AMR Corporation

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
Case No. 11-15463(SHL)
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In the Matter of:
AMR CORPORATION,
Debtors.
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BENCH RULING RE: (1) RENEWED MOTION OF DEBTORS FOR ENTRY OF
ORDER PURSUANT TO 11 U.S.C. 1113 AUTHORIZING DEBTORS TO
REJECT COLLECTIVE BARGAINING AGREEMENT WITH THE ALLIED
PILOTS ASSOCIATION, AND (2) MOTION IN LIMINE TO LIMIT SCOPE
OF HEARING ON THE RENEWED MOTION PURSUANT TO 11 USC 1113
AUTHORIZING DEBTORS TO REJECT COLLECTIVE BARGAINING
AGREEMENT
U.S. Bankruptcy Court
One Bowling Green
New York, New York
September 4, 2012
1:12 PM
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B E F O R E :
HON SEAN H. LANE
U.S. BANKRUPTCY JUDGE
Transcribed by: 	Dawn South, William Garling, and Sherri L.
Breach
A P P E A R A N C E S :
PAUL, HASTINGS, JANOFSKY & WALKER, LLP
Attorneys for the Debtor
875 15th Street, NW
Washington, D.C. 20005
BY: 	NEAL D. MOLLEN, ESQ.
JACK GALLAGHER, ESQ.
SCOTT M. FLICKER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER, LLP
Attorney for the Debtor
191 North Wacker Drive, Thirtieth Floor
Chicago, Illinois 60606
BY: 	MARK D. POLLACK, ESQ.
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JAMES & HOFFMAN
Attorneys for Allied Pilots Association (APA)
1130 Connecticut Avenue, NW
Suite 950
Washington, D.C. 20036
BY: 	KATHY L. KRIEGER, ESQ.
EDGAR N. JAMES, ESQ.
DANIEL ROSENTHAL, ESQ.
DAVID P. DEAN, ESQ.
SKADDEN ARPS SLATE MEAGHER & FLOM, LLP
Attorneys for Official Committee of Unsecured Creditors
155 North Wacker Drive
Chicago, Illinois 60606
BY: 	JOHN WM. BUTLER, JR., ESQ.
STEPTOE & JOHNSON, LLP
Attorney for APA
1330 Connecticut Avenue, NW
Washington, D.C. 20036
BY: 	JOHSUA R. TAYLOR, ESQ.
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HIGHSAW, MAHONEY & CLARKE, P.C.
Attorney for TWA American Pilots
4142 Evergreen Drive
Fairfax, VA 22032
BY: 	JOHN O'B. CLARKE, JR., ESQ.
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Before the Court is debtor, American Airlines'
renewed motion to reject the collective bargaining agreement
of the Allied Pilots Association (the “APA”), under Section
1113 of the Bankruptcy Code. 	The APA is the authorized
collective bargaining agent for pilots employed at American.
American's renewed Section 1113 application as to
the pilots is opposed by the APA, the Supplement B Pilot
Beneficiaries, and certain TWA/American pilots that make
arguments related to Supplement CC (the “Supplement CC
Pilots”).
Also before the Court is American's related motion
in limine seeking to limit the evidence that I should
consider in this Section 1113 motion. 	The motion in limine
is also opposed by the APA and the Supplement CC Pilots.
For reasons that I'll explain in more detail in a
moment, the Court grants American's Section 1113 motion and
authorizes American to reject its current collective
bargaining with the APA.
I agree with the Committee that this present
application has to be reviewed in the context of what has
previously occurred in this case. 	While it is not
dispositive, it is, nonetheless, informative and shapes what
the discussion is today. 	Thus, central to the Court's
ruling today is the history in this case to date regarding
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Section 1113 matters.
On March 27, 2012, American filed a prior motion
under Section 1113 seeking authority to reject its
collective bargaining agreement with its pilots, flight
attendants and transportation workers. 	These workers were
represented by the APA, the APFA and the TWU, respectively.
