Global Financial & Leasing Inc., Lo.Ty Atr Co., CV 10-1369-PK

• Decision Date: 28 April 2011
• Docket Number: CV 10-1369-PK
• Parties: GLOBAL FINANCIAL & LEASING INC., an Oregon corporation, Plaintiff, LO.TY ATR COMPANY, an Egyptian corporation, Defendant.
• Court: U.S. District Court — District of Oregon

GLOBAL FINANCIAL & LEASING INC., an Oregon corporation, Plaintiff,

LO.TY ATR COMPANY, an Egyptian corporation, Defendant.

CV 10-1369-PK

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

Dated: April 28, 2011

OPINION AND ORDER

PAPAK, Judge:

Plaintiff Global Financial and Leasing Inc. ("Global") originally filed this action in state court against defendant Lojy Air Company ("Lojy") arising from an agreement between the parties concerning a potential future purchase and lease of an aircraft. Global's complaint alleges a single claim for declaratory relief, asserting that Lojy materially breached the agreement, and prays for an order declaring that it is entitled to keep the $300,000 deposit it received from Lojyas liquidated damages for Lojy's breach. This court has original jurisdiction over Global's claim under 28 U.S.C. § 1332 and removal jurisdiction under 28 U.S.C. § 1446(b). Now before the court are two motions. The first is Lojy's motion for leave to file an amended answer (#16), including new affirmative defenses, counterclaims, and a third-party complaint against Global's president Richard Keith Ward ("Ward"). Also before the court is Lojy's motion for preliminary injunction (#8) pursuant to Fed. R. Civ. P. 65 seeking an order requiring Global to place the $300,000 deposit it received from Lojy into an interest-bearing escrow account. I have examined the parties' briefing and heard oral arguments in the matter. For the following reasons, Lojy's motion to amend is granted, and Lojy's motion for preliminary injunction is denied.

BACKGROUND

Plaintiff Global is an Oregon-based aviation finance company, while Lojy is an Egyptian aviation company, ¹ On January 25, 2010, Lojy's C.E.O. Galal Barakat and Global's president Keith Ward signed a "Letter of Intent" (hereinafter "LOT') which purported to "outline[] the basic terms and conditions upon which [Global] is willing to lease to [Lojy] one Airbus A320-200 aircraft,...." (Ward Decl., #15, Ex. 1 at 1.) Overall, the LOI envisions a potential transaction wherein Global would finance Lojy's acquisition of an aircraft.² Global wouldpurchase the aircraft from another entity and then lease it to Lojy, requiring Lojy to buy the plane at the end of the 10 year lease, but offering an option to purchase it sooner. Id. at 2, 5. To that end, the LOT describes some-but not.all-of the terms and conditions that would eventually comprise a "definitive lease-purchase agreement" between Global and Lojy. The LOI identifies a specific aircraft, "serial number 630," to be leased. Id, at 1 (Section 1). The LOI also provides somewhat vaguely that "[t]he Aircraft is subject to final inspection, appraisal and approval by [Global.]" Id. Significantly, the LOI does not specify how much financing Global would provide. Id, ("The amount to be financed is to be determined.")

Sometime before the parties signed the LOI, Lojy paid Global $300,000 as an "initial deposit." (Barakat Decl., #10, ¶3.) The LOI acknowledges Global's previous receipt of the $300,000 deposit. (Ward Deck, #15, Ex. 1 at 3). The LOI describes that the initial deposit will be "applied to offset the Security Deposit as set out under Section 9 below." Id. Section 9, in turn, envisions that Global would use the security deposit during the term of a lease-purchase agreement to cover any of Lojy's missed payments, with the remainder to be refunded back to Lojy at the end of the lease term. Id. at 3 (LOI Section 9),

If, however, the lease-purchase agreement is not consummated, the LOI discusses two potential dispositions of the "initial deposit" depending on the parties' conduct. The LOI provides:

In the event the Lease purchase agreement is not consummated at no fault of Lessor [Global], Lessee [LOJY] will pay all fees and expenses associated with the transaction, limited to the initial deposit. If the Lease purchase agreement is not consummated due to the fault of Lessor [Global], the initial deposit will be refunded to Lessee [LOJY].

Id. at 3 (LOI Section 7), Finally, in a separate section of the document, the LOI permits Globalto keep the entire "initial deposit as liquidated damages" in the event of "a breach of this agreement" by Lojy which "results in the termination of this agreement... "Id. at 17 (LOI Section 17). Global's declaratory relief claim, and some of Lojy's proposed counterclaims, seek judicial determination of the parties' rights to the $300,000 initial deposit.

