In re: ADAM AIRCRAFT INDUSTRIES, INC., Debtor.
JOSEPH K. WALKER, Defendant - Appellee JEFFREY A. WEINMAN, Chapter 7 Trustee, Plaintiff - Appellant,
APPEAL FROM THE BANKRUPTCY APPELLATE PANEL. (BAP NO. 13-49-CO).
Theodore J. Hartl, Lindquist & Vennum, Denver, Colorado, for Plaintiff-Appellant.
Thomas H. Blomstrom, Montgomery, Kolodny, Amatuzio & Dusbabek, L.L.P., Denver, Colorado, for Defendant-Appellee.
Before TYMKOVICH, Chief Judge, and HARTZ and PHILLIPS, Circuit Judges.
PHILLIPS, Circuit Judge.
Plaintiff Jeffrey Weinman is the Chapter 7 Trustee for Adam Aircraft Industries (" AAI" ). Defendant Joseph Walker was an officer of AAI and served as its president and as a member of its Board of Directors (the " Board" ) from 2004 through early 2007. Throughout his employment, Walker had neither a written employment contract nor a severance agreement with AAI.
In February 2007, the Board decided it wanted to replace Walker as both president and as a board member. Since AAI did not want Walker's termination to disrupt
its ongoing negotiations with Morgan Stanley for debt financing, AAI suggested that Walker could voluntarily " resign" in lieu of termination and could also continue to support the company publicly. Subsequently, Walker agreed. AAI and Walker executed a Memorandum of Understanding (" MOU" ) on February 13, 2007, outlining the terms of Walker's separation, and they also embodied these terms in two Separation Agreements and Releases executed on February 13 and May 18, 2007.
On February 15, 2008, about a year after terminating Walker, AAI declared bankruptcy. It then sued in bankruptcy court to avoid further transfers to Walker, to recover some transfers previously made to Walker, and to disallow Walker's claim on AAI's bankruptcy. It proceeded under 11 U.S.C. § § 502, 547, 548, and 550. The bankruptcy court denied AAI's claims under § § 502 and 550. Regarding its claims under § § 547 and 548, the court ruled against AAI on its § 548 claims but held that under § 547(b) AAI could avoid 90 days' worth of the monthly severance payments paid before the petition date--totaling $62,500.02--as ordinary preference to a creditor. The Bankruptcy Appellate Panel (" BAP" ) affirmed this ruling in its entirety. AAI now appeals the ruling regarding its claims under § 548, arguing that its obligations and transfers to Walker are avoidable under the statute on two alternative bases. Exercising jurisdiction under 28 U.S.C. § 158(d)(1), we AFFIRM the BAP's decision.
A. Factual Background
Joseph Walker served as the president and a board member of AAI from 2004 through early 2007. Throughout his time at AAI, Walker had neither an employment contract, nor a severance agreement, nor a non-compete agreement with AAI.
The relevant events here begin in early 2007, when the Board decided that it wanted to replace Walker and requested his resignation in lieu of firing him. On the night of February 1, George " Rick" Adam, AAI's founder, chairman, and CEO, met with Walker to relay the Board's decision--the first inkling Walker had that the Board was even discussing this, much less that it had already resolved the issue. During this meeting, Adam and Walker discussed the possibility of Walker's resigning rather than being terminated. Adam testified that this course of action was important to the Board because AAI was in the final stages of debt financing with Morgan Stanley and did not want Walker's termination to cause any drama in the financial markets that might imperil the deal.
After learning of the Board's decision, Walker returned to his office at AAI on the night of February 1 to collect his belongings. Shortly after midnight, Walker sent an email to Adam and copied another Board member, Sanjeev Mehra, making a variety of requests. Walker's terms included: (1) his staying on retainer as a consultant, with a promise not to compete with AAI, for two years at $250,000 a year; (2) his retaining his current health benefits; (3) AAI's returning of a $100,000 deposit he had put down for the purchase of an airplane; and (4) AAI's refunding of another $100,000 that he had invested in AAI's Series F stock.
Walker met with Mehra on the morning of February 2 and discussed generally the terms he had outlined in his e-mail regarding his resignation. Also that morning Duncan Koerbel, Walker's replacement as president, began his employment as president of AAI. Walker never entered AAI's facilities or performed any functions as president or as a board member of AAI after leaving AAI's facility early in the morning of February 2.
On February 5 the Board--in a telephone meeting--accepted Walker's resignation as president and as an AAI board member. The minutes of the meeting note that Walker's resignation as a director of the company was " effective February 2, 2007." Appellant's App. at 558. At this meeting, the Board appointed John Wolf to take Walker's seat on the Board and formally approved Koerbel's installation as president. The Board also discussed the severance package it would offer to Walker.
In the period between this meeting on February 5 and February 13, Walker and AAI negotiated the terms of his severance. While Walker requested two years of consultant work, the Board proposed 18 months with Walker's pay between months 12 and 18 contingent on his helping to maintain AAI's sales backlog of aircraft purchase orders at a certain level. Walker ultimately accepted this change, with the other terms of the agreement remaining the same as those proposed in his initial email. Walker and AAI executed the MOU outlining these terms on February 13. That same day, they also executed a formal Separation Agreement (" Separation Agreement I" ). Separation Agreement I stated that AAI would provide Walker with severance payments in the amounts outlined in the MOU and stated that Walker's " employment with [AAI] terminated effective March 1, 2007." Appellant's App. at 561.
AAI filed its voluntary petition for relief under Chapter 7 of the Bankruptcy Code on February 15, 2008, but four important things happened between Separation Agreement I's execution on February 13, 2007, and this date. First, on March 20, 2007, AAI paid Walker $105,704.11--his $100,000 aircraft deposit, plus interest. Second, on May 18, 2007, the parties executed another Separation Agreement (" Separation Agreement II" ). Separation Agreement II contained essentially the same terms as Separation Agreement I with one exception: the agreement now stated (with emphasis added to the new language) that Walker's " employment as President with [AAI] terminated effective March 1, 2007. [Walker's] position as field sales liaison began with [AAI] effective March 1, 2007." Appellant's App. at 565 (emphasis added). Third, on July 31, 2007, AAI paid Walker $100,002.00 to repurchase his 16,667 shares of Series F stock at its initial issue price of $6.00 per share. And, finally, between February 2, 2007, and February 15, 2008, AAI paid Walker $10,417.67 twice monthly, amounting to gross severance payments of $250,000.08 over 12 months.
Following AAI's bankruptcy petition, Weinman--acting as trustee--sold substantially all of AAI's assets for a gross purchase price of $10 million on April 15, 2008. Walker's post-resignation contracts were not sold or assigned any value during the sale of AAI's estate.
B. Procedural Background
As noted above, AAI filed its petition for bankruptcy relief on February 15, 2008, in the United States Bankruptcy Court for the District of Colorado. Walker filed a proof of claim in AAI's ...