may no longer be available (or are only available at
significantly-higher costs).” (Id. at ¶ 6.)
Rotorwing, the final objector, was in an entirely different position. Rotorwing, a
Netherlands entity, contended that it was not served properly with the Rejection Motion. In
addition, it is the lessee of a Premier aircraft that was purchased as a resale, (i.e. Rotorwing’s
predecessor purchased a “used” aircraft from Hawker), without the Limited Warranty that came
with the purchase of a new aircraft. Instead, the warranty, discussed below, is much more
limited, and Rotorwing maintained that it was not executory.
Pace, McGrath, Biozyme and Elegant have withdrawn their objections, and the only
remaining objections are those asserted by RCS and Rotorwing.
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DISCUSSION
A. 	Introduction
Section 365(a) states that “the trustee, subject to the court’s approval, may assume or
reject any executory contract or unexpired lease of the debtor.” 11 U.S.C. § 365(a). The
Bankruptcy Code does not define the term “executory contract.” COR Route 5 Co. v. Penn
Traffic Co. (In re Penn Traffic Co.), 524 F.3d 373, 379 (2d Cir. 2008). The legislative history
regarding this section states that “[t]hough there is no precise definition of what contracts are
executory, it generally includes contracts on which performance remains due to some extent on
both sides.” H.R. REP . N O. 95-595, at 347 (1977); S. REP . NO. 95-989, at 58 (1978); accord
NLRB v. Bildisco & Bildisco, 465 U.S. 513, 522 n.6 (1984); Penn Traffic, 524 F.3d at 379; E. Air
Lines, Inc. v. Ins. Co. of Penn. (In re Ionosphere Clubs, Inc.), 85 F.3d 992, 998-99 (2d Cir.
1996). Generally, executoriness is determined as of the petition date. Penn Traffic, 524 F.3d at
381. Although the Second Circuit has thus far found it unnecessary to define the contours of the
test for executoriness, id. at 379, most courts and scholars have looked to the test first articulated
by Professor Vern Countryman. ReGen Cap. I, Inc. v. Halperin (In re U.S. Wireless Data, Inc.),
547 F.3d 484, 488 n. 1 (2d Cir. 2008); Penn Traffic, 524 F.3d at 379; Route 21 Assocs. of
Belleville, Inc. v. MHC, Inc., No. 12 Civ. 5361(PAE), 2012 WL 6625280, at *5 (S.D.N.Y. Dec.
19, 2012). According to the Countryman definition, an executory contract is
a contract under which the obligation of both the bankrupt and the other party to
the contract are so far unperformed that the failure of either to complete
performance would constitute a material breach excusing performance of the
other.
Vern Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev. 439, 460
(1973); accord Penn Traffic, 574 F.2d at 379.
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Under Countryman’s “material breach” test, a prepetition contract is executory when both
sides are still obligated to render substantial performance, Enter. Energy Corp. v. United States
(In re Columbia Gas Sys. Inc.), 50 F.3d 233, 239 (3d Cir. 1995); Mitchell v. Streets (In re Streets
& Beard Farm P’ship), 882 F.2d 233, 235 (7th Cir. 1989); In re 375 Park Ave. Assocs., 182 B.R.
690, 697 (Bankr. S.D.N.Y. 1995), and contingent obligations are sufficient to render a contract
executory. In re Safety-Kleen Corp., 410 B.R. 164, 168 (Bankr. D.Del. 2009) (citing cases). If
performance remains due on only one side, the contract is not executory, and hence, neither
assumable nor capable of rejection. In re Riodizio, Inc., 204 B.R. 417, 421 (Bankr. S.D.N.Y.
1997); see In re Chateaugay Corp., 102 B.R. 335, 345 (Bankr. S.D.N.Y. 1989). The materiality
of the breach is a question of state law.13 See Columbia Gas, 50 F.3d at 240 n.10.
