Filed 07/06/20 Case 20-21616 Doc 22

Ognian Gavrilov, SBN 258583

ognian@gavrilov.com
Christina Nugent, SBN 199646
CNugent@gavrilovlaw.com
GAVRILOV & BROOKS
5315 Capitol Ave., Sacramento, CA 95816
Ph: (916) 504-0529
Fax: (916) 727-6877

Attorneys for Transportation Revenue

Management, Inc., Assignee of Mobile
Transport, Inc., TAT Logistics, Inc.,
Land Air Express, Inc., and Forward Air, Inc.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA
SACRAMENTO DIVISION

In Re: ) Case No. 20-21616-E-7

)
KLS AIR EXPRESS, INC. d/b/a ) Chapter 7
FREIGHT SOLUTION PROVIDERS )
)
Debtor. )
____________________________________)

OBJECTION TO TRUSTEE ALAN S. FUKUSHIMA’S

REPORT OF NO DISTRIBUTION

Plaintiff, Transportation Revenue Management, Inc. (hereinafter referred to as “TRM” or

“Plaintiff”) as lawful assignee of Mobile Transport, Inc., TAT Logistics, Inc., Land Air Express,

Inc. and Forward Air, Inc., by and through Counsel Gavrilov & Brooks, and for its Objection to

Trustee Alan S. Fukushima’s Report of No Distribution, hereby states as follows:

1. On June 24, 2020, Trustee Alan S. Fukushima concluded Debtor KLS Air Express, Inc.’s

341 Meeting.

2. On June 25, 2020, Trustee Fukushima filed a Report of No Distribution.

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3. TRM, for and on behalf of its Assignors, objects to Trustee Fukushima’s Report of No

Distribution on the basis that Trustee Fukushima has failed to investigate the financial

affairs of the Debtor under 11 U.S.C. 704(a)(4).

4. TRM, a Virginia corporation, is a Virginia collection agency whose principal place of

business is 2240 Gallows Road, Vienna, VA 22182.

5. TRM is the lawful assignee of Mobile Air Transport, Inc., TAT Logistics, Inc., Land Air

Express, Inc., and Forward Air, Inc. See Appendix A.

6. Mobile Air Transport, Inc., a New York corporation, is a federally licensed motor carrier

by authority issued to it by the Federal Motor Carrier Safety Administration (FMCSA)

whose business address is 12 Runway Avenue, Latham, NY 12110.

7. TAT Logistics, Inc., an Illinois corporation, is a federally licensed property broker by

authority issued to it by the FMCSA whose principal place of business is 3601 Chicago

Road, Steger, IL 60475.

8. Land Air Express, Inc., a Kentucky corporation, is a federally licensed motor carrier

whose principal place of business is PO Box 2250, Bowling Green, KY 42102.

9. Forward Air, Inc., a Tennessee corporation, is a federally licensed property broker whose

principal place of business is 1915 Snapps Ferry Road, Building N, Greeneville, TN

37745.

10. KLS Air Express, Inc. was, at all times here relevant, a California corporation.

11. Defendant Lielanie Olive Steers was, at all times here relevant, the Chief Executive

Officer of KLS Air Express, Inc.

12. Defendant Kenneth Steers was, at all times here relevant, the Secretary of KLS Air

Express, Inc.

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13. Lielanie Steers and Kenneth Steers have filed for Chapter 7 Bankruptcy in the Eastern

District of California, Case No. 2:2019-bk-27507.

14. Amerisource Funding, Inc. is a commercial factor who factored KLS Air Express’

receivables under a Purchase and Sale Agreement (“Factoring Agreement”).

15. Debtor KLS’ schedules reflect that Amerisource is a secured creditor in the amount of

$1,861,537.55 (See Schedule D, Part 1, ¶2.1).

16. Debtor KLS’ schedules reflect outstanding receivables in the amount of $1,610,131.01

owed by various shipper and consignee customers. (See Schedule A/B Part 3, ¶10 and

¶11.)

17. At all times here relevant, without a property broker’s license and bond as required by

federal statute, KLS Air Express acted as a broker arranging for the transportation for

origin to destination while moving in interstate commerce.

18. KLS contracted with Mobile Air for transportation services which were performed and

Mobile Air and is owed $8,172.10.

19. KLS contracted with TAT Logistics for transportation services which were performed

and TAT Logistics is owed $88,325.

20. KLS contracted with Land Air Express for transportation services which were performed

and Land Air Express Express is owed $376,472.38.

21. KLS contracted with Forward Air for transportation services which were performed and

Forward Air is owed $569,360.04.

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22. KLS Air Express misrepresented itself as a licensed broker to TRM’s Assignors and

other similarly situated transportation entities in violation of the Moving Ahead for

Progress in the 21st Century Act (MAP-21)1.

