AMR - Marathon Examiner Motion

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HEARING DATE AND TIME: November 8, 2012 at 11:00 a.m. (Eastern Time)

OBJECTION DEADLINE: November 1, 2012 at 4:00 p.m. (Eastern Time)

WILMER CUTLER PICKERING

HALE AND DORR LLP7 World Trade Center

New York, New York 10007

Telephone: 212.937.7232Facsimile: 212.230.8888Philip D. Anker

George W. Shuster, Jr.

Attorneys for Marathon Asset Management, LP

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re : Chapter 11 Case No.

:

AMR CORPORATION,et al.

, : 11-15463 (SHL):

Debtors. : (Jointly Administered)

:

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NOTICE OF HEARING ON MOTION OF MARATHON ASSET MANAGEMENT, LP

FOR THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. 1104(c)

RELATED TO THE MOTION OF DEBTORS FOR ORDER PURSUANT TO 11 U.S.C.

105(a), 363 AND 1110 AND FED. R. BANKR. P. 9019(a) APPROVING COMPROMISE AND

SETTLEMENT, AUTHORIZING ENTRY INTO TERM SHEETS RELATING TO 21

ERJ135, 59 ERJ140, AND 118 ERJ145 AIRCRAFT

AND GRANTING RELATED RELIEF, AND TRANSACTIONS DESCRIBED THEREIN

PLEASE TAKE NOTICE that a hearing on the annexed motion, dated October 23, 2012

(the Motion) of Marathon Asset Management, LP (Marathon), on behalf of one or more

managed funds and/or accounts, will be held before the Honorable Sean H. Lane, United States

Bankruptcy Judge, in Room 701 of the United States Bankruptcy Court for the Southern District of

New York (the Bankruptcy Court), One Bowling Green, New York, New York 10004, on

November 8, 2012 at 11:00 a.m. (Eastern Time), or as soon thereafter as counsel may be heard.

PLEASE TAKE FURTHER NOTICE that any responses or objections to the Motion (the

Objections) must be in writing, shall conform to the Federal Rules of Bankruptcy Procedure and

the Local Bankruptcy Rules for the Southern District of New York, and shall be filed with the

11-15463-shl Doc 5087 Filed 10/23/12 Entered 10/23/12 16:01:00 Main DocumentPg 1 of 22


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Bankruptcy Court (a) by registered users of the Bankruptcy Courts case filing system,

electronically in accordance with General Order M-399 (which can be found at

http://nysb.uscourts.gov) and (b) by all other parties in interest, on a 3.5 inch disk, in text-searchable

portable document format (PDF) (with a hard copy delivered directly to Chambers), in accordance

with the customary practices of the Bankruptcy Court and General Order M-399, to the extent

applicable, and served in accordance with General Order M-399 and on (i) the attorneys for the

Debtors, Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn:

Stephen Karotkin, Esq.), (ii) the Debtors, c/o AMR Corporation, 4333 Amon Carter Boulevard, MD

5675, Fort Worth, Texas 76155 (Attn: Kathryn Koorenny, Esq.), (iii) the Office of the United States

Trustee for the Southern District of New York, 33 Whitehall Street, 21st Floor, New York, New

York 10004 (Attn: Brian Masumoto, Esq.), (iv) the attorneys for the Official Committee of

Unsecured Creditors, Skadden, Arps, Slate, Meagher & Flom LLP, 155 North Wacker Drive,

Chicago, Illinois 60606 (Attn: John Wm. Butler, Jr., Esq.) and Four Times Square, New York, New

York 10036 (Attn: Jay M. Goffman, Esq.), (v) the attorneys for the Section 1114 Committee of

Retired Employees, Jenner & Block LLP, 353 North Clark Street, Chicago, Illinois 60654 (Attn:

Catherine L. Steege, Esq. and Charles B. Sklarsky, Esq.) and 919 Third Avenue, 37th Floor, New

York, New York 10022 (Attn: Marc B. Hankin, Esq.), (vi) the attorneys for Marathon, Wilmer

Cutler Pickering Hale and Dorr LLP, 7 World Trade Center, New York, New York 10007 (Attn:

Philip D. Anker, Esq. and George W. Shuster, Jr., Esq.), and (vii) all entities that requested notice in

these chapter 11 cases under Fed. R. Bankr. P. 2002 so as to be received no later than November 1,

2012 at 4:00 p.m. (Eastern Time) (the Objection Deadline).

PLEASE TAKE FURTHER NOTICE that if no Objections are timely filed and served, the

Indenture Trustee and Marathon may, on or after the Objection Deadline, submit to the Bankruptcy



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Court an order substantially in the form of the proposed order annexed to the Motion, which order

may be entered with no further notice or opportunity to be heard.

Dated: New York, New YorkOctober 23, 2012


HALE AND DORR LLP

/s/ George W. Shuster, Jr.

Philip D. AnkerGeorge W. Shuster, Jr.

7 World Trade Center

New York, New York 10007Telephone: 212.937.7232

Facsimile: 212.230.8888




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HEARING DATE AND TIME: November 8, 2012 at 11:00 a.m. (Eastern Time)

OBJECTION DEADLINE: November 1, 2012 at 4:00 p.m. (Eastern Time)


HALE AND DORR LLP

7 World Trade Center

New York, New York 10007Telephone: 212.937.7232Facsimile: 212.230.8888Philip D. AnkerGeorge W. Shuster, [email protected]@wilmerhale.comAttorneys for Marathon Asset Management, LP



-----------------------------------------------------------------xIn re : Chapter 11 Case No.

