Avianca Holdings S.A.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
) 	FOR PUBLICATION
In re: 	)
) 	Chapter 11
AVIANCA HOLDINGS S.A., et al., 	) 	Case No. 20-11133 (MG)
)
Debtors and Reorganized Debtors. 	) 	(Confirmed)
)
MEMORANDUM OPINION GRANTING THE REORGANIZED DEBTORS’
MOTION FOR AN ORDER IMPOSING CONTEMPT SANCTIONS AGAINST
CERTAIN FOREIGN PLAINTIFFS
A P P E A R A N C E S:
Milbank LLP
Counsel for Debtors and Reorganized Debtors
55 Hudson Yards
New York, New York 10001
By: 	Dennis F. Dunne, Esq.
Evan R. Fleck, Esq.
Benjamin Schak, Esq.
Gregory A. Bray, Esq.
MARTIN GLENN
CHIEF UNITED STATES BANKRUPTCY JUDGE
More than 150 Avianca creditors in Columbia and Brazil that filed proofs of claim in
these cases also filed lawsuits in courts in Columbia and Brazil that they continue to prosecute
and have refused to withdraw or discontinue. By filing proofs of claim in this Court, those
creditors submitted to the jurisdiction of this Court. Avianca’s confirmed chapter 11 plan and
the Bankruptcy Code discharge prepetition claims and enjoin the claimholders from commencing
or continuing any action or proceeding to enforce or collect on those claims. After
unsuccessfully trying to persuade these creditors to discontinue their foreign lawsuits, Avianca
now seeks to hold those creditors in civil contempt.
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Avianca requests the Court to enter an order imposing coercive sanctions, giving those
creditors 30-days to discontinue their foreign lawsuits, and if they fail to do so, disallowing their
claims in these cases. For the reasons explained below, the Court grants the requested relief,
conditionally disallowing the claims unless the creditors discontinue their foreign lawsuits within
30 days from the date of this Opinion and Order.
I. 	BACKGROUND
Pending before the Court is the Reorganized Avianca Holdings S.A. (“Avianca”) and its
above-captioned affiliates’ (collectively, the “Reorganized Debtors”) motion (the “Motion,” ECF
Doc. # 2644) for an order imposing sanctions on the Foreign Plaintiffs (as defined below) for
violations of section 524(a)(2) of the Bankruptcy Code and certain provisions of the Further
Modified Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors confirmed
on November 2, 2021 (the “Plan”). Attached to the Motion as Exhibit A is the Declaration of
Elizabeth Riaño Alarcón in Support of the Debtors’ Motion for Order Imposing Sanctions for
Violations of Section 524 of the Bankruptcy Code and Discharge and Injunction Provisions of
Their Confirmed Chapter 11 Plan (the “Riaño Declaration”). The objection deadline was
December 9, 2022. No objections were filed.
A. 	The Reorganized Debtors
On May 10, 2020 and on September 21, 2020 (each, the “Petition Date”), the
Reorganized Debtors’ predecessors in interest (the “Debtors”) filed voluntary petitions for relief
under chapter 11 of the Bankruptcy Code. The Debtors’ chapter 11 cases were jointly
administered pursuant to Bankruptcy Rule 1015(b) and the Amended Order (I) Directing Joint
Administration of Chapter 11 Cases and (II) Granting Related Relief [Docket No. 73] and the
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Order Directing Certain Orders in Chapter 11 Cases of Avianca Holdings S.A., et al. Be Made
Applicable to Subsequent Debtors [ECF Doc. # 1030].
The Debtors operated their businesses and managed their properties as debtors in
possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code until they emerged
from bankruptcy protection on December 1, 2021. Additional information regarding the
Debtors’ business, capital structure, and the circumstances leading to the filing of their chapter
11 cases is set forth in the Declaration of Adrian Neuhauser in Support of the Debtors’ Chapter
11 Petitions and First Day Orders [ECF Doc. # 20].
On November 2, 2021, the Court entered the Order (I) Confirming Further Modified
Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors and (II) Granting
Related Relief [Docket No. 2300] (the “Confirmation Order”), and the Plan became effective on
December 1, 2021 (the “Effective Date”). See Notice of (I) Entry of Order Confirming Further
Modified Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors, (II)
Occurrence of Effective Date, and (III) Final Deadlines for Filing Certain Claims [ECF Doc. #
2384].
