Aeros Aeronautical Systems Corp v. United States of America et al

Filing 245

FINDINGS OF FACT AND CONCLUSIONS OF LAW signed by Magistrate Judge Patrick J. Walsh. Aeros is not entitled to any damages. The Court concludes that Aeros is entitled to $6,882,918 for the loss of the aircraft and the consequential damages that flowed from the loss. SEE ORDER. (im)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 13 14 15 AEROS AERONAUTICAL SYSTEMS CORP., ) CASE NO. CV 15-1712-PJW ) Plaintiff, ) FINDINGS OF FACT AND ) CONCLUSIONS OF LAW v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) ) _________________________________ ) 16 I. 17 INTRODUCTION 18 This is a Federal Tort Claims Act (“FTCA”) case in which 19 Plaintiff Aeros Aeronautical Systems Corporation is suing the United 20 States for damages for the loss of a unique, blimp-like aircraft known 21 as the RAVB (pictured below). 22 government hangar in Tustin, California, when the roof collapsed. 23 Court has already determined that the government was negligent in 24 maintaining the hangar and is, therefore, liable for the loss. 25 issue that remains is damages. 26 state-of-the-art, one-of-a-kind airship and seeks damages in the 27 amount of $65 million dollars. 28 aircraft was worthless at the time of the roof collapse and that, as a Aeros was housing the RAVB in a The The Plaintiff claims that the RAVB was a The government contends that the 1 result, Aeros is not entitled to any damages. For the reasons set 2 forth below, the Court concludes that Aeros is entitled to $6,882,918 3 for the loss of the aircraft and the consequential damages that flowed 4 from the loss. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 A picture of the RAVB during flight testing in August 2013. 21 22 II. 23 FINDINGS OF FACT 24 1. Plaintiff Aeros is incorporated under the laws of the state 25 of California and has its principal place of business in Montebello, 26 California. 27 28 2. Defendant is the United States government, acting through the Department of the Navy and its employees, officers, and agents. 2 1 Development of the RAVB 2 3. In 2008, the government sought to determine the feasability 3 of a rigid-aeroshell, variable-buoyancy aircraft to carry troops and 4 equipment around the world. 5 was to design, construct, and test Aeros’s proprietary Control of 6 Static Heaviness or “COSH” system. 7 allows a heavier-than-air aircraft, similar to a blimp, to become 8 buoyant by releasing compressed helium (stored in canisters inside the 9 aircraft) into bladders inside the aircraft until the aircraft becomes Exh. 565 at 1-2. The goal of the project Exh. 565 at 4. The COSH system 10 buoyant. 11 and descend to the landing site by compressing a sufficient amount of 12 helium to make the aircraft heavier than air. 13 and/or equipment, the crew can then release the helium back into the 14 aircraft, causing it to become lighter than air again, allowing it to 15 be flown away. 16 4. The aircraft can then be flown to the intended destination After unloading people Reporter’s Transcript (“RT”) 4/11/17 a.m. at 39:8-21.1 In 2008, the government and Aeros began negotiations for the 17 development of an aircraft to test the COSH system. 18 at 43:10-44:20, 132:14-23. 19 having Aeros develop a working prototype. 20 in having Aeros build a demonstrator model so that the COSH system 21 could be tested inside a hangar to see if it would work. 22 contract did not require nor did it contemplate that the RAVB would be 23 flown outside the hangar.2 RT 4/11/17 a.m. The government was not interested in It was, instead, interested The proposed RT 4/14/17 a.m. at 14:12-16. 24 1 25 The trial transcript begins at page one for each session of each day of trial, i.e., April 12, 2017 a.m. and April 12, 2017 p.m. 26 27 28 2 At some point, Aeros decided that it would design and construct the RAVB to actually fly outside the hangar and use it as a springboard for its anticipated commercial development of a larger 3 1 5. NASA was selected as the contracting agency for the 2 government. 3 and project assistance to Aeros as well as contract management. 4 4/14/17 a.m. at 6:2-4. 5 6. Exh. 565 at 1. It was tasked with providing technical During negotiations, Aeros offered to perform the contract 6 for $50.9 million. 7 Stipulated Facts (Doc. No. 195-1) (“JSF”) ¶ 2. 8 offer. 9 7. RT RT 4/12/17 p.m. at 67:25-68:24; Exh. 548; Joint NASA rejected this JSF ¶ 3. Through a series of negotiations, Aeros and the government 10 ultimately agreed to a firm, fixed-price contract of $38.2 million 11 dollars to build and test the RAVB. 12 evidence established that during the negotiations the government and 13 Aeros recognized that it would cost Aeros slightly more than $43 14 million to build the RAVB and perform the tests anticipated under the 15 contract, about $5 million more than the government was willing to 16 pay. 17 shortfall was premised on Aeros performing the contract for the 18 estimated price. 19 contract, Aeros would have to absorb those costs. 20 provided, however, that the government was limited in how it could use 21 the data developed by Aeros and, importantly, that Aeros could keep 22 the RAVB at the end of the contract. 23 12:10-18; RT 4/12/17 p.m. at 70:12-15; Exh. 38 at 7. 24 25 RT 4/12/17 p.m. at 70:12-71:24. 8. The Further, that $5 million Were the costs to exceed the estimates, under the The contract also RT 4/14/17 a.m. at 16:6-20, Over the next four years, there were a total of 39 modifications to the contract for various changes and additional 26 27 28 RT 4/12/17 p.m. at 72:3-25. RAVB. 4 1 testing. 2 to $54.5 million. 3 4 5 9. Exh. 575; JSF ¶ 1. Ultimately, the contract price swelled Aeros leased a hangar from the Navy at the former Marine Corps Air Station in Tustin, California to construct the RAVB. 10. Aeros developed and built the RAVB using a rapid prototyping 6 process called “Iterative – Prototyping Development.” This was not 7 the way the government normally developed aircraft. 8 government would come up with engineering requirements, create a 9 design, analyze the feasibility of such an aircraft, and build a Typically, the 10 prototype to verify and validate the design. 11 5:6-17, 17:11-20; Exh. 155 at 24. 12 was accomplished through trial and error. 13 observed, Aeros’s philosophy was to build and test, and, if it failed, 14 to redesign, rebuild, and retest. 15 trial and error process resulted in considerable inefficiencies. 16 example, Aeros used several different materials for the skin of the 17 RAVB, trying one, abandoning it, and then trying another. 18 p.m. at 13:15–14:14. 19 11. RT 4/14/17 p.m. at The build-out of the RAVB, however, As one NASA engineer RT 4/14/17 p.m. at 15:6-13. This For RT 4/14/17 Because the RAVB was a demonstrator model, not a 20 production-line aircraft, Aeros did not have in place policies and 21 procedures necessary to develop any of the specialized engineering 22 plans or drawings which would allow for the recreation of the RAVB. 23 RT 4/11/17 a.m. at 70:16-18. 24 instructions were created for the RAVB. 25 70:21-71:7, 106:15-20, 108:8-10, 108:16-109:4. 26 conceptual designs for the RAVB but the adjustments made during the 27 actual construction, such as altering the placement or type of a bolt In fact, no production drawings or work 28 5 RT 4/11/17 a.m. at Aeros possessed 1 used, were not marked in production drawings because no such drawings 2 were made. 3 12. RT 4/11/17 a.m. at 72:2-4, 108:8-109:4. The RAVB was built by hand. RT 4/11/17 a.m. at 54:5-8. 4 had a three-dimensional frame composed of trusses. 5 made of aluminum and carbon or carbon with aluminum ends. 6 a.m. at 53:16-23. 7 of cards” from the bottom up. 8 9 13. It The trusses were RT 4/11/17 Aeros built the internal frame system like a “house RT 4/11/17 a.m. at 54:1-8. Aeros did document changes to the conceptual design learned from the in-process testing and construction it carried out on what it 10 called “red line” or “red pen” drawings. 11 RT 4/12/17 p.m. at 12:3-13. 12 structure which were hung up on the wall at the hangar. 13 p.m. at 12:19-13:7. 14 collapsed. 15 14. RT 4/11/17 a.m. at 72:15-21; Engineers made notes on drawings of the RT 4/12/17 Those drawings were lost after the roof As part of the contract, the government made NASA engineers 16 available to Aeros for consultation on design, engineering, and 17 construction. 18 Aeros on the NASA Contract. 19 liaison between Aeros and NASA. 20 engineer in the Systems Analysis Group and had been an engineer with 21 NASA since 1985. 22 another NASA engineer who provided technical assistance to Aeros for 23 the RAVB project. 