Opinion
C. A. N20C-05-128 AML CCLD
12-29-2023
GULF AVIATION SERVICES GROUP WLL D/B/A UNITED AVIATION, Plaintiff-Counterclaim Defendant, v. WILMINGTON TRUST COMPANY, Defendant-Counterclaim Plaintiff.
Kurt M. Heyman, Esquire, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware, Attorney for Plaintiff-Counterclaim Defendant Gulf Aviation Services Group WLL d/b/a United Aviation. P. Clarkson Collins, Jr., Esquire, David J. Soldo, Esquire, R. Eric Hacker, Esquire, MORRIS JAMES LLP, Wilmington, Delaware, Attorneys for Defendant-Counterclaim Plaintiff Wilmington Trust Company.
Submitted: September 5, 2023
Kurt M. Heyman, Esquire, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware, Attorney for Plaintiff-Counterclaim Defendant Gulf Aviation Services Group WLL d/b/a United Aviation.
P. Clarkson Collins, Jr., Esquire, David J. Soldo, Esquire, R. Eric Hacker, Esquire, MORRIS JAMES LLP, Wilmington, Delaware, Attorneys for Defendant-Counterclaim Plaintiff Wilmington Trust Company.
POST-TRIAL MEMORANDUM OPINION
Sitting as a Judge of the Superior Court of the State of Delaware by special designation of the Chief Justice of the Supreme Court of Delaware pursuant to Del. Const. Art. IV § 13(2).
The plaintiff, a Kuwaiti company, acquired a helicopter that it sought to register with the United States Federal Aviation Authority. But the FAA will not register aircraft owned by non-citizens. The defendant, a Delaware non-depository trust company, met the FAA's citizenship requirement and regularly provided solutions to companies facing the plaintiff's predicament. First, the defendant would enter into a trust agreement with the non-citizen company. Under the trust agreement, the non-citizen company would transfer legal title to the aircraft to the defendant, which would hold the aircraft in trust for the company's use and benefit. Once the transfer was complete, the defendant would register the aircraft with the FAA while continuing to hold legal title, and the non-citizen company would be free to operate the aircraft as its beneficial owner. In return, the company would pay the defendant an annual fee.
The plaintiff entered into one such agreement with the defendant and began leasing the helicopter to a third party shortly thereafter. But over time, the plaintiff experienced financial hardship and stopped paying the defendant's annual fee. After several years of not receiving the plaintiff's payments, the defendant resigned from its position as trustee. By that time, however, the plaintiff had stopped responding to the defendant's communications, and the defendant still held title to the helicopter, though only in its capacity as former trustee.
Months after the defendant's resignation, an aircraft broker who claimed to represent an unidentified client contacted the defendant about the helicopter. According to the broker, his client was on the brink of obtaining rights to the helicopter through legal proceedings in the Kingdom of Bahrain. Over the next few months, the defendant and the broker exchanged communications, working to coordinate a sale of the helicopter to the broker's unidentified client. During that time, the defendant conducted little to no diligence regarding the broker, his client, or his client's rights to the helicopter. The defendant also did not attempt to contact the plaintiff or research the defendant's rights to sell the helicopter.
After a few months of communications, the broker finally provided the defendant with what he claimed to be a Bahraini judgment entitling his client to the helicopter. But the document neither mentioned the plaintiff nor stated that anyone was entitled to possess or take title to the helicopter. Nevertheless, shortly thereafter, the defendant executed a bill of sale transferring title to the helicopter to the broker's client for a nominal amount.
It did not take long for the plaintiff to learn of the sale, which ultimately led to this litigation. The plaintiff brought this action asserting one claim of conversion relating to the sale. The defendant filed two counterclaims-one to recover unpaid fees that the plaintiff owed under the trust agreement, and the other for indemnification against costs and fees that the defendant incurred in connection with this action.
After considering the trial record and the parties' arguments, it is evident that the defendant wrongfully sold the helicopter, which the plaintiff had a right to possess and in which the plaintiff had a property interest. In other words, the plaintiff satisfied its burden as to its conversion claim. The plaintiff is entitled to damages amounting to $2,247,000, which represents the helicopter's fair market value as of the sale date. The plaintiff also is entitled to pre- and post-judgment interest, but the Court will not accept the plaintiff's invitation to shift attorneys' fees.
As to the defendant's counterclaims, the plaintiff failed to pay the defendant's annual fee for five years, resulting in $15,000 in damages to the defendant. The defendant therefore satisfied its burden as to the breach of contract counterclaim. It did not, however, carry its burden as to its indemnification counterclaim. Accordingly, the defendant is entitled to damages in the amount of $15,000, plus pre- and post-judgment interest.
I. BACKGROUND
Trial took place in this action over the course of four days. Four fact witnesses and two expert witnesses testified virtually, and the parties filed post-trial briefs addressing factual and legal issues. These are the facts as the Court finds them after assessing the witnesses' credibility and weighing the evidence.
This post-trial decision cites: C. A. No. N20C-05-128 AML CCLD docket entries (by "D.I." number); trial exhibits (by "JX" number); the trial transcript ("Trial Tr." by day "I-IV"); deposition transcripts lodged by the parties (by witness last name); and stipulated facts set forth in the parties' Joint Pre-Trial Order ("PTO").
A. The Parties and Relevant Non-Parties
Plaintiff Gulf Aviation Services Group WLL d/b/a United Aviation ("Gulf") is a Kuwaiti company with its principal place of business in Kuwait City. Fahad Alajmi served as the company's attorney from 2006 to 2008 and from 2013 through trial. He became an owner of Gulf in 2021.
PTO § II(A)(1).
Trial Tr. I at 11-12.
Id.
Defendant Wilmington Trust Company ("WTC") is a non-depository trust company with its office located in Wilmington, Delaware. Patricia Bradenburg has been employed by WTC since 1995 and has administered trusts in WTC's corporate trust department since 2009.
PTO § II(A)(2).
Trial Tr. II at 40.
MENA Aerospace Enterprises WLL ("MENA Aerospace") is a holding company that owns a group of aviation companies. SA MENA Avionics ("MENA Avionics" and, together with MENA Aerospace, the "MENA Entities") is a subsidiary of MENA Aerospace. Ralph Eisenschmid conducts business on behalf of the MENA Entities.
JX9.
See JX43 at GULF0000008-9.
PTO § II(B)(14).
B. The Parties Enter into the Trust Agreement
In 2008, Gulf purchased the helicopter, which had been outfitted for service as an air ambulance, for $6,914,424. At the time, Gulf intended to lease the helicopter to Action Aviation FZE ("Action Aviation"), which would operate the helicopter for the Saudi Red Crescent Authority. After purchasing the helicopter, Gulf decided to register it with the United States Federal Aviation Authority (the "FAA"), which would allow the helicopter to operate in the Middle East.
Id. § II(B)(3); Trial Tr. I at 20; see JX2 (Purchase Agreement).
PTO § II(B)(3); see JX2.
PTO § II(B)(5).
Under FAA regulations, however, the owner of an FAA-registered aircraft must be a United States citizen, and Gulf was formed in Kuwait. WTC, on the other hand, as a Delaware non-depository trust, met the FAA's citizenship requirements. So the parties entered into an arrangement memorialized in a written trust agreement drafted by WTC (the "Trust Agreement"). Under the Trust Agreement, Gulf would transfer legal title to the helicopter to WTC in its capacity as "Owner Trustee," and WTC would hold the helicopter in trust for Gulf's "use and benefit." Following the Trust Agreement's execution, Gulf transferred legal title to the helicopter to WTC, and WTC registered the helicopter with the FAA.
Id. § II(B)(6).
JX5 (Trust Agreement); PTO § II(B)(7).
The Trust Agreement defines "Owner Trustee" as WTC, "acting not in its individual capacity but solely as trustee hereunder with its permitted successors and assigns." JX5 pmbl.
PTO § II(B)(6); JX5 § 2.02.
PTO § II(B)(9).
Id.
C. Gulf Leases the Helicopter to Action Aviation
Gulf and Action Aviation entered into a two-and-a-half-year lease agreement in 2008 (the "Action Aviation Lease") around the time that Gulf and WTC entered into the Trust Agreement. By 2010, however, Action Aviation was struggling to make lease payments, and newly implemented restrictions on the use of helicopters in Saudi Arabia forced Action Aviation to ground the helicopter in the Kingdom of Bahrain, an island nation off the coast of Saudi Arabia. As a result, the Action Aviation Lease was terminated before the lease term expired, and the helicopter was parked at the Bahrain International Airport where it remained until 2017.
PTO § II(B)(10).
Id. § II(B)(11)-(12); Trial Tr. I at 28-29.
