© 2013 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer for The Texas Lawbook
(August 20) – American Airlines General Counsel Gary Kennedy was walking up six flights of stairs at the airline’s Fort Worth headquarters last Tuesday morning about 8:30 a.m. when he received an email from Joe Sims, one of the dozens of big firm lawyers he employed to help the company merge with US Airways.
“I uttered some words that I shouldn’t have uttered,” says Kennedy, who has led American Airlines’ corporate legal department for a decade.
Minutes later, he gave the bad news to CEO Tom Horton and other senior leaders at AMR that the U.S. Department of Justice, Texas Attorney General Greg Abbott and five other states were filing a federal antitrust lawsuit to stop the two airlines from combining.
Kennedy, speaking for the first time since the government’s intervention last week, says that American Airlines has no Plan B, will vigorously fight the antitrust lawsuit and does not think that a settlement is likely.
“We knew the Justice Department had some issues or views on the transaction, but we were still surprised and disappointed,” he says.
Even more shocking and unsettling, according to Kennedy, is Texas Attorney General Abbott’s role in the litigation.
“I was totally surprised and disappointed with the Texas AG,” he says. “We are a Texas-based company and the new, merged company will be stronger and more influential and still based right here in Texas. I do not understand his position on this at all.”
Kennedy says that Abbott and his legal team gave them no indication of their opposition to the merger.
“No concerns were voiced in advance,” he says.
Abbott, who is a candidate for governor, also was the target of a paid advertisement by the Allied Pilots Association in The Dallas Morning News Monday.
“Are you opposed to have a leading global carrier headquartered in Fort Worth?” the ad asked. “Considering everything at stake – including the large number of jobs and the tax revenues they generate – that doesn’t make any sense.”
Legal experts close to the litigation say that lawyers representing American had prepared for an antitrust litigation battle with the Justice Department if the government filed. But American’s lawyers believed that Texas would not file and that they would use the fact that Texas had declined to join the lawsuit as part of the company’s strategic argument.
Kennedy says that American Airlines has “no contingency plan” if the merger fails.
“We are focusing all of our efforts and energies on winning this lawsuit,” he says. “There’s no Plan B.
“Our bankruptcy exit plan has as its centerpiece this merger,” he continues. “If the merger, hypothetically, doesn’t go forward, then we have to go back to the bankruptcy court with a new plan.”
Kennedy says his legal team has asked the federal judge handling the case, U.S. District Judge Colleen Kollar-Kotelly of Washington, D.C., for a scheduling hearing as soon as possible.
“We hope to have this case go to trial before the end of the year,” he says. “The discovery in the case is mostly done and we don’t see any need for delays.”
Despite numerous news media reports strongly suggesting that American and the Justice Department could still negotiate a resolution, Kennedy and Sims say that a settlement is highly unlikely.
“DOJ has shown no interest in settlement discussions,” says Sims.
Even so, Kennedy quickly adds, “We remain open to negotiating a settlement.”
Bill Baer, the assistant U.S. attorney general over the Antitrust Division, echoed views by Sims and Kennedy at his press conference last week.
“If anybody wants to come to us to propose a settlement, we’re always prepared to listen,” Baer said. “But our view, looking at the evidence before us, is that the right outcome here is a full-stop injunction.”
The government’s lawsuit not only puts the merger on hold, it also extends American’s extraordinarily large legal tab for the outside lawyers it is employing for the bankruptcy, merger and now the antitrust battle.
Court records show that American Airlines, since it filed for bankruptcy in November 2011, is spending about $500,000 a day in legal expenses and that the airline’s total legal expenses have been about $150 million.
Kennedy announced in June that he plans to leave American Airlines after the company’s merger with US Airways is completed. US Airways CEO Doug Parker, who would assume the top job at American if the deal goes through, planned to demote the office of general counsel and chief legal officer by having the position report to a senior vice president for corporate and government affairs instead of reporting to the CEO and board chairman.
Kennedy says he has made no career plans beyond his time at American, though several general counsels at other Texas businesses and legal headhunters say he will be highly sought after once he finishes his work at the airline.
“I am fully in the saddle at American and I am looking forward to overseeing this litigation, which we fully expect to win,” he says.
American Airlines is no stranger to antitrust battles with the Justice Department. For example, the federal government sued the airline in 1999, alleging the company used predatory tactics to quash competition. A federal judge dismissed the lawsuit in 2001.
Kennedy and Sims say that its previous antitrust battles have no bearing on the current case.
Asked if it is exciting to be the lead lawyer in what could be end up as a landmark antitrust case, Kennedy answered, “Yeah, like a root canal is exciting. Intellectually, it is fascinating, but we would much rather have this merger approved and move on.”
For additional legal analysis on the American Airlines antitrust litigation, we recommend a terrific article in this past Sunday’s edition of The Dallas Morning News by Michael Lindenberger.
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