Coastal Aviation, Inc. v. Commander Aircraft Co.

• Citation: 937 F. Supp. 1051
• Decision Date: 28 August 1996
• Docket Number: No. 92 Civ. 4229 (WCC).,92 Civ. 4229 (WCC).
• Parties: COASTAL AVIATION, INC., Plaintiff, v. COMMANDER AIRCRAFT COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

937 F. Supp. 1051

COASTAL AVIATION, INC., Plaintiff, v. COMMANDER AIRCRAFT COMPANY, Defendant.

No. 92 Civ. 4229 (WCC).

United States District Court, S.D. New York.

August 28, 1996.

COPYRIGHT MATERIAL OMITTED

Law Offices of John A. Tartaglia, White Plains, NY (John A. Tartaglia, of counsel), for Plaintiff.

Peckar & Abramson, P.C., New York City (Charles E. Williams, III, of counsel), for Defendant.

OPINION AND ORDER

WILLIAM C. CONNER, Senior District Judge.

Plaintiff Coastal Aviation Incorporated ("Coastal") brings this action against defendant Commander Aircraft Company ("Commander"), seeking $5,319,424 in damages arising out of an alleged breach of a contract for Coastal's exclusive dealership rights to sell Commander airplanes. This court conducted a two-day bench trial on May 21-22, 1996. This opinion constitutes the court's findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). For reasons discussed below, we enter judgment in favor of defendant on all claims.

FINDINGS OF FACT

Plaintiff Coastal is a Connecticut corporation formed in 1985, with its principal place of business in Rye, New York, and is equally owned by three private investors, Rocco Genovese ("Genovese"), President; Kurt F. Ostheimer ("Ostheimer"), Vice President and Secretary; and William H. Morton ("Morton"), Vice President and Treasurer. Coastal was formed to serve as a distributor of aircraft manufactured by Aerospatiale General Aviation ("Aerospatiale"), a subsidiary of Socata S.A., a French corporation. Coastal has one salaried employee, Bruce Dorfman ("Dorfman"), Director of Sales and Marketing.

Coastal's initial distributorship territory for Aerospatiale included New York, New Jersey, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine. Tr. 36. This territory was later expanded to include Florida, Georgia and Alabama. Id.¹ Coastal represented Aerospatiale in these ten states through its association with general aviation dealers. Coastal would pass on initial leads of potential purchasers of Aerospatiale aircraft to the local dealer. The dealer would then follow-up the leads, and Coastal would help secure final sales. On this basis, Coastal and the dealer would share commissions.

Defendant Commander, a public corporation, was incorporated in Virginia in 1988, and has a principal place of business in Bethany, Oklahoma. Commander manufactures, markets and provides support services for single-engine, high-performance aircraft. The original Commander aircraft, the Commander 112, was designed by the General Aviation Division of Rockwell International Corporation ("Rockwell") and received Federal Aviation Administration ("FAA") approval in 1972. The Model 114 was certified in 1976 and the 114A in 1979. From 1972 to 1979, over 1,100 Model 112/114s were produced. Production was discontinued in 1979. In 1981 Rockwell sold its entire General Aviation Division to Gulfstream Aerospace Corporation. In 1985, Chrysler acquired Gulfstream Aerospace Corporation. In 1988, Chrysler/Gulfstream sold the single-engine 112/114 product line to newly formed Commander. The assets acquired by Commander included the Rockwell 112/114 design data and FAA type certificates, production tooling to fabricate and assemble the 112/114 products, and a considerable inventory of fabricated and purchased parts suitable for spares and/or new aircraft production.

Coastal accounted for between 25% and 50% of Aerospatiale's total United States sales of aviation products from 1988 to 1992, making it the largest Aerospatiale dealer of aviation products in the United States during those years. Tr. 10. Coastal sold basically two Aerospatiale models — the Trinidad and the Tobago. Tr. 15. The Trinidad was a single-engine, four-place, retractable-gear, low-wing model with a top speed of about 200 miles per hour, and in 1992 typically sold for $260,000 to $270,000. Tr. 16. The Tobago, a fixed landing gear model, sold for $125,000 to $150,000. Id.

Commander's first new production model, the 114B, like the Trinidad model TB-20, was a single-engine, four-place, retractable-gear, low-wing aircraft, with a cruising speed of 184 miles per hour. The 114B was targeted slightly below the TB-20 in price. The TB-20 came in a turbo-charged version, called the TB-21. A comparable turbo-charged version of the 114B was in its developmental stage in 1992. Coastal sold six new Trinidads in 1989; ten in 1990; seven in 1991; and two in 1992. Def. ex. A.²

According to Genovese, the 114B offered several advantageous features that were lacking in the Trinidad. For example, the 114B had more head room and allowed easier entry and exit. Tr. 21. Also, the price of the 114B was less than that of the Trinidad. Tr. 23, 75-77. Although it was not quite as fast, it had a superior finish on the outside and superior styling inside. Id. From a marketing standpoint, the 114B's American origin was appealing because of the perceived trend of Americans spending more money on domestic products. Tr. 23-24. On the other hand, the Trinidad had longer range, and more cabin width — albeit at the sacrifice of cabin height. Tr. 33.

