In re AMR CORPORATION, et al., Debtors. U.S. Bank Trust National Association, as Trustee and Security Agent under the Indenture and Aircraft Security Agreement for American Airlines 2009-2 Senior Secured Notes Due 2016, as Loan Trustee and Pass Through Trustee under those certain Indenture and Security Agreements with respect to the AMR 2009-1 EETC and AMR 2011-2 EETC Transactions, Appellant, v. AMR Corporation, American Airlines, Inc., Appellees.
Docket Nos. 13-1204-cv, 13-1207-cv, 13-1208-cv
United States Court of Appeals, Second Circuit
Argued: June 20, 2013. Decided: Sept. 12, 2013.
Franklin H. Top, III, Chapman and Cutler LLP, Chicago, IL (Craig M. Price, Laura E. Appleby, Chapman and Cutler LLP, New York, NY; Ira H. Goldman, Kathleen M. LaManna, Shipman & Goodwin LLP, Hartford CT, on the brief) for Appellant U.S. Bank Trust National Association, as Loan Trustee and Pass Through Trustee under those certain Indenture and Security Agreements with respect to the AMR 2009-1 EETC and AMR 2011-2 EETC Transactions.
Michael E. Wiles, Debevoise & Plimpton LLP, New York, N.Y. (Erica S. Weisgerber, Debevoise & Plimpton LLP, New York, NY; Stephen Karotkin, Alfredo R. Perez, Weil, Gotshal & Manges LLP, New York, NY, on the brief) for Appellees.
Before: LIVINGSTON, LYNCH, and LOHIER, Circuit Judges.
DEBRA ANN LIVINGSTON, Circuit Judge:
This case requires us to address two questions of law important to the workings of the Bankruptcy Code: (1) whether indenture clauses declaring a debtor‘s default upon the filing of a voluntary bankruptcy petition and providing for automatic debt acceleration are unenforceable ipso facto provisions1 under
Appellant U.S. Bank National Trust Association (“U.S. Bank“) appeals from an order entered February 1, 2013 and two judgments entered February 11, 2013 by the United States Bankruptcy Court for the Southern District of New York (“USBC-SDNY“) (Lane, B.J.), which: (1) authorized AMR Corporation and American Airlines, Inc. (collectively “American” or “Debtors“) to obtain postpetition financing; (2) authorized American to repay certain prepetition notes held by U.S. Bank and secured by aircraft; and (3) denied U.S. Bank‘s request to lift the automatic stay. On February 28, 2013, the bankruptcy court granted U.S. Bank‘s motion for direct appeal to our Court in light of the public importance of the matter and the lack of controlling Second Circuit law in relation to questions it presents; we granted U.S. Bank‘s petition for direct appeal on April 2, 2013.
We determine that: (1) per the language of the notes’ Indenture Agreements (the “Indentures“), American‘s voluntary petition for bankruptcy triggered a default that accelerated the debt but required no Make-Whole Amount payment in connection with debt repayment; (2) the pertinent clauses, contained in nonexecutory contracts, are not within the scope of
BACKGROUND
AMR Corporation, parent company to American Airlines, Inc., is an airline company with nearly 900 aircraft in operation serving customers in the United States and throughout the world. American commenced a voluntary bankruptcy on November 29, 2011, which is ongoing. This case concerns the impact of American‘s bankruptcy filing on certain notes held by U.S. Bank and secured by aircraft that American continues to operate as debtor-in-possession.
I.
In order to finance a number of its aircraft, American entered into three separate transactions with U.S. Bank in 2009 and 2011. These transactions include the 2009-2 Secured Notes Financing (“2009-2 Note“) issued by American in July 2009 and secured by a certain group of aircraft,2 and two enhanced equipment trust certificate (“EETC“) financings, issued by American in July 2009 (“2009-1 EETC“) and October 2011 (“2011-2 EETC“), respectively, and secured by certain other
Each financing transaction includes an Indenture and Security Agreement made between American Airlines, Inc. and U.S. Bank in its capacity as Loan Trustee.4 The Indentures authorize the issuance of the Notes and assign rights to the aircraft as collateral for American‘s obligations. The Indentures provide for regularly scheduled principal and interest payments until maturity; such payments are distributed according to a schedule in Section 3.01, “Basic Distributions.” However, the Indentures also provide for alternate payment distributions to the extent that certain delineated contingencies occur. Accordingly, the Indentures indicate in Section 3.01, “[e]xcept as otherwise provided in Section 3.02, Section 3.03 and Section 3.04, each periodic payment by the Company of regularly scheduled installments of principal or interest on the Equipment Notes received by the Loan Trustee shall be promptly distributed in the following order of priority.” J.A. 132.