The Court held a three-week trial on this first Section 1113
motion, starting on April 23, 2012 and ending on May 25,
2012.
During the trial, the three unions and American
all engaged in additional negotiations outside the auspices
of the Court, including mediation. 	These negotiations
continued after the conclusion of the trial. 	No evidence
was presented to the Court as to the substance of these
negotiations other than the parties expressing their
collective desire that the Court refrain from ruling on the
Section 1113 application in the -- until the parties had a
chance to conclude any meaningful negotiations. 	As a
result, the Court abstained from ruling on the Section 1113
application.
In July, all three unions -- the APA, the APFA and
the TWU -- sent out potential agreements to their membership
for a ratification vote. 	None of the substance of these
potential new agreements was presented to the Court as part
of the Section 1113 proceeding and the potential new
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agreements constituted the parties efforts at settling their
disputes without court intervention. 	Thus, it seemed
obvious to all parties and the Court at the time that such
discussions were covered by Federal Rule of Evidence 408,
which, generally speaking, prohibits a party from proffering
to a Court evidence of settlement discussions.
Indeed, the APA took a strict view as to what was
appropriately before the Court for purposes of Section 1113.
For example, in the pleading filed at ECF Docket Number 2577
the APA maintained that for purposes of satisfying the
requirements under Section 1113(b)(1)(A), the Court could
only consider a proposal made by American prior to the
filing of the application for rejection.
In any event, the ratification votes of the union
members resulted in new collective bargaining agreements
between American and the TWU and between American and the
APFA, but it did not result in a new agreement between
American and the APA.
At that point in August, both American and the APA
agreed that it was appropriate for the Court to issue its
decision on American's Section 1113 application as to the
pilots. 	Accordingly, the Court issued a decision on August
15, 2012 ruling on American's Section 1113 application as to
the pilots. 	See In re AMR Corp., 2012 WL 3422541 (Bankr.
S.D.N.Y. Aug. 15, 2012).
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Generally speaking, the Court concluded that
American had established that significant changes were
necessary to the APA's collective bargaining agreement for
reorganization and the Company had met almost all the
requirements of Section 1113. 	The Court ruled on each
element of the statute. 	These elements included, among
other things, the substance of American’s proposed
modifications and the information provided regarding the
proposal. 	These requirements included the key component of
assessing whether the proposed changes were necessary to
American’s ability to reorganize.
In ruling on this initial Section 1113
application, the Court addressed numerous objections raised
by the APA and overruled the APA objections on a host of
matters. 	These included, but were not limited to, the APA's
claim that American must first engage in a merger
transaction before being granted relief under Section 1113,
and that the business plan that American relied upon was
fatally flawed and an improper basis for seeking Section
1113 relief.
The Court also rejected the APA's view that the
total labor ask of the pilots was not necessary for
reorganization and that the Company's costs were converging
with industry costs. 	Additionally, the Court rejected the
claim that a number of American’s specific proposals
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relating to the APA were not necessary for reorganization
and that the Company's proposal had not been based on the
most complete and reliable information available to the
Company at that time.
Notably, the Court found that American's business
plan provided a sufficient basis for establishing the
necessity of the vast majority of the changes sought by the
Company. 	That business plan featured a 20 percent labor
cost reduction for each of American's unions, including the
APA.
In its decision, however, the Court found that two
elements of American's proposal were not consistent with the
requirements of Section 1113. 	More specifically, the Court
found that the proposed changes would give American
unrestricted use of furlough and codesharing, but such
unrestricted and unfettered discretion in those two areas
had not been justified as necessary either in American's
business plan or by the practices of American's competitors.
Given the potential impact of those two proposed changes on
the pilots, the Court denied American's motion to reject the
pilot contract.
But the Court's August 15th decision specifically
stated that such denial was "without prejudice to American
seeking relief in the future with a new proposal as to the
APA that remedies these deficiencies." 	In re AMR Corp.,
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2012 WL 3422541, at *2.