PTO § II(B)(11).
Id. § II(B)(12).
In August 2011, Gulf received a letter from Eisenschmid, purporting to act as CEO of MENA Aerospace. MENA Aerospace, which operated a maintenance facility at the Bahrain International Airport, was "endeavouring to locate the parties ultimately responsible for the [helicopter]." According to the letter, Action Aviation had hired MENA Aerospace to complete an avionics modification on the helicopter but refused to pay MENA Aerospace when the work was complete. The letter also stated that MENA Aerospace had possession of the helicopter and was being charged by the airport for parking fees. Finally, the letter stated that MENA Aerospace was "preparing to seek recourse to the full extent possible" and "wish[ed] to be clear who holds responsibility for the [helicopter]."
Id. § II(B)(13); JX13.
JX13.
Id.
Id.
Id.
The following month, Gulf wrote to Action Aviation about Eisenschmid's letter, advising Action Aviation that MENA Aerospace was requiring the helicopter to be removed from Bahrain. Gulf asked Action Aviation to provide its plans for paying MENA Aerospace "so that [Gulf can] make plans to move the [helicopter] from Bahrain." In addition, Gulf asked Action Aviation to provide MENA Aerospace with a written authorization to return the helicopter to Gulf.
JX15.
Id.
Id.
There is no record evidence that Action Aviation responded to Gulf's letter or that Gulf responded to MENA Aerospace's letter. But Alamji testified that when he rejoined Gulf in 2013, he requested all records of the company's debts and that Gulf's records did not reflect any debt to MENA Aerospace. He also testified that there was no communication between Gulf and MENA Aerospace after he returned to the company in 2013.
Trial Tr. I at 33.
Id.
D. WTC Resigns as Trustee After Gulf Fails to Pay Its Fees
Gulf also experienced its own financial difficulties. In 2010, Gulf stopped insuring the helicopter as required under the Trust Agreement and stopped paying WTC's fee. And by 2012, Gulf had completely ceased flight operations for all its aircraft.
PTO § II(B)(16)-(17).
Id. § II(B)(15).
Bradenburg, who was responsible for administering Gulf's trust,sporadically communicated with her contacts at Gulf between 2012 and 2015. From October 2012 to December 2012, Bradenburg exchanged emails with Christopher Kane, who had signed the Trust Agreement on Gulf's behalf, regarding WTC's outstanding invoices and Gulf's failure to maintain insurance on the helicopter. In January 2014, Larry Rerecich, a former Gulf employee who later performed consulting services for Gulf, contacted Bradenburg on Gulf's behalf regarding payment of WTC's fees. Bradenburg and Rerecich remained in contact until September 2014. Bradenburg testified at trial that, after her communications with Rerecich, WTC continued attempting to contact Gulf regarding its unpaid invoices,but no written communications were introduced at trial to support that assertion.
Trial Tr. II at 42-43.
See JX5 at GULF0001594.
JX27.
See JX21.
See JX23.
Trial Tr. II at 62.
By November 2015, over a year after her last communications with Rerecich, Bradenburg began receiving pressure internally about Gulf's account. On December 1, 2015, in response to an email sent earlier that day, Bradenburg sent an internal email advising the WTC group that the Gulf "account should be closed." She claimed that Gulf had "been non-responsive for several years" and stated that she would advise Gulf that WTC was "terminating the trust." Later that day, replying to a December 2012 email she had sent to Kane, Bradenburg emailed Kane and Binu Zachariah, a former Gulf accountant who left the company before 2013:
Id. at 69-70; see JX29 at WTC00003117-19.
JX29 at WTC00003117.
Id.
JX27; Trial Tr. I at 41.
As I have not heard from either of you since before the below email date[d] [as] of December 11, 2012 and I assume the helicopter has been sold or scrapped or registered elsewhere, I am looking to deregister the aircraft from the U.S. registry in order to remove our name and also terminate the trust and close the trust account.
...
If I do not hear from you, the attached Demand Letter will go into effect and we will proceed as outlined above.
JX27.
Attached to the December 1, 2015 email was a letter addressed to Zachariah and Kane purporting to provide 30 days' notice of WTC's intent to resign as Owner Trustee pursuant to Section 3.03 of the Trust Agreement (the "Resignation Notice"). According to the Resignation Notice, the grounds for WTC's resignation were: (i) Gulf's "failure to pay fees pursuant to Section 3.08" of the Trust Agreement; and (ii) Gulf's "failure to provide an insurance certificate showing evidence of insurance being in full force and effect pursuant to Section 6.04" of the Trust Agreement. Finally, the Resignation Notice warned that if Gulf had not fulfilled its obligations by December 30, 2015, "the powers, rights and obligations of [WTC] shall cease and terminate."
Id. at WTC00000011.
Id.
Id.
But Gulf might not have even seen the Resignation Notice until years later because the email was returned as undeliverable to both Kane and Zachariah, both of whom already had left the company. And although Bradenburg testified at trial that she might have sent the notice by Federal Express, she could not confirm doing so and offered no documentation to that effect. Nevertheless, on December 15, 2015, responding to an internal inquiry about the status of Gulf's account, Bradenburg stated that Gulf had not yet responded to the Resignation Notice and that she therefore would "have [her] assistant prioritize [the account's] termination today." Later that day, a form purporting to terminate Gulf's account was circulated internally.
JX54 at WTC00003166-67.
Trial Tr. I at 40-41.
Trial Tr. II at 183-84.
JX29 at WTC00003116.
See JX28.
E. WTC Sells the Helicopter After Discussions with Eisenschmid
On October 3, 2016, Eisenschmid, purporting to act on behalf of an entity called AdvisAvia, contacted WTC by email. Eisenschmid represented that he had been retained by a client to locate the helicopter's owner because the helicopter was "at the center of an ongoing legal proceeding that [would] imminently result in its seizure and possible liquidation." Bradenburg initially responded that the helicopter had been sold, but she later clarified that WTC remained the registered owner with the FAA and indicated that WTC would be able to transfer title to Eisenschmid's client. Bradenburg did not investigate Eisenschmid's bona fides, and she did not initially inquire into his client's identity. She also testified that she did not research WTC's right to transfer title to the helicopter because she believed the onus was on Eisenschmid to work with the FAA.
JX30.
Id. at WTC00000237.
See id.
Trial Tr. III at 26-28.
Id. at 26.
Bradenburg and Eisenschmid continued to correspond through the end of November 2016. On October 28, Eisenschmid represented that his client had a "judge's ruling" allowing the client to "liquidate the aircraft." But a month later, Eisenschmid told Bradenburg that he had brokered a settlement in that litigation between "the MD-902 debtor (ie: Plaintiff) and the two creditors, SA MENA Avionics and Bahrain Airport Services (ie: Petitioners)." At trial, Bradenburg testified that she did not know offhand who "MD-902 debtor" referred to.
JX30; JX35.
JX30.
JX35.
Trial Tr. III at 29.
In the same email, Eisenschmid represented that the settlement "mean[t] that there are no more legal claims on the aircraft." He then asked: "[I]f AdvisAvia were to buy it for $1, what effect would that have on its registry, or ability to re-register it?" Bradenburg responded with a form bill of sale and deregistration request form.
JX35.
Id.
Id.
Eisenschmid sporadically checked in with Bradenburg from December 2016 to May 2017. Until that point, Bradenburg believed Gulf was not operational and had effectively gone missing. But in a December 2016 email, Eisenschmid advised Bradenburg of other litigation "against the shareholders of Gulf Aviation Group."Bradenburg did not ask Eisenschmid questions about that litigation or even consider contacting the shareholders. At trial, Bradenburg offered the following explanation for her inaction: "Gulf Aviation could have contacted me at any point in time and advised me of all of this. They did not."
See JX36; JX38; JX42.
See, e.g., JX30 at WTC00000233 ("As you know Gulf Aviation went out of business, so everyone connected to them have been nonresponsive.").
JX36.
Trial Tr. III at 36-37.
Id.
In another exchange in January 2017, Eisenschmid mentioned that Gulf "still maintains a ground handling business in Kuwait" and that Gulf had referred Eisenschmid to Quatar National Bank's lawyers. In response, Bradenburg remarked that it was "interesting that [Gulf] still maintains a ground handling business in Kuwait." She also stated that the information suggested there was "a mutual working relationship there that [she was] going to pursue" to get other Gulf aircraft "off [WTC's] books." She did not, however, follow up on that information.
JX38.
Id.
Id.
Trial Tr. III at 38-39.
