Petition for Writ of Certiorari — Ad Hoc Committee of Kenton County Bondholders v. Delta Air Lines, Inc., 130 S. Ct. 539 (2009) (No. 09-104)

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7 AD) x No. 08- 09- 104 JUL 22 09

IN THE OF FIGE OF THE CLERK

Supreme Court of the Anited States

AD HOC COMMITTEE OF KENTON COUNTY BONDHOLDERS,

Petitioners,

DELTA AIR LINES, INC.,

KENTON COUNTY AIRPORT BOARD, UMB

BANK, N.A., AS TRUSTEE, POST EFFECTIVE DATE COMMITTEE

AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED

CREDITORS OF DELTA AIR LINES, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

J. CHRISTOPHER SHORE RAOUL G. CANTERO

WHITE & CASE LLP COUNSEL OF RECORD

1155 AVENUE OF THE AMERICAS THOMAS E LAURIA

NEW YORK, NY 10036-2787 JOHN K. CUNNINGHAM

TELEPHONE: (212) 819-8200 DAVID P. DRAIGH

FACSIMILE: (212) 354-8113 RICHARD S. KEBRDLE

COUNSEL FOR THE PETITIONERS WHITE & CASELLP

WACHOVIA FINANCIAL CENTER

200 SOUTH BISCAYNE BLVD.,

SUITE 4900

MIAMI, FLORIDA 33131-2352

TELEPHONE: (305) 371-2700

FACSIMILE: (305) 358-5744

COUNSEL FOR THE PETITIONERS

—— eeeEeEeE—e—e——————eeeeee—— ee

Wit SON-EPES PRINTING CO., INC. — (202) 789-0096 ~ WASHINGTON, D.C. 20002

(1)

QUESTIONS PRESENTED

This case presents three questions important to the

administration of cases under the Bankruptcy Code, the first

of which this Court recently granted review to decide but, for

procedural reasons, did not do so. See Travelers Indem. Co.

v. Bailey, --- U.S. ----, 129 S.Ct. 2195 (2009). In the

bankruptcy of Delta Air Lines, Inc., the bankruptcy court

modified the obligations owed by one of Delta’s lessors, a

non-debtor, to its non-debtor bondholders, and enjoined those

bondholders from filing any claims against that lessor, even

though the claims would have no direct impact on Delta’s

estate. The lower appellate courts not only implicitly

accepted this result, but refused on “equitable” grounds to

review that decision. The questions presented, therefore, are:

(1) Whether the Bankruptcy Code grants bankruptcy courts

jurisdiction to permanently release non-debtors from

claims of other non-debtors that have no impact on the

res of a debtor’s estate?

(2) Whether courts may use the judge-made doctrine of

“equitable mootness” to deny Article III review of a

bankruptcy decision even though a case or controversy

remains, solely because any remedy fashioned on appeal

would be, in the court’s judgment, inequitable?

(3) Whether the Bankruptcy Code grants bankruptcy courts

jurisdiction to restructure and modify bond debt owed by

a non-debtor to other non-debtors, which has no impact

on the res of a chapter 11 debtor’s estate?

(11)

PARTIES TO THE PROCEEDING BELOW

The case caption contains the names of all parties who

were parties in the court of appeals.

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of this Court’s Rules, petitioners

state as follows:

The Ad Hoc Committee of Kenton County Bondholders

(the “Kenton County Bondholders Committee”) 1s a private

non-governmental party and hereby certifies that there are no

corporate parents, affiliates and/or subsidiaries of said

committee. The members of the Kenton County

Bondholders Committee are as follows:

(1) Perella Weinberg Partners Xcrion Master Fund Ltd.

(f/k/a Xerion Partners Il Master Fund Limited) is a Bermuda

corporation, which has no corporate parent and whose

affiliates and/or subsidiaries are Perella Weinberg Partners

Xerion Offshore Fund Ltd. (f/k/a Xerion Partners II

International Limited), Peret@ggWeinberg Partners Xerion

Fund LP (f/k/a Xerion Partners II L.P.), and Perella

Weinberg Partners Xerion Capital LP (f/k/a Xerion Capital

Partners LLC); no publicly held corporation holds 10% or

more of its equity interests;

(11) Bergen Capital, a division of Scott and Stringfellow,

is a Virginia corporation, whose corporate parent is BB&T

Corporation and which has no affiltates and/or subsidiaries;

no publicly held corporation holds 10% or more of its equity

interests;

(i) United Equities Company LLC 1s a New York

limited hability company, whose managing member 1s Moses

Marx and which has no corporate parent, affiliates and/or

(ill)

subsidiaries; no publicly held corporation holds 10% or mire

of its equity interests;

(iv) RSA, LLC 1s an Ohio limited lability company,

whose managing member is Murray Sinclair, Jr. and which

has no corporate parent, affiliates and/or subsidiaries; no

publicly held corporation holds 10% or more of its equity

interests;

(v) RBS Capital Ltd. is a Florida limited partnership,

whose sole general partner is RBS Investment Management

Inc. and sole limited partner 1s Roger Smith; no publicly held

corporation holds 10% or more of its equity interests;

(vi) Carty & Co. 1s a Tennessee corporation, whose

corporate parent ig Carty Financial, Inc. and which has no

affiliates and/or subsidiaries; no publicly held corporation

holds 10% or more of its equity interests; and

(vit) Duncan-Williams, Inc. 1s a Tennessee corporation,

whose corporate parent is Williams holding company and

which has no affiliates and/or subsidiaries; no publicly held

corporation holds 10% or more of its equity interests.

(iv)

TABLE OF CONTENTS

Page

COR RSs ERIM FRE EOE cli casccccnadeddodecdnscancdecaccedacens ree he i

PARTIES TO THE PROCEEDINGS BELOW....................... il

CORPORATE DISCLOSURE STATEMENT. eo ee

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CONSTITUTIONAL AND STATUTORY

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ee Fa ee Be re iso ccd neu nn vec vccevccoccdvhseaccuvcccuencens 2

REASONS FOR GRANTING THE PETITION .................... &

I. THE COURT SHOULD GRANT REVIEW TO

RESOLVE A CONFLICT AMONG THE CIRCUITS

AS TO WHETHER THE BANKRUPTCY CODE

AUTHORIZES BANKRUPTCY COURTS To

RELEASE NON-DEBTORS FROM LIABILITY...........cceceeceeee &

A. THE CIRCUIT COURTS, CONSTRUING THE

SAME PROVISIONS OF THE BANKRUPTCY

CODE, ARE DIVIDED OVER WHETHER THEY

AUTHORIZE A BANKRUPTCY COURT TO

BREE SE Pe Fe oso aecn ood cco vcodevancccrecksavencccchs | |

1. The Ninth And Tenth Circuits Hold

Phat, kxcept Where The Code Expressly

Authorizes Non-Debtoi Releases,

Section 524(¢) Prohibits Bankruptcy

Courts From Discharging The Liabilities

Of Non-Debtors....... RPO ARCA O Ns hae POP ONT ry

IT.

(Vv)

Other Circuits Have Held That The

Bankruptcy Code Authorizcs Non-

Debtor Releases Under Certain

SIE 1. >a vausodacdohyccemigusneveceottionen 13

THE COURT SHOULD GRANT REVIEW

BECAUSE THE ISSUE IS CRUCIAL TO THE

REORGANIZATION OF BUSINESSES UNDER

Ee Figen ck ceca nenctecxsdecdaadasncnsorserics 1S

THE COURT SHOULD GRANT REVIEW TO

DECIDE WHETHER, APPLYING THE JUDGE-

MADE DOCTRINE OF EQUITABLE MOOTNESS,

ARTICLE II] JUDGES MAY DECLINE TO REVIEW

BANKRUPTCY APPEALS THAT ARE NOT

CONSTITUTIONALLY MOOT...............0.cccccececceceececceececeess 17

EQUITABLE MOOTNESS EXPANDS’ THE

DOCTRINE OF CONSTITUTIONAL MOOTNESS

TO PERMIT ARTICLE II] COURTS TO DECLINE

TO HEAR ACTIVE CASES AND

Ree oso a ce pnans dena daneyieeaeehcesear es | 7

THE DOCTRINE OF EQUITABLE MOOTNESS

CONFLICTS WITH THIS COURT’S

JURISPRUDENCE AND WITH THI

CONSTITUTIONAL REQUIREMENT THAT

ARTICLE IIL COURTS DECIDE CASES OR

Be iy ea tl) SD sanded ceied are aa oe

THE DOCTRINE OF EQUITABLE MOOTNESS,

AS APPLIED, VIOLATES THE CONSTITUTION’S

SEPARATION OF POWERS CLAUSE...............c00

(v1)

[1]. THE COURT SHOULD GRANT REVIEW TO

DETERMINE WHETHER THE BANKRUPTCY COD!

PROVIDES BANKRUPTCY COURTS JURISDICTION

TO RESTRUCTURE THE DEBT OF A _ NON-

I er ree cadeuevuesGrudssadeerectissepeneania d 7

A. THE BANKRUPTCY COURTS’ “RELATED TO”

ee eg ee RRL by |: err

B. THIS CASE PROVIDES AN OPPORTUNITY TO

CLARIFY THAT “RELATED TO” JURISDICTION

DOES NoT GIVE BANKRUPTCY COURTS THE

POWER TO RESTRUCTURE THE DEBTS OF

NON-DEBTORS, WHERE THE DEBT HAS No

IMPACT ON THE RES OF A DEBTOR’S ESTATE..........29

CONCLUSION ..... SUR Ea heh MERA Ree a eee 32

APPENDIX A: Summary Order of the United States Court of

PDCRTS TOT TIS GOCONG CALCUIE .....00:0500ssersverssersseseeessenes la

APPENDIX B: Order of the United States District Court for

the Southern District of New York

Opinion and Order..... Diguadante Tedskaiskey at ceannadvt can iaaniiwee .. 7a

Judgment BEET ase ca ca tysuasbuaeaiansecdsevanecpceneniataeee 30a

APPENDIX C: Order of the United States Bankruptcy Court

for the Southern District of New York Granting Rule

9019 Motion and Approving Settlement

Decision......... = Pate a Oe EE NES,

8 SA aE ARES A SF east Ma Ds ee

Exhibit A: Trust Indenture 67a

Exhiondt @: Lease Agrcement. ...........0..00.005 .... 3208

Exhibit C: Guaranty.......... rea ee vee ae

(V11)

APPENDIX D: Order of the United States Court of Appeals

for the Second Circuit Denying Rehearing En Banc 43 1a

APPENDIX E: Bench Ruling of United States District Court

for the Southern District of New York Denying Stay

CE PIRI SEED aise oicesensscesisevscegeisentanionivein 433a

APPENDIX F: Order of the United States Bankruptcy Court

for the Southern District of New York Denying Stay

I Co ne ee eee an ae .... 444a

Bench Ruling (Transcript Excerpt)................... ..... 4464

APPENDIX G: Constitutional and Statutory Provisions

U.S. CONST. art. I, § 8, cl. 1, 4.... | iene See

Rae Ms MU ic OE Bin Cbs Bean sixsceeccnscicesscasahenssnenens 454a

LBS Toe g | . Seer as SNAP A AANONI AS 455a

BS Mr eietsss OF Pe sacenvissnesscsesicns .457a

eee i UI hs ocd cscs cen Veasoun ven uaweieuiaesdbaxsiies 482a

Fae es Oe FI chncosackcacvcesenanis ones .... 485a

Be Wh UE vasrceciennesas BAS | ere 488a

28 U.S.C. § 158....... caviiéusauterievnises ae

28 U.S.C. § 1334..... | SEPA AR? a 497a

APPENDIX H: Settlement Agreement ais ...499a

(Vili)

FABLE OF AUTHORITIES

Page(s)

CASES

4CC Bondholder Group v. Adelphia Commc’ns

Corp. (In re Adelphia Commc’ns Corp.), 361

B.R. 337 (S.D.N.Y. 2007).. saspaecawaas artes wie

fetna Cas. & Sur. Co. v. LTV Steel Co. (In re

Chateaugay Corp.), 94 F.3d 772 (2d Cir. 1996) 19

Airadigm Commce'ns, Inc. v. FCC (In re Airadigm

Comme 'ns, Inc.), 519 F.3d 640 (7th Cir. 2008) 3

4m. Hardwoods, Inc. v. Deutsche Credit Corp. (In

re Am. Hardwoods, Inc.), 885 F.2d 621 (9th

Cir. L989) Sinisa hpaenaaaianss ine en taeduetavnnvecuadixcensis 2

Bd. of Governors, FRS \ Vf orp Fin., Inc., 502

U.S. 32 (1991)... sear ata taoatecsateee sna 27]

Brady v. UBS Fin. Servs., Inc., 538 F.3d 1319 (10th

Cir. 2008)...... PILE PRS DRT alee 3

Case v. Los Angeles Lumber Prods. Co., 308 U.S

U0) 4. oe inter’ sae eh SOIR 15

Celotex Corp. v. Edwards, 514 U.S. 300 (1995).......10, 27-28

Cent. Va. Cmtyv. Coll. v. Katz, 546 U.S. 356 (2006) 7

Cent. Vt. Pub. Sern Corp. \ Ilerbert, 341 F.3d 186

(2d Cir. 2003)... ve 7

Church of Scientology of Cal. v. United States, 506

52 a2. 4 Sarre 20, 21

Class Five Nev. Claimants v. Dow Corning Corp

(In re Dow Corning Corp.), 280 F.3d 648 (6th

( ir.) 14

(1X)

rABLE OF AUTHORITIES—Continued

Colo. River Water Conservation Dist. v. United

States, 424 U.S. 800 ( J | ae

Country Squire Assocs. of Carle Place, L.P. \

Rochester Comm. Sav. Bank (Un re Countr)

Squire Assocs. of Carle Place, L.P.), 203 B.R

182 (B.A.P. 20 a eisai svcescecee:

Curreys of Neb., Inc. v. United Producers, Inc. (In

re United Producers, Inc.), 526 F.3d 942 (6th

Cir, 2008) oes

Deutsche Bank AG, London Branch v, Metromedia

Fiber Network, Inc. (In re Metromedia Fiber

Network. [nc.), 416 F.3d 136 (2d Cir. 2005)

Feld v. Zale Corp. (In re Zale Corp.), 62 k.3d 746

(Sth Cor, UPR acerca eas

First Union Real Estate Equity & Mortgage Invs. \

Club Assocs. (In re Club Assocs.), 956 F.2d

LOGS Ch LOR Car eaters ctssccnsscsesess.

Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay

Corp.), 10 F.3d 944 (2d Cir. 1993)

Gillman v. Cont'l Airlines Un re Cont’'l Airlines),

203 F.3d 203 (3d Cir. 2000).

Harman v. Levin, 772 F.2d 1150 (4th Cir. 1985)

Hlirschfeld v. Bd. of Elections, 984 F.2d 35 (2d Cit

1992).

In re Bd. of Dirs. of Multicanal S.A., 307 B.R

384 (Bankr. S.D.N.Y. 2004)

Page(s)

14 2s

10, 15

19.90

i %

FABLE OF AUTHORITIES—Continued

Page(s)

In re Chrysler LLC, No. 09-50002 (Bankr. S.D.N.Y

filed Apr. 30, 2009)

In re Combustion Eng’'g, 391 F.3d 190 (3d Cu

2005) 28

In re Cont l Airlines, 91 F.3d 553 (3d Cir. 1996) 19, 21

In re Farrell Lines, Inc., 761 F.2d 796 (D.C. Ci

1985) 24

In re Gen. Motors Corp., No. 09-50026 (Bank:

S.D.N-Y. filed Jun. 1, 2009) |

In re GWI, 230 F.3d 788 (Sth Cir. 2000) 20

In re Lehman Bros. Holdings, Inc., No. O8-13555

(Bankr. S.D.N.Y. filed Sept. 15, 2008) L/

In re UNR Indus., Inc., 20 F.3d 766 (7th Cir. 1994) 18, 20. 22

In re Wash. Mutual, Inc., No. 08-12229 (Bankr. D

Del. filed Sept. 26, 2008)

Landsing Diversified Props.-Il v. First Nat'l Bank &

Trust Co. of Tulsa (In re W. Real Estate Fund

Inc.) 922 F.2d 592 (1Oth Cir. 1990) 2-13

Leatherman larrant Counn Varcotl

[Intelligence & Coordination Unit, 507 U.S. 163

(1993)

MAC Panel Co. v. Va. Panel Corp., 283 F.3d 62:

(4th Cir. 2002) ()

Venard-Sanford v. Mabey (In re A.H. Robins Co

SSO F.2d 694 (4th Cir. 1989) 14

(X1)

LABLE OF AU THORITIES—Continued

Page(s)

Metro Prop. Mgmt. Co. v. Info. Dialogues, Inc., (In

re Info. Dialogues, Inc.), 662 F.2d 475 (8th Cir.

FUMED cacabadecaovsursdhnvasesk: ‘suadieendeseeeldneauaaccaensesiael ae

Mills v. Green, 159 U.S. 651 (1895) 18, 26

Munford v. Munford, Inc. (In re Munford, Inc.), 97

F.3d 449 (11th Cir. 1996)....0000.00..0. spasesposeebissnesseebocses 14

North Carolina v. Rice, 404 U.S. 244 (1971) ...... 18

N. Pipeline Constr. Co. v. Marathon Pipe Line Co..,

Ae Ss re ED ciacenchancpricasneiaumanyseusenacvunasegssnuciax ees ae

Norwest Bank Worthington v. Ahlers, 485 U.S. 197

DUET decade vateecdenentauasindevsdentedanssonessJecerancctants ‘nen Oy te ee

Official Comm. of Unsecured Creditors of LTV

Aerospace & Def. Co. v. Official Comm. of

Unsecured Creditors of LTV Steel Co. (In re

Chateaugay Corp.), 988 F.2d 322 (2d Cir.

1993)

Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) 27, 28, 29

Resorts Int'l v. Lowenschuss (In re Lowenschuss).

67 F.3d 1394 (9th Cir. 1995)..............ccccceccsceee. eee ee |?

Rochman v. Ne. Utils. Co. dn re Pub. Serv. Co.).

963 F.20 469 Cist Car. 1992)..........ccccccecccccccscsccccccssscsccce AY

Tompkins v. Frey (In re Bel Air Assocs.), 706 ¥.2d

Pere Oe a OR nook ign sc sc detede oueeuaabanl NEN

Travelers Cas. & Sur. Co. v. Chubh Indem. Ins. Co

(In re Johns-Manville Corp.), 517 &.3d 52, 66

(2d Cir. 2008) a aa

(X11)

FABLE OF AUTHORITIES—Continued

Pavel >)

Travelers Indem. Co. v. Bailey. --- U.S. ----, 129

S.Ct. 2195 (2009) (1).9. 10. 11. 28

Trone v. Roberts Farms, Inc. (In re Roberts Farms,

Inc.), 652 F.2d 793 (9th Cir. 1981) 18-19, 22

FEDERAL: STATUTES, RULES, REGULATIONS,

CONSTITUTIONAL PROVISIONS

Bankruptcy Amendments Federal Judgeship Act of

1984. Pub. L. No. 98-353. 98 Stat. 333 25. 26

Bankruptcy Reform Act of 1994, Pub. L. No. 103

394, 108 Stat. 4106 |?

1b US.

