Air Caledonie Intern. v. Aar Parts Trading, Inc.

• Decision Date: 02 April 2004
• Docket Number: No. 02-21193-CIV.,02-21193-CIV.
• Citation: 315 F.Supp.2d 1319
• Parties: AIR CALEDONIE INTERNATIONAL, Plaintiff/Counter-Defendant, v. AAR PARTS TRADING, INC., Defendant/Counter-Plaintiff.
• Court: U.S. District Court — Southern District of Florida

315 F.Supp.2d 1319

AIR CALEDONIE INTERNATIONAL, Plaintiff/Counter-Defendant, v.AAR PARTS TRADING, INC., Defendant/Counter-Plaintiff.

No. 02-21193-CIV.

United States District Court, S.D. Florida, Miami Division.

April 2, 2004.

Lawrence Dean Goodman, Diane Noller Wells, Catherine Fran Hoffman, Robert J. Kuntz, Devine, Goodman, Pallot & Wells, Miami, FL, David C. Birdoff, Fulbright & Jaworski, New York City, for plaintiff.

Gerald Barry Wald, Antonio Arzola, Murai, Wald, Biondo & Moreno, Miami, FL, Paul E. Dengel, Schiff Hardin LLP, Chicago, IL, for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

ALTONAGA, District Judge.

Pursuant to the requirements of Rule 52 of the Federal Rules of Civil Procedure, the following findings of facts and conclusions of law are made.Plaintiff/Counter-Defendant, Air Caledonie International ("ACI"), sued Defendant/Counter-Plaintiff, AAR Parts Trading, Inc.("AAR"), in connection with an agreement covering the lease of an aircraft engine by ACI (hereinafter "Engine").On August 12, 2003, the Court found that ACI breached the lease agreement and entered partial summary judgment in favor of AAR as to ACI's liability on AAR's Amended Counterclaim.

In the August 12, 2003 Order, the Court found that although ACI was not liable for preexisting conditions that rendered the Engine unserviceable, it was required to make all repairs necessary to render the Engine serviceable at redelivery, regardless of the cause of unserviceability.ACI had the right, however, to be reimbursed for the expense of repairing pre-existing conditions that made the Engine unserviceable, i.e., ACI had the right to seek recovery of expenses incurred by ACI to repair unserviceable conditions that had existed at the inception of the Lease, or the right to have AAR's contractual breach damages reduced by the amount of those expenses.It has already been determined that ACI defaulted on its obligation to redeliver a serviceable Engine at termination of the lease period, but there were issues of fact regarding whether the unserviceable conditions identified by the facility that inspected the Engine at the end of the lease pre-existed the lease, and whether AAR or ACI had suffered any damages.

At the trial, the Court received evidence, and considered the applicable law and arguments on the issue of the amount of damages, if any, to which AAR is entitled as a result of ACI's breach, as well as the damages, if any, to which ACI is entitled based on AAR's retention of $3,365,900 of ACI's money since September 14, 2001, and $2,679,900 since December, 2002.The Court finds that AAR is liable to ACI in the amount of $2,607,722 for the reasons set forth in the following findings of fact and conclusions of law.

FINDINGS OF FACT

ACI is a corporation organized and existing under the laws of France with its principal place of business at Noumea, New Caledonia.It is the national airline of that French overseas territory.During the second half of 2001, ACI operated an Airbus A310 aircraft.

AAR was formerly known as AAR Aircraft & Engine Group Inc..It is a corporation organized under the laws of the State of Illinois with its principal place of business in Illinois.Kellstrom Industries, Inc.("Kellstrom") is a corporation having a place of business in Florida.

In December, 2000, Kellstrom owned the Engine, a Pratt & Whitney Series 4000 engine, serial number 724857.In January, 2001, EBS Maintenance ("EBS"), an engine consulting firm, prepared a report of a borescope inspection¹ of the Engine conducted by Air Wheels Service ("AWS").EBS reported that "[s]ome cracks are visible on the combustion chamber outer and inner liner, but the bad quality of this video does not provide the complete condition assessment."EBS also reported that there was one T2 blade "tip found with missing material on concave & convex side beyond the limits."²Finally, EBS reported some cracks on the "T/E root plates formes" of the T1 blades, but noted that the quality of the video did not "provide the complete condition assessment."

On January 23, 2001 and February 13, 2001, Delta Airlines, Inc.("Delta") performed two borescope inspections of the Engine at Kellstrom's request and prepared written reports of the results.The January 23, 2001 borescope written report noted "no damage" to the hot or cold sides of the combustion chamber³ or the T1 blades.As to the T2 blades, the report noted that "1 ea. blade tip material missing."This borescope inspection was not recorded on videotape or in photographs.

