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In re Republic Airways Holdings, Inc. - 565 B.R. 710 (Bankr. S.D.N.Y. 2017)

Rule:

The key inquiry under 11 U.S.C.S. § 1123(a)(4) is not whether all of the claimants in a class obtain the same thing, but whether they have the same opportunity. Creditors frequently enter into settlements with co-obligors, and, in the end, may receive more than similarly situated creditors under a plan. Absent bad faith, such as vote manipulation, or similar wrongful conduct, these settlements do not violate the confirmation requirements.

Facts:

Between June 2001 and November 2003, Wells Fargo and Mitsui & Co. (U.S.A.) ("Mitsui") entered into a series of seven lease transactions with the Debtors, pursuant to which Mitsui leased seven ERJ145 aircraft to the Debtors (the "Residco Leases"). In December 2013, the Residco Leases were amended and restated as to each of the seven aircraft leases. The Residco Leases contained stipulated loss value ("SLV") liquidated damages provisions, which remained unchanged under the 2013 amendments. These SLV liquidated damages provisions provided a formula to calculate damages if the lessee under the Residco Leases (the "Subsidiary-Lessee Debtor") breached its obligations under the leases. Wells Fargo Bank Northwest, N.A. ("Wells Fargo"), as owner trustee, and ALF VI, Inc. ("ALF VI"), as owner participant (together, "Residco")  objected to the Debtors' Second Amended Joint Plan of Reorganization under Chapter 11 (the "Plan"). Residco objected to the substantive consolidation provisions in the Debtors' Plan. As the owner trustee and owner participant for seven aircraft leases with the Debtors, Residco held both lease claims against the operating Debtor, Shuttle America Corporation ("Shuttle"), and guarantee claims for those lease obligations against the holding company Debtor, Republic Airways Holdings Inc. ("RAH"). Residco contended that the proposed substantive consolidation provisions in the Plan are improper because they eliminate the guarantee claims that Residco asserts are more valuable, while preserving the lease claims that Residco believes are riskier and thus less valuable. 

Issue:

Were the proposed substantive consolidation provisions in the Plan improper because they eliminate the guarantee claims that Residco asserts are more valuable?

Answer:

No.

Conclusion:

Objection was overruled. The Court held that the debtors satisfied both prongs for substantive consolidation under Augie/Restivo as the consolidated debtors operated as a single economic unit, and the benefits of substantive consolidation outweighed any harm suffered by creditors. The Court found that the Debtors have satisfied the standard for substantive consolidation and overrules the Residco Objection. The Court directed that the Plan be amended to include the Carve-Out for Residco's claims, using the language set forth in Exhibit 1 to the Debtors' Reply to the Residco Response to Revised Carve-Out. Having resolved the Residco Objection, the Debtors shall contact the Court as to when it is appropriate to rule on the remaining matters related to confirmation of the Debtors' Plan.

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