» 1OS(a) i tis te be 2

S 363(m) ) |

§ 364(e).... ; 21

§ 365 3

» 524 Zz. 90 2a as Boe 2 tO

§ 1123(b) 13,14

Trust Indenture Act, 15 U.S.«

S 77bbb |

S 77ppp 40)

28 U.S.C

§ 15] 25

Q 157 9 6 2

Q 158, ; 2. 1 1 2] ie

S 1254(1) ?

) 1334 ») 95.97

FED. R. BANKR. P. 8005 5

(xii)

TABLE OF AUTHORITIES—Continued

Page(s)

Pope a OO, ois coe ik sevsoavasnnssuravessnvaveriorsaleveciaent ee

Fs ee ages cepsicntcaivas cis. thapriavesveeay sees ig haere 14

Fen, R. Civ. F. 25c}....... ee 3 |

Fe ID, PRI Be, I oinois cesescsdcovccnesvuscavennctencat Zi. £2

LFS. CSE. FRCUICWe TEE Bh, GGe LE ecceics cscovene conte cen sevesenverccces 2, 18

OTHER AUTHORITIES

130 CONG. REC. S8891 (June 29, 1984).....................cecsesees, 26

Frank R. Kennedy & Gerald K. Smith,

Postconfirmation Issues: The Effects of

Confirmation and Postconfirmation

Proceedings, 44 S.C. L. REV. 621 (1993) ..........scccseessee 29

Jill E. Fisch, Rewriting History: The Propriety of

Eradicating Prior Decisional Law Through

Settlement and Vacatur, 76 CORNELL L. REV

989 (1991)... ORR per AN SEIN Bin, fie Io RAR EP .15-16

Jonathan C. Lipson, Debt and Democracy: Towards

a Constitutional Theory of Bankruptcy, 83

NOTRE DAME L. REV. 605 (2008) ..................cccssseeseeeees 28

Joshua M. Silverstein, Hiding in Plain View. A

Nezlected Supreme Court Dectsion Resolves

the Debate Over Non-Debtor Releases in

Chapter Il Reorganizations, 23 EMORY

PURPIGDE, TIE F, BP Ce ais sstaccaveer sata wrassancepeavescieecerms ao

lynn M. LoPucki & William C. Whitford,

Corporate Governance in the Bankruptcy

Reorganization of Large, Publicly Held

Companies, 141 U. PA. L. REV. 669 (1993) ee ke

(xiv)

TABLE OF AUTHORITIES—Continued

Ralph Brubaker, Bankruptcy Injunctions and

Complex Litigation: A Critical Reappraisal of

Non-Debtor Releases in Chapter }]

Reorganizations, 1997 U. ILL. L. REV. 959

1 if ee nae ene en ene Ee

Ralph Brubaker, On the Nature of Federal

Bankruptcy Jurisdiction: A General Statutory

and Constitutional Theory, 41 WM. & MARY L.

NI OIE is taicvere sa ceuponavirsutiamnas cera ietiale ere dea

Richard F. Broude, REORGANIZATIONS UNDER

CHAPTER 11 OF THE BANKRUPTCY CODE (1992)...

Thomas E. Patterson & Brendt C. Butler, Do

Bankruptcy Courts Have the Power to Issue

Releases and Permanent Injunctions with

Respect to Non-Debtor Parties in Chapter 11?

Depends on Which Court You Ask, SMO14

PURE Pa OES CEH dors ras voce env ersacereancestanentoes

Page(s)

ee 29

ereeeece io »

IN THE

Supreme Court of the Anited States

No. 08-

AD Hoc COMMITTEE OF KENTON COUNTY BONDHOLDERS.

Petitioners.

DELTA AIR LINES, INC.,

KENTON COUNTY AIRPORT BOARD, UMB

BANK, N.A.. AS TRUSTEE, POST EFFECTIVE DATE COMMITTEE

AS SUCCESSOR TO THE OFFICIAL COMMITTEE OF UNSECURED

CREDITORS OF DELTA AIR LINES, INC.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

The Petitioners, members of the Kenton County

Bondholders Committee, respectfully petition for a writ of

certiorari to review the judgment of the United States Court

of Appeals for the Second Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. la-6a) 1s

reported at 309 F. App’x 455. The opinion of the district

court affirming the bankruptcy court’s order (App. 7a-29a) is

reported at 374 B.R. 516. The bankruptcy court’s order

(App. 32a-58a) is reported at 370 B.R. 537.

JURISDICTION

The judgment of the court of appeals was entered on

February 9, 2009. (App. la.) A petition for rehearing en

banc was denied on April 23, 2009. (App. 431a-432a.) This

Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The complete text of U.S. CONST. art. I, § 8, cl. 4, U.S.

Const. art. III, § 2, cl. 1, 11 U.S.C. §§ 105, 524, and 28

U.S.C. §§ 157, 158, 1334 is set forth in the Appendix. (App.

453a-498a.)

STATEMENT OF THE CASE

[he Petitioners, all of them non-debtors, are a group of

holders (or investment advisors to holders) of about $50

million of standard-form revenue collection municipal bonds

(the “Bonds’’) issued by the Kenton County Airport Board

(“KCAB”), also a non-debtor. KCAB issued the Bonds in

1992 to finance the construction of Terminal 3 (the

Terminal’) at the Cincinnati/Northern Kentucky Airport.

(App. 4a.) The Bonds were issued under an indenture

govemed by Kentucky law (the “Indenture”’) with KCAB as

issucr and UMB Bank, N.A. (the successor of Star Bank,

N.A.) as trustee (the “Trustee”). (App. 32a-33a.) The

Petitioners own more than 10% of the total amount of the

Bonds issued.

The debtor, Delta Air Lines, Inc. (““Delta,” and with tts

affiliated debtors under Case No. 05-17923 (ASH) (Bankr

S.D.N.Y.), the “Debtors’’), and KCAB entered into several

agreements providing that Delta would lease the Terminal

from KCAB (the “Lease’), maintain the Terminal, and

yvuarantee payments due under the Bonds (the “Guaranty’”’).

(App. 8a-9a; 320a-421a; 422a-423a.) Under the Lease,

KCAB assigned all payments received from Delta to the

Trustee, who would then pay the principal and interest owing

under the Bonds. (App. 8a; 33a.) Delta was not party to the

Indenture, and although its payment obligations under the

Bonds were non-recourse, KCAB remained obligated under

the Bonds (the “Bondholders’’). (App. 8a; 135a; 195a-197a.)

Notably, if Delta failed to occupy any part of the Terminal,

the Lease required KCAB to use its best efforts to re-let the

unused portion (App. 394a-398a), and the Indenture provides

that the proceeds of any such re-letting would be available to

pay the Bondholders (App. 98a-99a). Thus, if Delta stopped

paying rent for the Terminal for any reason, KCAB was

obligated to find new tenants for the Terminal, and the rental

payments from those new tenants would be used to pay the

Bondholders until they were paid in full.

In September 2005, the Debtors filed petitions under

Title il of the United States Code (the “Bankruptcy Code’’)

in the United States Bankruptcy Court for the Southern

District of New York. (App. 4a-9a.) In April 2006, the

Debtors sought to reject the Lease under section 365 of the

Bankruptcy Code. (App. 9a.) The Trustee objected, joined

by KCAB, but at the direction of a majority of Bondholders

(not including the Petitioners) ultimately settled with De'ta

and KCAB, subject to bankruptcy court approval (the

Settlement’). (App. 33a-34a.) The Settlement canceled the

Lease and Indenture and provided that (1) Delta and KCAB

would enter into a new lease of the Terminal; and (2)

purportedly in full satisfaction of the Bonds, the Bondholders

would receive a note issued by De/ta and an unsecured claim

against Delta (entitling Bondholders to vote on the Plan) for

less than the balance owed under the Bonds. (App. 10a;

33a.) The Settlement also released and fully immunized

KCAB and the Trustee from any liability to Bondholders for

their breach of the Indenture (including liability for granting

themselves releases) or for authorizing a blanket irjunction

enjoining all Bondholder claims against them. (App. 10a-

lla.) Further, if any part of the Settlement was vacated or

reversed on appeal, the parties had the option to void the

Settlement. (App. 518a-519a.)

The Bondholders could not opt out of the Settlement.

(App. 65a.) Moreover, the Debtors’ disclosure statement (the

“Disclosure Statement”), which was approved on February 7,

2007 and then distributed to Delta’s stakeholders in

connection with soliciting votes on Delta’s proposed plan of

reorganization (the “Plan”’), did not describe the Settlement’s

terms. (App. I la.)

Tae Petitioners objected to the Settlement. Nevertheless,

on April 24 and 25, 2007, respectively, the bankruptcy court

entered an order and decision (collectively, the “Settlement

Order’) authorizing the Settlement. (App. Ila.) On those

same days, the bankruptcy court held a hearing and issued its

order confirming the Plan. (App. 12a.) Among other things,

the Setthement Order enjoined the Bondholders (including the

Petitioners) from filing any claims they had not only against

Delta (the debtor), but against the Trustee and KCAB as well.

(App. 63a.)

The Petitioners appealed the Settlement Order to the

United States District Court for the Southern District of New

York pursuant to 28 U.S.C. § 158, and sought a stay from the

bankruptcy court pending appeal. (App. 12a.) The

bankruptey court acknowledged that several issues

including whether the Petitioners held certain claims against

the settling parties—remained unadjudicated, but found that

the Settlement resolved them and denied the stay. (App.

444a-44Sa.) On April 27, 2007, Petitioners sought a stay in

the district court, which was denied at a hearing held on May

2. (App. 433a-443a.) Although the Petitioners began

preparing an appeal of that denial to the Second Circuit, the

Respondents stipulated that the failure to request a stay from

the court of appeals was not grounds for mootness. (App.

19a.) On May 3, 2007, Delta began making distributions

(App. 12a.)

On August 27 and 28, 2007, the district court entered an

opinion and order finding that the Petitioners’ appeal was

equitably moot and affirming the Settlement Order. (App.

29a.) Pursuant to 28 U.S.C. § 1291, the Petittoners appealed

the decision. After oral arguinent, on February 9, 2009, the

Court of Appeals for the Second Circuit affirmed. (App. La-

6a.) On April 23, the court denied rehearing en banc. (App.

43 1a-432a.)

In approving the Settlement, the lower courts rejected

the Petitioners’ argument that the bankruptcy court lacked

jurisdiction to release KCAB and the Trustee from claims of

the Petitioners that were not derivative of, and could not

affect, the Debtors’ bankruptcy estate. The bankruptcy court

entered the releases because they were “extremely narrow in

scope” and because all parties involved, including Delta and

the Bondholders, “received substantial consideration.” (App.

S7a.) The district court agreed, finding further that the

releases were proper because they “comprised valuable

consideration for KCAB and the Bond Trustee tn return for

their agreement to give up indemnification rights against

Delta under section 6.08 of the Lease.” (App. 22a.)

Significantly, the lower courts approved the releases even

though they extended to claims that have no impact on

Delta’s bankruptcy estate (even under the Lease’s indemnity

provision), including claims against the Trustee and KCAB

based on their own wrongdoing violations of various

obligations to the Bondholders under the Indenture and the

Lease. (App. 63a.)

The district court dismissed the Petitioners’ appeal as

equitably moot because the Plan had been “substantially

consummated” and because a “comprehensive change in

circumstances” had occurred. (App. 16a.) Among other

reasons, the court found that ordering relief for the

Petitioners would be inequitable because ‘‘a vacatur of the

Settlement Order, even if it were possible, would . . . knock

the props out from under the authorization for every

transaction that has taken place and create an unmanageable,

uncontrollable situation for the Bankruptcy Court.” (App.

19a.) The Second Circuit affirmed, holding that the district

court “did not err—much less abuse its discretion.” (App

Sa.) Neither court, however, found that the appeal was

constitutionally moot because no case or controversy existed

The lower courts also found that the bankruptcy court

had authority to modify and discharge the debt obligations of

a non-debtor, KCAB, under the Indenture even though no

debtor was a party to the Indenture. The bankruptcy cour

found that it had jurisdiction to modify “the contractual

relationship between KCAEB and the Bond Trustee under the

Indenture” because “[b]Joth KCAB and the Bond Trustee are

direct creditors of Delta [and] . . . [a]ll three of these

agreements—the Lease, the Indenture and the Guaranty—are

inextricably related to each other.” (App. 53a.) In rejecting

the Petitioners’ argument that Section 9.06 of the Indenture

prohibited the Trustee from compromising their individual

rights to principal and interest (App. 46a-47a), the

bankruptcy court found that it had jurisdiction to restructure

KCAB’s Bond obligations because “the sole source of

payment of the Bonds” was the Leasc, and because the

Bankruptcy Code “overrides private agreements” (App. 47a)

Moreover, although it acknowledged Indenture Section 9.06

(requiring the consent of a// bondholders to change the

principal and interest under the bonds), the bankruptcy court

held that the Trustee had the power to enter into the

Settlement because (1) it had the right under the Indenture to

litigate and settle on behalf of all Bondholders (App. 57a-

58a); and (11) a majority of Bondholders voted in favor of the

Plan, under which they received distributions from the

Settlement (App. 58a).

Similarly, the district court found it had “related to”

jurisdiction under the Bankruptcy Code allowing it to

restructure the debt of non-debtors under the Indenture and to

bind non-debtors to that restructured debt because the settled

litigation had “more than a ‘conceivable effect’ on the

bankruptcy estate.” (App. 2la.) Further, the district court

found that, because the Indenture was “inextricably related”

to the Lease and Guaranty, “the court could not resolve the

creditor claims of KCAB and the Bondholders against Delta

without a corresponding resolution of the relationship

between KCAB and the Bondholders.” (App. 21a.) Thus,

“Delta’s bankruptcy . . . also compromised the mghts to

payment under the Bonds and therefore overrides” Indenture

Section 9.06. (App. 26a.) The district court agreed that the

Trustee’s right to htigate and scttle and the Plan vote

overrode individual bondholder rights under Section 9.06.

(App. 26a.) Although finding that KCAB did not have re-let

obligations to the Bondholders, the district court found that

the Indenture “does appear to provide that money produced

through re-letting the facilities should be applied toward the

payment of the Bonds.” (App. 28a.)

)

Because it found the appeal equitably moot, the Second

Circuit did not reach the merits of the Petitioners’ appeal,

except to say that 1t would have affirmed the bankruptcy

court’s restructuring of KCAB’s Indenture obligations for

“substantially the reasons stated in the Bankruptcy Court’s

thorough and well-reasoned decision.” (App. 6a.)

REASONS FOR GRANTING THE PETITION

As explained in the sections that follow, this Court

should grant review: (I) to reconcile conflicting circuit

decisions and establish the limit of a bankruptcy court’s

subject matter jurisdiction to alter private rights of non-

debtors that are not derivative of, or otherwise directly

related to, the debtor’s rights or the res of the debtor’s

bankruptcy estate; (II) to reaffirm the constitutional necessity

for Article III courts to review bankruptcy court decisions

absent constitutional mootness; and (III) to decide whether

the Bankruptcy Code grants bankruptcy courts the power to

restructure the debt of non-debtors. If left unreviewed, the

decisions below will create substantial uncertainty over the

administration of bankruptcy cases in the United States at a

time when, given the current global tinancial crisis, certainty

under this Nation’s insolvency regime is most vital.

[. THE COURT SHOULD GRANT REVIEW TO RESOLVE A

CONFLICT AMONG THE CIRCUITS AS TO WHETHER

THE BANKRUPTCY CODE AUTHORIZES BANKRUPTCY

COURTS TO RELEASE NON-DEBTORS FROM LIABILITY

Chapter |] of the United States Bankruptcy Code 1s

designed to help debtors reorganize their debt. To that end, if

debtors comply with the plan confirmation requirements

prescribed in the Bankruptcy Code, bankruptcy courts

routinely release debtors of further liability to their creditors.

The question presented here, and on which the courts of

appeal disagree, is whether a bankruptcy court may also

permanently release the liability of non-debtors to other non

debtors—that is, parties who have not sought rehef under the

Bankruptcy Code.

This Court has never decided that issue. Last Term, this

Court was confronted with the issue, but ultimately did not

decide it. See Travelers Cas. & Sur. Co. v. Chubh Indem

Ins. Co. (In re Johns-Manville Corp.), 517 F.3d 52, 66 (2d

Cir. 2008), rev'd on other grounds, Travelers Indem. Co. v.

Bailey, --- U.S. ----, 129 S.Ct. 2195 (2009). This case

presents a prime opportunity to resolve the inter-circult

conflict and remove the uncertainty surrounding bankruptcy

courts’ authority to grant such relief,

Whether the Bankruptcy Code authorizes a bankruptcy

court to release non-debtors will become increasingly

important as bankruptcy filings increase, and will be

especially acute when large corporations seek chapter |!

relief and potential claims by non-debtors against other non-

debtors present an obstacle to a successful reorganization.

As this Court has recognized, “[b]ankruptcy jurisdiction,

at its core, is in rem.” Cent. Va, Cmty. Coll. v. Katz, 546

U.S. 356, 362 (2006). Congress has provided bankruptcy

courts jurisdiction to restructure bankruptcy petitioners’

debts, giving them original jurisdiction not only over the

petitioners’ property and matters arising under the

Bankruptcy Code or tn a bankruptcy case, but also over

matters “related to cases under title 11." 28 U.S.C. §

1334(b); see also 28 U.S.C. § 157(a)-(c) (providing that

bankruptcy courts may decide “core” proceedings under the

Bankruptcy Code and may hear and determine “non-core”

proceedings “otherwise related to” a case under the

Bankruptcy Code). But this jurisdiction “is grounded in, and

limited by, statute[,]” and therefore “‘related to” jurisdiction

cannot be limitless.” Celotex Corp. v. Edwards, 514 U.S

300, 307-08 (1995). “|W Ihatever equitable powers remain in

the bankruptcy courts must and can only be exercised within

the confines of the Bankruptcy Code.” Norwest Bank

Worthineton v. Ahlers, 485 U.S. 197, 206 (1988)

Within this statutory framework, the Second Circuit

found that the bankruptcy court did not have subject matte:

jurisdiction to release a non-debtor by enjoining claims that

do not “directly affect the res of the bankruptcy estate.’

Travelers, 517 F.3d at 66, rev'd on other grounds, 129 S.Ct

2195; see also Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d

746, 760 (Sth Cir. 1995) (same).

This Court granted certiorari in /ravelers. Ultimately

however, it did not decide the issue because it was not raised

on direct appeal of the order approving the non-debtor

release, but only twenty years later by collateral attack. See

Travelers, 129 S.Ct. at 2206 n.7. Noting that its holding was

“narrow,” this Court stated that “[w]e do not resolve whether

a bankruptcy court, in 1986 or today, could properly enjoin

claims against nondebtor insurers that are not derivative of

the debtor’s wrongdoing.” /d. at 2207. In the same

discussion, the Court observed that, by enacting section

$24(g), “Congress explicitly authorized bankruptcy courts, tn

some circumstances,” to impose such injunctions, and that,

“lon direct review today,” such an injunction “would have to

be measured against the requirements of § 524 (to bewin

with, at least).” ld at 2207 (citing Il U.S.C. §

$24(2)(4)(A)(Oi1)). The Court also acknowledged thai, if there

had been a direct appeal of the previous order, “the Court of

Appeals would indeed have been duty bound to consider!

