US Airways 2005 Annual Report Download - page 38

Table of Contents
Item 3. Legal Proceedings
On September 12, 2004, US Airways Group and its domestic subsidiaries (the "Debtors") filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States bankruptcy court for the Eastern District of Virginia, Alexandria Division (the "Bankruptcy Court") (Case
Nos. 04-13819-SSM through 03-13823-SSM) (the "2004 Bankruptcy"). On September 16, 2005, the Bankruptcy Court issued an order confirming the plan of
reorganization submitted by the Debtors and on September 27, 2005, the Debtors emerged from the 2004 Bankruptcy. The court's order confirming the plan
included a provision called the plan injunction, which forever bars other parties from pursuing most claims against the Debtors that arose prior to
September 27, 2005 in any forum other than the Bankruptcy Court. The great majority of these claims are pre-petition claims that, if paid out at all, will be
paid out in common stock of the post-bankruptcy US Airways Group at a fraction of the actual claim amount.
On February 26, 2004, a company called I.A.P. Intermodal, LLC filed suit against US Airways Group and its wholly owned airline subsidiaries in the
United States District Court for the Eastern District of Texas alleging that the defendants' computer scheduling system infringes upon three patents held by
plaintiffs, all of which patents are entitled, "Method to Schedule a Vehicle in Real-Time to Transport Freight and Passengers." Plaintiff seeks various
injunctive relief as well as costs, fees and treble damages. US Airways Group and its subsidiaries were formally served with the complaint on June 21, 2004.
US Airways Group is unable to ascertain at this time the likelihood or potential scale of liability. On the same date, the same plaintiff filed what US Airways
Group believes to be substantially similar cases against nine other major airlines, including British Airways, Northwest Airlines Corporation, Korean Airlines
Co., Ltd., Deutsche Lufthansa AG, Air France, Air Canada, Singapore Airlines Ltd., Delta Air Lines and Continental Airlines, Inc., and had filed a suit
against AMR Group, Inc., the parent company of American Airlines, along with its airline subsidiaries, in December 2003. This action has been stayed as to
US Airways Group and its wholly owned subsidiaries as a result of the 2004 Bankruptcy. In the meantime, several foreign airline defendants were dismissed
from the case for reasons unique to their status as foreign operators, and the remaining defendants in September 2005 obtained a ruling that there had been no
infringement of any of I.A.P.'s patents. In October 2005, I.A.P. entered into consent judgments with several defendants but has since filed a notice of appeal
against Continental Airlines and the AMR Group defendants. I.A.P. did not file any claims against US Airways Group or any of its subsidiaries in the 2004
Bankruptcy.
The Port Authority of New York and New Jersey filed a proof of claim against US Airways in the bankruptcy case filed on August 11, 2002 (the "2002
Bankruptcy"). The claim was in the amount of $8.5 million and it alleged environmental contamination and building deficiencies at LaGuardia. US Airways'
liability and defenses to this liability were unaffected by the 2002 Bankruptcy. In connection with the 2004 Bankruptcy, the Port Authority filed a proof of
claim in the amount of approximately $24 million again alleging environmental contamination and building deficiencies at LaGuardia, of which
approximately $2 million is related to alleged environmental contamination.
On January 7, 2003, the Internal Revenue Service ("IRS") issued a notice of proposed adjustment to US Airways Group proposing to disallow
$573 million of capital losses that US Airways Group sustained in the tax year 1999 on the sale of stock of USLM Corporation (the "USLM matter"). On
February 5, 2003, the IRS filed a proof of claim with the Bankruptcy Court in connection with the 2002 Bankruptcy asserting the following claims against
US Airways with respect to the USLM matter: (1) secured claims for U.S. federal income tax and interest of $1 million; (2) unsecured priority claims for
U.S. federal income tax of $68 million and interest of $14 million; and (3) an unsecured general claim for penalties of $25 million. On May 8, 2003,
US Airways Group reached a tentative agreement with the IRS on the amount of U.S. federal income taxes, interest and penalties due subject to final approval
from the Joint Committee on Taxation. By letter dated September 11, 2003, US Airways Group was notified that the Joint Committee on Taxation had
accepted the tentative agreement with the IRS, including a settlement of all federal income taxes through the end of 2002. Due to the 2004 Bankruptcy filing,
which suspended payment of prepetition liabilities, final payment terms under the agreement have not been submitted to the Bankruptcy Court for approval.
The IRS has submitted a proof of claim relating to the USLM matter in 32