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granting summary judgment in favor of plaintiff secured party where “there [was] simply no evidence that plaintiff's sale of the [collateral] was not commercially reasonable”
Summary of this case from General Electric Capital Corp. v. FPL Service Corp.Opinion
Civil Action No. 04-CV-4586.
February 1, 2006
MEMORANDUM
Presently before the Court is Plaintiff's Motion for Summary Judgment (Doc. No. 12); Defendant Yao's Response thereto (Doc. No. 17), Plaintiff's Reply (Doc. No. 20) and Defendant Yao's Supplemental Response (Doc. No. 24). For the following reasons, this Court grants plaintiff's motion in part and denies plaintiff's motion in part.
I. PROCEDURAL HISTORY
On September 29, 2004, Plaintiff U.S. Bancorp Equipment Finance, Inc. commenced this action against Defendants DCC II Aircraft Corporation ("DCC II"), Andrew N. Yao ("Yao") and Lore North Yao ("Mrs. Yao"), alleging breach of contract against Defendant DCC II (Count I), breach of guaranty against Defendant Yao (Count II), foreclosure of security interest against Defendants DCC II and Yao (Count III), and fraudulent conveyance against Defendants Yao and Mrs. Yao (Counts IV and V). Defendant DCC II failed to respond to the Complaint. A default for failure to appear, plead or otherwise defend was entered against Defendant DCC II on November 23, 2004.
On July 14, 2005, Plaintiff moved for summary judgment against Defendant Yao on Counts I, II and III. Pl.'s Memo. at 2. Plaintiff also moved for judgment against Defendant DCC II in light of its default in responding to the Complaint. Id. Defendant Yao responded to plaintiff's motion on August 31, 2005. On September 16, 2005, plaintiff filed a motion for leave to file a reply. On September 30, 2005, Defendant Yao filed an opposition to plaintiff's motion for leave to file a reply. On October 12, 2005, this Court granted plaintiff's motion for leave to file a reply. Over two and a half months later, on December 30, 2005, Defendant Yao filed a motion for leave to file a supplemental response to plaintiff's motion for summary judgment, to which plaintiff objected. This Court granted Defendant Yao leave to file the response.
Count I was brought against Defendant DCC II, not Defendant Yao. Therefore, this Court will only address plaintiff's motion for summary judgment against Defendant Yao with regard to Counts II and III.
Plaintiff did not move against Defendant Lore Yao. Id.
Defendant Yao provided no explanation for the delay in submitting the appraisal contained in the supplemental response.
The Court noted that it would address plaintiff's concerns regarding the admissibility of the evidence submitted in the supplemental response when it addressed Plaintiff's Motion for Summary Judgment. See Doc. No. 26.
II. FACTUAL BACKGROUND
In June 2001, Defendant DCC II, Defendant Yao and plaintiff entered into three agreements regarding the loan and purchase of an airplane. On June 5, 2001, Defendant Yao executed a guaranty, whereby he guaranteed the full, prompt, complete and final payment and performance of all of DCC II's obligations pursuant to any agreement entered into between DCC II and plaintiff. Compl. at Ex. 1 ¶ 1. On June 12, 2001, DCC II entered into a promissory note with plaintiff for $4,300,000 whereby DCC II agreed to make sixty monthly payments of $50,972.77 and a balloon payment comprising the balance of principal and interest to plaintiff. Compl. at Ex. 2 ¶ 2. In the event of a default, the promissory note provided that the entire outstanding balance, including unpaid accrued interest, would become immediately due, plus interest at the rate of 15% per annum. Id. ¶ 10. The promissory note also provided that DCC II agreed to "pay all costs (including attorneys' fees) incurred by [plaintiff] in collecting overdue amounts following a default." Id. In order to secure payment of the promissory note, plaintiff entered into an Aircraft Security Agreement with DCC II, pursuant to which DCC II granted plaintiff a first priority security interest in one used Hawker-Siddeley Model HS 125 Series 700A Aircraft equipped with two Garrett AiResearch Model TFE 731-3-1H Engines ("Airplane"). Compl. at Ex. 3 ¶¶ 1.1, 7.0. The Security Agreement provided that, in the event of default, plaintiff was entitled to recover and sell the Airplane.Id. ¶¶ 1.2, 4.1.