:

AMR CORPORATION, et al., : 11-15463 (SHL)

:


:

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MOTION OF MARATHON ASSET MANAGEMENT, LP

FOR THE APPOINTMENT OF AN EXAMINER PURSUANT TO 11 U.S.C. 1104(c)

RELATED TO THE MOTION OF DEBTORS FOR ORDER PURSUANT TO 11 U.S.C.

105(a), 363 AND 1110 AND FED. R. BANKR. P. 9019(a) APPROVING COMPROMISE AND

SETTLEMENT, AUTHORIZING ENTRY INTO TERM SHEETS RELATING TO 21

ERJ135, 59 ERJ140, AND 118 ERJ145 AIRCRAFT

AND GRANTING RELATED RELIEF, AND TRANSACTIONS DESCRIBED THEREIN

Marathon Asset Management, LP (Marathon), on behalf of one or more managed funds

and/or accounts, by and through their undersigned counsel, submits this motion (the Motion) for

the appointment of an examiner to investigate and report on (1) the intercompany transactions that

occurred among American Eagle Airlines, Inc. (American Eagle), American Airlines, Inc.

(American Airlines), and AMR Corporation (AMR) in the months immediately preceding the

filing of the chapter 11 cases of AMR and its affiliated debtors (collectively with AMR, the

Debtors), (2) any claims or other rights that the Debtors may hold in respect of these transactions,



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and (3) the potential effects on any such claims or other rights of the proposed compromise between

the Debtors and Agncia Especial de Financiamento Industrial (FINAME) and Banco Nacional

de Desenvolvimento Econmico e Social (BNDES and together with FINAME, the Financing

Parties), as embodied in the DebtorsMotion of Debtors for Order Pursuant to 11 U.S.C. 105(a),

363, and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and Settlement, Authorizing

Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140, and 118 ERJ145 Aircraft and Granting

Related Relief [Docket No. 4936] (the Rule 9019 Motion).1

The appointment of an examiner to

conduct an investigation of these matters under the circumstances present in the Debtors cases is

mandatory, appropriate, and in the best interests of the Debtors creditors and other parties in

interest under section 1104(c) of title 11 of the United States Code (the Bankruptcy Code). In

support of the Motion, Marathon respectfully represents as follows:

PRELIMINARY STATEMENT

1. In the weeks leading up to the filing of the Debtors chapter 11 cases, American

Eagle and American Airlines consummated a series of intercompany transactions that resulted in

American Airlines assuming $2.26 billion of dollars in additional debt that American Eagle

previously owed to the Financing Parties (the Prepetition Transactions). On their face, the

Prepetition Transactions raise serious questions as to whether American Airlines received fair value

in exchange for incurring the billions of dollars in debt and as to whether these transactions were

otherwise improper.

2. The Debtors have stated in the Rule 9019 Motion that they have considered whether

the Prepetition Transactions were appropriate and whether the Prepetition Transactions are

potentially subject to avoidance as fraudulent transfers. The Debtors have reached a judgment that

1 Marathon has filed, contemporaneously with this Motion, an objection to the Debtors Rule 9019 Motion. Many ofthe arguments in this Motion overlap with those in the objection, and, in the interests of avoiding duplication,Marathon incorporates in this Motion, by reference, the arguments in the objection.



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claims related to the Prepetition Transactions are not supported by thefacts or applicable law.

(Rule 9019 Motion at 32.) However, the Debtors only spend 5 paragraphs in the Rule 9019

Motion, which runs to 365 pages including attachments, discussing potential claims in respect of the

Prepetition Transactions. Those few paragraphs contain mostly unsupported, conclusory

statements.

3. The fact is that the Debtors are simply not in a position to conduct an independent

review of these issues. First, the Debtors are operated today by the same management that

apparently designed, approved, and consummated the Prepetition Transactions. It is not possible

for that same management to undertake an objective and critical review of the same Prepetition

Transactions in which they were previously involved.

4. Second, the issues surrounding the Prepetition Transactions are not issues that all of

the Debtors can properly consider on a collective basis. The Prepetition Transactions involve

billions of dollars in value that shifted among the Debtors, as a result of which American Eagle and

AMR may have been winners at the expense of American Airlines being a loser. It is unfair to

expect that the Debtors could collectively conduct a proper investigation of the Prepetition

Transactions with a focus on the individual interests of the American Airlines estate. And the

results of any such collective investigation by the Debtors cannot be properly relied upon by

American Airlines creditors.2

5. Third, the Prepetition Transactions have become an issue in these chapter 11 cases

now because the Debtors have sought the approval of debt-restructuring transactions that would

reduce or eliminate the ability of American Airlines to seek redress if, in fact, any portion of the

2 Similarly, while Marathon is unaware of any detailed investigation of the Prepetition Transactions to date by theOfficial Committee of Unsecured Creditors (the Committee), any such investigation by the Committee wouldsuffer from this same defectthat the investigation would be from the perspective of the Debtors estates as awhole, and not from the perspective of the American Airlines estate in particular. See Keene Corp. v. Coleman (Inre Keene Corp.), 164 B.R. 844, 856 (Bankr. S.D.N.Y. 1994) (While a creditors committee is well suited tooverseeing the operations of a business, especially the financial and economic aspects of the debtors operations,the examiner is far better able to undertake an in-depth investigation . . .) (quotingIn re 1243 20th Street, Inc., 6B.R. 683, 686 (Bankr. D.D.C. 1980)).



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Prepetition Transactions proved to be avoidable or otherwise cancellable or reversible. The Debtors

first sought approval for these debt-restructuring transactions through a routine section 1110

stipulation that failed to disclose the nature and extent of the debt-restructuring transactions or their

potential effects on claims related to the Prepetition Transactions. This lack of transparency, while

troubling on its own, also casts a shadow on the credibility of the Debtors apparent conclusion that

the Prepetition Transactions are immune from challenge. An independent examiner would be able

to conduct an investigation leading to a credible conclusion, mitigating the lack of transparency in

these matters to date.