Whether the Bankruptcy Court had acted beyond tts subject

matter jurisdiction.” /d. at 2203

L |

Such an appeal ts now before the Court [his case

presents the same issue, on direct appeal, that was _ raised in

Travelers—whether the Bankruptcy Code grants a

bankruptcy court jurisdiction to release non-debtors from

claims that would not affect the res of a chapter || debtor's

cstatc

A. THE CIRCUIT COURTS, CONSTRUING THE SAME

PROVISIONS OF THE BANKRUPTCY CODE, AREF

DIVIDED OVER WHETHER THEY AUTHORIZE A

BANKRUPTCY COURT TO RELEASE NON-DEBTORS

Section 524(¢c) of the Bankruptcy Code provides that

“discharge of a debt of the debtor does not affect the liability

of any other entity on, or the property of any other entity for,

such debt.” Some circuits have interpreted that section as

prohibiting a bankruptcy court from releasing a non-debtor

[hose circuits hold that section 105(a) of the Bankruptcy

Code, which provides that a bankruptcy court “may issue any

order, process, or judgment that ts necessary or appropriate to

carry out the provisions of {the Bankruptcy Code,]” does nor

grant authority to release non-debtors. Other circuits,

however, have held that under certain circumstances section

l\OS(a) does authorize bankruptcy courts to release non-

debtors from liability to other non-debtors, and that section

$24(¢) does not limit that authority

This conflict among the circuits has prompted

commentators to note that “[t}he propriety of third-party

releases Is thus an issue that cries out for Supreme Court

guidance[.]” See Joshua M. Silverstein, Hiding in Plain

View, A Neglected Supreme Court Decision Resolves the

Debate Over Non-Debtor Releases in Chapter 11

Reorganizations, 23 EMORY BANKR. Dev. J. 13, 19 (2006)

1. The Ninth And Tenth Circuits Hold That,

Except Where The Code Expressly

Authorizes Non-Debtor Releases, Section

524(c) Prohibits Bankruptcy Courts From

Discharging The Liabilities Of Non-Debtors

Two circuits have held that bankruptcy courts lack

jurisdiction to release non-debtors from liability. The Ninth

Circuit has held, “without exception, that § 524(e) precludes

bankruptcy courts from discharging the liabilities of non-

debtors.” Resorts Int'l v. Lowenschuss (In re Lowenschuss),

67 F.3d 1394, 1401 (9th Cir. 1995) (emphasis added), cert.

denied, 517 U.S. 1243 (1996).

Indeed, the Ninth Circuit has rejected the argument that

such authority can be found tn section 105, concluding that

“the specific provisions of section 524 displace the court’s

equitable powers under section 105 to order the permanent

relief sought by [the debtor] where such relief would

discharge the liability of a non-debtor. Am. Hardwoods, Inc.

v. Deutsche Credit Corp. (In re Am. Hardwoods, Inc.), 885

F.2d 621, 626 (9th Cir. 1989). The court’s conclusion was

“buttresse[d]” by the addition of Bankruptcy Code section

524(g) under the Bankruptcy Reform Act of 1994, Pub. L.

No. 103-394, 108 Stat. 4106, which specifically authorizes

the release of non-debtors from liability in asbestos cases.

Lowenschuss, 67 F.3d at 1402 n.6. “That Congress provided

explicit authority to bankruptcy courts to issue injunctions in

favor of the third parties in an extremely limited class of

cases reinforces the conclusion that §$ 524(e) denies such

authority in other, non-asbestos, cases.” /d

The Tenth Circuit, also relying on section 524(¢c), has

held that a bankruptey court cannot issue “a permanent

injunction that effectively relieves the nondebtor from its

own lability to the creditor.” Landsing Diversified Props.-ll

v. First Nat'l Bank & Trust Co. of Tulsa (In re W. Real

Estate Fund, Inc.), 922 F.2d 592, 601-02 (10th Cir. 1990).

Like the Ninth Circuit, the Tenth Circuit has held that “a

bankruptcy court’s supplementary equitable powers” under

section 105(a) cannot provide an independent basis for

releasing non-debtors from claims of other non-debtors,

because it would be “inconsistent” with section 524(e). /d. at

601 (“[W]hatever equitable powers remain in the bankruptcy

courts must and can only be exercised within the confines of

the Bankniptcy Code.” (quoting Ahlers, 485 U.S. at 206)).

2. Other Circuits Have Held That The

Bankruptcy Code Authorizes Non-Debtor

Releases Under Certain Circumstances

In contrast to the Ninth and Tenth Circuits, other circuits

have held that a bankruptcy court does have the authority to

release non-debtors from liability to other non-debtors, at

least under certain circumstances.

The Seventh Circuit recently decided that section 524(e)

did not bar the bankruptcy court from releasing non-debtors.

Airadigm Commce'ns, Inc. v. FCC (In re Altradigm

Commce'ns, Inc.), 519 F.3d 640, 656 (7th Cir. 2008). The

court held that the bankruptcy court had authority to release

non-debtors under section 105(a), as well as section

1123(b)(6), which permits the court to include in a chapter 11

plan “‘any other appropriate provision not inconsistent’” with

the Bankruptcy Code. /d. at 657 (quoting 11 U.S.C. §

1123(b)(6)). The court “[held] that this ‘residual authority’

permits the bankruptcy court to reicase third parties from

liability to participating creditors if the release is

‘appropriate’ and not inconsistent with any provision of the

bankruptcy code.” /d

Also relying on sections 105(a) and 1123(b)(6), the Sixth

Circuit has held that releases of non-debtors are permissible

where certain factors are present. Class Five Nev. Claimants

v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d

648, 658 (6th Cir.), cert. denied, 537 U.S. 816 (2002). That

court has determined that section 524(e) explains the cffect

of a debtor’s discharge under the Bankruptcy Code and “{iJt

does not prohibit the release of a non-debtor.” /d. at 657.

Similarly, the Second Circuit has decided that a

bankruptcy court may release non-debtors upon “finding that

truly unusual circumstances render the release terms

important to success of the plan...” or “if the affected

creditors consent.” Deutsche Bank AG, London Branch vy.

Metromedia Fiber Network, Inc. (In re Metromedia Fiber

Network, Inc.), 416 F.3d 136, 142, 143 (2d Cir. 2005).

Both the Eleventh and the Fourth Circuits have

permitted bankruptcy courts to release non-debtors. See

Munford v. Munford, Inc. (In re Munford, Inc.), 97 F.3d 449,

455 (llth Cir. 1996) (finding that releases enjoining

indemnification and contribution claims against non-debtors

were permitted under section 105 and Federal Rule of Civil

Procedure 16 where they were integral to the debtor’s

settlement with the non-debtor and were fair and equitable);

Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d

694, 702 (4th Cir.) (allowing permanent non-debtor releases

necessary for a debtor’s reorganization where the non-

deblors provided consideration to mass tort victims), cert.

denied, 493 U.S. 959 (1989).

Finally, the Third and Fifth Circuits have stated in dicta

that a bankruptcy court may have authority to release non-

debtors under certain circumstances. See Gillman v. Cont’l

Airlines (In re Cont'l Airlines), 203 F.3d 203, 214 (3d Cir.

2000) (declining to “establish [its] own rule regarding the

conditions under which non-debtor releases and permanent

injunctions are appropriate or permissible’); Zale, 62 F.3d at

760 (although finding that a bankruptcy court lacked

jurisdiction to issue certain permanent non-debtor releases

enjoining claims that were not derivative of the debtor’s

estate, suggesting that .uch releases—coupled with a

channeling injunction—may not violate section 524(e)).

B. THE COURT SHOULD GRANT REVIEW BECAUSE

THE ISSUE IS CRUCIAL TO THE REORGANIZATION

OF BUSINESSES UNDER THE BANKRUPTCY CODE

Resolving the issue now squarely before the Court is

essential so that businesses reorganizing under chapter | 1—

as well as the many non-debtors whose rights may be

significantly altered by those reorganizations—understand

their respective rights as to non-debtor releases.

Fundamental to the chapter 11 restructuring process 1s

consensus among the debtor’s stakeholders in formulating a

reorganization plan that addresses their divergent interests.

See Lynn M. LoPucki & William C. Whitford, Corporate

Governance in the Bankruptcy Reorganization of Large,

Publicly Held Companies, 141 U. PA. L. REv. 669, 681-82

(1993). In bankruptcy, expeditious settlement is favored over

prolonged litigation. See, e.g., Case v. 1s Angeles Lumber

Prods. Co., 308 U.S. 106, 130 (1939) (explaining that

“{t]here frequently will be situaticas involving conflicting

claims to specific assets which may, in the discretion of the

court, be more wisely settled by compromise rather than by

litigation”). Consequently, settlements will continue to play

an important role in resolving chapter 11 cases and

successfully reorganizing debtors.

An integral component of all settlements 1s the mutual

release of claims and potential claims. See Jill E. Fisch,

Rewriting Historv: The Propriety of Eradicating Prior

Decisional Law Through Settlement and Vacatur, 76

CORNELL L. REV. 589, 610 n.116 (1991) (“The usual

settlement agreement provides for a resolution of all pending

claims between the parties arising from the subject

transaction and includes a release of such claims.”). In a

typical two-party, non-bankruptcy dispute, no defendant

would settle a claim without obtaining a release to prevent

the subsequent assertion of the same claim.

In the bankruptcy context, however, where the interests

of many differently-situated litigants are implicated, the

situation 1s more complex. A debtor, especially in large

cases, is often faced with claims by a multitude of creditors.

Making peace with them will likely involve one or more

settlements approved by the bankruptcy court. Inevitably,

non-debtor constituencies will bargain for releases from

claims not only from the debtor, but also from other non-

debtors.

Accordingly, the extent to which a bankruptcy court may

approve releases of non-debtor liability without the consent

of affected non-debtors is a question of central importance to

all complex bankruptcy cases. See Thomas E. Patterson &

Brendt C. Butler, Do Bankruptcy Courts Have the Power to

Issue Releases and Permanent Injunctions with Respect to

Non-Debtor Parties in Chapter 11? Depends on Which

Court You Ask, SM0O)4 ALI-ABA 415, 417 (2007) (“Over

the last two decades... chapter 1] reorganization plans have

increasingly included provisions’ releasing = and/or

permanently enjoining claims of creditors or other parties in

interest against non-debtor parties such as the debtor's

officers, directors, or non-debtor affiltates.’’).

Indeed, given the global financial crisis and_ the

unprecedented number of significant chapter 11 cases on the

horizon, resolution of this question is especially important.

See Ralph Brubaker, Bankruptcy Injunctions and Complex

Litigation: A Critical Reappraisal of Non-Debtor Releases in

Chapter 11 Reorganizations, 1997 U. ILL. L. REv. 959, 965

(1997) (“[T]he bankruptcy court 1s quickly becoming the

forum for resolution of many of the largest and most complex

mass litigations.”). Over the last year, a number of high-

profile, iconic American institutions already have filed

chapter | 1 petitions. See, e.g., /n re Gen. Motors Corp., No.

09-50026 (Bankr. S.D.N.Y. filed Jun. 1, 2009); Jn re

Chrysler LLC, No. 09-50002 (Bankr. S.D.N.Y. filed Apr.

30, 2009); In re Wash. Mutual, Inc., No. 0$-12229 (Bankr.

D. Del. filed Sept. 26, 2008); Jn re Lehman Bros. Holdings,

Inc., No. 08-13555 (Bankr. S.D.N.Y. filed Sept. 15, 2008).

Il. THE COURT SHOULD GRANT REVIEW TO DECIDE

WHETHER, APPLYING THE JUDGE-MADE DOCTRINE

OF EQUITABLE MOOTNESS, ARTICLE If] JUDGES MAY

DECLINE TO. REVIEW BANKRUPTCY APPEALS THAT

ARE Not CONSTITUTIONALLY MOOT

The Court should also grant review to determine the

existence and scope of the doctrine of “equitable mootness,”

which nearly every circuit has adopted. The doctrine serves

to deprive parties of their right to Article III review even

Where the appealed bankruptcy court orders are not

constitutionally moot. No basis for the doctrine exists in

either the Constitution or the Bankruptcy Code.

A. EQUITABLE MOOTNESS EXPANDS THE DOCTRINE

OF CONSTITUTIONAL MOOTNESS TO PERMIT

ARTICLE THLE Courts TO DECLINE TO HEAR

ACTIVE CASES AND CONTROVERSIES

Federal courts have long applied the mootness doctrine

to decline to review cases where it is impossible to provide

effective relief. See Mills v. Green, 159 U.S. 651, 653 (1895)

(finding that federal courts have no authority “to give

Opinions upon moot questions or abstract propositions, or to

declare principles or rules of law which cannot affect the

matter in issue in the case before {them]”). The mootness

doctrine is derived from the constitutional directive that

federal court review is limited to actual cases or

controversies. See Art. III, § 2, cl. 1; see also North Carolina

v. Rice, 404 U.S. 244, 246 (1971) (acknowledging the

derivation of the doctrine in the case-or-controversy clause).

Petitioners do not challenge that doctrine.

In the bankruptcy context, however, courts have

expanded mootness beyond its constitutional roots by

creating a new doctrine of “equitable mootness.” Under this

expanded mootness, an Article Ill court may decline to hear

an appeal of a bankruptcy court order even though it 1s not

constitutionally moot (because some effective relief could be

fashioned), on the ground that fashioning any relief on appeal

would be inequitable. See, e.g., Jn re UNR Indus., Inc., 20

F.3d 766, 769 (7th Cir. 1994) (“There is a big difference

between inability to alter the outcome (real mootness) and

unwillingness to alter the outcome (‘equitable mootness’).’’)

(emphasis in original), cert. denied, 513 U.S. 999 (1994);

Official Comm. of Unsecured Creditors of LTV Aerospace &

Def. Co. v. Official Comm. of Unsecured Creditors of LTV

Steel Co. (In re Chateaugay Corp.), 988 F.2d 322, 325 (2d

Cir. 1993) (“[A]n appeal should also be dismissed as moot

when, even though effective relief could conceivably be

fashioned, implementation of that” relief would be

inequitable.”).

Beginning with the Ninth Circuit, a majority of courts of

appeals have adopted the doctrine and have used it to decline

appellate review of bankruptcy orders. See Trone v. Roberts

Farms, Inc. (In re Roberts Farms, Inc.), 652 F.2d 793, 797-

98 (9th Cir. 1981); see also, e.g., In re Cont'l Airlines, 91

F.3d 553, 558-59 (3d Cir. 1996) (en banc), cert. denied, 5\9

U.S. 1057 (1997); Tompkins v. Frey (In re Bel Air Assocs.),

706 F.2d 301, 305 n.10 (10th Cir. 1983); Metro Prop. Mgmt.

Co. v. Info. Dialogues, Inc. (In re Info. Dialogues, Inc.), 662

F.2d 475, 476-77 (8th Cir. 1981) (per curiam).

The circuits have adopted several different, multi-factor

tests for determining whether an appeal is barred by equitable

mootness. Each test, however, presumes that a case or

controversy still exists because some remedy can be

fashioned, but allows the courts discretion to decline Article

II] review based on other factors.

In the Second Circuit, for cxample, an appeal is

presumed to be moot once a confirmed chapter |i plan has

been substantially consummated. See Aetna Cas. & Sur Co.

v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772, 77/6

(2d Cir. 1996). That presumption may be rebutted only if

several conditions are met: the court can order some

effective relief; the relief will not affect the debtor's

reemergence as a revitalized entity; the relief will not unravel

intricate transactions and create an unmanageable situation

for the bankruptcy court; the potentially adversely affected

parties have notice and opportunity to participate; and the

appellant pursued with due diligence available remedies to

obtain a stay. Frito-Lay, Inc. v. LTV Steel Co. (In re

Chateaugay Corp.), 10 '.3d 944, 982-53 (2d Cir. 1993)

(“Chateaugay IT’). The First Circuit has not articulated its

own factors, but has tracked the Chateaugay I// factors in

dismissing an appeal as equitably moot. Rochman v. Ne.

Utils. Serv. Co. (In re Pub. Serv. Co.), 963 F.2d 469, 471,

476 (Ist Cir. 1992), cert. denied, 506 U.S. GOR (1992). The

Seventh Circuit, although rejecting the term “equitable

mootness,” has dismissed an appeal based on reasoning

sinular to four of the Chateaugay II factors. UNR, 20 F.3d at

769 (finding it “{im]prudent to upset the plan of

reorganization at this late date”).

Other circuits have adopted substantially similar, multi-

factor tests to determine whether to apply cquitable

mootness. See, e.g., Curreys of Neb., Inc. v. United

Producers, Inc. (In re United Producers, Inc.), 526 F.3d 942,

947-48 (6th Cir. 2008) (adupting a three-prong test); MAC

Panel Co. v. Va. Panel Corp., 283 F.3d 622, 625 (4th Cir.

2002) (applying a four-prong test); /n re GWI, 230 F.3d 788,

800 (Sth Cir. 2000) (applying a similar three-prong test);

First Union Real Estate Equity & Mortgage Invs. v. Club

Assocs. (In re Club Assocs.), 956 F.2d 1065, 1069 n.11 (11th

Cir. 1992) (considering a similar set of facts).

B. THE DOCTRINE OF EQUITABLE MOOTNESS

CONFLICTS WITH THIS COURT’S JURISPRUDENCE

AND WITH THE CONSTITUTIONAL REQUIREMENT

THAT ARTICLE II] COURTS DECIDE CASES OR

CONTROVERSIES

This Court has never recognized the judge-made

doctrine of equitable mootness. To the contrary, the Court

has held that an appeal is moot when “an event occurs while

a case 1s pending on appeal that makes it impossible for the

court to grant any effectual relief whatever to a prevailing

party[.]” Church of Scientology of Cal. v. United States, 506

US. 9, 12 (1992) (internal quotations omitted) (emphasis

added). LEven if reversal of an order cannot “return the

parties to the sfatus quo ante{,|” an appeal will not be

considered constitutionally moot so long as “a court can

fashion some form of meaningful relief in circumstances such

as these.” /d. at 12-13.

—

In the bankruptcy context, however, Article III courts

have employed the doctrine of equitable mootness to decline

to review bankruptcy orders even though some form of

meaningful relief can be fashioned. See Cont’l Airlines, 9\

F.3d at 567 (Alito, J., dissenting) (“The majority’s decision

in this case creates a bad precedent for our circuit. The

majority adopts the curious doctrine of ‘equitable mootness,’

which it interprets as permitting tederal district courts and

courts of appeals to refuse to entertain the merits of live

bankruptcy appeals over which they indisputably possess

statutory jurisdiction and in which they can plainly provide

relief.”’). Thus, the doctrine violates this Court’s directive in

Church of Scientology that an appeal to an Article II court ts

not moot where a “possible remedy” is available. 506 U.S. at

13.

Even if the doctrine had some constitutional foundation,

no statutory basis exists on which to ground the courts’

expansion of the mootness doctrine. Jurisdictional statutes

provide that the district courts and the circuit courts of appeal

“shall have jurisdiction” over final orders entered by

bankruptcy courts, see 28 U.S.C. § 158(a) & (d); and those

courts have a “virtually unflagging obligation” to exercise

their statutory jurisdiction. Colo. River Water Conservation

Dist. v. United States, 424 U.S. 800, 817 (1976). Neither 28

U.S.C. § 158 nor the Bankruptcy Code provides lower courts

any discretion over which appeals to consider. Converscly,

with respect to a narrow class of bankruptcy orders, Congress

has expressly limited the relicf available on appeal. See, e.g.,

11 U.S.C. § 363(m) (limiting the relief available on appeal of

an order approving an unstayed sale of a debtor’s property to

a good faith purchaser); 11 U.S.C. § 364(c) (limiting the

relief available on appeal of an order approving postpetition

financing provided tn good faith).

