FILED APR 26 2022 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. NC-21-1080-TBG RS AIR, LLC, Debtor. Bk. No. 20-51604

RS AIR, LLC, Appellant, v. MEMORANDUM1 NETJETS SALES, INC.; NETJETS AVIATION, INC.; NETJETS SERVICES, INC., Appellees.

Appeal from the United States Bankruptcy Court for the Northern District of California M. Elaine Hammond, Bankruptcy Judge, Presiding

Before: TAYLOR, BRAND, and GAN, Bankruptcy Judges.

INTRODUCTION

Chapter 11 2 debtor RS Air, LLC appeals the bankruptcy court’s order

granting creditors NetJets Sales, Inc., NetJets Aviation, Inc., and NetJets

1 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 2 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code,

, and all “Rule” references are to the Federal Rules of Bankruptcy Procedure. Services, Inc. (collectively, “NetJets”) relief from the automatic stay to

setoff mutual debts under § 553(a) and Ohio law. We discern no abuse of

discretion. Accordingly, we AFFIRM. 3

FACTS 4

A. Prepetition events

Pre-petition, RS Air purchased one-sixteenth interests in two aircraft,

a Citation X and an Encore+, from NetJets. With each, the parties executed

several agreements. Those are valid and binding. Each contains an Ohio

choice-of-law provision.

After the Citation X crashed, RS Air desired to end the relationship,

offering to sell its fractional interests in both airplanes back to NetJets

pursuant to the agreements’ terms. NetJets also wished to repurchase the

interests, and the parties began negotiations. Unable to reach a consensus,

NetJets eventually sued RS Air in Ohio state court (the “State Court

Action”). There, it sought to force specific performance of the sale and

3 The bankruptcy court’s order both granted stay relief to allow setoff and adjudicated the merits of setoff. In some circumstances, that might be error. See Arkison v. Griffin (In re Griffin),

(9th Cir. 2013) (“A proceeding to determine eligibility for relief from a stay only determines whether a creditor should be released from the stay in order to argue the merits in a separate proceeding.”). However, RS Air does not raise the issue. And it waived the argument by consenting to indeed, requesting the procedure below. See Trial Tr. 15:6–21, Feb. 25, 2021. 4 A more fulsome recitation of the parties’ relationship and attendant facts is set

forth in our concurrent disposition of Netjets’ appeal of the confirmation order. Below are the facts most relevant to this appeal. All are undisputed. We also exercise our discretion to take judicial notice of documents electronically filed in the bankruptcy court, where appropriate. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 2 repurchase and to recover unpaid fees for services performed and

damages.

B. RS Air’s bankruptcy, plan, and stay relief proceedings

RS Air’s Chapter 11 filing stayed that proceeding.5 Shortly after,

NetJets filed a $2,133,363 proof of claim. It stems from the rights and

obligations asserted in the State Court Action. Notably, no party has

objected.

After, NetJets moved for § 362(d) stay relief to continue the State

Court Action and to set off the funds it owes RS Air for the repurchase of

the fractional interests and operating fund credits against its proof of claim.

RS Air opposed. The bankruptcy court found NetJets established a right to

setoff and granted stay relief. RS Air timely appealed.

Sometime later, RS Air filed a third amended Chapter 11 plan.

Pertinent to the present discussion, it provides: “Upon confirmation . . . the

claim of NetJets . . . will be deemed allowed as filed and the Debtor’s

B.R. 227, 233 n.9 (9th Cir. BAP 2003). 5 Its bankruptcy schedules disclose the State Court Action and assert that any

claim arising therefrom is “unliquidated, disputed, [and] subject to setoff.” Although the Ninth Circuit has not decided whether bankruptcy schedules constitute judicial admissions, we have noted that statements in bankruptcy schedules carry evidentiary weight, and there exists a substantial body of case law holding that they amount to binding judicial admissions. Campbell v. Verizon Wireless S-CA (In re Campbell),

(9th Cir. BAP 2005) (“Debtors’ admissions in their bankruptcy schedules can be binding . . . .” (citing Heath v. Am. Express Travel Related Servs. Co. (In re Heath),

(9th Cir. BAP 2005)); see also In re Rolland,

, 421–23 (Bankr. C.D. Cal. 2004) (collecting cases). NetJets did not raise the issue here or below and so it is not considered further. 3 counterclaims will be deemed waived.” That plan was eventually

confirmed. 6 As well, NetJets repurchased the Citation X and Encore+

aircraft interests from RS Air for $385,692.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(2)(G). We have jurisdiction under

.

