Embraer S.A. v. Dougherty Air Tr., LLC, 17 Civ. 850 (PAC)

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtPAUL A. CROTTY, United States District Judge
Citation348 F.Supp.3d 246
Parties EMBRAER S.A., Plaintiff, v. DOUGHERTY AIR TRUSTEE, LLC, Defendant.
Docket Number17 Civ. 850 (PAC)
Decision Date12 December 2018

348 F.Supp.3d 246

EMBRAER S.A., Plaintiff,

17 Civ. 850 (PAC)

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

Signed December 12, 2018

348 F.Supp.3d 249

James Tampellini, Michael Isidoro Verde, Tenley Mochizuki, Katten Muchin Rosenman,LLP, New York, NY, for Plaintiff.

Patrick J. Rooney, Andrew T. James, Fafinski Mark & Johnson, P.A., Eden Prarie, MN, Adam Morrow Rafsky, Farrell Fritz, P.C., Uniondale, NY, Matthew David Donovan, Farrell Fritz, P.C., New York, NY, for Defendant.


PAUL A. CROTTY, United States District Judge

The action concerns an aircraft lease which guaranteed the aircraft's minimum market value, the Residual Value Guarantee ("RVG"), at the end of lease term, subject to certain conditions. Plaintiff Embraer S.A. ("Embraer") entered into the lease with a party whose rights in the agreement were subsequently transferred to Defendant, Dougherty Air Trustee, LLC ("Dougherty"). Complaint, Verde Ex.1 ("Compl.") at ¶¶ 10-14; Answer, Verde Ex. 2 ("Answer") at ¶¶ 10-14. The RVG required Dougherty to maintain its leasing agreement for the aircraft with Shuttle America Corporation ("Shuttle") or, if that lease terminated, to find a new lessee (the "Replacement Lessee") and enter into a new lease (the "Replacement Lease") that satisfied certain conditions by the RVG's expiration date. Compl. at ¶¶ 19-20; Answer at ¶¶ 19-20. Shuttle subsequently filed for bankruptcy and its lease with Dougherty was rejected. Compl. at ¶¶ 15-18; Answer at ¶¶ 15-18. Dougherty then purported to enter into a lease with Coleman Jet, LLC ("Coleman"). Compl. at ¶ 21; Answer at ¶ 21. The parties dispute whether the Coleman lease met the conditions necessary to revive the RVG and whether Dougherty is now entitled to payment.

348 F.Supp.3d 250

In February 2018, Embraer filed this declaratory judgment action seeking declarations that: (1) Coleman is not a Replacement Lessee; (2) the lease entered into with Coleman is not a Replacement Lease; (3) the RVG terminated automatically and was not revived under the relevant contract provision; and (4) Plaintiff is not obligated to make any residual value payment. Compl. at ¶ 11. Dougherty raised affirmative defenses and counterclaimed for (1) breach of contract for Embraer's refusal to pay the RVG and (2) breach of the implied covenant of good faith and fair dealing resulting from Embraer's alleged interference with the aircraft maintenance work. Answer at ¶¶ 28-32.

Embraer now moves for summary judgment granting the requested declaratory relief and dismissing Dougherty's counterclaims with prejudice. Dkt. No. 46. For the reasons that follow, Plaintiff's motion for summary judgment is GRANTED and Defendant's counterclaims are DISMISSED with prejudice.


This dispute centers around the sale and lease of a commercial jet aircraft EMB-145LR, manufactured by Embraer, bearing Registration Number N266SK and manufacturer serial number 145241, and two (2) Rolls-Royce Corporation AE 3007 AIP aircraft engines bearing serial numbers CAE 311373 and 311374 (collectively, the "Aircraft"). Compl. at ¶ 10; Answer at ¶ 10. Embraer sold the newly manufactured Aircraft to Solitair Corp. which, on May 18, 2000, sold it to Wells Fargo Bank North, National Association.1 Compl. at ¶ 10; Answer at ¶ 10. Subsequently, the Aircraft was leased to Shuttle America Corporation ("Shuttle")2 under a leasing agreement dated May 18, 2000 (the "Shuttle Lease"). Verde Ex. 4. The lease had a 16.5-year term with an expiration date of November 18, 2016 (the "Expiration Date"), although the lease could be extended for up to two years provided certain conditions were met. Id. at § 8.6.


On the same day the parties entered into the Shuttle Lease, Embraer, Shuttle and Prior Owner Participant also executed Residual Value Guarantee DCT-016/00 (the "RVG Contract"). Verde Ex. 3. Under the RVG Contract, Embraer guarantees that the Aircraft's market value will amount to at least $5,204,724.00 (the "Lease Support RVG Level") by the lease's "Expiration Date." Id. If the Aircraft fails to meet this value, Embraer agrees to pay Prior Owner Participant the "Asset Value Deficiency," defined as the difference between the "Lease Support RVG Level," and the Aircraft's actual "Current Market Value" at the end of the lease term (the "RVG"). If the parties disagree about the value of the Aircraft at the end of the term, the RVG Contract calls for obtaining an appraisal and reaching agreement on the Aircraft's Current Market Value, defined as "an amount determined to be equal to the sales value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy." Id. at §§ 1, 5.