In applying Countryman’s “material breach” test, one must distinguish between a failure
of condition and a breach of duty. “Non-occurrence of a condition is not a breach by a party
unless he is under a duty that the condition occur.” RESTATEMENT (SECOND) OF CONTRACTS §
225(3) (1981); accord Columbia Gas, 50 F.3d at 241. Thus, “while a contracting party’s failure
to fulfill a condition excuses performance by the other party whose performance is so
conditioned, it is not, without an independent promise to perform the condition, a breach of
contract subjecting the nonfulfilling party to liability for damages.” Merritt Hill Vineyards, Inc.
v. Windy Heights Vineyard, Inc., 460 N.E.2d 1077, 1081-82 (N.Y. 1984) (citing RESTATEMENT
(SECOND) OF CONTRACTS § 225(1) & (3)); accord Columbia Gas, 50 F.3d at 241. Nevertheless,
a contract party may impliedly promise to use reasonable efforts to cause the condition to occur
13 	The Aircraft Purchase Agreements and the Support Plus Agreements are governed by Kansas Law. Under
Kansas law, “[a] material breach is one in which the promisee receives something substantially less or different than
he or she bargained for. a material breach occurs where the failure to perform is so substantial that it defeats the
parties’ object in making the agreement.” Dexter v. Brake, 269 P.3d 846, 856 (Kan. Ct. App. 2012).
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when its occurrence is within the control of that party. J OSEPH M. PERILLO, CALAMARI &
PERILLO ON CONTRACTS § 11.11, at 368-69 (6th ed. 2009).
The current dispute fulfills the prophecy, at least in the case of a rejection motion, that the
time expended searching for executoriness can be spent more fruitfully doing almost anything
else. See Riodizio, 204 B.R. at 419. Rejection signifies that the debtor will breach the contract
and not perform. Penn Traffic, 524 F.3d at 378. If the contract is executory and the debtor
rejects it, the non-debtor party is left with a pre-petition unsecured claim for breach of contract.
Id.; In re Child World, Inc., 147 B.R. 847, 852 (Bankr. S.D.N.Y. 1992); see 11 U.S.C. §
365(g)(1). If, on the other hand, the contract is not executory and the debtor chooses not to
perform, the non-debtor party gets the same pre-petition claim for breach of contract. See In re
Bradlees Stores, Inc., No. 02 Civ. 0896(WHP), 2003 WL 76990, at *3 (S.D.N.Y. Jan. 9, 2003),
aff’d, 78 F. App’x. 166 (2d Cir. 2003); Pearl -Phil GMT (Far East) Ltd. v. Caldor Corp., 266
B.R. 575, 582 (S.D.N.Y. 2001); Riodizio, 204 B.R. at 424 n. 6. In other words, the rejection of
an executory contract is the economic equivalent of the debtor’s refusal to perform a non-
executory contract giving rise to the same unsecured claim. The only practical difference
concerns the deadline for filing the non-debtor contract party’s unsecured claim. If the breached
contract is not executory, the non-debtor party must file its breach claim by the general bar date.
If the contract is executory and rejected, the non-debtor party will get additional time to file its
rejection damage claim if the bar date has already expired. See FED. R. BANKR. P. 3003(c)(3)
(incorporating FED. R. BANKR P. 3002(c)(4)). Ironically, a non-debtor contract party who
convinces a bankruptcy court that its contract is not executory and has not yet filed a proof of
claim may find that its claim is time-barred.
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The Rejection Motion was unnecessary for an additional reason. Hawker’s plan provides
that unless an unexpired contract is expressly assumed, it will be deemed rejected. See 11 U.S.C.
§ 1123(b)(2) (a plan may provide, subject to Bankruptcy Code § 365, “for the assumption,
rejection, or assignment of any executory contract or unexpired lease of the debtor not previously
rejected under such section.”). If Hawker does not expressly assume the contracts containing the
Hawker 4000 and Premier warranty and support obligations, they will be deemed rejected upon
confirmation without regard to the Rejection Motion. And if the obligations are not executory, as
most of the objecting parties contended, Hawker would not have to do anything. In that case, the
obligees would hold pre-petition claims for breach. While the Rejection Motion makes clear to
these obligees that Hawker will not honor these Hawker 4000 and Premier Customer Programs,
the Amended Disclosure Statement sent the same message.
Despite the conclusion that the Rejection Motion was unnecessary, Hawker made it, the
remaining objectors objected to it and the Court must decide it. No one disputes that Hawker
had material unfulfilled Hawker 4000 and Premier Limited Warranty and Support Plus Program
obligations as of the petition date. Instead, the question is whether the non-debtor contract
parties did too. Certain of the objectors imply that warranty obligations are not or cannot be
executory, citing In re GEC Indus., Inc., 107 B.R. 491 (Bankr. D. Del. 1989) and In re Shada
Truck Leasing, Inc., 31 B.R. 97 (Bankr. D. Neb. 1983). So sweeping a statement cannot be right
because the question of executoriness depends on the terms of the agreement containing the
warranty or support obligations. Thus, without commenting on the correctness of the objectors’
authorities, they are inapposite and do not provide guidance in deciding the issues presented by
the Rejection Motion.