B. 	Foreign Litigation Claims
As of the applicable Petition Date, various judicial proceedings were pending against
certain Debtors in Colombia and Brazil. (Motion ¶ 4.) In addition, numerous actions, mostly on
account of claims that arose before the applicable Petition Date, were filed in these countries
against certain Debtors after the applicable Petition Date (together with the prepetition
proceedings, the “Foreign Actions”). (Id.) Many plaintiffs in the Foreign Actions (the “Foreign
Plaintiffs”) filed proofs of claim in the Debtors’ chapter 11 cases (the “Foreign Litigation Proofs
of Claim”) without discontinuing their Foreign Actions.
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Pursuant to section 1141(d)(1)(A) of the Bankruptcy Code, the confirmation of the Plan
has discharged the Debtors “from any debt that arose before the date of such confirmation .
. . .” 11 U.S.C. § 1141(d)(1)(A). Furthermore, section 524(a) of the Bankruptcy Code provides
that the foregoing discharge “operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to collect, recover or offset”
any “debt discharged under section . . . 1141 [of the Bankruptcy Code].” 11 U.S.C. § 524(a)(1),
(2).
To give effect to the foregoing provisions of the Bankruptcy Code, (i) section IX.B. of the
Plan provides that, except as otherwise provided therein, the Plan treatment provided to all
Claims “shall be in exchange for and in complete satisfaction, discharge, and release of all claims
and interests of any nature whatsoever,” and all such Claims “shall be satisfied, discharged and
released in full, and the applicable Debtor’s liability with respect thereto shall be extinguished
completely, including any liability of the kind specified under section 502(g) of the Bankruptcy
Code; and (d) all entities shall be precluded from asserting against such Debtors, such Debtors’
estates, the applicable Reorganized Debtors, their successors and assigns and their assets and
properties any other Claims . . . based upon any documents, instruments or any act or omission,
transaction or other activity of any kind or nature that occurred before the Effective Date” (the
“Discharge Provision”) and (ii) section IX.G of the Plan permanently enjoins all holders of Claims
against the Debtors, from and after the Effective Date, from taking the following actions (among
others), against the Debtors or Reorganized Debtors: “commencing or continuing in any manner
any action or other proceeding of any kind on account of or in connection with or with respect to
any such claims,” as well as from “enforcing, collecting, attaching or recovering by any manner
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or means any judgment, award, decree or order against such entities on account of or in connection
with or with respect to any such claims” (the “Injunction Provision”).
The Reorganized Debtors argue that the very broad definition of “Claim” in section
101(5) of the Bankruptcy Code (which the Plan adopts), among other things, includes every
“right to payment, whether or not such right is reduced to judgment, . . . unliquidated, . . .
contingent, . . . disputed, . . . legal, equitable, secured or unsecured,” clearly covers the Foreign
Actions. (Motion ¶ 7.) Moreover, they also contend that by virtue of filing their respective
proofs of claim, the Foreign Plaintiffs have subjected themselves to the equitable jurisdiction in
this Court. See, e.g., Katchen v. Landy, 382 U.S. 323, 337 (1966); Bankruptcy Servs. v. Ernst &
Young (In re CBI Holding Co.), 529 F.3d 432, 466 (2d Cir. 2008) (citing Granfinanciera v.
Nordberg, 492 U.S. 33, 58 (1989)).
