AMR Corporation

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
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In re: 	Chapter 11
AMR CORPORATION, et al., 	Case No. 11-15463 (SHL)
Reorganized Debtors. 	(Confirmed)
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MODIFIED BENCH RULING ON (A) DEBTORS’ OBJECTION TO PROOFS
OF CLAIM NOS. 7639, 11037 AND 12520 FILED BY THE TRANSPORT
WORKERS UNION OF AMERICA, AFL-CIO LOCAL 514 [ECF NO. 12975],1
(B) DEBTORS’ 194TH OMNIBUS OBJECTION TO CLAIMS (EMPLOYEE STOCK
AND BENEFIT CLAIMS) [ECF NO. 13011], AND (C) DEBTORS’ 189TH OMNIBUS
OBJECTION TO CLAIMS (RETIREE BENEFIT CLAIMS) [ECF NO. 12910]
Before the Court are the Debtors’ objections to various claims that have been the subject
of a number of hearings, including most recently a hearing on September 25, 2018. At the
hearing on September 25, 2018, the Court ruled on some of the claim objections, but took others
under advisement. The Court will now issue its ruling on the remaining matters. 2
Section 502(a) of the Bankruptcy Code provides that a filed proof of claim is “deemed
allowed, unless a party in interest . . . objects.” 11 U.S.C. § 502(a). 	If the claim is properly
filed, it is prima facie evidence that the claim is valid. See Fed. R. Bankr. P. 3001(f). A party in
interest may object to a proof of claim, and once an objection is made, the court must determine
whether the objection is well founded. See 4 Collier on Bankruptcy ¶ 502.02[2] (16th ed. rev.
2013).
Although Rule 3001(f) establishes the initial evidentiary effect of a filed claim, the
burden of proof rests on different parties at different times. See In re Allegheny Int’l, Inc., 954
1 	Unless otherwise specified, references to the Case Management/Electronic Case Filing (“ECF”) docket are
to the above-captioned Chapter 11 case.
2 	This written decision memorializes the Court’s bench ruling that was read into the record on November 27,
2018. Because of its origins as a bench ruling, this decision has a more conversational tone.
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F.2d 167, 173 (3d Cir. 1992). Claims objections have a shifting burden of proof. Correctly filed
proofs of claim “constitute prima facie evidence of the validity and amount of the claim . . . . To
overcome this prima facie evidence, an objecting party must come forth with evidence which, if
believed, would refute at least one of the allegations essential to the claim.” Sherman v. Novak
(In re Reilly), 245 B.R. 768, 773 (2d Cir. B.A.P. 2000). By producing “evidence equal in force
to the prima facie case,” an objector can negate a claim’s presumptive legal validity, thereby
shifting the burden back to the claimant to “prove by a preponderance of the evidence that under
applicable law the claim should be allowed.” Creamer v. Motors Liquidation Co. GUC Trust (In
re Motors Liquidation Co.), 2013 U.S. Dist. LEXIS 143957, at *12–13 (S.D.N.Y. Sept. 26,
2013) (internal quotation marks omitted); see In re MF Global Holdings Ltd., 2012 WL
5499847, at * 3 (Bankr. S.D.N.Y. Nov. 13, 2012) (“A proof of claim is prima facie evidence of
the validity and amount of a claim, and the objector bears the initial burden of persuasion. The
burden then shifts to the claimant if the objector produces evidence equal in force to the prima
facie case . . . which, if believed, would refute at least one of the allegations that is essential to
the claim’s legal sufficiency.”); see also 4 Collier on Bankruptcy ¶ 502.02 (16th rev. ed. 2013);
In re Residential Capital, LLC, 507 B.R. 477, 490 (Bankr. S.D.N.Y. 2014).
A. Stock Options Claims
The Court first turns to the issue of the validity of claims based on a stock option
program that American began well before this bankruptcy in connection with earlier cost cutting
by the Company in 2003. See Sept. 25 Hr’g Tr. 32:4-34:25 [ECF No 13076] (citing American
Exhibits 2 and 3, submitted at September 25, 2018 hearing). The claims objections implicated
by this issue are:
 	Debtors’ Objection to Proofs of Claim Nos. 7639, 11037 and 12520 filed by the
Transport Workers Union of America, AFL-CIO Local 514 [ECF No. 12975]
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 	Debtors’ 194th Omnibus Objection to Claims (Employee Stock and Benefit Claims) [ECF
No. 13011]
In 2003, American implemented a “Broad Based Stock Option Plan,” which granted
eligible employees options to purchase shares of AMR common stock. See Aprey Letter, dated
September 16, 2003 and the Employee Stock Incentive Plan (both attached as Exhibit 1 to the
Supplement to Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus Objection
to Claims [ECF No. 13086]). The grant date for the stock options was April 17, 2003, with an
expiration date ten years later on April 17, 2013. See FAQ (attached as Exhibit 1 to the
Supplement to Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus Objection
to Claims). The Debtors subsequently filed their Chapter 11 cases on November 29, 2011, or a
little less than two years before the expiration date. The strike price, or the price at which
employees could exercise options and purchase shares of AMR common stock, was $5.00. See
id.
