471 B.R. 51 (Bkrtcy.S.D.N.Y. 2012), 11-15463 (SHL), In re AMR Corp.

Docket NºBankruptcy 11-15463 (SHL).
Citation471 B.R. 51
Opinion JudgeSEAN H. LANE, Bankruptcy Judge.
Party NameIn re AMR CORPORATION, et al., Debtors. v. AMR Corporation and American Airlines, Inc., Defendants. Allied Pilots Association, Plaintiff, Adversary No. 12-01094 (SHL).
AttorneySteptoe & Johnson LLP, By: Filiberto Agusti, Esq., Joshua Robert Taylor, Esq., James & Hoffman, P.C., By: Edgar N. James, Esq., Kathy L. Krieger, Esq., David P. Dean, Esq., Darin M. Dalmat, Esq., Washington D.C., for the Allied Pilots Association. Weil, Gotshal & Manges LLP, By: Harvey R. Miller,...
Case DateApril 20, 2012
CourtUnited States Bankruptcy Courts, Second Circuit

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471 B.R. 51 (Bkrtcy.S.D.N.Y. 2012)

In re AMR CORPORATION, et al., Debtors.

Allied Pilots Association, Plaintiff,


AMR Corporation and American Airlines, Inc., Defendants.

Bankruptcy No. 11-15463 (SHL).

Adversary No. 12-01094 (SHL).

United States Bankruptcy Court, S.D. New York.

April 20, 2012

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Steptoe & Johnson LLP, By: Filiberto Agusti, Esq., Joshua Robert Taylor, Esq., James & Hoffman, P.C., By: Edgar N. James, Esq., Kathy L. Krieger, Esq., David P. Dean, Esq., Darin M. Dalmat, Esq., Washington D.C., for the Allied Pilots Association.

Weil, Gotshal & Manges LLP, By: Harvey R. Miller, Esq., Stephen Karotkin, Esq., Alfredo R. Pé rez, Esq., Stephen A. Youngman, Esq., New York, NY, Paul Hastings LLP, By: John J. Gallagher, Esq., Neal D. Mollen, Esq., Margaret H. Spurlin, Esq., Washington, D.C., for AMR Corporation and American Airlines, Inc.

Skadden ARPS Slate Meagher & Flom LLP, By: Jay M. Goffman, Esq., New York, NY, John Wm. Butler, Jr., Esq., John K. Lyons, Esq., Felicia Gerber Perlman, Esq., Chicago, IL, or the Official Committee of Unsecured Creditors.


SEAN H. LANE, Bankruptcy Judge.

In the above-captioned adversary proceeding, the Allied Pilots Association (the " APA" or " Plaintiff" ) seeks a declaratory judgment that its most recent collective bargaining agreement (the " CBA" ) with debtor American Airlines, Inc. (" American" ) expired by its terms on May 1, 2008. The APA argues, therefore, that this expired contract cannot be rejected under Section 1113 of the Bankruptcy Code, which permits a debtor to reject a collective bargaining agreement under certain circumstances. American disagrees. It contends that the parties' CBA did not expire but rather became " amendable" by virtue of the Railway Labor Act, 45 U.S.C. § 151, et seq. (the " RLA" ), which leaves the central terms of the parties' last agreement in place while they pursue the extensive negotiating path contemplated by the statute. Consistent with these " status quo" provisions of the RLA, the parties here have, in fact, continued their relationship under the terms of their most recent CBA.

American filed a motion to dismiss the adversary compliant. The APA opposed the motion and simultaneously moved for summary judgment. The parties agree that there are no material facts in dispute and that the current issue before the Court is a purely legal one. Following the reasoning of the Second Circuit and the vast majority of other circuit courts, the Court finds that the parties' CBA has not expired but rather became amendable under the RLA. Accordingly, the Court concludes that the CBA here is subject to Section 1113. The Court, therefore, denies the APA's motion for summary judgment and grants American's motion to dismiss.


On November 29, 2011, AMR Corporation (" AMR Corp." ), American (together

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with AMR Corp., the " Debtors" or " Defendants" ) and certain of their subsidiaries filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

On February 28, 2012, the APA, the collective bargaining representative of approximately 10,000 American pilots, filed a complaint (the " Complaint" ) seeking entry of a declaratory judgment against the Debtors pursuant to 28 U.S.C. § 2201. The Complaint alleges that the CBA between American and the APA, effective May 1, 2003, expired pre-petition on May 1, 2008 pursuant to a duration clause in the agreement. That clause provides:

This Agreement shall become effective May 1, 2003, except as otherwise dated herein, and shall continue in full force and effect until May 1, 2008, and shall renew itself without change until each succeeding May 1 thereafter, unless written notice of intended change is served in accordance with Section 6, Title 1, of the Railway Labor Act, as amended, by either party hereto at least sixty (60) days prior to May 1, 2008, or May 1 of any subsequent year.