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B. 	Executoriness
1. 	Aircraft Purchase Agreements
As discussed earlier, the Aircraft Purchase Agreements impose numerous terms and
conditions on the buyer of an aircraft; some of these terms and conditions do not necessarily
relate to the Limited Warranty obligations. Nevertheless, because a debtor must assume or reject
an entire contract, and cannot cherry-pick the provisions it does not like, a court must consider
the entire agreement. Some of the terms in the Aircraft Purchase Agreements appear to be
conditions rather than duties; their non-occurrence may excuse Hawker’s performance but do not
constitute breaches, let alone material breaches, of these agreements. For example, Hawker may
be discharged from honoring the Limited Warranty if the customer fails to maintain, operate or
store the aircraft in accordance with certain manuals and other written instructions.
Nevertheless, the buyer does not undertake a duty to Hawker to maintain, operate or store the
aircraft in any particular manner, and Hawker does not suffer an injury if the buyer does so in a
manner inconsistent with Hawker’s manuals and instructions.
Other obligations, however, clearly impose duties on the buyer. As discussed, the buyer
must indemnify Hawker under certain circumstances in connection with the pilot and crew
training program or if it fails to comply with export control regulations, it must follow certain
protocols with respect to the assignment of its rights, and it must maintain the terms and
conditions of the Aircraft Purchase Agreement in confidence. Ordinarily, the materiality of these
promises would be a question of fact requiring a trial. Almena State Bank v. Enfield, 954 P.2d
724, 727-28 (Kan. Ct. App. 1998). However, if the parties contractually agree that some or all of
the terms are sufficiently important to discharge any further obligations imposed on the party
aggrieved by a breach, their intent will govern. See Gen. Datacomm Indus., Inc. v. Arcana (In re
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Gen. Datacomm Indus., Inc), 407 F.3d 616, 623-24 (3d Cir. 2005) (provision in Benefit Plan that
allowed corporation to terminate the employee’s rights if he failed to comply with certain
covenants, including the agreement not to compete and to maintain confidentiality, rendered
those covenants material); Dunkin’ Donuts of Am., Inc. v. Middletown Donut Corp., 495 A.2d
66, 75 (N.J. 1985) (enforcing provision in franchise agreement that rendered underreporting of
sales a material breach of contract that allowed franchisor to terminate franchise and sue for
damages); 23 RICHARD A. LORD, WILLISTON ON CONTRACTS § 63:3 (4th ed. 2002) (“Where the
contract itself is clear in making a certain event a material breach of that contract, a court must
ordinarily respect that contractual provision.”); cf. Dexter v. Drake, 269 P.3d at 856 (“The
doctrine of substantial performance does not apply where the parties, by the terms of their
agreement, make it clear that only complete performance will be satisfactory.”).
Here, the parties contractually agreed that the buyer’s material breach of any term, even
an immaterial term, would allow Hawker to terminate the Aircraft Purchase Agreement and sue
for specific performance. The failure to indemnify Hawker or maintain the confidentiality of the
terms and conditions of the Aircraft Purchase Agreement would constitute material breaches of
the indemnity and confidentiality provisions. Similarly, the assignment of the Aircraft Purchase
Agreement without Hawker’s written consent was prohibited and would materially breach that
provision. (See Aircraft Purchase Agreement, at General Terms and Conditions, § 27(A).) 	In
short, a buyer could commit a material breach of the Aircraft Purchase Agreement even after
delivery of the aircraft that would allow Hawker to terminate the agreement and sue.
Accordingly, the Aircraft Purchase Agreements are executory.
