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On Feb. 27, Judge Peter J. Walsh of the U.S. Bankruptcy Court for the District of Delaware rendered a letter opinion and order in Re Trans World Airlines Inc., et al, holding that American Airlines’ agreement to assume workers’ compensation liability pursuant to an asset purchase agreement with TWA was not released by a workers’ compensation claimant’s subsequent settlement and release entered into with her employer, the debtor TWA. BACKGROUND The TWA bankruptcy was filed in 2001, and certain aspects of the case, including the workers’ compensation claim in question, have been “the subject of a rather long and tortured history, with one issue remaining open.” For our purpose, the facts relevant to the open issue are relatively straightforward. On April 9, 2001, TWA entered into an asset purchase agreement with American, pursuant to which the bankruptcy court concluded that American “had assumed” TWA’s obligation to Elizabeth Robinson “to make workers’ compensation payments to her in a monthly amount” presumably for the duration of her life or disability. Approximately 20 months later on Dec. 2, 2002, Robinson entered into a settlement agreement with the debtor, TWA, releasing the debtor and the debtor’s estate from any workers’ compensation obligation in exchange for a lump sum payment equal to approximately 13 months’ worth of compensation. Nevertheless, Robinson continued to assert a claim against American for future workers’ compensation payments. American resisted, claiming that Robinson’s subsequent settlement with TWA relieved American of any further obligation to her. Walsh disagreed. DISCUSSION The bankruptcy court first noted that American’s obligation to Robinson occurred in April 2001 when American’s asset purchase agreement with TWA became effective, as part of which American assumed all such workers’ compensation liability, with the result that “from that point on, TWA had no obligation to Ms. Robinson . . . post April 9, 2001.” The court then reasoned that when TWA entered into its December 2002 settlement with Robinson and obtained her release, “there was no post April 9, 2001 TWA workers’ compensation obligation that the debtor could have released.” Moreover, the court was persuaded by specific language in Robinson’s subsequent settlement with and release of TWA, that American had not been let off the hook. The release recited that it was a release of the “debtors” and the “estate,” from which the court concluded that it did not release “successor entities such as American.” The release contained language that “nothing herein shall be construed to operate in any way to alter or release” TWA or American “from any alleged liability they may have to [Ms.] Robinson.” The settlement agreement stated that the estate “also agrees not to interfere with Robinson’s ability to pursue her alleged claims against [TWA] or American.” From this language, the court found itself unable to accept American’s argument that it should be a beneficiary of a release that specifically carved out any claim Robinson might have against American, particularly when the facts revealed that American was unaware of the settlement agreement until after it had been executed. Further, the court was persuaded that this language in the settlement agreement indicated that TWA, for its part, thought that Robinson still had a right to assert a workers’ compensation claim against American. For good measure, the court felt that the lump sum settlement was not so large as to suggest that Robinson was waiving all workers’ compensation claims “for the balance of [her] life.” COMMENT Unfortunately, the court’s opinion does not indicate whether Robinson was a party to the April 2001 asset purchase agreement between TWA and American, pursuant to which American assumed all workers’ compensation liability. Under ordinary circumstances, she would not have been such a party, which suggests that Robinson never entered into a novation pursuant to which she accepted American’s assumption of liability in place of TWA’s original liability as employer. However, this argument was apparently not made by Robinson nor suggested by the court. Further, the court did not discuss the principle that when an obligee releases her primary obligor, that release might be effective to release parties secondarily liable, such as guarantors or parties assuming or agreeing to be responsible for the liability of the original obligor. Presumably, the court did not discuss this principle, (which would have led to a contrary result), because of the specific language of Robinson’s settlement agreement and release in which, curiously, an effort was apparently made to preserve Robinson’s claim against American. Finally, although the court placed some weight on the fact that American was not aware of Robinson’s release of TWA and her settlement agreement until after those documents had been executed, this factor would, in the writer’s opinion, be merely a makeweight that, standing alone, would not have warranted the result reached here.

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