24 for 41 years. 25 15. NASA assigned the Systems Analysis Group to work with Dr. John Melton served as the technical Dr. Melton was a senior aerodynamic RT 4/14/17 a.m. at 47:2-19. Michael Ospring was RT 4/14/17 p.m. at 5:15–9:1. He worked for NASA RT 4/14/17 p.m. at 6:5–9. Aeros had its own engineers working on the project as well. 26 Ultimately, Timothy Kenny became the lead engineer and later the 27 director of engineering at Aeros. 28 he earned his undergraduate degree in engineering. RT 4/12/17 a.m. at 35-36. 6 In 2007, RT 4/12/17 a.m. at 1 62:25-63:1. 2 at 35. 3 aircraft before coming to Aeros. 4 NASA engineers found the Aeros engineers young, inexperienced, and 5 overwhelmed. 6 In 2009, he started working for Aeros. RT 4/12/17 a.m. He had no training in aerodynamics and had never worked on an 16. RT 4/12/17 a.m. at 64:3-66:23. The RT 4/14/17 p.m. at 17:24–18:5. The NASA engineers were deeply troubled by Aeros’s design, 7 engineering, and construction practices. They regularly questioned 8 Aeros’s methods in developing and constructing the RAVB. 9 course of the project, the structural design of the RAVB changed 10 continually. 11 approach taken by Aeros in the design and construction of the RAVB was 12 a significant contributor to the constant changes to the RAVB. 13 17. RT 4/14/17 p.m. at 13:15-14:12. During the The engineering As part of the contract, Aeros performed a number of tests. 14 JSF ¶ 18. The most significant test was a test of the COSH system and 15 of the RAVB’s ability to remain heavier than air and become lighter 16 than air while carrying a weighted load. 17 January 2013 inside the Tustin hangar with the hangar doors closed. 18 RT 4/14/17 p.m. at 35:20-37:8; Exh. 486 at 5-6. 19 of lead shot were loaded into the cockpit of the RAVB. 20 p.m. at 36:3-24. 21 into bladders inside the RAVB and the RAVB floated off the Tustin 22 hangar floor to a height of approximately 10 feet. 23 36:3-24. 24 the RAVB descended to the hangar floor. 25 unloaded and the RAVB remained on the ground, proving that it was 26 heavier than air. 27 released back into the RAVB and the RAVB became lighter than air. This test occurred in Five hundred pounds RT 4/14/17 Helium was released from canisters inside the RAVB RT 4/14/17 p.m. at The COSH system was then engaged, compressing the helium and The lead shot was then RT 4/14/17 p.m. at 36:3-24. 28 7 Helium was then RT 1 4/14/17 p.m. at 36:3-24. 2 RAVB descended to the hangar floor. 3 18. The helium was then compressed again and the RT 4/14/17 p.m. at 36:3-24. Four trusses of the RAVB suffered near-catastrophic failure 4 during this test as a result of the force acting on the RAVB from 5 lifting off the ground and floating to a height of ten feet. 6 4/14/17 p.m. at 37:1-17. 7 experienced local buckling. 8 engineers found that multiple end fittings had failed and several 9 bolts holding the end fittings together were bent. RT Those trusses had broken cores and RT 4/14/17 p.m. at 37:1-17. NASA RT 4/14/17 p.m. at 10 37:1-17. 11 buckled and that several of the cords on a number of trusses had 12 broken. 13 in-hangar static hover test the RAVB suffered “significant structural 14 damage inside the internal air frame.”3 15 19. They also observed that several bays inside the trusses had RT 4/14/17 p.m. at 38:4-38:10. In short, as a result of the RT 4/14/17 p.m. at 37:6-8. In response to the structural failures from the January 2013 16 test, Aeros undertook repairs that NASA engineers believed were less 17 than ideal and which were completed without conducting an analysis of 18 the reasons for the failures. 19 engineers wanted to determine the root cause of the failures but Aeros 20 did not want to do so. 21 repaired or replaced the broken structural components with the same 22 materials that had failed in the hangar test. 23 68:13-19; RT 4/14/17 p.m. at 38:13-39:9. 24 simply taped the structures together. RT 4/14/17 p.m. at 38:13-39:9. RT 4/14/17 p.m. at 38:13-39:9. NASA Instead, Aeros RT 4/12/17 a.m. at In several locations, Aeros RT 4/14/17 p.m. at 38:13-39:1. 25 26 27 28 3 Aeros’s lead engineer Mr. Kenny contends that these failures were due to overinflation of the helium bladders inside the RAVB. Mr. Ospring rejected that explanation and the Court accepts his testimony over Mr. Kenny’s. RT 4/14/17 p.m. at 37:1–39:1. 8 1 None of these repairs allayed NASA’s concerns about the structural 2 defects of the RAVB. 3 20. Aeros subsequently decided that it had to take the RAVB 4 almost completely (70%) apart and rebuild it, a process that took four 5 months at a cost of $5.5 million. 6 4/17/17 a.m. at 88:14-90:8. 7 its bare structure” and it was reassembled. 8 21. 9 21. RT 4/12/17 a.m. at 37:3-14; RT The aircraft was “disassembled down to RT 4/12/17 a.m. at 37:3- Additional in-hangar testing, including a repeat of the 10 January 2013 test, was conducted during the summer of 2013. 11 the final test for the RAVB under the contract and the test was 12 successful. 13 22. This was JSF ¶ 18. In the spring of 2013, NASA learned that Aeros was planning 14 to conduct an outdoor flight test of the RAVB. 15 39:13-17. 16 became very concerned. 17 that an outdoor flight test would subject the RAVB to considerably 18 more load than the in-hangar tests and they were worried that the 19 RAVB’s structure could not handle the load. 20 40:21-24. 21 23. RT 4/14/17 p.m. at Upon learning this, NASA engineers working on the project RT 4/14/17 p.m. at 39:18-40:21. They knew RT 4/14/17 p.m. at Accordingly, NASA engineers performed a computer analysis to 22 determine the structural integrity of the RAVB under a rational set of 23 outdoor loads, using a modest forward flight speed and modest wind 24 speeds. 25 fluid dynamics experts, one from NASA and one from outside NASA, to 26 devise a series of pressure distributions based on loads for the RAVB. 27 RT 4/14/17 p.m. at 41:5-9. 28 speed and a 20-knot gust of wind. RT 4/14/17 p.m. at 41:2-5. NASA also asked two computational That load case assumed a 30-knot forward RT 4/14/17 p.m. at 41:10-14. 9 These 1 experts determined that, under those conditions, there was a strong 2 possibility of structural failure throughout the RAVB. 3 when the forward speed was reduced to 10 knots and the wind speed 4 reduced to 10 knots that failure could be avoided and then only 5 barely. 6 Ultimately, the engineers concluded that “unless they flew [the RAVB] 7 at very, very low speeds and encountered, really, no gust loads,” the 8 RAVB structure would likely be damaged. 9 24. It was only RT 4/14/17 p.m. at 41:17-23, 42:8-24; Exh. 497 at 4-5. RT 4/14/17 p.m. at 42:19-24. This analysis caused NASA engineers grave concern. RT 10 4/14/17 p.m. at 42:19-24. 11 management, warning that an outdoor flight of the RAVB demonstrator 12 could be catastrophic. 13 described the RAVB and Aeros’s engineering approach and presented the 14 results of the analysis, concluding: “[f]rom a structural perspective, 15 the lack of design requirements, loads and load cases, verification 16 approach, complete engineering analysis and overall configuration 17 management resulted in a RAVB structure that is thought by NASA to 18 have been at the very limit of its structural ability in rising, in a 19 level altitude, in still air.” 20 69:20-70:17. 21 cannot sustain any combination of buoyancy, forward speed, rational 22 gust speed, intertial force and nominal angle of attack without 23 inducing negative margins in structural elements.” 24 response to the warnings, NASA management attempted to persuade Aeros 25 not to conduct an outdoor flight. 26 25. In May 2013, they drafted a report for NASA Exh. 497. In an August 2013 report, they Exh. 486 at 17; RT 4/14/17 p.m. at They concluded that the RAVB, “as currently designed, Exh. 497 at 5. In RT 4/14/17 p.m. at 44:16-25. Aeros disagreed with the government’s analysis and elected 27 to go forward with flight tests outside the hangar. 28 day Experimental Research & Development Airworthiness Certificate from 10 It obtained a 60- 1 the FAA. 2 certifying the RAVB for outdoor flight testing did not know that NASA 3 had advised Aeros not to fly the RAVB outside when he approved the 4 flight testing. 5 limited Aeros to altitudes of 50, then 100, feet. 6 26. Exh. 512 at 7. RT 4/14/17 p.m. at 144:16-18. for the first time. 8 outside four more times. 27. Nevertheless, he Exh. 512 at 7-8. On August 30, 2013, the RAVB was flown outside the hangar 7 9 The FAA safety inspector who was involved in Ex. 736 at 3. Over the next 12 days it was flown Exh. 736. A History Channel crew was on site at the Tustin hangar for 10 three months in the summer of 2013, videotaping many aspects of the 11 flight testing, including the outdoor flight tests. 