Source: https://www.scribd.com/document/110950527/AMR-Marathon-Examiner-Motion
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Matched Legal Cases: ['§ 1104', '§ 105', '§ 1104', '§ 105', '§ 105', '§ 107', '§\n105', '§ 157', '§ 157', '§ 1104', '§ 105', '§ 1104', '§ 105', '§ 1104', '§ 157', '§ 157', '§ 1408', '§ 105']

AMR - Marathon Examiner Motion | Bankruptcy In The United States | Chapter 11
11-15463-shl Doc 5087 Filed 10/23/12 Entered 10/23/12 16:01:00 Pg 1 of 22 Main Document HEARING DATE AND TIME: November 8, 2012 at 11:00 a.m. (Eastern Time) OBJECTION DEADLINE: November 1, 2012 at 4:00 p.m. (Eastern Time) WILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center New York, New York 10007 Telephone: 212.937.7232 Facsimile: 212.230.8888 Philip D. Anker George W. Shuster, Jr. Attorneys for Marathon Asset Management, LP UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NE
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Entered 10/23/12 16:01:00 Pg 1 of 22
HEARING DATE AND TIME: November 8, 2012 at 11:00 a.m. (Eastern Time) OBJECTION DEADLINE: November 1, 2012 at 4:00 p.m. (Eastern Time)
WILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center New York, New York 10007 Telephone: 212.937.7232 Facsimile: 212.230.8888 Philip D. Anker George W. Shuster, Jr. Attorneys for Marathon Asset Management, LP
NOTICE OF HEARING ON MOTION OF MARATHON ASSET MANAGEMENT, LP FOR THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. § 1104(c) RELATED TO THE MOTION OF DEBTORS FOR ORDER PURSUANT TO 11 U.S.C. §§ 105(a), 363 AND 1110 AND FED. R. BANKR. P. 9019(a) APPROVING COMPROMISE AND SETTLEMENT, AUTHORIZING ENTRY INTO TERM SHEETS RELATING TO 21 ERJ135, 59 ERJ140, AND 118 ERJ145 AIRCRAFT AND GRANTING RELATED RELIEF, AND TRANSACTIONS DESCRIBED THEREIN
PLEASE TAKE NOTICE that a hearing on the annexed motion, dated October 23, 2012
(the “Motion”) of Marathon Asset Management, LP (“Marathon”), on behalf of one or more
managed funds and/or accounts, will be held before the Honorable Sean H. Lane, United States
Bankruptcy Judge, in Room 701 of the United States Bankruptcy Court for the Southern District of
New York (the “Bankruptcy Court”), One Bowling Green, New York, New York 10004, on
November 8, 2012 at 11:00 a.m. (Eastern Time), or as soon thereafter as counsel may be heard.
PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion (the
“Objections”) must be in writing, shall conform to the Federal Rules of Bankruptcy Procedure and
the Local Bankruptcy Rules for the Southern District of New York, and shall be filed with the
ActiveUS 102350907v.1
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Bankruptcy Court (a) by registered users of the Bankruptcy Court’s case filing system,
electronically in accordance with General Order M-399 (which can be found at
http://nysb.uscourts.gov) and (b) by all other parties in interest, on a 3.5 inch disk, in text-searchable
portable document format (PDF) (with a hard copy delivered directly to Chambers), in accordance
with the customary practices of the Bankruptcy Court and General Order M-399, to the extent
applicable, and served in accordance with General Order M-399 and on (i) the attorneys for the
Debtors, Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn:
Stephen Karotkin, Esq.), (ii) the Debtors, c/o AMR Corporation, 4333 Amon Carter Boulevard, MD
5675, Fort Worth, Texas 76155 (Attn: Kathryn Koorenny, Esq.), (iii) the Office of the United States
Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New
York 10004 (Attn: Brian Masumoto, Esq.), (iv) the attorneys for the Official Committee of
Unsecured Creditors, Skadden, Arps, Slate, Meagher & Flom LLP, 155 North Wacker Drive,
Chicago, Illinois 60606 (Attn: John Wm. Butler, Jr., Esq.) and Four Times Square, New York, New
York 10036 (Attn: Jay M. Goffman, Esq.), (v) the attorneys for the Section 1114 Committee of
Retired Employees, Jenner & Block LLP, 353 North Clark Street, Chicago, Illinois 60654 (Attn:
Catherine L. Steege, Esq. and Charles B. Sklarsky, Esq.) and 919 Third Avenue, 37th Floor, New
York, New York 10022 (Attn: Marc B. Hankin, Esq.), (vi) the attorneys for Marathon, Wilmer
Cutler Pickering Hale and Dorr LLP, 7 World Trade Center, New York, New York 10007 (Attn:
Philip D. Anker, Esq. and George W. Shuster, Jr., Esq.), and (vii) all entities that requested notice in
these chapter 11 cases under Fed. R. Bankr. P. 2002 so as to be received no later than November 1,
2012 at 4:00 p.m. (Eastern Time) (the “Objection Deadline”).
PLEASE TAKE FURTHER NOTICE that if no Objections are timely filed and served, the
Indenture Trustee and Marathon may, on or after the Objection Deadline, submit to the Bankruptcy
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Court an order substantially in the form of the proposed order annexed to the Motion, which order
may be entered with no further notice or opportunity to be heard.