6. Marathon does not believe that any claims in respect of the Prepetition Transactions

should be pursued at this stage of the Debtors chapter 11 cases, and Marathon is not requesting the

appointment of an examiner with the intention of moving any such claims ahead at this time.

However, Marathon also does not believe that these potential claims should be swept under the rug

without due consideration. To that end, any approval by the Court of the Rule 9019 Motion,

through which the Debtors now propose to extinguish American Airlines rights in respect of the

Prepetition Transactions, should be conditioned upon the receipt of a report by an independent

examiner stating that it is in substantial agreement with the conclusions apparently reached by the

Debtors in respect of the Prepetition Transactions.

BACKGROUND

A. The Debtors and Marathon

7. On November 29, 2011 (the Petition Date), AMR, American Airlines, and

American Eagle, along with the other Debtors, commenced with the Court voluntary cases under

chapter 11 of title 11 of the United States Code (the Bankruptcy Code). The Debtors have

continued to operate their business and manage their properties as debtors in possession pursuant to

sections 1107(a) and 1108 of the Bankruptcy Code. On December 5, 2011, the United States



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Trustee for the Southern District of New York appointed the Committee pursuant to Section 1102 of

the Bankruptcy Code. No trustee or examiner has been appointed in these chapter 11 cases.

8. Marathon manages one or more funds and/or accounts that hold well over a hundred

million dollars of claims against the Debtors, including substantial claims against American

Airlines.

B. The Prepetition Transfers

9. Prior to August 31, 2011, American Eagle owned a fleet of 216 regional jet aircraft

manufactured by Embraer (the Aircraft), which had been financed through certain prepetition

mortgage financing arrangements (the Aircraft Agreements) with the Financing Parties. (Rule

9019 Motion at 6-7.)

10. In connection with the possible spin-off of American Eagle and certain of its

affiliates to AMRs stockholders, American Eagle had to clean up its over-leveraged balance sheet.

To do so, from August through November 2011, American Eagle transferred 263 regional jets,

including all of the Aircraft, to American Airlines, in exchange for American Airlines assumption

of American Eagles outstanding debt obligations with respect to the transferred aircraft (the

Prepetition Transactions). (Rule 9019 Motion at 28.) The Financing Parties agreed to release

American Eagle from its outstanding obligations as to the 263 transferred regional jets and

substitute American Airlines as the borrower under the Aircraft Agreements. (Id.)

11. According to the Rule 9019 Motion, at the time of the Prepetition Transactions,

American Eagles outstanding debt to the Financing Parties was approximately $2.26 billion. (Rule

9019 Motion at 29.) The Debtors claim that the value of the 263 regional jets at the time of the

transfers was $1.8 billion, or $426 million less than the amount of the assumed debt. (Id.) In

addition, the Debtors claim that American Eagle cancelled certain intercompany payables of

American Airlines to American Eagle and settled other intercompany receivables and payables.



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(Id.) The Debtors have not disclosed the nature or exact net amount3 of the payables that were

supposedly cancelled in the Prepetition Transactions. The Debtors only generically state that the

cancelled payables were equal to the amount of the difference between the $2.26 billion in

assumed debt and the purported $1.8 billion in transferred aircraft value. (Rule 9019 Motion at

29.) The Debtors also describe, only in a generic fashion, certain indirect benefits that American

Airlines and AMR purportedly received in the Prepetition Transactions.4 (Rule 9019 Motion at

30.) But the Debtors do not attempt to specify or quantify those indirect benefits, or to allocate their

supposed value between American Airlines and AMR.

12. While, arithmetically speaking, it appears possible from the face of the Rule 9019

Motion that the transactions entered into between American Airlines and American Eagle just

before the Debtors bankruptcy filing were an even swap, there is insufficient public evidence to

reach that conclusion. It is no comfort that the Debtors make a bald assertion by the Debtors that

avoidance of the $2.26 billion in debt assumed by American Airlines is at best, remote. (Rule

9019 Motion at 32.) To the extent that the transactions were in fact an even swap, it is unclear

why they would have helped clean up the American Eagle balance sheet for the planned spin-off, or

why they would have resulted, just months later, in a proposed deal with the Financing Parties,

described in the Rule 9019 Motion and below, in which American Airlines is abandoning some of

the Aircraft, and in which the Aircraft Parties are agreeing that the Aircraft are worth hundreds of

millions of dollars less than they were supposedly worth a year ago.

3 The Debtors public filings describe the cancellation of certain intercompany payables of American Airlines, butthe net face amount of cancelled payables of American Airlines is unclear. See, e.g., AMR Eagle HoldingCorporation, Amendment No. 1 to Form 10, Exhibit 99.1 at 13, 39 Sept. 26, 2011; American Airlines, Inc., Form10-Q for the Quarterly Period Ending June 30, 2011 at 12-13, July 20, 2011. It is also unclear whether such netface amount must be reduced based on any invalidity of the payables or any defenses thereto.

4 The Debtors state that the Prepetition Transactions facilitated AMR and Americans business plan and maximizedthe ability to source future regional feed at competitive prices. (Rule 9019 Motion at 30.) Notably, they refer toAMR and American Airlines collectively and do not focus on the independent benefits and detriments of thePrepetition Transactions to American Airlines individually.



