Court Opinion

ID: 2997774
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:38:47.862127+00
Date Added: 2024-06-11T15:03:12.968975
License: Public Domain

In the

     United States Court of Appeals
                    For the Seventh Circuit
                        ____________________
No. 05-1871
United Airlines, Inc., and The Official Committee of Unse-
cured Creditors,
                               Plaintiffs-Respondents-Appellees,
                                         v.
U.S. Bank N.A. and The Bank of New York, as Indenture Trus-
tees,
                            Defendants-Petitioners-Appellants.
                        ____________________
    Petition for a Writ of Mandamus to, and Appeal from, the United States
     District Court for the Northern District of Illinois, Eastern Division.
      Nos. 04 C 8304 & 05 C 289 (04 A 4149) — John W. Darrah, Judge.
                        ____________________

      Submitted April 27, 2005 — Decided May 6, 2005†
                 ____________________

   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 ac-
cept less than the contractual payments. As the reorganization
dragged on, however, some of the lessors concluded that United

   † This opinion is being   issued in typescript. A printed copy will follow.
No. 05-1871                                                    Page 2

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 de-
faults 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 pre-
serve 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 air-
planes. 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 pro-
tect 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 Re-
serve 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 de-
scribed as “bordering on the frivolous” a contention that the anti-
trust laws forbid creditors to coordinate their positions in bank-
ruptcy. 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
No. 05-1871                                                                Page 3

Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127
(1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965).
Collective renegotiation succeeds only if the court approves. See
California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508
(1972) (holding that the Noerr-Pennington doctrine applies to col-
lective presentations in litigation).
   On top of all this comes §1110(a)(1), which provides that
   the right … of a lessor or conditional vendor of [airplanes], to take pos-
   session 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 con-
   tract, 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 al-
low 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 in-
junction 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 de-
spite 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 (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 injunc-
tive relief in the teeth of a statute that curtails remedies. Section
1110(a)(1) does not bar a damages action for wrongful repossession;
No. 05-1871                                                    Page 4

if the indenture trustees have indeed violated the antitrust laws they
face treble damages and criminal prosecution. Cf. Vendo Co. v. Lek-
tro-Vend Corp., 433 U.S. 623 (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 In-
dustry): The Historical Development of Section 1110 of the Bank-
ruptcy Code, 78 Notre Dame L. Rev. 281 (2002).
    Temporary retraining orders are at least brief—they last for 20
days at most, including the 10-day extension allowed by Fed. R. Civ.
P. 65(b), incorporated by Fed. R. Bankr. P. 7065. Bankruptcy Judge
Wedoff promised to explore the subject more fully at a hearing in
December 2004 on United’s motion for a preliminary injunction.
United then sought discovery into all of the indenture trustees’
communications, not only with other trustees and lenders but also
with their lawyers. Needless to say this led to protests that the mat-
ters United wants are covered by the attorney-client and work-
product privileges. The bankruptcy judge held, however, that
United’s antitrust theory is strong enough to override these privi-
leges—for they cannot be used to shield ongoing crimes, and a vio-
lation of the Sherman Act is a felony. So the bankruptcy judge de-
manded that the materials be produced, either directly to United or
to the court for an in camera inspection (which, the judge noted,
might reveal that no crime was in process and thus that the privi-
leges continue). Seeking to set up an opportunity for appellate re-
view, the trustees respectfully declined to comply. The bankruptcy
judge might have drawn an adverse inference and entered a pre-
liminary injunction, from which the trustees could have appealed.
Or he might have held them in criminal contempt, again setting up
an appeal. Instead, however, the judge declared them “in contempt”
but did not impose any sanction, even a daily fine. Nor did the
judge proceed to the scheduled hearing; he put it off until the trus-
tees disclosed the privileged materials.
    The trustees appealed to the district judge, who has authority to
review interlocutory as well as final decisions of bankruptcy judges.
28 U.S.C. §158(a). They filed one appeal from the TRO issued on
No. 05-1871                                                     Page 5