Dated: New York, New York October 23, 2012
Philip D. Anker George W. Shuster, Jr. 7 World Trade Center New York, New York 10007 Telephone: 212.937.7232 Facsimile: 212.230.8888
Attorneys for Marathon Asset Management, LP
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WILMER CUTLER PICKERING HALE AND DORR LLP 7 World Trade Center New York, New York 10007 Telephone: 212.937.7232 Facsimile: 212.230.8888 Philip D. Anker George W. Shuster, Jr. philip.anker@wilmerhale.com george.shuster@wilmerhale.com Attorneys for Marathon Asset Management, LP
MOTION OF MARATHON ASSET MANAGEMENT, LP FOR THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. § 1104(c) RELATED TO THE MOTION OF DEBTORS FOR ORDER PURSUANT TO 11 U.S.C. §§ 105(a), 363 AND 1110 AND FED. R. BANKR. P. 9019(a) APPROVING COMPROMISE AND SETTLEMENT, AUTHORIZING ENTRY INTO TERM SHEETS RELATING TO 21 ERJ135, 59 ERJ140, AND 118 ERJ145 AIRCRAFT AND GRANTING RELATED RELIEF, AND TRANSACTIONS DESCRIBED THEREIN
Marathon Asset Management, LP (“Marathon”), on behalf of one or more managed funds
and/or accounts, by and through their undersigned counsel, submits this motion (the “Motion”) for
the appointment of an examiner to investigate and report on (1) the intercompany transactions that
occurred among American Eagle Airlines, Inc. (“American Eagle”), American Airlines, Inc.
(“American Airlines”), and AMR Corporation (“AMR”) in the months immediately preceding the
filing of the chapter 11 cases of AMR and its affiliated debtors (collectively with AMR, the
“Debtors”), (2) any claims or other rights that the Debtors may hold in respect of these transactions,
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and (3) the potential effects on any such claims or other rights of the proposed compromise between
the Debtors and Agência Especial de Financiamento Industrial (“FINAME”) and Banco Nacional
de Desenvolvimento Econômico e Social (“BNDES” and together with FINAME, the “Financing
Parties”), as embodied in the Debtors Motion of Debtors for Order Pursuant to 11 U.S.C. §§ 105(a),
363, and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and Settlement, Authorizing
Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140, and 118 ERJ145 Aircraft and Granting
Related Relief [Docket No. 4936] (the “Rule 9019 Motion”). 1 The appointment of an examiner to
conduct an investigation of these matters under the circumstances present in the Debtors’ cases is
mandatory, appropriate, and in the best interests of the Debtors’ creditors and other parties in
interest under section 1104(c) of title 11 of the United States Code (the “Bankruptcy Code”). In
support of the Motion, Marathon respectfully represents as follows:
1. In the weeks leading up to the filing of the Debtors’ chapter 11 cases, American
Eagle and American Airlines consummated a series of intercompany transactions that resulted in
American Airlines assuming $2.26 billion of dollars in additional debt that American Eagle
previously owed to the Financing Parties (the “Prepetition Transactions”).
On their face, the
Prepetition Transactions raise serious questions as to whether American Airlines received fair value
in exchange for incurring the billions of dollars in debt and as to whether these transactions were
2. The Debtors have stated in the Rule 9019 Motion that they have considered whether
the Prepetition Transactions were appropriate and whether the Prepetition Transactions are
potentially subject to avoidance as fraudulent transfers. The Debtors have reached a judgment that
1 Marathon has filed, contemporaneously with this Motion, an objection to the Debtors’ Rule 9019 Motion. Many of the arguments in this Motion overlap with those in the objection, and, in the interests of avoiding duplication, Marathon incorporates in this Motion, by reference, the arguments in the objection.
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claims related to the Prepetition Transactions are “not supported by the facts or applicable law.”
(Rule 9019 Motion at ¶ 32.) However, the Debtors only spend 5 paragraphs in the Rule 9019
Motion, which runs to 365 pages including attachments, discussing potential claims in respect of the
Prepetition Transactions. Those few paragraphs contain mostly unsupported, conclusory
3. The fact is that the Debtors are simply not in a position to conduct an independent
review of these issues. First, the Debtors are operated today by the same management that
apparently designed, approved, and consummated the Prepetition Transactions. It is not possible
for that same management to undertake an objective and critical review of the same Prepetition
Transactions in which they were previously involved.
4. Second, the issues surrounding the Prepetition Transactions are not issues that all of
the Debtors can properly consider on a collective basis. The Prepetition Transactions involve
billions of dollars in value that shifted among the Debtors, as a result of which American Eagle and
AMR may have been “winners” at the expense of American Airlines being a “loser.” It is unfair to
expect that the Debtors could collectively conduct a proper investigation of the Prepetition
Transactions with a focus on the individual interests of the American Airlines estate. And the
results of any such collective investigation by the Debtors cannot be properly relied upon by
American Airlines creditors. 2
5. Third, the Prepetition Transactions have become an issue in these chapter 11 cases
now because the Debtors have sought the approval of debt-restructuring transactions that would
reduce or eliminate the ability of American Airlines to seek redress if, in fact, any portion of the
2 Similarly, while Marathon is unaware of any detailed investigation of the Prepetition Transactions to date by the
Official Committee of Unsecured Creditors (the “Committee”), any such investigation by the Committee would suffer from this same defect—that the investigation would be from the perspective of the Debtors’ estates as a whole, and not from the perspective of the American Airlines estate in particular. See Keene Corp. v. Coleman ( In re Keene Corp.), 164 B.R. 844, 856 (Bankr. S.D.N.Y. 1994) (“While a creditors’ committee is well suited to overseeing the operations of a business, especially the financial and economic aspects of the debtor’s operations,
the examiner is far better able to undertake an in-depth investigation B.R. 683, 686 (Bankr. D.D.C. 1980)).
