U.S. Bank Trust National Ass'n v. AMR Corp.
2013 U.S. App. LEXIS 18900
| 2d Cir. | 2013Background
- AMR Corp. and American Airlines filed for bankruptcy in 2011; U.S. Bank holds security interests in three indentures (2009-2 Note, 2009-1 EETC, 2011-2 EETC) and asserts Make-Whole payments may be due on repayment.
- Indentures provide automatic acceleration upon events of default, including bankruptcy, but distinguish voluntary redemption (with Make-Whole) from accelerated debt.
- American elected under 11 U.S.C. § 1110(a) to perform obligations under the Indentures and sought postpetition financing to repay prepetition obligations without Make-Whole payments.
- Bankruptcy court authorized postpetition financing and repayment of debt, and denied lifting the automatic stay; the district court granted direct appeal to resolve ipso facto and §1110 issues.
- The Second Circuit held that (i) bankruptcy-triggered default accelerates debt but requires no Make-Whole payment, (ii) ipso facto provisions in these nonexecutory contracts are not unenforceable under §365(e)(1), (iii) §1110(a) elections permit performance without curing the bankruptcy default, and (iv) the automatic stay was not properly lifted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy-triggered default accelerates debt and whether Make-Whole is due | U.S. Bank: acceleration requires Make-Whole upon postpetition repayment | American: acceleration occurs automatically on bankruptcy filing and no Make-Whole is due | Accelerated debt without Make-Whole due; ipso facto and §1110 interpretations support result |
| Whether ipso facto provisions are unenforceable | Bank: ipso facto clauses should be unenforceable under §365(e)(1) | Indentures are nonexecutory; ipso facto clause not unenforceable | Ipso facto clauses here not unenforceable under §365(e)(1) or §541/§363 provisions |
| Effect of §1110(a) elections on cure and automatic stay | Debtors’ §1110(a) elections require cure of all defaults | Elections allow performance to obtain automatic stay; no cure of bankruptcy default required | §1110(a)(2) elections do not require curing the bankruptcy default or paying Make-Whole; stay protection preserved |
| Whether the court should lift the automatic stay to permit waivers/decimeleration | Bank seeks stay lift to waive acceleration and decelerate debt | Waiver/decoration would modify contract rights and violate stay | Court did not abuse discretion; stay remains in effect |
Key Cases Cited
- Jamie Secs. Co. v. The Ltd. Inc., 880 F.2d 1572 (2d Cir. 1989) (contract interpretation governs indentures under New York law)
- Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36 (2d Cir. 2012) (self-execution of acceleration provisions permitted under NY law)
- In re Trans World Airlines, Inc., 145 F.3d 124 (3d Cir. 1998) (§1110 protections and bankruptcy stay interplay)
- Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc., 389 N.E.2d 113 (N.Y. 1979) (acceleration clauses generally enforced on terms unless equitable principles apply)
- NML Capital, Ltd. v. Republic of Argentina, 652 F.3d 172 (2d Cir. 2011) (NY law and treaty considerations in restructuring)