While helping their company emerge from bankruptcy proceedings, American Airlines Inc.’s General Counsel Gary Kennedy and his legal department have faced a U.S. Department of Justice challenge to American’s plan to merge with US Airways, in addition to multibillion-dollar litigation.

All of that work is on top of the normal day-to-day legal matters that the 29-lawyer department handles for Fort Worth-based American Airlines.

“The last almost two years have been extremely difficult,” Kennedy says.

Paul Yetter, managing partner of Yetter Coleman in Houston, says any one of the matters American Airlines has faced over the last year or so would be a career challenge for most general counsel, but Kennedy takes things in stride.

“You’ll not meet a more calm or even-keeled lawyer,” says Yetter, who is an outside counsel for American.

Kennedy, general counsel at American Airlines since 2003, says he tries to keep his board of directors informed about what is going on and works to make sure nothing falls through the cracks on his watch.

But, he says, “I’m a real strong believer in delegating.”

Kathryn Koorenny, an associate general counsel working with Kennedy, says she is overseeing and coordinating the bankruptcy proceeding.

On Nov. 29, 2011, American and its parent company, AMR Corp., filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York.

“We have a total of 19 entities in bankruptcy.” Koorenny says.

Koorenny says that dozens of lawyers with Weil, Gotshal & Manges and Debevoise & Plimpton, American’s outside counsel, are involved in the bankruptcy proceeding, In Re: AMR Corp. et al. The bankruptcy also has kept attorneys in American’s legal department busy.

“Internally, almost every lawyer has touched some aspect of it,” Koorenny says.

The case appears to be nearing an end. On Sept. 12, U.S. Bankruptcy Judge Sean Lane of New York City confirmed the reorganization plan filed by AMR and American. But Koorenny says, before the plan becomes effective, AMR and American have to win the suit filed by the Department of Justice to challenge the proposed merger with US Air.

“Winning the lawsuit has become the proxy for getting regulatory approval,” she says.

The DOJ, joined by the District of Columbia and six states, including Texas, filed United States, et al. v. US Airways Group Inc. and AMR Corp. Aug. 13 in the U.S. District Court for the District of Columbia.

The plaintiffs allege in their complaint, “Because of the size of the airline industry, if this merger were approved, even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually.”

Kennedy says the airlines argue that the merger would be “good for consumers, good for competition.” The case is set for trial Nov. 25, he says.

Tickets and Tech

In other litigation, American filed suits against major ticket distributors, alleging that they had engaged in anticompetitive conduct against American after the airline developed Internet-based technology — known as AA Direct Connect — to sell its tickets directly to customers.

Bruce Wark, another associate counsel in American’s legal department, says the airline decided to use four different firms as its outside counsel for the suits against the ticket distributors.

Wark says American used Fort Worth’s Harris, Finley & Bogle as its local counsel because of its knowledge about Tarrant County courts. The airline selected Yetter as trial counsel, Wark says, because of his skill as a litigator.

American also used the Dallas office of Weil, Gotshal & Manges because the firm is large enough and has the resources to handle a massive piece of litigation, Wark says. Lastly, the firm used MJ Moltenbrey, a partner in the New York City office of Paul Hastings, who Wark describes as a “top-notch antitrust attorney.”

Yetter says American’s choice of forums for one of its suits demonstrates its willingness to pursue innovative litigation strategies. He says parties usually file antitrust suits in federal court. But American filed American Airlines, Inc. v. Sabre Inc., et al. in Tarrant County’s 67th District Court in January 2011, alleging breach of contract and violations under the Texas Antitrust Act. American alleged it suffered almost $1 billion in losses because of Sabre’s actions.

Yetter says American insisted that the case be prepared for a jury trial and invested in focus groups to explore basic attitudes about the parties’ claims and mini trials, in which mock jurors evaluated key evidence, witness credibility and other matters.

The trial in Sabre began in October 2012, but the parties settled for a confidential amount after voir dire, opening statements and a series of witnesses had testified, Yetter says. After settling with Sabre, Yetter says, American also reached a favorable settlement with Travelport LP and Orbitz Worldwide, defendants in a suit American filed in the U.S. District Court for the Northern District of Texas.

Aftermath of Tragedy

American and United Airlines won a significant victory this year when a federal judge in New York ruled that the World Trade Center’s developers cannot collect $3.5 billion in damages from the two airlines whose planes were taken over by terrorists who flew them into the twin towers on Sept. 11, 2001.

U.S. District Judge Alvin Hellerstein of the Southern District of New York heard the case in a bench trial July 15-18. In his Aug. 1 findings of fact and conclusions of law in World Trade Center Properties LLC, et al. v. American Airlines Inc., et al., Hellerstein wrote that the plaintiffs had collected the full extent of damages from their insurers for the business-interruption and building-replacement costs.

Koorenny supervises the 9-11 litigation, which has been ongoing for almost a decade. She says the WTCP plaintiffs are expected to appeal Hellerstein’s decision regarding the economic damages sought.

The judge found that the insurance proceeds had not fully compensated the plaintiffs for about $1.1 million in art and personal property losses. In an order signed Aug. 27, Hellerstein approved a settlement for those losses.

Koorenny says there are complicated legal issues in the 9-11 litigation.

“The most difficult thing is the tragedy,” she says. “We lost employees that day; we lost customers. It was devastating to our company that terrorists took over our planes.”

That was the reason Koorenny was present in court when Hellerstein heard the case.

“I was there at trial, so the judge would know it was an important matter to American Airlines,” she says.