.”) (quoting In re 1243 20th Street, Inc., 6
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Prepetition Transactions proved to be avoidable or otherwise cancellable or reversible. The Debtors
first sought approval for these debt-restructuring transactions through a routine section 1110
stipulation that failed to disclose the nature and extent of the debt-restructuring transactions or their
potential effects on claims related to the Prepetition Transactions. This lack of transparency, while
troubling on its own, also casts a shadow on the credibility of the Debtors’ apparent conclusion that
the Prepetition Transactions are immune from challenge. An independent examiner would be able
to conduct an investigation leading to a credible conclusion, mitigating the lack of transparency in
these matters to date.
6. Marathon does not believe that any claims in respect of the Prepetition Transactions
should be pursued at this stage of the Debtors’ chapter 11 cases, and Marathon is not requesting the
appointment of an examiner with the intention of moving any such claims ahead at this time.
However, Marathon also does not believe that these potential claims should be swept under the rug
without due consideration. To that end, any approval by the Court of the Rule 9019 Motion,
through which the Debtors now propose to extinguish American Airlines’ rights in respect of the
Prepetition Transactions, should be conditioned upon the receipt of a report by an independent
examiner stating that it is in substantial agreement with the conclusions apparently reached by the
Debtors in respect of the Prepetition Transactions.
A. The Debtors and Marathon
7. On November 29, 2011 (the “Petition Date”), AMR, American Airlines, and
American Eagle, along with the other Debtors, commenced with the Court voluntary cases under
chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). The Debtors have
continued to operate their business and manage their properties as debtors in possession pursuant to
sections 1107(a) and 1108 of the Bankruptcy Code. On December 5, 2011, the United States
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Trustee for the Southern District of New York appointed the Committee pursuant to Section 1102 of
the Bankruptcy Code. No trustee or examiner has been appointed in these chapter 11 cases.
8. Marathon manages one or more funds and/or accounts that hold well over a hundred
million dollars of claims against the Debtors, including substantial claims against American
B. The Prepetition Transfers
9. Prior to August 31, 2011, American Eagle owned a fleet of 216 regional jet aircraft
manufactured by Embraer (the “Aircraft”), which had been financed through certain prepetition
mortgage financing arrangements (the “Aircraft Agreements”) with the Financing Parties. (Rule
9019 Motion at ¶¶ 6-7.)
10. In connection with the possible spin-off of American Eagle and certain of its
affiliates to AMR’s stockholders, American Eagle had to clean up its over-leveraged balance sheet.
To do so, from August through November 2011, American Eagle transferred 263 regional jets,
including all of the Aircraft, to American Airlines, in exchange for American Airlines’ assumption
of American Eagle’s outstanding debt obligations with respect to the transferred aircraft (the
“Prepetition Transactions”). (Rule 9019 Motion at ¶ 28.) The Financing Parties agreed to release
American Eagle from its outstanding obligations as to the 263 transferred regional jets and
substitute American Airlines as the borrower under the Aircraft Agreements. (Id.)
11. According to the Rule 9019 Motion, at the time of the Prepetition Transactions,
American Eagle’s outstanding debt to the Financing Parties was approximately $2.26 billion. (Rule
9019 Motion at ¶ 29.) The Debtors claim that the value of the 263 regional jets at the time of the
transfers was $1.8 billion, or $426 million less than the amount of the assumed debt. (Id.) In
addition, the Debtors claim that American Eagle cancelled certain intercompany payables of
American Airlines to American Eagle and settled other intercompany receivables and payables.
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(Id.) The Debtors have not disclosed the nature or exact net amount 3 of the payables that were
supposedly cancelled in the Prepetition Transactions. The Debtors only generically state that the
cancelled payables were “equal to the amount of the difference” between the $2.26 billion in
assumed debt and the purported $1.8 billion in transferred aircraft value. (Rule 9019 Motion at ¶
29.) The Debtors also describe, only in a generic fashion, certain “indirect benefits” that American
Airlines and AMR purportedly received in the Prepetition Transactions. 4 (Rule 9019 Motion at ¶
30.) But the Debtors do not attempt to specify or quantify those indirect benefits, or to allocate their
supposed value between American Airlines and AMR.
12. While, arithmetically speaking, it appears possible from the face of the Rule 9019
Motion that the transactions entered into between American Airlines and American Eagle just
before the Debtors’ bankruptcy filing were an “even swap,” there is insufficient public evidence to
reach that conclusion. It is no comfort that the Debtors make a bald assertion by the Debtors that
avoidance of the $2.26 billion in debt assumed by American Airlines is “at best, remote.” (Rule
9019 Motion at ¶ 32.) To the extent that the transactions were in fact an “even swap,” it is unclear
why they would have helped clean up the American Eagle balance sheet for the planned spin-off, or
why they would have resulted, just months later, in a proposed deal with the Financing Parties,
described in the Rule 9019 Motion and below, in which American Airlines is abandoning some of
the Aircraft, and in which the Aircraft Parties are agreeing that the Aircraft are worth hundreds of
millions of dollars less than they were supposedly worth a year ago.
3 The Debtors’ public filings describe the cancellation of certain intercompany payables of American Airlines, but the net face amount of cancelled payables of American Airlines is unclear. See, e.g., AMR Eagle Holding Corporation, Amendment No. 1 to Form 10, Exhibit 99.1 at 13, 39 Sept. 26, 2011; American Airlines, Inc., Form 10-Q for the Quarterly Period Ending June 30, 2011 at 12-13, July 20, 2011. It is also unclear whether such net face amount must be reduced based on any invalidity of the payables or any defenses thereto.
