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Note: As part of a purchase/leaseback agreement, Bondholders held bonds issued by Eastern Air Lines, Inc. and secured by the aircraft that the trust purchased from the airline. Separately, the trustee, First Fidelity Bank, N.A., issued financial standby LCs for US$ 7,800,000 for the airline that were secured by accounts maintained at the bank. When the airline became insolvent, the bank moved promptly to seek to remove the automatic stays on the accounts which were, in fact, released so that the bank could set off the funds in the accounts against amounts owed. The bank acting as trustee, however, delayed in seeking to lift the automatic stay with respect to the airplanes which arguably resulted in a serious diminution of the value of the bonds. Two bondholders, LNC Investments, Inc. and Charter National Life Insurance Co., sued the bank/ trustee for breach of fiduciary duty, breach of contract and breach of a federal statute applicable to trust indentures. Following a jury verdict in favor of the issuer/trustee, the bondholders moved for a judgment NOV (notwithstanding the verdict) and, in the alternative, for a new trial. The U.S. District Court for the Southern District of New York, Haight, J., denied the bondholders' motions. The bondholder argued that it was entitled to a judgment as a matter of law because the trial court improperly excluded evidence of the bank's actions with respect to the letters of credit. It argued that "the only conclusion a reasonable juror could reach on the evidence is that the defendants were imprudent in waiting ... to make a lift stay/adequate protection motion." The court disagreed, noting that the trustee had valid reasons for delaying its filing a motion for protection. The evidence indicated that the bank as issuer was concerned to prevent that cash from being used to fund the continued operation of the airline that was favored by the bankruptcy judge. The same concerns did not obtain for the aircraft since the judge's predisposition to continue to operate the airline would have prevented either the sale of the airplanes or the release of the cash generated by the sale of some of them. The court stated that the bondholder had oversimplified the situation by stating that the issuer "was in the same position the trust was in." The cash collateralizing the LC, it noted, was insignificant in amount compared to the "trust cash collateral generated by the sale of...aircraft during the bankruptcy." ($206.5 million). "Amounts of that magnitude, when viewed together with the additional Trust collateral represented by the value of the remaining aircraft in the...fleet," the court reasoned, "might well have brought a gleam to the eye of a bankruptcy judge inclined by his nature to. preserve the existence of an airline imperiled by cash operating deficits." In explaining its ruling, the court observed that "whatever minimal relevance [the bank's] conduct as issuer of a letter of credit may have to that issue 'is substantially outweighed by the danger of ... confusion of the issues, or misleading the jury, or by considerations of undue delay, [or] waste of time ...'"

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