Section 3.02 outlines the payment distribution when an Event of Loss (which triggers a mandatory redemption)5 or a voluntary redemption occurs, “[e]xcept as otherwise provided in Sections 3.03 and 3.04.” J.A. 133. Section 3.02 specifically references Sections 2.10 and 2.11, which respectively define mandatory7 and volun-
Section 3.03 outlines payments to be made “after both an Event of Default shall have occurred and be continuing and the Equipment Notes shall have become due and payable pursuant to Section 4.02(a).”9 J.A. 135 (emphasis added). While the Indentures distinguish between voluntary and mandatory redemptions as to the debtor‘s obligation to pay a Make-Whole Amount, Section 3.03 expressly provides, regarding continuing Events of Default in the context of accelerated debt, that “[n]o Make-Whole Amount shall be payable on the Equipment Notes as a consequence of or in connection with an Event of Default or the acceleration of the Equipment Notes.” J.A. 140.
Article IV of the Indentures defines the Events of Default referred to in Section 3.03. There are ten Events of Default listed in Section 4.01, including, inter alia, failure to make payment, failure to maintain insurance, failure to abide by various covenants or conditions, and material misrepresentations in operative documents. Section 4.01(g) identifies filing a voluntary petition in bankruptcy or a voluntary petition “seeking reorganization, liquidation or other relief as a debtor” as an Event of Default.
After delineating Events of Default in Section 4.01, Section 4.02 of the Indentures outlines remedies that the Loan Trustee “may, and upon the written instruction of a Majority in Interest of Noteholders ... shall” pursue after an Event of Default occurs and continues. J.A. 144 (emphases added). Section 4.02(a)(i) provides that upon an Event of Default, the Loan Trustee may declare the Equipment Notes due and payable (accelerating the maturity date); however, Section 4.02(a)(i) then specifies:
provided that if an Event of Default referred to in Section 4.01(f), Section 4.01(g), Section 4.01(h) or Section 4.01(i) shall have occurred and be continuing, then and in every such case the unpaid principal amount of the Equipment Notes then outstanding, together with accrued but unpaid interest thereon and all other amounts due thereunder (but for the avoidance of doubt, without Make-Whole Amount), shall immediately and without further act become due
J.A. 145 (emphases added). Section 4.02(a)(ii) elaborates the three remedies the Loan Trustee may pursue after the Loan Trustee declares the notes due and payable or after the debt is automatically accelerated by operation of Section 4.02(a)(i): (1) delivery of the equipment; (2) sale of the equipment; or (3) “any other remedy of a secured party under the Uniform Commercial Code of the State of New York.” If American defaults, the default continues, and the debt is accelerated, “all payments received and amounts held or realized by the Loan Trustee” are to be distributed according to the order of priority specified in Section 3.03. See Section 3.03.
II.
On November 29, 2011, American filed a voluntary petition for bankruptcy. On December 23, 2011, the bankruptcy court entered an order authorizing Debtors to (1) enter into agreements under
American thereafter made regularly scheduled payments of principal and interest on February 1, 2012 and August 1, 2012. U.S. Bank did not object in February or August 2012 that the amount paid by American was insufficient. As of September 30, 2012, American was indebted in the principal amounts of $445,618,425 for the 2009-1 EETC, $174,163,156 for the 2009-2 Note, and $703,645,330 for the 2011-2 EETC.
On October 9, 2012, Debtors filed a motion for authorization under
The bankruptcy court issued a decision on January 17, 2013, an order on February 1, 2013, and judgments on February 11, 2013, granting American‘s motion to secure financing and to repay its obligations, and denying U.S. Bank‘s request to lift the automatic stay. In its decision, the court principally addressed U.S. Bank‘s request that the court declare the legal rights of the parties under the Indentures pursuant to the Declaratory Judgment Act. See In re AMR Corp., 485 B.R. 279 (Bankr.S.D.N.Y.2013). The court concluded that the Indentures clearly state that American‘s bankruptcy filing was an Event of Default that automatically accelerated the debt and that in such circumstances American does not owe any Make-Whole Amount in connection with repayment of the accelerated debt still owed.