But no provision in the Bankruptcy Code authorizes

Article III courts to decline to review live cases or

controversies based on equitable mootness. Had Congress

intended for the doctrine of equitable mootness to preclude

the appellate review of other types of bankruptcy orders, it

would have said so. See Leatherman vy. Tarrant County

Narcotics Intelligence & Coordination Unit, 507 U.S. 163,

168 (1993) (under the maxim of expressio unius est exclusio

alterius, Congress’s express inclusion of certain exceptions

indicates an intent to preclude the recognition of others).

Nonetheless, almost every circuit has adopted the doctrine.

Indeed, some courts have even found that the bankruptcy

court committed reversible error, but then have refused to

reverse because of equitable mootness. For example, in

Metromedia, the court concluded that the findings below

“were insufficient” to support certain non-debtor releases and

that such an error “would ordinarily be remedied by remand

to the bankruptcy court.” Metromedia, 416 F.3d at 143. But

it then refused to vacate the order because it found the appeal

equitably moot. /d. at 14S.

Perhaps most disturbing, courts will dismiss appeals as

equitably moot even where the appellant has sought

expedited appcal and a stay pending appeal. See, e.g., UNR,

20 F.3d at 769-70. Although courts initially were reluctant to

apply the doctrine if an appellant had sought a stay, they now

apply the doctrine even where the appellant sought a stay but

was denied one. Compare Roberts Farms, 652 F.2d at 798

(finding that failure to seek a stay “creates a situation

rendering it inequitable to reverse the orders appealed

trom”), with UNR, 20 F.3d at 770 (observing that “[a] stay

not sought, and a stay sought and denied, lead equally to the

implementation of the plan of reorganization[,]* which in

turn leads to application of equitable mootness). Thus, under

current authority in most circuits, equitable mootness will bar

review by an Article III court unless the appellant obtains a

stay pending appeal. But requiring an appellant to obtain a

stay of a _ substantial bankruptcy order is_ extremely

burdensome: the appellant must demonstrate that it will be

irreparably harmed absent the stay and that this relief will not

substantially harm other parties. See, e.g., Country Squire

Assocs. of Carle Place, L.P. v. Rochester Comm. Sav. Bank

(In re Country Squire Assocs. of Carle Place, L.P.), 203 B.R

182, 183 (B.A.P. 2d Cir. 1996) (citing Hirschfeld v. Bd. of

Elections, 984 F.2d 35, 39 (2d Cir. 1992)).!

Indeed, because stays are granted only in narrow

circumstances, appellants in such cases rarely preserve their

appeal from equitable mootness. See Frank R. Kennedy &

Gerald K. Smith, Postconfirmation Issues; The Effects of

Confirmation and Postconfirmation Proceedings, 44 8.C. L

REV. 621, 650 n.76 (1993) (observing “that stays pending

appeal are seldom granted, that appeals typically take a long

time, that plan proponents frequently accelerate performance

pending appeals to enhance the likelihood that the appeal will

be rendered moot, and that the numerous rulings denying

revicw of order approving sales are typically followed in

appeals from confirmation orders”) (citing Richard F.

Broude, RFORGANIZATIONS UNDER CHAPTER || OF THE

BANKRUPTCY CODE § 14.01[1] (1992)),

Morcover, cven in the rare circumstances where an

appellant obtains a stay, the movant may be required to post a

substantial bond. See FED. R. BANKR. P. 8005 (“The district

court or bankruptcy appellate panel may condition [a stay

pending appeal] . . . on the filing of a bond or other

Often, the only showing of irreparable harm that an appellant

can make ts that, absent such relief, it will be equitably mooted. But, if

no stay is obtained, the appellee will then argue that the appellant already

has conceded that its appeal ts moot.

appropriate security with the bankruptcy court.”); /n re

Farrell Lines, Inc., 761 F.2d 796, 797 (D.C. Cir. 1985) (per

curiam). In some cases, the required bond must be large

enough to protect all of the stakeholders in a multi-billion

dollar chapter 11 reorganization —a bond larger than all of

the bond capacity likely available in the country. See, e.g.,

ACC Bondholder Group v. Adelphia Comme 'ns Corp. (In re

Adelphia Commc'ns Corp.), 361 B.R. 337, 369 (S.D.N.Y.

2007) (although granting a stay of consummation of a

chapter |] plan pending appeal, requiring appellants to post a

$1.3 billion bond within 72 hours).

Equitable mootness, therefore, becomes a potent tool to

insulate bankruptcy orders from appellate review, one that

stakeholders can easily manipulate. So long as parties can

“substantially consummate” a chapter |! plan before an

Article II] court considers an appeal, the plan will almost

always remain unreviewable. [ndeed, as applied by the lower

courts, equitable mootness may even insulate orders that

bankruptcy courts lacked jurisdiction to issue

This case illustrates how parties to chapter 1!

bankruptcy proceedings, relying on the likely application of

equitable mootness, can manufacture an_ effectively

unreviewable order. The Respondents conditioned the

Settlement not only on approval by the bankruptcy court

under Federal Rule of Bankruptcy Procedure 9019, but also

on the confirmation and consummation of the Plan, two

events likely to lead to the application of equitable mootness.

(See App. 506a). And, in the event that the doctrine was not

applied or the Petitioners obtained a stay pending appeal, the

Settlement gave Respondents the right to rescind the

agreement. (See App. 518-519a.)

The ability of parties involved in chapter | 1 proceedings

to manipulate the jurisdiction of Article III courts in this way,

combined with the lower courts’ willingness to apply

equitable mootness even where appellants have made every

effort to obtain a stay pending appeal of a bankruptcy order,

defies Congress’s intent to provide appellate review of

bankruptcy orders under 28 U.S.C. § 158. Where substantial

consummation is imminent, an appellant must meet the

onerous requirements for obtaining a stay simply to retain the

right to appellate review. Thus, equitable mootness stacks

the deck against appellants so heavily that it invites parties to

seek relief not authorized under the Bankruptcy Code or

other applicable law.

C. THE DOCTRINE OF EQUITABLE MOOTNESS, AS

APPLIED, VIOLATES THE CONSTITUTION’S

SEPARATION OF POWERS CLAUSE

Exercising its authority under Article I, Section 8,

Clause 4 “{t]o establish . . . uniform Laws on the subject of

Bankruptcies throughout the United States[,]* U.S. Const.

art. [, § 8, cl. 4, Congress established the bankruptcy courts

to administer cases under the Bankruptcy Code. 28 U.S.C. §

1S1. In Northern Pipeline Construction Co. v. Marathon

Pipe Line Co., 458 U.S. 50 (1982), however, this Court

found that the delegation of bankruptcy jurisdiction

exclusively to bankruptcy courts established under Article |

violated the Constitution. /d. at 87. In response to Marathon

Pipe Line, Congress enacted the Bankruptcy Amendments

and Federal Judgeship Act of 1984 (the “1984 Act”), Pub. L.

No. 98-353, 98 Stat. 333 (codified as amended in titles 5, 11

and 28 of the United States Code), vesting original

jurisdiction over bankruptcy proceedings with the district

courts and referring such authority to the bankruptcy courts.

See Pub. 1... No. 98-353 §$§ 101, 104, 98 Stat. 333 (codified as

amended at 28 U.S.C. §$§ 151-158, 1334 (1984)).

Under the 1984 Act, upon referral from the district

courts, bankruptcy courts may decide “core” proceedings

under the Bankruptcy Code, subject to appellate review by

the district courts under the clearly erroneous standard. See

28 U.S.C. §§ 157(a), (b), 158(a); see also Harman v. Levin,

772 F.2d 1150, 1153 n3 (4th Cir. 1985). Bankruptcy courts

also are permitted to decide “non-core” proceedings

“otherwise related to” a case under the Bankruptcy Code,

and, if the parties consent, may issue final orders (subject to

appellate revicw) upon referral from the district courts;

otherwise, a final order may only be issued by the district

court upon de novo review of the bankruptcy court’s findings

and conclusions. See 28 U.S.C. §§ 157(c), |58(a); see also

Cent. Vt. Pub. Serv. Corp. v. Herbert, 341 F.3d 186, 190 (2d

Cir. 2003). In essence, the 1984 Act “correct[ed] the

constitutional flaw” of the Bankruptcy Code by ensuring that

bankruptcy cases would be subject to the authority and

review of an Article III court. 130 CONG. REC. S8891 (June

29, 1984) (remarks of Sen. Hatch), reprinted in 1984

U.S.C.C.A.N. at 590.

The doctrine of equitable mootness thwarts — this

congressional intent and, because it has been applied to

preclude Article Ill review of an Article | court, violates the

Constitution as construed in Marathon Pipe Line. When the

doctrine of equitable mootness is applied, the only

substantive review that bankruptcy stakeholders receive is

from an Article | tribunal, the bankruptcy court. Neither the

Bankruptcy Code nor any other federal statute sanctions such

a result, and the appellate courts’ refusal to exercise their

jurisdiction over bankruptcy appeals ts unconstitutional. See

Mills, 159 U.S. at 653 (under the Article III mootness

doctrine, dismissal of a case without consideration of the

merits 1s required when no “effectual relief whatever” can be

fashioned)

ff. THE COURT SHOULD GRANT REVIEW TO DETERMINE

WHETHER THE BANKRUPTCY CODE PROVIDES

BANKRUPTCY COURTS JURISDICTION To

RESTRUCTURE THE DEBT OF A NON-DEBTOR

Finally, the Court should grant review to determine

whether “related to” jurisdiction under 28 U.S.C. § 1334(b)

extends so far that bankruptcy courts have jurisdiction to

restructure debts owed by nen-debtors to other non-debtors.

A. The BANKRUPTCY CouRTSs’ “RELATED TO”

JURISDICTION I[S LIMITED

As explained above, a bankruptcy court may _ hear

matters that are “otherwise related to a case under title 11.”

See 28 U.S.C. §§ 157(c), 1334(b). Although Congress has

not defined the words “related to,” courts have interpreted

Section 157 to provide bankruptcy courts with “jurisdiction

over more than simple proceedings involving the property of

the debtor or the estate.” Celotex, 514 U.S. at 308 (citing

Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)).

Nonetheless, “related to” jurisdiction is not and cannot be

limitless and is necessarily “grounded in, and limited by,

statute.” 7d. at 307-08; see also Bd. of Governors, FRS v.

MCorp Fin., Inc., 502 U.S. 32, 40 (1991) (stating that

bankruptcy courts are vested with “limited authority”);

Ahlers, 485 U.S. at 206.

in Celotex, this Court considered the tenston between the

bankruptcy courts’ “comprehensive jurisdiction” to

efficiently and expeditiously resolve “all matters connected

with the bankruptcy estate” and the statutory limitations of

that authority. 514 U.S. at 308. The Court noted that the

Third Circuit, in Pacor, 743 F.2d at 994, had devised a test,

which nearly every circuit had adopted, for determining

whether “related to” jurisdiction exists. Ce/otex, 514 U.S. at

308 n.6. Under the test, a matter is “related to” a bankruptcy

case if its outcome “could conceivably have any effect on the

estate being administered in bankruptcy.” /d. (citing Pacor,

743 F.2d at 994). More specifically, “[a]n action ts related to

bankruptcy if the outcome could alter the debtor’s rights,

habilities, options, or freedom of action (either positively or

negatively) and which in any way impacts upon the handling

and administration of the bankrupt estate.” /d. (citing Pacor,

743 F.2d at 994). The Court concluded, “whatever test is

used, these cases make clear that bankruptcy courts have no

jurisdiction over proceedings that have no effect on the

debtor.” /d.; see also Travelers, 129 S.Ct. at 2210 (Stevens,

J., dissenting) (“A bankruptcy court has no authority,

however, to adjudicate, settle, or enjoin claims against

nondebtors that do not affect the debtor’s estate.’’).

Similarly, courts have held that a bankruptcy court lacks

“related to” jurisdiction over a matter involving non-debtors

where they would not result in direct or derivative liability to

a debtor’s bankruptcy estate. See, e.g., In re Combustion

Eng’g, 391 F.3d 190, 233 (3d Cir. 2005).

This Court, however, has not decided whether a matter

mvolving non-debtors, which could have a “conceivable

effect” on a debtor’s estate, is nonetheless so remote that it

would have “‘no effect” on the estate. Consequently, “[m]Juch

of the controversy about bankruptcy Jurisdiction surrounds

the reach of this ‘related to’ jurisdiction.” See Jonathan C.

Lipson, Debt and Democracy: Towards a Constitutional

Theory of Bankruptcy, 83 NOTRE DAME L. REV. 605, 645

n.211 (2008).

B. THIS CASE PROVIDES AN OPPORTUNITY TO

CLARIFY THAT “RELATED TO” JURISDICTION

DOES NOT GIVE BANKRUPTCY COURTS THE

POWER TO RESTRUCTURE THE DEBTS OF NON-

DEBTORS, WHERE THE DEBT HAS NO IMPACT ON

THE RES OF A DEBTOR’S ESTATE

This case presents the Court with an ideal opportunity to

clarify that a bankruptcy court’s “related to” jurisdiction does

not authorize bankruptcy courts to restructure the debts of

non-debtors that do not affect the res of a bankruptcy estate.

Absent further guidance, the extent of “related to”

jurisdiction will remain ambiguous, resulting in repeated if

unintentional overextensions of jurisdiction by bankruptcy

judges faced with ever more complex chapter 11 cases. See

Ralph Brubaker, On the Nature of Federal Bankruptcy

Jurisdiction: A General Statutory and Constitutional Theory,

4] Wm. & Mary L. Rev. 743, 750 (“Pacor has produced a

state of affairs in which jurisdictional determinations are

essentially arbitrary—with countless instances of identical

factual and procedural postures producing diametrically

disparate results on nominal application of the same ‘test.’”’).

Indeed, the courts below, affirming the bankruptcy

court’s extension of its jurisdiction far beyond the limits that

ay other court has determined, thus sanctioned the

benkruptcy court’s departure from the accepted and usual

course of judicial proceedings so as to call for an exercise of

this Court’s supervisory power.

Relying on the “conceivable effect” language of the

acor test, the lower courts in this case held that “related to”

jurisdiction was so broad that it gave the bankruptcy court

jurisdiction to restructure bond debt issued not by the debtor

(Delta), but by one of its lessors. (App. 2la-24a.) The lower

courts concluded that the Indenture was “inextricably

related” to Delta’s lease and guaranty obligations, even

though no debtor was a party to it, it prohibited such a

restructuring without every bondholder’s consent, and if

Delta vacated the premises, KCAB, the issuer, would remain

hable to use anv proceeds obtained from subsequent tenants

to repay the Bonds. (App. 28a.)

In short, the bankruptcy court used Delta’s bankruptcy to

modify and discharge the bond repayment obligations of

KCAB, a4 non-debdtor that never petitioned for bankruptcy

relicf, and that would remain obligated to repay the Bonds

from re-let proceeds if Delta stopped making lease payments

for any reason. (App. 98a-99a; 394a-398a.) Thus, although

KCAB has retained the Terminal, including the right to lease

it to Delta or any other party, the bankruptcy court fully

discharged KCAB trom any further obligations (including re-

let obligations) to the Bondholders. (App. 29a.)

The barkruptcy court reached that unprecedented result

by finding that its “related to” jurisdiction extended so tar as

to restructure and discharge the private contract rights and

obligations of KCAB, the Trustee and the Bondholders—all

of them non-debtors -even though the Indenture itself

mandated a contrary result. (App. 29a (ignoring the

Bondholder’s absolute mght to seck their principal and

interest under Section 9.06, modeled on Section 316 of the

Trust Indenture Act (the “TIA”), 15 U.S.C. § 77ppp).) The

bankruptcy court held that its jurisdiction over Delta’s

bankruptcy case trumped those established contract rights of

non-debtors, which would have no effect on the res of the

bankruptcy estate, because the Trustee, at the direction of a

majority of Bondholders, could bind all Bondholders to a

settlement. (App. 50a-52a.) However, because KCAB never

tiled tor bankruptcy protection and no class was alleged or

certified, the outcome below Is contrary to bankruptcy law as

well as 70 years of bond-indenture law interpreting

provisions identical to those contained in the Indenture and

TIA Section 316.° See, e.g., Brady v. UBS Fin. Servs., Inc.,

538 F.3d 1319, 1324-25 (10th Cir. 2008) (interpreting a

nearly identical provision and finding that actions taken by a

trustee at the direction of a majority cannot compromise an

individual bondholder’s rights under that provision abserii

consent); /n re Bd. of Dirs. of Multicanal S.A., 307 B.R. 384,

388-89 (Bankr. S.D.N.Y. 2004): see also 15 U.S.C. § 77bbb

(setting forth necessity for regulatiun).

The only decisions cited by the bankruptcy court below finding

that a majority of bondholders may compromise by settlement an

individual bondholder’s right to its principal and interest under provisions

consistent with TIA Section 316, were class-action lawsuits certified

under Federal Rule of Civil Procedure 23(c), and cases where the issuer

had petitioned for bankruptcy. (App. 52a)

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

J. CHRISTOPHER SHORF RAOUL G. CANTERO

WHITE & CASE LLP COUNSEL OF RECORD

1155 AVENUE OF THE AMERICAS THOMAS E LAURIA

NEW YORK, NY 10036-2787 JOHN K. CUNNINGHAM

TELEPHONE: (212) 819-8200 DAVID P. DRAIGH

FACSIMILE: (212) 354-8113 RICHARD S. KEBRDLE

COUNSEL FOR THE PETITIONERS WHITE & CASE LLP

WACHOVIA FINANCIAL CENTER

200 SOUTH BISCAYNE BLVD.,

SUITE 4900

MIAMI, FLORIDA 33131-2352

TELEPHONE: (305) 371-2700

FACSIMILE: (305) 358-5744

COUNSEL FOR THE PETITIONERS

JULY 2009

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

[Filed FEB 9, 2009]

SUMMARY ORDER

Rulings by summary order do not have preceden-

tial effect. Citation to summary orders filed after

January 1, 2007, is permitted and is governed by this

court’s Local Rule 32.1 and Federal Rule of Appellate

Procedure 32.1. In a brief or other paper in which a

litigant cites a summary order, in each paragraph in

which a citation appears, at least one citation must

either be to the Federal Appendix or be accompanied

by the notation: “(summary order).” A party citing a

summary order must serve a copy of that summary

order together with the paper in which the summary

order is cited on any party not represented by counsel

unless the summary order is available in an

electronic database which is publicly accessible with-

out payment of fee (such as the database available at

http://www.ca2.uscourts.gov/). If no copy is served by

reason of the availability of the order on such a data-

base, the citation must include reference to that

database and the docket number of the case in which

the order was entered.

At a stated term of the United States Court of

Appeals for the Second Circuit, held at the Daniel

Patrick Moynihan United States Courthouse, 500

Pearl Street, in the City of New York, on the ninth

day of February two thousand and nine.

PRESENT:

JOSE A. CABRANES,

SONIA SOTOMAYOR,

Circuit Judges,

JED S. RAKOFF,

District Judge.

No. 07-3979-bk

AD HOC COMMITTEE OF KENTON

COUNTY BONDHOLDERS,

Appellant,

DELTA AIR LINES, INC., KENTON COUNTY AIRPORT

BOARD, UMB BANK, N.A., as Trustee, POST EFFEC-

TIVE DATE COMMITTEE as successor to the Official

Committee of Unsecured Creditors of Delta Air

Lines, Inc.,

Appellees.”