On May 4, 2017, Eisenschmid sent Bradenburg what purported to be (i) a translated copy of the Bahraini court's ruling and (ii) a certificate of repossession executed by MENA Avionics. The ruling identified MENA Avionics as the claimant, Bahrain Airport Services as an interlocking claimant, and Action Aviation as the respondent. It did not reference Gulf, and Gulf was not listed as a party to those proceedings. The ruling provided a brief overview of the litigation's procedural history and purported to resolve the litigation by approving two settlement agreements between the parties. The settlement agreements were not attached to the copy of the ruling Bradenburg received.
JX42.
Id. at WTC00001951.
Id. at WTC00001952-54.
The certificate of repossession stated that the Bahraini court's ruling "was executed by [MENA Avionics] (Secured Party) to [Action Aviation], the Aircraft's Lessee; [Gulf] (beneficial owners via a trust agreement with [WTC])." It also stated that MENA Avionics, as the signatory of the certificate of repossession, repossessed the helicopter "in accordance with the terms of" the Bahraini court's ruling. In addition, the certificate of repossession provided that "pursuant to local law and the Court Ruling, [MENA Avionics] divested the said debtor, and any and all persons claiming by, through or under them, of any and all title they had or may have had," but it did not clearly identify the "debtor." Bradenburg testified that she reviewed the ruling and the certificate of repossession but did not obtain a legal review of either document.
Id. at WTC00001950.
Id.
Id.
Trial Tr. III at 42.
On May 17, 2017, Bradenburg executed a bill of sale transferring title to the helicopter to MENA Aerospace. Bradenburg named MENA Aerospace as the transferee at Eisenschmid's request, even though the Bahraini court's ruling did not identify the company as a party to the litigation. According to the bill of sale, MENA Aerospace paid WTC $1 for the helicopter.
PTO § II(B)(24).
See JX44 at WTC00003086.
See JX42 at WTC00001951.
See JX44 at WTC00003086.
F. MENA Aerospace Sells the Helicopter to a Third Party
Less than a month after it purchased the helicopter from WTC, MENA Aerospace contracted to sell the helicopter to Hanover Aircraft Assets LLC ("Hanover") for $675,000. Around the same time, Rick Cobbold of Flight Trails Helicopters was engaged to transport the helicopter from Bahrain to the United States and later was asked to evaluate the helicopter's condition. After inspecting the helicopter, Cobbold produced a report detailing his observations (the "Cobbold Report").
JX46 at HANOVER0000033.
Trial Tr. II at 88-89.
Id. at 93-94; see JX104.
G. Gulf Contacts WTC About the Sale
Gulf learned about the helicopter's sale in July 2017 after one of its creditors, Burgan Bank, attempted to attach the helicopter in partial satisfaction of a judgment it obtained against Gulf. Around June or July 2017, shortly after WTC sold the helicopter to MENA Aerospace, an attorney for Burgan Bank traveled to Bahrain to attach the helicopter. But upon his arrival, the attorney learned that Gulf no longer owned the helicopter.
Trial Tr. I at 43-44, 53.
Id. at 53-54.
See JX43; Trial Tr. I at 55-56.
Having learned of the sale for the first time from the Burgan Bank attorney, Alajmi contacted WTC. Bradenburg responded, providing Alajmi with the sale documents and Resignation Notice and directing Alajmi to MENA Aerospace.Around that time, Bradenburg also emailed Eisenschmid about her interaction with Alajmi. Eisenschmid responded by asking Bradenburg not to disclose information to Alajmi; Bradenburg agreed.
JX56 at GULF0020851-53.
See JX54.
See JX52 at WTC00003076.
JX53 at WTC00002584.
H. Gulf Files This Action
Gulf filed this action in May 2020, asserting one count of conversion.Although Gulf originally sought compensatory and consequential damages, it dropped its claim for consequential damages just before trial. WTC filed two counterclaims against Gulf. First, WTC sought damages for breach of contract relating to the unpaid fees. Second, WTC sought indemnification under the Trust Agreement.
JX81 at 10-11.
Id. at 11; Trial Tr. I at 4-5.
JX83 at 18-19.
Id. at 18.
Id. at 19.
II. PARTIES' CONTENTIONS
A. The Parties' Contentions Regarding Gulf's Conversion Claim
Gulf contends that the Court should enter judgment in its favor in the amount of $2,247,000, plus pre- and post-judgment interest, because the evidence at trial demonstrated that WTC tortiously converted the helicopter and that the helicopter's fair market value was $2,247,000 as of the sale date. Gulf also asserts that the Court should shift attorneys' fees "due to WTC's egregious pre-litigation conduct."
Gulf's Opening Br. at 25-29, 33-43. Although Gulf maintained a single count of conversion throughout this litigation, it asserted a breach of contract claim as an alternative ground for relief for the first time in post-trial briefing. See id. at 29-33. Because the Court concludes that Gulf proved its conversion claim by a preponderance of the evidence, it does not address the alternative breach of contract claim.
Id. at 43.
To prove conversion under Delaware law, a plaintiff must show that: (1) it had "a property interest in equipment or other property"; (2) it had "a right to possession of the property"; and (3) "the property was converted." Property is converted when the defendant wrongfully exerts dominion or control over the property in a manner that denies the plaintiff's right or is inconsistent with it. Gulf maintains that it established all three elements at trial. First, Gulf contends that its property interest in the helicopter did not cease when it transferred title to WTC as Owner Trustee because, as the Trust Agreement recognizes, WTC agreed to hold the helicopter as Owner Trustee for Gulf's use and benefit. Second, Gulf maintains that it had a right to possess the helicopter largely for the same reason that it had a property interest in the helicopter-the Trust Agreement expressly provides that the helicopter would be held in trust for Gulf's use and benefit. Third, Gulf argues that the sale to MENA Aerospace constituted a conversion of the helicopter because WTC forfeited its right to exercise dominion over the helicopter when it resigned as Owner Trustee. Gulf asserts that once WTC resigned from that position, the Trust Agreement stripped WTC of all rights and obligations that it once possessed in its capacity as Owner Trustee, therefore making the sale a wrongful exercise of dominion over Gulf's property. Gulf further maintains that the sale was wrongful because the documents from the Bahrain litigation did not provide a legal basis for the transfer, as nothing in the documents indicated that Gulf was a party to that litigation or provided for the helicopter's attachment or transfer.
Gould v. Gould, 2012 WL 3291850, at *7 (Del. Ch. Aug. 14, 2012).
Mian v. Sekerci, 2019 WL 4580024, at *4 (Del. Super. Sept. 13, 2019).
Gulf's Opening Br. at 26.
Id.
Id. at 26-27.
Id.
Id. at 28.
With respect to damages, Gulf maintains that its expert-Jeremy Cox- provided the most reliable valuation of the helicopter. Cox used the market approach to calculate the helicopter's value on May 17, 2017. As applied to the helicopter, that approach consisted of first identifying eight comparable transactions, making certain price adjustments to account for the unique characteristics of those transactions, and then averaging the mean and median of the comparable transactions to arrive at a fair market value of $3,500,000. Because using comparable sales is a valuation technique widely accepted by Delaware courts, Gulf argues that Cox's approach is sound and appropriate here. Next, because of the helicopter's poor condition as of the sale date, Cox calculated the diminution in the helicopter's value using observations in the Cobbold Report, which he then subtracted from $3,500,000 to arrive at Gulf's claimed damages figure: $2,247,000. This process, Gulf maintains, is the most reliable method of calculating the helicopter's fair market value as of the sale date, which constitutes the measure of Gulf's damages.
Id. at 34-43.
See Gulf's Opening Br. Ex. 1 ("Cox Report") at 21-30. At trial, Cox acknowledged an inadvertent mathematical error in his report that would affect his valuation numbers. Trial Tr. III at 205-07. After trial, Cox corrected the mathematical error, and Gulf attached a copy of the revised Cox Report as an exhibit to its opening brief.
Cox Report at 27-30.
Gulf's Opening Br. at 35-36.
Cox Report at 9-15.
Gulf's Opening Br. at 35-38.
Finally, in the last paragraph of its opening brief, Gulf argues that it is entitled to its reasonable attorneys' fees due to "WTC's egregious pre-litigation conduct."In its reply brief, citing Black v. Staffieri, Gulf contends that fee-shifting is warranted because WTC knew that it did not have a clear legal right to the helicopter but took no actions to clarify its rights.
Id. at 43.
2014 WL 814122 (Del. Feb. 27, 2014).
Gulf's Answering/Reply Br. at 39.
