In re AMR Corp.
| Decision Date | 13 September 2013 |
| Docket Number | Case No. 11-15463 (SHL) |
| Parties | In re: AMR CORPORATION, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
FOR PUBLICATION
(Jointly Administered)
MEMORANDUM OF DECISIONAPPEARANCES:
WEIL, GOTSHAL & MANGES LLP
Counsel for the Debtors
By: Harvey R. Miller, Esq.
Stephen Karotkin, Esq.
Alfredo R. Pérez, Esq.
By: Susan Golden, Esq.
Brian S. Masumoto, Esq.
Michael T. Driscoll, Esq.
By: Jay M. Goffman, Esq.
-and-
By: John Wm. Butler, Jr., Esq.
Albert L. Hogan III, Esq.
John K. Lyons, Esq.
Felicia Gerber Perlman, Esq.
By: Gerard Uzzi, Esq.
Eric K. Stodola, Esq.
By: D.J. (Jan) Baker, Esq.
By: Filiberto Agusti, Esq.
Joshua R. Taylor, Esq.
By: Edgar N. James, Esq.
Kathy Krieger, Esq.
David P. Dean, Esq.
Darin M. Dalmat, Esq.
Daniel M. Rosenthal, Esq.
By: James P. Wehner, Esq.
Kevin C. Maclay, Esq.
Todd E. Phillips, Esq.
By: Marshall S. Huebner, Esq.
Timothy E. Graulich, Esq.
Natasha Tsiouris, Esq.
By: William W. Kannel, Esq.
Ian A. Hammel, Esq.
By: James E. Spiotto, Esq.
Franklin H. Top III, Esq.
-and-
By: Craig M. Price, Esq.
Laura E. Appleby, Esq.
By: Ira H. Goldman, Esq.
Kathleen M. LaManna, Esq.
Corrine L. Burnick, Esq.
By: Mark L. Prager, Esq.
Douglas E. Spelfogel, Esq.
By: Michael G. Burke, Esq.
Andrew P. Propps, Esq.
Before the Court is the objection (ECF No. 9427) of the United States Trustee (the "Trustee") to confirmation of the Debtors' Second Amended Joint Chapter 11 Plan (the "Plan") (ECF No. 8590). The Trustee raises two objections.1 First, the Trustee argues that the Plan violates Section 503(b) of the Bankruptcy Code by paying the professional fees of individual members on the Committee of Unsecured Creditors (the "Committee"). Second, the Trustee contends that the Plan violates Section 503(c) by paying a severance of $19,875,000 to the Debtors' outgoing Chief Executive Officer Thomas Horton (the "Horton Severance Payment"). The Debtors and the Committee contend that all the proposed payments are permitted under Section 1129(a)(4) pursuant to a plan of reorganization and do not implicate the restrictions on the payment of administrative expenses set forth in Section 503. For the reasons stated below, the Court approves the payment of professional fees for Committee members over the Trustee's objection, but concludes that the Horton Severance Payment is not permissible.
Article 6.23 of the Plan proposes to pay the reasonable professional fees of certain individual members of the Committee. The Committee has played a key role in the negotiation of the Plan and developments in the case leading up to the Plan's formation. See Committee Confirmation Br. at 1-3 (ECF No. 9508); Hr'g Tr. 113:12-15, 125:1-14 (Aug. 15, 2013) (ECF No. 9033). Article 6.24 of the Plan contemplates approval of aletter agreement with Mr. Horton (the "Chairman Letter Agreement") that provides, among other things, for severance of $19,875,000 in cash and stock to Mr. Horton. Under this agreement, the employment of Mr. Horton as Chief Executive Officer will terminate and he will be appointed as the Chairman of the Board of Directors for the new merged entity. The proposed severance is "in recognition of Mr. Horton's effort in leading the Debtors' restructuring and his role in enhancing the value of the Debtors and overseeing the evaluation and assessment of the potential strategic alternatives that culminated in the [m]erger, at the [c]losing, [and] subject to the execution of a standard release by Mr. Horton against AMR and its [s]ubsidiaries." See Motion of Debtors' for Entry of Order Authorizing and Approving Merger Agreement at ¶ 89 (ECF No. 6800).