4 The Debtors state that the Prepetition Transactions “facilitated AMR and American’s business plan and maximized the ability to source future regional feed at competitive prices.” (Rule 9019 Motion at ¶ 30.) Notably, they refer to AMR and American Airlines collectively and do not focus on the independent benefits and detriments of the Prepetition Transactions to American Airlines individually.
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C. The Section 1110 Stipulations
13. From time to time after the Petition Date, the Financing Parties and the Debtors have
entered into stipulations pursuant to section 1110(b) of the Bankruptcy Code extending the 60-day
period set forth in section 1110(a)(2) of the Bankruptcy Code with respect to each Aircraft. (Rule
9019 Motion at ¶ 9.) The extensions have been conditioned on an agreement by American Airlines
to make interim payments to the Financing Parties in exchange for the continuing use of the
Aircraft. (Rule 9019 Motion at ¶ 10.) The Debtors entered into six such stipulations between the
Petition Date and September 2012. See Docket Nos. 851, 1123, 3050, 3418, 3798 & 4066.
14. On September 8, 2012, the Debtors filed the Seventh Stipulation and Order
Approving Eighth Section 1110(b) Extension for ERJ Aircraft [Docket No. 4366] (the “Seventh
Stipulation”). Through the Seventh Stipulation, the Debtors sought authority to extend the section
1110 period with respect to certain aircraft, as they had done in the first through sixth stipulations
for the same aircraft, and, on a cursory review, the Seventh Stipulation may have appeared to be a
routine pleading along the lines of the prior six filings.
15. But for the first time, the Debtors also sought through the Seventh Stipulation to
“implement” certain undisclosed “transactions” with the Financing Parties in respect of the Debtors’
Aircraft and Aircraft Agreements. (Seventh Stipulation at ¶ 3.) Although the specific terms of
these transactions were not described in the Seventh Stipulation, the Debtors’ form of order
indicated that the transactions provided for the allowance of certain unsecured, non-priority
prepetition claims against AMR and American Airlines. (Seventh Stipulation p. 12, at ¶ 2.) The
creditors who would receive the claims and the amounts of the claims were not disclosed, and there
was no description of the basis on which the transactions should be approved. The Seventh
Stipulation did not mention the Prepetition Transactions entered into just before the Debtors’
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bankruptcy filing with respect to the Aircraft, let alone describe the potential effects of the Seventh
Stipulation on the ability of American Airlines to seek redress for those transactions.
16. On September 18, 2012, Marathon filed an objection to the Seventh Stipulation
[Docket No. 4530] (the “Initial Marathon Objection”) on the grounds that (a) the Seventh
Stipulation did not provide adequate information about the transactions for which the Debtors were
seeking approval, and (b) whatever their substance, the unspecified transactions for which the
Debtors sought approval could have adverse effects upon potential fraudulent transfer claims
relating to the Prepetition Transactions regarding the same Aircraft and giving rise to the same
indebtedness that the Debtors appeared to be addressing in the Seventh Stipulation.
17. In response to the Marathon Objection, the Debtors, through their counsel,
represented to Marathon that they would file a motion pursuant to Fed. R. Bankr. P. 9019 and
provide additional details on the substantive transactions, in order to allow Marathon and other
parties in interest with notice and a meaningful opportunity to object.
18. On October 1, 2012, the Debtors filed the Eighth Stipulation and Order Approving
Ninth Section 1110(b) Extension for ERJ Aircraft [Docket No. 4872] (the “Eighth Stipulation”),
requesting the approval of an extension of the section 1110 period with respect to the same aircraft
covered by the Seventh Stipulation.
19. On October 11, 2012, Marathon filed a limited objection to the Eighth Stipulation
[Docket No. 4974] (the “Second Marathon Objection”). Although it appears that the Debtors
essentially attempted to “split” the Seventh Stipulation into two parts, one part covered by the
Eighth Stipulation, and the other part covered by the Rule 9019 Motion, the Eighth Stipulation still
sought approval of provisions relating to the substantive transactions at issue in the Rule 9019
Motion, including a commitment by the Debtors to seek approval of those transactions and thereby
to release the Financing Parties from claims relating to the Prepetition Transactions. (Rule 9019
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Motion, Exhibit J, Eighth Stipulation at ¶ 4.) Accordingly, out of an abundance of caution,
Marathon objected to the Eight Stipulation to the extent it sought any relief beyond a mere
extension of the section 1110 period or otherwise affected the potential fraudulent transfer claims in
respect of the Prepetition Transactions.
D. The Rule 9019 Motion
20. On October 9, 2012, in response to the Initial Marathon Objection, the Debtors filed
the Rule 9019 Motion, through which they are seeking approval of the same previously-undisclosed
transactions that were the subject of the Seventh Stipulation and the Eighth Stipulation. While the
Rule 9019 Motion and its attachments disclose over 300 pages of additional information relating to
the transactions briefly referenced in the Seventh Stipulation, the Debtors have also filed a motion
seeking to file certain information relating to the transactions under seal. See Motion for an Order
Pursuant to 11 U.S.C. § 107(b) and Fed. R. Bankr. P. 9018 Authorizing the filing of Certain
Information Under Seal in Connection with Motion of Debtors for Order Pursuant to 11 U.S.C. §§
105(a), 363 and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and Settlement,
Authorizing Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140 and 118 ERJ145 Aircraft
and Granting Related Relief [Docket No. 4937].