On August 17, 2012, American filed its renewed
motion under Section 1113, once again seeking authority to
reject its collective bargaining agreement with the APA. 	In
light of the Court's decision, the renewed motion addressed
two matters and two matters only, the issues of furlough and
codesharing. 	As to the first, American dropped in its
entirety its request to provide the contractual provision
regarding furlough. 	As to the second, American presented a
revised codesharing proposal that limits the Company's
discretion on codesharing. 	The revised proposal features a
specific proposal with certain partners and has limitations
tied to the amount of overall flying done by American. 	See
Corrected Decl. of Dennis Newgren in Supp. of Renewed Mot.
for Entry of Order Pursuant to 11 U.S.C. § 1113 Authorizing
Debtor to Reject Collective Bargaining Agreement, dated
August 17, 2012, ¶¶ 10, 13.
The APA, in fact, notes that the revised
codesharing proposal is the same as the codesharing proposal
in the proposed agreement sent out to APA members for the
vote in July. 	See Revised Decl. of Neil Roghair in Opp'n to
Debtors' Renewed Mot. for Entry of Order Pursuant to 11
U.S.C. § 1113 Authorizing Rejection of Collective Bargaining
Agreement, dated Sept. 3, 2012, ¶ 23 (the “Roghair Decl.”).
With the exception of these changes, American’s
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revised proposal for which it seeks approval is identical to
the one proposed by American on April 19, 2012, which was
the last proposal made by American prior to the start of the
trial on April 23rd. 	See Roghair Decl., ¶ 12. 	Having
addressed the two problematic items that were identified by
the Court in its decision on the prior Section 1113
proposal, American now requests that the Court grant its
renewed motion to reject.
Section 1113 generally provides that a Court may
authorize a debtor to reject a collective bargaining
agreement if certain requirements are met. 	These
requirements include that before seeking court relief, the
debtor must (1) make a proposal to a union that provides for
modifications that are necessary to the debtors' ability to
reorganize; (2) that treats creditors, debtors, and affected
parties fairly and equitably; and (3) is based on the most
complete and reliable information available. 	See 11 U.S.C.
§ 1113(b)(1)(A).
The statute also requires that the debtor have
shared such relevant information with the union as is
necessary to evaluate the proposal; (2) that it has
conferred in good faith to reach an agreement; (3) that its
proposal has been rejected by the authorized representative
of the employees without good cause; and (4) that the
balance of equity clearly favors rejection. 	See 11 U.S.C.
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§§ 1113(b)(1)(B),(b)(2),(c).
As the authorized collective bargaining
representative to the pilots, the APA filed an objection to
American's renewed Section 1113 application. 	Notably, it
does not raise any objection to the revised proposals on
furlough and codesharing. 	This is in stark contrast to the
APA's position in the first Section 1113 proceeding where it
spent considerable time detailing the alleged deficiencies
of American's proposals on both subjects.
But the APA does raise three objections to the
renewed motion. 	First, the APA argues that the Company has
revised its target for labor cost savings of all employee
groups from 20 percent to 17 percent. 	They therefore argue
that American’s continuing request for $370 million in labor
cost savings from the pilots, which is based on that 20
percent ask, does not constitute a modification that is
necessary to permit reorganization.
The evidentiary basis for this argument, which has
been the subject of most of today's proceeding, appears to
be communications associated with the settlement
negotiations between American and the APA, the APFA and the
TWU, which, as noted above, began during the trial and
concluded with agreements that were ultimately voted on by
each of the unions. 	The APA also cites to certain
statements made regarding the negotiations and their
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results, as well as information related to the negotiations,
including the tentative agreement itself that was reached
between the APA and the Company.
Moving on to the second objection, the APA again
raises the issue of convergence, in which it argues that
American's cost and labor practices for its pilots are in
the process of reaching parity with the rest of the
industry. 	It claims that the Company's analysis regarding
labor costs for pilots and the industry standards of
competing carriers is outdated. 	The APA cites specifically
to a new Delta pilot collective bargaining agreement
finalized in July of 2012 and a "agreement in principle"
reached at United for which the terms are confidential and
not currently known.
