In re Delta Air Lines, Inc.

Summary

Claimants who were owner participants in leveraged aircraft leases appealed the disallowance of their tax indemnification claims against Delta Air Lines in bankruptcy. The Second Circuit held that the contractual exclusion provisions did not bar the claims merely because Delta’s obligations were discharged in bankruptcy or because payment of stipulated loss value was demanded or partially made. The court vacated the district court’s judgment and remanded with instructions to overrule Delta’s objections.

Holdings

1. The contractual reference to Delta having paid stipulated loss value was not satisfied by the discharge in bankruptcy of Delta's obligation to pay stipulated loss value. The bankruptcy court's interpretation was unreasonable because it nullified the tax-indemnification obligation in the very insolvency circumstances for which the agreements were designed to provide protection.
2. A demand by an Indenture Trustee that Delta pay stipulated loss value did not, without more, establish that Delta was required to pay stipulated loss value so as to trigger the DFO tax-indemnity exclusion. In any event, the record showed that the DFO Indenture Trustee filed claims for stipulated lease-rejection damages rather than stipulated loss value.
3. Payment of a percentage of stipulated loss value, or of lease-rejection damages calculated by starting with stipulated loss value, did not satisfy the Northwestern exclusion provision. The court did not definitively resolve every possible meaning of the phrase, but held that the parties could not have intended any partial payment, however small, to discharge the tax-indemnity obligation.
4. The Owner Participants' tax-indemnity claims were not barred merely because the Indenture Trustees also held stipulated-loss-value or lease-related claims. Separate obligations owed under separate contracts to different parties could coexist, particularly where the Owner Participants had suffered an uncompensated actual loss.

Questions Presented

1. Whether the tax-indemnification agreements' references to Delta having paid stipulated loss value included the bankruptcy discharge of Delta's obligations.
2. Whether the phrase requiring Delta to be required to pay stipulated loss value was satisfied merely by a demand for payment, without payment being made.
3. Whether payment of a percentage of stipulated loss value or lease-rejection damages calculated by reference to stipulated loss value discharged Delta's tax-indemnification obligations.
4. Whether the Owner Participants' tax-indemnification claims were barred because allowing them would create duplicative recovery for a single loss or violate bankruptcy equality-of-distribution principles.

Disposition

vacated