Addressing U.S. Bank‘s arguments, the court first disagreed with the contention that acceleration is a remedy to be invoked by the Loan Trustee and that, because the Loan Trustee here never elected such a remedy, the debt was not accelerated. The court concluded that the Indentures clearly and specifically provide for automatic acceleration upon a bankruptcy-related default and that this contractual provision is not in conflict with case law cited by U.S. Bank. Id. at 290-93. The court also concluded that the automatic stay bars U.S. Bank from waiving the Event of Default and decelerating the debt, and that lifting the stay in order to permit U.S. Bank to do so was not appropriate. Id. at 293-96. As to U.S. Bank‘s argument that Section 4.02(a)(i) is an ipso facto clause unenforceable under
The bankruptcy court next addressed U.S. Bank‘s argument that American is attempting voluntarily to redeem the notes under Section 2.11(a) of the Indentures and that, in this circumstance, a Make-Whole Amount is due. In light of its conclusion that filing for bankruptcy automatically accelerated the debt and that the Indentures distinguish between voluntary prepayment and payments due upon automatic acceleration, the court rejected U.S. Bank‘s argument. Id. at 298-99. The court noted that case law from the Southern District of New York and USBC-SDNY supports the conclusion that a payment of debt due upon acceleration is different from voluntary redemption, and the isolated parts of the Indentures cited by U.S. Bank—such as the “Make-Whole Amount” definition and phrases concerning voluntary redemption—neither undercut the relevance of these cases nor point to a contrary interpretation of these Indentures. Id. at 299-304 (citing HSBC Bank USA, Nat‘l Ass‘n v. Calpine Corp., No. 07-cv-3088, 2010 WL 3835200 (S.D.N.Y. Sep. 15, 2010); In re Solutia Inc., 379 B.R. 473 (Bankr.S.D.N.Y.2007)).
Finally, the bankruptcy court examined
Accordingly, the court approved American‘s motion for new financing under
DISCUSSION
We have jurisdiction over this appeal certified from the bankruptcy court and accepted by this Court pursuant to
On appeal, U.S. Bank reiterates the arguments advanced in the bankruptcy court. Principally, it asserts that American‘s proposed debt payment is properly construed as a voluntary prepayment under the Indentures and thus requires payment of the Make-Whole Amount. U.S. Bank contends that although an Event of Default occurred when American filed for bankruptcy in November 2011, U.S. Bank did not elect to accelerate the debt as a remedy, and therefore—in accordance with the Debtors’
I. Indentures
We begin with the text of the Indentures, which we interpret applying basic contract law. Jamie Secs. Co. v. The Ltd. Inc., 880 F.2d 1572, 1576 (2d Cir.1989) (“It is a well-established rule in this Circuit that the ‘[i]nterpretation of [I]ndenture provisions is a matter of basic contract law.‘” (quoting Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1049 (2d Cir.1982)) (alterations in Jamie)). New York law governs the interpretation of these Indentures, and courts applying New York law construe a contract “so as to give full meaning and effect to all of its provisions.” PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir.1996) (quoting Am. Express Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 562 N.Y.S.2d 613, 614 (1st Dep‘t 1990)); see also Consedine v. Portville Cent. Sch. Dist., 12 N.Y.3d 286, 879 N.Y.S.2d 806, 907 N.E.2d 684, 689 (2009) (instructing courts to read contracts as a whole and not place “undue emphasis” upon particular words or phrases). “[W]hen parties set down their agreement in a clear, complete document,” the New York Court of Appeals has said, “their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing.” W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990). Whether a contract is ambiguous is a question of law for the courts to resolve. Id.; see also S. Rd. Assocs., LLC v. Int‘l Bus. Machs. Corp., 4 N.Y.3d 272, 793 N.Y.S.2d 835, 826 N.E.2d 806, 809 (2005) (“Whether a contract is ambiguous is a question of law and extrinsic evidence may not be considered unless the document itself is ambiguous.“).
A. American‘s Voluntary Petition Triggered a Default Under the Indentures that Accelerated the Debt but Excluded Make-Whole Amount
Reading the Indentures de novo, we agree with the bankruptcy court that American‘s voluntary petition for bank-
provided that if an Event of Default referred to in ... Section 4.01(g) ... shall have occurred and be continuing, then and in every such case the unpaid principal amount of the Equipment Notes then outstanding, together with accrued but unpaid interest thereon and all other amounts due thereunder (but for the avoidance of doubt, without Make-Whole Amount), shall immediately and without further act become due and payable without presentment, demand, protest or notice, all of which are hereby waived.