Several hearings were held and numerous sets of pleadings were filed by the parties with
respect to this issue. The Court notes that the arguments of the parties, both the Debtors and the
claimants, evolved over time. The Court will therefore address the arguments as they currently
stand.
The Transport Workers Union, Local 514 (“Local 514”) asserted that the stock option
program was implemented in conjunction with the collective bargaining agreements that were in
effect prior to the petition date. Local 514 argued that the Transport Workers Union (“TWU”)
collective bargaining agreement was rejected in the Section 1113 process that took place during
the Debtors’ bankruptcy, and that the stock option program was terminated in connection with
this rejection. See Supplemental Response of Local 514 to Objection to Proof of Claim Number
7639 [ECF No. 13049]. Section 1113 of the Bankruptcy Code permits a debtor to abrogate a
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collective bargaining agreement (“CBA”) if it meets a certain set of conditions in the statute. See
11 U.S.C. § 1113; see, e.g., In re AMR Corp., 477 B.R. 384 (Bankr. S.D.N.Y. 2012). Local 514
asserted a claim on behalf of its members that were unable to exercise their stock options
because of this alleged termination of the stock option program prior to its expiration date of
April 17, 2013. See Supplemental Response of Local 514 to Objection to Proof of Claim
Number 7639. The Debtors countered that the program was independent of the CBAs and that
employees continued to be able to exercise their rights under the program until its expiration in
April 2013.
The Court rejects the position of Local 514 for three reasons. As a threshold matter,
Local 514’s position is factually flawed because the TWU did not abrogate its CBA under
Section 1113 of the Bankruptcy Code. Instead, the TWU and the Debtors reached a consensual
agreement on a new CBA to replace the old CBA. See In re AMR Corp., 477 B.R. 384, 393, 405
n.12 (Bankr. S.D.N.Y. 2012); see also Sept. 25 Hr’g Tr. 36:19-47:9 (Court’s explanation of case
history as to CBAs). As such, any rights under the old CBA—as compared to the new CBA—
were the subject of a bargaining process and not a unilateral decision to abrogate or reject the
TWU CBA by the Debtors under the Bankruptcy Code. Thus, there was no unilateral
termination of rights by the Debtors that would serve as a basis for the claim that Local 514
asserted as to the stock options program.
Second, Local 514’s position is also legally flawed. Even if the stock option plan had
been terminated through abrogation of the CBAs, it is well established in this jurisdiction that
abrogation under Section 1113 of the Bankruptcy Code does not create rejection claims pursuant
to Section 365. See Northwest Airlines Corp. v. Ass'n of Flight Attendants-CWA (In re
Northwest Airlines Corp.), 483 F.3d 160, 172 (2d Cir. 2007) (“We hold that Northwest, acting
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pursuant the authority conferred to it by the bankruptcy court, abrogated its CBA. The purpose
of § 1113—to permit CBA rejection in favor of alternate terms without fear of liability after a
final negotiation before, and authorization from, a bankruptcy court—naturally leads to such a
conclusion.”); In re Northwest Airlines Corp., 366 B.R. 270, 275-76 (Bankr. S.D.N.Y. 2007)
(“[R]ejection under § 365 thus leads to a legal fiction at odds with the text of (and
impetus behind) § 1113, and we thus conclude that a bankruptcy court acting pursuant to § 1113
may authorize a debtor to abrogate its CBA, effectively shielding it from a charge of breach.”)
(internal citations omitted).
Third and finally, Local 514’s position is flawed based on the evidence. Considering the
evidence under the shifting burden of proof for claims objections, the contemporaneous evidence
indicates that the stock option program expired on April 17, 2013 in accordance with its terms
and was not impacted by the CBA process. The Court asked both sides for copies of any
relevant documents or sections of the CBAs that indicate a relationship between the stock option
program and the CBAs. None of the relevant documents provided to the Court show a
connection.
Local 514 relied upon a written statement submitted by D’Ann Johnson, an officer of
Local 514. See Statement of Johnson, dated September 13, 2018 [ECF No. 13049-2]. But Ms.
Johnson’s statement only asserted generally that “under the 2003 collective bargaining
agreements with American, the bargaining unit members received the right to stock options.” Id.
Ms. Johnson’s statement attached sections of the Employee Stock Option Agreement Terms and
Conditions and also the 2003 Employee Stock Incentive Plan. But neither of these documents
stated that the stock option program was being implemented in conjunction with the CBAs;
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indeed, neither document even referenced the CBAs. See Exhibits 1 and 2 to Statement of
Johnson.
Instead, contemporaneous documents provided to the Court indicate that the stock option
program was implemented by American as a reward to its employees that was independent of the
CBAs and that this stock option right existed until April 17, 2013. This evidence includes the
following:
 	The Stock Option Incentive Plan stated that its purpose was to enable “AMR Corporation
to retain and reward employees of the Company and its Subsidiaries and Affiliates, and
strengthen the mutuality of interests between such employees and the Company’s
shareholders, by offering such employees equity-based incentives in the Company.”
