United Airlines, Inc. v. U.S. Bank N.A., 05-1871.

• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Citation: 406 F.3d 918
• Docket Number: No. 05-1871.,05-1871.
• Parties: UNITED AIRLINES, INC., and The Official Committee of Unsecured Creditors, Plaintiffs-Respondents-Appellees, v. U.S. BANK N.A. and The Bank of New York, as Indenture Trustees, Defendants-Petitioners-Appellants.
• Decision Date: 06 May 2005

406 F.3d 918 UNITED AIRLINES, INC., and The Official Committee of Unsecured Creditors, Plaintiffs-Respondents-Appellees,
v.
U.S. BANK N.A. and The Bank of New York, as Indenture Trustees, Defendants-Petitioners-Appellants. No. 05-1871. United States Court of Appeals, Seventh Circuit. Submitted April 27, 2005. Decided May 6, 2005.

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Ronald Barliant, Gerald F. Munitz, Anne M. Sherry, Goldberg, Kohn, Bell, Black Rosenbloom & Moritz, Ltd., Chicago, IL, Richard Hiersteiner, Jeanne P. Darcey, Michael T. Gass, Palmer & Dodge, LLP, Boston, MA, for Plaintiffs-Respondents-Appellees.

James E. Spiotto, Ann E. Acker, Jeffrey G. Close, and Franklin H. Top III, Chapman

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and Cutler LLP, Chicago, IL, Nathan P. Eimer, Eimer Stahl Klevorn & Solberg LLP, Chicago, IL, Edward P. Zujkowski, Emmet, Marvin & Martin LLP, New York, NY, for Defendants-Petitioners-Appellants.

Before COFFEY, EASTERBROOK, and WILLIAMS, Circuit Judges.

EASTERBROOK, Circuit Judge.

When United Airlines entered bankruptcy in 2002, it operated about 460 airplanes. Some 175 of these had been acquired via financing leases subject to 11 U.S.C. § 1110, which provides that to retain leased planes a debtor must pay the whole rent. The statute contains an exception for consensual workouts, see § 1110(b), and United's lessors initially agreed to accept less than the contractual payments. As the reorganization dragged on, however, some of the lessors concluded that United would not be reorganized successfully and demanded their planes back. When United entered bankruptcy in 2002, and negotiated the current reduced rental payments, it projected that reorganization would be accomplished in six months. Two and a half years later, United is losing more than $1 billion annually and is not promising to propose a plan of reorganization any time soon. Some creditors are bound to have second thoughts. In November 2004 the banks serving as indenture trustees for three of the leases demanded that United immediately return 14 of the aircraft unless it cured all defaults and resumed the full rental payments promised by contract.

United neither paid nor returned the planes. Instead it filed an adversary action accusing the indenture trustees of violating the Sherman Act, 15 U.S.C. § 1, by coordinating their efforts to preserve the lenders' collateral and collect the promised payments. The trustees violate the antitrust laws, according to United, by insisting that the debtor deal with them collectively about all 175 leased airplanes. One might suppose that coordination is a normal function of indenture trustees, which exist under the Trust Indenture Act of 1939 precisely because individual lenders may be too diffuse to protect their own interests. See 15 U.S.C. § 77bbb(a)(1). Coordination is especially common in bankruptcy, which often is described as a collective proceeding among lenders. See, e.g., In re American Reserve Corp., 840 F.2d 487, 489 (7th Cir.1988); Douglas G. Baird & Thomas H. Jackson, Corporate Reorganizations and the Treatment of Diverse Ownership Interests: A Comment on Adequate Protection of Secured Creditors in Bankruptcy, 51 U. Chi. L.Rev. 97, 105-09 (1984). The name of an entity that intervened to support United's contention—"The Official Committee of Unsecured Creditors"—demonstrates as much. No wonder that the second circuit has described as "bordering on the frivolous" a contention that the antitrust laws forbid creditors to coordinate their positions in bankruptcy. Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1052-53 (2d Cir.1982).

Competition comes at the time loans are made; cooperation in an effort to collect as much as possible of the amounts due under competitively determined contracts is not the sort of activity with which the antitrust laws are concerned. Moreover, businesses are entitled under the Noerr-Pennington doctrine to act jointly when presenting requests to courts and agencies. See Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965). Collective renegotiation succeeds only if the court approves. See California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972) (holding that the Noerr-Pennington doctrine applies to collective presentations in litigation).

On top of all this comes § 1110(a)(1), which provides that

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the right ... of a lessor or conditional vendor of [airplanes], to take possession of such equipment in compliance with a security agreement, lease, or conditional sale contract, and to enforce any of its other rights or remedies, under such security agreement, lease, or conditional sale contract, to sell, lease, or otherwise retain or dispose of such equipment, is not limited or otherwise affected by any other provision of this title or by any power of the court.

This takes aircraft out of the automatic stay, see 11 U.S.C. § 362, and entitles secured lenders and financing lessors to repossess their collateral. There are only two exceptions. Section 1110(b), which we have mentioned, says that the creditor or lessor may agree to allow the debtor to continue using the equipment. This is how United has retained the aircraft so far. Section 1110(a)(2), the other exception, gives the debtor 60 days after the bankruptcy begins to come current on its payments and provides that, if the debtor thereafter makes all payments called for by the contracts, it may retain the airplanes. United is not paying the full amount required by these leases, so § 1110(a)(2) does not assist it.

Given the breadth of § 1110(a)(1), United's demand for an injunction might have been denied out of hand. Instead, however, Bankruptcy Judge Wedoff entered a temporary restraining order forbidding the trustees to repossess the airplanes. He stated that despite its reference to "any power of the court" § 1110(a)(1) does not affect the court's ability to award injunctive relief under non-bankruptcy law, such as the Sherman Act. This is hard to reconcile with the statute's text. Cf. Norfolk & Western Ry. v. American Train Dispatchers Association, 499 U.S. 117, 111 S.Ct. 1156, 113 L.Ed.2d 95 (1991) (a statute applicable to rail consolidations and similar in structure to § 1110 blocks resort to all other sources of law). Moreover, the judge did not explain why United's antitrust contention is strong enough to support injunctive relief in the teeth of a statute that curtails remedies. Section 1110(a)(1) does not bar a damages action for wrongful repossession; if the indenture trustees have indeed violated the antitrust laws they face treble damages and criminal prosecution. Cf. Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977) (antitrust laws do not create exception to the Anti-Injunction Act). But this statute does give them their collateral, and by assuring them a self-help remedy it makes aircraft credit available on better terms. See Jason J. Kilborn, Thou Canst Not Fly High With Borrowed Wings: Airline Finance and Bankruptcy Code Section 1110, 8 Geo. Mason L.Rev. 41, 62-63 (1999); cf. Gregory P. Ripple, Special Protection in the Air(line Industry): The Historical Development of Section 1110 of the Bankruptcy Code, 78 Notre Dame L.Rev. 281 (2002).

Temporary retraining orders are at...