The third argument raised by APA is consolidation,
namely the notion that American should not be granted
Section 1113 relief now because a merger is inevitable.
They argue that since the close of the trial, the Company's
focus on consolidation has become more concrete and the
range of likely partners has narrowed.
Two of the APA's objections can be dispatched
fairly easily. 	With respect to convergence with competing
carriers, the APA previously made a convergence argument and
presented evidence at trial regarding the terms of the Delta
collective bargaining agreement. 	See, e.g., Trial Tr.
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111:7-18, May 21, 2012 (Kasper); Trial Tr. 51:11-55:21 May
22,2012 (Glass).
The Court has already reviewed the evidence
submitted by the APA regarding the terms of Delta's new
collective bargaining agreement and has overruled the APA's
convergence arguments. 	To the extent that this "new Delta
evidence" was not previously put before the Court, it could
have been and should have been offered prior to the Court
rendering its decision. 	See Matthew Bender & Co. v. West
Publ'g Co., 158 F.3d 674, 679 (2d Cir. N.Y. 1998) (noting
that a court's “decision to reopen the proof to allow a
party to submit additional evidence is subject to sound
discretion.")
As to United, the APA itself admits that the terms
of any deal are confidential and, therefore, unknown and
instead relies on news articles for the alleged details of
this agreement. 	The danger of relying on such news
articles, however, is clear when considering that the most
recent articles on this subject describe those negotiations
as stalled, with allegations made by the unions of bad faith
bargaining on the part of the company.
In any event, the allegations and the evidence
provided on convergence are subject to the same defect that
was identified in the Court's prior decision, namely that it
is anecdotal and does not provide an industry-wide
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comparison with American’s costs. 	And as noted in the prior
decision, it is also inconsistent with the fact that
American has lost more than $1 billion in 2011 and that the
pilots admitted during the prior trial that the status quo
was not sustainable.
As to the second issue of consolidation, the Court
has already acknowledged in its prior decision that there is
no merger for the Court to consider. 	That has not changed
today. 	“While American has begun the process of considering
strategic alternatives to its business plan, that process
has not yet been completed.” 	In re AMR Corp., 2012 WL
3422541, at *18.
While that process has continued since the
issuance of the Court's decision, there is still no fixed
outcome for the Court to take into consideration. 	Thus, as
nothing has changed on this subject since the issuance of
the Court's opinion on August 15th, the Court rejects the
arguments on consolidation for the same reasons set forth in
its prior decision.
The third argument centers on the 17 percent
figure discussed by American and its unions during
settlement negotiations. 	The APA's position here is flawed
for several reasons, which are worth discussing in detail.
First and foremost, the APA seeks to set a
precedent that would drag the Court into parties' settlement
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discussions. 	The parties here tried, but failed to reach a
new agreement. 	The 17 percent cited was the number
presented to the APA and American's two other unions as a
compromise with the hope of avoiding the Court issuing a
ruling on American’s rejection motion. 	The APA now seeks to
use those discussions and that figure as a weapon in this
litigation.
While the APA says this is not a settlement, that
contention is contrary to the vast weight of the evidence.
One need only look at the Declaration of Neil Roghair, which
is attached to the APA's opposition. 	In paragraph 4 it lays
out Mr. Roghair’s testimony, which includes a detailed
examination of the differences between American's current
proposal that is the subject of this renewed 1113
proceeding, and what's referred to in the Declaration as the
tentative agreement with the APA that was the subject of the
settlement discussions outside of the Court's purview and
was presented to the APA members for a ratification vote.
It then goes through an extensive comparison of
the tentative agreement against the current proposal and
what American seeks in each. 	And, in fact, it relies on
evidence that does exactly the same. 	So, for example, in
paragraph 20 of the Roghair Declaration, it notes and relies
upon a chart that is entitled “APA Term Sheet and Tentative
Agreement Comparison, (Roghair Decl., Ex. 2), which does
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nothing more than compare the APA term sheet that was
provided by American for the 1113 proceeding and a tentative
agreement which is what was worked out by the parties and
then presented to the members for a vote.