Employee Stock Incentive Plan at Section 1 (attached as Exhibit 1 to the Supplement to
Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus Objection to
Claims).
 	Similarly, the Terms and Conditions attached to the plan stated that the Board of
Directors of AMR had approved the plan, had selected the individuals that were eligible
to participate in the plan and found “that it is to the advantage and interest of the
Corporation to grant the option provided . . . as an incentive for the Optionee to remain in
the employ of the Corporation or one of its Subsidiaries or Affiliates, and to encourage
ownership by the Optionee of the Corporation’s Common Stock.” Employee Stock
Option Agreement Terms and Conditions (attached as Exhibit 1 to the Supplement to
Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus Objection to
Claims).
 	Letters sent out to notify eligible participants of the program characterized it as a “stock
option award” and state that it was “granted to you in recognition of your participation in
the recent cost restructuring process. . . .” See Delewski Letter (American Exhibit 2,
submitted at September 25, 2018 hearing).
Indeed, Local 514 informed its members that the stock option program existed, but that
employee rights under the program expired on April 17, 2013:
 	On July 10, 2013, for example, Local 514 informed its members that “[t]hose of us that
held AMR Stock Options, originally granted in 2003, do not qualify to vote because those
stock options expired on April 17th , 2013.” TWU Local 514 Blog (attached as Exhibit 5
to Supplement to Debtors’ Objection to Proof of Claim Number 7639 and 194h Omnibus
Objection to Claims).
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 	Local 514 again stated on December 2, 2013 that “[a]ny options that were still
outstanding irrevocably expired on April 17, 2013, and are not exercisable after that date.
That means the 2003 Broad Based Stock Options do not have any remaining value, and
the Plan of Reorganization does not provide for any payment in respect of such options.”
TWU Local 514 Blog (attached as Exhibit 4 to Supplement to Debtors’ Objection to
Proof of Claim Number 7639 and 194h Omnibus Objection to Claims).
 	See also Association of Professional Flight Attendants (“APFA”) Equity Creditor
Information Page, dated August 15, 2013 (attached as Exhibit 6 to Supplement to
Debtors’ Objection to Proof of Claim Number 7639 and 194h Omnibus Objection to
Claims) (stating that “[a]ny options that were still outstanding irrevocably expired on
April 17, 2013 and are not exercisable after that date.”).
Based upon the evidence that was submitted by the parties, the Court concludes that the
Stock Option Program expired in accordance with its terms on April 17, 2013, that it was not
connected to the CBAs, and that the treatment of the CBAs during the bankruptcy process had no
impact upon the program.3
A separate issue was raised as to whether employees were prevented from exercising
their stock options subsequent to the petition date. This issue was raised by Frank Cannizzaro
3 	The parties raised the significance, if any, to language contained in an agreement between the Debtors and
the TWU relating to the treatment of certain claims, which provided that certain proofs of claim filed by TWU-
represented employees would be preserved notwithstanding the parties having entered into new CBAs and releasing
certain claims. That language stated:
any and all claims, interests, causes or demands (including all pending grievances) (collectively, the “TWU
Claims”), TWU has or might arguably have, on behalf of itself or the Company’s employees represented by
the TWU pursuant to the Railway Labor Act (“RLA”) and the terms of the existing collective bargaining
agreements (the [Old CBAs]) . . . against the Debtors arising prior to the [e]ffective [d]ate . . . of this [l]etter
[a]greement shall be automatically fully, finally, and completely released, expunged and extinguished.
Notwithstanding the foregoing, (except for the claims listed on Exhibit A) the TWU Claims shall not
include claims asserted in any proofs of claim actually filed in the Bankruptcy Cases by or on behalf of
TWU represented employees (the “Excluded Claims”). The Excluded Claims shall be administered and
resolved pursuant to the claims resolution process in the Bankruptcy Cases and the parties reserve all of
their rights with respect to the Excluded Claims.
Letter re: Settlement Consideration and Bankruptcy Protections, dated August 22, 2012 (attached as Exhibit D to the
Debtors’ Objection to Proofs of Claim. Nos. 7639, 11037, and 12520). The Court finds that this language does not
impact the validity of the claims in question. It does not provide that the preserved claims were otherwise valid or
invalid. All the language means is that the preserved claims would now be subject to the claims process in these
bankruptcy proceedings. See September 25 Hr’g Tr. 49:18-56:25.
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and Angelo Balbo, two claimants under the 194th Omnibus Objection who are not members of
Local 514. See September 25th Hr’g Tr. at 62:20-22. They stated generally in identical letters
submitted in opposition to the 194th Omnibus objection that after American filed “we were told
by the Company that if we had not exercised the options prior to them filing we would no longer
be able to do so.” See ECF Nos. 13044, 13061. This was also addressed before the Court at the
hearing on September 25, 2018 by Mr. Balbo, as well as in a pleading subsequently filed by him.