The Foreign Plaintiffs were given notice of both the Debtors’ efforts to gain
approval of the Disclosure Statement and of the confirmation of the Plan. (Motion ¶ 8.) The
Reorganized Debtors have written to the Foreign Plaintiffs and spoken to many of them (or their
counsel where such information was available) to inform them of the violations. (See Riaño
Decl. ¶¶ 4-11.) In addition, the Reorganized Debtors have sent claimants and/or their counsel a
written final demand reiterating the approval and contents of the Plan and demanding that the
Foreign Plaintiffs withdraw their claims either in the applicable foreign jurisdiction or in the
Bankruptcy Court. (See id.) Thus, the Reorganized Debtors contend that Foreign Plaintiffs were
(or should have been) aware that their continued prosecution of the Foreign Actions violates the
Discharge Provision and Injunction Provision of the Plan, as well as section 524 of the
Bankruptcy Code. Most recently, the Reorganized Debtors sent written communications to the
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Foreign Plaintiffs (or their counsel) demanding that they either discontinue the applicable
Foreign Action(s) or withdraw their Proof(s) of Claim. (See id.)
II. 	LEGAL STANDARD
In its decision in Taggart v. Lorenzen, the Supreme Court established that a court is
authorized under the Bankruptcy Code to impose civil contempt sanctions when “there is no
objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the
discharge order.” 139 S. Ct. 1795, 1801 (2019). Section 105(a) of the Bankruptcy Code gives
this Court the power to “issue any order . . . that is necessary or appropriate to carry out the
provisions of [the Bankruptcy Code].” 11 U.S.C. § 105(a). This provision gives this Court the
power to “tak[e] any action . . . necessary or appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.” Id. The mechanism through which courts may take
“whatever action appropriate or necessary” to protect the “integrity of the bankruptcy system” is
their statutory contempt powers under section 105(a), as well as “whatever inherent contempt
powers the court may have.” Bessette v. AVCO Fin. Servs., Inc., 230 F.3d 439, 445 (1st Cir.
2000). Those contempt powers “inherently include the ability to sanction a party.” Id. (citing
Hardy v. United States (In re Hardy), 97 F.3d 1384, 1389–90 (11th Cir.1996) (recognizing that
courts’ contempt powers include authority to grant various forms of relief “to the extent . . .
necessary and appropriate to carry out the provisions of the Bankruptcy Code”)).
Generally, “Federal Courts consider two factors in determining whether to hold a party in
civil contempt: whether the alleged contemnor had notice of the court order, and whether that
person complied with the order.” In re Residential Capital, LLC, 571 B.R. 581, 585 (Bankr.
S.D.N.Y. 2017). In addition, “[t]o justify a civil contempt order, a movant must establish that
(1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof of
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noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to comply
in a reasonable manner.” Weston Capital Advisors v. PT Bank Mutiara, Tbk, 738 F. App’x
19, 21 (2d Cir. 2018). The Supreme Court has clarified that when a court uses its civil contempt
power (including in the bankruptcy context when invoked in conjunction with sections 105(a) and
524 of the Bankruptcy Code), an additional finding of bad faith or willfulness is not required.
Taggart v. Lorenzo, 139 S. Ct. at 1804.
Generally, bankruptcy courts award two types of sanctions under their civil contempt
power: coercive sanctions to encourage compliance or damages for monetary harm. See
Taggart v. Lorenzen, 139 S. Ct. at 1801; McComb v. Jacksonville Paper Co., 336 U.S. 187, 191
(1949) (“Civil contempt . . . is a sanction to enforce compliance with an order of the court or to
compensate for losses or damages sustained by reason of noncompliance.”); Bartel v. Shugrue
(In re Ionosphere Clubs, Inc.), 171 B.R. 18, 21 (S.D.N.Y. 1994).
III. 	DISCUSSION
The Motion raises two issues 1) whether contempt sanctions are appropriate and 2)
provided contempt sanctions are appropriate, what type of sanctions are proper. The Court finds
that contempt sanctions are warranted and that the Reorganized Debtors’ proposed sanctions are
proper under the circumstances.
A. 	Appropriateness of Contempt Sanctions
The Reorganized Debtors have established that contempt sanctions are proper given the
Foreign Plaintiffs’ violation of the discharge. As an initial matter, this Court has jurisdiction
over the Foreign Plaintiffs as all the Foreign Plaintiffs have filed proofs of claim in the chapter
11, which subjects them to the jurisdiction of this Court. See, e.g., Katchen v. Landy, 382 U.S.