12 at 16:16-17:1. 13 a television program on the History Channel. 14 28. RT 4/12/17 a.m. The final flight of the RAVB was broadcast as part of Exh. 107. The NASA engineers who had worked on the RAVB suspected that 15 it had suffered structural damage during these test flights. 16 asked Aeros for an opportunity to inspect the RAVB after the flights 17 but Aeros denied their requests. 18 29. They RT 4/14/17 p.m. at 45:17-46:11. Aeros had hoped to springboard from the RAVB to a fleet of 19 commercial Aeroscraft-type vehicles. 20 13; Exh. 653 at 2; RT 4/11/17 a.m. at 58:2-21, 59:10-60:5, 74:7-20. 21 In May 2013, Aeros articulated its plan for an initial fleet in a 22 presentation entitled “Initial Fleet Revenue Generation Secured 23 Clients” (hereinafter “Fleet Presentation”). 24 Presentation, Aeros’s proposed a production schedule that included 22 25 Aeroscrafts--four 66-ton models and 18 250-ton models--by 2020. 26 196 at 4. 27 28 30. Exh. 171 at 5, 10; Exh. 174 at Exh. 196. In the Fleet Exh. Aeros planned to have the Aeroscraft design receive FAA type certification and sought to utilize the RAVB as a stepping stone to 11 1 the 66-ton version. 2 4/11/17 a.m. at 58:2-21, 59:10-60:5, 65:3-7, 74:7-20, 93:14-18, 3 94:13-95:6, 95:19-96:2, 98:23-99:8. 4 for type certification on other airship designs before, building its 5 40A airship first and then building the larger 40B version for which 6 it pursued and received FAA type certification. 7 33:2-14; RT 4/14/17 p.m. at 154:25-157:13; Exh. 200 at 11. 8 9 31. Exh. 167 at 22, 27; Exh. 200 at 1 and 3; RT Aeros had utilized this strategy RT 4/11/17 a.m. at In late September and early October 2013, Aeros employees working inside the Tustin hangar noticed that small pieces of wood had 10 fallen from the hangar roof to the floor. On Thursday, October 3, 11 2013, they found a three-foot piece of wood from one of the roof 12 trusses on the floor. 13 the hangar roof collapsed, falling onto the RAVB. 14 thereafter, the government allowed Aeros personnel to go into the 15 hangar briefly to view the damage but otherwise prevented Aeros from 16 entering the hangar. 17 inside the hangar for a brief period. 18 2014, Aeros requested permission to return to the hangar but its 19 requests were denied. 20 told Aeros that it would be allowed to re-enter the hangar by a given 21 date but repeatedly changed that date. 22 RAVB may not have been immediately destroyed as a result of the roof 23 collapse, by the time Aeros was allowed back into the hangar in July 24 2014, the RAVB had been rendered worthless. On Monday, October 7, 2013, a large section of Immediately On October 10, 2013, Aeros was again allowed Between October 2013 and June During this period, the government continually Though it appears that the 25 B. Plaintiff’s Damages Claims 26 32. On April 3, 2014, Aeros submitted an administrative claim in 27 the amount of $1,800,000 for costs incurred in moving its equipment 28 out of the hangar. Exh. 619; RT 4/12/17 p.m. at 105:6-19; JSF ¶ 40. 12 1 33. On June 12, 2014, Aeros submitted an amended claim in the 2 amount of $58,700,000 for compensation for the loss of the RAVB. 3 Exh. 437; RT 4/12/17 p.m. at 105:20-106:6; JSF ¶ 41. 4 C. Damages for Disassembling the RAVB 5 34. Starting at the end of July 2014, Aeros employees took the 6 RAVB apart and disposed of the pieces. 7 damages for the costs incurred in taking it apart. 8 disputes centered on the disassembly of the RAVB. 9 is how long it took to complete the process. Aeros seeks $3,538,160 in There are several The first dispute Aeros’s accountant and 10 vice president, Carrie Cass, testified that it took until March 2015. 11 RT 4/13/17 at 61:10-13. 12 significantly less time, as evidenced by an email Ms. Cass sent to the 13 Navy on November 13, 2014, explaining that Aeros had removed 14 everything from the hangar except a lift and some parts. 15 a.m. at 36:5-37:25. 16 in the hangar was completed by November 13, 2014, and rejects Ms. 17 Cass’s testimony that it took until March 2015. 18 35. The government contends that it took RT 4/13/17 The Court finds that the disassembly of the RAVB A second dispute concerns the number of workers involved in 19 taking the RAVB apart. 20 involved, RT 4/12/17 p.m. at 102:21–25, though she also testified it 21 might have been closer to 35. 22 most credible evidence regarding the number of employees that were 23 involved in taking apart the RAVB between July 2014 and November 2014 24 came from Aeros’s former employee Adrian Ramos. 25 supervisor during this period and was at the hangar every day. 26 4/13/17 a.m. at 5:14-16, 29:7-10. 27 employees took the RAVB apart during that period. 28 29:7-14. Ms. Cass testified that as many as 50 were RT 4/13/17 a.m. at 60:21-61:13. The He was the hangar RT According to Mr. Ramos, 15 RT 4/13/17 a.m. at And, though Ms. Cass testified that some of the work took 13 1 place in Aeros’s Montebello facility, Mr. Ramos contradicted that 2 testimony. 3 Ms. Cass’s claim that parts of the RAVB were moved to a different 4 hangar at the Tustin facility during this period and taken apart 5 there. 6 testimony and rejects Ms. Cass’s testimony on these issues.4 7 RT 4/13/17 a.m. at 31:24-32:19. RT 4/13/17 a.m. at 32:12-15. 36. Mr. Ramos also undermined The Court accepts Mr. Ramos’s A third dispute regarding damages for taking apart and 8 disposing of the RAVB is whether the government should be liable for 9 it at all. The government argues that Aeros was responsible for the 10 deconstruction and removal expenses of the RAVB regardless of the roof 11 collapse. 12 RAVB apart about the time the roof collapsed, as set forth in Aeros’s 13 own documents, and that it is simply raising this claim now to pad its 14 damages claim. 15 RAVB apart and dispose of it, it planned to do so at a much later 16 date. 17 and, therefore, more expensive after it was damaged by the hangar roof 18 collapse. 19 disassembly and removal of the RAVB in a January 2013 proposed 20 contract modification did not make it into the final contract 21 amendment. It notes that Aeros recognized this and planned to take the Aeros responds that, though it did plan to take the It also contends that taking it apart became more complicated Finally, it points out that the line item for the RT 4/17/17 a.m. at 172:3-14. 22 23 24 25 26 27 28 4 Aeros points out that Mr. Ramos also testified that the removal of the RAVB was completed in the spring of 2015 and argues that if the Court accepts Mr. Ramos’s testimony as to the number of employees working to disassemble the RAVB it should also accept Mr. Ramos’s testimony that it took until the spring of 2015 to complete the process. Though Mr. Ramos initially agreed with the Court in response to a question posed by the Court that it took until the spring of 2015 to remove the RAVB from the hangar, RT 4/13/17 a.m. at 29:15-17, he later explained that he really did not remember when the removal was complete. RT 4/13/17 a.m. at 32:25-33:3. 14 1 37. The Court sides with the government here. There is no 2 dispute that Aeros was responsible for removing the RAVB from the 3 Tustin hangar and, ultimately, taking it apart and disposing of it at 4 its own expense. Those costs, whenever incurred, were to be borne 5 solely by Aeros. The evidence shows that, in January 2013, Aeros’s 6 President, Igor Pasternak, contemplated taking it apart in July 2013, 7 in eleven days, at a cost of $1.2 million. 8 4, 52; RT 4/17/17 a.m. at 56:21-60:19. 9 spring and summer of 2013, Mr. Pasternak had a change of heart and Exh. 91 at 2; Exh. 176 at It appears that during the 10 decided to delay the disassembly until further flight tests could be 11 conducted, but that does not change the basic fact that Aeros was 12 responsible for the removal and disposal of the RAVB. 13 38. Aeros contends that the roof collapse made the process of 14 taking the RAVB apart more difficult and expensive. This contention 15 defies common sense. 16 RAVB was totaled. 17 interested in taking it apart and disposing of it. 18 to salvage some parts, the vast majority of the material was the frame 19 and the skin, which were rendered unusable as a result of the roof 20 collapse. 21 pieces and hauled it away. 22 testimony to explain how the process was made more expensive by the 23 collapse of the hangar roof and the destruction of the RAVB. 24 testimony that it cost $3 million to disassemble and remove the RAVB 25 was also undermined by its exaggeration of how long it took it to do 26 so and how many people were involved. 