Harley-Davidson Credit Corp. v. Galvin

• Decision Date: 08 December 2015
• Docket Number: No. 15–1157.,15–1157.
• Citation: 807 F.3d 407
• Parties: HARLEY–DAVIDSON CREDIT CORP., Plaintiff, Appellee, v. Mark B. GALVIN, Defendant, Appellant, Rasair, LLC, Defendant.
• Court: U.S. Court of Appeals — First Circuit

807 F.3d 407

HARLEY–DAVIDSON CREDIT CORP., Plaintiff, Appellee,

v. Mark B. GALVIN, Defendant, Appellant,Rasair, LLC, Defendant.

No. 15–1157.

United States Court of Appeals, First Circuit.

Dec. 8, 2015.

Timothy Chevalier, with whom McCandless & Nicholson, PLLC, was on brief, for appellant.

Mark W. Thompson, with whom Wong Fleming was on brief, for appellee.

Before HOWARD, Chief Judge, LYNCH and KAYATTA, Circuit Judges.

LYNCH, Circuit Judge.

Under the terms of a security agreement assigned to it, Harley–Davidson Credit Corp. ("Harley–Davidson") seeks to collect $108,681.50 from Mark B. Galvin. Galvin is the guarantor of a defaulted promissory note on a loan secured by an interest in a Cessna 421C aircraft ("the Aircraft"). The suit is for the deficiency balance that remained due after Harley–Davidson repossessed and sold the Aircraft through a third-party dealer for $155,000.00.

Galvin disputes the extent of his liability on the grounds that Harley–Davidson's disposition of the Aircraft was not "commercially reasonable," a requirement set forth in the security agreement and Nevada commercial law, which the parties had selected to govern their contract.

On a motion for summary judgment, the district court held that there was no dispute of material fact that the sale was "commercially reasonable" and entered partial summary judgment in favor of Harley–Davidson, denying only its request for attorney's fees. Galvin filed a motion for reconsideration, which was denied. The court later granted a separate motion by Harley–Davidson for attorney's fees. Galvin appeals from the entry of summary judgment and the denial of his motion to reconsider. We agree with Galvin that a genuine dispute of material fact exists as to whether the sale was "commercially reasonable." We reverse and remand.

I.

On review of summary judgment, we recite the facts in the light most favorable to the non-moving party and "draw all reasonable inferences in his favor." Ray v. Ropes & Gray LLP, 799 F.3d 99, 104 (1st Cir.2015). In April 2008, Eaglemark Savings Bank ("Eaglemark") loaned RASair, a New Hampshire LLC that managed and operated private aircrafts, $250,000 for the purchase of a Cessna 421C Aircraft, in exchange for an "Aircraft Secured Promissory Note" ("the Note") for the full amount of the loan and an "Aircraft Security Agreement" ("the Agreement") giving Eaglemark a first priority interest in the Aircraft. Mark Galvin, a pilot and the owner of RASair, personally guaranteed payment of the loan. Eaglemark assigned the Note and the Agreement (together "the Loan Documents") to Harley–Davidson.

More than two years later, in August 2010, RASair defaulted on the Note. Exercising its right under the Loan Documents to sell the Aircraft in order to reduce the balance owed, Harley–Davidson arranged for Specialty Aircraft Services, Inc. ("Specialty"), a dealer specializing in the sale of repossessed aircraft, to help. William O'Brien communicated with Galvin on behalf of Specialty.

On August 24, 2010, O'Brien wrote in an email responding to Galvin's question about a potential sale price that, "[d]epending on the actual paint and boot condition, we will advertise around 225–230 [thousand]/Expect 180–200 [thousand] within 90 days." In that email, O'Brien then asked Galvin about the Aircraft's annual inspection. Galvin responded that the plane would need a "fresh" inspection, elaborated on the Aircraft's condition, and stated, "[e]verything else good."

Despite Specialty's request, Galvin did not deliver the plane to Specialty in 2010. In January 2011, Galvin emailed O'Brien to tell him that a mechanic had identified damage to the plane's rudder caused by exposure to "heavy winds," which had rendered the Aircraft unmovable. In March 2011, Galvin emailed Mark Strassel, Director of Operations, Aircraft, at Harley–Davidson, and explained that, in coordinating the rudder's repairs, Galvin had looked into having a Cessna dealership, Maine Aviation, assume responsibility for the sale to see if it "made a better situation," but that "[he didn't] see any advantage to them as a broker over your guy in Florida," referring to O'Brien. On September 6, 2011, Harley–Davidson repossessed the Aircraft and moved it to Florida and into Specialty's custody.

On September 7, 2011, Strassel informed Galvin that one of the plane's logbooks was missing. Galvin testified that he immediately "sent it overnight via UPS, insured for $5,000., [sic] directly to Mr. O'Brien per instructions received from Mr. Strassel." The parties agree that a missing logbook would decrease the plane's value.