After Global and Lojy signed the LOI, and Lojy identified an available Airbus A320-200 aircraft, Global retained AVITAS, Inc. to produce a "desktop valuation report," or appraisal, of the particular aircraft. (Suppl. Barakat Deck, #19, Ex. 2 at 3-40). AVITAS described its task as "to provide its opinion as to the Base Value, Current Market Value, Distress Value, and Orderly Liquidation Value" for the aircraft. Id. at 3. AVITAS opined that the Base Value, or the "underlying economic value of [the] aircraft in an open, unrestricted, stable market environment with a reasonable balance of supply and demand" was $18.8 million. Id. at 3, 5. The appraisal estimated the Current Market Value, or "the most likely trading price that may be generated for an aircraft under the market conditions that are perceived to exist at the time in question," as $16.9 million. Id. at 4, 5. The appraisal approximated the Orderly Liquidation Value ("OLV"), defined as "the same as the Market Value definition above except that OLV is net of all brokerage fees, storage costs and other liquidation fees," at $15.2 million.³Id. at 4,5. Finally, the appraisal listed the Distress Value, or "the price at which an aircraft could be sold under abnormal conditions, such as an artificially limited market timing period,... the seller being under duress to sell, an auction, a liquidation, commercial restrictions, legal complications or other such facts..." as $12.7 million. Id. at 4,5.

There is some indication that the appraisal did not take into consideration all the specific technical aspects of the particular aircraft Lojy sought to acquire. Although the appraisal acknowledged that Airbus A320 planes existed in various "marks" with differing engines, it did not appear to base its estimated values on the particular engines included on the serial number 630 aircraft. Id, at 19, 22 (generally using the A320-200 "family" of planes for its analysis). Thus, Emannuel Ballesteros, who described himself as Global's "representative" regarding its potential deal with Lojy, criticized the appraisal for failure to consider that the serial number 630 aircraft had a "-5b" engine which "gives more power than the-5A normally installed in a A320,..." (Suppl. Barakat Deck, #19, Ex. 3 at 2.) Ballesteros also faulted the appraisal for failing to consider that the serial number 630 aircraft was undergoing an inspection costing the current owner approximately $2 million. Id.

Even more than the potential deficiencies in the appraisal itself, Lojy objects to the way Global used the appraisal to determine the amount it would finance. There is some indication that the seller sought $17.5 million for the aircraft. (Suppl. Barakat Deck, #19, Ex. 3 at 2.) At the very least, it is clear that the proposed purchase price substantially exceeded the estimated orderly liquidation value of $15.2 million. (Ward Deck, #15, ¶ 3.) On February 22, 2010, Emmanuel Ballesteros wrote an email to Global encouraging it to offer to purchase the aircraft for $15.2 million, the orderly liquidation value. (Suppl. Barakat Deck, #19, Ex. 3 at 2.) Global apparently did not take Ballesteros' suggestion.⁴ Two days later, on February 24, 2010, Lojy's C.E.O. (Barakat) emailed Global's president (Ward) reporting that Lojy had decided to"terminate the LOI" and requested return of Lojy's security deposit. (Ward Dec!., #15, Ex. 5 at 1.) On March 22, 2010, Ward emailed Barakat confirming his offer to proceed with the purchase if Lojy provided a bank guarantee "to make up the difference in appraised value and selling price."⁵ (Ward Deck, #15, Ex. 2 at 1.) Ward also offered to consider financing a different aircraft with "a more realistic pricing structure." Id. Although Ward perceived that Lojy was amenable to obtaining a guarantee, an April 8, 2010 email from Ward to Barakat suggests that Lojy was unwilling to do so. (Ward Deck, #15, Ex. 3 at 1.) Barakat now disputes the propriety of Global's reliance on the orderly liquidation value to determine the limit of its financing, asserting that "the most common and 'standard' valuation method for determining the price of an aircraft in a commercial setting is market value or base value." (Suppl. Barakat Deck, #19, %2.)

On April 14 2010, Lojy still expressed an interest in financing a plane through Global, but asserted that Lojy would no longer participate in price negotiation and demanded that Global and Ballesteros locate and purchase a plane in no more than 10 days, or else Lojy would terminate the LOI and require refund of its deposit. This demand seemingly reversed the roles of the parties under the LOI, which Lojy admits required it to "research, identify, and present Global with Airbus aircraft purchase opportunities...."⁶ (D.'s Br., #9, at 6.) The next day, Global rejected Lojy's proposal and time-frame and reasserted that the LOI was still in effect. (Ward Deck, #15, Ex. 4 at 2-3.) On April 15 and 16, 2010, Barakat and Ward exchanged emails in which Barakat objected to the appraisal methodology and Ward asserted that Lojy's demands constituted abreach of the LOI. (Ward Dec!., #15, Ex. 4 at 1-2.) On April 18, 2010, even before Lojy's ten day time-frame had expired, Barakat requested refund of the initial deposit. (Ward Deck, #15, Ex. 4 at 1.) Ward responded that Barakat's request for a refund was "referred to legal counsel for processing." (Ward Deck, #15, Ex. 6 at 2.) On April 19, 2010, Barakat wrote Ward to clarify that although Lojy requested a refund of the deposit, (he LOI was still...