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Center Capital Corp v. Pra Aviation

February 4, 2011

CENTER CAPITAL CORP., PLAINTIFF,
v.
PRA AVIATION, LLC AND JOSEPH PACITTI,
DEFENDANTS.



The opinion of the court was delivered by: Schiller, J.

MEMORANDUM

Center Capital Corp. ("Center Capital") repossessed and sold a 1987 Gates Learjet 55B in the fall of 2009. The sale satisfied only $1.3 million of Defendants' $3 million debt, and Center Capital sued PRA Aviation ("PRA") and Joseph Pacitti for breach of contract and breach of guaranty, respectively. Defendants stipulated to liability on these claims, but argue Center Capital's sale of the aircraft was not commercially reasonable. Following a bench trial on January 31, 2011, the Court enters the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

I. FINDINGS OF FACT

A. Purchase, Repossession and Sale of the Learjet

PRA borrowed $3 million from Center Capital to purchase a Learjet 55B in July of 2007. (Joint Pretrial Stipulation 2-3.) Center Capital took a security interest in the plane and a guaranty from Joseph Pacitti, a member of PRA. (Id. at 1-2.) Defendants defaulted on the loan on April 1, 2009. (Id. at 4.) PRA surrendered the aircraft in September of 2009. (Id.) Center Capital retained a broker, Business Air International ("Business Air"), to sell the plane. (Id.)

Business Air's Managing Director J. Philip Jordan coordinated the sale. Jordan has been involved in ten to fifteen aircraft transactions annually since 1993, including bank sales of repossessed planes. (See Def.'s Ex. 5 [Oct. 25, 2010 Opinion of Value] 5.) A former chairman of the National Aircraft Resale Association, Jordan has training in risk management and insurance evaluation in addition to his experience as a broker and consultant. (Id.)

Jordan and his staff prepared a report on the market value of the Learjet. (Defs.' Ex. 4 [Business Air Market Evaluation].) The report offers two price ranges: $1 million to $1.2 million for a "quick sale," or $1.3 million to $1.55 million for a sale "with a time period of close to one year" with a more "protracted marketing campaign." (Id. at 2.) These price points reflected Jordan's estimate of the plane's value as of October 12, 2009. (Id. at 1.)

At trial, Jordan testified that he arrived at these estimates by gathering and reviewing market data, including prices from recent transactions involving a Learjet 55B or similar aircraft. Learjet built eight 55B's, only one of which was sold on the open market in the United States in the year prior to Jordan's report. (See id. at 1.) Jordan therefore relied heavily on market data for the Learjet 60, an upgraded model of the 55 series, in determining the 55B's value. (Id. at 1.) To attract a buyer to the older 55B, Jordan estimated that a 55B seller would have to offer a price at least $1 million below the price of an early-model Learjet 60. (Id. at 1-2.)

Jordan then considered the condition and configuration of the aircraft at issue. PRA's Learjet 55B had a lavatory at the front of the plane, which Jordan considered "a significant obstacle to resale." (Id. at 2.) Noting that many buyers "will simply not consider a Lear 55 with a forward lavatory," Jordan deducted $300,000 from the aircraft's value. This figure represented the cost of moving the lavatory to the rear. (Id.) Jordan deducted nothing for the plane's mechanical condition or maintenance history, though he did not believe the aircraft's positive attributes in these areas represented any additional value. (Id.)

Jordan noted that a Learjet 60 in relatively poor condition had recently sold for $2.75 million, a figure representing the "low end of the Lear 60 market. (Id. at 1-2.) Jordan deducted $1 million from this $2.75 million sale due to the Learjet 55B's obsolescence and a further $300,000 for the aircraft's forward lavatory, and arrived at a value estimate of $1.45 million for the 55B. (Id.)

At trial, Jordan testified that Business Air marketed the aircraft in a number of trade publications, on the Internet, and through directed advertising to the company's customer list. In keeping with Jordan's marketing strategy, Business Air listed the plane for $1.595 million. (Id. at 2; Pl.'s Ex. 7 [Jet Collection Advertisement].) Business Air received a number of inquiries, including three serious offers. On November 4, 2009, aircraft broker Andy Dyer submitted a purchase offer for $1 million. (Pl.'s Ex. 8 [Dyer correspondence dated Nov. 4, 2009].) PRA had retained Dyer to sell the plane prior to its repossession. (See id.) Center Capital directed Business Air not to respond to Dyer's offer.

Business Air received two more offers on November 11, 2009. Siegfried Axtmann, the operator of a large Learjet fleet in Germany, offered $1.2 million for an "as is, where is" sale without a pre-buy inspection. (Pl.'s Ex. 9 [Nov. 11, 2009 e-mail from Siegfried Axtmann].) Southeast Turbines Corp. submitted an offer for $1.35 million subject to a pre-purchase inspection. (Pl.'s Ex. 6 [Nov. 11, 2009 Southeast Turbines Offer to Purchase/Letter of Intent].)

On November 19, 2009, Center Capital authorized Business Air to accept $1.3 million for the plane if Southeast Turbines agreed to forego a pre-buy inspection for a "cash deal, as is where is, kick the tires start the engines" sale. (Defs.' Ex. 6 [Nov. 19, 2009 e-mail from Amy Levy to Oliver Stone].) Jordan testified that this $50,000 discount represented significant potential savings for Center Capital, as a pre-buy inspection would almost certainly reveal over $50,000 in defects which Center Capital would be responsible for fixing before the sale. Southeast Turbines agreed to forego ...


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