The parties in this action had their introduction at least as early as 1989. Dorfman and the principals of Coastal frequently saw Matt Goodman, Commander's Vice President of Sales ("Goodman"), at various industry trade shows, such as the National Business Aircraft Association Convention. Tr. 17, 108. At that time, product liability was a big problem in the general aviation business, and, according to Genovese, many said that it was product liability which had stifled the aviation industry. See Tr. 17, 109. In reaction to the product liability problem, Goodman had supported the idea of leasing aircraft in an attempt to shelter Commander from such liability. Tr. 17, 109-110. Accordingly, in 1989, Goodman contacted Coastal with a product brochure and an outline of a lease proposal. Coastal was immediately interested in Commander's product.

Commander received FAA approval to manufacture and sell its newly designed 114B on May 4, 1992. By this time, Commander had worked out its liability concerns, and, rather than leasing, began recruiting dealers to sell the new aircraft. See Tr. 111.

Coastal's claims against Commander arise out of this recruiting effort. On January 23, 1992 Goodman contacted Dorfman, expressing Commander's interest in selling, rather than leasing, its model 114B aircraft through a dealership network such as Coastal. Dorfman, enthusiastic about a dealership involving Commander 114Bs, provided Goodman with Coastal's record, and the two planned a meeting in New York. Shortly after the phone call, Goodman sent Dorfman Commander's standard form dealership agreement ("Dealership Agreement") and the Commander dealer policy and procedures ("Procedures"), which contained the terms and conditions pursuant to which Commander would grant dealerships to sell 114Bs. See Pl. ex. 1. Subsection 1.1 of the Dealership Agreement requires that the prospective dealer satisfy the provisions of the Procedures, pay a non-refundable $100 dealership fee, and execute and deliver the Dealership Agreement to Commander before a contract would be formed. Section 14.1 of the Dealership Agreement provides that the term of the Dealership Agreement is for three years, and section 14.2 of the Dealership Agreement provides that either party may terminate the Dealership Agreement, without cause, at any time after the eighteenth month of the term upon 30-days notice.

As planned, on February 17, 1992, Goodman and Dorfman met for breakfast in Rye, New York. At that time, Dorfman indicated that Coastal was interested in dealership territories in New York, New Jersey, Pennsylvania, Georgia, Alabama and Florida. Later that day, Genovese met with Goodman. Both meetings focussed on territory, pricing, dealer profit margins and payment terms. See Tr. 112-115. The parties discussed a retail price of $169,500 for the base aircraft. Tr. 112. Dorfman expressed some concern over Commander's 15% dealer discount, Tr. 115, which was significantly lower than the 22.5% discount Coastal received on the sale of aircraft manufactured by Aerospatiale. As for territory, Goodman told Dorfman that Montana, North Carolina, California, Arizona, Texas, Kansas, Louisiana, Ohio, Massachusetts, Oregon and Florida were available. Tr. 114. Dorfman expressed interest in two territories: (1) New York, New Jersey and Pennsylvania and (2) Georgia, Alabama, Florida, Maryland and Virginia. Tr. 115-116. The parties agreed that ten aircraft per territory per year was a realistic sales target. Tr. 115-116.

On March 12, 1992, Morton, Genovese and Dorfman travelled to Commander's production facility in Bethany, Oklahoma to attend the "roll-out" of the 114B. See Tr. 122-127. During their visit, the three met with Commander's President, William Boettger ("Boettger") and Goodman to discuss terms of a possible agreement, with Coastal seeking higher profit margins than those that were discussed at the February 1992 meeting in Rye, New York. Tr. 38, 40, 125, 258. Coastal deemed it very important to convince Commander to increase the dealer discount margin beyond the 15% previously discussed with Dorfman. See Tr. 39, 125. Coastal introduced the idea of using deferred letters of credit ("LCs") to increase the effective dealer margin without increasing the 15% nominal margin stated in the Dealership Agreement. Tr. 40, 70, 125. As Genovese described, Coastal tried to "get a dollar value some other way that would equate to ... margin." Tr. 40. Deferred LCs provided the advantage of allowing Coastal to take delivery of an airplane as a floor model or a demonstration model to enhance marketing, while deferring payment obligations until some time after delivery. Tr. 88, 92-93, 118. Coastal had used this technique successfully with Aerospatiale, and hoped to repeat it with Commander. Tr. 91. Coastal had been able to squeeze additional...