In opposition, WTC first contends that Gulf's conversion claim must fail because it is merely a bootstrapped breach of contract claim prohibited by Delaware law. Second, WTC contends that the Trust Agreement expressly limits the duties WTC owes to Gulf and therefore precludes the conversion claim. WTC points to four provisions in the Trust Agreement, each of which, according to WTC, either limits WTC's liability to gross negligence or willful misconduct or relieves WTC of duties not expressly set forth in the Trust Agreement. WTC maintains that those provisions define the contours of the parties' relationship and that Gulf failed to prove that WTC had a duty independent of those defined in the Trust Agreement.Third, WTC argues that, under Delaware law, Gulf was required to demand return of the helicopter before pursuing its conversion claim and failed to do so.
WTC's Answering/Opening Br. at 23-28.
Id. at 28-30.
Id. at 24-30.
Id. at 28-30.
Id. at 39-40.
Apart from its procedural challenges to Gulf's claim, WTC argues that Gulf has not met its burden of proof on the merits. Specifically, WTC contends that Gulf failed to prove that it had a right to possess the helicopter and that WTC converted it. WTC argues that Gulf failed to show that it had a right to possess the helicopter for three reasons. First, WTC contends that Gulf's creditors had "descended" on the helicopter, having asserted claims against Gulf, the helicopter, or both. As a result, WTC argues, "nothing shows that [Gulf] had a right to possess the [h]elicopter." Second, WTC maintains that Gulf made no attempt under the Trust Agreement to have legal title to the helicopter returned to it and therefore had no right to have the helicopter titled in its name. Third, WTC contends that it had a lien on the helicopter that took priority over Gulf's possessory interest. WTC points to Section 6.03 of the Trust Agreement, which provides that, "if necessary, WTC shall be entitled to indemnification from the Trust Estate for any . . . disbursement indemnified against pursuant to this Article VI to the extent not reimbursed by [Gulf]." The term "disbursement," WTC notes, encompasses "reasonable ongoing fees of Owner Trustee." Section 6.03 goes on to provide that, "to secure the same, WTC shall have a lien on the Trust Estate, which shall be prior to any interest therein of [Gulf]." WTC argues that, under Section 6.03, it had a lien on the helicopter to secure its right to recover its unpaid fees and that lien stripped Gulf of its right to possess the helicopter.
In its post-trial answering brief, WTC insinuated that Gulf was required to prove that it had a right to "immediate" possession. See id. at 31-33. But during post-trial argument, WTC walked back that position, acknowledging that Delaware law requires only a right to possess the property at issue. See D.I. 166, Post-Trial Argument Tr. at 59-60. WTC's acknowledgment at oral argument was correct-Delaware law requires only that the plaintiff show a right to possess the converted property, not a right to "immediate" possession, and WTC has not made a compelling argument why Delaware should adopt such a standard. Compare Arnold v. Soc'y for Sav. Bancorp, Inc., 678 A.2d 533, 536 (Del. 1996) ("Plaintiff correctly asserts that a claim of conversion requires that, at the time of the alleged conversion: (a) plaintiff held a property interest in the stock; (b) plaintiff had a right to possession of the stock; and (c) the defendant converted plaintiff's stock."), with Int'l Bus. Machines Corp. v. Comdisco, Inc., 1991 WL 269965, at *13 (Del. Super. Dec. 4, 1991) ("Under Illinois law, one of the elements of conversion is an immediate right to possess the article allegedly converted ...." (emphases added)).
WTC's Answering/Opening Br. at 31-32.
Id. at 32.
Id.
Id. at 32-33.
The Trust Agreement defines "Trust Estate," in relevant part, as "all estate, right, title and interest of Owner Trustee in and to" the helicopter. See JX5 at GULF0001597.
Id. § 6.03.
Id. § 6.01.
Id. § 6.03.
WTC's Answering/Opening Br. at 32-33.
WTC contends that the sale was not wrongful because WTC merely "transferred the [h]elicopter to MENA Aerospace because its subsidiary, MENA Avionics, had a right to possession of the [h]elicopter for unpaid repairs and storage fees." That right, WTC asserts, was documented in the Bahraini proceedings between MENA Avionics and Action Aviation. And WTC argues it was permitted to rely on those documents under Section 3.11 of the Trust Agreement, which provides:
Id. at 34.
Id. at 35.
Owner Trustee shall not incur any liability to anyone acting or refraining from acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties.... As to any fact or matter, the manner of ascertainment of which is not specifically described herein, Owner Trustee may for all purposes hereof rely on a certificate, signed by or on behalf of the party executing such certificate, as to such fact or matter, and such certificate shall constitute full protection of Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon.
JX5 § 3.11.
With respect to damages, WTC contends that Gulf is entitled to nothing or nominal damages because Gulf failed to present reliable evidence that it was harmed. First, WTC argues that damages should be calculated by subtracting "the value of any encumbrance on the property" from the property's value at the time of the sale. Because Gulf produced no evidence of encumbrances on the helicopter by Gulf's various creditors, and Cox did not consider the value of encumbrances in reaching his damages figure, WTC contends that Gulf failed to present reliable evidence of damages and therefore should receive no or nominal damages.
WTC's Answering/Opening Br. at 47-51.
Id. at 46 (citing Segovia v. Equities First Holdings, LLC, 2008 WL 2251218, at *21 (Del. Super. May 30, 2008)).
Id. at 47-48.
WTC also contends that Cox's opinion is unreliable, citing purported flaws in Cox's methodology. For example, WTC asserts that Cox's diminution calculation, although based on the Cobbold Report, did not account for damaged parts that were discovered years after the sale to Hanover.
Id. at 52-56.
In the alternative, WTC maintains that the maximum damages that Gulf should receive is $675,000, which represents the price that Hanover paid to purchase the helicopter from MENA Aerospace. Notably, WTC abandons the opinion of its own expert witness, Benjamin Chapman, who valued the helicopter at $860,000. Instead, WTC contends that the Court should cap damages at the Hanover purchase price because it represents the value that a bona fide purchaser was willing to pay shortly after WTC sold the helicopter to MENA Aerospace.
Id. at 56-59.
See JX97 at 2, 14.
WTC's Answering/Opening Br. at 57-59.
Finally, WTC contends that Gulf is not entitled to fee-shifting because (i) it did not fairly present the issue in its one-sentence request in its opening brief;(ii) Black is distinguishable on its facts; and (iii) Gulf did not prove bad faith such that deviating from the American Rule is warranted.
Id. at 59.
Id. at 59-60.
Id. at 60-61.
B. The Parties' Contentions Regarding WTC's Counterclaims
WTC also seeks judgment on its counterclaims, both of which stem from the parties' contractual relationship. First, WTC argues that it is entitled to damages amounting to $15,000, plus pre- and post-judgment interest, for Gulf's failure to pay WTC's annual fee from 2010 to 2015. Section 3.04 of the Trust Agreement requires Gulf to "pay, or cause to be paid, to [WTC] reasonable compensation (including reasonable attorneys' fees) for its administration of the Trust and for the proper exercise of its powers and performance of its duties under [the Trust] Agreement." And Gulf, WTC observes, admits that it failed to pay WTC's $3,000 annual fee during that timeframe. That failure, WTC argues, constituted a breach of Section 3.04.
Id. at 61-62.
JX5 § 3.04.
WTC's Answering/Opening Br. at 62; see PTO § II(B)(16).
Gulf does not dispute that its failures to pay WTC's annual invoices constituted breaches of the Trust Agreement. Instead, Gulf argues that WTC's counterclaim is barred by a three-year statute of limitations set forth in 10 Del. C. § 8106 because WTC resigned as Owner Trustee in 2015 but did not file its counterclaim until 2020. In response, WTC argues that Gulf waived its statute-of-limitations defense when it failed to assert that defense in its reply to the counterclaim. WTC also contends that the three-year limitations period was tolled until May 2020 under 10 Del. C. § 8117 and that, in any event, WTC is entitled to recover its fees under a recoupment theory.
Gulf's Answering/Reply Br. at 40.
Id.
WTC's Reply Br. at 5.
Id. at 5-6.
Id. at 6-7.
Second, WTC contends that it is entitled to indemnification for the costs and attorneys' fees it incurred in connection with this action. Under Section 6.01 of the Trust Agreement, Gulf agreed to
WTC's Answering/Opening Br. at 63-65.
indemnify, protect, save and keep harmless WTC and its successors, assigns, legal representatives, directors, officers, employees, agents and servants, from and against any and all liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes payable by WTC on or measured by any compensation received by WTC for its services hereunder), claims, actions, suits, costs, expenses or disbursements (including, without limitation, reasonable ongoing fees of Owner Trustee and reasonable attorneys' fees and expenses) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against in any way relating to or arising out of this Agreement or any of the other Operative Agreements or the enforcement of any of the terms of any thereof, or in any way relating to or arising out of the manufacture, purchase, acceptance, nonacceptance, rejection, ownership, delivery, lease, sublease, possession, use, operation, condition, sale, return or other disposition of the [helicopter] (including, without limitation, latent and other defects, whether or not discoverable, and any claim for patent, trademark or copyright infringement), or in any way relating to or arising out of the
administration of the Trust Estate or the action or inaction of Owner Trustee or WTC hereunder.