Initially at the hearing, Mr. Balbo stated that he had been told by Debtors’ management
that if he “didn’t exercise these stock options they wouldn’t be able to be exercised.” Sept. 25
Hr’g Tr. 60:24-61:3. In a subsequent pleading, however, Mr. Balbo clarified that shortly after
the Debtors’ bankruptcy filing, he called the AA Benefit Service Center to inquire on the status
of his stock options and was told they could no longer be exercised. See Supplement to the
Debtors Objection to Proof of Claim 194th Omnibus [ECF No. 13096]. He also stated that the
brokerage firm handling the options told him that they were no longer exercisable. See id. In
this pleading, Mr. Balbo made no reference to the Debtors’ management or counsel directly
stating to him that he could not exercise his options and in fact stated that he believed the AA
Benefit Service Center may have been outsourced. See id.
Local 514 subsequently latched onto this issue, seemingly suggesting that all claimants
that held stock options were similarly prevented by the Debtors from exercising their stock
options and that this was because the automatic stay prohibited them from enforcing their rights
against the Debtors. Local 514 argued that this constituted a breach of contract. See Second
Supplement of TWU, Local 514, Regarding Objection to Proof of Claim Number 7639 at 2-3
[ECF No. 13097]. But, as noted above, Local 514 provided no evidence that any of its own
members were prevented from exercising their stock options in similar fashion. Indeed, prior
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pleadings of Local 514 seemed to suggest that members could exercise their stock options
subsequent to the petition date. See Supplemental Response of Local 514 to Objection to Proof
of Claim Number 7639 at 4 (stating that “the claim over stock options, as modified in the
objection process, relates only to those bargaining unit members who had vested and unexercised
rights immediately before the filing of bankruptcy to stock options; such claim does not relate to
persons who had exercised those rights, whether they continued to hold the stock at the time of
bankruptcy. . . or persons who had exercised their options and then sold their stock prior to
bankruptcy (or after).”) (emphasis added). Local 514 also provided no legal authority for the
notion that the exercise of this employee benefit was somehow barred by the automatic stay.
In sum, no evidence was provided to the Court that anyone other than Mr. Balbo and Mr.
Cannizzaro were prevented from exercising their stock options. Local 514 merely cited to the
statements of Mr. Balbo at the September 25th hearing and to several pages of a Local 514 blog,
which pages appear to have nothing to do with the stock option program itself but rather with
stock distributions under the Debtors’ Plan of Reorganization. See Second Supplement of TWU,
Local 514, Regarding Objection to Proof of Claim Number 7639 at 2.
Indeed, contemporaneous evidence indicates that the Debtors operated with the
understanding that employees were able to exercise stock options up until the expiration date of
April 17, 2013 and, in fact, notified employees of the imminent expiration and that they must
make a decision about whether to exercise their options prior to that date:
 	For instance, the Debtors notified employees on April 1, 2013—well after the bankruptcy
filing—that “[t]he majority of these options were exercised over the past ten years. Any
options that are still outstanding will irrevocably expire on April 17, 2013, and cannot be
exercised after that date. The decision of whether to exercise a stock option is solely that
of the option holder, and American is providing no advice or recommendation regarding
that decision.” AMR Corp. Jetwire (Form 425) (emphasis added) (attached as Exhibit 2
to Supplement to Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus
Objection to Claims).
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 	On April 10, 2013, the Debtors again informed employees that “[t]he options irrevocably
expire on April 17, 2013, and cannot be exercised after that date. View this important
information to help you on your decision to exercise your stock option grants.” AMR
Corp., Flight Service Update (Form 425) (emphasis added) (attached as Exhibit 3 to
Supplement to Debtors’ Objection to Proof of Claim Number 7639 and 194th Omnibus
Objection to Claims).
While Mr. Balbo referred to “others” being told the same thing as him, no one else came
forward with such assertions and no other evidence was provided to this Court that any other
party was prevented from exercising their rights due to the automatic stay or otherwise. The
pleadings submitted by Local 514 prior to September 25th based its claim for stock options upon
a breach of contract/rejection damages theory, and that basis has been rejected by this Court. See
Local 514 Supplemental Response to Objection to Proof of Claim Number 7639 at 2-8. Given
that Local 514 provided no evidence that any of its members were prevented from exercising
their stock options after the bankruptcy filing, and indeed there being evidence to the contrary,
Local 514’s claim based on the stock options is expunged. The Court therefore does not address
the arguments raised by Local 514 at the September 25th hearing with respect to damages.4
As for Mr. Balbo’s statements and those of Mr. Cannizzaro, there is no evidence that it
was the Debtors themselves that prevented him from exercising his stock options:
 	In his pleading, Mr. Balbo stated that he believed the American Benefit Service Center
with which he inquired may have been outsourced. See Supplement to the Debtors
Objection to Proof of Claim 194 th Omnibus).
 	He also stated that he spoke with a brokerage firm, but never stated that he spoke directly
with an employee of the Debtors or with Debtors’ counsel. See id.