November 26, 2004, and another from the declaration of contempt
on December 9, 2004. The district judge dismissed both appeals,
ruling that neither of the bankruptcy judge’s orders is “final” and
declining to exercise jurisdiction to review the interlocutory orders.
The upshot is that the lessors are enjoined from repossessing the air-
craft, without either review by an Article III judge or any prospect of
such review—for the bankruptcy judge will not hold a hearing on
the motion for injunctive relief until the trustees cough up the privi-
leged documents, which they do not plan to do until they obtain
the appellate review that has been denied to them.
    For obvious reasons, the prospect of stasis is delightful to United
and its unsecured creditors but unsatisfactory to the lessors. They
ask this court to issue a writ of mandamus that will lift the injunc-
tion, or at least get the proceedings back on track by resolving the
privilege debate. They also ask us to treat their papers as a notice of
appeal, should appellate jurisdiction be available. (The petition for
mandamus contains the information required by Fed. R. App. P. 3.
See Smith v. Barry, 502 U.S. 244 (1992).) We conclude that the
TRO became an injunction when it extended past 20 days, so the
district court had jurisdiction and we have appellate jurisdiction un-
der 28 U.S.C. §1292(a)(1). See Connecticut National Bank v. Ger-
main, 503 U.S. 249 (1992). The debate about privilege, however,
cannot now be resolved, because a bare declaration of contempt,
without consequences, is neither a final order nor within the scope
of the mandamus power. See Kerr v. United States District Court,
426 U.S. 394 (1976); Powers v. Chicago Transit Authority, 846 F.2d
1139 (7th Cir. 1988); In re Lewis, 212 F.3d 980, 983 (7th Cir.
2000). Given our view of the merits, however, the privilege dispute
has no continuing significance.
    Temporary restraining orders that extend past 20 days are re-
viewable as preliminary injunctions, no matter what the rendering
judge may have called them. See Sampson v. Murray, 415 U.S. 61,
86–88 (1974); Granny Goose Foods, Inc. v. Teamsters Union, 415
U.S. 423 (1974). The district court thought this principle inapplica-
ble because the trustees consented to the maintenance of the status
quo until the hearing on preliminary injunctive relief. An order
supported by consent is not appealable. See Geneva Assurance Syn-
dicate, Inc. v. Medical Emergency Services Associates, 964 F.2d 599
No. 05-1871                                                     Page 6

(7th Cir. 1992). The problem with this view of matters is that the
trustees did not consent to indefinite, non-appealable relief.
     The trustees’ statement to which the district judge referred was
an agreement on December 8, while the bankruptcy judge had the
privilege dispute under advisement, to extend the TRO “pending
further order of the court.” Such an order came the next day, when
the bankruptcy judge declared the trustees in contempt, anticipat-
ing (though incorrectly) that this would facilitate review by the dis-
trict judge and this court. We do not understand the trustees to
have consented to a procedure that would prevent any other “order
of the court” from being entered. It would not be sensible to under-
stand their consent as permission to cancel the hearing and keep
the TRO in force forever. Yet that is exactly what has happened. The
bankruptcy judge called off the hearing, and United now contends
that as a result it may keep the collateral without paying the agreed
price and without any review by an Article III judge. The trustees
did not (and do not) consent to that state of affairs. The order thus
must be treated as a preliminary injunction, open to appellate re-
view. Because the issues are legal, we can supply that review ourselves
without remanding to the district judge.
    Section 1110(a)(1) gives the trustees a right to the return of air-
craft unless United pays the full rental or the lessors agree to accept
a lower price. Those conditions are not satisfied, so the bankruptcy
judge must dissolve the injunction and allow the lessors to repossess
their collateral. It does not matter whether, as United suspects, the
lessors are engaged in strategic behavior. The statute gives them that
entitlement, treating aircraft different from other assets. A credible
threat to repossess the aircraft changes the terms on which post-
bankruptcy bargains can be struck; it is exactly this prospect that
makes credit available on better terms when air carriers shop for fi-
nancing in the first place. United obtained the sort of terms that
were available from creditors secure in their ability to repossess the
collateral; it must live with those terms now, just as it must pay the
current market price for jet fuel.
    The final clause of §1110(a)(1) prevents bankruptcy judges from
using any source of law, including antitrust, as the basis of an in-
junction against repossession. United protests this understanding,
observing that “power of the court” is the caption of the Code’s
§105, 11 U.S.C. §105, and contending that the language “any
No. 05-1871                                                     Page 7