And this continues throughout the entire
Declaration. 	Paragraphs 24 and 25 talk about regional jets
and codesharing and discuss the terms of the tentative
agreement. 	Paragraph 36 makes the conclusion that the
tentative agreement is far more favorable than the August
16th proposal of American. 	The heading on page 11 of the
Declaration says, "By American's own admission, the terms of
the tentative agreement would be sufficient to enable the
company to reorganize successfully." 	And I could go on and
on.
The Court finds the testimony of Ms. Goulet to be
credible in explaining that the genesis of the 17 percent
figure was a compromise that American struck with the TWU,
the APFA and the APA this summer, which compromises were
ratified by union membership except for the APA. 	The Court
is unwilling to fault or punish American for then updating
its own business numbers based on the results of such
successful settlement negotiations.
It is equally clear, however, that the number that
will ultimately be chosen as the labor savings in any
business plan will affect the results of these proceedings
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and the ultimate agreement with the pilots.
Based on all the evidence, then, the Court
concludes that the 17 percent figure appears to fall clearly
within the ambit of Federal Rule of Evidence 408, which
prohibits statements made during settlement negotiations
from being introduced as evidence. 	The Rule is intended to
promote “the public policy favoring compromise and
settlement of disputes.” 	1972 Advisory Committee Notes to
Fed. R. Evid. 408.
The APA argues that Rule 408 does not apply to
Section 1113, but that's belied by the fact that the APA
expressly stated to its members that "[t]he terms of the
‘last, best final offer,’ (LBFO) which represent a
significant improvement over the term sheet" -- that is
American's term sheet for purposes of Section 1113 -- "will
not be taken into consideration by the Court." 	(Allied
Pilots Association, Unknown Unknowns (July 3, 2012),
https://public.alliedpilots.org/apa/AboutAPA/APAPublicNews/t
abid/843/ctl/ArticleView/mid/1983/articleId/1409/Tentative-
agreement-QA.aspx).
The quote continues: 	"Management's LBFO is
technically a section 408 ‘settlement offer’ and separate
from the 1113 process." 	Id.
Indeed, the APA explicitly agreed that "[a]ny
negotiations between American and APA subsequent to the
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beginning of the 1113 hearing on April 23rd are confidential
and constitute settlement discussions which are not
admissible in evidence under Rule 408 of the Federal Rule of
Evidence." 	(Debtors’ Motion in Limine, Exh. C).
The applicability of Rule 408 was specifically
acknowledged by the Court during trial and was not corrected
or qualified by the APA or any other party at that time.
(See Trial Tr., 91:23-92:4, May 14, 2012(Roghair)). 	Thus,
it is disingenuous at this point to take a contrary
position.
The APA also argues that Rule 408 isn't applicable
because certain statements were made publicly and the
settlement agreements were released to the public. 	However,
these statements relate to negotiations and their results
and, therefore, constitute evidence related to negotiations
and are covered by the Rule. 	Indeed, it would be impossible
for the unions to vote on whether to accept a settlement
offer without releasing it to its members.
The case of Steede v. Gen. Motors LLC, 2012 U.S.
Dist. LEXIS 81292, *10-*11 (W.D. Tenn. Apr. 3, 2012) is
applicable to the situation at hand. 	In Steede, the Court
held that the fact that a party had settled on a certain
date “likely would be inadmissible because it would be
evidence of [in that case] GM offering ‘valuable
consideration in compromising or attempting to compromise
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[a] claim’” and it would be offering that evidence to
establish liability for damages. 	Id.
For support, that court cited the comments to the
1972 Proposed Rule 408 which stated that "[w]hile the rule
is ordinarily phrased in terms of offers to compromise, it
is apparent that a similar attitude must be taken with
respect to completed compromises when offered against a
party thereto. 	This latter situation will not, of course,
ordinarily occur except when a party to the present
litigation has compromised with a third person." 	Id.
(quoting Fed. R. Evid. 408 (1972 Comments to the Proposed
Rule)).