JX5 § 6.01.
WTC argues that Gulf's "claims qualify as a proceeding 'relating to or arising out of the administration of the Trust Estate,'" falling within the scope of Section 6.01.
WTC's Answering/Opening Br. at 64 (quoting 10 Del. C. § 8106(a)).
There are several exceptions to Gulf's indemnification obligations under Section 6.01. One of those exceptions applies "in the case of willful misconduct or gross negligence on the part of Owner Trustee or WTC in the performance or nonperformance of its duties" under the Trust Agreement. Gulf does not contest that the costs and attorneys' fees that WTC incurred in connection with this action fall within the scope of Section 6.01. Instead, Gulf contends that WTC's indemnification claim is "barred due to WTC's gross negligence and/or willful misconduct."
JX5 § 6.01(a).
See Gulf's Answering/Reply Br. at 40-41.
Id. at 41.
III. ANALYSIS
A. The Resignation Notice did not terminate the Trust Agreement, but it terminated all of WTC's powers, rights, and obligations as Owner Trustee except those expressly preserved.
Before addressing the parties' substantive arguments, the Court first addresses a recurring issue throughout the parties' post-trial briefs: the effects of the Resignation Notice and, more importantly, WTC's resignation as Owner Trustee. The parties stipulated before trial that Gulf's failure to respond to the Resignation Notice rendered WTC's resignation as Owner Trustee effective. The Court has accepted that stipulation. Accordingly, WTC's resignation as Owner Trustee was effective as of December 30, 2015. Gulf argues that WTC's resignation terminated the Trust Agreement. WTC maintains that the Trust Agreement remained in effect after WTC's resignation.
PTO § II(B)(18), (21).
See id. § II(B)(18) ("In a letter dated December 1, 2015, Wilmington Trust relationship manager Patricia Bradenburg notified Gulf Aviation that, unless Gulf Aviation took certain actions, including paying certain outstanding fees and providing proof of valid insurance, Wilmington Trust would resign as trustee effective December 30, 2015 ...."); id. § II(B)(21) ("Gulf Aviation took no action in response to the Resignation Letter, making the resignation effective."); see also JX27 at WTC00000011.
See, e.g., Gulf's Opening Br. at 11-14; Gulf's Answering/Reply Br. at 26.
WTC's Answering/Opening Br. at 27.
1. The Resignation Notice did not terminate the Trust Agreement.
The Trust Agreement clearly sets forth how it terminates. Under Section 7.01, the Trust Agreement terminates upon the earlier of (i) Gulf providing WTC notice of the trust's termination, and (ii) 110 years following execution of the Trust Agreement. Neither event occurred. Nevertheless, Gulf, relying on emails sent by Bradenburg, suggests that the Resignation Notice terminated the Trust Agreement. For example, Bradenburg's email purporting to transmit the Resignation Notice to Kane and Zachariah stated that Bradenburg was "looking to . . . terminate the trust and close the trust account." Bradenburg also sent internal emails that mentioned terminating the Trust Agreement. But statements by WTC regarding the trust's termination cannot supplant the Trust Agreement's terms. Accordingly, the Resignation Notice did not terminate the Trust Agreement. Rather, the resignation altered the parties' legal relationship and their rights and obligations with respect to that relationship.
JX5 § 7.01.
See, e.g., Gulf's Opening Br. at 11-14.
JX27 at WTC00000005.
See, e.g., JX29 at WTC00003117 ("I need to . . . advise the client . . . we are terminating the trust.").
2. The Resignation Notice caused all of WTC's powers, rights, and obligations under the Trust Agreement to "cease and terminate."
Section 3.03 of the Trust Agreement provides that all of WTC's "powers, rights and obligations . . . under [the Trust] Agreement (except the rights set forth in Sections 3.08, 6.01 and 6.03) shall cease and terminate" upon its resignation as Owner Trustee. Section 3.08 governs WTC's fees, and Sections 6.01 and 6.03 govern WTC's indemnification rights. Accordingly, WTC's powers, rights, and obligations under the Trust Agreement not concerning those fees and indemnification rights terminated upon its resignation as Owner Trustee.
JX5 § 3.03.
Id. § 3.08.
Id. §§ 6.01, 6.03.
3. WTC's resignation did not affect Gulf's beneficial interest in the helicopter.
Under the Trust Agreement, Gulf retained a beneficial interest in the helicopter when it transferred legal title to WTC as Owner Trustee. Specifically, WTC agreed to "hold the [helicopter] . . . for the use and benefit of [Gulf]."Nothing in the Trust Agreement suggests that Gulf's interest is affected by the Owner Trustee's resignation.
Id. § 2.02.
B. Gulf's conversion claim is not procedurally barred.
Before turning to the merits of Gulf's conversion claim, the Court addresses WTC's arguments that Gulf's claim is procedurally barred, beginning with WTC's bootstrapping argument. Delaware law prevents "gratuitous 'bootstrapping' of contract claims into tort claims," which means that "a breach of contract will not generally constitute a tort." "Where . . . the plaintiff's claim arises solely from a breach of contract, the plaintiff 'generally must sue in contract, and not in tort.'"
Data Mgmt. Internationale, Inc. v. Saraga, 2007 WL 2142848, at *3 (Del. Super. July 25, 2007).
Id.
Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 889 (Del. Ch. 2009).
Gulf's conversion claim is not improperly bootstrapped because WTC's relevant "powers, rights and obligations" under the Trust Agreement "cease[d] and terminate[d]" before it sold the helicopter. After it resigned, WTC no longer held the rights and duties assigned to the Owner Trustee, including those concerning the helicopter. Accordingly, WTC's duties concerning the helicopter did not arise from the Trust Agreement. Rather, its "obligation not to misappropriate another's property [arose] from general common law tort principles and exist[ed] independent of any contractual relationship between the parties."
JX5 § 3.03.
For example, WTC points to Section 8.02 of the Trust Agreement, arguing that section "expressly authorizes [WTC] to transfer the [h]elicopter or other trust property." WTC's Answering/Opening Br. at 24. Section 8.02 does not reference WTC; it references the "Owner Trustee," a position that WTC no longer held when it sold the helicopter. See JX5 § 8.02.
Saraga, 2007 WL 2142848, at *4.
WTC next argues that the Trust Agreement expressly limits WTC's liability and defines its duties to Gulf, therefore barring Gulf's conversion claim. This argument suffers the same flaws that defeat WTC's bootstrapping argument. None of the provisions that WTC cites applied when it sold the helicopter.
First, Section 9.02 provides that the "Owner Trustee," "[i]n exercising its discretion under this Article, . . . shall not be liable for any action taken or omitted hereunder, except for its gross negligence or willful misconduct." Gulf's conversion claim relates to WTC's actions after it resigned as Owner Trustee, so WTC's challenged conduct was not an exercise of its contractual duties or the discretion afforded by Article IX of the Trust Agreement.
JX5 § 9.02.
Second, Section 9.07 provides that Gulf waives
any and all claims of every kind and nature which hereafter [Gulf] may have against WTC, its successors and assigns, from any liability whatsoever, arising out of or in connection with the exercise of its powers or the performance of its duties under this Article except liability for gross negligence or willful misconduct of Owner Trustee.
Id. § 9.07 (emphasis added).
Again, Gulf's conversion claim does not relate to WTC's exercise of powers or performance of duties under Article IX. Most of the powers and duties set forth in Article IX belong to the Owner Trustee, and therefore did not belong to WTC when it sold the helicopter.
See id. §§ 9.01-9.08.
Finally, Section 3.09 provides that the "Owner Trustee shall have no duties except those expressly set forth in [the Trust] Agreement," and Section 3.14(a) provides that "no implied duties, covenants or obligations shall be read into [the Trust] Agreement against Owner Trustee." These provisions limit the duties of the "Owner Trustee," not the duties of WTC acting in another capacity. WTC had resigned its position as Owner Trustee when it sold the helicopter, and the limitations in Sections 3.09 and 3.14(a) therefore do not provide it cover.
Id. § 3.09.
Id. § 3.14(a).