27 the fact that, in January 2013, its principal, Mr. Pasternak, planned 28 to do it in July 2013 in 11 days at a cost of $1.2 million. In the summer of 2014, Aeros recognized that the Thus, from that point forward, it was primarily Though Aeros hoped Presumably, Aeros could have simply cut the RAVB into Aeros never provided any convincing 15 Aeros’s It was further undermined by In fact, 1 using Aeros’s own cost figures for the removal of the RAVB, it clearly 2 cost considerably less than Aeros claims.5 3 D. Damages for the RAVB 4 39. Plaintiff seeks to be compensated for the loss of the RAVB. 5 It relies mainly on two measures of valuation: the “market” approach, 6 which it claims yields a value of $54.5 million, and the “replacement 7 cost” approach, yielding a value of $50.6 million. 8 179:14-22. 9 concept known as the “peculiar value,” which Plaintiff claims yields a 10 11 Plaintiff also proposed a third approach based on a value of $50+ million. 40. RT 4/17/17 a.m. at Final Pretrial Conference Order at 10-11, 17. Both sides called valuation experts at trial. Plaintiff’s 12 expert, Michael Wallace, testified that, using the market approach, he 13 determined the value of the RAVB to be $54.5 million. 14 two sales--the Lockheed Martin P791 and the Northrup HAV/LEMV--which 15 he conceded during his direct examination were not really comparable. 16 RT 4/13/17 a.m. at 91:18-95-7, 95:22-96:4. 17 testified that the RAVB was not comparable to these aircraft. 18 4/11/17 a.m. at 114:10-116:18. 19 expert, David Nolte. 20 not find them to be comparable, either. 21 demonstrator, it was a production aircraft and it was capable of 22 lifting and carrying cargo. 23 and it could not carry cargo. 24 spy ship that was never intended to carry cargo, the ultimate plan for He relied on Mr. Pasternak also RT So did the government’s valuation RT 4/17/17 a.m. at 43:5-48:9. The Court does The P791 was not a The RAVB was not a production aircraft The HAV/LEMV was an unmanned, floating 25 5 26 27 28 Assuming an average weekly salary and overhead rate of $1,368.39 per employee, see Exh. 76 at 44-53, for a period of 15 weeks for 15 employees, the labor and overhead costs to dismantle and remove the RAVB was $307,887.75, less than one-tenth the amount it is now claiming. 16 1 the RAVB. 2 shortcomings in design and construction that even Aeros would concede 3 was not marketable at all. 4 the fact that the “comparable” sales were not comparable, two sales of 5 two fairly unique aircraft are not enough to make a “market” to value 6 this equally unique aircraft. 7 41. The RAVB was an experimental demonstrator with considerable Further, even were the Court to overlook Acknowledging the shortcomings of these sales, Mr. Wallace 8 took into account a blimp that Goodyear purchased for $21 million as a 9 “reference point” for grounding his market approach. RT 4/13/17 a.m. 10 at 95:8-19. 11 to a company that owns a fleet of them establishes a baseline value 12 for an experimental aircraft like the RAVB that all agree had no 13 commercial purpose. 14 42. The Court does not agree that the sale of a working blimp Mr. Wallace also took into consideration the NASA contract 15 with Aeros, which he considered akin to the government “purchasing” 16 the RAVB for $54.5 million. 17 does not find this testimony the least bit persuasive. 18 never purchased the RAVB from Aeros nor did it value it at $54 19 million. 20 perform various tests to prove the feasibility of the COSH system. 21 Had it believed the RAVB was going to be worth $54 million when it was 22 manufactured, it could have contracted to have Aeros deliver the craft 23 to the government at the end of the contract and obtained a very 24 valuable asset that it could have used or sold. 25 43. RT 4/13/17 p.m. at 9:2-12. The Court The government It contracted to have Aeros design an aircraft that could Conscious that the market approach did not work in this 26 case, both side’s experts also considered the cost approach. 27 approach seeks to value property based on the cost to replace it. 28 Using as a starting point Aeros’s costs to build the RAVB the first 17 The cost 1 time, Plaintiff’s expert Mr. Wallace concluded that it would cost 2 $48.7 million to build it a second time over a two-year span and $50.6 3 million to build it over a five-year span. 4 15. 5 approach should not be used in this case for many reasons, including 6 the fact that Aeros never intended to reproduce the RAVB, the RAVB was 7 already obsolete as designed and constructed when it was destroyed in 8 2013, and Aeros’s financial records, which formed the basis of Aeros’s 9 cost approach, were unreliable. 10 RT 4/13/17 p.m. at 33:3- The government’s expert, Mr. Nolte, testified that the cost RT 4/17/17 a.m. at 50:6-53:2, 128:25- 129:14, 11 44. There are significant problems with the cost approach. Most 12 significant is the fact that it is dependent on Aeros’s accounting to 13 establish how much it cost to build the RAVB the first time in order 14 to estimate how much it would cost to build it a second time. 15 evidence from Aeros regarding its costs was simply not persuasive at 16 all. 17 Finance and Administration, Carrie Cass, C.P.A. 18 least compelling testimony at trial. 19 that her accounting system was messy, confused, and unreliable. 20 example, she kept three different versions of electronic records on 21 three different computers and/or transfer drives to keep track of the 22 accounting. 23 of QuickBooks for Aeros, a 2010 version for Worldwide (a related 24 company), and 2013 and 2016 versions for payroll for the two 25 companies. 26 programs were not compatible with each other. 27 government’s valuation expert who is also a CPA, testified that no 28 competent accountant would keep records the way Ms. Cass did. The This evidence came primarily from Aeros’s Vice President of It established without doubt RT 4/13/17 a.m. at 52:21-53:2. RT 4/12/17 p.m. at 77:11-18. 18 Her testimony was the For She used a 2007 version Apparently, these software Mr. Nolte, the RT 1 4/17/17 a.m. at 73:25-75:6. To compound matters, Aeros’s principal, 2 Mr. Pasternak, and his wife used corporate credit cards to pay for 3 personal expenses. 4 were legitimate business expenses and what were personal expenses long 5 after the fact when she was preparing the company’s tax returns. 6 Cass attempted to keep track of these expenses in hand-written 7 ledgers, RT 4/12/17 p.m. at 117:18-121:10; Exh. 840, but acknowledged 8 that they were incomplete. 9 explanation as to how she reconciled these charges engendered serious It was left to Ms. Cass to try to sort out what RT 4/12/17 p.m. at 128:24-129:2. 10 doubt about the reliability of her process. 11 Ms. Her 12. 12 45. RT 4/12/17 p.m. at 119:9- The evidence also established that there was no rhyme or 13 reason to Ms. Cass’s accounting system. 14 rented an office in Washington, D.C., in a building owned by his wife, 15 for $5,000 per month beginning in August 2013. 16 two years (2013-15) was included by Ms. Cass in Aeros’s damages 17 calculation but Aeros never explained what the office in Washington, 18 D.C. had to do with the RAVB or the damages sustained by Aeros as a 19 result of the loss of the RAVB. 20 default position was that any money spent during the relevant period 21 was a cost of building the RAVB or damages suffered as a result of the 22 loss of the RAVB regardless of what the money was spent on. 23 46. For example, Mr. Pasternak The $120,000 rent for It appeared to the Court that Aeros’s Further complicating the accounting problems was the fact 24 that there were two companies, Aeros and Worldwide, working sometimes 25 interchangeably and sometimes not. 26 attempting to sort out what revenues and costs should be applied to 27 which company’s books. Ms. Cass was responsible for The Court is convinced that no one at Aeros, 28 19 1 particularly Ms. Cass, understood why many of the costs and expenses 2 were charged to the Aeros account as opposed to the Worldwide account. 3 47. Discovery in this case brought to light additional 4 accounting problems at Aeros. In 2016, Ms. Cass was asked to assemble 5 the accounting records from Aeros to respond to discovery. 6 compared hard copies of the records with the electronic QuickBooks 7 files, she recognized that they did not match, RT 4/12/17 p.m. at 8 85:5-13, 88:1-7, so she altered 161 transactions in an effort to make 9 them match. RT 4/13/17 p.m. at 52:17-53:19. When she These 161 alterations 10 had the net effect of adding $1,355,986 to the expense accounts of 11 Aeros’s general ledger for the relevant time period (FY 2008 through 12 FY 2016). 