4 	As to damages, the Court notes that Local 514 did not provide an expert with respect to such damages
arguments, and even if the Court were ruling with respect to Local 514’s request for damages, it is exceedingly
skeptical that any claim—much less one for $135 million—could exist when the stock price postpetition never rose
above the $5.00 strike price prior to expiration of the stock option program. See September 25th Hr’g Tr. 79:8-13.
In short, it is unclear how any person could be harmed if prevented from exercising stock options at a strike price of
$5.00 when the market price never rose above $4.00 during the period in question.
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 	Mr. Balbo provided no documents to show that American itself prevented him from
exercising his options or that it instituted a policy that prevented him from doing so.
Even if Mr. Balbo and Mr. Cannizzaro had a claim based on their inability to exercise
their stock options after the bankruptcy filing, the Court has serious doubts that they could make
an argument that they are entitled to damages.
 	The stock options were not transferable, so an individual like Mr. Balbo could not have
sold the options to another party. See Stock Option Agreement Terms and Conditions at
3 and FAQ at 8 (both attached as Exhibit 1 to the Supplement to Debtors’ Objection to
Proof of Claim Number 7639 and 194th Omnibus Objection to Claims); see also
September 25th Hr’g Tr. 51:23-68:13.
 	Additionally, the Debtors provided evidence that the stock price never reached the strike
price of $5.00 between the petition date and the expiration date of April 17, 2013. See
AMR Share Price Chart (attached as Exhibit A to Request For Judicial Notice [ECF No.
13058]); Ganino v. Citizens Utils. Co., 228 F.3d 154, 166 n.8 (court may take judicial
notice of well-publicized stock prices).
 	Thus, if Mr. Balbo or Mr. Cannizzaro had exercised their own options after the Debtors’
filing, they would have had to pay the difference between the price that the stock was
selling at and the strike price, thus spending more than the actual share price of the stock
in order to acquire it. As the stock price never got close to the $5.00 strike price during
the applicable period of time, why wouldn’t Mr. Balbo simply just buy the stock off the
street as opposed to exercising his option? See September 25th Hr’g Tr. 64:10-16 (Court
colloquy on damages).
Indeed, the Court made extensive observations on the issue of damages at the September
25 th hearing. See September 25th Hr’g Tr. 64:10-84:20. Based on Mr. Balbo’s comments, the
Court suspects that his frustrations are based on the fact that the stock price—while never rising
above $4.00 prior to the April 17, 2013 expiration date—subsequently rose far above that price.
The Court sympathizes with his frustrations, but a claim such as this cannot be based on such
hindsight. And the Court further notes that each of the major unions in this case—the TWU, the
Allied Pilots Association and the APFA—received stock for their members as part of the Plan of
Reorganization.
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In sum, the Court determined at the September 25th hearing that it was not going to hold
an evidentiary hearing on the issue of damages in an effort to simplify the matters that were on
for hearing. See id. Given the current factual record, the claims of Mr. Balbo and Mr.
Cannizzaro with respect to stock options will survive for the meantime and are subject to further
factual development and discussion with respect to damages. The Court will provide an
opportunity for the Debtors, Mr. Balbo and Mr. Cannizzaro to be heard further on the damages
issue. Unless more is provided than was already stated at the September 25th hearing, however,
the Court expects that the claims will be dismissed on the basis of damages. Mr. Balbo and Mr.
Cannizzaro should speak with Debtors’ counsel to discuss a schedule for the submission of
anything additional with respect to damages.
B. Medical Prefunding Claims
The Court next turns to the issue of the validity of claims based upon money contributed
to a medical prefunding program that ended during the pendency of the Debtors’ bankruptcy
cases. The claims objection implicated by this issue are:
 	Debtors’ Objection to Proofs of Claim Nos. 7639, 11037 and 12520 filed by the
Transport Workers Union of America, AFL-CIO Local 514
The retiree medical prefunding program was a benefit that was provided under the 2003
CBAs. The program was negotiated out of the CBAs signed in 2012 during the bankruptcy
process. 	See AA/TWU CBA [ECF No. 3232-2]. Upon the program’s elimination, the money
that had been paid into the program by American’s employees was refunded. See 12/27
Arbitration Opinion at 2 (attached as Exhibit 2 to Declaration of Douglas Cotton [ECF No.
13057]). Under the 2012 CBAs, the Debtors agreed that the company-matching funds American
had paid into the program and which were being held in a retiree benefit trust, would be
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distributed to employees if there was a “successful resolution of the ‘Section 1114 Process.’”
See id. at 2-3.
Section 1114 of the Bankruptcy Code permits a debtor to modify its obligations to pay
retire benefits under certain circumstances. See 11 U.S.C. § 1114(e), (f) & (g). In fact, the
Debtors in this bankruptcy never sought relief under Section 1114. But they did file an
adversary proceeding arguing that certain retiree benefits had not vested and therefore could be
terminated. See September 25th Hr’g Tr. at 85:7-87:17; see also Adv. No. 12-01744. 	As a
practical matter, if the Debtors prevailed in their adversary proceeding, they would no longer
have been obligated to pay those retiree benefits. Perhaps for that reason, parties in this case
sometimes referred to this adversary proceeding as a Section 1114 process, even if that title was
technically inaccurate.