WTC also argues that, to pursue a conversion claim under Delaware law, Gulf was required-and failed-to demand the helicopter's return before commencing this action. "Delaware law does support the notion that if a party was once in lawful possession of the plaintiff's property, the plaintiff must first make a demand upon that party for return of the property before bringing an action at law for conversion." But "when 'the alleged wrongful act is of such a nature as to amount, in itself, to a denial of the rights of the real owner,'" the demand requirement is excused. In other words, demand is not required when the conversion results from "an exercise of ownership by disposing of the property by lease, pledge, or sale."
CIT Commc'ns Fin. Corp. v. Level 3 Commc'ns, LLC, 2008 WL 2586694, at *2 (Del. Super. June 6, 2008).
Id. (quoting Drug, Inc. v. Hunt, 168 A. 87, 94 (1933)).
18 Am. Jur. Conversion § 75 (2023); see Segovia, 2008 WL 2251218, at *20 (finding no demand required when a pledgee of stock sold publicly traded stock on the open market and therefore was no longer in possession or control).
WTC sold the helicopter to a third party before Gulf filed this action. WTC therefore no longer had title to the helicopter and could not have returned it in response to a demand from Gulf. Because demand would have been futile, it was not required, and Gulf's failure to make a pre-litigation demand for return of the helicopter does not bar its conversion claim.
See Segovia, 2008 WL 2251218, at *20 (citing 18 Am. Jur. Conversion § 75).
C. Gulf proved WTC is liable for converting the helicopter.
Having disposed of WTC's procedural defenses to the conversion claim, the Court must consider its merits. To prove conversion, a plaintiff must show that: (1) it had "a property interest in equipment or other property"; (2) it had "a right to possession of the property"; and (3) "the property was converted." Property is converted when the defendant wrongfully exerts dominion or control over it in a manner that denies or is inconsistent with the plaintiff's right. The parties' arguments focus on the second and third elements, specifically whether Gulf had a right to possess the helicopter and whether the sale was "wrongful." WTC concedes that Gulf had a property interest in the helicopter, and, as the Court previously concluded, Gulf retained a beneficial interest in the helicopter that did not terminate when WTC resigned as Owner Trustee.
Gould, 2012 WL 3291850, at *7.
Mian, 2019 WL 4580024, at *4.
See supra Part III.A.
1. Gulf had a right to possess the helicopter.
Gulf had a right to possess the helicopter on the date of the sale. There is no dispute that Gulf placed the helicopter in trust for Gulf's "use and benefit." And nothing in the record suggests that any third parties had rights that interfered with Gulf's possession rights. For example, although Gulf had previously leased the helicopter to Action Aviation, that lease expired well before the sale. In addition, there is some evidence that Gulf actually exercised its right to possess the helicopter a few months before WTC sold it, having sent two employees-Fawzy Yousef and Adnan al Delaimi-to Bahrain to check on the helicopter and perform maintenance in February 2017.
JX5 § 2.02.
See supra Part I.C.
See Trial Tr. I at 48-49 (Alamji); Trial Tr. II at 8-13, 20 (Yousef).
WTC's arguments to the contrary are unpersuasive. First, WTC argues that Gulf's creditors had claims that interfered with Gulf's right to possess the helicopter. But nothing in the record suggests that any creditor had asserted a claim that interfered with Gulf's right to possess the helicopter. Nothing in the documents from the Bahrain litigation shows that a third party had obtained an injunction or garnishment affecting the helicopter or Gulf's right to possess it. The Bahraini judgment does not indicate that a creditor had rights to the helicopter.And the Bahraini settlement agreement does not indicate that the parties thereto had or received rights in the helicopter in connection with the settlement. Although Burgan Bank had obtained a judgment against Gulf, it had not obtained a right to take possession of the helicopter.
WTC's Answering/Opening Br. at 31-32.
See JX42 at WTC00001951-54; JX41 at GULF0020485-88.
See JX41 at GULF0020489-91.
Second, WTC argues that Gulf did not have a right to possess the helicopter because it did not demand that WTC transfer title to it. But Gulf did not need to hold title to have a right to possess the helicopter; that is the reason Gulf placed the helicopter in trust in the first place.
WTC's Answering/Opening Br. at 32.
See JX5 § 2.02.
Finally, WTC argues that the outstanding fees that Gulf owed to WTC effectively stripped Gulf of its right to possess the helicopter. Under Section 6.03 of the Trust Agreement, WTC had "a lien on the [helicopter], . . . prior to any interest therein of [Gulf]" "for any . . . disbursement" against which Gulf agreed to indemnify WTC. Under Section 6.01, the "disbursements" against which Gulf agreed to indemnify WTC included "reasonable ongoing fees of [WTC]." Gulf has stipulated that it "failed to pay fees to [WTC] between 2010 and 2015."According to WTC, Gulf "had no right of immediate possession because [WTC's] priority lien for its fees had trumped 'any interest' that Gulf [] had."
WTC's Answering/Opening Br. at 32-33.
JX5 § 6.03.
Id. § 6.01.
PTO § II(B)(16).
WTC's Answering/Opening Br. at 33. In connection with this argument, WTC cites the following passage from American Jurisprudence:
Where a tender of a debt due the defendant is necessary to entitle the plaintiff to the immediate possession of the property, such tender is necessary to entitle the plaintiff to maintain the action for conversion since an action for conversion is not maintainable unless the plaintiff, at the time of the alleged conversion, was entitled to the immediate possession of the specific property in question.18 Am. Jur. Conversion § 74 (emphasis added). Because Delaware does not require a plaintiff to show "immediate" possession, the American Jurisprudence passage is not instructive. See supra note 125.
WTC's argument is not persuasive. It is not clear from the terms of the Trust Agreement that WTC's lien is possessory without further action. And although WTC provided Gulf with notice of its past-due payments between 2010 and 2015, it did not make any attempt to collect those payments thereafter. Having taken no action to collect the past-due fees at the time of the conversion, WTC cannot defeat Gulf's conversion claim when the amount of outstanding fees was, by any measure, a small percentage of the helicopter's fair market value.
2. The sale was wrongful.
WTC held title to the helicopter solely by virtue of its capacity as Owner Trustee under the Trust Agreement. While it served as Owner Trustee, WTC had certain rights to sell the helicopter. But when WTC resigned from that position, those rights and obligations terminated. Accordingly, when WTC resigned, it no longer had legal authority to sell the helicopter, making the sale to MENA Aerospace wrongful.
Section 2.01 of the Trust Agreement governed the original transfer of title to the helicopter from Gulf to WTC. Section 2.01 provides, in relevant part, that Gulf "shall cause title to the [helicopter] to be conveyed to Owner Trustee." JX5 § 2.01 (emphasis added). The Trust Agreement defines "Owner Trustee" as WTC, "acting not in its individual capacity but solely as trustee hereunder with its permitted successors and assigns." Id. pmbl.
See, e.g., id. § 8.02.
WTC argues that the sale was not wrongful because WTC properly relied on the Bahraini judgment and the accompanying certificate of repossession provided by Eisenschmid, which was, according to WTC, signed by a Bahraini lawyer.WTC contends that it was permitted to rely on these representations pursuant to Section 3.11 of the Trust Agreement. Section 3.11 of the Trust Agreement provides:
WTC's Answering/Opening Br. at 35-39.
Id. at 36-37.
Owner Trustee shall not incur any liability to anyone acting or refraining from acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by the proper party or parties.... As to any fact or matter, the manner of ascertainment of which is not specifically described herein, Owner Trustee may for all purposes hereof rely on a certificate, signed by or on behalf of the party executing such certificate, as to such fact or matter, and such certificate shall
constitute full protection of Owner Trustee for any action taken or omitted to be taken by it in good faith in reliance thereon.
JX5 § 3.11.
Section 3.11 is inapposite because it sets forth rights of the Owner Trustee- a position from which WTC resigned before selling the trust's corpus. To repeat a now familiar refrain, actions that WTC took after resigning do not fall within the protections that the Trust Agreement afforded to the trustee, including those set forth in Section 3.11.
See id. § 3.03.
Gulf has proven by a preponderance of the evidence that WTC converted property that Gulf had a right to possess and in which Gulf had a property interest. WTC therefore is liable for conversion of the helicopter.
D. Gulf is entitled to damages amounting to the helicopter's fair market value at the time of the conversion.
Having resolved the merits of Gulf's conversion claim, the Court turns to damages. Generally, the measure of damages for conversion is the converted property's fair market value at the time of the conversion. All three witnesses who testified about the issue expressed a similar view regarding the fair market value of a MD902 helicopter in airworthy condition around the relevant time period. Cox, Gulf's expert witness, opined that the value of such a helicopter would have been $3.55 million; Chapman, WTC's expert witness valued such a helicopter between $3.1 million and $3.6 million; and Cobbold, who did not testify as an expert but inspected the helicopter around the valuation date, valued such a helicopter between $3.5 million and $4.2 million.