Galvin testified that when he called Specialty on behalf of a potential buyer on November 4, 2011, he learned that while in Specialty's possession, the Aircraft had been vandalized and equipment from its audio panel taken. Galvin also testified that when he then tried to locate advertising materials related to the Aircraft on Specialty's website and "Controller," a prominent aircraft sales website where aircraft are listed for sale, he found none. Galvin emailed O'Brien, who responded that Specialty was "looking for bids on the aircraft," but that the plane needed "some exh[aust] work, the autopilot is inop[erable] and the pressurization is only 3.0 differential." O'Brien instructed Galvin to have the buyer call him and said the plane was in fact listed on Controller. Galvin testified that after his communications with Specialty and O'Brien, he "dropped the potential buyer."

On November 30, 2011, Harley–Davidson executed a purchase agreement for the plane with an individual buyer for $155,000. According to the purchase agreement, the Aircraft was sold in an "as is" condition, and the buyer waived any warranty with respect to the plane's "airworthiness." In the agreement, Harley–Davidson promised to replace the missing avionics components, "a Garmin 530, Garmin 340 and Garmin 327," no later than December 5, 2011. An invoice for the avionics as well as additional repairs is dated December 9, 2011, the same as the purchase agreement's stated closing date. Following the sale, Harley–Davidson calculated the outstanding debt, deducted the costs of repairs to the audio panel, and sent Galvin a letter requesting $108,681.50.¹ Galvin did not pay.

II.

On October 5, 2012, Harley–Davidson filed a breach of contract action against Galvin and RASair to collect the $108,681.50 deficiency in New Hampshire district court, pursuant to 28 U.S.C. § 1332(a) diversity jurisdiction.

The district court entered default judgment against RASair on March 12, 2013. On June 5, 2013, Harley–Davidson moved for summary judgment against Galvin, Fed.R.Civ.P. 56, which the court denied without prejudice. On May 23, 2014, after further discovery, Harley–Davidson renewed its motion for summary judgment. Galvin opposed the motion on the grounds that Harley–Davidson failed to comply with the Loan Documents and a provision of the Nevada Commercial Code, Nev.Rev.Stat. Ann. § 104.9610, requiring disposition of collateral after a debtor's default to be "commercially reasonable."²

Under Nevada commercial law, which follows the Uniform Commercial Code ("UCC"), one method of demonstrating that a disposition was "commercially reasonable" is to show that the disposition was conducted "in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition." Nev.Rev.Stat. Ann. § 104.9627(2)(c) ; see U.C.C. § 9–627 (2000).

On September 4, 2014, the district court granted partial summary judgment for Harley–Davidson, finding that Galvin had not raised a genuine issue of material fact as to the commercial reasonableness of the sale. Stating that "selling repossessed collateral through a dealer, if such sale is ‘fairly conducted, is recognized as commercially reasonable,’ " Harley–Davidson Credit Corp. v. Galvin, No. 12–cv–374, 2014 WL 4384632, at *3 (D.N.H. Sept. 4, 2014) (quoting Jones v. Bank of Nev., 91 Nev. 368, 535 P.2d 1279, 1282 (1975) ), the district court credited that Harley–Davidson had employed a recognized dealer of repossessed aircraft. Although not expressly stating so, the district court appears to have relied on that finding in determining that Harley–Davidson satisfied its initial burden at summary judgment to show commercial reasonableness, such that the district court, citing Colonial Pac. Leasing Corp. v. N & N Partners, LLC, 981 F.Supp.2d 1345, 1349–50 n. 1 (N.D.Ga.2013), shifted the burden of proof to Galvin to raise a genuine issue of material fact. The district court rejected Galvin's arguments, inter alia, that Specialty's response to the vandalism of the Aircraft led to a diminished sales price and was commercially unreasonable. The district court held that, "Galvin has raised no genuine issues of material fact concerning the commercial reasonableness of the disposition of the Aircraft." Harley–Davidson Credit Corp., 2014 WL 4384632, at *7. Galvin filed a motion for reconsideration, which was denied on December 15, 2014. This appeal followed.

III.

We review entry of summary judgment de novo, Ray, 799 F.3d at 112, and denial of a motion for reconsideration for abuse of discretion, Biltcliffe v. CitiMortgage, Inc., 772 F.3d 925, 930 (1st Cir.2014).

We hold that the district court's analysis of Harley–Davidson's motion for summary judgment prematurely shifted the burden of proof onto Galvin. Evaluating the record under the correct standard, we find that a genuine dispute of material fact exists regarding whether Specialty's handling of the damage to the Aircraft caused by the vandalism that occurred while in its custody rendered Harley Davidson's disposition of the Aircraft commercially unreasonable. For the reasons explained below, we reverse the district court's judgment and remand.

A. Burden of Proof

Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56. When ...