The RVG Contract also provides for certain "Termination Event[s]" which automatically

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terminate Embraer's obligations to pay the RVG. Id at § 3. One event is the termination of the Shuttle Lease prior to the Expiration Date, Id. at § 3.3(d). But even after a Termination Event, Prior Owner Participant's lights to the RVG can be revived under Section 3.2 which provides:

(b) If this RVG has terminated pursuant to this Section 3.2, this RVG shall again automatically come into full force and effect provided that Owner Participant, or Owner Participant's designated owner trustee, enters into a replacement lease on substantially the same maintenance, assignment, and return terms and conditions as the Qualifying Lease (such lessee the "Replacement Lessee" and such lease the "Replacement Lease"). The Replacement Lessee under the Replacement Lease shall assume the obligations of Chautauqua under this RVG as if the Replacement Lease were the Qualifying Lease and as if the Replacement Lessee were Chautauqua. For the avoidance of doubt, the parties acknowledge that ... the Expiration Date shall remain unchanged irrespective of such replacement ...

(c) Owner Participant may lease the Aircraft only to an entity that (1) possesses a valid public transport certificate; (2) is authorized by all applicable laws, rules, and regulations to operate the Aircraft; (3) at the time the replacement lease begins, is generally able to pays its debts as they come due and is not subject to any voluntary or involuntary bankruptcy, insolvency, or similar proceedings; and (4) has a maintenance program consistent with the MRB EMB-145LR.


Beyond the requirement to maintain a lease, Section 4 of the RVG Contract also sets forth "Conditions to Payment" which must be satisfied "on the Expiration Date" or "as such date may be extended provided herein" before any claim to the RVG can be made. Id. Among these, Section 4(b) requires satisfaction with "the valuation conditions set forth in Exhibit A." Id. Exhibit A, in turn, contains "Aircraft Required Conditions" which include:

(b) Configuration - The Aircraft shall be in the same passenger configuration with all equipment installed therein as the Aircraft was when delivered by Embraer, ordinary wear and tear excepted, including replacements and substitute parts and equipment ...

(c) Certification – The Aircraft shall have, a valid and effective Certificate of Airworthiness of the type "Transport, Category (Passengers)" issued by the FAA, and shall be in full compliance with, and capable of registration under, the provisions of Part 121 of the U.S. Federal Aviation Regulations (or any successor legislation) and other US regulations applicable to the Aircraft's operation and continued airworthiness, without any restrictions corrections, repairs, limitations, modifications or alterations or overhauls having to be performed to meet such standards

Id. at A-1 - A-2. Exhibit A also requires the Aircraft to "have completed, within 100 flight hours of return, the next sequential ‘C check," id. at A-6, understood in the industry as a "complete overhaul of the aircraft." Deposition of Alan Weingart Verde Ex. 17 ("Weingart Dep.") at 28.

In the event that "on the Expiration Date the Aircraft is not in full compliance with the valuation and return requirements

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set forth in Section 4(b)," the RVG also provides for cure:

(i) within thirty (30) days [ ] or such longer period as permitted pursuant to this item i following the Expiration Date, Chautauqua shall restore the Aircraft or Owner Participant shall cause the Aircraft to be restored to the Required Conditions; provided that if Owner Participant is not able to cause the Aircraft to be so restored within thirty (30) days despite having diligently attempted to do so and Owner Participant promptly notifies EMBRAER of such inability, the thirty (30) day period shall be extended for so long as necessary to complete such restoration for up to a maximum of one hundred and fifty (150) additional days ... this period shall be further extended for up to a maximum of one hundred and eighty (180) additional days to the extent required due to unavailability of parts from Embraer.

Id. at 10, § 5(d)(1) (emphasis in original).

On or about April 18, 2006, Prior Owner Participant transferred its rights, title and interest in and...

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1 practice notes
  • Alexsam, Inc. v. Mastercard Int'l Inc., 15- CV-2799 (ILG) (SMG)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • June 17, 2020
    ..."when a party has succeeded in maintaining a contrary legal position in another case."); Embraer S.A. v. Dougherty Air Tr., LLC, 348 F. Supp. 3d 246, 257 (S.D.N.Y. 2018) (noting that the "legal/factual position distinction" in judicial estoppel is "adopted by some courts" but is not "settle......
1 cases
  • Alexsam, Inc. v. Mastercard Int'l Inc., 15- CV-2799 (ILG) (SMG)
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • June 17, 2020
    ..."when a party has succeeded in maintaining a contrary legal position in another case."); Embraer S.A. v. Dougherty Air Tr., LLC, 348 F. Supp. 3d 246, 257 (S.D.N.Y. 2018) (noting that the "legal/factual position distinction" in judicial estoppel is "adopted by some courts" but is not "settle......

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