ISSUE

Whether the bankruptcy court abused its discretion in granting

§ 362(d) stay relief to allow setoff.

STANDARDS OF REVIEW

We review a bankruptcy court’s order granting relief from the

automatic stay for an abuse of discretion. Kronemyer v. Am. Contractors

Indem. Co. (In re Kronemyer),

(9th Cir. BAP 2009). We also

review a bankruptcy court’s allowance of setoff for abuse of discretion.

Camelback Hosp., Inc. v. Buckenmaier (In re Buckenmaier),

(9th Cir. BAP 1991). A bankruptcy court abuses its discretion if it applies an

incorrect legal standard or its factual findings are illogical, implausible, or

without support in the record. TrafficSchool.com, Inc. v. Edriver Inc.,

(9th Cir. 2011).

We may affirm on any ground fairly supported by the record. Wirum

v. Warren (In re Warren),

(9th Cir. 2009).

6 Netjets appealed the bankruptcy court’s confirmation order. We affirm that determination concurrently by separate order. 4 DISCUSSION

A. The applicable legal standards7

1. Relief from stay

Section 362(d)(1) provides that the bankruptcy court may grant relief

from the automatic stay upon a showing of “cause.” See § 362(d)(1).

“Cause” is undefined in the Bankruptcy Code. See § 101. Rather, it is a

discretionary determination made on a case-by-case basis. See In re

Kronemyer,

. However, “by establishing a right of setoff, the

creditor has established a prima facie showing of ‘cause’ for relief from the

automatic stay under § 362(d)(1).” United States v. Gould (In re Gould),

(9th Cir. BAP 2009) (quotation omitted), aff’d,

(9th Cir. 2010).

2. Setoff

Setoff “allows entities that owe each other money to apply their

mutual debts against each other, thereby avoiding ‘the absurdity of making

A pay B when B owes A.’” Newbery Corp. v. Fireman’s Fund Ins.,

, 1398 (9th Cir. 1996) (quoting Citizens Bank of Md. v. Strumpf,

(1995)).

Subject to exceptions not applicable here, § 553 provides that

bankruptcy does “not affect any right of a creditor to offset a mutual debt

7 RS Air does not dispute that the bankruptcy court identified and applied the correct legal standard. Thus, our review is limited to whether the bankruptcy court’s findings are illogical, implausible, or without support from the record. See Trafficschool.com, Inc.,

. 5 owing by such creditor to the debtor that arose before the commencement

of the case . . . against a claim of such creditor against the debtor that arose

before the commencement of the case[.]” § 553(a). So first, a creditor must

demonstrate a right of setoff under nonbankruptcy law. Biggs v. Stovin (In

re Luz Int’l, Ltd.),

(9th Cir. BAP 1998). Setoff under the

applicable Ohio law “is that right which exists between two parties, each of

whom under an independent contract owes a definite amount to the other,

to set off their respective debts by way of mutual deduction.” Witham v. S.

Side Bldg. & Loan Ass’n of Lima,

(Ohio 1938).

If the state law right is established, the party seeking settoff must also

establish it should be preserved in bankruptcy under § 553. In re Luz Int’l,

Ltd.,

. Setoff under § 553 requires the movant to prove timing

and mutuality. In re Buckemaier,

(citing Verco Indus. v.

Spartan Plastics (In re Verco Indus.),

(9th Cir. 1983)).

Under the timing prong, the claim sought to be offset must have arisen

before the filing of the bankruptcy petition. United States v. Carey (In re

Wade Cook Fin. Corp.),

(9th Cir. BAP 2007) (quoting

Newbery Corp., 95 F.3d at 1398). The mutuality prong requires the pre-

petition debts be in the same right, between the same individuals, standing

in the same capacity. In re Luz Int’l, Ltd.,

.

B. The bankruptcy court did not abuse its discretion in granting

stay relief to allow NetJets to set off its debt to RS Air

RS Air argues that the bankruptcy court erred in granting stay relief

6 by finding that NetJets established the right under both § 553 and Ohio

law. In RS Air’s opinion, these flaws mandated denial of stay relief and

thus require reversal. We disagree.

1. The bankruptcy court did not err in determining that

NetJets established a right to setoff under § 553.

RS Air first challenges the bankruptcy court’s determination that

NetJets established a right to setoff under § 553. It argues NetJets’ claim

arose pre-petition and its claim post-petition so the debts are not mutual.