21. Through the Rule 9019 Motion, the Debtors seek approval of a compromise with the
Financing Parties that will effect a restructuring of American Airlines’ obligations to the Financing
Parties with respect to the Aircraft and an extension of the section 1110 period to allow the
transactions to be consummated. The restructuring itself is complex and involves the return of
some aircraft, the sale and leaseback of some aircraft, and the retention of some aircraft, which,
collectively, has the net result of reducing American Airlines’ debt obligations to the Financing
Parties. Importantly, the transactions also propose:
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 Granting the Financing Parties “separate and distinct stipulated, allowed general
unsecured non-priority pre-petition claims” against the bankruptcy estates of
American Airlines and AMR, each in the amount of $650 million—allegedly
representing the net financial loss suffered by the Financing Parties as a result of the
transactions, including deficiency claims as to the Aircraft being surrendered to the
Financing Parties. (Rule 9019 Motion at ¶ 22; Exhibit B, Master Term Sheet at §
 Approving a broad release of the Financing Parties from liability arising under the
avoidance sections of the Bankruptcy Code and similar state laws with respect to the
Aircraft Agreements and the Prepetition Transactions. (Rule 9019 Motion at ¶¶ 15
(Release), 26.)
Notably, the Rule 9019 Motion spends just 5 paragraphs within 365 pages addressing the
Prepetition Transactions. (Rule 9019 Motion at ¶¶ 28-32.) The Debtors conclude in those 5
paragraphs that claims relating to the Prepetition Transactions are “not supported by the facts or
applicable law,” though they do not describe the facts in any detail and do not state what law they
believe might apply. (Rule 9019 Motion at ¶ 32.) They state conclusively that the “possibility that
a plausibly successful avoidance claim of any nature exists is, at best, remote” or, if it exists, if
“negligible.” (emphasis added). (Id.) These strident assertions, which the Debtors attempt to
support with only a handful of sentences, leave a creditor of American Airlines like Marathon in the
The Marathon Rule 9019 Objection
22. Contemporaneously with this Motion, Marathon has filed an objection to the Rule
9019 Motion (the “Rule 9019 Objection”).
As explained more fully in the Rule 9019 Objection,
Marathon has objected to the relief requested by the Debtors in the Rule 9019 Motion on the
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grounds that the Debtors are seeking to ratify the Prepetition Transactions in a manner that not only
releases potential claims against the Financing Parties but also relinquishes the right and ability of
American Airlines to investigate and seek redress among the Debtors for the Prepetition
Transactions. Marathon has also objected to the lack of transparency with which the Debtors have
sought approval of the transactions contemplated by the Rule 9019 Motion and the failure of the
Debtors to conduct or at least allow for an independent investigation of the propriety of the
Prepetition Transactions and the transactions described in the Rule 9019 Motion before seeking to
23. This Court has subject matter jurisdiction to consider this matter pursuant to 28
U.S.C. §§ 157, 1334, and 1408. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
24. Marathon respectfully requests appointment of an examiner to investigate, as more
fully set forth in the proposed order attached hereto as Exhibit A, the Prepetition Transactions and
any claims the Debtors may hold in respect of the Prepetition Transactions.
BASIS FOR THE RELIEF REQUESTED
A. Section 1104(c)(2) Mandates Appointment of an Examiner.
25. Section 1104(c)(2) of the Bankruptcy Code provides that
[i]f the court does not order the appointment of a trustee
any time before the confirmation of a plan, on request of a party in
and after notice and a hearing, the court shall order the
appointment of an examiner to conduct such an investigation of the
if the debtor’s fixed, liquidated, unsecured
debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000.
debtor as is appropriate
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26. As the U.S. Court of Appeals for the Sixth Circuit has recognized, section 1104(c)(2)
of the Bankruptcy Code “plainly means that the bankruptcy court ‘shall’ order the appointment of
an examiner when the total fixed, liquidated, unsecured debt exceeds $5 million, if [a party in
interest] requests one.” Morgenstern v. Recvo D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500-
01 (6th Cir. 1990) (concluding that appointment of an examiner is mandatory under the statute’s
plain meaning). Similarly, the U.S. District Court for the Southern District of New York has found
that “on its face, Section 1104(c)(2) mandates the appointment of an examiner where a party in
interest moves for an examiner and the debtor has $5,000,000 in qualifying debt.” Loral
Stockholders Protective Comm. v. Loral Space & Commc’ns Ltd. (In re Loral Space & Commc’ns
Ltd.), No. 04-Civ-8645, 2004 WL 2979785, at *4 (S.D.N.Y. Dec. 23, 2004); see also Walton v.
Cornerstone Ministries Invs., Inc., 398 B.R. 77, 81-82 (N.D. Ga. 2008) (“[E]very district court and
nearly every bankruptcy court that has confronted the question has also read the provision to be
mandatory on its face.”) (citing cases); but see In re Residential Capital, LLC, 474 B.R. 112, 120-21
(Bankr. S.D.N.Y. 2012) (concluding that a court may decline to appoint an examiner if such
appointment would be inappropriate, but nevertheless appointing an examiner under the facts of the
case). 5
27. The elements of section 1104(c)(2) are easily satisfied in the Debtors’ cases. The
Court has not appointed a trustee, no plan has been filed, and the Debtors unquestionably have more
than $5 million of qualifying debt. Accordingly, section 1104(c)(2) mandates the appointment of an
5 While Marathon maintains that the appointment of an examiner is mandatory under the plain language of section 1104(c)(2) of the Bankruptcy Code, it is also “appropriate” under Judge Glenn’s interpretation of the statute in his recent decision in the ResCap case. Judge Glenn indicated that the appointment of an examiner might be inappropriate if “the motion was filed for an improper purpose such as a litigation tactic to delay a case, or if there is no factual basis to conclude that an investigation needs to be conducted, or if an appropriate and thorough investigation has already been conducted (or is nearly complete) by a creditors committee or a governmental agency.” In re Residential Capital, LLC, 474 B.R. at 121. As discussed in more detail below, the appointment of an examiner is in the best interests of creditors of American Airlines’ estate. For those same reasons, and due to the absence of any of the factors identified by Judge Glenn, appointment of an examiner is “appropriate” in these cases. Indeed, in In re Residential Capital, when faced with a request for an investigation similar to the one requested in this Motion, Judge Glenn determined that appointment of an examiner was “appropriate” to investigate prepetition transfers, claims arising therefrom, and potential waivers of such claims by the Debtors.