23. Under 49 U.S.C. 14916(a):

(a) Prohibited Activities – A person may provide interstate brokerage

services as a broker only if that person-
(1) is registered under, and in compliance with, section 13904;
and
(2) has satisfied the financial security requirements under
section 13906.

24. KLS was neither registered in compliance with 49 U.S.C. 13904 nor had they satisfied

the financial security requirements under 49 U.S.C. 13906.

25. At all times here relevant, KLS Air was operating as a property broker without a license.

See Appendix B.

26. If Debtor KLS Air was properly licensed, which it was not, KLS would be bound by the

federal statutes and regulations that apply to brokers under 49 U.S.C. 13904, 49 C.F.R.

371 et seq., and 49 C.F.R. 387.307.

27. If KLS Air was properly licensed as as property broker, which is was not, it would be

required to keep a record of each brokerage transaction by shipment, identifying the

brokerage compensation, a description of any non-brokerage services performed in

connection with each shipment or activity and the amount of freight charges collected by

the broker and the date the payment was made to the carrier. See 49 C.F.R. 371.3.

28. The general practice and custom in the motor freight industry regarding property broker

service dictates that if the property broker, in this case KLS Air Express, receives monies

from its shipper and consignee customers, it assumes the obligations of said shippers and

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Public Law 112-141, 126 Stat. 405.

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consignees and must remit all freight charges to the underlying carriers, exclusive of any

commission fees due to the property broker for broker services performed. See 49 C.F.R.

§371.10.

29. TRM’s Assignors transported freight from various locations to various destinations for

KLS Air Express and its shippers and consignees.

30. Under the terms of the agreements between KLS Air Express and TRM’s Assignors, as

well as to common freight industry custom and practice, KLS Air Express was entrusted

to collect all freight charges owed for the transportation of freight transported by motor

carriers from shippers and after deducting any agreed upon commission due to KLS Air,

KLS Air Express was required by federal statute to pay Mobile Air Transport, TAT

Logistics, Inc., Land Air Express, Inc., and Forward Air, Inc.’s freight charges.

31. KLS Air Express was entrusted to have acted as the conduit, collecting monies from

shippers and/or consignees and to forward such monies to its intended recipients, Mobile

Air Transport, TAT Logistics, Inc., Land Air Express, Inc. and Forward Air, Inc.

(a) Fund Comprised of Freight Revenue in Possession of KLS Air Express

32. All of TRM’s Assignors have performed all their required obligations and performed all

services.

33. The underlying motor carriers provided transportation services resulting in freight

charges in the amount of $1,042,329.50, to the extent said amounts have already been

collected by KLS Air Express from various shippers and consignees for whom motor

carriers provided transportation services those monies are not the property of the Estate.

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34. Defendant KLS Air Express and Amerisource Funding do not hold any equitable interest

in the freight charges due and owing to Mobile Air Transport, TAT Logistics, Inc., Land

Air Express, Inc. and Forward Air, Inc.

35. The freight charges are not property of KLS Air Express and Amerisource Funding, but

rather represent a res trust held by KLS Air Express and Amerisource Funding for the

benefit of the underlying motor carriers.

(b) Trust Fund Comprised of Freight Charges to be Collected by

KLS Air Express and/or Amerisource Funding

36. The underlying motor carriers also provided transportation services resulting in freight

charges, which upon information and belief, have not been remitted to KLS Air Express

from shippers and consignees as set forth in KLS Air Express’ Schedules.

37. The outstanding freight charges give rise to certain stated accounts receivables as set

forth on KLS’ books and records and held in title only by KLS Air Express and/or

Amerisource Funding in an amount equal to the outstanding freight charges.

38. KLS Air Express/Amerisource Funding do not hold any equitable interest in the accounts

receivable or underlying freight charges.

39. The accounts receivable and the underlying freight charges are not the property of KLS

Air Express and/or Amerisource Funding, but rather represent the res trust created and

proposed by federal law, as well as freight industry custom and practice and held by KLS

Air Express and Amerisource Funding for the benefit of the underlying motor carriers.

40. No trust instrument is or was required to create the aforesaid trust comprising the freight

charges and the stated accounts receivables.

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(c) Trust Fund Comprised of Freight Charges Received by KLS Air Express and/or
the Steers and Transferred to Amerisource Funding, Inc.

41. The underlying TRM Assignors are the equitable owners of the trust res comprising the

freight charges.

42. To the extent that KLS Air Express and/or the Steers granted any security interest in the

accounts receivable, it was done with the knowledge of the holder of any security

interest, including Amerisource Funding, Inc., that KLS Air Express and the Steers held

no equitable interest in the accounts receivable and that the accounts receivable could

constitute the res trust held for the benefit of third parties, including without limitation,

Mobile Air Transport, TAT Logistics, Inc., Land Air Express, Inc. and Forward Air, Inc.