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323, 337 (1966); Bankruptcy Servs. v. Ernst & Young (In re CBI Holding Co.), 529 F.3d 432,
466 (2d Cir. 2008) (citing Granfinanciera v. Nordberg, 492 U.S. 33, 58 (1989)).
Next, the Debtors have established that the Foreign Plaintiffs had notice of the Discharge
Order and the Injunction Provision and that, despite this notice, the Foreign Plaintiffs have not
complied with these orders by failing to discontinue their Foreign Actions. (See Riano Decl. ¶¶
5–11); In re Residential Capital, LLC, 571 B.R. 581, 585 (Bankr. S.D.N.Y. 2017) (requiring a
showing that the alleged contemnor had notice of the court order and did not comply with the
court order).
As required for contempt sanctions, the Reorganized Debtors have also established,
through the undisputed Riaño Declaration that 1) the Foreign Plaintiffs have failed to comply
with a clear and unambiguous order; 2) the proof of compliance is clear and convincing, and 3)
the Foreign Plaintiffs have not made diligent efforts to comply with this Court’s order. (Riaño
Declaration ¶ 4); See Weston Capital Advisors v. PT Bank Mutiara, Tbk, 738 F. App’x 19, 21 (2d
Cir. 2018).
First, the Reorganized Debtors have shown that the Foreign Plaintiffs have failed to comply
with a clear and unambiguous order—the Discharge Provision and Injunction Provision in the Plan.
The Injunction Provision explicitly provides that “commencing or continuing in any manner any
action or other proceeding of any kind on account of or in connection with or with respect to any
such claims,” as well as from “enforcing, collecting, attaching or recovering by any manner or
means any judgment, award, decree or order against such entities on account of or in connection
with or with respect to any such claims.” (Motion ¶ 6 (citing section IX.G of the Plan).) Further
it is undisputed that the broad definition of “claim” in the Discharge Provision includes the
Foreign Plaintiffs’ actions. Here, the Foreign Plaintiffs have continued to prosecute actions in
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connection with their claims, which were discharged through the Discharge Provision, in clear
violation of the Injunction Provision. (See Riaño Declaration ¶ 4.)
Second, evidence of such violations is clear and convincing. The Foreign Plaintiffs had
notice of the Discharge and Injunction Provisions, and flouted the provisions, nonetheless. The
Riaño Declaration explains in detail the Reorganized Debtors’ attempt to contact claimants and
counsel. (Id. ¶¶ 5–12.) The Declaration indicates that for the most part counsel did not respond to
repeated letters informing them of the violations and requesting that they discontinue the Foreign
Actions. (Id. ¶ 13.) One attorney who did respond was Mr. Ballen, who represents 156 of the
Foreign Plaintiffs against whom the Reorganized Debtors seek sanctions. (Id. ¶ 7.) In response to
the Reorganized Debtors’ demand that Mr. Ballen withdraw the Foreign Actions, Mr. Ballen stated
that he did not believe his clients have an obligation to choose between prosecuting their claims
in this Court or in the Colombian courts. (Id. ¶ 9.) Accordingly, despite the Reorganized Debtors’
diligent efforts to apprise claimants and counsel of the violations, the Foreign Plaintiffs have not
discontinued their Foreign Actions, and in the case of Mr. Ballen, have even indicated an intent to
actively continue the actions in direct violation of this Court’s order. (Id. ¶¶ 5–12.)
Finally, for these same reasons, it is clear that the Foreign Plaintiffs have not made diligent
efforts to comply. Despite being informed of their violations of the Discharge and Injunction
provisions, the Foreign Plaintiffs have made no efforts to comply and have not discontinued their
actions. (Id. ¶¶ 4–12.) Because the Reorganized Debtors have met the prongs of the Weston test,
contempt sanctions are appropriate here. See Weston, 738 F. App’x at 21.