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examiner to conduct an appropriate investigation of the Prepetition Transactions, any claims or
rights in respect of the Prepetition Transactions, and the potential effect of the Rule 9019 Motion on
any such claims or other rights.
B. The Investigation is Necessary, Appropriate, and in the Interests of Creditors Under Section
1104(c)(1).
28. Section 1104(c)(1) of the Bankruptcy Code provides that a court “shall” appoint an
examiner where such an appointment is in the “interests of creditors” or other stakeholders. 11
U.S.C. § 1104(c)(1). That standard is met here.
29. A thorough and independent investigation is needed into the billions of dollars of
Prepetition Transactions between American Airlines and American Eagle. The case law makes
clear that appointing an examiner is warranted under these circumstances. See, e.g., In re Keene
Corp., 164 B.R. at 856 (appointing an examiner to review transfers from the debtor to affiliates)
(citing M. Bienenstock, Bankruptcy Reorganization 299 (1987) (“Often, appointment of an
examiner is warranted when the debtor’s transactions with affiliates should be investigated.”)); In re
Gilman Servs., Inc., 46 B.R. 322, 327-28 (Bankr. D. Mass 1985) (“A debtor’s sale of assets to a
related corporation before the commencement of the bankruptcy case warrants an investigation by
an examiner where there are unanswered questions concerning the transaction and interrelationship
of the parties involved.”). An examiner should be appointed to investigate the propriety of the
Prepetition Transactions and to determine whether they give rise to any causes of action of
30. An investigation is also appropriate because the Debtors propose to release claims
against the Financing Parties in respect of the Prepetition Transactions, particularly where such a
release could have the unnecessary consequence of preventing American Airlines from seeking
redress for the incurrence of billions of dollars of debt as a result of the Prepetition Transactions.
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31. To be clear, it is possible that the Prepetition Transactions did in fact involve an
“even exchange” among American Airlines and American Eagle. At this time, the Debtors have not
provided, and Marathon does not have, information that would definitively support or contradict
that conclusion. But before American Airlines irrevocably releases any potential claims in respect
of the Prepetition Transactions, and before creditors like Marathon can fully evaluate these matters
in connection with the Debtors’ request for approval of the Rule 9019 Motion, there is a need for a
thorough, independent, and public investigation into the Prepetition Transactions, any rights and
potential claims of the Debtors’ in respect thereof, and the potential effects of the transactions
described in the Rule 9019 Motion on the Debtors’ ability to exercise such rights and assert such
An Examiner is Uniquely Qualified to Conduct the Requested Investigation.
32. The Debtors assert that they have “extensively investigated” the Prepetition
Transactions. (Rule 9019 Motion at ¶ 27.) Nevertheless, in contrast to the Debtors’ substantial
efforts articulating the benefit of the transaction described in the Rule 9019 Motion for the Debtors’
collective estates, they spend only 5 paragraphs of their Rule 9019 Motion attempting to explain
and defend the economics of the transactions described in the Rule 9019 Motion and the Prepetition
Transactions for American Airlines. Even if the Debtors were to outline the specific steps they took
in their apparently “extensive” investigation to the satisfaction of the Court, that investigation
would still be defective unless an independent party has evaluated the Prepetition Transactions from
the perspective of American Airlines.
33. It is by no means unusual that affiliated debtors in jointly administered cases would
have difficulty independently considering the interests of each estate and its constituents. And
Marathon does nor cast blame on the Debtors for being in such a position. But in no event should
the Prepetition Transactions, and in particular the incurrence of billions of dollars in debt by
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American Airlines just before its bankruptcy, be quickly and irresponsibly sanctioned and insulated
from further review as a consequence of the approval of the debt restructuring contemplated by the
Rule 9019 Motion, based solely on an “investigation” by the Debtors collectively. Instead, an
opportunity must be afforded for a thorough and independent investigation by an examiner.
34. Appointing an examiner makes particular sense here because it is critical that the
investigation be conducted by someone viewed as impartial by all parties in interest. An “examiner
answers solely to the Court” and acts as an “objective nonadversarial party who will review the
pertinent transactions and documents, thereby allowing the parties to make an informed
determination as to their substantive rights.” In re FiberMark, 339 B.R. 321, 325 (Bankr. D. Vt.
2006); see also In re Gitto Global Corp., No. Civ. 05-10334, 2005 WL 1027348, at *2 (D. Mass.
2005) (An examiner is “first and foremost disinterested and nonadversarial.”). Accordingly, an
examiner is uniquely qualified to carry out a thorough, independent, and objective investigation in
the Debtors’ cases.
