In re Ionosphere Clubs, Inc.
| Citation | 101 BR 844 |
| Decision Date | 06 July 1989 |
| Docket Number | Bankruptcy No. 89 B 10448 (BRL) and 89 B 10449 (BRL). |
| Parties | In re IONOSPHERE CLUBS, INC. and Eastern Air Lines, Inc., Debtors. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
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Weil, Gotshal & Manges, New York City (Harvey R. Miller, Zack A. Clement, of counsel), for debtors.
Kramer, Levin, Nessen, Kamin & Frankel, New York City (Joel B. Zweibel, Adam Harris, of counsel), for Official Committee of Unsecured Creditors.
Lobel, Novins, Lamont & Flug, Washington, D.C. by James F. Flug, for Consumers Union of U.S., Inc.
DECISION ON MOTION OF CONSUMERS UNION FOR ORDER APPROVING INDIVIDUAL TRAVEL REFUND PROCEDURE
Consumers Union, on behalf of those for whom it is acting as attorney-in-fact pursuant to general powers of attorney filed with this Court and on behalf of those individuals described in Consumers Union's Motion, as party in interest in this case, moves pursuant to 11 U.S.C. §§ 105 and 363, that this Court approve an order compelling Eastern to adopt an Individual Traveler Refund Procedure.
On March 9, 1989, Eastern Airline ("Eastern") and its affiliate Ionosphere Clubs, Inc. ("Ionosphere") commenced a case for relief under Chapter 11 of the Bankruptcy Code (the "Code"). These Chapter 11 cases were consolidated for procedural purposes only. Eastern and Ionosphere continue to operate their businesses and manage their properties as debtors-in-possession pursuant to §§ 1107(a) and 1108 of the Code.
Eastern is a certificated air carrier engaged primarily in the transportation of persons and property. Prior to March 4, 1989, Eastern operated approximately 250 aircraft, made 1,100 average daily departures, transported daily an average of 80,000 passengers, and employed approximately 30,000 employees. At 12:01 a.m. on March 4, 1989, Eastern employees represented by International Association of Machinists, (the "IAM"), struck Eastern. In sympathy with the IAM, both the Air Line Pilots Association ("ALPA") and the Transport Workers Union of America (the "TWU") also struck and consequently, Eastern's flight operations were grounded almost entirely. Five days later, Eastern filed for relief under Chapter 11 of the Code. Eastern has since resumed certain operations and has stated its intentions to steadily increase its operations while in Chapter 11 proceedings. Response of Eastern Air Lines, Inc., at 2-3.
On March 14, 1989, Eastern filed a motion for and obtained the Order Authorizing Eastern's Ticket Holder Relief Program (the "Ticketholder Relief Order"). The Ticketholder Relief Order essentially provides that Eastern's pre-petition ticket and coupon holders would be permitted to exchange their pre-petition tickets and coupons for post-petition transportation services. Eastern's business justification for the Ticketholder Relief Program was that Eastern hoped to resume flight operations and provide travel services to as many pre-petition ticketholders as was feasible as soon as possible, rather than paying them refunds. In fact, Eastern's underlying rationale for initiating the Ticketholder Relief Program was that it involved virtually no use of Eastern's cash resources. Response of Eastern, at ¶ 5.
Additionally, Eastern and the American Society for Travel Agents, ("ASTA"), announced that they had reached agreement on a proposal for a Travel Agent Reimbursement Program. Eastern seeks approval of this agreement in its motion of May 9, 1989, which is also before this Court today. Eastern alleges in its application that it has entered into this agreement with ASTA because it believes it is necessary to retain the support of travel agents, the source of a substantial portion of Eastern's operating revenues and sales. Accordingly, Eastern asserts that the Program is in the best interests of Eastern's estate, creditors and interest holders and should be approved. Eastern's Motion For Approval of Travel Agents Reimbursement Program, at 7. Furthermore, it is the understanding of this Court that Eastern's Motion, with certain modifications, is currently supported by both the Examiner and the Official Committee of Unsecured Creditors (the "Unsecured Creditors' Committee"). See, Transcript of Hearing of July 5, 1989.
Consumers Union ("CU"), while not objecting to the thrust of the Eastern motion for the Travel Agent's Reimbursement Program has moved for an order of this Court approving the adoption of its own Refund Procedure, (the "Procedure"). The Procedure would require Eastern to make immediate refunds to individuals (as opposed to businesses) who hold Eastern tickets or other service obligations, obtained other than by credit card purchases, before the Chapter 11 filing, for services which were not available when scheduled. Although CU has failed to quantify the exact amount the Procedure would cost the estate, it alleges that the Procedure should cost approximately $20 million.