While RS Air entitles its challenge one of mutuality, it is really of timing.8

This requirement arises from, and so is analyzed under, the Bankruptcy

Code and federal law. See In re Wade Cook Fin. Corp.,

.

The Code defines “debt” as a “liability on a claim.” § 101(12). And it

defines “claim” as a “right to payment, whether or not such right is

reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,

unmatured, disputed, undisputed, legal, equitable, secured, or

unsecured[.]” § 101(5). The term “’[d]ebt’ should be read as being

coextensive with the term ‘claim.’” In re Wade Cook Fin. Corp.,

(quoting United States v. Gerth,

(8th Cir. 1993)).

Together, “debt” and “claim” “encompass virtually any type of obligation

reducible to some monetary equivalence.” In re Luz Int’l,

8 RS Air does not dispute that the debts are in the same right and between the same individuals standing in the same capacity. Rather, it contends that one debt arose pre-petition and the other post-petition, so the timing element is not satisfied. We thus address only that requirement. 7 (quotation omitted).

It is insignificant that RS Air characterizes the obligation presently at

issue as contingent on completion of the repurchase or unliquidated. It is

undisputable that NetJets’ right to repurchase and RS Air’s consequential

right to payment is an obligation reducible to some monetary equivalence.

It is consequently a “debt” or “claim” and therefore qualifies for setoff so

long as it arose pre-petition.

“For setoff purposes, a debt arises when all transactions necessary for

liability occur, regardless of whether the claim was contingent,

unliquidated, or unmatured when the petition was filed.” Gerth,

. The question before us is thus: When did all the transactions

necessary for NetJets’ obligation to pay RS Air for the fractional aircraft

interests’ repurchase occur?9

RS Air argues that NetJets’ debt arose post-petition because: (1) the

parties’ agreements create a repurchase option; (2) NetJets did not exercise

that option until after RS Air filed for bankruptcy; and (3) the post-petition

exercise of an option cannot be set off against a pre-petition debt. This

argument is unavailing.

The relevant provision of each aircrafts’ purchase agreement

9 RS Air’s claim (and NetJets’ debt) is for: (1) the proceeds from NetJets’ repurchase of the fractional aircraft shares; and (2) operating fund credits arising from RS Air’s participation in NetJets’ fractional ownership program. RS Air does not disagree that its entitlement to the operating fund credits arose pre-petition. Instead, its assignment of error is limited only to the bankruptcy court’s determination that NetJets’ 8 provides: 10

[RS Air] hereby acknowledges and agrees that [NetJets] shall have the right and option, in addition to any other remedies [NetJets] may be entitled to, upon a material default by [RS Air] under any of the Operative Documents which results in the termination of the Management Agreement by [NetJets] or expiration of the Management Agreement in accordance with its terms, [to] repurchase [RS Air’s] Interest in the Aircraft for the then Fair Market Value of the Aircraft multiplied by the percentage equivalent of the interest . . . .

In the event of a repurchase of [RS Air’s] Interest hereunder, [NetJets] shall have ninety (90) days after receipt or giving of such notice to cause the repurchase to occur . . . .

So NetJets’ debt to RS Air accrued upon: (1) either (a) RS Air’s

material default under the parties’ agreements; or (b) expiration of the

management agreement by its terms; and (2) NetJets’ election to

repurchase. At that point, either could seek specific performance.

Both the Citation X’s and the Encore+’s management agreements

were negotiated, drafted, executed, and expired by their term pre-petition.

repurchase of the aircraft shares is a pre-petition obligation. 10 To the extent RS Air asserts that the Citation X interest’s repurchase is

governed by paragraph 20, that provision weakens rather than strengthens its argument. The Citation X crashed in July 2017. Sometime after, but long before RS Air’s bankruptcy filing, NetJets declared the airplane a total loss. Under paragraph 20, NetJets had 30 days to elect to replace the aircraft. If it did not exercise the replacement option, paragraph 20 mandates without option that NetJets repurchase RS Air’s Citation X interest. RS Air does not contend that NetJets ever exercised the replacement option. So, upon expiration of 30 days, its obligation to repurchase (and the resultant debt) became absolutely owing. And it is undisputable that this occurred pre-petition. 9 The expiration of each, followed by NetJets’ letter seeking to repurchase the

shares, triggered its right of repurchase. RS Air apparently also sought to

cause the repurchase and the parties began negotiating terms. After that

failed, NetJets initiated the State Court Action seeking specific performance

of the sale. All of these events took place long before RS Air filed for

bankruptcy in November 2020.

