Antitrust Law Daily Wrap Up, ANTITRUST—Bankr. S.D.N.Y.: Bankruptcy court grants its approval to AMR Corp.-US Airways merger, (Dec 2, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal bankruptcy court in New York City has granted its approval under the federal bankruptcy rules to a settlement between AMR Corp. (the parent company of American Airlines), U.S. Airways, the Justice Department, six states, and the District of Columbia that would resolve the governments’ antitrust concerns regarding US Airways’ $11 billion acquisition of AMR. It also denied a request by plaintiffs in an adversary proceeding challenging the transaction for a temporary restraining order to block the deal (In re: AMR Corp., November 27, 2013, Lane, S.).

On November 12, AMR filed a motion for approval of the settlement between it, US Airways, the Department of Justice, and the states of Arizona, Florida, Tennessee, Michigan, Pennsylvania, Virginia, and the District of Columbia, as well as a motion seeking permission to complete the transaction without delay, despite the adversary proceeding filed by the private plaintiffs. Under the terms of the settlement, among other provisions, AMR and US Airways must divest 104 slots at Washington Reagan National Airport, 34 slots at New York La Guardia Airport, and two gates each at Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, and Miami International Airport, as well as associated ground facilities. On November 21, the private plaintiffs filed a motion for a temporary restraining order (TRO) to halt the transaction.

Temporary restraining order. The court denied the private plaintiffs’ motion for a TRO. The court first found that the plaintiffs’ failure to establish that they would suffer irreparable harm from the transaction in the absence of a TRO, “the most important prerequisite for injunctive relief,” weighed against the granting of a TRO. Although the plaintiffs alleged that they were and would be “direct purchasers of airline tickets from defendants,” and that they were “passengers and travel agents who have purchased airline tickets from defendants in the past and who are expected to do so in the future,” the plaintiffs did not provide any affidavits, declarations, or other evidence that would establish how they would be individually harmed by the proposed transaction, in the court’s view. The court noted that it could not “consider any injuries that plaintiffs allege would be suffered by the general air carrier flying public as a whole.”

Moreover, even if the plaintiffs had provided evidentiary support for their “conclusory allegations about the harm to these individual plaintiffs,” those allegations “would be insufficient to satisfy the irreparable harm element for purposes of the TRO motion,” according to the court. Although the plaintiffs alleged irreparable harm from “capacity reductions, elimination of the Advantage Fare, [and] loss of benefits from AMR as a standalone company,” and that the transaction “would adversely affect millions of consumers and a TRO will serve the public interest,” the plaintiffs did not allege harm to the individual plaintiffs. Similarly, a declaration from the plaintiffs’ expert provided only broad and conclusory allegations of harm, rather than addressing the specific harm to the individual plaintiffs.

In addition, the plaintiffs failed to establish that an award of monetary damages would be inadequate to compensate for the alleged harms, or that a divestiture remedy would be unavailable or inadequate to remedy their harms. The court also observed that the plaintiffs’ delay in seeking injunctive relief undercut their claim of irreparable harm, noting that the plaintiffs filed their adversary proceeding months after the court approved the transaction without any objections, that the plaintiffs did not seek injunctive relief by motion at the time they filed their complaint, and that the plaintiffs waited nine days after the settlement to filed their motion for a TRO. The court found no justification for that delay.

Although the plaintiffs’ failure to establish irreparable harm was sufficient on its own to doom their request for injunctive relief, the court also found that the plaintiffs failed to establish a likelihood of success on the merits that would justify an injunction. The expert opinion the plaintiffs provided to support their motion relied heavily on the Justice Department’s allegations, an American Antitrust Institute report, and testimony from the U. S. Government Accountability Office, but offered “little in the way of original opinions and analysis.” The court noted that “an expert’s opinion is entitled to less weight” when it merely relies on the work of others while providing little independent analysis. Moreover, by relying on sources that predated the November settlement, the plaintiffs “fail[ed] to sufficiently address the merger in the context of the DOJ settlement.”