13 “clean-up” function on the file and then deleted the backup copy that 14 had been automatically created by the software program. 15 a.m. at 42:12-44:2. 16 inadvertently deleted the wrong set of QuickBooks files in 2014, when 17 she had adjusted the books after an audit. 18 88:16. 19 corrections/deletions left the Court bewildered. 20 After altering the QuickBooks file in 2016, Ms. Cass ran a RT 4/13/17 Ms. Cass realized in the process that she had RT 4/12/17 p.m. at 87:23- Her explanations for how and why she made these changes/ 48. In 2016, after producing a copy of Worldwide’s electronic 21 QuickBooks file to the United States, Ms. Cass altered 28 more 22 transactions in the file. 23 alterations had the net effect of adding $1,157,275 to the expense 24 accounts of Worldwide’s general ledger for the period October 7, 2013 25 through April 30, 2016. 26 27 49. RT 4/13/17 p.m. at 62:4-10. These 28 RT 4/13/17 p.m. at 62:4-25. Ms. Cass began altering the Worldwide QuickBooks file in February of 2016 and continued to do so through April of 2016 after 28 20 1 she had already produced the records to the government. 2 a.m. at 44:3-21. 3 50. RT 4/13/17 Ms. Cass’s 2016 alterations to the Aeros and Worldwide 4 QuickBooks files increased Aeros’s calculation of the cost to 5 construct the RAVB by approximately $1.6 million. 6 64:1-65:3. 7 51. RT 4/13/17 p.m. at Ms. Cass’s 2016 alterations to the Aeros and Worldwide 8 QuickBooks files increased Aeros’s claims for consequential damages by 9 approximately $300,000. 10 52. RT 4/13/17 p.m. at 65:4-65:19. In July 2015, Ms. Cass modified Aeros’s 2013 payroll records 11 in QuickBooks long after quarterly and annual tax returns had been 12 filed. 13 government’s expert, modifying payroll entries after the tax returns 14 have been filed violates generally accepted accounting principles. 15 4/12/17 p.m. at 119:7-9; RT 4/17/17 a.m. at 72:1-73:21. 16 RT 4/17/17 a.m. at 72:1-73:21; Exh. 1104. 53. According to the RT Perhaps as a result of the irregularities in the accounting 17 system, Aeros was unable to obtain timely audited financial statements 18 in 2014. 19 records, the auditors issued their audit opinion more than one year 20 after the dates covered by the audit so that the audit would not be 21 characterized as relating to a going concern and the auditors could 22 not be held liable for the audit. 23 54. In order to avoid potential liability for certifying Aeros’s RT 4/17/17 a.m. at 114:21-116:25. Aeros does not believe that anything Ms. Cass did or said 24 was enough to undermine the reliability of her records or the cost 25 approach that was based on them. 26 certainly enough evidence to support a cost in excess of $50 million 27 since that is what the government paid Aeros to build the RAVB and no 28 one disputes that Aeros spent all the money it had during the years it It argues further that there was 21 1 was constructing the RAVB. The Court disagrees. To begin with, the 2 government did not pay Aeros $50+ million dollars to build the RAVB. 3 It paid Aeros $50+ million to demonstrate the feasibility of the COSH 4 system in a rigid-shelled aircraft. 5 perspective, the purpose of the contract was to determine if the COSH 6 system would work. 7 the RAVB and elected to allow Aeros to keep it at the end of the 8 contract. 9 indication that the government believed that the RAVB would have From the government’s In fact, the government never contemplated owning One could argue that that in and of itself was an 10 little or no value at the end of the contract. 11 touted the RAVB throughout the trial as a state-of-the-art, one-of-a- 12 kind aircraft, the Court does not agree with that characterization. 13 Though it would agree that the COSH system within the RAVB was 14 ingenious, the Court would not agree that the RAVB was state-of-the- 15 art. 16 construction of the RAVB testified that the engineering and 17 construction were substandard. 18 the RAVB suffered major structural damage when it lifted up 10 feet 19 off the ground in a closed hangar with 500 pounds on board. 20 accepts the NASA engineers’ testimony that the RAVB was poorly 21 designed and constructed and was vulnerable to significant structural 22 failure when subjected to even moderate loads, which it had been 23 during testing and flying. 24 testimony of Aeros’s employees to the contrary. 25 Further, though Aeros The NASA engineers who worked with Aeros during the design and 55. They pointed out, for example, that The Court In doing so, the Court rejects the Plaintiff notes that, even accepting the fact that Ms. Cass 26 made errors in accounting, the errors that the government identified 27 amounted to only a small fraction of the costs to design and construct 28 the RAVB and that these errors were not enough to undermine the entire 22 1 cost approach. Again, the Court disagrees. Though it is true that 2 the government focused on only a small percentage of the total costs 3 included in Aeros’s claim, this focus went a long way towards 4 undermining all of the accounting evidence. 5 that Ms. Cass’s accounting system at Aeros was flawed and unreliable. 6 To make matters worse, in some instances, it appeared that Ms. Cass 7 was not being candid. 8 Ms. Cass during cross-examination that a fake invoice had been created 9 and saved on her computer under an audit file soon after an auditing The Court is convinced For example, when the government pointed out to 10 firm had asked her to provide receipts to justify certain 11 expenditures, Ms. Cass testified with confidence that the invoice was 12 created at her direction by a job applicant, Megan Baumgartner, during 13 a job interview. 14 she was interested in learning during the interview if Ms. Baumgartner 15 was comfortable with international invoices and Ms. Baumgartner 16 created the invoice on Ms. Cass’s computer to show that she was. 17 According to Ms. Cass, unbeknownst to her, Ms. Baumgartner then 18 apparently saved the fake invoice in a file destined for the auditors. 19 This effectively shut down the government’s cross-examination of Ms. 20 Cass on this line of questioning. 21 56. RT 4/13/17 a.m. at 72:4-16. Ms. Cass explained that Post trial, the government established that, in fact, Ms. 22 Cass’s testimony that Ms. Baumgartner had created the fake invoice and 23 saved it on Ms. Cass’s computer was not true. 24 Aeros notes that the fake invoice was created before the roof collapse 25 and that there is no evidence that it was ever forwarded to the 26 auditors. 27 irrelevant. 28 the bottom line. Conceding this point, Though the Court would agree, it finds that fact The significance of the fake invoice is not its impact on It is the fact that it was in an audit file on the 23 1 CFO’s computer and when she was confronted with it at trial she 2 concocted a story to avoid explaining it. 3 the unorthodox, chaotic accounting system that Ms. Cass used at Aeros. 4 To circumvent another line of questioning, Ms. Cass testified that 5 charges at a scuba diving company on Catalina Island were related to 6 the RAVB because they were for breathing equipment for the RAVB. 7 4/12/17 p.m. at 124:23-125:12. 8 support that testimony and the Court remains skeptical of it as the 9 RAVB was only authorized to fly to an altitude of 100 feet and, The fake invoice epitomizes RT There was no evidence proffered to 10 obviously, no breathing equipment was necessary for a flight at that 11 altitude. 12 with her going back and changing payroll records that were years old 13 and reconciling printed versions of accounting records on computer 14 versions then intentionally deleting the former versions. 15 attempt to convince the Court that its accounting systems were normal 16 or that they should not matter for the cost approach is unavailing.6 17 57. Ms. Cass’s efforts to evade these questions is consistent Aeros’s Even accepting some of the figures bandied about by Aeros 18 during the trial, it still failed to provide convincing evidence as to 19 the actual cost of the construction of the RAVB. 20 Aeros defaulted to the total spending on its general ledgers from 21 August 2008 to October 2013 and made adjustments. In lieu of evidence, But, clearly, that 22 23 6 24 25 26 27 28 Aeros complains that the Court stated more than once during the trial and after that it was not finding that Ms. Cass was lying. The Court had a change of heart as it read the transcripts several times and pored through the thousands of pages of exhibits that were introduced in connection with this case. At some point, Ms. Cass’s explanations for these missteps--for which the Court had been willing to give her the benefit of the doubt during trial--proved to be too much for the Court to conclude that they were simply the result of sloppiness. 