Section 26.C of the CBA, Ex. 1 to Plaintiff's Statement of Material Facts as to Which There is No Genuine Issue [ECF No. 15] (" Plaintiff's Statement of Material Facts" ); Complaint ¶ 9. The APA's Complaint seeks a declaration that (1) there is no binding collective bargaining agreement to " reject" under Section 1113(c) of the Bankruptcy Code; and (2) the Debtors may not " reject" or change any of the APA pilots' employment conditions that arise out of this expired CBA.

The parties agree that a notice of intended change, as contemplated by Section 26.C of the CBA, was properly served under Section 6 of the RLA. More specifically, American issued a letter on July 21, 2006, stating that it wished to exercise its right to " commence negotiations to make changes in rates of pay, rules and working conditions for flight deck crewmembers covered by the current Agreement." Decl. of Neil Roghair ¶ 9, Ex. 1, Plaintiff's Statement of Material Facts as to Which There is No Genuine Issue [ECF No. 15] (" Roghair Decl." ); see also Complaint ¶ 10.

The parties also do not dispute that, after the Section 6 notice was served, they entered into negotiations for a successor agreement pursuant to Section 26.D of the CBA. Section 26.D of the CBA states that " [a]t any time following May 1, 2006, but prior to May 1, 2008, with sixty (60) days prior written notice by either party, the parties will commence negotiations in accordance with Section 6, Title I of the Railway Labor Act, as amended." Complaint ¶ 9.

Pursuant to Section 5 (First) of the RLA, the parties have mediated their labor dispute before the National Mediation Board (" NMB" ) and that process is ongoing. See Complaint ¶ 11; Roghair Decl. ¶ 18 (stating that the NMB mediation " continues to date" ); Debtors' Counterstatement ¶ 20 (noting that the NMB is " continuing to mediate in negotiations" concerning the CBA). 1 On March 8, 2012, the APA sent formal written notice to the NMB of their intention to accept a proffer of final and binding arbitration for settlement of a new agreement and to request that the NMB make such proffer of arbitration promptly. See Ex. 4 to the Roghair Decl.; 45 U.S.C. § 60 (when NMB mediation fails to resolve a labor dispute under the RLA, parties may elect either

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binding arbitration or to seek resolution before the President of the United States who may establish a board to, among other things, " investigate promptly the facts as to the dispute and make a report thereon to the President." ). Section 5 (First) of the RLA states that the NMB, as part of its efforts to " bring about an amicable settlement through mediation," may, as a last resort, " endeavor as its final required action ... to induce the parties to submit their controversy to arbitration." 45 U.S.C. § 155. The NMB, however, has yet to complete this " final required action" by making a proffer of arbitration. Complaint ¶ 11.

As the parties here remain in negotiations, the terms of the CBA remain in place consistent with Section 6 of the RLA, which provides that the " rates of pay, rules or working conditions" shall not be altered by the carrier until the controversy has been " finally acted upon ... by the [NMB]." 45 U.S.C. § 156.

On February 1, 2012, the Debtors submitted a proposal to the APA as part of an effort to initiate good faith bargaining under 11 U.S.C. § 1113, which provides that a debtor may seek to reject a collective bargaining agreement only if certain conditions are satisfied. These conditions include, among other things, that the debtor submit a proposal to the employees' authorized representative of the modifications to employee benefits that the debtor considers necessary for reorganization, and that the parties meet to confer on the proposal prior to the hearing on rejection of the collective bargaining agreement.2 On March 27, 2012, the Debtors filed an application under Section 1113 of the Bankruptcy Code seeking to alter the terms of the CBAs with the APA and two other labor unions. See ECF No. 2035. Trial on the 1113 application is set to begin on April 23, 2012.

On March 9, 2012, the Debtors filed a motion to dismiss the Complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Fed.R.Civ.P. and Rule 7012 of the Federal Rules of Bankruptcy Procedure. On March 16, 2012, the APA filed a motion for summary judgment on its Complaint and opposed the motion to dismiss. On March 20, 2012, the Debtors filed a reply in support of its motion to dismiss and in opposition to the APA's summary judgment motion and a related counterstatement of undisputed facts, to which the APA responded on March 21, 2012. The Court heard oral argument on the parties' motions on March 22, 2012.

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A. Applicable Legal Standards

The Declaratory Judgment Act provides, in part, that

in a case of actual controversy ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree....

28 U.S.C. § 2201(a). The purpose of the Declaratory Judgment Act is to " enable parties to adjudicate disputes before either of them [have] suffered great harm." Russian Std. Vodka (USA), Inc. v. Allied Domecq Spirits & Wine USA, Inc., 523 F.Supp.2d 376, 381 (S.D.N.Y.2007) (citing In re Combustion, 838 F.2d 35, 36 (2d Cir.1988)). In determining whether a party has standing to seek a declaratory judgment, " the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties...

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