In addition, the court identified problems with the plaintiffs’ arguments that went beyond their lack of evidentiary support. Although the plaintiffs alleged two markets, a national market based on competition between systems and submarkets consisting of “certain city-pairs,” the plaintiffs failed to identify which city pairs were at issue. Moreover, the plaintiffs failed to explain how the flights within a national market would compete with each other. The court also noted that the debtors’ expert had calculated that the post-merger HHI for the merger in the national market would be 1768, “below the Merger Guidelines threshold for highly concentrated markets.” The court found that the debtors raised “significant questions” on each of the alleged harms from the transaction, while the plaintiffs’ expert provided “only a few paragraphs to summarily conclude that each of these harms is likely to happen.”

The court also found that the balance of hardships and the public interest weighed against granting a TRO. The debtors provided “voluminous” declarations concerning the harm they would suffer from a TRO that contradicted the plaintiffs’ contention that the debtors would not suffer harm from a TRO, including “a decline in stock prices with a 10% decline in price equating to a $400 million dollar decline in shareholder value”; “a loss of the sunk costs in vested in the planning negotiation and financing of the merger”; “a negative impact on the value of the potential recoveries for the defendants’ economic stakeholders”; and “a significant negative impact on the employees at both AMR and US Airways.” The court rejected the plaintiffs’ argument that the Tunney Act barred consummation of the transaction and therefore a TRO would not impose any additional delay, observing that “nothing in the Tunney Act prevents consummation of the merger.” Finally, the court noted that the plaintiffs had not offered “to post an appropriate bond, a requirement clearly set out in Rule 65.”

Settlement approval. The court found that the settlement “easily satisfie[d]” the requirements for approval under Federal Rule of Bankruptcy Procedure 9109(a). The court found the balance between the benefits of the settlement and the debtors’ possibility of success in continued litigation “weigh[ed] heavily in favor of approving the settlement.” The debtors would face risks from “(1) the abandonment of the merger and the substantial value it creates, (2) the continued administration of the Debtors’ cases while another plan of reorganization is formulated and pursued, at a huge expense to the estate and its creditors, and (3) the delay in making distributions to the Debtors’ creditors and shareholders.” Moreover, the debtors’ management and AMR’s Board of Directors had analyzed the settlement and concluded its benefits outweighed the possibility of success in further litigation, and the settlement would not “materially or adversely change or alter the distributions under the Plan.”

Rejecting the settlement would result in “complex, protracted and costly litigation,” and would cause great harm to the debtors and their employees, creditors, and equity interest holders. Moreover, AMR’s creditors and other parties in interest overwhelmingly supported the settlement, with only the plaintiffs, who held no economic interest in the administration of the bankruptcy estate, objecting to it. Finally, the settlement had been negotiated by competent and experienced counsel through arms’ length bargaining between the parties. Therefore, the court found “that the settlement is fair and equitable and in the best interests of the estate and falls well above the lowest point in the range of reasonableness.”

The court also ruled that the settlement would not materially and adversely affect the creditors and equity holders in a manner that would require re-solicitation of the plan. The settlement would not alter the treatment of claim and equity interest holders under the plan, would maintain the relative priority and distribution scheme, and would not adversely affect distributions under the plan.

The court therefore “grant[ed] the Debtors’ motion to permit the transaction to be consummated without delay, despite the pendency of the” private plaintiffs’ adversary proceeding.”

As required by the Tunney Act, the Department of Justice published the proposed final judgment and a competitive impact statement in the Federal Register on November 27 for public comment. All public comments will be published on the Antitrust Division’s website, and the Justice Department will file with the court and publish in the Federal Register its responses to those comments. The Justice Department shall file any renewed proposed final judgment with the court by no later than March 10, 2014.

The case is No. 11-15462 (SHL), Adv. Pro. No. 13-01392 (SHL).

Attorneys: Stephen Karotkin (Weil, Gotshal & Manges LLP) for AMR Corp. Daniel M. Wall (Latham & Watkins LLP) for US Airways Group, Inc. Jay M. Goffman (Skadden Arps Slate Meagher & Flom LLP) for Official Committee of Unsecured Creditors. Joseph M. Alioto (Alioto Law Firm), David J. Cook (Cook Collection Attorneys), Gil D. Messina (Messina Law Firm, P.C.), and Derek G. Howard (Minami Tamaki LLP) for Clayton Plaintiffs.

Companies: AMR Corp.; US Airways Group, Inc.

Cases: Antitrust NewYorkNews AntitrustDivisionNews