35. By contrast, the Debtors are not in a position to conduct an independent review of
these issues. First, the Debtors are operated today by the same management that consummated the
Prepetition Transactions. Obviously, that management must have determined just prior to the
bankruptcy filing that the Prepetition Transactions were in the collective best interests of the
Debtors’ estates, and were important to the American Eagle “spin-off” strategy that the Debtors’
management was pursuing. However, that collective pre-bankruptcy determination is not the same
as an independent determination in the context of a bankruptcy case. The former is geared toward
the overall business strategy of a consolidated enterprise; the latter is geared towards a fair
distribution of available value to creditors of individual entities.
It is just not possible for the
Debtors’ management to undertake today an objective and critical review of the same Prepetition
Transactions that they previously approved.
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36. Second, the issues surrounding the Prepetition Transactions are not issues that all of
the Debtors can properly consider collectively. The Prepetition Transactions involve billions of
dollars in value that shifted among the Debtors. As a result of these shifts, American Eagle and
AMR may have been “winners” of hundreds of millions of dollars, at the expense of American
Airlines being a “loser” of hundreds of millions of dollars. It is unfair to expect that the Debtors
could collectively conduct a proper investigation of the Prepetition Transactions with a focus on the
individual interests of the American Airlines estate. Indeed, it is wholly possible that the
Prepetition Transactions may have been a net positive for all of the Debtors collectively, and that at
the same time they were a huge net negative for American Airlines individually. Where it is
primarily American Airlines that would waive rights if the Rule 9019 Motion were approved, it
only makes sense that an examination of the rights to be waived would be conducted from the
perspective of American Airlines individually. The results of any such collective investigation by
the Debtors (or any collective estate representatives) cannot be properly relied upon by American
Airlines creditors to protect their interests.
37. Third, the Prepetition Transactions have become an issue in these chapter 11 cases
potential effects on claims related to the Prepetition Transactions. While the Debtors have corrected
this error of process by re-proposing the same debt-restructuring transactions through the Rule 9019
Motion, the Debtors’ prior conduct casts a shadow on the credibility of the Debtors’ apparent
determination that the Prepetition Transactions are immune from challenge. If the Debtors cannot
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be trusted to present issues affecting the Prepetition Transactions for approval in a transparent
manner, how can they be trusted to provide the conclusive determination that claims in respect of
the Prepetition Transactions should be irrevocably relinquished?
D. The Proposed Scope of the Examiner’s Investigation is Appropriate
38. The proposed scope of the examiner’s investigation as set forth in the proposed order
attached as Exhibit A is tailored to serve a specific purpose and is well within an examiner’s
statutory authority under section 1106(b) of the Bankruptcy Code, and consistent with orders
appointing examiners in analogous cases, including cases in this district. See, e.g., In re DBSI, Inc.,
Case No. 08-12687 (PJW) (Bankr. D. Del. Mar. 25, 2009) [Docket No. 2974] (“The Examiner is
directed to: (a) investigate the circumstances surrounding (i) any and all of the Debtors’ inter-
company transactions and transfers
.”); In re Washington Mutual, Inc., Case No. 08-12229
(MFW) (Bankr. D. Del. July 22, 2010) [Docket No. 5120] (“The Examiner is directed to investigate
(a) the claims and assets that may be property of the Debtors’ estates that are proposed to be
conveyed, released or otherwise compromised and settled under the Plan and Settlement
.”); In re Dynegy Holdings, LLC, Case No. 11-38111 (CGM) (Bankr. S.D.N.Y. Dec.
29, 2011) [Docket No. 276] (providing that “the examiner shall conduct an unfettered investigation
with respect to (i) the conduct of the Debtors and their non-Debtor affiliates in
connection with the prepetition 2011 restructuring and reorganization of the Debtors and their non-
Debtor affiliates; (ii) any possible fraudulent conveyances”
.); In re Residential Capital, LLC,
Case No. 12-12020 (MG) (Bankr. S.D.N.Y. June 20, 2012) [Docket No. 454] (ordering appointment
of an examiner to investigate and report on, among other things, the Debtors’ prepetition
transactions with a non-debtor and any claims that the Debtors may hold related to such
transactions, and any claims that the Debtors propose to release as part of their plan).
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39. Marathon has also, contemporaneously with this Motion, served discovery requests
on the Debtors covering many of the same issues as the examiner would investigate. If an examiner
were appointed by the Court, Marathon would withdraw those requests and defer to the
investigation of the examiner. However, if an examiner is not appointed, Marathon intends to
obtain that discovery so that it may on its own determine whether and to what extent the Prepetition
Transactions should be challenged (or, if needed, to establish a further record for the Court of why
the appointment of an examiner is required and appropriate). Similarly, Marathon’s request for an
examiner is based on the assumption that the Debtors desire to have the transactions described in
the Rule 9019 Motion approved in the short term. To the extent that the Debtors were inclined to
adjourn the Rule 9019 Motion to a later date, Marathon would also adjourn its request for the
appointment of an examiner. The critical point is that an independent examination should occur
prior to any approval of the Rule 9019 Motion.
40. Marathon respectfully submits that the discussion of the relevant issues of law set
forth above satisfies the requirements of Local Rule 9013-1(b) and that no separate memorandum of
law in support of the Motion is required.
41. Notice of this Motion has been provided to parties in interest in accordance with the
Amended Order Pursuant to 11 U.S.C. §§ 105(a) and (d) and Bankruptcy Rules 1015(c), 2002(m),
and 9007 Implementing Certain Notice and Case Management Procedures, dated August 8, 2012
[Docket No. 3952]. In view of the facts and circumstances, such notice is sufficient and no other or
42. No previous motion for the relief requested herein has been made to this or any other
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WHEREFORE, Marathon respectfully request that the Court enter an order, substantially in
the form attached as Exhibit A, (a) approving and directing the appointment of an independent
examiner for the purposes of investigating and reporting to the Court and parties in interest with
respect to the matters described above and (b) granting the relief requested herein and such other
and further relief as may be just and proper.