Plaintiff declared Defendant DCC II in default of the promissory note on May 5, 2004 for failing to make payments when due. Bennett Aff. ¶ 6. On September 7, 2004, plaintiff sent a letter to Defendant DCC II and Defendant Yao, notifying them of DCC II's default under the promissory note and the security agreement. Compl. at Ex. 4, Ex. 5. The letter informed defendants that plaintiff was accelerating all amounts due. Id. Defendant Yao defaulted on his obligations under the guaranty. Id. ¶ 7.
Without plaintiff's knowledge, Defendant DCC II leased the Airplane to Lanmar Marine and Aviation, Inc. ("Lanmar"). Bennett Aff. ¶ 9. When plaintiff attempted to recover the Airplane, Lanmar asserted a mechanics lien over it. Id. Plaintiff retained local counsel to repossess and recover the Airplane.Id.; see also Regan Aff. ¶ 5. Lanmar agreed to release the Airplane only after plaintiff posted two surety bonds. Bennett Aff. ¶ 11. Lanmar subsequently filed suit against plaintiff, seeking to recover $276,119.54. Id. This litigation is ongoing.Id.
Plaintiff retained a company named Jet Aviation to recover, refurbish and sell the Airplane. Id. ¶ 14. For these services, plaintiff paid Jet Aviation $141,934.82. Id. Jet Aviation advertised the sale of the Airplane in Business Air Today, World Aircraft Sales and Executive Controller starting in October 2004. Staggs Aff. ¶ 3. Jet Aviation also advertised the sale of the Airplane in its publications, Charter Today and OUTLOOK, on its website, on three magazine websites, NARA, GAN and ASO, and in various mailers. Id. The Airplane's "ask price" was listed as $1,800,000 or best offer. Id. ¶ 4. Between October 4, 2004 and November 10, 2004, Jet Aviation received seven offers for the Airplane, ranging from $1,200,000 to $1,750,000. Id. ¶¶ 5-9. Jet Aviation accepted the offer of $1,750,000. Id. ¶¶ 9-10, see also Bennett Aff. ¶ 15.
The "ask price" is determined by various factors, including: current market values, flight hours, maintenance condition and inspections due, configuration and condition of the interior, exterior paint condition, condition of the logbooks, additional items/inventory supplied along with the airplane and, potentially, the market trend at the time of the sale. Staggs Aff. ¶ 4.
III. MOTION FOR SUMMARY JUDGMENT AGAINST DEFENDANT YAO
A. Legal Standard
In considering a motion for summary judgment, the court must determine whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Arnold Pontiac-GMC, Inc. v. General Motors Corp., 786 F.2d 564, 568 (3d Cir. 1986). All reasonable inferences from the record are drawn in favor of the non-movant. See Anderson, 477 U.S. at 255; J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir. 1990),cert. denied, 499 U.S. 921 (1991).
In a motion for summary judgment, "the burden on the moving party may be discharged by 'showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex v. Catrett, 477 U.S. 317, 325 (1986). After a moving party properly supports its motion for summary judgment, the non-moving party "must produce affirmative evidence," which "must amount to more than a mere scintilla, but may amount to less (in the evaluation of the court) than a preponderance." Williams v. West Chester, 891 F.2d 458, 460-61 (3d Cir. 1989) (citations omitted); see also J.F. Feeser, Inc., 909 F.2d at 1531 (holding that after the movant's burden is met, the non-movant must establish the existence of each element on which it bears the burden of proof).
B. Discussion
Liability is not at issue in the current case. Defendant Yao does not dispute that Defendant DCC II defaulted on the payments owed to plaintiff under the promissory note and that, therefore, under the guaranty, he is liable for the full payment of DCC II's obligations to plaintiff. See Def's Resp. In addition, Defendant Yao does not dispute that, according to the security agreement, plaintiff was granted a first priority security interest in the Airplane and that, after Defendant DCC II defaulted on the promissory note, plaintiff was entitled to recover and sell the Airplane. See id.
