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Jul 18, 2013... is duplicative of the Wells Fargo Claim or the Citi Claim. 11-15463-shl Doc 9157 Filed 07/18/13 Entered 07/18/13 13:27:23 Main Document.
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Hearing Date: July 25, 2013 at 11:00 a.m. (ET) Objection Deadline: July 18, 2013 at 4:00 p.m. (ET)

Eric Lopez Schnabel Jessica D. Mikhailevich DORSEY & WHITNEY LLP 51 West 52nd Street New York, New York 10019 Telephone: (212) 415-9200 Facsimile: (212) 953-7201 Counsel to U.S. Bank National Association UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ________________________________________________ In re: AMR CORPORATION, et al.,

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Chapter 11 Case No. 11-15463 (SHL) (Jointly Administered)

Debtors. ) ________________________________________________) RESPONSE OF U.S. BANK NATIONAL ASSOCIATION TO DEBTORS’ EIGHTIETH OMNIBUS OBJECTION TO CLAIMS (Duplicate Claims, 1110 Aircraft Stipulations and Settlements) U.S. Bank National Association (as successor in interest to U.S. Bancorp Leasing & Financial) (“U.S. Bank”), through its undersigned counsel, hereby files this response to Debtors’ Eightieth Omnibus Objection to Claims (the “Claim Objection”). Included in the Claim Objection is an objection (the “U.S. Bank Claim Objection”) to claim number 12584 (the “U.S. Bank Claim”) submitted by U.S. Bank, on the basis that it is allegedly a duplicate of claim number 13326-A (the “Wells Fargo Claim”) filed by Wells Fargo Bank Northwest, N.A. (“Wells Fargo”) and claim number 13326-B (the “Citi Claim”) of Citigroup Financial Products, Inc. (“Citi”). With respect to the U.S. Bank Claim Objection, U.S. Bank asserts that it has adequately supported the U.S. Bank Claim and that the U.S. Bank Claim should be allowed, and disputes that the U.S. Bank is duplicative of the Wells Fargo Claim or the Citi Claim.

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BACKGROUND 1.

On November 29, 2011, the Debtors commenced a voluntary case under chapter 11 of

title 11 of the United States Code. 2.

On December 23, 2011, the Court entered an Order Authorizing the Debtors to (i) Enter

Into Agreements Under Section 1110(a) of the Bankruptcy Code, (ii) Enter Into Stipulations to Extend the Time to Comply with Section 1110 of the Bankruptcy Code and (iii) File Redacted Section 1110(b) Stipulations [ECF No. 455] (the “1110 Order”). 3.

U.S. Bank, Debtor American Airlines, Inc. (“AA”) and First Security Bank of Utah, N.A.

(as successor in interest to Connecticut National Bank) (the “Indenture Trustee”) are parties to a Participation Agreement with an effective date as of September 15, 1989 (the “Participation Agreement”), pursuant to which AA sold one McDonnell Douglas DC-9-82 Aircraft (N497AA) (the “Aircraft”) to U.S. Bank as Owner Participant (the “Transaction”), operating through Wilmington Trust Company as Owner Trustee (“Owner Trustee”). 4.

Owner Trustee agreed to lease the Aircraft to AA pursuant to a Lease Agreement with an

effective date as of September 15, 1989 (the “Lease Agreement”), and pursuant to which AA agreed to make payments to Owner Trustee at regular intervals during the term of the Lease Agreement. 5.

Owner Trustee and Indenture Trustee are parties to an Amended and Restated Trust

Indenture and Security Agreement with an effective date as of April 23, 1990 (the “Trust Indenture and Security Agreement”), pursuant to which certificates (the “Certificates”) were issued to finance the purchase price of the Aircraft, and pursuant to which the Aircraft and Owner Trustee’s interest in the Lease Agreement were pledged as collateral and pursuant to which the holders of the Certificates (the “Certificate Holders”) were to receive a stream of payments for a term of 25 years.

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U.S. Bank and AA are parties to a Tax Indemnity Agreement with an effective date of

September 15, 1989 (the “Tax Indemnity Agreement”), pursuant to which AA agreed to indemnify U.S. Bank for certain tax losses incurred by U.S. Bank in connection with the above described transaction. A copy of the Tax Indemnity Agreement is attached to the U.S. Bank Claim as Exhibit A. The Tax Indemnity Agreement was not pledged as collateral to the Indenture Trustee or the Certificate Holders. 7.