FOR APPELLANT:

THOMAS E. LAURIA (J. Christopher Shore,

on the brief),

White & Case LLP, New York, NY.

* The Honorable Jed S. Rakoff, of the United States District

Court for the Southern District of New York, sitting by

designation.

” The Clerk of Court is directed to amend the official cap. on

in this case to conform to the listing of the parties above

FOR APPELLEES:

MARSHALL S. HUEBNER (James I. McClammy,

Benjamin A. Tisdell, Russell Capone, on the brief),

Davis Polk & Wardwell, New York, NY, for Appellee

Delta Air Line Inc.

WILLIAM W. KANNEL (Daniel S. Bleck, Matthew C.

Hurley, lan A. Hammel, on the brief), Mintz, Levin,

Cohn, Ferris, Glovsky and Popeo, P.C., Boston, MA,

for Appellee UMB Bank, N.A.

Selinda A. Melnik, Edwards Angell Palmer & Dodge,

LLP, New York, NY (Wilbert L. Ziegler, Matthew C.

Smith, Ziegler & Schneider, P.S.C., Covington, KY,

on the brief), for Appellee Kenton County Atrport

Board.

Appeal from a judgment of the United States

District Court for the Southern District of New York

(John G. Koeltl, Judge).

UPON CONSIDERATION WHEREOF, IT IS

HEREBY ORDERED, ADJUDGED, AND DECREED

that the judgment of the District Court is

AFFIRMED.

Appellant Ad Hoc Committee of Kenton County

Bondholders appeals from an August 28, 2007 judg-

ment of the District Court, affirming a Settlement

Order entered by the Bankruptcy Court on April 24,

2007. We assume the parties’ familiarity with the

underlying factual and procedural history of the case,

though we revisit key portions of that history here.

Appellant is a group of Bondholders, who hold

approximately $50 million in face amount of the

approximately $400 million in bonds issued by the

Kenton Country Airport Board (“KCAB”), pursuant to

a 1992 Trust Indenture, between KCAB and Star

Bank, N.A., the predecessor-in-interest to UMB

Bank, N.A. (the “Trustee”), and guaranteed by Delta

Air Lines, Inc. (“Delta”), On September 14, 2005,

Delta filed a petition for bankruptcy protection under

Chapter 11 of the Bankruptcy Code. On March 8,

2007, Delta filed a motion, pursuant to Rule 9019 of

the Federal Rules of Bankruptcy Procedure, seeking

approval from the Bankruptcy Court of a settlement

agreement, entered into by Delta, KCAB, and the

Trustee. Appellant filed timely objections to the

motion. On April 24, 2007, the Bankruptcy Court ap-

proved the settlement agreement. Appellant filed an

appeal, arguing, inter alia, (1) that the Bankruptcy

Court lacked jurisdiction to impose a settlement that

released claims against KCAB, Delta, the Trustee,

and other Bondholders; and (2) that, in the first

instance, the Trustee lacked authority to bind dis-

senting Bondholders to a settlement, which reduced

the principal and interest that would be repaid under

the KCAB Bonds. Appellant also sought a stay

pending appeal, which was denied by the Bankruptcy

Court on April 26, 2007, and by the District Court on

May 2, 2007.

On August 27, 2007, the District Court affirmed

the Settlement Order. First, the District Court

determined that appellant’s claims were “equitably

moot.” Specifically, it determined that in light of the

fact that “irreversible financial transactions... hald]

occurred, and because Delta has entered into a whole

new set of agreements,” appellant could not show

how vacating the Settlement Order, even if it were

possible, would not create an unmanageable situation

for the Bankruptcy Court. J.A. at 69. The District

Court then noted that even if it were to consider the

merits of appellant’s arguments, contrary to appel-

lant’s assertions, (1) the Bankruptcy Court did have

jurisdiction to impose a settlement that released

claims against KCAB, Delta, the Trustee, and other

Bondholders, and (2) the Trustee did have authority

to bind dissenting Bondholders to a_ settlement

reducing the principal and interest that would be

repaid under the KCAB Bonds. Appellant filed a

timely notice of appeal. Before this Court, appellant

argues that its appeal is not equitably moot, and

renews the arguments made before the District Court

and Bankruptcy Court.

We note that “[iln an appeal from a district court’s

review of a bankruptcy court's decision, we conduct

an independent examination of the bankruptcy

court’s decision.” In re Flanagan, 503 F.3d 171, 179

(2d Cir .2007) (citing /n re Bethlehem Steel Corp., 479

F.3d 167, 172 (2d Cir. 2007)). We review the bank-

ruptcy court’s factual findings for clear error, and its

legal conclusions de novo. Id. Additionally, a district

court’s determination that an appeal is “equitably

moot” is (by definition) an equitable decision, and we

review a district court’s fashioning of equitable relief

for abuse of discretion. See Onwubiko v. United

States, 969 F.2d 1392, 1397 (2d Cir. 1992), implicit

overruling on other grounds recognized by Polanco uv.

U.S. Drug Enforcement Admin., 158 F.3d 647, 651

(2d Cir. 1998). See generally Abrahamson v. Bd. of

Educ. of Wappingers Falls Cent. Sch. Dist., 374 F.3d

66, 76 (2d Cir. 2004). Approvals of Bankruptcy Rule

9019 settlements are also reviewed for abuse of

discretion. In re [Iridium Operating, LLC, 478 F.3d

452, 461 n.13 (2d Cir. 2007).

Upon a review of the relevant case law and the

record in this case, we conclude that the District

Court did not err—much less abuse its discretion—in

determining that appellant’s claim is equitably moot.

In particular, we agree fully with the District Court’s

conclusion that

lbJecause of the irreversible financial transac-

tions that have occurred, and because Delta has

entered into a whole new set of agreements

relating to its use of the Cincinnati/Northern

Kentucy Airport as a hub of its operations, the

appellants cannot show that a vacatur of the

Settlement Order, even if it were possible, would

not knock the props out from under the authori-

zation for every transaction that has taken place

and create an unmanageable, uncontrollable

situation for the Bankruptcy Court.

J.A. at 69 (internal quotation marks omitted). How-

ever, we note that even if we were to consider the

merits of appellant’s arguments, for substantially the

reasons stated in the Bankruptcy Court’s thorough

and well-reasoned decision of April 25, 2007, we

would affirm the Settlement Order.

CONCLUSION

We have considered all of appellant’s claims on ap-

peal and found them to be without merit. Accor-

dingly, the judgment of the District Court is

AFFIRMED.

FOR THE COURT,

Catherine O’Hagan Wolfe,

Clerk of Court

By:

APPENDIX B

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

Chapter 11

05-B-17923 (ASH)

In re DELTA AIR LINES, INC. et al..

Debtors.

07 Civ. 3968 (JGK)

KENTON COUNTY BONDHOLDERS COMMITTEE,

Appellants,

- against -

DELTA AIR LINES, INC. et al.,

Appellees.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The appellants, a group of Bondholders who hold

approximately $50 million in face amount of Bonds

issued by the Kenton County Airport Board (““KCAB”)

pursuant to a 1992 Trust Indenture which covered

the issuance of over $400 million in Bonds, appeal a

Settlement Order entered by the United States

Bankruptcy Court for this district approving a Set-

tlement Agreement (the “Settlement”) between

Chapter 11 debtor Delta Air Lines (“Delta”), KCAB,

and UMB Bank, N.A. (“UMB”) as successor Trustee

for the Bondholders under the 1992 Indenture. See Jn

re Delta Air Lines, Inc., No. 05 B 17923, 2007 WL

1805567 (Bankr. S.D.N.Y. Apr. 25, 2007). There is

jurisdiction to hear the appeal pursuant to 28 U.S.C.

§ 158(a)(1).

The Court has reviewed the Bankruptcy Court’s

thorough decision approving the Settlement and the

arguments of the parties to this appeal. The

Settlement Order is affirmed for substantially the

reasons stated by the Bankruptcy Court and for the

additional reasons discussed below.

The following facts are undisputed unless other-

wise noted.

The KCAB Bonds (“Bonds”) at issue in this appeal

relate to Delta’s use of and improvements made to

the Cincinnati/Northern Kentucky Airport, which is a

hub for Delta’s operations. The KCAB Bonds were

issued under a Trust Indenture (the “Indenture”)

dated February 1, 1992 between KCAB as issuer and

Star Bank, N.A., the predecessor-in-interest to UMB,

acting as Trustee. Concurrent with the issuance of

the Bonds, Delta and KCAB entered into several

interrelated agreements, including a Lease Agree-

ment (the “Lease”) between Delta and KCAB that

called for rental payments over thirty years equal to

the amounts due on the Bonds. The Indenture

indicates that the Bonds are non-recourse with

respect to KCAB (Indenture 7 2.05, 7.01, Ex. A to

App. to Appellants’ Br.; see also Lease 7 6.15, Ex. D

to Appellants’ Br.), and it assigns to the Bond Trustee

KCAB’s right to receive rental payments from

Delta pursuant to the Lease, wich the Indenture

expressly references (Indenture preamble; see also

Lease [J 4.03-4.04). Under a separate Guaranty to

the Bond Trustee, Delta agreed that it would make

all of the payments due on the Bonds. (Guaranty J 1,

Ex. B to Appellants’ Br.)

On September 14, 2005, Delta (along with other

debtors not parties to this appeal) filed a petition for

bankruptcy protection under Chapter 11 of the

Bankruptcy Code. In late 2005, Delta informed

KCAB and the Bond Trustee that it intended to reject

certain of its contracts with KCAB, including the

Lease, pursuant to section 365(a) of the Bankruptcy

Code. See 11 U.S.C. § 365(a). On December 30, 2005,

Delta, KCAB, and the Bond Trustee entered a

Stipulation providing for a 60-day period to attempt

to reach a consensual agreement, and in February

2006 the parties extended their negotiation period

through May 1, 2006. When no agreement had been

reached by April 28, 2006, Delta filed in the

Bankruptcy Court a motion seeking rejection of the

Lease and certain other agreements. Continued

negotiations led the parties to enter a Forbearance

Agreement on July 17, 2006 under which Delta made

certain scheduled payments to the Bond Trustee and

continued to use the airport facilities, and which

provided that the parties would forbear from

exercising any rights or remedies arising from Delta’s

failure to meet its full obligations under the Lease.

The Forbearance Agreement was ultimately extended

until the Settlement became effective.

During the negotiations between Delta, KCAB, and

the Bond Trustee, the Bond Trustee issued sixteen

Notices to the Bondholders that notified them that

the Trustee was negotiating a settlement and en-

tering into interim agreements which compromised

Delta’s payment of interest on the Bonds and that

invited the Bondholders to join an unofficial com-

mittee of Bondholders (“Bondholders’ Committee”) to

10a

participate in negotiations and strategy discussions.

(See Ex. 2 to Decl. of James I. McClammy, June 22,

2007.) The Bondholders’ Committee, consisting of

Bondholders holding approximately sixty percent of

the outstanding principal amount of the KCAB

Bonds, gave a written Direction authorizing the Bond

Trustee to agree to the Settlement on February 22,

2007. (See Ex. O to Appellants’ Br.) The parties then

announced the principal terms of the Settlement to

the Bankruptcy Court at a hearing on February 22,

2007, and the next day the Bond Trustee sent notice

of the Settlement terms to all Bondholders.

In summary, the Settlement Agreement provides

that the Lease, Guaranty, and certain other agree-

ments would be terminated and that the 1992 Bond

Indenture would have no force outside the terms of

the Settlement. Delta and KCAB would enter a new

lease agreement and Delta would issue a new Note to

the Bond Trustee, on behalf of the Bondholders, with

the original principal amount of $85 million less

amounts paid during the interim nezotiations and

bearing a fixed eight percent interest rate. The Bond

Trustee, on behalf of the Bondholders. would have a

$260 million allowed pre-petition, non-priority, unse-

cured claim against Delta. Delta would reimburse the

Bond Trustee up to $2 million for fees and expenses

incurred during the bankruptcy negotiations. Finally,

Delta, KCAB, the Bond Trustee, and the Bondholders

would release any claims or rights that each might

have against the others with respect to the Bonds

and the related agreements or the negotiated Set-

tlement. The Settlement was expressly conditioned

upon the Bankruptcy Court’s entry of a Settlement

Order approving the Settlement’s terms and finding

the terms fair and reasonable and in the best interest

of Delta and its creditors, KCAB, the Bond Trustee,

lla

and the Bondholders. The Settlement also provides

that the terms of the Settlement are incorporated in

Delta’s Joint Plan of Reorganization and subject to

creditor approval of the Plan. (See Settlement Agree-

ment, Ex. P to Appellants’ Br.)

On March 6, 2007, the appellants, an ad hoc group

of Bondholders who object to the Settlement, sent a

letter informing the Bond Trustee, Delta, and KCAB

of their objections. On March 8, 2007, Delta sub-

mitted a motion pursuant to Bankruptcy Rule 9019

for the Bankruptcy Court to approve the Settlement.

The appellancs filed an objection to the Settlement

Motion, but after limited expedited discovery and

extensive argument, the Bankruptcy Court entered

the Settlement Order on April 24, 2007, with a

written decision following on April 25, 2007.

While negotiations related to the Settlement were

under way, Delta’s bankruptcy proceedings con-

tinued. On February 7, 2007, the Bankruptcy Court

entered an Order approving the Disclosure State-

ment for the Plan of Reorganization, and Delta and

the other debtors distributed ballots to vote on their

Joint Plan of Reorganization in February of 2007.

The ballots were issued before the Settlement was

reached, but the Bondholders and other creditors

were fully informed of the terms of the Settlement

through a variety of means before the voting deadline

of April 9, 2007. (See Exs. 2 & 3 to McClammy Decl.;

Ex. R to Appellants’ Br.) The Bondholders who voted

on the Plan overwhelmingiy approved of it, with

97.35% in dollar amount and 89.19% in number

voting to accept the Plan.’ After a hearing to consider

‘The appellants contest this tabulation of votes cast by the

Bondholders, which the Bankruptcy Court cited, but they have

provided no basis for finding that anything other than an

12a

confirmation of the Joint Plan of Reorganization, the

Bankruptcy Court issued an Order confirming the

Plan on April 25, 2007. The Plan had an effective

date of April 30, 2007, with initial distributions of

shares of the reorganized Delta’s stock to follow on

May 3, 2007. Under the Settlement’s terms, its

“Closing Date” was coordinated to coincide with the

May 3, 2007 date of initial distributions under the

Plan.

Immediately after the Bankruptcy Court had

approved the Settlement, the appellants filed a notice

of appeai and a motion requesting an expedited

appeal in this Court. On April 26, 2007, the

appellants orally moved the Bankruptcy Court for a

stay pending appeal, and the court denied that

motion orally, with a formal order denying the

motion following on April 27, 2007. The appellants

then immediately moved this Court for a _ stay

pending appeal, and after extensive argument on

May 2, 2007, this Court denied the motion, finding

among other things that the appellants had failed to

establish a likelihood of success on appeal.

The next day, May 3, 2007, the reorganized Delta

issued Notes in the aggregate amount of $65,875,000

pursuant to the Settlement. Delta also made an

initial distribution of 5,848,221 shares of stock to the

Bondholders in connection with their $260 million

pre-petition claim under the Settlement. Delta also

entered into a new Lease and other agreements with

KCAB pursuant to the Settlement, and the settling

parties have to date fully implemented the Settle-

overwhelming majority of the voting Bondholders approved the

Plan, in keeping with the overwhelming approval from every

class of creditors who voted on the Plan. (See Certif. of Jane

Sullivan, Ex. 4 to McClammy Decl.)

l3a

ment in accordance with its terms. (See Aff. of Billy

W. Williams 79 4.) ‘The new Notes and the shares of

reorganized Delta stock are freely tradeable, and

Delta made the distributions through financial

intermediaries without knowing the actual identities

of the Bondholders. (Ud. {{ 5-6.)

Briefing on the current appeal proceeded according

to a Court-ordered stipulated schedule governing

both this appeal of the Settlement Order and the

same appellants’ related appeal of the Order Con-

firming the Joint Plan of Reorganziation (docketed as

O07 Civ. 4148). (See Stipulation & Order Regarding

Appeals, Docket No. 20.) This appeal is opposed by

Delta, UMB as the successor Boud Trustee, KCAB,

and the Post Effective Date Committee (as successor

to the Official Committee of Unsecured Creditors in

the Delta bankruptcy).

Pursuant to the terms of the Stipulation and Order

Regarding Appeals, the American’ Bankers

Association (“ABA”) moved for leave to file a brief as

amicus curiae in support of the appellee UMB.

(Docket No. 15.) The motion is unopposed, and the

Court grants leave for the ABA to file its brief as

amicus curiae, which the Court has considered in

connection with this appeal.

IT.

The Court reviews the Bankruptcy Court’s

conclusions ef law de novo and its findings of fact for

clear error. Citibank, N.A. v. Vebeliunas, 332 F.3d 85,

90 (2d Cir. 2003); In re Johns-Manuille Corp., 340

B.R. 49, 58 (S.D.N.Y. 2006); see also Fed. R. Bankr. P.

8013. A bankruptcy court’s finding pursuant to

Bankruptcy Rule 9019 that a settlement is rea-

l4a

sonable is reviewed for abuse of discretion. /n re

Iridium Operating LLC, 478 F.3d 452, 461 n.138 (2d

Cir. 2007); In re Purofied Down Prods. Corp., 150

B.R. 519, 522 ‘S.D.N.Y. 1993). The bankruptcy court

will have abused its discretion if “no reasonable man

could agree with the decision” to approve a set-

tlement. In re Frost Bros., Inc., 91 Civ. 5244, 1992

WL 373488, at *4 (S.D.N.Y. Dec. 2, 1992) (internal

quotation marks omitted).

ITI.

As an initial matter, the appellees argue that the

Court should dismiss the appeal as constitutionally

or equitably moot.

An appeal must be dismissed as constitutionally

moot when “an event occurs while a case is pending

on appeal that makes it impossible for the court to

grant ‘any effectual relief whatever’ to a prevailing

party.” Church of Scientology v. United States, 506

U.S. 9, 12 (1992) (quoting Mills v. Green, 159 U.S.

651, 653 (1895)). Even when a bankruptcy appeal is

not constitutionally moot, it should be dismissed as

equitably moot when, “even though effective relief

could conceivably be fashioned, implementation of

that relief would be inequitable.” In re Metromedia

Fiber Network, Inc., 416 F.3d 136, 143 (2d Cir. 2005)

(quoting Jn re Chateaugay Corp., 988 F.2d 322, 325

(2d Cir. 1993) (“Chateaugay I’)). The appellees focus

on their argument that the appeal is equitably moot.

The Court of Appeals has recognized that bank-

ruptcy appeals may be equitably moot in two sit-

uations: when an unstayed order has resulted in a

“comprehensive change in circumstances,” and when

a reorganization is “substantially consummated.” All.

state Ins. Co. v. Hughes, 174 B.R. 884, 888 (S.D.N_-Y.

l5a

1994) (quoting Chateaugay J, 988 F.2d at 325, and Jn

re Chateaugay Corp., 10 F.3d 944, 952 (2d Cir. 1993)

(“Chateaugay IJ”)). When a reorganization has been

“substantially consummated,” as that term is defined

in the Bankruptcy Code, see 11 U.S.C. § 1101(2),

there is a “strong presumption” that an appeal of an

unstayed order is moot. Allstate, 174 B.R. at 889; see

also In re Enron Corp., 326 B.R. 497, 502 (S.D.N.Y.