See Wyndham, Inc. v. Wilmington Tr. Co., 59 A.2d 456, 459 (Del. Super. 1948).
The helicopter was a model MD902. See PTO §§ I, II(B)(10).
Cox's valuation date was May 17, 2017. Cox Report at 3. Chapman's valuation date was July 1, 2017. JX97 at 14. And Cobbold, who testified as a fact witness, testified that he believed that the market value of a flyable MD902 helicopter in 2017 would be worth between $3.5 million and $4.25 million. Trial Tr. II at 138.
Cox Report at 3. Cox's original valuation was $3.7 million. See JX112 at 3. But Cox revised his report after trial because of a mathematical error discovered during trial.
See JX97 at 13-14.
Trial Tr. II at 138.
Of the two expert opinions, the Court accepts and adopts Cox's opinion as to the fair market value of a MD902 helicopter in flyable condition at the time of the conversion. Although both experts purportedly used comparable transactions to reach their conclusions, Cox's approach was more reliable because Chapman's valuation relied on supposed comparable sales for which he provided no data or information based on vaguely asserted and undocumented "confidentiality" concerns. The comparable sales Chapman cited could not be tested for reliability. Cox, on the other hand, provided significant information about each comparable sale.
Trial Tr. IV at 78-79, 92-96, 104-07.
Cox Report at 28.
The crux of the parties' damages dispute comes down to the fair market value of this helicopter at the time of the conversion, and specifically what deductions should be made to reflect the helicopter's condition at the time of the conversion. Cox, who ultimately valued the helicopter on the conversion date at $2.247 million, applied a $1.303 million downward adjustment to his $3.55 million base to account for certain repair costs necessary to restore the helicopter to airworthy condition.To document those costs, Cox relied on Cobbold's real-time observations of the helicopter as set forth in his report.
Id. at 15.
Trial Tr. III at 124, 127-29.
Like Cox, Chapman made several deductions or downward adjustments to the helicopter's value to account for its condition. Chapman's adjustments, however, were poorly distinguished from each other and overlapped substantially. Chapman, who ultimately valued the helicopter on the conversion date at $0.86 million, first applied a $1.07 million downward adjustment for certain maintenance costs.According to Chapman, that maintenance adjustment represented the cost of returning the helicopter to a "full-life aircraft." But Chapman's report does not identify how he arrived at $1.07 million. And although he acknowledged at trial that he later realized that the information may be pertinent and therefore included some of the costs comprising the $1.07 million figure in his rebuttal report, he conceded that even the rebuttal report was incomplete.
JX97 at 14-17. Chapman also applied a $0.15 million upward adjustment for equipment. Id. at 17-18.
Trial Tr. IV at 97.
Id. at 98-99.
Id.
After applying his initial adjustment, Chapman applied a 27.5% "Poor Physical Condition Discount" and a 10% "Motivated Seller Discount." Both adjustments discount for previously discounted issues. As Chapman explained at trial, the Poor Physical Condition Discount, like the $1.07 million maintenance adjustment, assesses "what would be required on this aircraft for it to be restored into condition based on its major items on track condition." The Court finds Chapman's attempts to distinguish the Poor Physical Condition Discount from the $1.07 million maintenance adjustment unpersuasive. As Chapman conceded at trial, both adjustments address the helicopter's poor physical condition.
JX97 at 18-19.
Id. at 19-20.
Trial Tr. IV at 102.
Id.
The Motivated Seller Discount suffers similar infirmities. According to Chapman, he applied the 10% Motivated Seller Discount because the helicopter had been out of service for seven years, had no immediate use, and was on the market for some time. He explained during his deposition that this discount also accounted for the fact that, because the helicopter had not been airworthy and had been stored without preservation for a significant time, "[i]t was evident that a return to service would take significant time." In short, the Motivated Seller Discount once again accounted for the helicopter's physical condition.
Id. at 105.
Chapman Dep. 143:13-19.
When excluding Chapman's improper Poor Physical Condition and Motivated Seller discounts, his downward maintenance adjustment ($1.07 million) is very similar to Cox's downward repairs adjustment ($1.303 million). Cox's adjustment, however, is based on Cobbold's real-time observations, unlike Chapman's adjustment, which is based on untestable information not included in his report. The Court therefore adopts Cox's $1.303 million adjustment and finds that the helicopter's fair market value as of the conversion date was $2.247 million.
WTC argues that Cox's opinion is unreliable largely because his report did not adjust for items that later were identified as requiring repair. Specifically, WTC contends that Cox's opinion did not consider that the helicopter's tail boom and fuselage required repair. Had Cox considered those repair items, Cox's downward adjustment would have increased and his valuation would have decreased. Those repair items, however, were not discovered until years after the helicopter's conversion when the helicopter underwent further inspection after it had been in a third party's possession for a long period. Accordingly, there is no way to reliably conclude when the damage to the fuselage and tail boom occurred. In addition, Cobbold's initial report did not indicate problems with the tail boom and fuselage, and Cox's reliance on that report-which reflected Cobbold's observations of the helicopter weeks after its conversion-was justified. Cox did not become aware of the potential problems with the tail boom and fuselage until he read Cobbold's deposition testimony because nothing in Cobbold's report indicated problems with those parts. And he persuasively testified that he viewed Cobbold's observations as to those issues as inconclusive. Finally, to the extent there is any uncertainty with respect to the condition of the tail boom and fuselage, the Court resolves that uncertainty against WTC because its wrongful sale of the helicopter resulted in the helicopter being unavailable for inspection.
WTC's Answering/Opening Br. at 52-56.
Id.
Cobbold Dep. 135-39.
Trial Tr. II at 99-101.
Trial Tr. III at 155-57.
Id. at 132-34, 155-57.
In an effort to avoid Cox's valuation, WTC argues that his methods are inconsistent with Delaware law. Relying on Segovia v. Equities First Holdings, LLC, WTC contends that the Court first must measure the property's value and "then subtract the value of any encumbrance on the property to arrive at an amount of damages." WTC therefore argues that the amount of any third-party encumbrance must be subtracted from the property's fair market value. WTC misreads Segovia. In Segovia, this Court measured damages for converted property that was subject to a security interest by subtracting from the property's value the amount of a loan made by the defendant. Segovia does not stand for the broader proposition that the amount of any encumbrance must be subtracted from the converted property's fair market value, and WTC does not persuasively argue for adopting that approach here.
2008 WL 2251218 (Del. Super. May 30, 2008).
WTC's Answering/Opening Br. at 46 (citing Segovia, 2008 WL 2251218, at *21).
2008 WL 2251218, at *21.
In addition, WTC did not establish at trial the existence or amount of any such encumbrance.
Finally, WTC maintains that damages should be capped at $675,000-the price that Hanover paid to purchase the helicopter from MENA Aerospace-because that is the price paid by a bona fide purchaser. But the appropriate measure of damages is the helicopter's fair market value, and the evidence showed that the fire-sale price that Hanover paid is not indicative of market value. For example, the average time that the eight comparable helicopters listed in Cox's report spent on the market was 483 days, with the shortest time period being 96 days. That is considerably longer than the 15 days spent on the sale to Hanover. That sale is especially questionable given that there is reason to believe that MENA Aerospace may have expedited the process to avoid Gulf discovering the transactions and seeking to intervene.
WTC's Answering/Opening Br. at 56-59.
Wyndham, 59 A.2d at 459.
Cox Report at 28.
E. Gulf is not entitled to attorneys' fees.
Gulf asserts that it should recover attorneys' fees for WTC's "egregious pre-litigation conduct." Delaware generally follows the American Rule, which provides that litigants are responsible for their own litigation costs. But Delaware law recognizes that exceptions to that rule may be warranted in "extraordinary cases," where, for example, "a party's prelitigation conduct is so egregious that it warrants fees as a form of damages." This is not one of those cases. Although WTC's conduct in connection with the helicopter's sale is troubling, it was not so egregious as to warrant fee shifting. Notably, before Eisenschmid approached WTC, Gulf had gone silent after failing to pay several years of WTC's invoices. Although that silence does not excuse the sale, it explains WTC's desire to remove the helicopter from its books. In that regard, Black is distinguishable. In Black, the trial court shifted fees in part because a party had resorted to self-help while the parties actively sought to resolve a property dispute. There is no clear evidence here that Gulf was actively engaging with WTC when the sale to MENA Aerospace occurred. The Court therefore will not exercise its discretion to depart from the American Rule.
Gulf's Opening Br. at 43 (citing Black v. Staffieri, 2014 WL 814122, at *3 (Del. Feb. 27, 2014)).