/s/ George W. Shuster, Jr. Philip D. Anker George W. Shuster, Jr. 7 World Trade Center New York, New York 10007 Telephone: 212.937.7232 Facsimile: 212.230.8888
Doc 5087-1
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[PROPOSED] ORDER DIRECTING THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. § 1104 (c) RELATED TO THE MOTION OF DEBTORS FOR ORDER PURSUANT TO 11 U.S.C. §§ 105(a ), 363 AND 1110 AND FED. R. BANKR. P. 9019(a ) APPROVING COMPROMISE AND SETTLEMENT, AUTHORIZING ENTRY INTO TERM SHEETS RELATING TO 21 ERJ135, 59 ERJ140, AND 118 ERJ145 AIRCRAFT AND GRANTING RELATED RELIEF, AND TRANSACTIONS DESCRIBED THEREIN
Upon the motion, dated October 23, 2012 (the “Motion”), 1 of Marathon Asset
Management, LP, on behalf of one or more managed funds and/or accounts, for appointment of
an examiner pursuant to 11 U.S.C. § 1104(c), as more fully described in the Motion; and the
Court having jurisdiction to consider the Motion and the relief requested therein in accordance
with 28 U.S.C. § 157 and 1334 and the Amended Standing Order of Reference M-431, dated
January 31, 2012 (Preska, C.J.); and consideration of the Motion and the relief requested therein
being a core proceeding pursuant to 28 U.S.C. § 157(b); and venue being proper before this
Court pursuant to 28 U.S.C. §§ 1408 and 1409; and due and proper notice of the Motion having
been provided, and it appearing that no other or further notice need be provided; and a hearing
having been held to consider the relief requested in the Motion; and the Court having found and
determined that the relief sought in the Motion is in the best interests of the Debtors, their estates
and creditors, and all parties in interest and that the legal and factual bases set forth in the Motion
1 Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed thereto in the Motion.
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establish just cause for the relief granted herein; and after due deliberation and sufficient cause
appearing therefore, it is
ORDERED that the Motion is granted in all respects; and it is further
ORDERED that pursuant to section 1104(c) of the Bankruptcy Code, the United States
Trustee shall appoint an examiner (the “Examiner”) in these jointly administered cases pursuant
to the terms hereof; and it is further
ORDERED, that the Examiner shall conduct an investigation into (1) the Prepetition
Transactions, (2) any claims or other rights that the Debtors may hold in respect of the
Prepetition Transactions, and (3) the potential effects on any such claims or rights of the
proposed transactions described in the Debtors Motion of Debtors for Order Pursuant to 11
U.S.C. §§ 105(a), 363, and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and
Settlement, Authorizing Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140, and 118
ERJ145 Aircraft and Granting Related Relief [Docket No. 4936] (collectively, the
“Investigation”); and it is further
ORDERED, that the Examiner may retain attorneys and/or other professionals if he or
she determines that such professionals are necessary to discharge his or her duties, with such
retention to be subject to Court approval under standards equivalent to those set forth in section
327 of the Bankruptcy Code; and it is further
ORDERED, that, subject to any budget that may be established by the Court, the
Examiner and any professionals retained by the Examiner pursuant to any order of this Court
shall be compensated and reimbursed for their expenses pursuant to any procedures for interim
compensation and reimbursement of professional fees that are established in the Debtors’ chapter
11 cases, with compensation and reimbursement of the Examiner being determined pursuant to
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section 330 of the Bankruptcy Code, and compensation and reimbursement of the Examiner’s
professionals being determined pursuant to standards equivalent to those set forth in section 330
of the Bankruptcy Code; and it is further
ORDERED, that the precise scope, timing, and budget for the Examiner’s Investigation
will be set by the Court after the Examiner is appointed and confers with the Debtors, the
Committee, Marathon, and other parties in interest; and it is further
ORDERED, that this Order is without prejudice to (i) the rights of the Debtors, the
Committee, Marathon, any other party in interest, or the Examiner, to seek relief from the Court,
including, but not limited to, clarifying and expanding or limiting the scope of the Investigation;
and (ii) the right of the Examiner to seek such other relief as he or she may deem appropriate in
furtherance of the discharge of his or her duties and the Investigation; and it is further
ORDERED, that the Debtors, the Committee, and all other parties in interest shall
cooperate and (i) cause their respective present directors, officers, employees and professions,
and (ii) utilize reasonable best efforts to cause their respective former directors, officers,
employees and professionals to cooperate with the Examiner in conjunction with the
performance of any of the Examiner’s duties and the Investigation; and it is further
ORDERED, that the Examiner shall have the standing of a “party in interest” with
respect to the matters that are within the scope of the Investigation and shall be entitled to appear
and be heard at any and all hearings in these cases; and it is further
ORDERED, that nothing in this Order shall affect the right of the United States Trustee
or any other party to request any other lawful relief, including, but not limited to, the
appointment of a trustee; and it is further
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ORDERED, that the Court will conduct a case management conference with the
Examiner, the Debtors, the Committee, Marathon, and all parties in interest to consider the
precise scope, time and budget for the Investigation; and it is further
ORDERED, that the Court shall retain jurisdiction with respect to all matters arising from
Dated: New York, New York , 2012
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