J.A. 145 (emphases added). Under New York law, “a specific provision ... governs the circumstance to which it is directed, even in the face of a more general provision.” Capital Ventures Int‘l v. Republic of Argentina, 652 F.3d 266, 271 (2d Cir. 2011) (citing Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 150 N.Y.S.2d 171, 133 N.E.2d 688, 690 (1956)). Generally, when Events of Default occur, the Loan Trustee, acting for noteholders, can elect to declare debts due, pursue other remedies, or let a default go unremedied. But, as made plain in Section 4.02(a)(i), the debt was automatically accelerated by American‘s bankruptcy filing.14
We also agree with the bankruptcy court that in this circumstance—where a Section 4.01(g) Event of Default has occurred resulting in the automatic acceleration of the debt—the Indentures provide that no Make-Whole Amount is due. American‘s November 29, 2011 bankruptcy filing triggered an Event of Default (Section 4.01(g)), which automatically accelerated the debt under Section 4.02(a)(i). And Section 4.02(a)(i) expressly provides
B. U.S. Bank‘s Arguments Fail to Refute this Plain Language Interpretation of the Indentures
U.S. Bank makes three arguments in an effort to refute the plain language of the Indentures. First, U.S. Bank argues that the Trustee never elected to accelerate the debt, and that such action by the Trustee is required under New York law. Second, U.S. Bank asserts that even if acceleration took place, U.S. Bank can rescind this acceleration, obliging American to pay a Make-Whole Amount in connection with its refinancing, and that the bankruptcy court erred in concluding that such rescission is barred by the automatic stay. Finally, U.S. Bank argues that regardless whether American‘s debt was accelerated at the time it filed for bankruptcy, American‘s attempt to capitalize on favorable market conditions by paying off the debt nearly one year later, properly understood, is a voluntary redemption pursuant to Section 2.11, requiring payment of a Make-Whole Amount. We discuss each argument in turn.
1. Automatic Acceleration Versus Trustee Election
U.S. Bank first argues that despite the plain language of the Indentures, “[u]nder New York law, acceleration is a remedy that affirmatively must be chosen by lenders and cannot be invoked by borrowers.” U.S. Bank relies principally on two cases: Wurzler v. Clifford, 36 N.Y.S.2d 516 (N.Y.Sup.Ct.1942), and Tymon v. Wolitzer, 39 Misc.2d 504, 240 N.Y.S.2d 888 (N.Y.Sup.Ct.1963). Like the bankruptcy court, we are unpersuaded.
As the bankruptcy court noted, both Wurzler and Tymon deal with “bare bones acceleration clauses,” which provide that any default operates so as to make obligations due and payable without specification as to whether any action or notice on the part of the non-defaulting creditor is required. In re AMR Corp., 485 B.R. at 291. The Wurzler and Tymon courts interpreted the clauses at issue in those cases as “not self-operative,” intended simply to give the creditor “the right to treat the entire debt as matured.” Wurzler, 36 N.Y.S.2d at 517. But as subsequent courts have recognized, these cases “did not foreclose the ability of parties to draft acceleration provisions that would be self-operative.” See In re Premier Entm‘t Biloxi LLC, 445 B.R. 582, 627 (Bankr.S.D.Miss. 2010) (distinguishing Tymon as establishing a rule for similar acceleration clauses but not foreclosing the availability of self-executing acceleration clauses). Indeed, no court applying New York law since Tymon
To the contrary, as we recognized in Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 44 (2d Cir.2012), “under New York law, ‘[t]he parties to a loan agreement are free to include provisions directing what will happen in the event of default ... of the debt, supplying specific terms that super[s]ede other provisions in the contract if those events occur.‘” (quoting NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 928 N.Y.S.2d 666, 952 N.E.2d 482, 491 (2011) (alterations in Analytical Surveys)). And numerous courts applying New York law have enforced automatic acceleration provisions. See Calpine Corp., 2010 WL 3835200, at *3 (enforcing a clause automatically accelerating debt upon a voluntary bankruptcy filing); In re Solutia Inc., 379 B.R. at 484 (noting that “[i]t was entirely appropriate to provide for automatic acceleration in the Original Indenture since the giving of a notice of acceleration post-petition would violate the automatic stay“). As the New York Court of Appeals has stated, “[i]n rare cases, agreements providing for the acceleration of the entire debt upon the default of the obligor may be circumscribed or denied enforcement by utilization of equitable principles. In the vast majority of instances, however, these clauses have been enforced at law in accordance with their terms.” Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 415 N.Y.S.2d 800, 389 N.E.2d 113, 116 (1979); see also Key Int‘l Mfg. Inc. v. Stillman, 103 A.D.2d 475, 480 N.Y.S.2d 528, 530 (2d Dep‘t 1984) (“Acceleration clauses are quite common and are generally enforced according to their terms. It is only in rare cases that clauses will be denied enforcement under equitable principles.” (internal quotation marks and citations omitted)).