43. The outstanding freight charges do not represent an extension of credit of any kind to

KLS Air Express and/or the Steers by TRM’s Assignors.

44. Depriving TRM’s Assignors of their equitable interest in the aforesaid res trust will

unjustly enrich KLS, the Steers and/or Amerisource Funding.

45. The Ninth Circuit has held that shippers and consignees remain primarily liable to the

motor carrier for freight charges even in situations where the broker had a contract with

the underlying motor carrier, provided the motor carrier and not release the shipper

consignee from liability. See Oak Harbor Freight Lines, Inc. v. Sears Roebuck & Co.,

513 F.3d 949 (9th Cir. 2008).

46. The Ninth Circuit has found that the bill of lading is the basic transportation contract

between the shipper/consignor and the carrier. Its terms and conditions bind the shipper

and all connecting carriers. See Oak Harbor at 954 citing Southern Pacific Trans Co. v.

Commercial Metals, 456 U.S. 336, 342, 102 S.Ct. 1815, 72 L.Ed. 2nd 114 (1982)

(involving common carrier by rail); See Car Transportation Brokerage Co. v. Darden

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Restaurants, 213 F. 3d 474, 478, 479 (9th Cir. 2000) (applying bill of lading contract

formation rule of Southern Pacific Transportation Company to a case involving motor

carriers where the parties adopted the terms of the Uniform Bill of Lading).

47. Amerisource Funding does not have any greater rights to the accounts receivable than

does its assignor KLS Air Express. See Minsa Corporation v. Almac System Transport,

Inc. et. al, 2011 U.S. Dist. LEXIS 90840 (N.D. Tex 2011). Federal case law and federal

regulations provide that carriers be paid by the consignor or consignee if a third party

fails to meet its obligations to pay the carrier. See Id *17 citing Bestway v. Gulf Forge

Co., 100 F. 3d 31, 34 (5th Cir. 1996); Excel Transp. Serves. Inc. v. CSX Lines LLC, 280 F.

Supp. 2d 617, 619 (S.D. Tex. 2003)(regardless of lack of privity with carrier because of

intermediary independent contractor, carrier was still entitled to payment from consignor

because “[t]he bedrock rule of carriage is that, absent malfeasance, the carrier gets

paid.”).

48. Since TRM’s Assignors have an independent right and cause of action to Debtor KLS Air

Express accounts receivables and those receivables are not the property of the Debtor or

Amerisource, TRM’s Assignors should be allowed to trace outstanding accounts

receivables. See In Re: Worldpoint Logistics, Inc., Debtor, Covenant Transport, Inc. et al.

Plaintiffs v. Deutsche Financial Services Corporation et al., 2003 WL 23162358 (Bkrtcy. W.D.

Wash. 2003).

49. KLS, in its Statement of Financial Affairs, transferred $103,923.90 to Lielanie Steers and/or

Kenneth Steers, as insiders of KLS Air Express, without explanation of such transfer. TRM

contends that Trustee Fukushima did not investigate these transfers pursuant to 11 U.S.C.

704(a)(4) when he had an obligation and duty to do so. See Statement of Financial Affairs (Part 2,

¶¶4.2-4.11).

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50. This case is so entangled with Lielanie Steers’ and Kenneth Steers’ bankruptcy case that

consolidation will benefit all creditors.

WHEREFORE, Plaintiff Transportation Revenue Management, Inc. Assignee of Mobile

Air Transport, TAT Logistics, Inc., Land Air Express, Inc. and Forward Air, Inc., respectfully

requests that this Court (1) sustain its Objection to Trustee Alan S. Fukushima’s Report of No

Distribution; (2) require Trustee to further investigate the financial affairs or the Debtor; (3)

order that TRM’s Assignors be allowed to trace all accounts receivables for monies due and

owing; (4) that this case be consolidated with the Lielanie Steers and Kenneth Steers Case No.

2:2019-bk-27507; and (5) for such other and further relief as this Court may deem just and

proper.

Respectfully submitted,

GAVRILOV & BROOKS

By: /s/ Ognian Gavrilov

Ognian Gavrilov, SBN 258583
Christina Nugent, SBN 199646
5315 Capitol Ave.
Sacramento, CA 95816
Ph: 916-504-0529
Fax: 916-727-6877
CNugent@gavrilovlaw.com
ognian@gavrilov.com

Attorneys for Transportation Revenue

Management, Inc., Assignee of Mobile Air
Transport, TAT Logistics, Inc., Land Air
Express, Inc. and Forward Air, Inc.

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on the ___ day of July, 2020, a true and correct copy of this
document was electronically served via CM/ECF to all parties entitled to such notice, and to all
others in accordance with the Federal Rules of Civil Procedure.

/s/ Christina Nugent

CHRISTINA NUGENT

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