Black, 2014 WL 814122, at *3.
In re Bracket Holding Corp. Litig., 2020 WL 764148, at *17 (Del. Super. Feb. 7, 2020) (quoting Lawson v. State, 91 A.3d 544, 552 (Del. 2014)).
Black, 2014 WL 814122, at *3.
Id. at *2-3.
See In re Bracket, 2020 WL 764148, at *17 ("The party seeking the award 'bears the stringent evidentiary burden of producing clear evidence of bad-faith conduct.'" (quoting Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005))).
F. WTC prevails on its breach of Trust Agreement counterclaim but not its indemnification counterclaim.
The Court next turns to WTC's counterclaims, which are relatively straightforward. First, WTC seeks to recover damages for the fees Gulf failed to pay between 2010 and 2015. Second, WTC seeks to be indemnified for its legal fees and expenses incurred in connection with this action.
1. WTC proved that Gulf breached the Trust Agreement.
To prove that Gulf breached the Trust Agreement with respect to its failure to pay WTC's fees, WTC must prove (1) the existence of a valid contract, (2) breach of an obligation imposed by that contract, and (3) resulting damages. The parties do not dispute that the Trust Agreement is a valid contract. Section 3.04 of the Trust Agreement provides that Gulf will "pay, or cause to be paid, to [WTC] reasonable compensation (including reasonable attorneys' fees) for its administration of the Trust and for the proper exercise of its powers and performance of its duties under [the Trust] Agreement." The parties agree that Gulf failed to pay WTC's fees from 2010 to 2015. Accordingly, there is no dispute that Gulf's failure to pay those fees constituted a breach of Section 3.04. WTC's annual fee was $3,000.Accordingly, WTC was damaged in the amount of $15,000 for five years of unpaid fees.
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003).
JX5 § 3.04.
PTO § II(B)(16).
Trial Tr. II at 44; see JX22 at WTC00000516.
Gulf maintains that WTC's claim is barred by a three-year statute of limitations under 10 Del. C. § 8106. But Gulf did not plead the statute of limitations as an affirmative defense. Superior Court Civil Rules 8(c) and 12(b) together require that a party "asserting the statute of limitations defense must plead that affirmative defense in his or her Answer." "[F]ailure to raise the limitations period will result in a determination that the defense has been waived." Having failed to timely assert an affirmative defense, Gulf is liable for breach of the Trust Agreement in the amount of $15,000.
Gulf's Answering/Reply Br. at 40.
See JX85 at 9-10.
The Rsrvs. Dev. Corp. v. Esham, 2009 WL 3765497, at *4 (Del. Super. Nov. 10, 2009).
Id.
2. WTC is not entitled to indemnification.
WTC seeks indemnification for the costs and attorneys' fees it incurred in connection with this action under Section 6.01 of the Trust Agreement, which provides that Gulf will
WTC's Answering/Opening Br. at 63-65.
indemnify, protect, save and keep harmless WTC . . . from and against any and all liabilities, obligations, losses, damages, . . . claims, actions, suits, costs, expenses or disbursements (including, without limitation, reasonable ongoing fees of Owner Trustee and reasonable attorneys' fees and expenses) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against in any way relating to or arising out of this Agreement . . . or in any way relating to or arising out of the administration of the Trust Estate.
JX5 § 6.01. WTC's rights under Section 6.01 survived its resignation as Owner Trustee. See id. § 3.03.
WTC contends that Gulf's "claims qualify as a proceeding 'relating to or arising out of the administration of the Trust Estate.'" Gulf does not contest that WTC's costs and attorneys' fees incurred in this action are indemnifiable under Section 6.01. But there are three exceptions to Gulf's Section 6.01 indemnification obligation, including "case[s] of willful misconduct or gross negligence on the part of Owner Trustee or WTC in the performance or nonperformance of its duties hereunder," and Gulf contends that WTC's indemnification claim is "barred due to WTC's gross negligence and/or willful misconduct." In response, WTC contends that the exception does not apply because the evidence adduced at trial shows that Bradenburg was thorough in her communications with Eisenschmid and properly relied on his representations.
WTC's Answering/Opening Br. at 64 (quoting JX5 § 6.01).
Gulf's Answering/Reply Br. at 40-41.
JX5 § 6.01.
Gulf's Answering/Reply Br. at 40-41.
WTC's Reply Br. at 9-15.
WTC's indemnification claim fails because it has not established a contractual right to indemnification under these circumstances. Litigants in Delaware are generally "responsible for their own litigation costs," and a general indemnity contractual provision does not act as a fee-shifting provision for litigation between the contracting parties unless the language explicitly and unequivocally provides to the contrary. Section 6.01 does not explicitly provide for fee shifting in intra- party litigation, and WTC therefore has failed to meet its burden to show that it is entitled to indemnification under the Trust Agreement.
Deere & Co. v. Exelon Generation Acquisitions, LLC, 2016 WL 6879525, at *1 (Del. Super. Nov. 22, 2016).
See, e.g., TranSched Sys. Ltd. v. Versyss Transit Sols., LLC, 2012 WL 1415466, at *2 (Del. Super. Mar. 29, 2012); Deere & Co., 2016 WL 6879525, at *1 ("Standard indemnity clauses are not presumed to apply to first-party claims. Otherwise, a typical indemnification provision would swallow the American Rule." (internal quotation marks omitted)); Data Ctrs., LLC v. 1743 Holdings LLC, 2015 WL 9464503, at *6 (Del. Super. Nov. 20, 2015) ("Absent specific language showing intent to extend the protections of an indemnity provision to claims brought against parties to the contract, the Court will interpret the indemnity provision as applying to third party claims only."); SARN Energy LLC v. Tatra Defence Vehicle A.S., 2019 WL 6525256, at *1 (Del. Super. Oct. 31, 2019) (denying fee shifting under indemnity provision that did not reflect "a clear and unequivocal agreement in connection with a dispute between parties involving a failure to fulfill obligations under the contract"); Winshall v. Viacom Int'l Inc., 2019 WL 5787989, at *5 (Del. Super. Nov. 6, 2019) ("[T]here is no explicit language that [the indemnity provision] applies to the reimbursement of attorneys' fees and expenses on first-party claims between the parties."); In re Bracket, 2020 WL 764148, at *16 ("Without precise language setting forth an intent to shift fees, counsel should not expect the Court to deviate from the American Rule if care has not been taken in drafting a contract's language." (internal quotation marks and brackets omitted)); Ashland LLC v. Samuel J. Heyman 1981 Continuing Tr. for Heyman, 2020 WL 6582958, at *6 (Del. Super. Nov. 10, 2020) ("[A] party is not entitled to attorneys' fees under an indemnification provision when there is no specific language in the indemnification provision . . . that covers fee-shifting." (internal quotation marks omitted)); Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, 2020 WL 7861336, at *5 (Del. Ch. Dec. 31, 2020) ("[P]urely contractual indemnification provisions only shift first-party claims if the contract explicitly so provides."); Nasdi Holdings, LLC v. N. Am. Leasing, Inc., 2020 WL 1865747, at *5-6 (Del. Ch. Apr. 13, 2020) (noting indemnity language did not warrant fee shifting); Senior Housing Cap., LLC v. SHP Senior Housing Fund, LLC, 2013 WL 1955012, at *45 (Del. Ch. May 13, 2013) ("Here, there is no specific language in the indemnification provision of the Management Agreements that covers fee shifting. Therefore, I will not interpret the provision in an expansive way that would be inconsistent with the American Rule."); cf. Int'l Rail Partners LLC v. Am. Rail Partners, LLC, 2020 WL 6882105, at *5-6 (Del. Ch. Nov. 24, 2020) (distinguishing indemnification provision in limited liability company agreement).
IV. CONCLUSION
For the reasons explained above, Gulf is entitled to judgment in the amount of $2,247,000, plus costs and pre- and post-judgment interest. WTC has proved by a preponderance of the evidence its counterclaim for breach of the Trust Agreement with respect to Gulf's failure to pay WTC's 2010 to 2015 fees, and the Court therefore enters judgment in WTC's favor as to that counterclaim in the amount of $15,000, plus costs and pre- and post-judgment interest. WTC has not proved by a preponderance of the evidence its counterclaim for indemnification, and the Court therefore enters judgment in Gulf's favor as to that counterclaim.
If there are any open issues not addressed by this post-trial opinion, the parties shall notify the Court by letter within five calendar days. Otherwise, Gulf shall prepare a conforming form of order and file it with the Court within ten calendar days. If WTC objects to the form of order, it shall so advise the Court by letter within two days of filing. The appeal period for this post-trial opinion shall not begin to run until the final order is entered as an order of the Court.