U.S. Bank suggests that automatic acceleration provisions of the sort here benefit lenders and that permitting American “to use Section 4.02 as a sword” is inequitable, presenting the sort of “rare circumstance” in which New York courts hold enforcement is properly refused. We disagree. Even were we (unwisely) to disregard the “sensible proposition of law” that contracts are to be enforced pursuant to their clear and unambiguous terms, see Wallace v. 600 Partners Co., 86 N.Y.2d 543, 634 N.Y.S.2d 669, 658 N.E.2d 715, 717 (1995) (internal quotation marks omitted), the automatic acceleration provision here is not solely for the benefit of one party, but simultaneously affords potential benefits to both: it accelerates the amount presently due for the purpose of the noteholders’ claims against American in bankruptcy and it excludes any Make-Whole Amount from American‘s obligations, to American‘s benefit. U.S. Bank is due the outstanding principal and any applicable interest payments when American repays its debts, but “there is no warrant, either in law or equity, for a court to refuse enforcement of the agreement of the parties” in the circumstances here. Fifty States Mgmt. Corp., 415 N.Y.S.2d 800, 389 N.E.2d at 116; see also In re Solutia Inc., 379 B.R. at 484 (noting that the automatic acceleration provision in a note indenture was “the result that [noteholders] bargained for“).
2. Rescinding the Event of Default
U.S. Bank next argues that even assuming an automatic acceleration occurred, it is entitled to rescind this acceleration and decelerate the debt under Section 4.02(d) of the Indentures.15 U.S. Bank urges, as it did before the bankruptcy court, that Section 4.02(d) permits it to rescind the automatic acceleration so long as American is current on the principal and interest payments under the Notes (as well as other amounts owed otherwise than by virtue of the acceleration) and all other Events of Default have been waived. Because American has remained current on its payments pursuant to its
To the extent this argument concerns U.S. Bank‘s contention that the bankruptcy court abused its discretion by declining to lift the automatic stay so that U.S. Bank may rescind acceleration or waive it, we more fully address that argument infra. As relevant here, suffice it to say that regardless whether U.S. Bank may theoretically rescind the acceleration pursuant to Section 4.02(d) of the Indentures (or waive Events of Default pursuant to Section 4.05) the bankruptcy court did not err in concluding that any attempt to do so would be an attempt to modify contract rights and would therefore be subject to the automatic stay that went into effect when American made its
As of the filing of its bankruptcy petition on November 29, 2011, American had the contractual right, pursuant to the Indentures, to repay its accelerated debt without Make-Whole Amount. We therefore agree with the bankruptcy court that any attempt by U.S. Bank to rescind acceleration now—after the automatic stay has taken effect—is an effort to affect American‘s contract rights, and thus the proper-
3. Post-Maturity Payment Not a Voluntary Redemption
U.S. Bank argues, finally, that regardless whether American‘s November 2011 bankruptcy petition was an Event of Default triggering debt acceleration, American‘s effort in October 2012 to pay off its debt constitutes a Section 2.11 voluntary redemption for which Section 3.02 provides for payment of a Make-Whole Amount. The bankruptcy court rejected this argument, holding that the Debtors’ proposed payment is a “post-maturity date repayment, not a prepayment,” and that in such circumstances, Section 3.03‘s payment provisions, describing the order of priority for “all payments received ... after both an Event of Default shall have occurred and be continuing and the Equipment Notes shall have become due and payable pursuant to Section 4.02(a)” is applicable. In re AMR Corp., 485 B.R. at 298 (internal quotation marks and citation omitted). We agree.