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2. 	Support Plus
The Support Plus Agreements are also executory. The Premier customer must make
periodic payments. The Hawker 4000 customer pre-paid for the Support Plus Program, but was
still obligated to pay an Excessive Landing charge if the ratio of flight time to landings fell
below a certain number. In addition, the buyers under both programs had additional obligations,
including submitting utilization reports, paying various other charges, maintaining a logbook,
providing access to Hawker and reporting certain airworthiness issues relating to the
maintenance performed under the Support Plus Program. If the customer fails to pay as required
and Hawker sues to recover the unpaid charges, the customer is also liable for Hawker’s
reasonable attorneys’ fees, costs and expenses. Finally, Hawker has the right to terminate the
Support Plus Agreement if the customer breaches any of the terms or conditions, including these
affirmative duties.
3. 	Other Warranties
Immediately following the hearing, the Court denied the Rejection Motion to the extent of
Customer Programs other than those pertaining to the Hawker 4000 and Premier Limited
Warranty and Support Plus Program. Hawker failed to produce the other underlying Customer
Program agreements, and hence, failed to demonstrate that they were executory. (Tr. at 67-68.)
C. 	Business Judgment
The decision to assume or reject an executory contract involves the exercise of business
judgment. See In re Orion Pictures Corp., 4 F.3d 1095, 1099 (2d Cir. 1993). Here, Hawker
demonstrated that the decision to reject the Limited Warranty and Support Plus Programs
represents the exercise of sound business judgment, flowing naturally from the decision, which
no one questions, to stop manufacturing and selling the Hawker 4000 and Premier aircraft. The
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decision to stop manufacturing may cause parts manufacturers to withdraw from the market or
deal with Hawker on less favorable terms. At the high end, it could cost Hawker more than $240
million to perform these obligations through 2017. Hawker also considered the possible cost of a
spill over loss of business, and the decision reflects Hawker’s business judgment that the benefits
of rejection outweigh the benefits of performance.
This conclusion necessarily rejects the argument that Hawker must show something more
than ordinary business judgment because the operation of aircraft involves public safety. No
cases are cited suggesting that the decision to reject an aircraft warranty or maintenance
agreement is subject to a higher standard. Nor does the decision to reject conflict with any
federal statutory or regulatory scheme governing aircraft. The aircraft owner—not the
manufacturer—bears the responsibility for maintaining the aircraft. See 14 C.F.R. § 91.403(a)
(2012) (“The owner or operator of an aircraft is primarily responsible for maintaining that
aircraft in an airworthy condition . . . .”); Id. § 91.405(a) (“Each owner or operator of an
aircraft—[s]hall have that aircraft inspected as prescribed in subpart E of this part and shall
between required inspections, except as provided in paragraph (c) of this section, have
discrepancies repaired as prescribed in part 43 of this chapter”); Id. § 91.7(a) (providing that “no
person may operate a civil aircraft unless it is an airworthy condition”); Id. § 91.7(b) (providing
that “the pilot in command of a civil aircraft is responsible for determining whether the aircraft is
in condition for safe flight.”).
The argument also makes no sense given the limited nature of the limited nature of the
warranty and support obligations. They will eventually expire. The owners will then have to
pay for maintenance and support, or stop flying their aircraft. Hawker’s decision not to honor
the Hawker 4000 and Premier Limited Warranty and Support Plus Programs is not a public
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safety issue. It is a monetary issue that forces the owners to pay for the maintenance and support
sooner and possibly at a higher cost, but they can still purchase that maintenance and support
from Hawker or from third-parties.
D. 	Judicial Estoppel
“Judicial estoppel is designed to prevent a party who plays fast and loose with the courts
from gaining unfair advantage through the deliberate adoption of inconsistent positions in
successive suits.” Wight v. BankAmerica Corp., 219 F.3d 79, 89 (2d Cir. 2000); accord Zedner
v. United States, 547 U.S. 489, 504 (2006); New Hampshire v. Maine, 532 U.S. 742, 749 (2001);
Bates v. Long Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir. 1993). The doctrine serves two
purposes: “to preserve the sanctity of the oath by demanding absolute truth and consistency in all
sworn positions,” and to “protect judicial integrity by avoiding the risk of inconsistent results in
the two proceedings.” Bates, 997 F.2d at 1037-38.
The application of judicial estoppel is discretionary, and three factors generally inform
the court’s discretion. First, the party’s position must be “‘clearly inconsistent’ with its earlier
position”; second, the party must have “succeeded in persuading a court to accept that party’s
earlier position”; and third, “the party seeking to assert an inconsistent position would derive an
unfair advantage or impose an unfair detriment on the opposing party if not estopped.” New
Hampshire v. Maine, 532 U.S. at 750-51; accord Zedner, 547 U.S. at 504; see Uzdavines v.