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C. The Section 1110 Stipulations

13. From time to time after the Petition Date, the Financing Parties and the Debtors have

entered into stipulations pursuant to section 1110(b) of the Bankruptcy Code extending the 60-day

period set forth in section 1110(a)(2) of the Bankruptcy Code with respect to each Aircraft. (Rule

9019 Motion at 9.) The extensions have been conditioned on an agreement by American Airlines

to make interim payments to the Financing Parties in exchange for the continuing use of the

Aircraft. (Rule 9019 Motion at 10.) The Debtors entered into six such stipulations between the

Petition Date and September 2012. See Docket Nos. 851, 1123, 3050, 3418, 3798 & 4066.

14. On September 8, 2012, the Debtors filed the Seventh Stipulation and Order

Approving Eighth Section 1110(b) Extension for ERJ Aircraft[Docket No. 4366] (the Seventh

Stipulation). Through the Seventh Stipulation, the Debtors sought authority to extend the section

1110 period with respect to certain aircraft, as they had done in the first through sixth stipulations

for the same aircraft, and, on a cursory review, the Seventh Stipulation may have appeared to be a

routine pleading along the lines of the prior six filings.

15. But for the first time, the Debtors also sought through the Seventh Stipulation to

implement certain undisclosed transactions with the Financing Parties in respect of the Debtors

Aircraft and Aircraft Agreements. (Seventh Stipulation at 3.) Although the specific terms of

these transactions were not described in the Seventh Stipulation, the Debtors form of order

indicated that the transactions provided for the allowance of certain unsecured, non-priority

prepetition claims against AMR and American Airlines. (Seventh Stipulation p. 12, at 2.) The

creditors who would receive the claims and the amounts of the claims were not disclosed, and there

was no description of the basis on which the transactions should be approved. The Seventh

Stipulation did not mention the Prepetition Transactions entered into just before the Debtors



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bankruptcy filing with respect to the Aircraft, let alone describe the potential effects of the Seventh

Stipulation on the ability of American Airlines to seek redress for those transactions.

16. On September 18, 2012, Marathon filed an objection to the Seventh Stipulation

[Docket No. 4530] (the Initial Marathon Objection) on the grounds that (a) the Seventh

Stipulation did not provide adequate information about the transactions for which the Debtors were

seeking approval, and (b) whatever their substance, the unspecified transactions for which the

Debtors sought approval could have adverse effects upon potential fraudulent transfer claims

relating to the Prepetition Transactions regarding the same Aircraft and giving rise to the same

indebtedness that the Debtors appeared to be addressing in the Seventh Stipulation.

17. In response to the Marathon Objection, the Debtors, through their counsel,

represented to Marathon that they would file a motion pursuant to Fed. R. Bankr. P. 9019 and

provide additional details on the substantive transactions, in order to allow Marathon and other

parties in interest with notice and a meaningful opportunity to object.

18. On October 1, 2012, the Debtors filed theEighth Stipulation and Order Approving

Ninth Section 1110(b) Extension for ERJ Aircraft[Docket No. 4872] (the Eighth Stipulation),

requesting the approval of an extension of the section 1110 period with respect to the same aircraft

covered by the Seventh Stipulation.

19. On October 11, 2012, Marathon filed a limited objection to the Eighth Stipulation

[Docket No. 4974] (the Second Marathon Objection). Although it appears that the Debtors

essentially attempted to split the Seventh Stipulation into two parts, one part covered by the

Eighth Stipulation, and the other part covered by the Rule 9019 Motion, the Eighth Stipulation still

sought approval of provisions relating to the substantive transactions at issue in the Rule 9019

Motion, including a commitment by the Debtors to seek approval of those transactions and thereby

to release the Financing Parties from claims relating to the Prepetition Transactions. (Rule 9019



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Motion, Exhibit J, Eighth Stipulation at 4.) Accordingly, out of an abundance of caution,

Marathon objected to the Eight Stipulation to the extent it sought any relief beyond a mere

extension of the section 1110 period or otherwise affected the potential fraudulent transfer claims in

respect of the Prepetition Transactions.

D. The Rule 9019 Motion

20. On October 9, 2012, in response to the Initial Marathon Objection, the Debtors filed

the Rule 9019 Motion, through which they are seeking approval of the same previously-undisclosed

transactions that were the subject of the Seventh Stipulation and the Eighth Stipulation. While the

Rule 9019 Motion and its attachments disclose over 300 pages of additional information relating to

the transactions briefly referenced in the Seventh Stipulation, the Debtors have also filed a motion

seeking to file certain information relating to the transactions under seal. See Motion for an Order

Pursuant to 11 U.S.C. 107(b) and Fed. R. Bankr. P. 9018 Authorizing the filing of Certain

Information Under Seal in Connection with Motion of Debtors for Order Pursuant to 11 U.S.C.

105(a), 363 and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and Settlement,

Authorizing Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140 and 118 ERJ145 Aircraft

and Granting Related Relief[Docket No. 4937].

21. Through the Rule 9019 Motion, the Debtors seek approval of a compromise with the

Financing Parties that will effect a restructuring of American Airlines obligations to the Financing

Parties with respect to the Aircraft and an extension of the section 1110 period to allow the

transactions to be consummated. The restructuring itself is complex and involves the return of

some aircraft, the sale and leaseback of some aircraft, and the retention of some aircraft, which,

collectively, has the net result of reducing American Airlines debt obligations to the Financing

Parties. Importantly, the transactions also propose:



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Granting the Financing Parties separate and distinct stipulated, allowed generalunsecured non-priority pre-petition claims against the bankruptcy estates of

American Airlines and AMR, each in the amount of $650 millionallegedly

representing the net financial loss suffered by the Financing Parties as a result of the

transactions, including deficiency claims as to the Aircraft being surrendered to the

Financing Parties. (Rule 9019 Motion at 22; Exhibit B, Master Term Sheet at

19.)

