The Bankruptcy Hotline

The Third Circuit has ruled that travel vouchers that were awarded to over 2000 flight attendants of Trans World Airlines as part of a class action settlement of a sex discrimination case were properly 'extinguished' when TWA's assets were sold in bankruptcy court to American Airlines. United States v. Knox-Schillinger (In re Trans World Airlines Inc.), No. 01-1788 (March 13).

The court stated that while it recognized the plaintiffs' claims were 'based on Congressional enactments addressing employment discrimination and are, therefore, not to be extinguished absent a compelling justification. At the same time, in the context of a bankruptcy, these claims are, by their nature, general unsecured claims and, as such, are accorded low priority.' The court further opined that it would be inconsistent with the Bankruptcy Code's priority scheme to allow the plaintiffs to assert successor liability claims against American Airlines while limiting other creditors' recourse to the proceeds of the asset sale. Because the claims against TWA were 'connected to or arise from the assets sold, the court found that the bankruptcy court properly approved the sale 'free and clear' of successor liability.