Weeks Marine, Inc., 418 F.3d 138, 148 (2d Cir. 2005). The Second Circuit has taken a fairly
narrow view of the doctrine, stating that judicial estoppel is limited “to situations where the risk
of inconsistent results with its impact on judicial integrity is certain.” Uzdavines, 418 F.3d at
148 (quoting Simon v. Safelite Glass Corp., 128 F.3d 68, 72 (2d Cir. 1997)).
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Some of the objecting parties argued that Hawker is attempting to take a position on the
Rejection Motion inconsistent with the one it successfully took on the Motion to Honor. For
example, McGrath pointed to Hawker’s earlier statements that the warranty and support
obligations did not require significant cash expenditures in most instances, were critical to
maintaining certain aspects of Hawker’s revenue and ongoing viability and were necessary to
assure its customers and potential future customers that its reorganization would cause minimal
disruptions to its operations. (McGrath Objection at ¶ 18.) According to Pace, Hawker
previously argued that “performance of their warranty obligations were critical to the
restructuring of the Debtors and to future sales.” (Pace Objection at ¶ 20.) McGrath and Pace
have withdrawn their objections, but before then, RCS joined in and adopted those objections as
its own. (RCS Objection at 3.)
Hawker’s position at the time of the Motion to Honor is not “clearly inconsistent” with its
current position on the Rejection Motion, and will not lead to an inconsistent result. Hawker’s
earlier statements were made when it was still possible that Hawker might sell or continue some
or all of its jet product lines and honor associated warranty and support obligations. As a result,
Hawker decided at that time that it was important to maintain the loyalty of its jet customer base,
and to continue on a discretionary basis to honor the Customer Programs pertaining to the
Hawker 4000 and Premier aircraft. Nevertheless, Hawker did not unconditionally commit itself.
The Motion to Honor and resulting orders authorized but did not direct Hawker to honor any of
the Customer Programs, left the decision to its sole discretion, did not assume any executory
contracts and reserved all of Hawker’s rights.
Hawker eventually found itself left with only one option. It proposed a plan under which
it will terminate the production of all or substantially all of its jet product lines, including the
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Hawker 4000 and Premier aircraft. Although Hawker understandably feels an obligation to
continue to support all of its former customers, it decided to reject the Hawker 4000 and Premier
warranty and support obligations based upon its decision to stop producing these aircraft, the
substantial cost to Hawker of honoring the obligations and the implicit conclusion that any
possible spillover effect on its other business did not justify a different outcome. The two
positions are not inconsistent; rather they reflect changed circumstances and different
considerations that necessarily informed Hawker’s business judgment at different times.
The evidence also fails to disclose that Hawker gained an unfair advantage or imposed an
unfair detriment on the Hawker 4000 and Premier buyers that hold rights under a Limited
Warranty or Support Plus Program. Hawker’s early decision to honor these warranty and
support obligations resulted in a cost to Hawker without a corresponding material benefit. To the
extent Hawker provided warranty or support services post-petition under pre-petition agreements
that it did not assume, the beneficiaries obtained an advantage by receiving a “distribution” on
their unsecured contract claims. Furthermore, even if the results of the Motion to Honor induced
someone to buy a Hawker 4000 or Premier jet, Hawker cannot reject a post-petition Aircraft
Purchase Agreement or Support Plus Agreement anyway. Accordingly, I conclude that Hawker
is not judicially estopped in taking its current position.
E. 	Unfair Discrimination
RCS charged Hawker with discriminating against similarly-situated holders of warranty
and support rights by rejecting some but not all of its warranty obligations. Instead, Hawker
“could ratably reduce warranty benefits to all plane models in order to avoid preferring certain
model owners over others.” (RCS Objection at 3.)
