Whitney Nat. Bank v. Air Ambulance by B & C, Civil Action No. H-04-2220.

• Decision Date: 01 May 2007
• Docket Number: Civil Action No. H-04-2220.
• Citation: 516 F.Supp.2d 802
• Parties: WHITNEY NATIONAL BANK, Plaintiff, v. AIR AMBULANCE BY B & C FLIGHT MANAGEMENT, INC.; B & C Flight Mgmt, Inc.; and Roy G. Horridge, Defendants.
• Court: U.S. District Court — Southern District of Texas

516 F.Supp.2d 802

WHITNEY NATIONAL BANK, Plaintiff, v. AIR AMBULANCE BY B & C FLIGHT MANAGEMENT, INC.; B & C Flight Mgmt, Inc.; and Roy G. Horridge, Defendants.

Civil Action No. H-04-2220.

United States District Court, S.D. Texas, Houston Division.

May 1, 2007.

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Teresa Letson Schneider, Yasmin Islam Atasi, Demetra L. Liggins, Winstead Sechrest et al., Houston, TX, for Plaintiff.

Joe W. Redden, Jr., Beck Redden & Secrest, Stephen A. Mendel, The Mendel Law Firm, L.P., Frederick Thomas Dietrich, The Dietrich Law Firm, John Kevin Raley, Houston, TX, for Defendants.

MEMORANDUM AND OPINION

ROSENTHAL, District Judge.

This memorandum and opinion addresses Whitney Bank's motion for partial summary judgment for the deficiency remaining on the unpaid loan, (Docket Entry No. 136). Horridge has raised the affirmative defense that Whitney Bank's disposition of the aircraft securing the loans wail not commercially reasonable. (Docket Entry No. 136). Horridge has responded to the motion for partial summary judgment. (Docket Entry No. 154). In a related motion, Whitney Bank seeks to exclude the testimony of expert witnesses Horridge designated on the issue of whether the sale of the aircraft was commercially reasonable. (Docket Entry No. 139). Horridge has responded, asserting that the record raises disputed fact issues material to determining whether the collateral was sold in a commercially reasonable manner. (Docket Entry No. 153).

Based on careful consideration of the pleadings, the motions and responses, the parties' submissions, and the applicable law, this court grants Whitney Bank's motion for partial summary judgment as to the deficiency claim and the motion to exclude Horridge's expert witnesses. (Docket Entry Nos. 136, 139). The reasons for the rulings are explained below.

I. Background

Most of the pertinent facts were set out in the earlier memorandum and opinion and are not repeated here except to put the motions relating to the deficiency and the commercial reasonableness of the sale into context. Briefly, Whitney Bank made several loans to Air Ambulance, secured by aircraft owned by B & C Flight Management as well as by Horridge's personal guaranty. (Docket Entry No. B-5 to 10). The aircraft subject to the Security Agreements were two Cessnas and six Lear Jets. (Docket Entry No. 136, Ex. C at 107-09; Ex. K-1).¹ As of April 2004, Air Ambulance's outstanding indebtedness to Whitney Bank exceeded $4.5 million. Air Ambulance also had outstanding loans with Bank One secured by other aircraft. (Id., Ex. C at 107-108; Ex. K-1).

The FAA requires that each airplane have an FAA-issued airworthiness certificate. An aircraft owner is required to keep accurate records of the hours the aircraft flies ("times" or "hours") and, for Lear Jets, when they take off and raise the landing gear and land and lower the landing gear ("cycles"). For Lear Jets, a record of "cycles" must be kept for the aircraft and the engines. This information in turn determines what inspections and maintenance are required, as well as the length of service of certain parts. (Docket Entry No. 136, Ex. C at 120-121; Docket Entry No. 136, Ex. D at 83-84, 123-124).

In April 2004, Horridge asked Whitney Bank to loan Air Ambulance an additional $1 million and to refinance the existing loans. Horridge did not tell Whitney Bank about the FAA investigation. (Docket Entry No. 136, Ex. C. at 213-14). On May 3, 2004, the FAA sent Horridge a letter identifying "serious deficiencies" in the maintenance of the Lear Jets and demanding that the aircraft be reexamined to evaluate their airworthiness. (Id., Ex. K-3). On May 7, 2004, Whitney Bank made an additional $1 million loan to Air Ambulance and renewed and extended the existing debt, secured in part by six Lear Jets and two Cessna. (Docket Entry No. 136, Exs. B-1 to B-9; Id., Ex. K-1).² The Commercial Note was in the amount of $5,685,597.00. The warranties and representations in each of the earlier aircraft Security Agreements were reaffirmed in the Ratification of Previously Executed Security Agreements. (Docket Entry No. 136, Ex. B-4). The Security Agreements specifically stated that B & C Flight Management would keep the aircraft in "such condition as may be necessary to enable the airworthiness certification of the Collateral to be maintained in good standing at all times." (Id., Exs. B-5 to 8-9). The Security Agreements specifically represented the condition of the planes and their engines, maintenance, and airworthiness. (Id.). The Security Agreements defined a condition of default to include any failure to perform any agreement made to the Secured Party. (Id.).