24 1 was not the true measure of the cost of construction, nor did it 2 fairly establish the cost to rebuild. 3 associated with the project were for written reports and testing that 4 the government required. 5 were and if and how they were subtracted from the cost calculation. 6 58. Notably, some of the costs Aeros never made clear how much these costs Another significant flaw in Mr. Wallace’s cost approach was 7 his decision not to adjust his valuation for “nonrecurring costs” in a 8 hypothetical rebuild. 9 not have to be repeated when building a second RAVB as a result of Nonrecurring costs are those costs that would 10 what was learned during construction of the first RAVB. 11 chose not to include nonrecurring costs because Ms. Cass and Mr. 12 Pasternak told him not to, representing to him that there would be 13 none. 14 contrary. 15 the RAVB due to the trial and error method Aeros used to design and 16 construct it. 17 using on the RAVB several times. 18 Wallace’s cost approach did not include any adjustment for the time, 19 effort, and materials Aeros expended finding the first skin, buying 20 it, putting it on the RAVB, testing it, finding out it did not work, 21 removing it, finding a new skin, buying it, putting it on the RAVB, 22 testing it, etc. 23 trusses, the landing gear, the engines, and more but Mr. Wallace did 24 not make any adjustments to account for this. 25 RT 4/13/17 p.m. at 81:21-85:24. 59. Mr. Wallace The evidence was to the The nonrecurring costs were obviously extremely high with For example, Aeros changed the type of skin it was 4/14/17 p.m. at 13:15-13:24. Mr. Aeros used the same trial and error method with the As has already been discussed, four-and-one-half years into 26 the production of the RAVB, the RAVB suffered critical structural 27 failures during a January 2013 hangar test. 28 the RAVB apart (70% of it) and, over the next several months, rebuilt 25 Aeros subsequently took 1 it at a cost of $5.5 million. 2 a.m. at 88:14-90:8. 3 reduce the time of construction by 90%. 4 it would cost to build a second RAVB, Mr. Wallace assumed, based on 5 Mr. Pasternak’s and Ms. Cass’s instructions, that the second time 6 around Aeros would spend years building it improperly then taking it 7 apart and rebuilding it again. 8 undermines Mr. Wallace’s cost approach.7 9 60. RT 4/12/17 a.m. at 37:3-14; RT 4/17/17 Thus, the second time around, Aeros was able to But, in evaluating how much This, too, defies common sense and Aeros argues that, even if the Court rejects Mr. Wallace’s 10 cost approach, it should adopt Mr. Nolte’s cost approach and value the 11 RAVB at $31 million on the date it was destroyed. 12 not support this argument. 13 approach would yield a value of $31 million. 14 relied on Aeros’s financial records and made numerous adjustments to 15 account for certain obvious errors he could arrive at a $31 million 16 cost figure. 17 numbers were unreliable and why they should not be used to establish 18 an estimated cost to build. 19 explained further that “he would never use the cost approach” in this 20 case but if he was forced to he would value the RAVB at no more than 21 $3.5 million using the cost approach. 22 Aeros argues, it seems, that the Court should simply conclude that, 23 under the cost approach, the RAVB should be valued as the sum of all The evidence does Mr. Nolte did not conclude that the cost He testified that if he But he spent considerable time explaining why Aeros’s RT 4/17/17 a.m. at 71:1-92:7. He RT 4/17/17 a.m. at 127:1-22. 24 7 25 26 27 28 Only after the Court repeatedly pushed Aeros during trial to explain why there were no nonrecurring costs did Aeros provide testimony in its rebuttal case from Mr. Pasternak and Ms. Cass that there would be a savings of $760,000, less than 2% of the purported cost of construction. RT 4/17/17 a.m. at 11:5-15:4. That testimony was not persuasive. Further, Mr. Wallace never testified as to how this would affect his cost analysis. 26 1 its parts, which Aeros contends is north of $50 million. That 2 analysis is particularly inapt here because it is impossible to 3 determine what the costs actually were to build the final product and 4 because the final product was so poorly constructed as to be of 5 minimal value. 6 61. The third generally accepted method of valuation is the 7 “income” approach. 8 how much income it can produce. 9 cannot be used here because the RAVB was not capable of generating 10 11 Under this approach, property is valued based on Both sides agree that this approach income. 62. Thus, the Court concludes that the traditional methods of 12 valuation--the market approach, the cost approach, and the income 13 approach--do not work. 14 valuation do not apply, the Court is required to value the property 15 using some other rational way from such sources as are available.8 16 63. Where, as here, the traditional methods of On the day it was destroyed, the RAVB had no commercial 17 value as it was not capable of carrying cargo or passengers to speak 18 of and was not intended for that purpose. 19 with serious flaws in its design and construction and it was expensive 20 to maintain and house. 21 it to was more than $400,000 a year.) 22 hoped to use the RAVB to entice investors to buy into future It was a demonstrator model (The rent for the hangar Aeros planned to move Despite these problems, Aeros 23 24 25 26 27 28 8 In its tentative, the Court relied on a “peculiar value” valuation method, see Cal. Civ. Code § 3355, a method Aeros had proposed in its pretrial brief. But, as Aeros points out, and the Court agrees, absent a market value, the peculiar value approach is not appropriate. Willard v. Valley Gas & Fuel Co., 171 Cal. 9, 1516 (1915). 27 1 production models and to allow Aeros’s pilots to practice flying. 2 Thus, it had some value, if only to Aeros. 3 64. At the outset of the project, when the parties agreed to the 4 contract price, the government and Aeros recognized that Aeros would 5 spend about $5 million more to complete the contract than the 6 government was willing to pay, but, in return, Aeros would get to keep 7 the RAVB when the contract was completed. 8 11:17-12:18, 44:18-45:1; Exh. 38 at 7; RT 4/17/17 a.m. at 49:5-50:3, 9 107:20-108:18. RT 4/14/17 a.m. at Mr. Pasternak and Ms. Cass considered that a 10 significant aspect of the contract. 11 25:6-13. 12 inference could be drawn that at the outset of the contract Aeros and 13 the government had essentially placed a residual value on the RAVB at 14 $5 million. 15 that under these very unusual circumstances where none of the 16 conventional standards of valuation applies this is the most rational 17 approximation of the value of the RAVB as of October 7, 2013. 18 such, the Court finds that Aeros is entitled to $5 million for the 19 loss of the RAVB. 20 65. RT 4/17/17 a.m. at 15:10-17:2 and The government’s valuation expert testified that an RT 4/17/17 a.m. at 49:5-50:3. The Court agrees and finds As Aeros does not agree with this figure and points out that, 21 though it was agreeing to perform the contract for $5 million less 22 than it thought it would cost to design, construct, and test, it 23 believed that that shortfall would be made up through contract 24 modifications, which it hoped would follow the initial contract. 25 Court recognizes that the parties contemplated that the government 26 would likely require modifications to the scope of work and that Aeros 27 would be paid more money as a result of those modifications, but the 28 evidence did not establish that the parties also contemplated that 28 The 1 Aeros would be compensated for the initial shortfall through these 2 modifications. 3 government was compensating Aeros for the shortfall in the subsequent 4 modifications. 5 modifications matched the costs for the additional testing and reports 6 that were performed under the modifications. 7 73:12-74:14. 8 9 66. And the evidence did not establish that, in fact, the The Court assumes that the price for the contract RT 4/12/17 p.m. at Aeros argues that the $5 million figure should be the floor of the valuation not the ceiling. There is some merit to this 10 argument. 11 be inclined to adjust this number upward. 12 an aircraft that the NASA engineers, with decades of experience at the 13 highest level, determined was so poorly designed and constructed that 14 flying it could result in a catastrophe. 