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This argument is frivolous. No principle of bankruptcy law requires a debtor to assume
or reject all of its similar contracts. Furthermore, RCS’s reference to the “confirmation
requirements that similarly situated creditors receive similar treatment,” (id.), is misguided. The
requirement contained in 11 U.S.C. § 1123(a)(4) that the plan provide the same treatment to each
claim in a particular class, unless the holder of the claim agrees to less favorable treatment,
simply means that RCS, as a member of the unsecured class, will receive the same distribution as
the other members of its class, unless it agrees to take something less. The requirement under 11
U.S.C. § 1129(b) that the plan cannot unfairly discriminate against a rejecting class only applies
in a cram down, and requires the court to compare the rights granted under the plan to similar
classes, at least one of which has rejected the plan. The Rejection Motion is not governed by
sections 1123(a)(4) or 1129(b) (or section 547 which RCS also cites), and these provisions do
not require Hawker to assume all of its warranty and support obligations or spread the hurt
ratably among similarly-situated non-debtor contract parties.
F. 	The Rotorwing Objection
1. 	Background
On or around November 12, 2009, Lider International Aviation, B.V. (“Lider”) entered
into an agreement with Hawker to buy a used Premier aircraft for $3,900,000. (See Rotorwing
Objection at ¶ 4; Resale Aircraft Purchase Agreement (“Resale Agreement”).)14 The Resale
Agreement incorporated several documents by reference, including General Terms and
Conditions (“General Terms”), a warranty (the “Lider Warranty”), and an Addendum to Resale
Agreement (“Addendum”). The Lider Warranty provided that from the date of the original retail
14 The Resale Agreement is attached as Exhibit A to the Rotorwing Objection. The other contract documents
discussed in this section are attached either as exhibits to the Resale Agreement or as a separate Exhibit B to the
Rotorwing Objection.
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sale—March 4, 2008—Hawker warranted the factory manufactured parts and supplier systems
and components for five years, Collins Avionics for five years, Williams-Rolls Engines for three
years or 1,500 hours from first use, whichever occurred first, and exterior paint and interior
finish items for two years. The General Terms also imposed several obligations on the buyer
which are discussed below.
The parties consummated the sale on November 30, 2009, at which time Hawker
transferred title to the aircraft and Lider paid the balance of the purchase price. (Rotorwing
Objection at ¶ 5.) On August 26, 2010, Lider sold the aircraft to Helicoptor Finance, LLC, and
on the same day, the latter leased the aircraft to Rotorwing with an option to purchase it. (Id. at
¶¶ 6-7.)
2. 	Rotorwing’s Objection
Rotorwing raised three objections to the Rejection Motion: (1) the Court lacks personal
jurisdiction over Rotorwing because it was not properly served, (2) the Resale Agreement, which
includes the Lider Warranty that Hawker seeks to reject, is not executory, and (3) the doctrine of
judicial estoppel bars Hawker from rejecting its Customer Programs for Hawker 4000 and
Premier aircraft. The Court has already overruled the last point and proceeds to the other two.
a. Sufficiency of Service
Rotorwing is an entity located in the Netherlands. According to Hawker’s affidavit of
service, it served the Rejection Motion on Rotorwing by addressing it to the attention of the
“president or legal department,” and enclosing it “securely in [a] separate postage pre-paid
envelop[e] and delivered via overnight mail.” (Affidavit of Service, sworn to Nov. 27, 2012
(ECF Doc. # 833).)
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Bankruptcy Rule 6006 governs the procedure for assuming or rejecting an executory
contract. It makes Bankruptcy Rule 9014 applicable, F ED. R. BANKR. P. 6006(a), and the
Rejection Motion must, therefore, be served in the manner provided for the service of the
summons and complaint under Bankruptcy Rule 7004. See FED. R. BANKR . P. 9014(b).
Bankruptcy Rule 7004(b)(3) authorizes service on a corporation by first class mail, but is limited
to mailing within the United States. However, Bankruptcy Rule 7004(a) incorporates the
provisions of rules 4(f) and 4(h) of the Federal Rules of Civil Procedure (“Federal Civil Rules”),
which govern service in a foreign country.
Federal Civil Rule 4(f), which governs service on an individual in a foreign country,
provides:
Unless federal law provides otherwise, an individual—other than a minor, an
incompetent person, or a person whose waiver has been filed—may be served at a
place not within any judicial district of the United States:
(1) by any internationally agreed means of service that is reasonably calculated
to give notice, such as those authorized by the Hague Convention on the
Service Abroad of Judicial and Extrajudicial Documents;
(2) if there is no internationally agreed means, or if an international agreement
allows but does not specify other means, by a method that is reasonably
calculated to give notice:
(A) as prescribed by the foreign country’s law for service in that country
in an action in its courts of general jurisdiction;
(B) as the foreign authority directs in response to a letter rogatory or letter
of request; or
(C) unless prohibited by the foreign country’s law, by:
(i) delivering a copy of the summons and of the complaint to the
individual personally; or
(ii) using any form of mail that the clerk addresses and sends to the
individual and that requires a signed receipt; or
(3) by other means not prohibited by international agreement, as the court
orders.