2005). This presumption may only be overcome when

five circumstances are present:

(a) the court can still order some effective relief;

(b) such relief will not affect the re-emergence of

the debtor as a revitalized corporate entity;

actions so as to knock the props out from under

the authorization for every transaction that has

taken place and create an unmanageable, uncon-

trollable situation for the Bankruptcy Court;

(d) the parties who would be adversely affected

by the modification have notice of the appeal and

an opportunity to participate in the proceedings;

and (e) the appellant pursue[d] with diligence all

available remedies to obtain a stay of execution

of the objectionable order . . . if the failure to do

so creates a situation rendering it inequitable to

reverse the orders appealed from.

Chateaugay II, 10 F.3d at 952-53 (alteration in

original) (internal quotation marks and citations

omitted); see also Allstate, 174 B.R. at 889.

While the Court of Appeals has not expressly

formulated a test for when a “comprehensive change

of circumstances” renders it inequitable to hear an

appeal, courts have found the same five equitable

considerations listed above that can defeat a claim of

l6a

mootness in the context of “substantial consum-

mation” to be instructive as well in the context of a

“comprehensive change of circumstances.” See, e.g.,

Kassover v. Gibson, 02 Civ. 7978, 2003 WL 21222341,

at *2 (S.D.N.Y. May 27, 2003), affd, 98 Fed. Appx. 30

(2d Cir. 2004); Allstate, 174 B.R. at 889.

The Joint Plan of Reorganization has now been

confirmed and appears to be “substantially consum-

mated.” However, because this appeal relates only to

the validity of the Settlement Order, and not the full

Plan, it is not clear that the “substantially con-

summated” prong applies. There has certainly been a

“comprehensive change in circumstances,” and in any

event the distinction makes little difference because

the same five factors guide the analysis. The

appellants do not contest that the parties have fully

implemented the Settlement according to its terms,

including entering into several new agreements

relating to Delta’s use of the Cincinnati/Northern

Kentucky Airport, and that Delta has distributed

millions of dollars in freely tradeable stock through

financial intermediaries that cannot be reversed. The

Court then looks to the five factors listed above to

determine whether the appellants can show that the

Court should not find their appeal equitably moot.

The first Chateaugay IJ factor requires that some

effective relief be available. The appellants contend

that it is not necessary to unwind the financial

transactions that have transpired, but that the Court

can fashion some relief by vacating the Settlement

Order and leaving it to the appellees either to ratify

the agreement without Bankruptcy Court approval of

the releases or to reform the Settlement in a manner

that addresses the appellants’ objections. In effect,

this argument says that relief is possible even if the

17a

transactions cannot be unwound because a vacatur

would nullify the releases and allow the appellants to

assert claims for damages against KCAB or UMB as

the Bond Trustee. But to nullify the releases while

leaving the remainder of the consummated Settle-

ment intact would ignore the tradeoff that allowed

the parties to settle in the first instance and would

treat a non-severable provision of the Settlement

Agreement as dispensable.

The cases the appellants rely on do not support

the idea that effective relief is available here. In

LTV Corp. v. Aetna Cas. & Sur. Co., 167 B.R. 776

(S.D.N.Y. 1994) (“Chateaugay IIT’), the court declined

to dismiss an appeal of a settlement order as moot,

but there was no showing that the deal involved

financial transactions that could not be unwound

because it only involved a surety’s payment to the

debtor in return for a release of claims. Jd. at 778-79.

In Feld v. Zale, 62 F.3d 746 (5th Cir. 1995), the Court

of Appeals for the Fifth Circuit found that a

bankruptcy court did not have jurisdiction to enjoin

certain third-party tort claims, which would not have

affected the bankruptcy estate, as part of its approval

of a settlement between the debtor and an insurer.

Id. at 755-57. However, because the court did not dis-

cuss equitable mootness at all, the case is inapposite.

The Bankruptcy Court found that the releases

were a necessary part of the Settlement reached

by the parties. See In re Delta, 2007 WL 1805567 at

*12-*13. (See Settlement Agreement § 3.01 (“Except

as the Parties may otherwise agree, all provisions of

this Agreement are essential, non-severable terms

.).) The distnbutions under the Settlement

Agreement have already been made and the securi-

ties distributed have likely been traded to parties

l&a

who are not before the Court and those distributions

cannot reasonably be undone and the appellants do

not seek to do so. While they do seek to undo the

releases of claims against KCAB and the Trustee,

those releases were an integral part of the entire

Settlement and cannot equitably be undone in iso-

lation from the distributions to the Bondholders

which the appellants do not seek to reverse. Cf. In re

Metromedia, 416 F.3d at 145 (deeming appeal

equitably moot where appellants sought to eliminate

releases which were essential to the bargain struck);

In re Enron Corp., 326 B.R. at 503 (finding appeal of

exculpation provision moot where the bankruptcy

court found the provision necessary for the nego-

tiation of the reorganization plan); In re Texaco Inc.,

92 B.R. 38, 45-50 (S.D.N.Y. 1988) (finding appeal

seeking to sever and rescind releases moot because

releases were part of an “integrated settlement” and

their rescission would “undermine the entire reor-

ganization”).

As for the other Chateaugay II factors, The

appellees assert that the absence of the vast majority

of KCAB Bondholders from this proceeding would

render it inequitable to undo the Settlement to

benefit a small number of dissenting Bondholders.

Courts have found that the effect on creditors who

are not party to an appeal in analogous circum-

stances weighs in favor of finding an appeal moot.

See In re Revere Copper & Brass, Inc., 78 B.R. 17, 18,

22 (S.D.N.Y. 1987). Similarly, while the Settlement

comprises only a small part of Delta’s Joint Plan of

Reorganization, its undoing would complicate Delta’s

rights to an important hub of its operations and

therefore risks having some negative effect on Delta’s

vitality as a reorganized entity. These considerations

19a

are not alone determinative, but they contribute to a

finding of equitable mootness.

Because of the irreversible financial transactions

that have occurred, and because Delta has entered

into a whole new set of agreements relating to its use

of the Cincinnati/Northern Kentucky Airport as a

hub of its operations, the appellants cannot show that

a vacatur of the Settlement Order, even if it were

possible, would not “knock the props out from under

the authorization for every transaction that has

taken place and create an unmanageable, uncon-

trollable situation for the Bankruptcy Court.” Metro-

media, 416 F.3d at 144 (quoting Chateaugay II, 10

F.3d at 953).

Finally, as to the fifth Chateaugay II factor, the

appellants did avail themselves of their opportunity

to seek a stay of the Settlement Order, both before

the Bankruptcy Court and before this Court.* But the

appellants’ diligence alone is insufficient to avoid

equitable mootness in light of the unavailability of

effective relief and the other considerations discussed

above. See In re UNR Indus., 20 F.3d 766, 769-70

(7th Cir. 1994) (“[A] stay not sought, and a stay

sought and denied, lead equally to the implemen-

tation of the plan of reorganization.”); cf. In re Gucci,

126 F.3d 380, 383, 387-89 (2d Cir. 1997) (appeal of

sale pursuant to bankruptcy court auction was moot

despite two unsuccessful attempts to obtain a stay).

Appeals after this Court denied a stay on the eve of the

Settlement’s Closing and the date of initial distributions under

the Settlement and the full Joint Plan of Reorganization, the

parties agree in light of the time constraints that this fact is not

grounds for mootness

20a

In their reply, the appellants argue that the

appellees manipulated the process to render any

appeal moot by structuring the Settlement with

releases of claims and a rapid Closing. However, the

appellees have shown there was a good reason to

time the Settlement Closing to coincide with initial

distributions under the Joint Plan or Reorganization

so that the KCAB Bondholders could have the benefit

of freely trading the distributed stock at the same

time as other creditors to avoid market risk. Fur-

thermore, .the timing of the Settlement did not

foreclose the appellants from making strenuous

objections before the Bankruptcy Court and indeed

seeking a stay before this Court. The timing and

structure of the Settlement therefore provides no

basis for entertaining an appeal that cannot result in

equitable or effective relief.

For all of these reasons, the Court concludes that it

would be inequitable to hear this appeal and finds it

equitably moot. Nonetheless, the Court considers the

merits of the appeal below “so that there is no doubt

as to the finality of the Bankruptcy Court’s Order.”

Allstate, 174 B.R. at 891.

IV.

On the merits of their appeal, the appellants repeat

a variety of arguments that the Bankruptcy Court

considered and rejected, although they have reform-

ulated several of these arguments. The core of the

appellants’ position is (i) that the Bankruptcy Court

had no jurisdiction or power to impose a Settlement

that released claims against KCAB, Delta, the

Trustee, and other Bondholders, and (ii) that the

Trustee had no authority in the first instance to bind

dissenting Bondholders to a Settlement reducing the

principal and interest that would be repaid under the

21a

KCAB Bonds. The appellants also devote much

attention to alleged rights they have against KCAB

to require it to “re-let” Delta’s airport space and to

pay the proceeds to the Bondholders. These issues

are addressed in turn.

The appellants’ argument that the Bankruptcy

Court lacked subject matter jurisdiction to order the

Settlement lacks merit for the reasons the Court

discussed in its denial of the motion for a stay. The

Bankruptcy Court plainly had jurisdiction under 28

U.S.C. §§ 1334(b) to approve this Settlement binding

non-debtors because the litigation that was settled

had more than a “conceivable effect” on the bankrupt

estate; it in fact had a very clear effect on Delta’s

obligations. In re Cuyahoga Equip. Corp., 980 F.2d

110, 114 (2d Cir. 1992) (citing Pacor, Inc. v. Higgins,

743 F.2d 984, 994 (3d Cir. 1984)); see also In re

Worldcom Inc. Secs. Litig., 293 B.R. 308, 318

(S.D.N.Y. 2003). The Bankruptcy Court correctly

found that the Indenture and the associated Lease

and Guaranty are “inextricably related to each other”

and that the court could not resolve the creditor

claims of KCAB and the Bondholders against Delta

without a corresponding resolution of the relation-

ship between KCAB and the Bondholders. Jn re

Delta, 2007 WL 1805567 at *11.

The appellants also argue more specifically that

the Bankruptcy Court lacked jurisdiction or power to

approve the releases of claims against the non-

debtors, which are contained in section 3.02(1) of the

Settlement Agreement. As the Court found previ-

ously in denying the stay, this argument has no

merit. A Bankruptcy Court may approve the release

of claims against third parties where those releases

22a

played an “important part” in a debtor’s reorgan-

ization plan. Jn re Drexel Burnham Lambert Group,

Inc., 960 F.2d 285, 293 (2d Cir. 1992); see also Bartel

v. Bar Harbor Airways, Inc., 196 B.R. 268, 274

(S.D.N:Y. 1996). The Jn re Metromedia decision relied

on by the appellants does not bar the releases in this

case. The Bankruptcy Court found that the releases

of claims against KCAB, Delta, the Bond Trustee,

and the Bondholders at issue here are narrowly

drawn and are necessary to prevent relitigation of

precisely the claims that were negotiated and re-

soived by the Settlement Agreement.* See In re Delta,

2007 WL 1805567 at *12- *13. It is furthermore clear

that they comprised valuable consideration for KCAB

and the Bond Trustee in return for their agreement

to give up indemnification rights against Delta under

section 6.08 of the Lease, and therefore the releases

are of the kind In re Metromedia expressly lists as

acceptable. 416 F.3d at 142.

The appellants raise several new arguments that

essentialiy repackage their assertion that the Bank-

ruptcy Court lacked jurisdiction and power to ap-

prove this Settlement. First, the appellants assert

that the Bankruptcy Court’s actions denied them

their constitutional right to due process because the

Settlement Order’s release of claims eliminates their

ability to bring claims as individual Bondholders

against the Bond Trustee, KCAB, or other Bond-

holders and they were thus never afforded an

opportunity to adjudicate those claims. In particular,

the appellants point to their alleged right to sue the

The Bond Trustee point. out the irony that the appellants’

actions in this very case show why parties would rarely agree to

settle without being released from claims relating to the set-

tlement itself.

23a

Bond Trustee for failing to act prudently in ac-

cordance with section 10.18 of the Indenture and to

their right to hold KCAB accountable for “re-let

proceeds” they allege that KCAB must pursue under

section 8.07(c) of the Lease, both rights which are

expunged under the Settlement.

This due process argument was not made to the

Bankruptcy Court below. Because the argument was

raised for the first time on appeal, the Court can

decline to hear it. See, e.g., Adelphia Bus. Solutions,

Inc. v. Abnos, 482 F.3d 602, 607 (2d Cir. 2007);

Gulino v. N.Y. State Educ. Dep’t, 460 F.3d 361, 380

n.22 (2d Cir. 2006). In any event, the argument has

no merit because the Bankruptcy Court gave the

appellants notice and an opportunity for both ex-

pedited discovery and a hearing on their objections to

the proposed Settlement, and obviously the appel-

lants availed themselves of this opportunity. It is no

answer to say that the Bankruptcy Court proceedings

did not adjudicate the alleged claims of individual

Bondholders because the matter before the Bank-

ruptcy Court was a motion pursuant to Bankruptcy

Rule 9019 to approve a Settlement, not an adju-

dication on the merits of individual tort or contract

claims, and the Bankruptcy Court concluded that the

Bond Trustee was authorized to enter into the

Settlement on behalf of all Bondholders. See In re

Purofied Down Prods. Corp., 150 B.R. at 522-23

(“[L]ittle would be saved by the settlement process if

bankruptcy courts could approve settlements only

after an exhaustive investigation and determination

of the underlying claims.”).

Second, the appellants argue that the Bankruptcy

Court failed to abide by certain procedural rules in

effectively adjudicating their claims as individual

24a

Bondholders without an adversary proceeding. This

argument also was not raised below and is therefore

waived, see Gulino, 460 F.3d at 380 n.22, and more-

over the argument lacks merit because the appellants

had ample notice and opportunity to voice their views

on the Settlement generally and on the release of

claims specifically.

For all of these reasons, and for the reasons stated

by the Bankruptcy Court, the appellants’ arguments

that the Bankruptcy Court lacked either jurisdiction

or power to approve the Settlement, and in particular

to approve the releases, are without merit.

The appellants also continue to argue, as they did

before the Bankruptcy Court and before this Court on

the stay, that the terms of the Indenture did not

authorize the Bond Trustee to settle for less than the

full value of the Bonds over the objection of some

Bondholders.* The appellants contend that so-

called “non-impairment” provisions in sections 9.06,

12.03(a), 12.06, and 12.07 of the Indenture protect

minority rights by prohibiting the impairment of a

Bondholder’s right to receive payment of the prin-

cipal and interest on a Bond or to institute suit for

the enforcement of any past-due payment without the

consent of that Bondholder.

Considering all of the relevant provisions of the

Indenture, the Bankruptcy Court correctly found that

the Indenture did not bar it from approving the

* It should be noted that if the Bond ‘I'rustee was _ so

authorized, this is an additional reason that the appellants’

other arguments are without merit because the appellants

would be parties to a Settlement agreed to by their authorized

agent.

25a

Settlement, particularly in view of the agreement by

the Bond Trustee at the direction of a majority in

principal amount of the Bondholders to enter into the

Settlement, the Bankruptcy Court’s independent

finding that the Settlement was fair and reasonable

and in the interest of all Bondholders, and the

approval of the Joint Plan of Reorganization, which

incorporates the Settlement, by a large majority of

the Bondholders. See In re Delta, 2007 WL 1805567

at *7-*10. The Bankruptcy Court was also correct in

finding that any impairment of the Bondholder’s

ability to collect was due to Delta’s default due to

bankruptcy and its protection under the bankruptcy

laws, not to any act of the Issuer or Bond Trustee.

In reaching this conclusion, the Bankruptcy Court

carefully reviewed the Indenture, including all of

Article IX relating to “Defaults and Remedies,” and

found that “[t]hese provisions, individually and col-

lectively, make absolutely clear that, when there is a

default by the issuer, the Bond Trustee alone has the

power and authority to commence remedial proce-

dures on behalf of all Bondholders, constrained only

by the direction of a majority in amount of the

Bondholders.” /d. at *10. Furthermore, the power to

negotiate and agree upon settlements inheres within

this power to commence remedial procedures. See,

e.g., In re Smart World Tech., LLC, 423 F.3d 166,

174-75 (2d Cir. 2005); In re Adelphia Commce’ns

Corp., 361 B.R. 337, 355 (S.D.N.Y. 2007). Moreover,

non-impairment clauses of the type upon which the

appellants rely become moot in the context of a

default because of bankruptcy. Jn re Delta, 2007 WL

1805567 at *10 (collecting cases}

The brief of the amicus curiae ABA further con

vincingly shows that section 9.06 of the Indenture

26a

borrows language from the Trust Indenture Act of

1939 (“TIA”), 15 U.S.C. §§ 77aaa et seg., which was

included in indentures to prevent insiders from

renegotiating an issuer’s obligations to the detriment

of non-insider investors and was never intended to

preclude a trustee from procuring a_ satisfactory

compromise, subject to judicial scrutiny and approved

by a majority of the bondholders, from a bankrupt.

issuer. (Br. of Amicus Curiae American Bankers

Association 7 (citing Hearing on H.R. 10292 Be-

fore the Subcomm. of the Comm. on Interstate and

Forcign Commerce, 75th Cong. 3 (1938) (statement of

William O. Douglas, SEC Chairman)).) Moreover, the

appellants concede that the case law suggests the

language of section 9.06 would not prevent a trustee

from impairing rights to principal and interest if the

issuer were the bankrupt.

While KCAB, rather than Delta, is the issuer of the

Bonds here, the Bankruptcy Court correctly found

that the bonds are non-recourse with respect to

KCAB and that Delta provides the only guaranteed

sourc: 0} payments under the Bonds. The appellants

have provided no authority holding that a non-

impairment provision lke section 9.06 requires

unanimous Bondholder consent to enter a settlement

in the circumstances present here. Delta’s bank-

ruptcy, which compromised the Guaranty and the

Lease which are “inextricably related” to the Inden-

ture, also compromised the rights to payment under

the Ponds and therefore overrides the protection of

secticn 9.06. In any event, section 10.10 of the

Indenture provides that the Bond Trustee may

resolve any ambiguities or inconsistencies in the

Indenture in good faith, and there is no question that

the Bond Trustee’s interpretation that section 9.04

27a

takes precedence over section 9.06 in the circum-

stances present here is a good faith interpretation.

In summary, the Court concurs with the Bank-

ruptcy Court’s conclusion that the Indenture

authorized the Bond Trustee to conduct remedial

proceedings at the vehest of a majority of the

Bondholders, and that the Bond Trustee’s remedial

power* included the right to enter the Settlement

that was ultimately approved by the Bankruptcy

Court.

The appellants’ arg :ments concerning KCAB’s

alleged liability tc the Bondholders for “re-let

proceeds” under the Lease and Indenture provide no

basis for reversal. First, as the Bankruptcy Court

found, the issue of re-let proceeds was both a legal

and factual question that confronted the parties to

the Settlement and that was resolved by the Set-

tlement, which the Court has already concluded the

Bond Trustee was authorized to enter on behalf of

the Bondholders and which the Bankruptcy Court

had the power to approve. See In re Delta, 2007 WL

1805567 at *5. As such, further inquiry into the

question whether the Lease and Indenture assigned

rights to the re-let proceeds to the Bondholders is

wholly unnecessary.