As is already clear, American‘s bankruptcy petition triggered a default, and this default automatically accelerated the debt. That acceleration “change[d] the date of maturity from some point in the future ... to an earlier date based on the debtor‘s default under the contract.” Analytical Surveys, 684 F.3d at 44 (quoting NML Capital, 17 N.Y.3d at 250, 928 N.Y.S.2d 666, 952 N.E.2d 482, 491). When the event of default occurred and the debt accelerated, the new maturity date for the debt was November 29, 2011. Consequently, American‘s attempt to repay the debt in October 2012 was not a voluntary prepayment because “[p]repayment can only occur prior to the maturity date.” In re Solutia, 379 B.R. at 488. The soundness of this conclusion, moreover, is reinforced by the plain text of Section 3.02, the voluntary redemption payment schedule, which provides for potential payment of a Make-Whole Amount but itself states that it operates “[e]xcept as otherwise provided in Section 3.03” (emphasis added). Section 3.03 is the payment provision dealing specifically with payments in the context of a continuing Event of Default and debt acceleration.16
The case law dealing with similar automatic-acceleration-upon-bankruptcy clauses in indenture agreements supports this reading.17 In re Solutia Inc. involved notes held by the Bank of New York and governed by an indenture agreement. 379 B.R. at 476. The agreement provided that filing for bankruptcy was an event of default under which the notes “shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.” Id. at 478 (quoting the Indentures). One of the noteholders’ claims was for interest through the notes’ stated maturity date despite the maturity date adjustment that occurred with automatic acceleration. The court rejected the noteholders’ claim for interest: “By incorporating a provision for automatic acceleration, the 2009 Noteholders made a decision to give up their future income stream in favor of having an immediate right to collect their entire debt. Because the 2009 Notes were automatically accelerated, any payment at this time would not be a prepayment.” 379 B.R. at 488. The court also noted the possibility of “post-acceleration ‘yield maintenance‘” but found the indenture provisions did not provide for it. Id. U.S. Bank faces a similar dilemma. See also Calpine Corp., 2010 WL 3835200, at *4 (noting that although parties “could have provided for the payment of premiums in the event of payment pursuant to acceleration ... [w]ithout such a provision ... no damages are recoverable after acceleration“).
Notwithstanding the clear language of the Indentures and applicable case law, U.S. Bank attempts to imbue ambiguity into the Indentures by highlighting isolated Indenture provisions, most notably the definition of “Make-Whole Amount” in the Indentures’ Annex A. This definition begins by stating:
“Make-Whole Amount” means ... the amount (as determined by an independent investment banker selected by the Company (and, following the occurrence and during the continuance of an Event of Default, reasonably acceptable to the Loan Trustee))....
J.A. 222. U.S. Bank argues that the parenthetical‘s reference to a Make-Whole Amount to be determined “following the occurrence and during the continuance of an Event of Default” establishes that such an amount may be payable following an Event of Default and that this is inconsistent with American‘s claim that it owes no Make-Whole Amount pursuant to the plain language of both Sections 3.03 and 4.02(a)(i). We are not persuaded.
Section 3.03, as previously noted, governs payments made by American after an Event of Default “shall have occurred and be continuing and the Equipment Notes shall have become due and payable pursu-
U.S. Bank is correct that there are scenarios pursuant to the plain terms of the Indentures in which an Event of Default could occur and continue and a Make-Whole Amount would be due. Thus, one can postulate an Event of Default under Section 4.01(c) (such as failure to carry insurance), after which the Loan Trustee does not elect to remedy the default, the failure to carry insurance continues, and then six months later, the Debtor attempts to pay off all outstanding—and nonaccelerated—principal. Such an attempt would likely qualify as a voluntary redemption and a Make-Whole Amount would be owed pursuant to Section 3.02. (Section 3.03 would not be triggered, because it applies only when an Event of Default occurs, continues, and the debt is accelerated.) Thus, contrary to U.S. Bank‘s assertions, the Make-Whole Amount definition‘s parenthetical is not rendered “meaningless” by affording Section 3.03 its plain meaning. For while in some scenarios American might owe a Make-Whole Amount in connection with a voluntary redemption during the persistence of an Event of Default, this is simply not true regarding the scenario here.