The parties agree that the guaranty, note and security agreement are governed by Oregon law. See Pl's Mot. for Summ. J. at 7 n. 1; Def's Resp. at 2; see also Compl. at Ex. A ¶ 12; Ex. B ¶ 11; Ex. C ¶ 5.2.
The amount of damages owed is the core of the dispute. Plaintiff has calculated the damages to be $2,335,051 as of June 30, 2005. Plaintiff's calculation of damages includes an offset of $1,750,000, the amount for which the Airplane was sold. Defendant Yao argues that plaintiff is not entitled to summary judgment because the Airplane was not sold in a commercially reasonable manner and, therefore, the offset in the calculation of damages is incorrect. Def.'s Resp. at 3-6. Defendant Yao also disputes specific amounts included in plaintiff's calculation of damages, arguing that plaintiff is attempting to collect twice for the Murtha Collina bill and that plaintiff is not entitled to recover from him the cost of its litigation with Lanmar and the total of Lanmar's claim against plaintiff. Id. at 6-8.
In Count II, plaintiff seeks damages against Defendant Yao for his breach of the guaranty. Compl. ¶¶ 31-35. In Count III, plaintiff requests foreclosure of the security interest in the Airplane and seeks permission to sell the Airplane. Compl. ¶¶ 36-42. Plaintiff has already recovered and sold the Airplane at issue. Therefore, this Court will only address the damages alleged in Count II.
This amount reflects the revisions contained in plaintiff's reply. See Pl's Mot. for Summ. J. at 8; Pl's Reply at 10. Plaintiff's calculation of damages is as follows:
Principal Amount $3,138,390.22 Interest 3/9/04 to 5/4/04 20,257.60 Interest 5/4/04 to 12/14/04 285,069.88 Sale price of Airplane (1,750,000.00) Interest 12/15/04 to 5/31/05 114,849.24 Late Charges 35,106.54 Bonds in Lanmar Action 1,092.00 Jet Aviation costs and expenses 141,934.82 Legal — Pitney Hardin 72,231.16 Lanmar Claim 276,119.54 Total: $2,335,051.00
1. Commercially Reasonable Manner
After Defendants DCC II and Yao defaulted, plaintiff, through Jet Aviation, recovered and sold the Airplane. "After default, a secured party may sell, lease, license or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing." O.R.S. § 79.0610(1). "Every aspect of a disposition of collateral, including the method, manner, time, place and other terms, must be commercially reasonable." Id. § 79.0610(2). Defendant Yao argues that there is a genuine issue as to a material fact, i.e. whether the disposition of the Airplane was conducted in a commercially reasonable manner. Def's Resp. at 6.
Plaintiff, in its Motion for Summary Judgment, alleges that the sale of the Airplane for $1,750,000 was commercially reasonable. Pl's Mot. for Summ. J. at 6-8. In his response, Defendant Yao argues that the Airplane "may not" have been sold in a commercially reasonable manner because plaintiff sold the Airplane "in a private sale for its perceived wholesale value." Def.'s Resp. at 2, 5. In support of this contention, Defendant Yao notes that Linda Able, a Senior Equipment Remarketer for plaintiff, stated that the Airplane "should bring in about 1.7 to 1.8 wholesale and [approximately] 2.5 if put in best condition [with] work done." Id. at Ex. A.
Ms. Able, in an sworn affidavit provided by plaintiff in its reply, explains that the statement cited by defendant was her "educated guess" as to the Airplane's potential sale price. Able Aff. ¶ 4. She believed that, without any upgrades, the Airplane would sell for between $1.7 and $1.8 million, and that, if Jet Aviation performed mechanical work to enhance its value, the Airplane could sell for $2.5 million. Id.