Because all transactions necessary for liability are firmly rooted

indeed, occurred in the parties’ pre-petition dealings, the resultant debt

arose pre-petition.

RS Air argues against this result for two reasons. First, it contends

that because the transaction was ultimately not consummated until after

filing, the obligation transforms from pre-petition to post-petition. This, it

says, is because the debt was contingent or unliquidated. RS Air’s

argument is misplaced.

“Dependency on a postpetition event does not prevent a debt from

arising prepetition.” In re Wade Cook Fin. Corp.,

(quoting Gerth,

). And “[t]he character of a claim does not transform from

prepetition to postpetition because that claim is contingent, unliquidated or

unmatured when the debtor files its petition.”

(citing Braniff Airways,

Inc. v. Exxon Co., U.S.A.,

(5th Cir. 1987)). Thus, a “debt

can be absolutely owing prepetition even though that debt would never

have come into existence except for postpetition events.” Gerth,

. The fact that the transaction was not consummated until after

10 RS Air’s filing does not transform the debt into a post-petition one. See

Second, RS Air argues that even if NetJets had a right that accrued

pre-petition, it was forfeited by expiration, waiver, or excusal. It provides

little analysis of these arguments, likely constituting waiver. 11 Because they

may be substantively denied, however, we briefly address each in turn.

RS Air’s first argument that NetJets’ repurchase right expired pre-

petition, is no longer enforceable, and so cannot be setoff hinges on the

assertion that NetJets failed to consummate the transaction within the

90 days contemplated under paragraph 6 of the purchase agreements. This

argument is flawed for at least two reasons.

One, the record supports the bankruptcy court’s conclusion that

NetJets took all necessary steps to timely cause the repurchase, including

suing RS Air for specific performance. Two, in Ohio, the general rule as to

contracts is that time of performance is not of the essence unless the parties

include an express stipulation or such requirement can be implied from the

entire nature or circumstances of the contract. Franklin Mgmt. Indus., Inc. v.

Far More Props., Inc.,

, 421 (Ohio. Ct. App. 2014) (citations

11 Failure to “specifically and distinctly” address issues in an opening brief is a waiver. See Alcaraz v. INS,

(9th Cir. 2004). Contentions must be accompanied by reasons. See Indep. Towers of Wash v. Washington,

, 929–30 (9th Cir. 2003) (“’[A] bare assertion of an issue does not preserve a claim’” rather “[w]e require contentions to be accompanied by reasons.”) (quoting D.A.R.E. Am. v. Rolling Stone Magazine,

, 793 (9th Cir. 2001)). “We cannot ‘manufacture arguments for an appellant.’” Id. at 929 (citing Greenwood v. Fed. Aviation Admin.,

(9th Cir. 1994)). If an argument is not properly argued and explained, the argument is waived.

11 omitted). Here, neither purchase agreement expressly makes time of the

essence. Nor can such a requirement be implied from the nature or

circumstances of the contract; to do so would allow RS Air to effectively

destroy NetJets’ repurchase right through its own hinderance or delay.

That would be inimical to the nature and circumstances of a contract

expressly reserving that right.

Next, nothing in the record supports RS Air’s argument that NetJets

waived its right to repurchase the shares. Almost simultaneously to the

Citation X and Encore + management agreements’ expiration, NetJets

informed RS Air of its desire and intention to repurchase each aircraft’s

fractional interest. The parties then negotiated the repurchase. And when

those discussions failed, NetJets sought to compel the repurchase by

bringing the State Court Action. It prosecuted its case up to trial when

RS Air’s bankruptcy filing stayed the action. So, the bankruptcy court’s

finding that NetJets never acted inconsistently with its intent to claim its

right to force the repurchase is well supported.

Finally, RS Air’s argument that NetJets’ conduct excused its

performance is unavailing. The bankruptcy court found that nothing in the

record supported a finding that NetJets had prevented either party’s

performance. RS Air fails to address, let alone establish, how this was in

error. For that reason, the argument is rejected.

In sum, NetJets’ debt to RS Air was absolutely owing pre-petition.

The fact that the repurchase was not completed until post-petition does not

12 change this result. And none of RS Air’s thinly argued contentions

regarding expiration, waiver, or excusal of the repurchase right are

meritorious. The bankruptcy court did not abuse its discretion in

determining that NetJets established a right to setoff under § 553.

2. The bankruptcy court did not err in determining that

NetJets established a right to setoff under Ohio law.