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Federal Civil Rule 4(h), which governs service on a corporation, states in relevant part
that “[u]nless federal law provides otherwise . . . a domestic or foreign corporation . . . must be
served . . . (2) at a place not within any judicial district of the United States, in any manner
prescribed by Rule 4(f) for serving an individual, except personal delivery under (f)(2)(C)(i).”
Thus, with the exception of personal delivery, Rule 4(h) incorporates Rule 4(f) and permits
service in accordance with the Hague Convention on the Service Abroad of Judicial and
Extrajudicial Documents (“Hague Convention”). Rotorwing was served in the Netherlands, and
the Netherlands is a party to the Hague Convention. See Tinsley v. ING Grp., No. Civ.A. 05-
808-KAJ, 2006 WL 533375, at *1 (D.Del. Mar. 3, 2006).
Article 10(a) of the Hague Convention states that “[p]rovided the State of destination
does not object, the present Convention shall not interfere with - (a) the freedom to send judicial
documents, by postal channels, directly to persons abroad.” The Netherlands has not objected to
sending judicial documents by “postal channels,” Tinsley, 2006 WL 533375, at *1, and
consequently, service of process through a “postal channel” on a corporation in the Netherlands
is permissible, even if it does not comply with the requirements of Federal Civil Rule 4. See
Ackermann v. Levine, 788 F.2d 830, 840-41 (2d Cir. 1986).
Although this conclusion appears to dispose of Rotorwing’s objection to service, a
question remains. The affidavit of service does not indicate that Hawker sent the Rejection
Motion using the United States Postal Service or that it was routed to Rotorwing by an equivalent
organization in the Netherlands. I infer that Hawker used a private overnight international mail
courier service such as Federal Express. The question is whether a private courier is a “postal
channel” within the meaning of Article 10(a).
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“Postal channels” is not defined in Article 10(a). Richard J. Hawkins, Dysfunctional
Equivalence: The New Approach to Defining “Postal Channels” Under the Hague Service
Convention, 55 UCLA L. Rev. 205, 223 (2007). Nevertheless,
In 2006, the Permanent Bureau of the Hague Conference on Private
International Law (Permanent Bureau), the intergovernmental organization
that acts as the Convention's secretariat, took a position that transmission of
documents via postal channels can include transmission by modern
commercial and technological means, provided that transmission through
these alternative means constitutes the “functional equivalent” of a postal
channel.
Id. at 207-08.
The use of a courier service is the functional equivalent of sending the Rejection Motion
through the United States Post Office. Here, Rotorwing received what Hawker sent. Moreover,
some courts have concluded that service by private international courier satisfies Article 10(a)
provided that the receiving nation has not objected. R. Griggs Grp. Ltd. v. Filanto Spa, 920 F.
Supp. 1100 (D.Nev. 1996) (upholding service by Federal Express under Article 10(a) of the
Hague Convention); Power Integrations, Inc. v. Sys. Gen. Corp., No. C 04-02581 JSW, 2004
WL 2806168, at *2 n.3 (N.D. Cal. Dec. 7, 2004) (stating that Griggs found that Federal Express
was a “postal channel” for purposes of the Hague Convention); cf. Kelley v. Cinar Corp. (In re
Cinar Corp. Sec. Litig.), 186 F. Supp. 2d 279, 303-04 (E.D.N.Y. 2002) (questioning but not
deciding whether Purolator Courier is a postal channel within the meaning of Article 10(a) of the
Hague Convention). In addition, the use of an international courier service is consistent with due
process, see Dee-K Enter., Inc. v. Heveafil Sdn. Bhd., 174 F.R.D. 376, 381-82 (E.D.Va. 1997)
(upholding service of process by DHL courier in Indonesia and Malaysia), and Rotorwing has
not suggested otherwise. Accordingly, the Court concludes that service by overnight
international courier on Rotorwing complies with Article 10(a) of the Hague Convention and the
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requirements of due process under the law of the United States, and Rotorwing’s objection based
on the sufficiency of service is overruled.