power of the court” thus must refer back to §105. Yet that would
drain all meaning from the phrase “any power of the court” in
§1110(a)(1), for the preceding language already blocks reliance on
any other part of the Bankruptcy Code. Unless it is to be empty, the
phrase “any power of the court” must deal with sources of law out-
side the Bankruptcy Code. It is not as if “power of the court” were a
phrase limited to bankruptcy practice. It is generic language, logi-
cally read to mean exactly what it says: “any power of the court.”
This does not “repeal” the antitrust laws, as United would have it;
instead, like the Anti-Injunction Act and the Norris-LaGuardia Act,
it curtails a particular remedy without affecting any substantive rule.
Section 1110(a)(1) leaves open the possibility of damages (not to
mention actions by the FTC or criminal prosecutions by the United
States); all it says is that courts can not prevent aircraft lessors or
secured lenders from repossessing their collateral.
     What is more, the antitrust claim is thin to the point of invisi-
bility. United concedes that creditors are entitled to negotiate
jointly in bankruptcy, as Sharon Steel holds. But it contends that
the lessors have “colluded with one another with respect to the fu-
ture terms and prices on which they would make aircraft available to
United.” (Emphasis in original.) If United means by this that
would-be lessors are conspiring to set the price to be charged for
new planes, then it has a good antitrust theory—but enjoining the
repossession of old planes would not be a sensible means of vindi-
cating the rule against cartelizing the sale of new planes. As best we
can make out, however, what United means by “future terms and
prices on which they … make aircraft available” is how much less
than the contract price the lessors and lenders are willing to accept
to forbear from repossessing planes now in United’s hands.
    Negotiating discounts on products already sold at competitive
prices is not a form of monopolization. Negotiations on reductions
to be taken in bankruptcy, when the buyer cannot pay all of its
debts, are common and lawful, under the Noerr-Pennington doc-
trine if nothing else. True, the Noerr-Pennington doctrine cannot be
used to shelter joint activity that creates monopoly prices independ-
ent of any decision by a court or agency. See In re Brand Name Pre-
scription Drugs Antitrust Litigation, 186 F.3d 781, 789 (7th Cir.
1999). But collaboration among creditors to formulate a position
about how much of a haircut to accept has no effect unless the
No. 05-1871                                                       Page 8

court approves the restructuring. By United’s lights a prepackaged
bankruptcy, in which all creditors negotiate to reach unanimous
agreement before presenting a plan to a court, would be nothing
but a colossal cartel, unlawful per se. What United really is com-
plaining about is not the joint conduct of the lessors—which origi-
nally led to forbearance even though United stopped paying the
agreed rentals—but the decision of some lenders to withdraw from
that package deal and start acting on their own in order to get bet-
ter prices from United (or, if that fails, lease the planes to someone
else). That decision has the protection of both §1110(a)(1) and the
Noerr-Pennington doctrine.
    If an antitrust problem lurks in the post-bankruptcy dealings,
United is as much an offender as the lessors are. The lenders want
to shop the planes, selling future months of their remaining useful
lives to the high bidders. United, by contrast, wants to limit these
lessors to a single bidder (United itself) and deny them the benefit
of competition, even though United is unwilling to pay the price
agreed at the end of the competitive financing process, and even
while United itself remains free to shop for better terms and return
these 14 planes if it finds such terms. In other words, United fancies
the position of monopsonist, which the antitrust laws forbid on
equal terms with monopoly. See Mandeville Island Farms, Inc. v.
American Crystal Sugar Co., 334 U.S. 219 (1948).
     The competitive solution is for both sides to have access to mar-
kets—and that outcome is achieved by allowing repossession. The
lessors will get the current market price for airframes of the type
and age involved. United, too, will enjoy a competitive price: it can
buy or rent equivalent planes on going terms. If, as United and the
Committee of Unsecured Creditors contend, the spot-market price
is below not only the original rental terms but also the modified
terms set when United filed for bankruptcy in 2002, then United
will be better off as a result. Its problem arises if, as the lessors are
betting, the price of used airplanes is higher than what United is
now paying for these 14 aircraft. But if, as United contends, the
highest and best use of these planes is with United, and the current
competitive price is less than what United is paying in bankruptcy,
then the threat to repossess is not credible, and United will keep the
planes without judicial intervention (though tough bargaining may
lie ahead to set the extent of the haircut from the old rental price).
No. 05-1871                                                   Page 9

Only if potential sellers and lenders conspire to set the price at
which United can acquire replacement aircraft would there be a
genuine antitrust problem, and United does not contend that such
a cartel is in prospect.
     With respect to equitable relief, the judgment of the district
court is reversed, and the case is remanded with instructions to va-
cate the preliminary injunction and permit the repossessions to
proceed unless United immediately cures its defaults and pays the
full rentals under §1110(a)(2)(B)(iii). The mandate will issue today.
With respect to the contempt citation, the petition for mandamus
is denied.