US Bank Nat'l Assoc v. United Airlines Inc ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1871
UNITED AIRLINES, INC., and
THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS,
Plaintiffs-Respondents-Appellees,
v.
U.S. BANK N.A. and THE
BANK OF NEW YORK, as
Indenture Trustees,
Defendants-Petitioners-Appellants.
____________
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 air-
2 No. 05-1871
planes. Some 175 of these had been acquired via financing
leases subject to 11 U.S.C. §1110, which provides that to
retain leased planes a debtor must pay the whole rent. The
statute contains an exception for consensual workouts, see
§1110(b), and United’s lessors initially agreed to accept less
than the contractual payments. As the reorganization dragged
on, however, some of the lessors concluded that United
would not be reorganized successfully and demanded their
planes back. When United entered bankruptcy in 2002, and
negotiated the current reduced rental payments, it pro-
jected that reorganization would be accomplished in six
months. Two and a half years later, United is losing more
than $1 billion annually and is not promising to propose a
plan of reorganization any time soon. Some creditors are
bound to have second thoughts. In November 2004 the
banks serving as indenture trustees for three of the leases
demanded that United immediately return 14 of the aircraft
unless it cured all defaults and resumed the full rental pay-
ments promised by contract.
United neither paid nor returned the planes. Instead it
filed an adversary action accusing the indenture trustees of
violating the Sherman Act, 15 U.S.C. §1, by coordinating
their efforts to preserve the lenders’ collateral and collect
the promised payments. The trustees violate the antitrust
laws, according to United, by insisting that the debtor deal
with them collectively about all 175 leased airplanes. One
might suppose that coordination is a normal function of
indenture trustees, which exist under the Trust Indenture
Act of 1939 precisely because individual lenders may be too
diffuse to protect their own interests. See 15 U.S.C.
§77bbb(a)(1). Coordination is especially common in bank-
ruptcy, which often is described as a collective proceeding
among lenders. See, e.g., In re American Reserve Corp., 840
F.2d 487, 489 (7th Cir. 1988); Douglas G. Baird & Thomas
H. Jackson, Corporate Reorganizations and the Treatment
of Diverse Ownership Interests: A Comment on Adequate
No. 05-1871 3
Protection of Secured Creditors in Bankruptcy, 51 U. Chi. L.
Rev. 97, 105-09 (1984). The name of an entity that inter-
vened to support United’s contention—“The Official Com-
mittee of Unsecured Creditors”—demonstrates as much. No
wonder that the second circuit has described as “bordering
on the frivolous” a contention that the antitrust laws forbid
creditors to coordinate their positions in bankruptcy.
Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691
F.2d 1039, 1052-53 (2d Cir. 1982).
Competition comes at the time loans are made; cooper-
ation in an effort to collect as much as possible of the
amounts due under competitively determined contracts is
not the sort of activity with which the antitrust laws are
concerned. Moreover, businesses are entitled under the
Noerr-Pennington doctrine to act jointly when presenting
requests to courts and agencies. See Eastern Railroad
Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
127 (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 collective presenta-
tions 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 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 agree-
ment, 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 pro-
vision 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
4 No. 05-1871
repossess their collateral. There are only two exceptions.
Section 1110(b), which we have mentioned, says that the
creditor or lessor may agree to allow the debtor to continue
using the equipment. This is how United has retained the
aircraft so far. Section 1110(a)(2), the other exception, gives
the debtor 60 days after the bankruptcy begins to come cur-
rent on its payments and provides that, if the debtor
thereafter makes all payments called for by the contracts,
it may retain the airplanes. United is not paying the full
amount required by these leases, so §1110(a)(2) does not
assist it.
Given the breadth of §1110(a)(1), United’s demand for an
injunction might have been denied out of hand. Instead,
however, Bankruptcy Judge Wedoff entered a temporary
restraining order forbidding the trustees to repossess the
airplanes. He stated that despite its reference to “any power
of the court” §1110(a)(1) does not affect the court’s ability to
award injunctive relief under non-bankruptcy law, such as
the Sherman Act. This is hard to reconcile with the stat-
ute’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 injunctive relief in the teeth of
a statute that curtails remedies. Section 1110(a)(1) does not
bar a damages action for wrongful repossession; if the
indenture trustees have indeed violated the antitrust laws
they face treble damages and criminal prosecution. Cf.
Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623 (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 Bank-
ruptcy Code Section 1110, 8 Geo. Mason L. Rev. 41, 62-63
(1999); cf. Gregory P. Ripple, Special Protection in the
No. 05-1871 5
Air(line Industry): The Historical Development of Section
1110 of the Bankruptcy Code, 78 Notre Dame L. Rev. 281(2002).
Temporary retraining orders are at 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’ commu-
nications, not only with other trustees and lenders but also
with their lawyers. Needless to say this led to protests that
the matters 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 privileges—for they cannot be used
to shield ongoing crimes, and a violation of the Sherman Act
is a felony. So the bankruptcy judge demanded 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
privileges continue). Seeking to set up an opportunity for
appellate review, the trustees respectfully declined to
comply. The bankruptcy judge might have drawn an
adverse inference and entered a preliminary 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 con-
tempt” 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 trustees disclosed the privileged materials.
The trustees appealed to the district judge, who has au-
thority 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 November 26, 2004, and another
from the declaration of contempt on December 9, 2004. The
6 No. 05-1871
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 aircraft, 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 privileged 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 injunction, 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 manda-
mus 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 under 28 U.S.C. §1292(a)(1). See
Connecticut National Bank v. Germain, 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 signifi-
cance.
Temporary restraining orders that extend past 20 days
are reviewable 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,
No. 05-1871 7
Inc. v. Teamsters Union, 415 U.S. 423 (1974). The district
court thought this principle inapplicable 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 Syndi-
cate, Inc. v. Medical Emergency Services Associates, 964
F.2d 599 (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, anticipating (though incorrectly) that
this would facilitate review by the district 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
understand 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 review. 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 aircraft unless United pays the full rental or the lessors
agree to accept a lower price. Those conditions are not satis-
fied, 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
8 No. 05-1871
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 financing 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 injunction 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 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 pre-
ceding 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
outside the Bankruptcy Code. It is not as if “power of the
court” were a phrase limited to bankruptcy practice. It is
generic language, logically 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 substan-
tive 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
invisibility. United concedes that creditors are entitled to
negotiate jointly in bankruptcy, as Sharon Steel holds. But
No. 05-1871 9
it contends that the lessors have “colluded with one another
with respect to the future 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 re-
possession of old planes would not be a sensible means of
vindicating 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 compe-
titive 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 doctrine if nothing else. True, the
Noerr-Pennington doctrine cannot be used to shelter joint
activity that creates monopoly prices independent of any
decision by a court or agency. See In re Brand Name
Prescription 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 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 complaining about is
not the joint conduct of the lessors—which originally 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 better 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.
10 No. 05-1871
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 markets—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 be-
low 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 bargain-
ing may lie ahead to set the extent of the haircut from the
old rental price). 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.
No. 05-1871 11
With respect to equitable relief, the judgment of the
district court is reversed, and the case is remanded with
instructions to vacate 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.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-16-05