A federal judge has denied an effort by Delta Air Lines to throw out claims that it forced Pan Am Corp. out of business by withholding crucial financing in Pan Am's final days.
U.S. District Court Judge Robert Patterson's decision cleared the way for the non-jury trial to start Wednesday morning.Pan Am is suing Delta for at least $2.5 billion, claiming the Atlanta-based airline backed out on promises to lend it money to reorganize and pay for Pan Am's reincarnation as a Delta subsidiary flying in the Caribbean.
Delta wanted the judge to decide in its favor on several points, including Delta's claim that there wasn't a final contract promising to fund Pan Am.
In denying Delta's request for a summary judgment of the suit, Patterson decided the claims needed to be heard during a trial.
Late Monday, Patterson decided to separate the case from a class-action suit brought by former Pan Am employees who say they were harmed when Delta pulled out of the bailout. The class action is to be tried before a jury later, a ruling challenged by the employees' lawyer John Hadlock.
Pan Am stopped flying in early December of 1991, days after Delta withheld the last bit of money that could have kept Pan Am aloft until its bankruptcy reorganization plan was approved. Since then, Pan Am has been in the business of raising money - through sales of assets like airplanes and pursuing lawsuits - to help pay its debts.
Delta claims it was under no obligation to give Pan Am as much money as it wanted and was allowed to pull out of the proposed deal at any time. Letters exchanged between the companies spelled out an "agreement to agree," Delta's lawyer Dennis Glazer said. The next step would have been a final contract between the companies.
But Pan Am argues that Delta was compelled by the letters to provide the money and that Delta chief executive Ron Allen said "Delta would stand by its word" to invest in the new Pan Am.
Delta says Pan Am's financial health deteriorated and Pan Am failed to get ratification of new union contracts as promised.
"Pan Am's business was basically in a free-fall," Glazer said Tuesday.
Pan Am claims Delta promised to lend it money and invest in the reorganized company to keep others at bay who might have bid for Pan Am's Northeast shuttle and its trans-Atlantic routes.
The crucial support of Pan Am's creditors depended on any bidder promising to invest in a reorganized Pan Am. Trans World Airlines had already made an offer. Pan Am says Delta responded with a bid that agreed to finance the new Pan Am and provided Pan Am with financial and marketing help so it could stay aloft until it finished the bankruptcy reorganization.