After receiving a partial ruling from the Court in the adversary proceeding, see AMR
Corp. v. Comm. of Retired E’ees (In re AMR Corp.), 508 B.R. 296 (Bankr. S.D.N.Y. 2014),
American ultimately decided to voluntarily dismiss the adversary proceeding once it concluded
that it was no longer going to be able to prevail. This issue was discussed in some depth between
the Debtors and the Retiree Committee when the adversary proceeding was being dismissed. See
generally Hr’g Tr. (July 11, 2018) [Adv. No. 12-01744, ECF No. 85]; Hr’g Tr. (July 24, 2018)
[ECF No. 12981]. The TWU would not agree with the company that voluntary dismissal did not
constitute “successful resolution of the Section 1114 process.” See 12/27 Arbitration Opinion at
4 (attached as Exhibit 2 to Declaration of Douglas Cotton). That dispute ultimately went to
arbitration, where the issue presented to the arbitrators was: “If American were to seek and
obtain a voluntary dismissal of the Adversary Proceeding without further prosecution, would
doing so trigger an obligation under the American-TWU collective bargaining agreements for
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American to distribute the matching contributions at issue in this case to any of the active TWU-
represented employees and/or post-October 31, 2012 TWU retirees who previously participated
in the prefunding program?” Id. at 5.
On December 27, 2017, an arbitration opinion was issued stating that “[v]oluntary
dismissal of the § 1114 process will not, in this case, trigger an obligation under the AA/TWU
collective bargaining agreement to distribute the matching contributions at issue in this case to
any of the active TWU-represented employees and/or post-October 31, 2012 TWU retirees who
previously participated in the prefunding program.” 12/27 Arbitration Opinion at 16 (attached as
Exhibit 2 to Declaration of Douglas Cotton).
On July 25, 2018, this Court entered an Order granting American’s motion to voluntarily
dismiss the adversary proceeding. (Adv. No. 12-01744, ECF No. 86). That same day, the Court
entered an Agreed Order on Debtors’ 190 th Omnibus Objection to Claims [ECF No. 12971],
which expunged certain proofs of claim that had been filed by the Retiree Committee appointed
in the case under to Section 1114. This agreed order stated that the Debtors would “continue to
provide the ‘retiree benefits’ (as such term is defined in section 1114 of the Bankruptcy Code)
claimed in the Retiree Benefit Claims . . . in accordance with the provisions of section
1129(a)(13) of the Bankruptcy Code, as set forth in section 8.44 of the Plan and in the
Confirmation Order.” Id.
Notwithstanding this extensive factual background, Local 514 did not and will not
concede that there has not been a successful Section 1114 proceeding. Local 514 relied on the
Statement of Sam Cirri, who stated that during the negotiations the discussion was that “as soon
as the retiree medical issues were settled, then the company set aside was to be paid out to the
employees. There was no mention at the table that the company planned to use that money to
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pay for the retiree medical if they would be on the hook for that. Nor were the employees who
approved the renegotiated CBAs told that. Certainly, there was no criterion in the renegotiated
CBAs as to what kind of resolution would result in non-payment by the company; this is because
any resolution would result in the agreed-to payout. Statement of Sam Cirri, dated September
11, 2018 [ECF No. 13049-1]. But the Court need not rely upon this parole evidence regarding
the negotiation process because the language of the final agreement between the parties is clear.
See WWW.Assocs. v. Giancontieri, 77 N.Y.2d 157, 162-63 (1990) (“It is well settled that
extrinsic and parole evidence is not admissible to create an ambiguity in a written agreement
which is complete and clear and unambiguous upon its face.”). That document stated that
distribution of the matching funds to employees was “contingent on the successful resolution of
the Section 1114 process” and both the Debtors and the TWU agreed to arbitrate the issue of
whether voluntary dismissal constituted “successful resolution,” an issue that the TWU lost
before the arbitrator. See Appendices A, B, and C to the 12/27 Arbitration Opinion (attached as
Exhibit 2 to Declaration of Douglas Cotton); see also September 25th Hr’g Tr. 88:11-91:24.
Local 514 argued that the December 27th arbitration opinion reserved a ruling on the
successful resolution of the Section 1114 process to a later date, and that this Court’s agreed
order expunging the Retiree Committee proofs of claim was somehow a “resolution of the
Section 1114 process.” Supplemental Response of Local 514 to Objection to Proof of Claim
Number 7639 at 10 or that it somehow triggered a new Section 1114 process. See September
25th Hr’g Tr. 91:7-13.