The results of Delta's February 13, 2001 borescope inspection were recorded on videotape and still photographs from the videotape.Delta's written report of the February 13, 2001 inspection noted that there were "numerous [T1] blades [that] have inner platform missing coating," and "53(ea)[T1] blades have T/E cracks on inner platform tips & 7(ea) blades have multiple cracks."The report also noted that the there was "1(ea)[T2] blade missing tip cap material."The report further describes the combustion chamber as having "(1) 3 louvers & 1 knuckle cracked @ 12:00 position (tape ref 59:15-59:21) on outer liner.(2) 3 louvers/no knuckles plus 2 adjacent louvers cracked on outer liner @ approx 6:00 posknuckles verified on backside of liner (tape ref 1:05:48-1:06:54).(3) 3 louvers/no knuckles cracked on outer liner @ 9:00 position (tape ref 1:10:16-1:10:23)."

On February 15, 2001, Delta issued an FAA Form 8130-3 Airworthiness Approval Tag for the Engine, otherwise known as a "serviceable tag."⁴In late 2000 or early 2001, Timothy Hillman("Hillman") of Delta advised Kellstrom that ACI desired to lease a Pratt & Whitney Series 4000 engine.Kellstrom and ACI began negotiating the terms of a lease of the Engine.

In March, 2001, Kellstrom performed a borescope inspection of the Engine and issued a written report of that inspection dated March 1, 2001, stating that, in the combustion chamber, there were "2 ea. vanes noted with cracks o.d. buttress area + several louvers with axial cracks on inner comb. + outer combustor, [and] also some minor burning and coating loss."Kellstrom also reported "T-1 T/E minor coating loss noted only at platform area [of T1 blades]."And, Kellstrom reported a "T-2 L/E tip cap minor piece missing on one side only."No other visual defects were noted, and the T2 blade missing material condition was found to be "in limits per P + W E/M 72-00-00-2/0-006 Fig. 803 Sheet 1."

After completing a thrust conversion, Delta issued a serviceable tag for the Engine on March 22, 2001.On March 27, 2001, ACI leased the Engine from Kellstrom pursuant to an "Aircraft Engine Lease Agreement"(the "Lease").The Lease was expressly subject to the terms and conditions of another instrument entitled "Engine Lease General Terms Agreement"(the "GTA").ACI leased the Engine for use on its Airbus A310 while its own engine was undergoing repairs.The initial Lease term expired on June 24, 2001.After the February 13, 2001 inspection, the Engine was not operated until the ACI Lease commenced (Pre-Trial Stipulation, ¶ 22); therefore, the findings of the Delta examiners from the February 13 inspection describe the condition of the Engine as of the beginning of the Lease term the following month.

The Lease provided that ACI would have a 10-day inspection period after the Delivery Date of March 27, 2001, and that at the end of the Lease, ACI would redeliver the Engine to Kellstrom's address in Miramar, Florida.(Lease, §§ II, VI).Among the "Return Conditions" provided in Section VII of the Lease, was the requirement that ACI would return the Engine at the end of the Lease with a "serviceable tag," and with a "borescope report and video."(Id.,§ VII).The "Daily Rent" that ACI would pay for the Engine was set at $3,300 per day "or any part thereof."(Id.,§ VIII).The "Use Fee" would be "$295/hour when the ratio of hours to cycles is greater than 4:1," and "$325/hour when the ratio of hours to cycles is less than 4:1."(Id.).A minimum of 200 hours and/or cycles per month was required.(Id.).The following amounts were also to be paid by ACI to Kellstrom prior to the Delivery Date: "Prepaid Rent" in the amount of $102,300 (to be applied to the last month of rent); a "Prepaid Use Fee" of $59,000 (to be applied to the last month of use); and a $204,600 "Security Deposit."(Id.).Finally, the Lease called for a letter of credit (the "Letter of Credit") in the amount of $3 million and "in a form acceptable to [Kellstrom], for the purpose of securing [ACI's] obligations under the Lease."(Id.).

The GTA contained additional terms and conditions.Kellstrom would deliver the Engine to ACI "with a valid FAA serviceable tag affixed to it."(GTA, § 3.a.).The parties agreed that the "Daily Rent" would "commenc[e] with the Delivery Date specified in the Lease and continu[e] until the return of the Equipment in accordance with the terms of this GTA and the Lease (measured portal-to-portal)."(GTA, § 4.a.i.).ACI would pay Kellstrom the Use Fee "for each hour of Engine operation or fraction thereof."(GTA, § 4.a.ii.).Section 4.f. of the GTA specified what the Lessor could do with the Security Deposit as follows:

If Lessee shall fail to pay Daily Rent or Use Fee payments or shall fail to make any other payments required of the Lessee by this GTA or if Lessee fails to maintain the Equipment in accordance with this GTA or if Lessee fails to return the Equipment in the condition described herein or required herein, Lessor may utilize the Deposit to make up the unpaid payment or to provide the appropriate maintenance.If, at the end of the Term of the Lease, the Equipment is returned in accordance with the terms of this GTA Lease and all amounts required to be paid by this Lease are paid in full, then the Lessor shall return the remaining Deposit to Lessee without interest.

Section 4.h. penalized ACI for late payments, and provided:

If any payment by Lessee...