While the payment of the Committee members' professional fees has not previously come before the Court, the Horton Severance Payment has. Six months ago, the Debtors sought approval of the Horton Severance Payment as part of a motion to approve the merger agreement that forms the basis of the Plan. At that time, the Trustee objected to the approval of the Horton Severance Payment on substantially the same grounds that she objects now, namely that it does not satisfy the requirements for payment of a severance under Section 503(c). After a hearing on the matter, the Court granted the merger motion but denied the Horton Severance Payment as impermissible under Section 503(c)(2). In re AMR Corp., 490 B.R. 158 (Bankr. S.D.N.Y. 2013) (the "Merger Opinion").2 In rejecting the Horton Severance Payment, the Merger Opinion contemplated the possibility that the Debtors might seek approval of the Horton Severance Payment under Section 1129(a)(4) as part of the confirmation of a plan of reorganization.But the Court's prior decision declined to address that possibility, deciding instead to wait to see if that issue would come before the Court. Id., at 170 n.16.
Section 503(b) of the Bankruptcy Code sets forth the requirements for payment of an administrative expense claim in a Chapter 11 case. Section 503(b)(3)(F) provides for payment of "actual, necessary expenses" for individual members of a committee appointed under Section 1102 of the Bankruptcy Code, which includes an official committee of unsecured creditors. Section 503(b)(4) permits reimbursement of "reasonable compensation for professional fees rendered by an attorney" for certain specified parties listed in Section 503(b). See 11 U.S.C. § 503(b)(4) (). Section 503(b)(3)(F) is not one of the subsections listed in Section 503(b)(4). So while expenses incurred by a member of an official committee are eligible for reimbursement under Section 503(b)(3)(F), the professional fees of an attorney of such committee members are not covered by Section 503(b)(4). As the Trustee notes in her objection, prior to the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") amendments of 2005, individual members of a committee could seek payment for such professional fees under Section 503(b)(4). See Trustee Objection at 18-22; 11 U.S.C. § 503(b)(4) (2000) (amended 2005); see In re Lehman Bros. Inc., 487 B.R. 181, 190 n.7 (Bankr. S.D.N.Y. 2013), appeal docketed, 13-cv-02211-RJS (S.D.N.Y. Apr. 3, 2013). In 2005, Congress rewrote Section 503(b)(4) toomit committee members as a party permitted to seek fees for professional compensation as an administrative expense, despite retaining other parties as eligible for such a payment.
Given this statutory backdrop, the Trustee contends that any professional fees not explicitly authorized as an administrative expense under Section 503(b) cannot be paid. More specifically, the Trustee argues that members of the Committee are prohibited from having their professional fees paid. The Debtors, on the other hand, rely on the language of Sections 1123(b)(6) and 1129(a)(4) to argue that the payments are permissible. These sections allow for payments to be made through a plan of reorganization if, respectively, the payment is not inconsistent with applicable provisions of Chapter 11 and is reasonable.
The permissibility of fees of this kind has been thoughtfully addressed by two other judges of this Court in Lehman Brothers, 487 B.R. 181 and In re Adelphia Commc'ns Corp., 441 B.R. 6 (Bankr. S.D.N.Y. 2010). Both opinions conclude that such fees are permissible under the Bankruptcy Code when proposed and approved through a consensual plan. This Court reaches the same conclusion.
In Lehman Brothers, the court held that the broad language of Sections 1123(b)(6) and 1129(a)(4) allowed members of a creditors' committee to bargain to have their fees paid through a plan of reorganization without meeting the requirements of Section 503(b). See 487 B.R. at 193. Similarly, in Adelphia, the court held that creditors could be paid reasonable fees as part of a Chapter 11 plan pursuant to Section 1129(a)(4) without a showing of substantial contribution under Section 503(b).3 See 441 B.R. at 19. As discussed at length in Lehman Brothers, Section 1123(b)(6) governs the contents of a plan and allows for any provision in a plan so long as such provision is not inconsistent withother provisions of the Bankruptcy Code. Lehman Bros., 487 B.R. at 186. As the Lehman Brothers court noted, this section "is a broadly worded, open-ended invitation to the creativity of those who are engaged in drafting plan language." Lehman Bros., 487 B.R. at 190. Similarly, the broad language of Section 1129(a)(4), which set forth confirmation requirements for the Plan, allows for payments not otherwise contemplated in the Bankruptcy Code so long as a court finds them reasonable. This provision endorses the notion that a debtor will sometimes need to negotiate certain payments to stakeholders in order to come to a consensual resolution and get a plan approved. Taken together, these two provisions contemplate payments as part of...
To continue reading
Request your trial