## Facts

- America West Airlines, Inc. filed a voluntary Chapter 11 petition on June 26, 1991.
- The United States Trustee appointed an official unsecured creditors’ committee on July 10, 1991, including Kawasaki Leasing International, Ltd., a large unsecured creditor.
- After the committee’s formation, Kawasaki became a postpetition lender with superpriority status and extensive control rights over collateral and certain cash/accounts, including the ability to restrict account usage and sell collateral with little notice.
- The remaining committee members concluded Kawasaki’s postpetition financing position created a conflict with the interests of general unsecured creditors, including a potential divergence over reorganization versus liquidation outcomes.
- The committee unanimously requested Kawasaki’s removal, and the United States Trustee removed Kawasaki from the committee on February 25, 1992.
- Kawasaki moved for a court order reappointing it to the committee, asserting it remained a major unsecured creditor and that the Trustee’s action was arbitrary, capricious, and an abuse of discretion.

## Issues

1. What is the proper scope and standard of judicial review of the United States Trustee’s decision to remove a creditor from an official committee under 11 U.S.C. § 1102?
2. Whether the United States Trustee acted arbitrarily, capriciously, or abused discretion by removing Kawasaki after its interests shifted due to postpetition superpriority financing and control rights.
3. Whether Kawasaki was entitled to reappointment despite the asserted conflict and unanimous opposition from the other committee members.

## Decision

- The court denied Kawasaki’s motion for reappointment to the official unsecured creditors’ committee.
- The court applied a limited, deferential standard of review to the Trustee’s committee-membership decision (arbitrary-and-capricious/abuse-of-discretion review).
- The court held the Trustee’s removal decision was reasonable and supported by the record, given Kawasaki’s changed economic incentives and control rights that could conflict with the unsecured creditor constituency.
- The court rejected the claim that Kawasaki had any entitlement to committee membership based on claim size or sophistication.

## Legal Principles

- The United States Trustee has primary responsibility under 11 U.S.C. § 1102(a)(1) for the composition of official committees; judicial review of the Trustee’s membership decisions is limited and deferential, focusing on whether the action was arbitrary, capricious, or an abuse of discretion.
- An official unsecured creditors’ committee acts in a representative capacity for the unsecured creditor class under 11 U.S.C. § 1103(c); committee members must be able to represent that constituency without material conflicts.
- A creditor with materially divergent economic interests—such as a postpetition lender with superpriority and significant control over collateral/cash—may be unsuitable for service on an unsecured creditors’ committee when the divergence threatens adequate representation of general unsecured creditors.
- Creditors have no vested right to committee membership; continued service depends on adequate representation and the absence of disabling conflicts as assessed by the United States Trustee.

## Conclusion

The court upheld the United States Trustee’s removal of Kawasaki from the unsecured creditors’ committee, concluding that Kawasaki’s postpetition superpriority financing and control rights created a sufficient conflict with the unsecured creditor class and that the Trustee’s decision was neither arbitrary nor an abuse of discretion.


In re America W. Airlines, Inc., 142 B.R. 901 (Bankr. D. Ariz. 1992)