Approving a broad release of the Financing Parties from liability arising under theavoidance sections of the Bankruptcy Code and similar state laws with respect to the

Aircraft Agreements and the Prepetition Transactions. (Rule 9019 Motion at 15

(Release), 26.)

Notably, the Rule 9019 Motion spends just 5 paragraphs within 365 pages addressing the

Prepetition Transactions. (Rule 9019 Motion at 28-32.) The Debtors conclude in those 5

paragraphs that claims relating to the Prepetition Transactions are not supported by the facts or

applicable law, though they do not describe the facts in any detail and do not state what law they

believe might apply. (Rule 9019 Motion at 32.) They state conclusively that the possibility that

aplausibly successfulavoidance claim of any nature exists is,at best, remote or, if it exists, if

negligible. (emphasis added). (Id.) These strident assertions, which the Debtors attempt to

support with only a handful of sentences, leave a creditor of American Airlines like Marathon in the

dark.

E. The Marathon Rule 9019 Objection

22. Contemporaneously with this Motion, Marathon has filed an objection to the Rule

9019 Motion (the Rule 9019 Objection). As explained more fully in the Rule 9019 Objection,

Marathon has objected to the relief requested by the Debtors in the Rule 9019 Motion on the



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grounds that the Debtors are seeking to ratify the Prepetition Transactions in a manner that not only

releases potential claims against the Financing Parties but also relinquishes the right and ability of

American Airlines to investigate and seek redress among the Debtors for the Prepetition

Transactions. Marathon has also objected to the lack of transparency with which the Debtors have

sought approval of the transactions contemplated by the Rule 9019 Motion and the failure of the

Debtors to conduct or at least allow for an independent investigation of the propriety of the

Prepetition Transactions and the transactions described in the Rule 9019 Motion before seeking to

approve those transactions.

JURISDICTION

23. This Court has subject matter jurisdiction to consider this matter pursuant to 28

U.S.C. 157, 1334, and 1408. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2).

RELIEF REQUESTED

24. Marathon respectfully requests appointment of an examiner to investigate, as more

fully set forth in the proposed order attached hereto as Exhibit A, the Prepetition Transactions and

any claims the Debtors may hold in respect of the Prepetition Transactions.

BASIS FOR THE RELIEF REQUESTED

A. Section 1104(c)(2) Mandates Appointment of an Examiner.

25. Section 1104(c)(2) of the Bankruptcy Code provides that

[i]f the court does not order the appointment of a trustee . . . then atany time before the confirmation of a plan, on request of a party ininterest, . . . and after notice and a hearing, the court shall order the

appointment of an examiner to conduct such an investigation of thedebtor as is appropriate . . . if the debtors fixed, liquidated, unsecureddebts, other than debts for goods, services, or taxes, or owing to aninsider, exceed $5,000,000.

11 U.S.C. 1104(c).



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26. As the U.S. Court of Appeals for the Sixth Circuit has recognized, section 1104(c)(2)

of the Bankruptcy Code plainly means that the bankruptcy court shall order the appointment of

an examiner when the total fixed, liquidated, unsecured debt exceeds $5 million, if [a party in

interest] requests one. Morgenstern v. Recvo D.S., Inc. (In re Revco D.S., Inc.), 898 F.2d 498, 500-

01 (6th Cir. 1990) (concluding that appointment of an examiner is mandatory under the statutes

plain meaning). Similarly, the U.S. District Court for the Southern District of New York has found

that on its face, Section 1104(c)(2) mandates the appointment of an examiner where a party in

interest moves for an examiner and the debtor has $5,000,000 in qualifying debt. Loral

Stockholders Protective Comm. v. Loral Space & Commcns Ltd. (In re Loral Space & Commcns

Ltd.), No. 04-Civ-8645, 2004 WL 2979785, at *4 (S.D.N.Y. Dec. 23, 2004); see also Walton v.

Cornerstone Ministries Invs., Inc., 398 B.R. 77, 81-82 (N.D. Ga. 2008) ([E]very district court and

nearly every bankruptcy court that has confronted the question has also read the provision to be

mandatory on its face.) (citing cases); but see In re Residential Capital, LLC, 474 B.R. 112, 120-21

(Bankr. S.D.N.Y. 2012) (concluding that a court may decline to appoint an examiner if such

appointment would be inappropriate, but nevertheless appointing an examiner under the facts of the

case).5

27. The elements of section 1104(c)(2) are easily satisfied in the Debtors cases. The

Court has not appointed a trustee, no plan has been filed, and the Debtors unquestionably have more

than $5 million of qualifying debt. Accordingly, section 1104(c)(2) mandates the appointment of an

5 While Marathon maintains that the appointment of an examiner is mandatory under the plain language of section1104(c)(2) of the Bankruptcy Code, it is also appropriate under Judge Glenns interpretation of the statute in hisrecent decision in theResCap case. Judge Glenn indicated that the appointment of an examiner might beinappropriateif the motion was filed for an improper purpose such as a litigation tactic to delay a case, or if thereis no factual basis to conclude that an investigation needs to be conducted, or if an appropriate and thoroughinvestigation has already been conducted (or is nearly complete) by a creditors committee or a governmentalagency. In re Residential Capital, LLC, 474 B.R. at 121. As discussed in more detail below, the appointment ofan examiner is in the best interests of creditors of American Airlines estate. For those same reasons, and due to theabsence of any of the factors identified by Judge Glenn, appointment of an examiner is appropriate in these cases.Indeed, inIn re Residential Capital, when faced with a request for an investigation similar to the one requested inthis Motion, Judge Glenn determined that appointment of an examiner was appropriate to investigate prepetitiontransfers, claims arising therefrom, and potential waivers of such claims by the Debtors.