In re Teknek, LLC, 512 F.3d 342 (7th Cir. 2007), on which Rotorwing relies, is
distinguishable. There, a creditor commenced a contested matter moving to hold Hamilton in
contempt. Hamilton lived in Scotland, and instead of serving Hamilton where she lived, the
creditor mailed a copy of the motion to Hamilton’s lawyer in Chicago. The Court of Appeals
stated that under the Hague Convention, service by mail is not allowed, and suggested that
Hamilton had to be served personally in Scotland. Id. at 345-46.
While the Court of Appeals correctly concluded that service on Hamilton’s attorney in
Chicago was insufficient under Bankruptcy Rules 9014(b) and 7004, its statement that service by
mail under the Hague Convention is never permissible conflicts with the Second Circuit’s ruling
in Ackermann. To the contrary, service by mail on a corporation is permissible under the Hague
Convention where, as in the case of the Netherlands, the nation in which service is made does
not object to the use of “postal channels.” 15
b. 	Executoriness
The principles governing the question of executoriness are set out above. The Resale
Agreement did not incorporate the broader Limited Warranty contained in the Premier Aircraft
15 	International service by courier or even by first class mail is arguably insufficient under the internal law of
the Netherlands. See Tinsley, 2006 WL 533375, at *1 (noting that in the Netherlands, “[s]ervice of process by
international registered mail is permitted under Dutch law in administrative, civil and criminal cases” (quoting The
Netherlands Judicial Assistance, available at http:// travel.state.gov/law/info/judicial). However, the focus is on the
requirements of service in federal court under the Hague Convention—an international treaty—not the rules
governing the service of process in proceedings in the Netherlands. Regarding the former, the Netherlands has
never objected to service through “postal channels,” and Rotorwing does not contend that service under Article
10(a) must comply with the Netherlands’ own internal rules.
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Purchase Agreement. Furthermore, the Lider Warranty had largely expired by the petition date,
and Hawker’s only remaining obligations related to the factory manufactured parts and systems
and components supplied by Collins Avionics.
The Resale Agreement also imposed obligations on the buyer beyond payment. It
contained a confidentiality provision that, with certain exceptions, prohibited either side from
disclosing its terms to a third party without the express written approval of the other party.
(Resale Agreement, at General Terms, at § IV, ¶ 10.) The buyer also agreed that would not
register or allow any registration against the aircraft pursuant to the Cape Town Treaty as
defined in the General Terms without the seller’s written authorization. (Id. at § IV, ¶ 11.) In
the event the buyer intended to export the aircraft, it promised to comply with all United States
export laws and indemnify the seller for any consequences arising from the failure to comply
with those laws. (Id. at § IV, ¶ 12.) The parties agreed that any work needed to meet the
requirements for obtaining an export certificate of airworthiness, aircraft registration or
airworthiness certification from any aviation authority other than the United States Federal
Aviation Administration would be borne by the buyer, and the buyer agreed to indemnify the
seller for any such costs. (Id. at § IV, ¶ 15.) Finally, the buyer agreed to indemnify the seller
and others from any liability, except for willful misconduct or gross negligence, arising directly
or indirectly out of or in connection with the aircraft familiarization and training program
provided under the Resale Agreement. (Resale Agreement, at Addendum, § 2(b).)
Unlike the Aircraft Purchase Agreements, the Resale Agreement did not include a
provision that made any breach of its terms and conditions material. Because materiality is a
question of fact, the absence of such a clause precludes the Court from deciding as a matter of
law that Rotorwing had material obligations remaining as of the petition date that would render
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the Resale Agreement executory. A hearing is necessary to resolve this question, although for
the reasons stated earlier, is unnecessary to free Hawker from the duty to provide warranty or
support services to Rotorwing under the Resale Agreement. In the event that Hawker desires a
hearing, it should consult with Rotorwing and contact chambers to schedule one.
CONCLUSION
The Rejection Motion is granted with respect to the Aircraft Purchase Agreements and
Support Plus Agreements pertaining to the Hawker 4000 and Premier aircraft. It is denied with
respect to any other Customer Programs because Hawker has failed to show that the relevant
agreements are executory. Finally, a hearing is necessary to decide whether the Resale
Agreement is executory. Settle order on notice.
Dated: New York, New York
January 28, 2013
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Court
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