American’s bankruptcy trustee had originally expressed concern about the sizable payout in mid-March, saying that under bankruptcy law, severance packages can not be handed out “without factual and circumstantial justification,” and questioning whether Horton, who had only been in the CEO gig since Nov. 2011 really merited such a shiny, golden parachute.
Under the law, the severance would need to be less than 10 times the average severance paid to non-management employees during the same calendar year. Lawyers for American argued that this part of the Bankruptcy Code doesn’t apply because the severance wouldn’t be paid by American, but by the new, merged, no-longer-bankrupt airline.
“We do not believe a company can evade congressional requirements in the Bankruptcy Code simply by delaying payment of a $20 million severance until the day after confirmation” said the director of the DOJ’s U.S. Trustee Program, which monitors bankruptcy proceedings, at the time.
And last night, the judge agreed, ruling that the payout falls under the umbrella of the Bankruptcy Code and that $19.9 million is too much money, according to the law.
“It is clear that the severance payment relates to Mr. Horton’s employment at AMR, where he currently serves as CEO, and not from [the merged company], which does not yet exist and where Mr. Horton will take on a new position only after the merger is finalized and the proposed severance is paid,” explained the judge, adding that, “As a practical matter, moreover, the proposed severance would be paid without any action from [the merged airlines], an entity that will consist of 72 percent of the property of the reorganized debtors.”
Though this is bad news for Horton, it looks like the hitch won’t have much of an impact on the merger.
“The court’s written approval of the merger agreement allows us to continue progressing forward with our planned merger with US Airways,” a rep for American told the Dallas Morning News. “It’s American Airlines’ current intention to address Mr. Horton’s compensation arrangement in the plan of reorganization.”