The APA also argues that because negotiations had
already concluded, certain of the statements made by the
Company are not covered by Rule 408. 	The APA cites to
S.E.C. v. Pentagon Capital Mgmt. PLC, 2010 U.S. Dist. LEXIS
25092, *12-*13 (S.D.N.Y. Mar. 11, 2010).
But SEC v. Pentagon is clearly distinguishable
from the case at hand. 	In that case, the Court dealt with
an order of the SEC that makes findings pursuant to facts
discovered in its investigatory authority. 	The Court held
that such findings “are presumed reliable and admissible
under Rule 803.” 	Id. 	We have no such situation here.
The APA also relies on a case called Blu-J, Inc.
v. Kemper C.P.A. Group, 916 F.2d 637, 642 (11th Cir. 1990),
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but it is similarly unhelpful. 	The case simply reiterates
that the Eleventh Circuit test for whether statements fall
under the rule is “whether the statements or conduct were
intended to be part of the negotiations towards compromise.”
Id. at 642.
Blu-J deals with a report made by an accounting
firm in connection with negotiations and testimony related
thereto, and the Court, in fact, held that the materials
fell under the ambit of Rule 408. 	See id. 	There is simply
no discussion of the issue or any facts that would provide
support for the APA's position in this case.
The APA further argues that evidence of the
Company's business plan is distinguishable from its labor
proposals. 	But the Court believes, based on the totality of
the evidence that I've received, both in declarations and
live testimony here today, that such changes are the result
of and, therefore, inextricably linked to the settlements
with the various unions.
The Court notes that the use of settlement
discussions and the parties' positions on settlement would
be particularly damaging in the context of Section 1113. 	As
noted in the Court's August 15th decision, "The language and
history of Section 1113 made clear that the preferred
outcome under Section 1113 is a negotiated solution rather
than contract rejection." 	In re AMR Corp., 2012 WL 3422541,
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at *1 (quoting Collier on Bankruptcy ¶ 1113.01 (Alan N.
Resnick & Henry J.Somner eds., 16th eds)). 	As the Second
Circuit has recognized, “the entire thrust of Section 1113
is to ensure that well-informed and good faith negotiations
occur in the market place, not as part of the judicial
process." 	Maxwell Newspapers, Inc. v. New York
Typographical Union No. 6, 981 F.2d 85, 90 (2d Cir. 1992).
Thus, the Court concludes that the introduction of
such conversations in court proceedings would have a
significant chilling effect on the parties' attempts to
reach negotiated solutions to the problems of Section 1113.
This would add yet another obstacle to what all agree is
already an exceedingly difficult process.
The Court further notes that the 17 percent figure
relied upon by the APA here was well known before the Court
issued its August 15th decision. 	If those discussions and
that figure were truly relevant on the issue of necessity,
one would have expected that it would have been brought to
the Court's attention prior to issuing the August 15th
decision. 	But they weren't and that's no surprise. 	It just
further confirms that those negotiations were part of
efforts to reach a negotiated solution with American's
unions.
The APA's reliance on these communications is
troubling for several other reasons. 	By relying on
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settlements proposed and ultimately reached with American's
other unions, the APA now seeks to gain a benefit from being
the last holdout from among the three unions. 	This is
inconsistent with Section 1113 jurisprudence. 	In the
Section 1113 proceeding in Delta Air Lines, 342 B.R. 685,
694 (Bankr. S.D.N.Y. 2006), Judge Hardin rejected the so-
called last man standing argument as inappropriate.
But even assuming the admissibility and truth of
these communications, the notion that a three percent
difference by itself dooms American's present application is
misguided. 	It is well-established that the necessity test
under Section 1113 is not a bare minimum needed for
reorganization. 	“Necessity should not be equated with
‘essential’ or bare minimum” as noted by the Second Circuit
in Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d
82, 89 (2d Cir. 1987); see also New York Typographical Union
No. 6 v. Royal Composing Room, Inc. (In re Royal Composing
Room, Inc.), 848 F.2d 345, 350 (2d Cir. 1988), which notes
that “[a] debtor's proposal need not be limited to the bare
bones relief that will keep it going."