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examiner to conduct an appropriate investigation of the Prepetition Transactions, any claims or

rights in respect of the Prepetition Transactions, and the potential effect of the Rule 9019 Motion on

any such claims or other rights.

B. The Investigation is Necessary, Appropriate, and in the Interests of Creditors Under Section1104(c)(1).

28. Section 1104(c)(1) of the Bankruptcy Code provides that a court shall appoint an

examiner where such an appointment is in the interests of creditors or other stakeholders. 11

U.S.C. 1104(c)(1). That standard is met here.

29. A thorough and independent investigation is needed into the billions of dollars of

Prepetition Transactions between American Airlines and American Eagle. The case law makes

clear that appointing an examiner is warranted under these circumstances. See, e.g., In re Keene

Corp., 164 B.R. at 856 (appointing an examiner to review transfers from the debtor to affiliates)

(citing M. Bienenstock, Bankruptcy Reorganization 299 (1987) (Often, appointment of an

examiner is warranted when the debtors transactions with affiliates should be investigated.));In re

Gilman Servs., Inc., 46 B.R. 322, 327-28 (Bankr. D. Mass 1985) (A debtors sale of assets to a

related corporation before the commencement of the bankruptcy case warrants an investigation by

an examiner where there are unanswered questions concerning the transaction and interrelationship

of the parties involved.). An examiner should be appointed to investigate the propriety of the

Prepetition Transactions and to determine whether they give rise to any causes of action of

American Airlines.

30. An investigation is also appropriate because the Debtors propose to release claims

against the Financing Parties in respect of the Prepetition Transactions, particularly where such a

release could have the unnecessary consequence of preventing American Airlines from seeking

redress for the incurrence of billions of dollars of debt as a result of the Prepetition Transactions.



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31. To be clear, it is possible that the Prepetition Transactions did in fact involve an

even exchange among American Airlines and American Eagle. At this time, the Debtors have not

provided, and Marathon does not have, information that would definitively support or contradict

that conclusion. But before American Airlines irrevocably releases any potential claims in respect

of the Prepetition Transactions, and before creditors like Marathon can fully evaluate these matters

in connection with the Debtors request for approval of the Rule 9019 Motion, there is a need for a

thorough, independent, and public investigation into the Prepetition Transactions, any rights and

potential claims of the Debtors in respect thereof, and the potential effects of the transactions

described in the Rule 9019 Motion on the Debtors ability to exercise such rights and assert such

claims.

C. An Examiner is Uniquely Qualified to Conduct the Requested Investigation.

32. The Debtors assert that they have extensively investigated the Prepetition

Transactions. (Rule 9019 Motion at 27.) Nevertheless, in contrast to the Debtors substantial

efforts articulating the benefit of the transaction described in the Rule 9019 Motion for the Debtors

collective estates, they spend only 5 paragraphs of their Rule 9019 Motion attempting to explain

and defend the economics of the transactions described in the Rule 9019 Motion and the Prepetition

Transactionsfor American Airlines. Even if the Debtors were to outline the specific steps they took

in their apparently extensive investigation to the satisfaction of the Court, that investigation

would still be defective unless an independent party has evaluated the Prepetition Transactions from

the perspective of American Airlines.

33. It is by no means unusual that affiliated debtors in jointly administered cases would

have difficulty independently considering the interests of each estate and its constituents. And

Marathon does nor cast blame on the Debtors for being in such a position. But in no event should

the Prepetition Transactions, and in particular the incurrence of billions of dollars in debt by



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American Airlines just before its bankruptcy, be quickly and irresponsibly sanctioned and insulated

from further review as a consequence of the approval of the debt restructuring contemplated by the

Rule 9019 Motion,based solely on an investigation by the Debtors collectively. Instead, an

opportunity must be afforded for a thorough and independent investigation by an examiner.

34. Appointing an examiner makes particular sense here because it is critical that the

investigation be conducted by someone viewed as impartial by all parties in interest. An examiner

answers solely to the Court and acts as an objective nonadversarial party who will review the

pertinent transactions and documents, thereby allowing the parties to make an informed

determination as to their substantive rights. In re FiberMark, 339 B.R. 321, 325 (Bankr. D. Vt.

2006); see also In re Gitto Global Corp., No. Civ. 05-10334, 2005 WL 1027348, at *2 (D. Mass.

2005) (An examiner is first and foremost disinterested and nonadversarial.). Accordingly, an

examiner is uniquely qualified to carry out a thorough, independent, and objective investigation in

the Debtors cases.

35. By contrast, the Debtors are not in a position to conduct an independent review of

these issues. First, the Debtors are operated today by the same management that consummated the

Prepetition Transactions. Obviously, that management must have determined just prior to the

bankruptcy filing that the Prepetition Transactions were in the collective best interests of the

Debtors estates, and were important to the American Eagle spin-off strategy that the Debtors

management was pursuing. However, that collective pre-bankruptcy determination is not the same

as an independent determination in the context of a bankruptcy case. The former is geared toward

the overall business strategy of a consolidated enterprise; the latter is geared towards a fair

distribution of available value to creditors of individual entities. It is just not possible for the

Debtors management to undertake today an objective and critical review of the same Prepetition

Transactions that they previously approved.



