When Laws Clash During Bankruptcy Cases

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When laws clash. (Photo credit: Wikipedia)

The American Airlines bankruptcy case has become a primary example of how bankruptcy laws can sometimes clash with other federal laws. The Department of Justice has filed an antitrust violation against the airline giant at the same time the corporation wants their chapter 11 bankruptcy reorganization plan confirmed. There is a lot at stake for both sides of the argument.

In financial trouble for years, American Airlines filed for bankruptcy protection to stave off creditors whom literally forced them to file. Another incentive for filing is the fact that US Airways, one of the larger airline corporations in America, has agreed to merge with American Airlines if they could get their finances in order through the bankruptcy process.

The merger between American and US Airways will satisfy creditors, stockholders, airports, and flight unions. From that standpoint alone, you might think filing for bankruptcy protection would be the satisfy-all-solution to the financial problems of American Airlines. It sounds sort of like a win, win, win situation, but if you think that, you would be wrong.

Texas, along with five other states and the District of Columbia, has joined the Department of Justice (DOJ) in filing a federal lawsuit to block the merger between US Airways and American Airlines. Saying the merger would be bad for consumers and competition, it would provide less service to smaller cities and higher fares overall. In other words, the other side of the coin includes potentially harming the average American citizen who relies on smaller and less expensive carrier services for their transportation. States like Texas and the Department of Justice usually don’t get involved in such matters unless there is a genuine concern for unfair competition for its citizens.

This concern has caused the current bankruptcy judge on the case, Sean Lane, to postpone the confirmation of American Airlines reorganization plan until he feels more comfortable in proceeding through the bankruptcy process. The antitrust lawsuit throws a kink in the bankruptcy process because the two different disciplines of laws will certainly clash at some point.

There is no doubt in the mind of this writer that Judge Lane will ultimately make the decision to confirm the reorganization plan. At issue is whether he can confirm American’s plan, including the proposed merger with US Airways, when that merger is under attack in federal court in the District of Columbia. He has given American, its creditors committee and others until next Friday to present him with written arguments on why he should go ahead for confirmation. He has set a hearing date for Aug. 29.

Some of the attorneys for American Airlines is arguing that Judge Lane should go ahead and confirm the reorganization plan. They say American will not be able to emerge from the bankruptcy process until the lawsuit is settled anyway. One of the key provisions in the plan is that American and US Airways will not close the merger until American has exited from the chapter 11 bankruptcy.

Laws clash often in most any legal discipline. In this example, the law will take its course over time and resolve the legal issues at hand. Only time will tell whether or not the common consumer will be affected by the decisions made.

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