US Airways 2006 Annual Report Download - page 32

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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 the 2004 Bankruptcy in the amount of approximately $31 million, and on August 2, 2005 the IRS filed a motion for relief from
the automatic stay seeking setoff against approximately $4 million of tax refunds due to the Reorganized Debtors. On October 20, 2005,
the IRS filed an amended proof of claim reducing its claim in the USLM matter to $11 million. On November 3, 2005, the IRS filed an
amended motion continuing to seek relief for the $4 million setoff. US Airways and the IRS have reached an agreement to settle the
USLM matter whereby the IRS would setoff approximately $4.5 million of tax refunds and the IRS would be allowed an unsecured
priority claim in the amount of approximately $6.5 million, payable within 30 days after the agreement is filed with the Bankruptcy
Court. The agreement was filed with the Bankruptcy Court on February 18, 2007 and the matter is now closed.
On February 8, 2006, 103 flight attendants employed by the former MidAtlantic division of US Airways filed a complaint against
the Association of Flight Attendants ("AFA"), AFA's international president Pat Friend and US Airways, alleging that defendants
conspired to deceive plaintiffs into believing that MidAtlantic was a separate entity from US Airways in order to deprive them of the
benefits they are due as US Airways flight attendants pursuant to the US Airways collective bargaining agreement. Plaintiffs' claims
against US Airways include breach of collective bargaining agreement, violation of the Railway Labor Act and racketeering under RICO.
Plaintiffs' complaint requests $400 million in damages from US Airways and injunctive relief. The complaint was served on US Airways
on July 7, 2006. On November 24, 2006, Plaintiffs filed with the district court a notice of voluntary dismissal of US Airways from the
litigation, and on November 27, 2006, US Airways filed a notice withdrawing its motion for sanctions. On December 29, 2006, the
district court entered an order dismissing US Airways from the litigation.
On October 12, 2005, Bank of America, N.A., which is one of the issuing banks of the US Airways frequent flyer program credit
card and which also acts as the processing bank for most airline ticket purchases paid for with credit cards, filed suit in the Delaware
Chancery Court in New Castle County against US Airways, US Airways Group and AWA, alleging that US Airways breached its
frequent flyer credit card contract with Bank of America by entering into a similar, competing agreement with Juniper and allowing
Juniper to issue a US Airways frequent flyer credit card. Bank of America also alleges that US Airways Group and AWA induced these
breaches. Bank of America seeks an order requiring US Airways to market the Bank of America card and prohibit Juniper from issuing a
US Airways credit card, as well as unspecified damages. On October 27, 2005, Juniper, which was not originally a party to the lawsuit,
sought and later received court permission to intervene as a defendant in the case and has made counterclaims against Bank of America.
Juniper seeks an order declaring the validity of its new agreement to issue a US Airways frequent flyer credit card. On November 3,
2005, Bank of America filed a motion for partial summary judgment on the breach of contract claim against US Airways. After a series
of procedural steps, Bank of America's motion, along with a cross-motion for summary judgment filed by Juniper, was heard in the
Bankruptcy Court, where the case is now pending as an adversary proceeding. On January 30, 2006, the Bankruptcy Court ruled that
Bank of America was equitably estopped from pursuing its claims that US Airways breached its agreement with Bank of America by
negotiating and entering into the agreement with Juniper. The Bankruptcy Court ruled in the alternative that US Airways did not breach
its agreement with Bank of America to be the exclusive card issuer, but that US Airways had breached the "no shop" provision of the
Bank of America agreement when US Airways negotiated with Juniper prior to reaching the Juniper agreement. Bank of America sought
appeal of that ruling while it has continued to pursue certain administrative claims against US Airways in the Bankruptcy Court. The
resolution of the final two claims that Bank of America made in the lawsuit, which are (i) that AWA tortiously interfered with the
contractual relationship between US Airways and Bank of America and (ii) that US Airways Group and AWA tortiously interfered with
Bank of America's right to future economic benefit under its agreement with US Airways, are dependent on the outcome of the pending
appeal. Bank of America will pursue those two claims only if its appeal of the January 30, 2006 order is ultimately successful. On
July 19, 2006, the Eastern District of Virginia affirmed the Bankruptcy Court's order in part, ruling that US Airways did not breach the
exclusivity provisions of the contract. However, the Eastern District of Virginia reversed the Bankruptcy Court's decision on equitable
estoppel and remanded the remainder of the case to the Bankruptcy Court to take further evidence. Bank of America and US Airways
have each appealed the July 19, 2006 ruling. On January 16, 2007, Bank of America amended its complaint to add additional breach of
contract and tortious interference claims against US Airways and America West, as well as claims against Juniper.
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