B. Appropriateness of Reorganized Debtors’ Proposed Contempt Sanctions
The Reorganized Debtors’ proposed sanctions, giving Foreign Plaintiffs thirty days to
discontinue their actions and then disallowing the Foreign Litigation Proofs of Claims if they fail
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to do so, are proper under the circumstances. (See Motion ¶ 9.) As already stated, the purpose of
a civil contempt usually is to coerce compliance with a court order, and a coercive civil contempt
sanction may be conditioned on continued noncompliance. See M OORE ’ S FEDERAL PRACTICE , at
§ 37.51; Nat’l Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir.1998) (stating that because
the sanctions, which were entirely conditional and coercive, were imposed to compel obedience
to a court order, they were civil in nature). The Court has broad discretion to fashion a coercive
remedy based on the nature of the harm and the probable effect of alternative sanctions, and its
determination will not be disturbed absent a clear showing of abuse. EEOC v. Local 28, Sheet
Metal Workers, 247 F.3d 333, 336 (2d Cir.2001).
In considering what sanction to impose, the Court has considered (1) the character and
magnitude of the harm threatened by the continued contumacy; (2) the probable effectiveness of
the sanction in bringing about compliance; and (3) the contemnor’s financial resources and the
consequent seriousness of the sanction’s burden. See Terry, 886 F.2d at 1353 (citing Dole Fresh
Fruit Co. v. United Banana Co., 821 F.2d 106, 110 (2d Cir.1987)). A coercive sanction must be
reasonable in relation to the facts. See Terry, 886 F.2d at 1351.
Here, the harm, as the Reorganized Debtors point out, is that the Foreign Plaintiffs may
be able to obtain double recovery for their pre-petition claims, under the Plan and through the
Foreign Actions, if they do not discontinue the Foreign Actions. (Motion ¶ 19.) The proposed
sanctions are likely to be effective in abating this harm (at least to the extent of avoiding a double
recovery). If the Foreign Plaintiffs discontinue the Foreign Actions as required by this Order,
they can pursue their claims in the bankruptcy court, subject to any further objections of the
Reorganized Debtors. If they do not comply with the Court’s order, their claims will be
disallowed, as any double recovery will be obtained at the expense of Avianca’s other unsecured
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creditors whose recoveries would be unfairly diluted. Finally, because all the Foreign Plaintiffs
need to do for the proposed sanctions to abate is discontinue the Foreign Actions, there is no
financial burden on the Foreign Plaintiffs to come into compliance with this Court’s order.
Accordingly, the Court finds that the Debtors’ proposed sanction is reasonable in relation to the
facts. See Terry, 886 F.2d at 1351.
The Court notes that the Reorganized Debtors have cited no case, and the Court is not
aware of any case, in which a bankruptcy court has used conditional disallowance of a claim as a
contempt sanction. The Reorganized Debtors point out that the lack of precedent on this issue is
probably a product of the unique factual scenario. (Motion ¶ 26.) The Debtors note that the risk
of double recovery present here is ordinarily eliminated by a combination of section 502(b)(1)
(for debts that either have already been paid or otherwise expose the debtor to such risk (as, for
example, claims for both default interest and late charges) and section 1141 (for debts that have
been discharged).1 	(Id.) The Court finds here that given the injustice that would result from the
Foreign Plaintiffs’ double recovery, and the Foreign Plaintiffs’ clear contempt for this Court’s
order, that a sanction of conditional disallowance of the Foreign Plaintiffs’ claims is proper.
/ / / / /
/ / / / /
/ / / / /
1 	The Court agrees with the Debtors that the remedy they are seeking here is not a remedy of “equitable
disallowance,” which the Debtors note, the Bankruptcy Code does not provide for. (Motion ¶ 22.) The Reorganized
Debtors are not seeking equitable disallowance of the Foreign Litigation Proofs of Claim in that they are not asking
the Court to disallow the Foreign Litigation Proofs of Claim because of some inequitable or egregious conduct by
the Foreign Plaintiffs. (Id. ¶ 23.) What the Debtors are seeking is a contempt sanction that is tailored to the
particular circumstances at hand. If the Foreign Plaintiffs comply with this Court’s orders within thirty days, their
claims will not be disallowed. (Motion ¶ 9.)
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IV. 	CONCLUSION
For the reasons described above, the Motion is GRANTED. A separate order will be
entered granting the requested relief.
Dated: January 27, 2023
New York, New York
_____Martin Glenn__________
MARTIN GLENN
Chief United States Bankruptcy Judge
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