On May 20, 2004, the FAA issued an emergency order suspending the airworthiness certificates for Air Ambulance's eight Lear Jets. (Docket Entry No. 136, Ex. K-9). The FAA found numerous critical problems in the flight and maintenance records for each of the eight Lear Jets, stating that the times and cycles shown in the B & C Flight Management records were "not correct because they were fabricated by B & C or were derived from data taken from fabricated B & C documents." (Id. at Counts I-VIII). The FAA determined that "the company has not been recording all of the flight time for any of the aircraft, and it has systematically reduced the numbers of hours and cycles on them, resulting in required maintenance and inspections being significantly delayed or omitted and the aircraft being unairworthy. The true total time and cycles, which trigger maintenance actions for these aircraft, are unknown. Therefore, this action is taken to suspend the airworthiness certificates of the aircraft ... until such time as the FAA can determine that they have been returned to conformity with their type certificates." (Id., Determination of Emergency). On June 2, 2004, the FAA issued an emergency order revoking B & C Flight Management's Air Carrier Certificate based on "consistent findings of deceptive, false record keeping." (Id., Ex. K-10). The FAA found that B & C Flight Management had "made, or caused to be made, entries in the maintenance records of all the Learjet aircraft on its operations specifications ... [that] were false and designed to mislead. ... These false statements include, but are not limited to, reduced numbers of hours on the aircraft, reduced numbers of cycles on the aircraft, statements that required inspections had been accomplished when they hadn't been, and entries reciting the accomplishment of Airworthiness Directives (ADs) that had not been done." (Id., Determination of Emergency). The FAA found that B & C Flight Management had operated aircraft without "complying with required maintenance inspections, without complying with applicable airworthiness directives, and without replacing life limited parts in a timely manner B & C operated the aircraft when they were not in an airworthy condition. ... The entries were false and designed to mislead the FAA.... B & C operated these aircraft with management's full knowledge of these type falsifications and in complete disregard of the danger these unairworthy aircraft presented to the public and the crews that operated them." (Id., Ex. K-10). Air Ambulance was unable to operate without the airworthiness certificates for its planes and without the air carrier certificate for B & C Flight Management.³

On June 2, 2004, Whitney Bank notified Air Ambulance of its default under the loan agreement based on the FAA actions. On June 4, 2004, Whitney Bank accelerated the May 7, 2004 Commercial Note. (Docket Entry No. 136, Exs. B"10, B-11). On June 7, 2004, Whitney Bank filed this suit against Air Ambulance, B & C Flight Management, and Horridge, seeking a temporary restraining order to prevent Horridge from transferring or damaging the aircraft that served as collateral for the loan. (Docket Entry No. 1).⁴ This court entered a temporary restraining order sequestering the aircraft. (Docket Entry Nos. 3, 4). On June 24, 2004, this court entered an agreed preliminary injunction preventing Horridge from transferring or damaging the aircraft and transferring possession to Whitney Bank. (Docket Entry No. 15). On July 15, 2004, Whitney Bank sought and obtained another temporary restraining order prohibiting Horridge, Air Ambulance, and B & C Management from transferring any assets. Whitney Bank based its application for this expanded temporary restraining order on evidence that it had discovered new information about Horridge's past and present asset transfers, bankruptcy filings, and other litigation, which Whitney Bank claimed were fraudulent. (Docket Entry No. 18). That temporary restraining order was extended on an agreed basis on July 22, 2004. (Docket Entry No. 27).

On June 17, 2004, B & C Flight Management reached a Settlement Agreement with the FAA. The FAA withdrew the order suspending the airworthiness certificates for the eight Lear Jets but "retained custody" of the certificates; the planes could not be flown. Under the agreement, B & C Flight Management was to make a proposal to revise the records of takeoffs, landings, and hours in flight for each aircraft, to bring the records into compliance with the FAA regulations. The FAA would then decide whether to approve the proposal for revising the records for each aircraft including approval of the method to be used. If the FAA issued the approval, and if the plane had the additional necessary maintenance work performed, and if that plane then passed FAA inspection, the airworthiness certificate for that plane would be returned. (Docket Entry No. 136, Ex. K-14). Pending this work, the FAA did not return the airworthiness certificates to B & C Flight Management. As a result, the planes were not commercially operable. The FAA also insisted that Horridge could not be involved in operating B & C Flight Management or in "any related activity." (Id., ¶ 14).

The Settlement Agreement was...