Second, even if the Court were to look behind the

Settlement and decide whether the _ governing

documents assigned to the Bondholders any claims

based on re-let rights, it would conclude that they do

not. Delta’s payments under the Lease (and guar-

anteed in the Guaranty to be paid to the Bond

Trustee on behalf of the Bondholders) constituted the

only payment stream to which the Bondholders were

28a

entitled. See In re Delta, 2007 WL 1805567 at *2, *11.

The provision the appellants contend establishes

their right to re-let proceeds, section 8.07(c) of the

Lease, provides that KCAB owes a duty to use its

“best efforts” to re-let any vacated portion of its

leased facilities “and to credit all rentals derived from

any such reletting to the rentals payable by [Delta]

under this Agreement.” The Lease is an agreement

between KCAB and Delta, and thus the duty

expressed in section 8.67(c) is a duty owed by KCAB

to Delta. The Lease required KCAB to assign to the

Bond Trustee certain rights of KCAB under the

Lease as security for the payment of the Bonds, in-

cluding KCAB’s right to receive payments from Delta,

but it explicitly did not assign “Unassigned Rights.”

(Lease § 4.04.) The Indenture specifically included

KCAB’s duty to re-let under section 8.07 of the Lease

as one of the “Unassigned Rights” and hence it was a

right not assigned to the Bond Trustee. (See Inden-

ture § 1.01 (“Unassigned Rights”).) A carve-out to the

Unassigned Rights language does appear to provide

that money produced through reletting the facilities

should be applied toward payment of the Bonds (see

id.), but to say that KCAB should forward any

proceeds it receives from re-letting the facilities to

the Bond Trustee for the benefit of the Bondholders is

not the same as imposing upon KCAB a duty to the

Bondholders to re-let the facilities. The re-let pro-

vision provides an obligation on KCAB to mitigate its

damages in the face of a default by Delta under the

Lease and to apply the proceeds toward payment of

the Bonds. But the re-let obligation was never a duty

owed to the Bond Trustce or the Bondholders. Hence,

the re-let provision of the Lease provides no basis for

the Trustee, much less individual Bondholders, to

29a

enforce any right to require KCAB to re-let vacated

facilities.

Finally, the evidence before the Bankruptcy Court

relating to the availability of alternative tenants for

the facilities at issue showed that no tenant other

than Delta would want to make the airport a hub and

that some efforts had been made to find other

potential tenants. (See Dep. of Robert F. Holscher 62-

63, 73, 198-99, 206-07, Ex. 11 to McClammy Decl.)

It is thus unrealistic in the extreme to assert that

the Bond Trustee could have sought greater recovery

for the Bondholders than they received under the

Settlement by attempting to enforce any rights to the

re-let provisions.

For all of these reasons, the appellants have failed

to show that the Settlement improperly impaired any

rights to re-let proceeds.

CONCLUSION

The Court has considered the appellants’ remain-

ing arguments and found them to be either moot or

without merit. The Settlement Order entered by the

Bankrupicy Court is therefore affirmed.

SO ORDERED.

Dated: New York, New York

August 27, 2007

/s/ John G. Koeltl

JOHN G. KOELTL

United States District Judge

30a

UNITED STATES DISTRICT COURT SOUTHERN

DISTRICT OF NEW YORK

[Filed 8/28/07]

07 CIVIL 3968 (JGK)

In re DELTA AIR LINES, [NC., et al.,

Debtors.

KENTON COUNTY BONDHOLDERS COMMITTEE,

Appellants,

-ayainst-

DELTA AIR LINES, INC., et al.,

Appellees.

JUDGMENT

Appellants having appealed from a Settlement

Order of the United States Bankruptcy Court for the

Southern District of New York, and the matter

having come before the Honorable John G. Koeltl,

United States District Judge, and the Court, on

August 27, 2007, having rendered its Opinion and

Order affirming the Settlement Order entered by the

Bankruptcy Court, it is,

ORDERED, ADJUDGED AND DECREED: That

for the reasons stated in the Court's Opinion and

Order dated August 27, 2007, the Settlement Order

entered by the Bankruptcy Court is hereby affirmed.

gla

Dated: New York, New York

August 28, 2007

J. MICHAEL McMAHON

Clerk of Court

BY: /s/ [legible]

Deputy Clerk

32a

APPENDIX C

FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

Chapter 11

Case No. 05 B 17923 (ASH)

(Jointly Administered)

In re: DELTA AIR LINES, INC., et al.,

Debtors.

DECISION GRANTING RULE 9019

MOTION AND APPROVING SETTLEMENT

Debtor Delta Air Lines, Inc. (“Delta”)' and Kenton

County Airport Board (“KCAB”) are parties to a lease

(the “Lease”) and various other agreements (collec-

tively with the Lease, the “Facilities Agreements”)

governing Delta’s use and occupancy of certain facil-

ities and improvements at the Cincinnati/Northern

Kentucky International Airport (the “Airport”) dated

February 1, 1992. The Lease calls for rental pay-

ments over thirty years equal to amounts due on

certain special facilities revenue bonds—the $419

million Kenton County Airport Special Facilities

Revenue Bonds, 1992 Series A and the $19 million

Kenton County Airport Special Facilities Revenue

Bonds, 1992 Series B (together, the “Bonds” and

holders thereof the “Bondholders”). The Bonds were

issued under a Trust [Indenture (the “Indenture’)

Delta and certain of its affiliates filed their petitions under

Chapter 11 in September 2005

33a

dated as of February 1, 1992 between KCAB an

issuer and Star Bank, N.A., predecessor-ininterest to

UMB Bank, N.A. as trustee (the “Bond Trustee”),

pursuant to which KCAB assigned to the Bond

Trustee certain of its rights under the Lease

including the right to receive the rental payments

from Delta.

In late 2005 Delta informed KCAB and the Bond

Trustee that Delta intended to reject certain of the

Facilities Agreements including the Lease. After

more than a year of complex, hard fought, arms’

length negotiations, Delta, KCAB and the Bond

Trustee reached a global settlement (the “Settle-

ment”) resolving all issues between the parties

arising from Delta’s rejection of the Lease and other

Facilities Agreements.

Before the Court is Delta’s motion under Bank-

ruptcy Rule 9019, joined in by KCAB and the Bond

Trustee and supported by the Official Committee of

Unsecured Creditors, seeking entry of an order to

implement the Settlement by (1) approving the

parties’ Settlement Agreement, (2) approving Delta’s

rejection of the Lease and certain other Facilities

Agreements and (3) authorizing Delta and KCAB to

enter into a new lease (the “New Lease”) and other

agreements.

The only objection to the 9019 motion and the

Settlement was filed by five holders of Bonds said to

aggregate approximately $51 million, four of which

acquired their Bonds after January 1, 2006. Self

‘ The total outstanding Bonds presently aggregate $413,570,000

principal amount held by substantially more than 546 Bond

holders. The Bonds are held in street name and thus holders

cannot be numbered But 546 Bondholders holding $168.5 mil

34a

styled the “Ad Hoc Committee of Kenton County

Bondholders,” the five objecting Bondholders will be

referred to here as the “Objectors” and their objection

the “Objection.”

The Objectors do not assert that the Settlement is

not reasonable or beneficial for Delta and its creditor

constituency, nor would one expect such an argu-

ment. But what is surprising is that the Objectors did

not make any argument that the Settlement is not

reasonable or beneficial from the perspective of the

Bondholders, even after the Court noted the point at

the oral argument (Tr. 106-107). Instead, the Objec-

tors oppose the Settlement on eight strictly legal

grounds, summarized as follows:

(i) The Bond Trustee lacks authority to bind

the Objectors to a settlement for less than 100%

of their entitlement to principal and interest on

the Bonds without their consent.

(ii) The Court lacks subject matter jurisdiction

to modify the Indenture, which is an agreement

between two non-debtor parties, KCAB and the

Bond Trustee.

(iii) The global settlement violates Kentucky

law which requires full payment of principal and

interest on all Kentucky bonds.

(iv) The settlement purports to allow Delta to

“rip up its orginal 30-year Lease Agreement

dated February 1, 1992” and sign a new facilities

agreement allowing Delta to continue to use the

facilities “rent free” for the remaining 15-year

term of the original Facilities Agreements.

lion face amount of Bonds have recently voted timely and

properly on the Plan

35a

(v) The settlement is an illegal sub rosa plan.

(vi) The settlement is dependent upon an un-

lawful release of claims of Bondholders against

the three settling parties.

(vii) Modification of the Indenture violates the

impairment of contract clause of the United

States Constitution.

(viii) The Federal Trust Indenture Act pro-

hibits any impairment of the Bondholders’ rights

under the Indenture.

Each of these arguments is considered below.

lurisdicti

As amplified below, this Court has jurisdiction over

this case and this contested matter under 28 U.S.C.

§§ 1334(a) and (b) and 157(a) and the standing order

of referral to bankruptcy judges signed by Acting

Chief Judge Robert J. Ward on July 10, 1984. The

pending motion is a core proceeding under 28 U.S.C.

§ 157(b)(2).

Basic Facts Ignored by Objectors

There is an aura of unreality that pervades the

Objectors’ arguments and stems from their failure to

take cognizance of two real world, fundamental facts

of life in this Chapter 11 case which cannot be

ignored.

First, it is an oft-repeated premise of the Objectors’

position on this motion that they cannot be deprived

of their contractual right to 100% of their entitlement

to principal interest under the Indenture without

their consent, and they do not consent. What is

ignored is the fact that this is a bankruptcy case, and

whether the Settlement is approved by this Court or

36a

not, the Bondholders including Objectors are not

going to receive 100% of the amount to which they

are entitled under the Indenture. Bondholders and

the Bond Trustee have no claim against KCAB, the

issuer of the Bonds, which are expressly made non-

recourse under the Indenture. The sole source of

funding for the Bonds is the stream of rental pay-

ments under the Lease running from 1992 through

2022. As a Chapter 11 debtor, Delta has the extra-

ordinary power under Section 365(a) of the Bank-

ruptcy Code to reject the Lease, leaving KCAB, and

thus the Bond Trustee, and thus the Bondbolders,

with an unsecured, pre-petition claim for damages

under Section 365(g), which (Delta argues but the

Court need not decide) may be capped under Section

502(b)(6). Whether capped or not under Section

502(b)\(6), it is a practical certainty that the Bond-

holders will receive less than their contractual en-

titlement under the Indenture. The only question is

how much less, and that was precisely the subject of

the negotiations leading to the Settlement.

A second premise underlying the Objection is that

the Court lacks subject matter jurisdiction to modify

the indenture because it is a contract between two

non-debtors. The legal defects in this argument are

addressed below. The practical reality which the

argument ignores is that the Bond Trustee’s rights

against KCAB under the Indenture to receive the

rent paid by Delta to KCAB will inevitably be modi-

fied, whether or not this Court approves the Settle-

ment. When Delta rejects the Lease, the rent pay-

ments will terminate, leaving the Bond Trustee with

an unsecured pre-petition claim to be paid in Delta

stock pari passu with all other unsecured creditors.

37a

In short, the putative entitlement which the Objec-

tion seeks to vindicate—preservation of the Inden-

ture and the Bondholders’ right to 100% payment

thereunder—is sheer fantasy in the context of this

case under the Bankruptcy Code. Even if this Court

does not approve the Settlement, Delta will reject the

Lease and thereby terminate all future payments

under the Lease, leaving KCAB and the Bond

Trustee with an unsecured pre-petition claim. The

settling parties’ negotiations concerned the amount

and composition of that claim, with t‘1e Bond Trustee

and KCAB asserting every argument against Delta

which the Bondholders themselves could have as-

serted if the Bondholders had standing to make claim

against Delta, which they do not, as amplified below.

If Delta’s position on the key issues in the nego-

tiations (especially the Section 502(b)(6) issue) were

litigated and sustained by a court, the unsecured pre-

petition claim would result in recovery by the Bond-

holders of only a fraction of their entitlement under

the Settlement. But in no event would the Indenture

and the Bondholders’ rights thereunder survive

unmodified.

The Negotiations and Settlement

After Delta notified the parties in late 2005 of its

intent to reject the Lease and certain of the Facilities

Agreements, Delta, KCAB and the Bond Trustee

agreed to a stipulation on December 30, 2005 pro-

viding for a 60-day period for the parties to attempt

to reach a consensual agreement, with the further

agreement that any motion prior to expiration of the

negotiation period to approve rejection wouid result

in rejection effective January 19, 2006 if and when

approved by the Court. On February 17, 2006 the

parties agreed to extend the negotiation period from

38a

March 1 to May 1, 2006. On Apmil 28, 2006, having

been unable to negotiate an agreement, Delta filed a

motion (the “Rejection Motion”) seeking rejection of

the Lease and certain of the Facilities Agreements.

The parties continued to negotiate, however, and on

July 17, 2006 Delta, KCAB and the Bond Trustee en-

tered into a forbearance agreement (the “Forbearance

Agreement”) providing for Delta to make an initial

payment to the Bond Trustee on behalf of the

Bondholders on August 1, 2006 of $9 million for use

and occupancy of the airport facilities for the period

from January 1 to August 31, 2006, and monthly

payments equal to $1,125,000 for use of the facilities

thereafter. The Forbearance Agreement provided

that payments pursuant thereto would be credited

against any obligation Delta may have to pay for the

facilities under the Lease or otherwise, and each of

the parties would forbear from exercising any rights

or remedies available to them for Delta’s failure to

make whatever payments were contractually due

under the Lease. On November 26, 2006 and again on

December 29, 2006 the Forbearance Agreement was

extended. uitimately to February 15, 2007. Under

the Settlement Agreement, the forbearance period

was extended until the “Issuance Date” as defined

therein.

The negotiations between the settling parties were

carried on from December 2005 until mid-February

2007. As described by the Bond Trustee in its Reply

Memorandum (page 4) “the parties were engaged in

long and contentious negotiations and legal battles

over their respective rights, obligations and claims.”

The Bond Trustee was represented by “a team of

professionals to provide guidance and advice concern-

ing the myriad of legal, regulatory and economic

issues faced during this chap -r 11 case.” Jd. The

39a

team included experienced bankruptcy counsel,

experienced FAA counsel, experienced Kentucky

law counsel and an experienced airline industry

consultant.

The Bond Trustee “developed an exceptionally full

and open process of communication with all of the

1992 Bondholders” and “took all reasonable efforts to

insure that the 1992 Bondholders were timely

informed of the status of the various matters involved

in these bankruptcy proceedings.” Jd. at 5. This “proc-

ess of communication” included sixteen Bondholder

notices during the course of the bankruptcy case

to report on material events including, inter alia,

Delta’s threats to reject the Lease and ongoing

negotiations concerning the potential settlement of

the issues. The Bond Trustee also established a

website “solely dedicated to the interests of the 1992

Bondholders,” which reported on all material events

and pleadings “and finally all of the documents

associated with the Settlement—which were posted

over a month before the objection deadline concerning

the Settlement and weeks before the voting deadline

on Delta’s plan of reorganization.” Jd. at 5. The

Bondholder notices were also provided to Depository

Trust Compeny for distribution to beneficial holders

and posted on Bloomberg.

An unofficial “Bondholders’ Committee” was formed

constituted of Bondholders holding approximately 60%

of the outstanding principal amount of the Bonds.

“Through this Bondholder Committee, the Indenture

Trustee was able to review critical issues with a

majority of the ultimate stakeholders and to access

their viewpoints and judgments as to the strategic and

business issues. Pursuant to the Bondholder Notices,

all 1992 Bondholders were invited to join the

40a

Bondholders’ Committee to assist in the process.” Id.

at 6, footnotes omitted.

The Settlement materials were posted on the Bond-

holders’ website, and full information concerning the

Settlement was also (i) sent directly to the Bond-

holders through Delta’s balancing agent, (11) pub-

lished on Delta’s website, (ili) published in the Wall

Street Journal National Edition and the Cincinnati

Inquirer, (iv) provided to four Nationally-Recognized

Municipal Securities Information Repositories and

(v) set forth in an 8K filed by Delta on March 8, 2007

with the Securities and Exchange Commission. The

Bond Trustee disclosed the terms of the Settlement

in open court on February 22, 2007 and followed up

with a Bondholder Notice posted on the Bondholder

website, published on Bloomberg on February 23,

2007 and sent to DTC for distribution the same day.

Among the legal issues which were hotly contested

in the Settlement negotiations and resolved by the

Settlement Agreement were the following:

e Delta’s ability to reject the Facilities Agree-

ment;

e Whether the obligations under the Guaranty

are capped under Section 502(b\(6) of the

Bankruptcy Code;

e Whether the Facilities Agreement itself is a

disguised financing transaction;

e Whether the Indenture Trustee had a claim to

“re-let proceeds” to the extent that the Facil-

itics Agreement was rejected;

e Whether Kentucky law was an obstacle to

Delta’s plans to reject the Facilities Agreement

or otherwise occupy the Facilities at a reduced

4la

rental rate even if the Rejection Motion was

approved;

e The viability of the Indenture Trustee’s claims

against KCAB.

Id. at 33.

The “re-let proceeds” question was not only a legal

but a factual issue of significance to the economic

negotiations. It appears that the rent paid by Delta to

KCAB under the Lease was substantially higher than

the market values for the facilities. Moreover, counsel

for the Bond Trustee revealed at the hearing on the

9019 motion that the Trustee’s marketing profes-

sionals had determined after lengthy study that it

would be difficult if not impossible to find replace-

ment tenants for the facilities occupied by Delta

under the Lease at the Airport.

The Bondholders’ Committee, comprising holders of

60% of the face amount of the Bonds, which was kept

fully informed of the negotiations, gave written in-

structions authorizing the Bond Trustee to agree to

the terms of the Settlement. The Settlement Agree-

ment and its constituent elements resolved all out-

standing issues between the parties. The Settlement

Agreement is well summarized in Delta’s Rule 9019

motion as follows:

10. The Settlement Agreement sets forth the

Parties’ agreement that, inter alia,

(i) the Rejected Agreements shall be deemed

rejected as of the dates set forth in Exhibit A to

the Settlement Agreement;

(ii) the Rejected Agreements shall be termi-

nated by agreement of the Parties as of the

Closing Date, and the 1992 Bond Indenture

42a

shall be [sic] remain in effect solely as set forth

in the Settlement Agreement and shall other

wise be of no force or effect;

(iii) Delta and KCAB will enter into a new

lease agreement substantially in the form of

the draft attached as Exhibit F to the Settle-

ment Agreement (the “New Lease”) and such

other agreements as Delta and KCAB shall

deem necessary or appropriate in connection

therewith, including a Maintenance and Oper-

ations Services Agreement in form and sub-

stance similar to the form attached as Exhibit

G to the Settlement Agreement (the “New

M&O Agreement”) and a Bulk Storage Facil-

ities Lease in form and substance similar to

the form attached as Exhibit B to the Settle-

ment Agreement;

(iv) Delta shall issue a note (the “Delta Note”)’

to the Bond Trustee, on behalf of the 1992

Bondholders, the original principal amount of

which shall be $85,000,000 less amounts paid

by Delta under the Forbearance Agreement, as

amended, and less amounts made as a pre-

payment of all or a portion of the Delta Note

Value, and bearing a fixed interest rate of

eight (8) percent per annum, as provided for in

the Settlement Agreement;

(v) the Bond ‘Trustee, as trustee and on be-

half of all 1992 Bondholders, shall have a

$260,000,000 allowed pre-petition, non-prier-

ity, unsecured claim against Delta (the “BD. k-

ruptcy Claim”):

(vi) Delta, KCAB, the Bond Trustee, and the

1992 Bondholders will forever release, dis-

43a

charge, waive and abandon any claims or

rights that each may have against the others

with respect to the 1992 Bonds, 1992 Bond

Facilities and the 1992 Bond Agreements as

set forth in the Settlement Agreement;

(vii) Delta shall reimburse the Bond Trustee

for the actual and reasonable fees and ex-

penses of the Bond Trustee incurred in con-

nection with the 1992 Bonds, the Settlement

Agreement and Delta’s bankruptcy case, with

such reimbursement, in the aggregate, not to

exceed $2,000,000;

(viii) Delta will be deemed to have assumed

at Closing the Airport Use Agreement, as

amended, including prepetition and postpeti-

tion obligations pursuant thereto; and

(ix) the Guaranty and Tax Certificate are pre-

petition obligations of Delta that, as such, shall

be fully discharged and terminated in connec-

tion with Delta’s exit from bankruptcy, ac-

cording to the terms set forth in the Settlement

Agreement.