Plaintiff also provided a sworn affidavit from Debbie Staggs, an Aircraft Sales and Marketing Coordinator at Jet Aviation who sells new and used aircraft. Staggs Aff. ¶ 1. In her affidavit, Ms. Staggs avers that Jet Aviation advertised the sale of the Airplane in Business Air Today, World Aircraft Sales, Executive Controller, in two of Jet Aviation's publications, on its website, on three magazine websites and in various mailers. Id. ¶ 3. Ms. Staggs' affidavit details the seven offers received for the Airplane between October 4, 2004 and November 10, 2004. Id. ¶¶ 5-9. The first prospective buyer offered $1,700,000 subject to a physical inspection of the aircraft. Id. ¶ 5. A second prospective buyer offered $1,475,000, followed by an offer of $1,675,000 and a final offer of $1,700,000 subject to a number of conditions. Id. ¶ 6. A third prospective buyer offered $1,500,000. Id. ¶ 7. Then, an offer for $1,200,000 subject to certain conditions was received. Id. ¶ 8. Finally, Jet Aviation received an offer of $1,750,000, which it accepted.Id. ¶ 9.
This offer stated that the Airplane needed at least $500,000 of maintenance work. Staggs Aff. ¶ 7.
In response to the evidence put forth by plaintiff, Defendant Yao filed an appraisal of the Airplane conducted by Timothy Kepp. See Def's Supp. Resp. Exhibit. It is well-established that "only evidence which is admissible at trial may be considered in ruling on a motion for summary judgment."Countryside Oil Co., Inc. v. Travelers Ins. Co., 928 F.Supp. 474, 482 (D.N.J. 1995); see also Pamintuan v. Nanticoke Mem. Hosp., 192 F.3d 378, 387 n. 13 (3d Cir. 1999) (noting that, in deciding a motion for summary judgment, it is improper to consider evidence that would be inadmissible at trial); Wetzel v. Tucker, 139 F.3d 380, 383 n. 2 (3d Cir. 1998). Mr. Kepp's appraisal is not accompanied by an affidavit swearing to its truthfulness. See Fed.R. Evid 901 (requiring authentication as a condition precedent to admissibility); see also Countryside Oil Co., 928 F. Supp. at 482 (holding that, in order to be considered during a summary judgment motion, a document must be authenticated and attached to an affidavit that meets the requirements of Fed.R.Civ.Proc. 56(e)). Since Mr. Kepp's appraisal would be inadmissible at trial, this Court will not consider it in deciding plaintiff's summary judgment motion.
According to Timothy Kepp's appraisal, the market value of the Airplane is $3,050,000. Defendant Yao did not identify Mr. Kepp as an expert witness pursuant to Rule 26(a)(2) of the Federal Rules of Civil Procedure. Plaintiff objected to the introduction of the appraisal, arguing that the appraisal lacks "even the bare minimum of evidentiary support as to its veracity, truthfulness and reliability." See Pl's Opp. to Def's Leave to File at 5.
This Court also notes that the appraisal is undated and that it fails to state where and when the appraisal took place. There is no indication that Mr. Kepp has ever seen the Airplane.
Absent the appraisal, there is simply no evidence that plaintiff's sale of the Airplane was not commercially reasonable. Plaintiff hired Jet Aviation to recover, refurbish and sell the Airplane. Jet Aviation advertised the sale of the Airplane in Business Air Today, World Aircraft Sales, Executive Controller, in two of Jet Aviation's publications, on its website, on three magazine websites and in various mailers. Jet Aviation received seven offers for the Airplane, ranging from $1,200,000 to $1,750,000, the highest of which it accepted. Defendant Yao has provided no admissible evidence that rebuts these facts or that demonstrates that the sale of the Airplane was not commercially reasonable. This Court finds that plaintiff has properly supported its claim that the sale of the Airplane was commercially reasonable and Defendant Yao has failed to produce affirmative evidence to the contrary. See Williams v. West Chester, 891 F.2d 458, 460-61 (3d Cir. 1989). As a result, this Court finds that there is no genuine issue of material fact regarding whether the sale of the airplane was commercially reasonable and, therefore, summary judgment on this issue is appropriate. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
2. The Murtha Cullina Charges
In his Response, Defendant Yao alleged that plaintiff was attempting to collect twice for the Murtha Cullina bill. Def.'s Resp. at 6. Plaintiff acknowledged that it had inadvertently double counted the Murtha Cullina charges as the Murtha Cullina's invoices were itemized separately and also included in Pitney Hardin's invoices. Pl.'s Reply at 9. Accordingly, plaintiff submitted a revised calculation of damages, in which plaintiff omitted the separate itemization of the Murtha Cullina charges, decreasing the value of its damages on June 30, 2005 from $2,349,613.37 to $2,335,051.00. Id. at 9-10.