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36. Second, the issues surrounding the Prepetition Transactions are not issues that all of

the Debtors can properly consider collectively. The Prepetition Transactions involve billions of

dollars in value that shifted among the Debtors. As a result of these shifts, American Eagle and

AMR may have been winners of hundreds of millions of dollars, at the expense of American

Airlines being a loser of hundreds of millions of dollars. It is unfair to expect that the Debtors

could collectively conduct a proper investigation of the Prepetition Transactions with a focus on the

individual interests of the American Airlines estate. Indeed, it is wholly possible that the

Prepetition Transactions may have been a net positive for all of the Debtors collectively, and that at

the same time they were a huge net negative for American Airlines individually. Where it is

primarily American Airlines that would waive rights if the Rule 9019 Motion were approved, it

only makes sense that an examination of the rights to be waived would be conducted from the

perspective of American Airlines individually. The results of any such collective investigation by

the Debtors (or any collective estate representatives) cannot be properly relied upon by American

Airlines creditors to protect their interests.

37. Third, the Prepetition Transactions have become an issue in these chapter 11 cases

now because the Debtors have sought the approval of debt-restructuring transactions that would

reduce or eliminate the ability of American Airlines to seek redress if, in fact, any portion of the

Prepetition Transactions proved to be avoidable or otherwise cancellable or reversible. The Debtors

first sought approval for these debt-restructuring transactions through a routine section 1110

stipulation that failed to disclose the nature and extent of the debt-restructuring transactions or their

potential effects on claims related to the Prepetition Transactions. While the Debtors have corrected

this error of process by re-proposing the same debt-restructuring transactions through the Rule 9019

Motion, the Debtors prior conduct casts a shadow on the credibility of the Debtors apparent

determination that the Prepetition Transactions are immune from challenge. If the Debtors cannot



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be trusted to present issues affecting the Prepetition Transactions for approval in a transparent

manner, how can they be trusted to provide the conclusive determination that claims in respect of

the Prepetition Transactions should be irrevocably relinquished?

D. The Proposed Scope of the Examiners Investigation is Appropriate

38. The proposed scope of the examiners investigation as set forth in the proposed order

attached as Exhibit A is tailored to serve a specific purpose and is well within an examiners

statutory authority under section 1106(b) of the Bankruptcy Code, and consistent with orders

appointing examiners in analogous cases, including cases in this district. See, e.g.,In re DBSI, Inc.,

Case No. 08-12687 (PJW) (Bankr. D. Del. Mar. 25, 2009) [Docket No. 2974] (The Examiner is

directed to: (a) investigate the circumstances surrounding (i) any and all of the Debtors inter-

company transactions and transfers . . .);In re Washington Mutual, Inc., Case No. 08-12229

(MFW) (Bankr. D. Del. July 22, 2010) [Docket No. 5120] (The Examiner is directed to investigate

. . . (a) the claims and assets that may be property of the Debtors estates that are proposed to be

conveyed, released or otherwise compromised and settled under the Plan and Settlement

Agreement. . .);In re Dynegy Holdings, LLC, Case No. 11-38111 (CGM) (Bankr. S.D.N.Y. Dec.

29, 2011) [Docket No. 276] (providing that the examiner shall conduct an unfetteredinvestigation

of the Debtors . . . with respect to (i) the conduct of the Debtors and their non-Debtor affiliates in

connection with the prepetition 2011 restructuring and reorganization of the Debtors and their non-

Debtor affiliates; (ii)any possible fraudulent conveyances . . .);In re Residential Capital, LLC,

Case No. 12-12020 (MG) (Bankr. S.D.N.Y. June 20, 2012) [Docket No. 454] (ordering appointment

of an examiner to investigate and report on, among other things, the Debtors prepetition

transactions with a non-debtor and any claims that the Debtors may hold related to such

transactions, and any claims that the Debtors propose to release as part of their plan).



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39. Marathon has also, contemporaneously with this Motion, served discovery requests

on the Debtors covering many of the same issues as the examiner would investigate. If an examiner

were appointed by the Court, Marathon would withdraw those requests and defer to the

investigation of the examiner. However, if an examiner is not appointed, Marathon intends to

obtain that discovery so that it may on its own determine whether and to what extent the Prepetition

Transactions should be challenged (or, if needed, to establish a further record for the Court of why

the appointment of an examiner is required and appropriate). Similarly, Marathons request for an

examiner is based on the assumption that the Debtors desire to have the transactions described in

the Rule 9019 Motion approved in the short term. To the extent that the Debtors were inclined to

adjourn the Rule 9019 Motion to a later date, Marathon would also adjourn its request for the

appointment of an examiner. The critical point is that an independent examination should occur

prior to any approval of the Rule 9019 Motion.

MEMORANDUM OF LAW

40. Marathon respectfully submits that the discussion of the relevant issues of law set

forth above satisfies the requirements of Local Rule 9013-1(b) and that no separate memorandum of

law in support of the Motion is required.

NOTICE AND NO PRIOR REQUEST

41. Notice of this Motion has been provided to parties in interest in accordance with the

Amended Order Pursuant to 11 U.S.C. 105(a) and (d) and Bankruptcy Rules 1015(c), 2002(m),

and 9007 Implementing Certain Notice and Case Management Procedures, dated August 8, 2012

[Docket No. 3952]. In view of the facts and circumstances, such notice is sufficient and no other or

further notice need be provided.

42. No previous motion for the relief requested herein has been made to this or any other

court.



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WHEREFORE, Marathon respectfully request that the Court enter an order, substantially in

the form attached as Exhibit A, (a) approving and directing the appointment of an independent

examiner for the purposes of investigating and reporting to the Court and parties in interest with

respect to the matters described above and (b) granting the relief requested herein and such other

and further relief as may be just and proper.