"The Delta Note shall be and shall be deemed issued

under Delta’s Plan and, pursuant to 11 U.S.C. § 1145,

shall qualify for exemption from any Federal or State

law requiring registration for offer or sale of a security.

The Delta Note and the payments of amounts under

Section 3.02(c)iil) of the Settlement Agreement are

provided in consideration of (i) the consent to certain

rclief sought in the Rejection Motion as modified by the

terms of this Agreement, and (11) the release of all claims

with respect to the post-rejection occupancy of the 1992

Bond Facilities, including any purported rights to

receive relet proceeds.

44a

The Settlement appears to this Court to be clearly

in the best interests of both Delta and the Bond-

holders. Under the existing Lease, Delta currently is

required to pay $29.1 million in rent each year in

interest only on the Bonds. Principal payments on

the Bonds would be due in 2012, 2020, 2021 and 2022

in the amounts of $50 million, $135,210,000, $130

million and $98,360,000, respectively, aggregating

$413,570,000. In lieu of these liabilities for rent

under the Lease payable between now and 2022, the

Settlement Agreement provides for Delta’s note in

the amount of $85 million less amounts previously

paid under the Forbearance Agreement, and a pre-

petition, non-priority, unsecured claim of $260 mil-

lion payable in Delta equity securities. In addition to

these very substantial savings, the Settlement Agree-

ment will avoid prolonged and costly litigation.

The terms of the Settlement Agreement also ap-

pear to be favorable for the Bondholders. Delta’s

Rejection Motion, resolved by the Settlement Agree-

ment, would be virtually assured of approval if the

Court were to sustain the Objection and disapprove

the Settlement Agreement. The right to reject ex-

ecutory leases and other contracts under Section

365(a) is one of the powerful tools given to debtors-in-

possession to facilitate reorganization under the

Bankruptcy Code. Rejection is routinely granted

where, as here, it is in the debtor’s interest under the

business. judgment rule, and there has been no

suggestion by Objectors that any ground would exist

for the Court to deny Delta’s motion to reject. In the

event of rejection, the Bondholders would receive an

unsecured, pre-petition claim which could not ap-

proach their entitlement under the Indenture. It

bears repeating that the Objectors have not argued

that the Settlement is not beneficial to the Bond-

45a

holders. As summarized by Delta in its Reply

Memorandum (page 4), unrebutted by the Objectors

at oral argument:

(Wlithout the Settlement Agreement, the 1992

Bondholders faced receiving, as their total recov-

ery, a single claim capped by section 502(b)(6) of

the Bankruptcy Code in the amount of either

(approximately) $75.5 million or $127.5 million.

Under the Settlement Agreement, however, they

will receive a claim of $260 million, cash or notes

with a present value of $85 million (the “Delta

Note”) and $2 million in legal fees. Assuming a

65 cent recovery for general unsecured creditors,’

the 1992 Bondholders will receive consideration

equivalent to an unsecured claim of approxi-

mately $394 million—3 to 5 times what they

might well have recovered absent the Settlement

Agreement. The 10% Bondholders’ erroneous

suggestion that Delta’s new lease is “rent free”

also ignores the hundreds of millions of dollars of

value that Delta is paying to the 1992 Bond-

holders in additional consideration under the

Settlement Agreement. As discussed below (and

as was made clear in discovery), the majority of

the 1992 Bondholders and the Bond Trustee

chose to receive these payments up front and in

the form of freely tradable securities, rather than

having them structured as future rent and

spread out over the course of the lease term.

* The estimated recovery range for holders of general unse-

cured claims against Delta included in Delta’s Disclosure

Statement was 62% to 78% with a mid-point of 70%. Re-

cent claim trading activity also suggests a market estimate

of a 60 cents recovery.

46a

Delta’s Plan and Bondholder Approval

The Settlement Agreement expressly provides that

the terms of the Settlement (which was fully and

timely disclosed to all creditors including Bond-

holders) are incorporated in and made part of Delta’s

Plan of Reorganization and subject to creditor

approval of the Plan. The Bondholders have voted

overwhelmingly both in dollar amount (97.35%) and

number (89.19%) to accept the Plan. The certification

of ballots shows that 546 Bondholders holding

$168,520,535 of Bonds filed timely and proper claims.

Of these, 487 Bondholders holding $164,052,671 of

Bonds voted to accept the Plan, with only 59 Bond-

holders holding $4,467,864 of Bonds voting to reject

the Plan. A number of untimely or improper votes

were also cast, some or all of which voted to reject the

Plan. But even counting these improper votes,

89.49% in amount and 88.69% in number voted in

favor of the Plan.

Bondholders voting on the Plan obviously have no

interest under the Plan other than what is provided

under the Settlement. Thus, the actual vote reflects

the Bondholders’ overwhelming support for the

Settlement.

The Objectors’ Legal Arguments

|. The Bond ‘Trustee’s authority to bind the Objec-

tors to the Settlement

The Objectors rely on Sections 9.06, 12.03(a), 12.06

and 12.07 of the Indenture to argue that “the Bond

Trustee lacks authority to enter into the Settlement

Agreement.” These so-called “non-impairment provi-

sions” do indeed purport to preclude any impairment

of Bondholders’ rights under the Indenture. Thus, for

example, Section 9.06 states:

47a

SECTION 9.06. No Impairment of Right to En-

force Payment. Notwithstanding any other provi-

sion of this Indenture, the right of any Owner to

receive payment of the principal of or purchase

price of an interest and any premium on his

bond, on or after the respective due dates ex-

pressed therein, or to institute suit for the en-

forcement of any such payment on or after such

respective date, shall not be impaired or affected

without the consent of such Owner.

Article XIT is titled “MODIFICATION OF THIS IN-

DENTURE AND THE AGREEMENT.” Section 12.03

is titled “Supplemental Indenture with Consent of

Owners;” Section 12.06 is titled “Amendment of

Agreement or Guaranty without Consent of Owners;”

Section 12.07 is titled “Amendment of Agreement or

Guaranty with Consent of Owners.”

Viewed in the abstract, and without reference to

the facts and circumstances under which they may be

applicable, these provisions appear to support the

Objectors’ argument. But what the argument ignores

is that the sole source of payment of the Bonds is a

Lease between the issuer, KCAB, and a debtor-in-

possession in bankruptcy. The Bankruptcy Code,

which overrides private agreements, grants Delta the

right to reject the Lease and terminate future pay-

ments under the Lease to KCAB, which will termi-

nate payments under the Indenture to the Bond-

holders. In short, the Bondholders’ rights under the

Indenture will be tmpaired in this bankruptcy case

despite all the provisions of the Indenture relied upon

by the Objectors.

Article XII is not concerned with default or bank-

ruptcy or other events beyond the control of KCAB or

the Bond Trustee—it relates to consensual modifi-

48a

cations of the Indenture and the Agreement. We are

not concerned here with a “supplemental indenture”

(Section 12.03) or amendments of the agreement or

guaranty with or without consent of the owners

(Sections 12.06, 12.07), and those provisions are

simply irrelevant here. The impairment which the

Objectors complain of results not from any agreement

of the Bond Trustee, but from operation of the Bank-

ruptecy Code and the simple economic fact that this

insolvent debtor cannot pay its creditors unimpaired.

Article IX of the Indenture titled “DEFAULTS

AND REMEDIES,” is relevant, and it is here that we

find apparent ambiguity. But the ambiguity is more

apparent than real. Section 9.06, relied upon by Ob-

jectors, is titled “No Impairment of Right to Enforce

Payment.” I have emphasized the word “Right”

because the legal “right” to payment, or to try to en-

force payment, must be distinguished from the quite

separate factual question of whether the issuer will

have the capacity to pay. Once Delta filed for bank-

ruptcy, defaulted in its payment obligations under

the Lease and declared its certain intention to reject

the Lease, the Bondholders’ “right” to 100% payment

under the Indenture became academic. The non-

impairment provisions including Section 9.06 are

meaningless in bankruptcy because, unless the deb-

tor is solvent and able to pay all creditors 100 cents,

all creditors are impaired whether they consent or

not. It bears repeating that the impairment of which

the Objectors complain was not the consequence of

any consensual relinquishment of Bondholder rights

by the Bond Trustee. All the Bond Trustee did was to

negotiate the amount and timing of the impairment

which the Bondholders would suffer after the fact of

impairment was a fait accompli by reason of Delta’s

bankruptcy, default and decision to reject the Lease.

49a

The real issue under Article IX of the Indenture

was not whether the Bondholders would be impaired

—they were impaired—but what remedies could be

exercised by or on behalf of the Bondholders, by

whom and under what authority.

The Indenture clearly vests in the Bond Trustee

alone the power to exercise the Bondholders’ reme-

dies in the event of a default, subject to instruction by

a majority in principal amount of Bondholders.

Section 9.01 provides:

Upon the occurrence and continuance of any

Event of Default .. . the Trustee may, and at the

written request of Owners of a majority in

principal amount of Bonds then Outstanding

shall, by written notice to the Issuer and the

Company, declare the Bonds to be immediately

due and payable. ...

Section 9.02 provides as follows:

SECTION 9.02. Remedies. In addition to the

rights conferred, or obligations imposed, upon

the Trustee under Section 9.01 to accelerate the

principal of the Bonds, upon the occurrence and

continuance of any Event of Default, then and in

every such case the Trustee in its discretion may,

and upon written request of the Owners of a

majority in principal amount of the Bonds then

Outstanding and receipt of indemnity to its

satisfaction shall, in its own name and as the

Trustee of an express trust:

(a) by mandamus, or other suit, action or

proceeding at law or in equity, enforce all

rights of the Owners of the Bonds, and require

the Issuer and the Company to carry out any

agreements with or for the benefit of the

50a

Owners and to perform their duties under the

Act, the Agreement and this Indenture;

(b) take all such actions as may be permitted

under the Letter of Credit or other Credit

Facility;

or any Credit Facility; or

(d) by action or suit in equity enjoin any acts

or things which may be unlawful or in viola-

tion of the rights of the Owners of the Bonds.

Section 9.04 grants a majority in amount of Bond-

holders power to direct the Trustee’s remedial pro-

ceedings. Section 9.04 provides, in relevant part:

SECTION 9.04. Owners’ Right to Direct Pro-

ceedings. Anything in this Indenture to the con-

trary notwithstanding, the Owners of a majority

in principal amount of the Bonds then out-

standing hereunder shall have the right, by an

instrument in writing executed and delivered to

the Trustee, to direct the time, method and place

of conducting all remedial proceedings available

to the Trustee unter this Indenture or exercising

any trust or power conferred on the Trustee by

this Indenture; provided, however [not relevant].

Section 9.05 titled “Limitation on Owner's Right to

Institute Proceedings” expressly limits the right of

any Bondholder to institute any suit, action or

proceeding to enforce the Bonds unless and until the

owner of a majority in amount of the Bondholders

shall have made written request of the Trustee to do

so and the Trustee shall not have complied. This Sec-

tion concludes with the language “it being understood

and intended that no one or more of the Owners shall

ola

have any right in any manner whatever by his or

their action to affect, disturb or prejudice the security

of this Indenture, or to enforce any right hereunder

or under the Bonds, except in the manner herein

provided... .”

Section 9.07 provides that the Trustee may exercise

its rights of enforcement under the Indenture with-

out the possession of any of the Bonds and concludes:

Any such suit, action or proceeding instituted by

the Trustee shall be brought in its name for the

equal and ratable benefit of the Owners subject

to the provisions of this Indenture.

JYhnese provisions, individually and collectively,

make absolutely clear that, when there is a default

by the issuer, the Bond Trustee alone has the power

and authority to commence remedial procedures on

behalf of all Bondholders, constrained only by the

direction in writing of a majority in amount of the

Bondholders. No individual Bondholder and no group

of Bondholders, large or small, has the right or power

on its own behalf or on behalf of other Bondholders

to exercise remedial procedures unless the Bond

Trustee refuses to act.

Implicit in the authority to commence proceedings

to remedy defaults is the power to negotiate and

agree upon settlements, subject to the power to direct

in writing by a majority in amount of the Bond-

holders. This basic postulate has been recognized by

the courts. See In re Smart World Tech., LLC, 423

F.3d 166, 174-75 (2d Cir. 2005) (power to sue con-

ferred by Bankruptcy Code “presumably includes the

derivative power to settle suits”); Kelton Corp uv.

County of Worcester, 688 N.E.2d 941, 944 (Mass.

1997) (the power of a municipal government to com-

o2a

promise disputed claims is necessarily incident to the

power to sue); Evans v. Tucker, 135 So. 305, 309 (Fla.

1931) (citing “general rule” that the right to compro-

mise is an incident to the power to sue and collect);

Codman v. Dumaine, 144 N.E. 408, 411 (Mass. 1924)

(the power to sue and be sued carried with it as a

necessary incident the power to compromise);

Farnham v. City of Lincoln, 106 N.W. 666, 667 (Neb.

1906) (“The power to compromise grows out of, and is

incident to, the power to sue and be sued.”).

In default situations where contractual rights are

already impaired by exogenous events, non-impair-

ment clauses are moot and the Trustee’s power to

sue and settle subject to direction by a majority in

amount or a specified minimum percentage will be

sustained over the objection of a minority or indi-

vidual. See MBank Dallas v. LaBarge, Inc., Case No.

86 C 9583 (N.D. Ill. 1986) and Kemper Investors Life

Ins. Co. v. Las Colinas Corp., Case No. 88 C 9152

(N.D. Ill. 1989). See also Beal Savings Bank v.

Sommer, 2007 WI. 844857, 2007 N.Y. LEXIS 267, at

* 13-*26 (N.Y. March 22, 2007); First National Bank

of Louisville v. Continental Illinois National Bank &

Trust. Co., 933 F.2d 466, 470 (7th Cir. 1991); Fried-

man v. Chesapeake & Ohio Ry. Co., 261 F. Supp. 728

(S.D.N.Y. 1966), affd 395 F.2d 663 (2d Cir. 1968),

cert. denied, 393 U.S. 1016 (1969); Home Mortgage

Co. v. Ramsey, 49 F.2d 738 (4th Cir. 1931); Quirke v.

St. Louis-San Francisco R.R. Co., 277 F.2d 705 (8th

Cir. 1960); Restatement (Second) of Trusts § 192

(1959): Palmer v. Bankers’ Trust Co., 12 F.2d 747,

754 (8th Cir. 1926).

II. The Court’s subject matter jurisdiction

Little need be said of the Objectors’ argument that

this Court lacks subject matter jurisdiction to modify

53a

the Indenture because it is an agreement between

two non-debtors.

Jurisdiction is granted in Title 28 of the United

States Code. Section 1334(a) provides that “the dis-

trict courts shall have original and exclusive juris-

diction of all cases under title 11.” Section 1334(b)

provides that “the district courts shall have original

but not exclusive jurisdiction of all civil proceedings

arising under title 11, or arising in or related to cases

under title 11.” The Bankruptcy Court has juris-

diction by referral from the District Court under 28

U.S.C. § 157(a) and (b).

It is frivolous to argue that this Court does not

have jurisdiction to grant or withhold approval of the

Settlement, including that aspect of the Settlement

providing for modification of the contractual rela-

tionship between KCAB and the Bond Trustee under

the Indenture. Both KCAB and the Bond Trustee are

direct creditors of Delta, KCAB based on the Lease

and the Bond Trustee based on Delta’s February 1,

1992 Guaranty of the Lease, which is the only source

of funding of KCAB’s obligation to the Bond Trustee

under the Indenture. All three of these agreements—

the Lease, the Indenture and the Guaranty—are in-

extricably related to each other. KCAB’s Section

365(g) claim against Delta for rejection of the Lease

and the Bond Trustee’s claim against Delta under the

Guaranty cannot be resolved without a corresponding

resolution of the KCAB-Bond Trustee relationship

under the Indenture. The Settlement resolves all

claims between the three parties ansing from Delta’s

rejection of the Lease under Section 365(a) of the

Bankruptcy Code.

In short, there can be no question that this Court

has jurisdiction with regard to the Settlement in its

o4a

entirety under both the “arising under title 11” and

the “arising in or related to cases under title 11”

clauses of 28 U.S.C. § 1334(b).

Ill. Kentucky law, the Trust Indenture Act and the

Constitution

Equally without support are the Objectors’ argu-

ments that Kentucky Revised Statute § 103.260(2),

Section 316(b) of the Federal Trust Indenture Act of

1939, 15 U.S.C. § 77ppp(b), or the non-impairment

clause of United States Constitution, Article I, Sec-

tion 10, preclude Court approval of the Settlement.

KRS § 103.260 applies to the initial structuring of

revenue bond transactions. It does not purport and

has never been construed by any court to preclude

restructuring of revenue bond debt in the context of

default and bankruptcy proceedings, where it is

impossible for the debtor to perform in accordance

with the bond indenture.

The same may be said for Section 316(b) of the

Trust Indenture Act. Section 316(b) was passed out of

a “concern about the motivation of insiders and

quasi-insiders to destroy a bond issue through insider

control... .” UPIC & Co. v. Kinder-Care Learning

Ctrs, Inc., 793 F. Supp. 448, 452 (S.D.N.Y. 1992). As

the Objectors note in their Supplemental Objection,

“The court in UPIC further noted that in enacting

Section 316(b), the SEC was ‘undoubtedly aware that

requiring unanimity in bondholder voting—rather

than mere majority action—would frustrate consen-

sual workouts and help induce bankruptcy .. . [and]

welcomed the prospect.’ 7d. at 453.” It is self-evident

that Section 316(b) could not have been intended to

impair the capacity of a debtor and its creditors to

restructure debt in the context of bankruptcy. The

cases have uniformly recognized that reorganization

o0a

proceedings in Chapter 11 are not within the purview

of TIA Section 316(b). See, e.g., In re Bd. of Dirs. of

Telecom Argentina, S.A., Case No. 06 CIV 2352, 2006

WL 3378687 at *6 (S.D.N.Y. Nov. 20, 2006) (stating

that “the TIA cannot prevent the reorganization of

a debtor under U.S. bankruptcy laws.”) (citations

omitted); UPIC & Co. v. Kinder-Care Learning Ctrs.,

793 F. Supp. 448, 452-453 (S.D.N.Y. 1992) (noting the

SEC’s intent to bring contractual recapitalizations

under Bankruptcy Court jurisdiction); Jn re Bd. of

Dirs. of Multicanal S.A., 307 B.R. 384, 388-90

(Bankr. S.D.N.Y. 2004) (holding that the plaintiff

“conced

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