Second, RS Air challenges the bankruptcy court’s determination that

NetJets established a right to setoff under Ohio law as neither claim has

been liquidated. This, it avers, is violative of Ohio’s requirement that each

party owe a “definite amount” to the other.

The bankruptcy court determined that it was insignificant that

neither claim or debt has been liquidated in the traditional sense, meaning

reduced to judgment. It noted that there was no dispute as to either the

liability or the amount owed by each party to the other here. That is, RS Air

had not objected to NetJets’ proof of claim giving it presumptive validity.

And NetJets consented to the value of RS Air’s claim. So it found that debts

were sufficiently definite. We agree.

There is a dearth of caselaw on the issue of what satisfies the

“definite amount” element of setoff. Many cases recite the language, which

stems from Witham,

. But we can find none which analyze

or discuss what does or does not qualify. Nonetheless, we analyze the issue

as it is presented by RS Air on appeal: whether the parties’ debts are in a

“definite amount” where neither has been reduced to judgment.

13 As to NetJets’ claim, neither party disputes the validity or amount.

NetJets timely filed its $2,133,623.15 claim. Proof of Claim No. 1-1. A

properly filed proof of claim constitutes “prima facie evidence of the

validity and amount of the claim.” Rule 3001(f). The claim “is deemed

allowed unless a party in interest objects.” Lundell v. Anchor Constr.

Specialists, Inc.,

, 1039 (9th Cir. 2000). To date, no party has

objected to NetJets’ claim. It is therefore deemed allowed and

presumptively valid as to its nature and amount.12 For that reason, the

bankruptcy court did not abuse its discretion in determining NetJets’ claim

was in a “definite amount” for purposes of setoff under Ohio law.

The debt owed to RS Air is sufficiently definite for the same reason

and more. There is no dispute over liability or amount. That is, the parties

agree that NetJets owed RS Air something for the aircrafts’ fractional

interests. This is readily evidenced by their negotiations, the State Court

Action, and their conduct in the bankruptcy case. Although there appears

to have been some dispute over the amount of that debt, NetJets was

willing to and did concede to RS Air’s own valuation. So as with RS Air’s

debt to NetJets, this one too is undisputed as to validity or amount.

Without dispute, the bankruptcy court did not abuse its discretion in

12 Further, RS Air’s third amended plan expressly provides that “[u]pon confirmation the claim of NetJets . . . will be deemed allowed as filed and [RS Air’s] counterclaims will be deemed waived.” That plan was confirmed on October 7, 2021. We now affirm that ruling in a separate decision. On RS Air’s own admission then, NetJets’ claim is now liquidated and undisputed. 14 determining that the debt was in a “definite amount” for setoff purposes.

Further, we do not see that NetJets’ debt is in fact unliquidated as

RS Air claims. In Ohio, “[a] liquidated claim is one that can be determined

with exactness from the agreement between the parties or by arithmetical

process or by the application of definite rules of law.” Huo Chin Yin v.

Amino Prods. Co.,

(Ohio 1943) (citations omitted). And

a claim may be considered liquidated, even if it is disputed or where one

party may assert counterclaims or defenses to payment.

.

Here, the amount of NetJets’ debt to RS Air can be determined with

exactness from the parties’ agreements and by mathematical formula.

Specifically, paragraph 6 of the aircrafts’ purchase agreements provides

that NetJets may repurchase the interests for “the then Fair Market Value

of the Aircraft multiplied by the percentage equivalent of [RS Air’s]

Interest[.]” Because of this, RS Air’s challenge must fail.

Dunkin’s Diamonds, Inc. v. Chavis, the lone case cited by RS Air on

appeal in support of its argument, does not save it. In determining whether

setoff was appropriate, the Dunkin’s Court noted that the definite amounts

requirement was satisfied where one party admitted it owed the other a

sum certain debt under the parties’ agreement and the other debt had been

previously liquidated. No. 12CVH-10776,

, at

*67–68 (C.P., May 18, 2015). The facts of this case are analogous. NetJets

admits that it owes RS Air a debt ascertainable by reference to the aircrafts’

purchase agreements and mathematical formula. Notably, the parties have

15 apparently already undertaken application of that formula and reached a

result. And neither party can now dispute the validity and amount of

RS Air’s debt to NetJets. Thus, Dunkin’s supports, rather than contradicts,

the bankruptcy court’s decision.

Accordingly, the bankruptcy court did not abuse its discretion in

determining NetJets established its right to setoff under Ohio law.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court’s order

granting § 362(d) stay relief.

16