3. The Cost of Litigation with Lanmar and the Total of Lanmar's Claim Against Plaintiff
In the calculation of damages provided by plaintiff in its Motion for Summary Judgment, plaintiff included a claim for $72,231.16, the attorneys' fees and costs incurred by Pitney Hardin in the Lanmar litigation, and a claim for $276,119.54, the value of Lanmar's claim against plaintiff. Pl's Mot. for Summ. J. at 8. At the time of the default, Lanmar had possession of the Airplane. When plaintiff attempted to recover the Airplane, Lanmar asserted a mechanics lien over it. After plaintiff retained local counsel to repossess and recover the Airplane, Lanmar agreed to release the Airplane after plaintiff posted two surety bonds. Lanmar subsequently filed suit against plaintiff, seeking to recover $276,119.54; this litigation is ongoing.
A claim for $14,562, the attorneys' fees and costs from Murtha Cullina in the Lanmar litigation, was also initially included, but has since been removed. See Part III.B; Pl's Mot. for Summ. J. at 8. Defendant Yao does not dispute plaintiff's claim for $1092, the cost to post bonds in order to recover the airplane from Lanmar. See Def's Resp. at 7 n. 3.
Unbeknownst to plaintiff, Defendant DCC II had leased the airplane to Lanmar.
The Guaranty signed by Defendant Yao states that Defendant Yao, the guarantor,
agrees to indemnify and hold [plaintiff] harmless from and against any and all losses, liabilities and costs caused by or arising from (in any way, directly or indirectly) any failure of [Defendant DCC II] to fully, promptly and completely satisfy the Obligations. For purposes hereof, "losses, liabilities and costs" shall include (without limitation), all losses, liabilities, obligations, claims, demands, judgments, costs and expenses of whatever kind or nature (including, without limitation, reasonable attorneys' fees).
Pl's Reply at 8. Plaintiff argues that, given the broad language contained in the Guaranty, plaintiff is entitled to recover the cost of the Lanmar litigation and the value of Lanmar's claim because these costs were incurred as a result of Defendant DCC II's failure to satisfy its obligations. Pl's Reply at 8-9.
Defendant Yao argues that plaintiff is not entitled to recover the costs associated with the Lanmar litigation because, under Oregon law, what the creditor may recover is strictly defined and does not include costs such as the costs incurred during the Lanmar litigation. Def's Resp. at 6-7. In support of this argument, Defendant Yao cites Oregon Revised Statutes § 79.0615(1), which addresses the order in which cash proceeds from the disposition of collateral are to be applied. Or. Rev. Stat. § 79.0615(1). Nothing in this statute implies that it "strictly defines" what the creditor may recover. To the contrary, Oregon law clearly states that a secured party has the rights provided by agreement of the parties. Or. Rev. Stat. § 79.0601 ("After default, a secured party has the rights provided in ORS 79.0601 to 79.0628 and . . . those provided by agreement of the parties").
Defendant Yao argues that plaintiff is not entitled to recover the Lanmar-related costs because the Complaint does not include a claim for Lanmar-related costs. Def's Resp. at 7. A complaint must give "the opposing party fair notice of the nature and basis or grounds of the pleader's claim and a general indication of the type of litigation that is involved." 5 Wright Miller, Federal Practice and Procedure § 1215 at 173 (2004); see also Fed.R.Civ.Proc. 8(a). It is enough that a complaint put the defendant on notice of the claims against him. Seville Indus. Machinery Corp. v. Southwest Machinery Corp., 742 F.2d 786, 790 (3d Cir. 1984). In the Complaint, plaintiff clearly stated a claim for breach of contract against Defendant DCC II and a claim for breach of guaranty against Defendant Yao. Compl. ¶¶ 22-30, 31-35. With regard to the Lanmar-related claims, the Complaint specifically states that "DCC II has defaulted under the Note and under the Security Agreement by . . . leasing the Airplane to Lanmar . . . [and] by failing to keep the Airplane free from certain aircraft liens filed by and on behalf of Lanmar." Id. ¶ 23. Therefore, Defendant Yao had notice that Lanmar-related costs might result from Defendant DCC II's breach of contract.