15 dollar figure the Court has arrived at is reasonable and rational 16 based on the evidence. 17 67. Had Aeros built a state-of-the-art aircraft the Court might But it did not. It built As such, the $5 million The government contends that there were other inherent 18 benefits that Aeros gained as a result of the contract and that not 19 all of the $5 million the Court has attributed to the residual value 20 of the RAVB could or should be attributed solely to the RAVB. 21 4/12/17 a.m. at 16:16-17:1; RT 4/17/17 a.m. at 54:22-55:13, 56:8-19; 22 Exh. 107. 23 awarded more than $50 million to build and test its experimental 24 system in an experimental aircraft. 25 having some of the country’s most talented engineers consult on the 26 project for free. 27 government’s expense while building the RAVB. 28 however, that teasing out those benefits is difficult if not Surely, there is some merit to this argument. RT Aeros was Further, Aeros had the benefit of And, clearly, Aeros learned a lot at the 29 The Court concludes, 1 impossible to do. And, assuming that this had been a conventional 2 contract, i.e., where the government paid Aeros to build and deliver 3 the RAVB, Aeros would have gained that insight as well, though it 4 would not have owned the RAVB when the contract was complete. 5 E. Consequential Damages 6 68. Aeros seeks $13,010,199 in consequential damages from 7 8 9 October 7, 2013 to April 30, 2016. 69. For the period October 7, 2013, when the roof collapsed, until July 24, 2014, when Aeros was allowed to enter the hangar and 10 begin taking apart the RAVB, Aeros seeks $5,318,361, primarily for 11 labor and overhead. 12 financial expert Mr. Wallace who relied on Ms. Cass’s accounting 13 records from Aeros and Worldwide as well as other information she 14 provided to him. 15 that Ms. Cass’s records are not reliable and do not establish with 16 reasonable certainty that these sums were attributable to the loss of 17 the RAVB. 18 during this period, Mr. Wallace attributed 90% of all of Aeros’s costs 19 to the RAVB project and 10% of the costs to everything else the 20 company was working on following the roof collapse. 21 supporting such a split was based on Ms. Cass’s testimony and the 22 financial records she created at Aeros and the Court does not find 23 them persuasive. 24 70. Aeros bases this amount on the testimony of its For the reasons explained above, the Court finds Further, though Aeros was clearly working on other projects The evidence RT 4/12/17 p.m. at 76:25-77:3. Aeros’s costs also included $2.6 million incurred by Aeros’s 25 sister company Worldwide and costs for the Washington, D.C. office 26 used by Mr. Pasternak and others that seemingly had no connection to 27 the RAVB. 28 30 1 71. Aeros never established with any precision what its 2 employees were doing after the roof collapsed and why 90% of all of 3 their time should be charged to the government. 4 at 102:21-25 (testifying that “somewhere around 50” employees were 5 retained for the deconstruction effort); RT 4/13/17 a.m. at 61:10-13 6 (testifying that “most of” the approximately 35 employees were engaged 7 in deconstructing the RAVB). 8 establish what the workers were doing during this period. 9 working on other projects? See RT 4/12/17 p.m. Aeros was unable or unwilling to Were they Were they working on maintenance at the 10 Montebello facility? Were they sitting on their hands in a conference 11 room waiting for the government to let them into the Tustin hangar? 12 The Court was left with the firm impression that Aeros wanted these 13 facts to remain vague so that its witnesses could not be pinned down 14 during trial. 15 72. The Court does recognize, however, that Aeros did have a 16 workforce in place when the roof collapsed and maintained some portion 17 of it while it was waiting for the government to allow it to re-enter 18 the hangar and work on the RAVB. 19 during this period as to how Aeros would move forward, which was 20 exacerbated by the fact that the government continually changed the 21 date for Aeros to re-enter the hangar. 22 Aeros knew by December 2013 that the RAVB was a total loss is 23 rejected. 24 obtain insurance proceeds for the RAVB during this period, Aeros still 25 did not know for certain until July 2014 that the RAVB was totaled. 26 73. Clearly, there was some uncertainty The government’s argument that The evidence establishes that, despite Aeros’s efforts to The Court finds that Aeros is entitled to consequential 27 damages in the amount of $1,882,918 for the period October 7, 2013 to 28 August 1, 2014, based on the following calculations: 31 1 Aeros had 64 employees in October 2013 when the roof collapsed 2 (including Mr. Pasternak and Ms. Cass). 3 According to Aeros, the average salary for its employees (working 4 on the RAVB) was $23.53 per hour, plus overhead of 45.4% (or 5 $10.68), totaling $34.21. 6 hours per week x 43 weeks = $3,765,836.80 ÷ 2 = $1,882,918 7 (rounded). 8 The reason the Court has reduced the number by 50% is because the 9 Exh. 769 at 44-49. Multiplying 64 employees x $34.21 x 40 evidence and the inferences that can be drawn from it suggest that 10 most of the employees were performing other work during this period. 11 RT 4/12/17 a.m. at 74:24-77:12; RT 4/13/17 a.m. at 30:1-31:15; RT 12 4/17/17 a.m. at 117:2-22; Exh. 121. 13 the few employees who testified at trial, explained that, after the 14 roof collapsed, he came to work every day and worked on various 15 projects, including the planned 66-ton RAVB. 16 25. 17 Aeros was creating for the Ukranian government. 18 76:1-12. 19 required to pay damages for those times when the employees were 20 working on other projects for Aeros. For example, Mr. Kenny, one of RT 4/12/17 a.m. at 75:4- He also traveled to Ukraine to work on a surveillance system 21 74. RT 4/12/17 a.m. at Aeros is not entitled to a windfall nor is the government As far as the other consequential damages for this time 22 period, Aeros failed to prove that they were caused by the loss of the 23 RAVB. 24 construction of the RAVB. 25 charging 90% of the costs of these facilities to the government after 26 the RAVB was destroyed. 27 for the RAVB project was the Tustin hangar, which it was renting in 28 October 2013 and stopped paying for when the roof collapsed. The facilities were being used before and after the Aeros did not make clear why it was It appears that the only facility Aeros added 32 1 75. Aeros seeks consequential damages of $3,538,160 for the 2 period from July 24, 2014, to March 4, 2015, during which time it 3 claims it was removing the RAVB from the hangar. 4 the costs for disposing of the RAVB were Aeros’s responsibility and, 5 therefore, it is not entitled to be reimbursed for those costs. 6 the other costs during this period, Aeros failed to convince the Court 7 with reasonable certainty how much the other costs were and how they 8 were related to the loss of the RAVB. 9 these damages is denied. 10 76. As set out above, As to As such, Aeros’s request for Aeros seeks $4,153,678 for “standby costs” for the period 11 March 5, 2015 to April 30, 2016, to compensate it for labor and other 12 expenses incurred as a result of the October 7, 2013, roof collapse. 13 Aeros claims that it had retained employees on the payroll during this 14 period--18-30 months after the roof collapsed--so that it could spring 15 into action and start producing the larger versions of the RAVB when 16 it obtained capital financing. 17 the RAVB prevented it from advancing its business plan to 18 commercialize the Aeroscraft. 19 77. In Aeros’s view, the destruction of Here, again, Aeros has fallen far short of establishing that 20 the destruction of the RAVB caused millions of dollars in damages 21 years later or that, but for the loss of the RAVB, Aeros would have 22 obtained funding and developed the Aeroscraft into a commercial 23 enterprise. 24 how many employees it retained for the purpose of springing into 25 action when the capital financing campaign began to bear fruit and 26 what these employees were doing during this waiting period. 27 as explained below, it failed to establish that the capital financing 28 project was going to be successful but for the destruction of the To begin with, as set forth above, Aeros never explained 33 Further, 1 RAVB. 2 financing. 3 that his hopes were realistic and that, but for the loss of the RAVB, 4 they would have been realized. 5 denied. 