The Court finds that there never has been a true Section 1114 process before this Court,
and that the one proceeding implicating Section 1114 rights—the adversary proceeding—was
voluntarily dismissed, a result that the arbitrator already determined did not trigger the release of
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these funds. Thus, the Debtors never received any relief in a court proceeding from their retiree
obligations and, therefore, there has not been a successful Section 1114 process. As the Court
explained at the prior hearing on these issues, the language in the agreed order was provided as
comfort to the Retiree Committee to ensure that although their proofs of claim were being
expunged, the Debtors would continue to pay certain benefits in accordance with the Bankruptcy
Code and the terms of the Plan of Reorganization and Confirmation Order. The agreed order
expunging the Retiree Committee’s proofs of claim is and was not part of the Section 1114
process, and indeed acknowledged the dismissal of the Section 1114 adversary proceeding with
prejudice. See ECF. No. 12971. The Debtors simply agreed to continue to comply with the
terms of the Bankruptcy Code and their Plan of Reorganization, as they had been since the plan
was confirmed in 2013. The agreed order does nothing more than maintain the status quo that
had been in place for years prior to the arbitration opinion being entered on December 27, 2017,
and to suggest that the agreed order was something new that happened or that something else
happened since the Section 1114 process ended with the Debtors voluntary dismissal in July of
2018 is nonsensical.
C. Supplemental Medical Plan Claim
The Court now turns to the issue of the validity of claims seeking the return of premiums
paid by American’s employees towards a supplemental medical plan that was discontinued by
the Debtors after their bankruptcy filing. The claims objection implicated by this issue is:
 	Debtors’ 194th Omnibus Objection to Claims (Employee Stock and Benefit Claims)
Prior to September 22, 2010, the Debtors’ active medical plans included a lifetime
maximum on the coverage provided to employees and their dependents. See Letter from Dave
Levine, Managing Director HR Delivery, to Employees of American, dated September 22, 2010
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(attached as Exhibit 7 to the Supplement to Debtors’ Objection to Proof of Claim Number 7639
and 194 th Omnibus Objection to Claims). To supplement their coverage, eligible employees
were permitted to enroll in the supplemental medical plan, which provided an additional
$500,000 in benefits so long as premiums continued to be paid. See id.
Upon its enactment, the Patient Protection and Affordable Care Act required that medical
plans remove lifetime maximum coverage caps beginning on January 1, 2011. See id. Since the
Debtors could no longer maintain lifetime maximum coverage caps in the medical plans they
provided to their employees, the Debtors determined that the supplemental medical plan was no
longer necessary to supplement employee’s coverage. See id. The Debtors therefore
discontinued the supplemental medical plan for active employees effective as of December 31,
2010. See id. The Debtors informed their employees of this in a letter dated September 22,
2010. See id.
In that letter, the Debtors informed their employees that because the supplemental
medical plan was an annual term policy, no refunds of premiums would be issued. Specifically,
the Debtors stated that “the Supplemental Medical Plan is an annual term policy, similar to
automobile insurance; you are paying for coverage in the event you need to utilize the coverage
during the policy period you are making your payments. Like automobile insurance, if your
policy is terminated, you are not refunded your premiums nor would your policy provide you
with any coverage if you had a car accident after the policy was terminated.” Id.
Because the premiums were payments for an annual term policy and there is no dispute
that the claimants’ policies were in effect until the end of the annual term that they had paid for,
the claims for return of the premiums paid are denied.
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D. Retiree Benefit Claims
The Court next turns to the issue of the validity of claims seeking damages for
termination of a medical prefunding program for retirement. The claims objection implicated by
this issue is
 	Debtors’ 189th Omnibus Objection to Claims (Retiree Benefit Claims) [ECF No. 12910].
Numerous responses were received to this objection, and the Court also heard argument
from Ronnie Engles, Russell Hartman, Rita Huffstutler, Richard Irving, Jay Jackson and
Patricia McCreary at several hearings.
The retiree medical funding program—under which employees made a monthly
contribution prior to retirement to help pay for, or prefund, their retiree medical coverage—was a
benefit provided starting in 2003 but was eliminated during the bankruptcy. Claimants
complained about the high cost of replacing this kind of benefit. At various hearings, it was
suggested that the Debtors may have terminated the retiree medical prefunding program
unilaterally. But the evidence establishes that the retiree medical prefunding program was
terminated as a benefit under the old CBA when the new CBAs were entered into. See CBA
Blackline [ECF No. 3232-2] (comparing the old CBA to the new CBA and indicating
elimination of prefunding retiree health care under new CBA). On September 12, 2012, the
Court authorized the Debtors to enter into the new CBAs. See ECF Nos. 4413, 4414. A letter
was sent by the Debtors on or about that same day informing the applicable employees that the
prefunding program was being terminated and that employee contributions into the program
would be refunded. See Letter of Denise Lynn, dated September 12, 2012 (attached as Exhibit O
to Supplement to Debtors’ 189th Omnibus Objection to Claims [ECF No. 12982]). While several
of the claimants stated that they received letters or information from the Debtors prior to the
Section 1113 process stating that the program was terminated, no evidence has been provided of
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this, despite the Court providing the claimants with numerous opportunities to supplement their
oppositions to the Debtors’ claim objection.