Simply put, these cases all stand for the
proposition that necessity is not a but-for test. 	See Delta
Airlines, 342 B.R. 694. 	Indeed, the Second Circuit has
specifically rejected the Third Circuit’s requirement that
necessity “be construed strictly to signify only
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modifications that the trustee is constrained to accept.”
Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of
America, 791 F.2d 1074, 1088 (3d Cir. 1986).
Such a requirement would make it impossible for
the debtor to show it negotiated in good faith since “an
employer who initially proposed truly minimal changes would
have no room for good faith negotiating, while one who
agreed to any substantive changes would be unable to prove
that its initial proposals were minimal.” 	Carey Transp.,
816 F.2d at 89.
Here, the communications sought to be introduced
by the APA mean only that American might be able to succeed
with a bare minimum of a 17 percent labor cost reduction,
when that 17 percent is coupled with a consensual labor
agreement. 	That would be true because such consensual
agreements bring their own benefits to a debtor seeking to
reorganize.
As counsel for the Committee noted at today's
hearing, consensual agreements constitute labor peace and
stability, and Section 1113 does not provide either, even if
a debtor prevails during the proceeding. 	And here, no such
consensual agreement exists between American and the APA.
Thus the 17 percent figure, without more, does not
necessarily invalidate the notion of seeking a 20 percent
reduction from the pilots and, in fact, the APA at today's
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hearing suggested a policy whereby unions would be offered a
progressively less beneficial deal depending on where they
settled in the order of the ongoing process.
The Court does not adopt that position, but does
note that it was something proposed by the very party that's
objecting to the 20 percent ask.
The Court notes that rejection is particularly
appropriate here where the Court has received extensive
evidence of the 20 percent figure, and based on a
substantial evidentiary record during the three-week trial
found that American has established that figure as necessary
for purposes of Section 1113.
Indeed, the Court would be greatly concerned about
establishing a bright line numerical necessity rule of the
type advocated here by the APA. 	It would leave little to no
negotiating room for the parties to conduct meaningful
discussions outside the Court's presence, once again,
defeating the congressional purpose behind the statute.
On a side note, it may be true that there has been
some recent positive developments on revenue and/or overall
business performance in this case. 	But this is merely a
snapshot looking at nothing more than a two or three-month
period at most since the end of the last hearing. 	It says
little about what is needed for reorganization, which is a
much more long-term inquiry into viability.
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As for Ms. Clark's testimony on this question, the
Court finds that the communications referenced from the
August 16, 2012 meeting do not change the result here.
These comments occurred only one week after the pilots had
actually rejected the tentative agreement and only one day
after the Court's decision on August 15th. 	The Court
further notes that these communications did nothing more
than refer, again, to the settlements that had been worked
out between American and the unions and that they must be
understood in the overall context of the business plan as
provided by Ms. Goulet in her testimony here today.
For all these reasons and considering this as a
new Section 1113 application within the context of the
Court's prior ruling, the Court finds that American’s
current proposal contains modifications that are necessary
to permit American's reorganization and that it satisfies
the requirements of Section 1113. 	And for the reasons
stated above, the Court overrules the APA's substantive
objections to American's renewed Section 1113 motion.
But even putting aside the fatal substantive flaws
in the APA's objection, the Court disagrees with the premise
that as a procedural matter, a debtor is prohibited from
presenting a new Section 1113 proposal that addresses only
defects in its prior proposal without going back to
readdress all the aspects of its proposal that a Court has
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already found to pass muster under the statute.
Where a debtor has made a Section 1113 proposal
that has been found lacking in some way, the Court must
consider the facts and circumstances of each case to
determine what is an appropriate way to proceed. 	The Court
notes that other courts have exercised their discretion in
such a fashion in appropriate circumstances to allow a
debtor to seek relief by remedying specific defects in a
prior Section 1113 proposal.