Finally, Defendant Yao argues that plaintiff should not recover the value of Lanmar's claim against plaintiff because the Lanmar case has yet to be judicially determined and, therefore, it remains unknown whether any sums will be owed by plaintiff to Lanmar. Id. at 7-8. This Court agrees. There is nothing contained in the broad language of the Guaranty whereby Defendant Yao guarantees payment of potential liabilities or costs that have yet to be incurred. See Pl's Reply at 9 ("to the extent that [plaintiff] is successful in reducing or eliminating [Defendant] Yao's debts to Lanmar . . . that sum will reduce the ultimate judgment"). Since the claim for $276,119.54 has yet to be judicially determined, plaintiff has not incurred this cost. As a result, this cost will not be included in the calculation of damages.
IV. MOTION FOR JUDGMENT AGAINST DEFENDANT DCC II
Plaintiff moved for judgment against Defendant DCC II in light of its default in responding to the Complaint. Defendant DCC II was served with the Complaint on October 11, 2004, but Defendant DCC II failed to respond to the Complaint. A default for failure to appear, plead or otherwise defend was entered against Defendant DCC II on November 23, 2004. Defendant DCC II has never appeared in this matter. This Court has the ability to enter a default judgment against Defendant DCC II pursuant to Federal Rule of Civil Procedure 55(b)(2).
The Third Circuit does not favor entry of defaults or default judgments. United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984). Three factors control whether a default judgment should be granted: (1) prejudice to the plaintiff if default is denied, (2) whether the defendant appears to have a litigable defense, and (3) whether defendant's delay is due to culpable conduct. Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000) (citing $55,518.05 in U.S. Currency, 728 F.2d at 195). Culpable conduct is conduct that is "taken willfully or in bad faith." Id. at 164. Plaintiff has not addressed whether it will be prejudiced if a default against DCC II is denied and has not provided the Court with any reason to believe that Defendant DCC II has acted willfully or in bad faith. See Hill v. Williamsport Police Dep't, 69 Fed. Appx. 49, 51-52 (3d Cir. 2003) (holding that, when a plaintiff did not demonstrate that it would be prejudiced by a default judgment and did not offer a reason to believe that defendant had acted willfully or in bad faith, the district court's denial of a default judgment was not an abuse of discretion). Therefore, plaintiff's motion for a default judgment against Defendant DCC II is denied.
This Court notes that, in Chamberlain, the Third Circuit applied this three part test to a motion seeking a default judgment, whereas the case on which Chamberlain relies,$55,518.05 in U.S. Currency, sets out the test in the context of a motion to overturn a default judgment. See Hill v. Williamsport Police Dep't, 69 Fed. Appx. 49, 51-52 (3d Cir. 2003) (noting the counter-intuitive application of the$55,518.05 in U.S. Currency test).
This Court notes that the first factor, whether plaintiff will be prejudiced by the denial of a default judgment against Defendant DCC II, may be affected by this Court's decision on plaintiff's summary judgment motion.
V. CONCLUSION
Accordingly, this Court grants Plaintiff's Motion for Summary Judgment in part and denies it in part. Specifically, this Court finds that Defendant Yao defaulted on the Guaranty (Count II). As a result, judgment is entered against him in the amount of $2,058,931.46. Plaintiff's request for a default judgment against Defendant DCC II is denied. An appropriate order follows.
$2,058,931.46 is the amount requested by plaintiff ($2,335,051.00) less the value of the, as of yet, judicially undetermined Lanmar claim ($276,119.54).