U.S. Bank argues, next, that Section 3.03, by its terms, only excludes payment of a Make-Whole Amount “as a consequence of or in connection with an Event of Default or the acceleration of the Equipment Notes,” and that the post-maturity repayment that American now attempts is not, in fact, “a consequence of or in connection with” either its bankruptcy filing or debt acceleration but is, instead, an attempt to take advantage of low interest rates. We need not parse the meanings of “consequence” or “connection” to reject U.S. Bank‘s interpretation. U.S. Bank again focuses on isolated phrases in the Indentures. Given Section 4.02(a)(i)‘s directive that debt acceleration upon a voluntary bankruptcy filing is automatic and that in this circumstance the debt owed is ”for the avoidance of doubt, without Make-Whole Amount” (emphasis added), Section 3.03 must clearly be read to exclude the payment of any Make-Whole Amount where an Event of Default has occurred, is continuing, and debt acceleration has taken place—precisely the circumstance here.
In conclusion, as of November 29, 2011 and as a matter of contract, American owed the entire accelerated debt of principal and interest but no Make-Whole Amount. Because we find the relevant language of the Indentures to be unambiguous, moreover, we reject U.S. Bank‘s alternative argument to the effect that discovery should have been undertaken as to the proper interpretation of the disputed provisions.
II. Ipso Facto Clauses and 11 U.S.C. § 365(e)(1)
U.S. Bank next argues that even assuming the preceding interpretation of the Indentures is correct (that American‘s bankruptcy filing was an Event of Default pursuant to Section 4.01(g) that automatically triggered debt acceleration in accord with Section 4.02(a)(i)), default and automatic acceleration provisions of this sort—ipso facto provisions “modify[ing] the relationships of contracting parties due to the
U.S. Bank relies on three provisions in the Bankruptcy Code that decline enforcement of ipso facto clauses in specified circumstances. First is
Notwithstanding a provision in an executory contract or unexpired lease ... an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
(B) the commencement of a case under this title; or
(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement.
The two remaining provisions,
U.S. Bank argues that these statutory provisions “broadly prohibit the enforcement” of ipso facto clauses, and apparently regardless whether they by their terms apply. The Appellant cannot identify any provision of the Bankruptcy Code, however, that provides support for such a per se prohibition. Moreover, the specificity of the provisions on which U.S. Bank does rely—which demonstrate that Congress clearly knows how to limit or negate the effect of ipso facto clauses when it wants to—counsels against the position that U.S. Bank urges here. As in Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 452, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007), “[t]he absence of textual support is fatal” to U.S. Bank‘s position that ipso facto provisions are broadly or categorically denied enforcement by the Code. The bankruptcy court did not err in rejecting this argument.
III. 11 U.S.C. § 1110(a) Elections
U.S. Bank‘s penultimate arguments on appeal concern
U.S. Bank makes three arguments regarding
1. Section 1110(a)(2) Does Not Require Assumption of the Indentures
U.S. Bank‘s first argument—that American‘s commitment in its
U.S. Bank‘s second argument is, in effect, a response to the preceding point: U.S. Bank argues that American is attempting a voluntary redemption (and so owes a Make-Whole Amount) because American‘s
2. Section 1110(a)(2) Does Not Require Cure of a Bankruptcy Default
That brings us to U.S. Bank‘s third and final argument pursuant to
We note that U.S. Bank did not object to American‘s
At any rate (and however U.S. Bank‘s position may have shifted below) we conclude that U.S. Bank‘s argument fails on the merits. Turning again to the text of
[A] default that is a breach of a provision relating to—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement; or
(D) the satisfaction of any penalty rate or penalty provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.
We conclude that American was not required to pay off the accelerated debt to gain the protection of the automatic stay. The default of this obligation was “of a kind specified in section 365(b)(2)“—namely, the breach of a provision relating to the commencement of a bankruptcy case.
Accordingly, we hold that under the terms of
IV.
Finally, U.S. Bank argues that the bankruptcy court erred in denying its motion to lift the automatic stay. U.S. Bank argues that if American‘s debt is accelerated and if its
Our Court has referenced twelve factors in considering the propriety of lifting the automatic stay, recognizing that not all of these factors will be relevant in all cases. See In re Bogdanovich, 292 F.3d 104, 110 (2d Cir.2002) (citing In re Sonnax Indus., Inc., 907 F.2d 1280, 1285-86 (2d Cir.1990)). The bankruptcy court generally found relevant factor two, relating to the impact of lifting the stay on the bankruptcy case, and factor twelve, concerning the impact of the stay on the parties and the balance of harms. In re AMR Corp., 485 B.R. at 295.