6 Certainly, Aeros proved that Mr. Pasternak hoped to gain this 78. But Aeros failed to show that it was reasonably certain For these reasons, this claim is also Aeros seeks $1,604,005 for its Capital Financing Campaign 7 that it began in May 2013, months before the RAVB was destroyed. This 8 campaign was intended to raise over $3 billion to develop and produce 9 a fleet of Aeroscraft-type vehicles. Aeros points out that represent- 10 atives from Deutsche Bank and Citibank were scheduled to come to the 11 hangar and view the RAVB on the day the roof collapsed. 12 Aeros, Deutsche Bank subsequently told Aeros that it would not invest 13 in the project because Aeros did not have a working prototype. 14 Obviously, there are hundreds if not thousands of banks and ten times 15 that many private investors and investment funds that regularly invest 16 in projects like the RAVB. 17 prototype does not mean that all investors would have, nor did Aeros 18 argue that that was the case. 19 financing project failed because the RAVB was destroyed. 20 evidence supported the opposite conclusion. 21 was retained by Aeros in May 2013 to run the capital financing 22 campaign, recognized in October 2013 in the wake of the collapse that 23 Aeros was fortunate that it had “completed the flight testing 24 necessary to demonstrate” the technology prior to the roof collapse, 25 suggesting that the loss of the RAVB would not impact the capital 26 financing campaign at all. 27 working prototype, Aeros had a History Channel documentary of the RAVB 28 in flight and other video footage to show potential investors. According to The fact that Deutsche Bank required a Aeros never proved that the capital Mr. William Feely, who RT 4/12/17 p.m. at 47:8-15. 34 In fact, the In lieu of a Exh. 1 107. Dr. Anthony Tether, who worked for Aeros on the capital 2 financing project, testified that the reason the investors chose not 3 to invest was because “they didn’t have enough definitive data.” 4 4/11/17 a.m. at 149-151. 5 could not say whether or not the campaign would have been successful 6 in the absence of the hangar roof collapse. 7 89:7-90:13. 8 RAVB was not the cause of the failure of the financing campaign. 9 evidence further established that Aeros recognized in an SEC filing at RT Aeros’s valuation expert testified that he See RT 4/13/17 p.m. at The government’s expert was certain that the loss of the The 10 the time of the capital financing campaign that there were numerous 11 risks for investors, including the fact that Aeros had never built a 12 66- or 250-ton version of the RAVB and had no operating history, which 13 limited Aeros’s ability to forecast costs. 14 the potential success of the larger RAVBs was dependent on a number of 15 external factors that Aeros did not control, like FAA certification 16 and the supply and demand of helium. 17 Here, again, Aeros has not convinced the Court to a reasonable degree 18 of certainty that the destruction of the RAVB caused the capital 19 financing campaign to fail or that those costs will now have to be 20 repeated because the RAVB has been destroyed. Aeros also recognized that RT 4/12/17 p.m. at 58:3-60-25. 21 III. 22 CONCLUSIONS OF LAW 23 24 25 1. Jurisdiction is vested in this court pursuant to the FTCA, 28 U.S.C. §§ 1346(b) and 2671-2680. 2. Venue is proper because Aeros is incorporated under the laws 26 of the State of California and has its principal place of business in 27 Montebello (which is in Los Angeles County) within the Central 28 District of California. 28 U.S.C. §§ 84(c) and 1402(b). 35 In addition, 1 the roof collapse giving rise to this lawsuit occurred in Tustin, 2 California (in Orange County), which is also within the Central 3 District of California. 4 3. Under the FTCA, the Court applies California law in 5 analyzing Aeros’s claims and the government’s defenses. 6 §§ 1346(b)(1) and 2674. 7 8 9 4. The Court has already determined that the government is liable for the hangar collapse. 5. 28 U.S.C. The issue that remains is damages.9 Under California tort law, the measure of damages is the 10 amount that will compensate the plaintiff for all the detriment 11 proximately caused by the defendant’s negligence, whether it could 12 have been anticipated or not. 13 142 Cal. App. 4th 1250, 1255 (2006). 14 6. Cal. Civ. Code § 3333; Metz v. Soares, Aeros bears the burden of proving, with reasonable 15 certainty: (1) its damages were proximately caused by the hangar roof 16 collapse, and (2) the amount of its damages. 17 Cal. App. 2d 257, 259-60 (1960) (“[T]he plaintiff has the burden of 18 proving, with reasonable certainty, the damages actually sustained by 19 him as a result of the defendant’s wrongful act, and the extent of 20 such damages must be proved as a fact.”); Veasley v. United States, Chaparkas v. Webb, 178 21 9 22 23 24 25 26 27 28 The government argues that Aeros’s negligence contributed to its loss because it failed to act quickly when pieces of the roof began falling to the floor the week before the roof collapsed. This argument is rejected. The interval between the time when the wood began to fall from the roof trusses and the collapse of the roof was a matter of days. At the time, the landing gear had been removed, making it difficult if not impossible to move the RAVB. Further, there is no comparison between the government’s negligence here--it was told 16 years earlier that the roof had to be repaired soon or it would collapse, information the government never shared with Aeros--and Aeros’s alleged negligence in not immediately removing the RAVB from the hangar when wood pieces began to fall. 36 1 201 F. Supp. 3d 1190, 1212 (S.D. Cal. 2016). 2 required to prove its damages with mathematical precision, it must 3 present sufficient facts so that the Court can arrive at an 4 intelligent estimate without speculation or conjecture. 5 United States, 2010 WL 1644252, at *15 (N.D. Cal. Apr. 21, 2010) 6 (quoting Harmsen v. Smith, 693 F.2d 932, 945 (9th Cir. 1982)). 7 7. Although Aeros is not Sedie v. Generally, the measure of damages for the loss of personal 8 property like an aircraft is the fair market value of the property on 9 the date it was destroyed. Hand Elecs., Inc. v. Snowline Joint 10 Unified Sch. Dist., 21 Cal. App. 4th 862, 870 (1994); Pelletier v. 11 Eisenberg, 177 Cal. App. 3d 558, 567 (1986); Robinson v. United 12 States, 175 F. Supp. 2d 1215, 1230 (E.D. Cal. 2001) (noting “general 13 rule is the value of property lost or destroyed is determined by its 14 market value at the time and place of the tort.”). 15 value” is the highest price that a willing buyer would pay a willing 16 seller on the date of the loss, assuming that there is no pressure on 17 either to buy or sell and that the buyer and seller are fully informed 18 of the condition and quality of the property. 19 Farm Gen. Ins. Co., 2012 WL 12781, at *4 n.3 (Cal. Ct. App. Jan. 4, 20 2012) (unpublished) (citing Judicial Council of California Civil Jury 21 Instruction 3903J). 22 8. “Fair market See Summers v. State An alternative valuation method is the cost approach. The 23 cost approach is based on the economic principle of substitution. 24 Dreyer’s Grand Ice Cream, Inc. v. County of Kern, 218 Cal.App.4th 828, 25 839 (2013). 26 property than it would cost to acquire a satisfactory substitute. 27 28 9. It assumes that a rational person will pay no more for Id. A third method of valuation seeks to value property that is unique and has some special or peculiar value to the plaintiff. 37 Cal. 1 Civ. Code § 3355; McMahon v. Craig, 176 Cal. App. 4th 1502, 1518-19 2 (2009), as modified on denial of reh’g (Aug. 31, 2009). 3 the burden of proving that the property has a peculiar value, SCI Cal. 4 Funeral Servs., Inc. v. Five Bridges Found., 203 Cal. App. 4th 549, 5 573 (2012), and that the defendant either had notice of the value 6 before it was damaged or acted willfully in destroying it. 7 175 F. Supp. 2d at 1230. 8 however, there must be a showing that the property has a market value. 9 Willard v. Valley Gas & Fuel Co., 171 Cal. 9, 15 (1915). 10 10. Plaintiff has Robinson, For the peculiar value method to be used, Where traditional methods of valuation cannot be applied, 11 the Court is required to value the property using some other rational 12 way from such sources as are available. Id. 15-16. 13 14 IV. 15 CONCLUSION 16 17 For these reasons, the Court concludes that Plaintiff is entitled to damages in the amount of $6,882,918. 18 19 IT IS SO ORDERED. 20 DATED: November 20, 2017 21 22 23 ______________________________ PATRICK J. WALSH UNITED STATES MAGISTRATE JUDGE 24 25 26 27 28 S:\PJW\Cases-Consent\Aeros v USA 1712\Findings of Fact Conclusions of Law.wpd 38

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