Dated: New York, New YorkOctober 23, 2012


HALE AND DORR LLP

/s/ George W. Shuster, Jr.Philip D. AnkerGeorge W. Shuster, Jr.7 World Trade CenterNew York, New York 10007Telephone: 212.937.7232Facsimile: 212.230.8888




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EXHIBIT A

11-15463-shl Doc 5087-1 Filed 10/23/12 Entered 10/23/12 16:01:00 ProposedOrder Pg 1 of 5


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-----------------------------------------------------------------x

In re : Chapter 11 Case No.

:AMR CORPORATION, et al., : 11-15463 (SHL)

:


:

-----------------------------------------------------------------x

[PROPOSED] ORDER DIRECTING THE APPOINTMENT OF AN EXAMINER

PURSUANT TO 11 U.S.C. 1104 (c) RELATED TO THE MOTION OF DEBTORS FOR

ORDER PURSUANT TO 11 U.S.C. 105(a), 363 AND 1110 AND FED. R. BANKR. P.

9019(a) APPROVING COMPROMISE AND SETTLEMENT, AUTHORIZING ENTRY

INTO TERM SHEETS RELATING TO 21 ERJ135, 59 ERJ140, AND 118 ERJ145AIRCRAFT AND GRANTING RELATED RELIEF, AND TRANSACTIONS

DESCRIBED THEREIN

Upon the motion, dated October 23, 2012 (the Motion),1

of Marathon Asset

Management, LP, on behalf of one or more managed funds and/or accounts, for appointment of

an examiner pursuant to 11 U.S.C. 1104(c), as more fully described in the Motion; and the

Court having jurisdiction to consider the Motion and the relief requested therein in accordance

with 28 U.S.C. 157 and 1334 and the Amended Standing Order of Reference M-431, dated

January 31, 2012 (Preska, C.J.); and consideration of the Motion and the relief requested therein

being a core proceeding pursuant to 28 U.S.C. 157(b); and venue being proper before this

Court pursuant to 28 U.S.C. 1408 and 1409; and due and proper notice of the Motion having

been provided, and it appearing that no other or further notice need be provided; and a hearing

having been held to consider the relief requested in the Motion; and the Court having found and

determined that the relief sought in the Motion is in the best interests of the Debtors, their estates

and creditors, and all parties in interest and that the legal and factual bases set forth in the Motion

1Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed thereto in the

Motion.



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establish just cause for the relief granted herein; and after due deliberation and sufficient cause

appearing therefore, it is

ORDERED that the Motion is granted in all respects; and it is further

ORDERED that pursuant to section 1104(c) of the Bankruptcy Code, the United States

Trustee shall appoint an examiner (the Examiner) in these jointly administered cases pursuant

to the terms hereof; and it is further

ORDERED, that the Examiner shall conduct an investigation into (1) the Prepetition

Transactions, (2) any claims or other rights that the Debtors may hold in respect of the

Prepetition Transactions, and (3) the potential effects on any such claims or rights of the

proposed transactions described in the DebtorsMotion of Debtors for Order Pursuant to 11

U.S.C. 105(a), 363, and 1110 and Fed. R. Bankr. P. 9019(a) Approving Compromise and

Settlement, Authorizing Entry into Term Sheets Relating to 21 ERJ135, 59 ERJ140, and 118

ERJ145 Aircraft and Granting Related Relief [Docket No. 4936] (collectively, the

Investigation); and it is further

ORDERED, that the Examiner may retain attorneys and/or other professionals if he or

she determines that such professionals are necessary to discharge his or her duties, with such

retention to be subject to Court approval under standards equivalent to those set forth in section

327 of the Bankruptcy Code; and it is further

ORDERED, that, subject to any budget that may be established by the Court, the

Examiner and any professionals retained by the Examiner pursuant to any order of this Court

shall be compensated and reimbursed for their expenses pursuant to any procedures for interim

compensation and reimbursement of professional fees that are established in the Debtors chapter

11 cases, with compensation and reimbursement of the Examiner being determined pursuant to



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section 330 of the Bankruptcy Code, and compensation and reimbursement of the Examiners

professionals being determined pursuant to standards equivalent to those set forth in section 330

of the Bankruptcy Code; and it is further

ORDERED, that the precise scope, timing, and budget for the Examiners Investigation

will be set by the Court after the Examiner is appointed and confers with the Debtors, the

Committee, Marathon, and other parties in interest; and it is further

ORDERED, that this Order is without prejudice to (i) the rights of the Debtors, the

Committee, Marathon, any other party in interest, or the Examiner, to seek relief from the Court,

including, but not limited to, clarifying and expanding or limiting the scope of the Investigation;

and (ii) the right of the Examiner to seek such other relief as he or she may deem appropriate in

furtherance of the discharge of his or her duties and the Investigation; and it is further

ORDERED, that the Debtors, the Committee, and all other parties in interest shall

cooperate and (i) cause their respective present directors, officers, employees and professions,

and (ii) utilize reasonable best efforts to cause their respective former directors, officers,

employees and professionals to cooperate with the Examiner in conjunction with the

performance of any of the Examiners duties and the Investigation; and it is further

ORDERED, that the Examiner shall have the standing of a party in interest with

respect to the matters that are within the scope of the Investigation and shall be entitled to appear

and be heard at any and all hearings in these cases; and it is further

ORDERED, that nothing in this Order shall affect the right of the United States Trustee

or any other party to request any other lawful relief, including, but not limited to, the

appointment of a trustee; and it is further



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ORDERED, that the Court will conduct a case management conference with the

Examiner, the Debtors, the Committee, Marathon, and all parties in interest to consider the

precise scope, time and budget for the Investigation; and it is further

ORDERED, that the Court shall retain jurisdiction with respect to all matters arising from

or related to the implementation of this Order.

Dated: New York, New York, 2012

_______________________

United States Bankruptcy Judge


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