The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
This matter comes before the Court on the appeal of the
judgment of the bankruptcy court of March 30, 2004, by HSBC Bank
USA and California Statewide Communities Development Authority
("CSCDA"). For the reasons that follow, the decision of the
bankruptcy court is reversed.
CSCDA is a joint exercise-of-powers government agency
consisting of a number of California counties, cities, and other
local government agencies. CSCDA is organized pursuant to
Chapter 5 of Division 7 of Title 1 of the Government Code of the State of
California ("Joint Powers Act") and an Amended and Restated Joint
Exercise of Powers Agreement dated as of June 1, 1988, among the member local government agencies. Pursuant to the Joint
Powers Act, CSCDA is authorized to exercise the power of its
member local government agencies, among other things, to issue
revenue bonds to pay the cost and expenses of acquiring or
constructing publicly owned or operated commercial aviation
airports and airport-related facilities.
On June 18, 1973, United entered into the "Maintenance Base
Lease" with the City and County of San Francisco. Pursuant to the
lease, United leased certain ramp space and facilities at San
Francisco International Airport ("SFO"). To assist United in
developing certain facilities at SFO, United and CSCDA
consummated a transaction in 1997 pursuant to which CSCDA issued
tax-exempt revenue bonds in the amount of $154,845,000.00. The
funds from the sale of the bonds were made available to United in
accordance with the terms of the 1997 SFO transaction documents.
The 1997 SFO transaction was comprised of multiple documents
and agreements. Three agreements germane to the instant dispute
are: (1) the Site Sublease, (2) the Facilities Lease, and (3) the
Indenture of Mortgage and Deed of Trust ("Indenture").
Pursuant to the Site Sublease, United subleased to CSCDA an
approximately twenty-acre portion of the premises leased to
United under the Maintenance Base Lease for the nominal rent of
one dollar. The term of the Site Sublease is defined as the
period from September 1, 1997 to October 5, 2033, unless a
shorter or longer period is required to retire bonds to be issued
by CSCDA. There are no provisions for remedies for United for any
default by CSCDA.
CSCDA then sub-subleased the leased premises back to United
pursuant to the Facilities Lease. The term of the Facilities
Lease is identical to that of the Site Sublease. The Facilities
Lease's rental is the amount necessary to make the payments
required under the Indenture the amount needed to pay the bonds
in accordance with their terms as well as administrative costs.
The Facilities Lease's rental amount also constituted reasonable
compensation for the use and occupation of the relevant portion
of the SFO Maintenance Base Lease the 20-acre portion of the
130-acres the City and County leased to United. The Facilities
Lease provides default provisions and remedies, including CSCDA's
right to take possession of the leased facilities and relet them
if United fails to make the required payments.
The Indenture provides for the issuance of tax-exempt bonds by
CSCDA, for the SFO trustee to receive the proceeds of the sale of
bonds for purposes of funding construction of defined
improvements benefitting United, and for the SFO trustee to
receive the rental payments from United under the Facilities
Lease for the purpose of paying the debt service on the bonds and
ultimately retiring them. The Indenture indicates that the bonds
are "limited obligations" of CSCDA, payable only from the revenue
received from United and earnings on this revenue. Pursuant to
the Indenture, CSCDA assigned the Facilities Lease, including the
right to collect rents, to the Indenture trustee, presently HSBC
On December 9, 2002, United filed a voluntary petition under
Chapter 11 of Title 11, United States Code. On March 21, 2003,
United filed an Adversary Complaint, seeking a declaratory
judgment that certain of its payment obligations related to
airport improvements were not obligations arising under "leases"
pursuant to Section 365 of the Bankruptcy Code. Subsequently, all
parties moved for summary judgment on the issue of whether the
"leases" were true leases, as opposed to financing instruments.
On March 4, 2004, the bankruptcy court granted United's motion
for summary judgment. HSBC Bank and CSCDA appeal that judgment to
this Court. LEGAL STANDARD
A bankruptcy court's grant of summary judgment is reviewed de
novo. Hoseman v. Weinschneider, 322 F.3d 468, 473 (7th Cir.
2003) (Hoseman). All of the facts and the inferences therefrom
are viewed in the light most favorable to the nonmoving party.
Hoseman, 322 F.3d at 473. Similarly, a bankruptcy court's
interpretation of statute is a question of law reviewed de novo.
See Meyer v. Rigolon, 30 F.3d 1375, 1378 (7th Cir. 1994). The
Court reviews the bankruptcy court's factual findings for clear
error. Hoseman, 322 F.3d at 473.
Summary judgment is proper if "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
affidavits, if any, show that there is no genuine issue as to any
material fact." Fed.R. Civ. P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986). All the evidence and the
reasonable inferences that may be drawn from the evidence are
viewed in the light most favorable to the nonmovant. Miller v.
American Family Mut. Ins. Co., 203 F.3d 997, 1003 (7th Cir.
2000). Summary judgment may be ...