We find no abuse of discretion in the bankruptcy court‘s conclusion that lifting the automatic stay would serve only to increase the size of U.S. Bank‘s claim (to an amount greater than that to which it is entitled pursuant to the Indentures), harming the estate and American‘s other creditors.23 “One of the principal purposes of the automatic stay is to preserve the property of the debtor‘s estate for the benefit of all the creditors.” In re Prudential Lines Inc., 928 F.2d 565, 573 (2d Cir.1991). We conclude that the bankruptcy court did not abuse its discretion in denying U.S. Bank‘s motion to lift the automatic stay.
CONCLUSION
To summarize, we conclude that:
(1) Under the language of the Indentures, American‘s voluntary petition for bankruptcy triggered a default and automatically accelerated the debt, the satisfaction of which requires no make-whole payment;
(2) ipso facto clauses in a nonexecutory contract are not unenforceable pursuant to
(3) American complied with its
(4) the bankruptcy court did not abuse its discretion in denying U.S. Bank‘s motion to lift the automatic stay.
Accordingly, the judgment of the bankruptcy court is AFFIRMED.
Notes
For the 2009-1 EETC, U.S. Bank acts as successor loan trustee to over 20 separate Indenture and Security Agreements, each of which finances one Boeing airframe and two Rolls Royce or CFM International aircraft engines (collectively, “Aircraft“). For the 2011-2 EETC, U.S. Bank acts as the successor loan trustee pursuant to over 43 separate Indenture and Security Agreements, each of which finances an Aircraft.
at any time upon at least 15 days’ revocable prior written notice to the Loan Trustee and the Noteholders, and such Equipment Notes shall be redeemed in whole at a redemption price equal to 100% of the unpaid principal amount thereof, together with accrued and unpaid interest thereon to (but excluding) the date of redemption and all other Secured Obligations owed or then due and payable to the Noteholders, plus Make-Whole Amount, if any....J.A. 126. In the 2009-2 Note, voluntary redemption is listed under Section 2.20. The only notable difference between the two sections relates to their notice provisions, which are not material to the case at hand. See J.A. 900.
At any time after the Loan Trustee has declared the unpaid principal amount of all Equipment Notes then outstanding to be due and payable, or all Equipment Notes shall have become due and payable as provided in the proviso to Section 4.02(a)(i), and, in either case, prior to the sale of any part of the Collateral pursuant to this Article IV, a Majority in Interest of Noteholders, by written notice to the Company and the Loan Trustee, may rescind and annul such declaration if: (i) there has been paid to or deposited with the Loan Trustee an amount sufficient to pay all overdue installments of principal amount of, and interest on, the Equipment Notes, and all other amounts owing under the Operative Documents, that have become due otherwise than by such declaration of acceleration and (ii) all other Events of Default, other than nonpayment of principal amount or interest on the Equipment Notes that have become due solely because of such acceleration, have been either cured or waived; provided that no such rescission or annulment shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon.J.A. 148. U.S. Bank also relies on Section 4.05, which provides that the Loan Trustee may waive past defaults upon written instructions from a majority in interest of the noteholders, after which “such default[s] shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture.” J.A. 149.
Except as provided in paragraph (2) and subject to subsection (b), the right of a secured party with a security interest in equipment described in paragraph (3), or of a lessor or conditional vendor of such equipment, 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.As set forth infra, paragraph (2) of
The right to take possession and to enforce the other rights and remedies described in paragraph (1) shall be subject to section 362 if—(A) before the date that is 60 days after the date of the order for relief under this chapter, the trustee, subject to the approval of the court, agrees to perform all obligations of the debtor under such security agreement, lease, or conditional sale contract; and
(B) any default, other than a default of a kind specified in section 365(b)(2), under such security agreement, lease, or conditional sale contract—
(i) that occurs before the date of the order is cured before the expiration of such 60-day period;
(ii) that occurs after the date of the order and before the expiration of such 60-day period is cured before the later of—
(I) the date that is 30 days after the date of the default; or
(II) the expiration of such 60-day period; and
(iii) that occurs on or after the expiration of such 60-day period is cured in compliance with the terms of such security agreement, lease, or conditional sale contract, if a cure is permitted under that agreement, lease, or contract.