The evidence establishes that the Debtors did not abrogate the TWU and APFA CBAs
under Section 1113 of the Bankruptcy Code. Instead, the TWU, the APFA and the Debtors
reached a consensual agreement on a new CBA. See In re AMR Corp., 477 B.R. 384, 393, 405
n.12 (Bankr. S.D.N.Y. 2012); In re AMR Corp., 478 B.R. 599, 602 (Bankr. S.D.N.Y. 2012). As
such, any rights under the old CBA—as compared to the new CBA—were the subject of a
bargaining process and not a unilateral decision to abrogate or reject the CBA by the Debtors.
Thus, there was no unilateral termination of rights by the Debtors that would serve as a basis for
the claim being asserted.
Even if this were not the case, termination of a CBA in the context of Section 1113 does
not give rise for a claim to damages, as noted previously. See Northwest Airlines Corp. v. Ass'n
of Flight Attendants-CWA (In re Northwest Airlines Corp.), 483 F.3d 160, 172 (2d Cir. 2007); In
re Northwest Airlines Corp., 366 B.R. 270, 275-76 (Bankr. S.D.N.Y. 2007).
And, as previously discussed, this retiree adversary proceeding was voluntarily dismissed
by the Debtors with prejudice. See Adv. Proc. No. 12-01744, ECF No. 78. The plain language
of the Plan and the Confirmation Order provide that upon termination of the Section 1114 retiree
adversary proceed, any remaining vested retiree benefits would be treated in accordance with
Section 1129(a)(13) of the Bankruptcy Code. The Debtors reiterated that they will comply with
Section 1129(a)(13), that expungement of these claims will not affect the rights of any affected
individual retiree.5
5 	In addressing the claim relating to the medical prefunding benefits, the Court notes for the sake of clarity
that the other employee benefits that were provided under the renegotiated 2012 CBAs were assumed by the Debtors
under Paragraph 14(a) of the Confirmation Order and Section 8.4(a) of the Plan of Reorganization. This assumption
was qualified by the results of the Debtors’ adversary proceeding on retiree benefits discussed earlier.
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One claimant Ron Engles (Proof of Claim No. 9169), sought damages equal to the
amount of company-match contributions originally contemplated by the retiree medical
prefunding program. But as previously discussed above, the company-match contributions were
the subject of arbitrations between American and the TWU and APFA and the arbitrators ruled
that American had no obligation to return the company match contributions. See 3/1 Arbitration
Opinion and 12/27 Arbitration Opinion (attached as Exhibit B and Exhibit C to American’s
Omnibus Reply to Responses to 189th Omnibus Objection to Claims [ECF No. 12953]).
Mr. Engles also argued that the Debtors could not take money that was being held in the
name of the claimants. See September 25th Hr’g Tr. 99:15-101:8. But it appears that in making
this argument, Mr. Engles relied on documents that don’t have to do with medical prefunding or
the claims to which the Debtors were objecting, but rather with a benefit that is not impacted by
the Debtors’ 189th Omnibus Claims Objection. See September 25th Hr’g Tr. 112:5-113:22.
Several other individuals made argument on issues that are beyond the scope of the 189th
Omnibus Claims objection. For instance, Mr. Hartman argued that the employees did not have a
separate committee representing them, similar to the Retiree Committee under Section 1114 of
the Bankruptcy Code. The Court noted that retirees have a committee because the unions don’t
represent them, while current employees are represented by their unions, all of whom were very
active participants in the bankruptcy. See September 25th Hr’g Tr. 104:13-105:11. Ms.
McCreary argued that at the time of her retirement, the employees did not discuss or vote on
their prefunding, but this again was something that was part of the negotiations the unions had
with the Debtors that resulted in the new CBAs. See September 25th Hr’g Tr. 106:21-107:23.
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The Court notes that for all of the claims objections, to the extent the Court has not
specifically addressed an argument in this decision that was raised by any of the parties, such
argument has been considered by the Court and rejected.
Last but not least, the Court would like to thank the individual employees and retirees
who participated in the various hearings on these claim objections. They spent a considerable
amount of time and effort on it and represented themselves well. The Court regrets not having
better news in connection with these claim objections. Regrettably, a reorganization under
Chapter 11 often leads to difficult results for employees of a company even where, as here, the
company exits the bankruptcy process successfully. Moreover, it can be difficult and confusing
to follow the changes for employees during a case, particularly one as complicated as this where
there were ongoing negotiations for years while new CBAs were being negotiated and before the
Plan of Reorganization—and related merger—were approved.
The Debtors should serve a copy of this Modified Bench Ruling upon all the parties who
submitted any filings in connection with any of these objections or who appeared at any of the
hearings relating to these objections, either in person or telephonically.
The Court will enter a separate order consistent with this decision.
Dated: New York, New York
December 10, 2018
/s/ Sean H. Lane
UNITED STATES BANKRUPTCY JUDGE
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