Under the Tax Indemnity Agreement, AA indemnifies U.S. Bank against losses arising

from certain tax consequences that result from any act or omission on the part of AA, wherein U.S. Bank loses its right to claim, suffers a disallowance, elimination, reduction, disqualification or delay of all or any portion of: (a) the federal income tax deductions which otherwise would have been allowable to U.S. Bank with respect to the interest and original issue discount accrued on the Certificates (the “Interest Deductions”) or (b) the federal income tax deductions which otherwise would have been allowable to U.S. Bank with respect to the amortization of the Transaction costs (the “Amortization Deductions”), and also from such losses resulting from U.S. Bank being required to include in its gross income any amount directly resulting from the exercise by the Indenture Trustee of any of its remedies in connection with an event of default as provided or permitted by the Lease Agreement (collectively, “Tax Losses”). 8.

As part of the aforementioned indemnity, AA must pay U.S. Bank an amount which

compensates U.S. Bank for the amount of economic benefit it loses as a result of any Tax Loss. 9.

As part of its bankruptcy proceeding, AA ceased making its required payments under the

Lease Agreement. As a direct result thereof, the Certificate Holders did not receive the payments to which they were entitled, which constituted an event of default under the Indenture Trust and Security Agreement (as provided in the Lease Agreement) (the “Payment Default”).

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As a result of the Payment Default, Indenture Trustee elected to exercise certain remedies

available to it under the Indenture Trust and Security Agreement (as provided in the Lease Agreement). One of such remedies was that Indenture Trustee became Owner Trustee’s successor to the Lease Agreement. 11.

As a result of this Payment Default, U.S. Bank has incurred certain Tax Losses.

12.

As of July 13, 2012, U.S. Bank’s Tax Losses indemnified by AA under the Tax

Indemnity Agreement were $2,010,472. 13.

On July 16, 2012, U.S. Bank filed the U.S. Bank Claim, asserting a claim in the amount

of $2,010,472 for damages arising in connection with the Lease Agreement. [Claims Reg. No. 12583] 14.

On May 31, 2012, Wells Fargo, as Indenture Trustee, filed the Wells Fargo Claim (claim

number 13326-A), asserting a claim in the aggregate allowed amount of $10,075,272 pursuant to the Second Stipulation and Order Approving Section 1110(B) Extension for N497AA approved by order of the Court dated May 31, 2012 (the “Allowance Order”). [Claims Reg. No. 13326-A] 15.

On March 28, 2013, Wells Fargo, as Indenture Trustee, filed an Evidence of Transfer of

Claims (Claim Nos. 13326 and 11973), providing notice, among other things, that it had transferred 100% of its rights, titles and interest in the Wells Fargo Claim to Citi, but excluding any administrative claims referenced under claim number 13326 and/or under the Allowance Order. 16.

The portion of the Wells Fargo Claim which was assigned to Citi was assigned claim

number 13326-B and is referred to herein as the Citi Claim. RESPONSE TO CLAIM OBJECTION 17.

On June 21, 2013, the Debtors filed their Claim Objection, which included the U.S. Bank

Claim Objection [Exhibit “A” at Seq. No. 64]. The U.S. Bank Claim Objection asserts that the

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U.S. Bank Claim is duplicative of the Wells Fargo Claim and the Citi Claim. 18.

The U.S. Bank Claim is not duplicative of the Citi Claim or the Wells Fargo Claim.

Unlike the Wells Fargo Claim and the Citi Claim, the U.S. Bank Claim does not arise under Section 1110 of the Bankruptcy Code or in connection with the Allowance Order. Rather, the U.S. Bank Claim is an indemnification claim asserted under a separate tax indemnity agreement against AA following the foreclosure of the Aircraft by the Certificate Holders. Thus, the U.S. Bank Claim is a claim separate and apart from the claims described in paragraph 8 of the Claim Objection as “Aircraft Claims” and the allowance of the Wells Fargo Claim and/or the Citi Claim should not prejudice or in any way preclude the allowance of the U.S. Bank Claim. 19.

As stated above, AA agreed under the Tax Indemnity Agreement to indemnify U.S. Bank

against losses arising from certain tax consequences that result from any act or omission on the part of AA, wherein U.S. Bank loses its right to claim, suffers a disallowance, elimination, reduction, disqualification or delay of all or any portion of the Interest Deductions or the Amortization Deductions, and also from Tax Losses. The U.S. Bank Claim therefore does not relate to the actual use of the Aircraft and the Debtors’ assertion that it is duplicative of the Wells Fargo Claim and the Citi Claim is incorrect.

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CONCLUSION WHEREFORE, U.S. Bank requests that the U.S. Bank Claim Objection be denied in its entirety or in the alternative that this court enter a scheduling order to allow for discovery and an evidentiary hearing on the Claim Objection as it relates to the U.S. Bank Claim. Dated: July 18, 2013 DORSEY & WHITNEY LLP /s/ Eric Lopez Schnabel Eric Lopez Schnabel Jessica D. Mikhailevich DORSEY & WHITNEY LLP 51 West 52nd Street New York, NY 10019-6119 (212) 415-9200 (212) 953-7201 (facsimile) Counsel for U.S. Bank National Association

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