CU asserts that it is a nonprofit organization established in 1936 to provide consumers with information and advice on goods, services, health and personal finance. Its research and reporting on consumer issues (including a 1988 study of the airline industry) is made available every month to over 4 million subscribers through its publication of the magazine, Consumer Reports, and to the public press. CU asserts that its consumer advocacy activities have included participation in proceedings before administrative agencies, courts and Congress, including some involving airline issues unrelated to this bankruptcy proceeding. See, CU's Reply Memorandum at Exhibit A. CU also alleges that it has been granted formal intervenor status in a wide variety of cases, and has been granted payment of fees and expenses in some of them. Motion of Consumers Union at 3.
Although Eastern has already instituted a different ticket holder's compensation plan, CU argues that this plan inadequately protects the interests of many ticket holders. Thus, CU asserts that it has made its motion because no member of the existing creditors' committee represents the interests of the flying public. Motion of Consumers Union, at 5-6.
It should be noted that CU has made a number of other motions and appearances in the case. On the same day that CU filed this motion, it also made a motion for this Court to accelerate consideration of the pending motion of the Airline Pilots Association ("ALPA"), a completely unrelated organization, for the appointment of a trustee, pursuant to 11 U.S.C. § 1104. See, Motion of Consumers Union at 2-3. This motion is wholly gratuitous.
Additionally, CU filed its papers in Support of ASTA's Motion for Reconsideration of Order Approving Eastern Airlines Ticketholder Relief Program in which CU sought immediate refunds for non-credit card purchasers of tickets on cancelled Eastern flights. As stated previously, CU has filed papers objecting to Eastern's motion for the approval of a Travel Agent's Reimbursement Program. Finally, early in this case, CU filed a "Notice Of Filing With Trustee" requesting that the United States Trustee (1) appoint an additional committee composed of CU and other entities representing the travelling Public, i.e. the "Travelling Public Committee;" or (2) add CU to the existing Unsecured Creditors Committee, "with the understanding that its cost of participation, including the professional fees of its designated representative, be deemed an administrative expense of the Committee . . ." or (3) add CU to the existing Unsecured Creditors Committee, "with a preliminary determination by the court under § 503(b)(4) that CU's contribution to the proceedings will be such that the professional fees and costs entailed in its participation should initially be borne by the debtor on a current basis. . . ." The United States Trustee denied CU's request.
CU claims that it is a party in interest under § 1109(b) of the Code and it is also acting as attorney in fact pursuant to Bankruptcy Rule 2019. Finally it asserts that even if it is not a party in interest, it is entitled to intervenor status under Bankruptcy Rule 2018. CU filed a statement setting forth its interest, listing eight names of individuals who have submitted and completed official form No. 17 pursuant to Bankruptcy Rule 2019. CU claims that it acts on behalf of these eight individuals, CU members and subscribers, others who have orally requested CU's assistance in this case, and, in general, and not as a designated class, others similarly situated who hold prepaid Eastern tickets or other Eastern travel or service rights or credits. In addition, it asserts that it is a creditor in its own right because an employee of CU has accumulated service obligations (frequent flyer miles) against Eastern and these obligations would allegedly be used for corporate purposes by CU.
In contrast, Eastern asserts that CU is an intermeddler who lacks standing to bring forth this motion on behalf of ticket holders. Furthermore, Eastern questions Counsel's to CU motivation in involving CU in this bankruptcy proceeding. In that regard, Eastern maintains that CU only became involved in this case after being contacted by the firm of Lobel, Novins, Lamont & Flug (hereinafter "Counsel"). Thus, Eastern states that Counsel "has agreed to represent CU, without any obligation on the part of CU for either fees or costs, apparently intending to look to Eastern's estate for payment of its fees, and indeed, even for recovery of its costs." Eastern's Response at ¶ 8. (emphasis in original.) Furthermore, Eastern asserts that subsequently, CU undertook and solicited over 40,000 individuals seeking the opportunity to represent those individuals as to their pre-petition claims against Eastern. Consequently, eight individuals, including an employee of CU responded to the solicitation by giving CU powers of attorney to act on their behalf. Therefore, Eastern argues that "CU itself...
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