In Mesaba Aviation, Inc., Transcript of
Proceedings, Case No. 05-39258 (Bankr. D. Minn. Oct. 5,
2006), for example, the debtor sought to remedy defects in
its Section 1113 proposal that had been identified by the
District Court on appeal. 	On remand, the debtor updated its
proposal on two discreet issues, but the union sought to
reopen the door to a broader necessity inquiry because the
revised proposal reduced the savings sought from labor.
The Bankruptcy Court stated that “the present law
of the case binds not only me but all the parties to
determinations that now are twice settled by my [earlier]
decision and [the district court's] affirmance”, id. at
57:20-23, and this is true notwithstanding the passage of
time from the Court's original decision. 	Here, very little
time has passed since the Court’s August 15th decision –
only 20 days.
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Most recently, in In re Hostess Brands, Inc.,
Transcript of Proceedings, Case No. 12-22052 (Bankr.
S.D.N.Y. May 14, 2012), Judge Drain identified specific
issues in the debtors' Section 1113 proposal that needed to
be fixed and indicated that the Court “would . . . be
receptive to a motion that makes a proposal along the lines
. . . outlined,” and told the parties that he was "perfectly
prepared on short notice to consider an amended proposal."
Id. at 130:25-131:2, 133:3-4.
Such an approach recognizes that a Court's prior
decision remains the law of the case. 	Here, that decision
held that American's business plan established, with the two
exceptions noted above, the need for the changes sought by
the Company. 	And this included a finding that the monetary
goals sought by the Company were necessary, even though they
took a very difficult toll on American's employees, a sad
fact that is common to Section 1113 proceedings in
bankruptcy. 	Those findings were based on an extensive
factual record, particularly on the issue of necessity over
the course of the three-week trial.
Indeed, such a proposal and procedure would be
immensely appropriate here given that the only new evidence
presented by the union is a single number, namely a
percentage discussed between the parties after the Section
1113 trial, but before the Court issued its August 15th
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decision.
I am not using that procedure for purposes of
making my decision, but I will also say that I don't think
it would be inappropriate to use that procedure in this
particular case.
And, again, I would note that the use of such a
procedure would not be appropriate in all circumstances.
For example, if there was a major catastrophic event that
affected all of the airline industry, then, clearly, there
would be a significant change in factual circumstances that
would need to be addressed by the parties and the Court.
Finally, the Court notes that two other objections
have been filed to the request for Section 1113 relief:
One, by the Supplement CC Pilots and the second by the
Supplement B Pilot Beneficiaries. 	They both claim to
represent a minority of American pilots who claim separate
contractual rights by virtue of Supplement B and Supplement
CC to the collective bargaining agreement that exists
between American and the APA.
During the course of the original Section 1113
proceedings, representatives of Supplement B and Supplement
CC Pilot Beneficiaries objected to American’s application.
The Court overruled these objections for the reasons stated
in the August 15th decision. 	There have been no new facts
on this issue presented today to the Court and nothing that
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changes the Court's decision in that ruling.
As to the motion in limine, that motion is granted
in part and denied in part consistent with the Court's
ruling today that precludes evidence of the parties'
settlement positions under Federal Rule of Evidence 408.
Let me just say one last thing. 	Just because this
is a renewed motion doesn't mean that it's any less
difficult for purposes of employees. 	I have a lot of
sympathy for the employees, the pilots, just as I did when
we had our original trial. 	It's a set of circumstances that
nobody is happy about. 	And I wish you all good luck in
trying to work out an agreement and hope that the good faith
that was evident in earlier discussions carries over to any
discussions moving forward.
And so I hope that all the parties can move beyond
my ruling today to do what they're going to have to do,
whether I rule for American, for the pilots, for anyone,
which is come up with an agreement and that is something
that's got to happen. 	And in some ways I'm the most
important person here, because I have to issue a ruling, and
in some ways I’m the least important person here because I
have no ability to actually work out an agreement between
American Airlines and the APA, and that's something that you
all have to do and I have no power to do it for you.
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