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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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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AEROS AERONAUTICAL SYSTEMS CORP., ) CASE NO. CV 15-1712-PJW
)
Plaintiff,
) FINDINGS OF FACT AND
) CONCLUSIONS OF LAW
v.
)
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UNITED STATES OF AMERICA,
)
)
Defendant.
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)
_________________________________ )

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I.

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INTRODUCTION

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This is a Federal Tort Claims Act (“FTCA”) case in which

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Plaintiff Aeros Aeronautical Systems Corporation is suing the United

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States for damages for the loss of a unique, blimp-like aircraft known

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as the RAVB (pictured below).

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government hangar in Tustin, California, when the roof collapsed.

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Court has already determined that the government was negligent in

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maintaining the hangar and is, therefore, liable for the loss.

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issue that remains is damages.

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state-of-the-art, one-of-a-kind airship and seeks damages in the

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amount of $65 million dollars.

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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

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result, Aeros is not entitled to any damages.

For the reasons set

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forth below, the Court concludes that Aeros is entitled to $6,882,918

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for the loss of the aircraft and the consequential damages that flowed

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from the loss.

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A picture of the RAVB during flight testing in August 2013.

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II.

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FINDINGS OF FACT

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1.

Plaintiff Aeros is incorporated under the laws of the state

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of California and has its principal place of business in Montebello,

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California.

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2.

Defendant is the United States government, acting through

the Department of the Navy and its employees, officers, and agents.
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Development of the RAVB

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3.

In 2008, the government sought to determine the feasability

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of a rigid-aeroshell, variable-buoyancy aircraft to carry troops and

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equipment around the world.

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was to design, construct, and test Aeros’s proprietary Control of

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Static Heaviness or “COSH” system.

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allows a heavier-than-air aircraft, similar to a blimp, to become

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buoyant by releasing compressed helium (stored in canisters inside the

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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

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buoyant.

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and descend to the landing site by compressing a sufficient amount of

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helium to make the aircraft heavier than air.

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and/or equipment, the crew can then release the helium back into the

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aircraft, causing it to become lighter than air again, allowing it to

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be flown away.

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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

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development of an aircraft to test the COSH system.

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at 43:10-44:20, 132:14-23.

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having Aeros develop a working prototype.

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in having Aeros build a demonstrator model so that the COSH system

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could be tested inside a hangar to see if it would work.

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contract did not require nor did it contemplate that the RAVB would be

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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.

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1

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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.

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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
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5.

NASA was selected as the contracting agency for the

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government.

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and project assistance to Aeros as well as contract management.

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4/14/17 a.m. at 6:2-4.

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6.

Exh. 565 at 1.

It was tasked with providing technical

During negotiations, Aeros offered to perform the contract

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for $50.9 million.

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Stipulated Facts (Doc. No. 195-1) (“JSF”) ¶ 2.

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offer.

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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

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ultimately agreed to a firm, fixed-price contract of $38.2 million

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dollars to build and test the RAVB.

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evidence established that during the negotiations the government and

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Aeros recognized that it would cost Aeros slightly more than $43

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million to build the RAVB and perform the tests anticipated under the

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contract, about $5 million more than the government was willing to

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pay.

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shortfall was premised on Aeros performing the contract for the

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estimated price.

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contract, Aeros would have to absorb those costs.

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provided, however, that the government was limited in how it could use

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the data developed by Aeros and, importantly, that Aeros could keep

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the RAVB at the end of the contract.

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12:10-18; RT 4/12/17 p.m. at 70:12-15; Exh. 38 at 7.

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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

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RT 4/12/17 p.m. at 72:3-25.

RAVB.
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testing.

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to $54.5 million.

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4
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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

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process called “Iterative – Prototyping Development.”

This was not

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the way the government normally developed aircraft.

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government would come up with engineering requirements, create a

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design, analyze the feasibility of such an aircraft, and build a

Typically, the

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prototype to verify and validate the design.

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5:6-17, 17:11-20; Exh. 155 at 24.

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was accomplished through trial and error.

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observed, Aeros’s philosophy was to build and test, and, if it failed,

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to redesign, rebuild, and retest.

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trial and error process resulted in considerable inefficiencies.

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example, Aeros used several different materials for the skin of the

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RAVB, trying one, abandoning it, and then trying another.

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p.m. at 13:15–14:14.

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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

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production-line aircraft, Aeros did not have in place policies and

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procedures necessary to develop any of the specialized engineering

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plans or drawings which would allow for the recreation of the RAVB.

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RT 4/11/17 a.m. at 70:16-18.

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instructions were created for the RAVB.

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70:21-71:7, 106:15-20, 108:8-10, 108:16-109:4.

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conceptual designs for the RAVB but the adjustments made during the

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actual construction, such as altering the placement or type of a bolt

In fact, no production drawings or work

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RT 4/11/17 a.m. at
Aeros possessed

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used, were not marked in production drawings because no such drawings

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were made.

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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.

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had a three-dimensional frame composed of trusses.

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made of aluminum and carbon or carbon with aluminum ends.

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a.m. at 53:16-23.

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of cards” from the bottom up.

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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

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called “red line” or “red pen” drawings.

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RT 4/12/17 p.m. at 12:3-13.

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structure which were hung up on the wall at the hangar.

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p.m. at 12:19-13:7.

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collapsed.

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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

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available to Aeros for consultation on design, engineering, and

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construction.

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Aeros on the NASA Contract.

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liaison between Aeros and NASA.

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engineer in the Systems Analysis Group and had been an engineer with

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NASA since 1985.

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another NASA engineer who provided technical assistance to Aeros for

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the RAVB project.

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for 41 years.

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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.

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Ultimately, Timothy Kenny became the lead engineer and later the

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director of engineering at Aeros.

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he earned his undergraduate degree in engineering.

RT 4/12/17 a.m. at 35-36.

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In 2007,

RT 4/12/17 a.m. at

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62:25-63:1.

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at 35.

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aircraft before coming to Aeros.

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NASA engineers found the Aeros engineers young, inexperienced, and

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overwhelmed.

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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,

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engineering, and construction practices.

They regularly questioned

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Aeros’s methods in developing and constructing the RAVB.

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course of the project, the structural design of the RAVB changed

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continually.

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approach taken by Aeros in the design and construction of the RAVB was

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a significant contributor to the constant changes to the RAVB.

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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.

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JSF ¶ 18.

The most significant test was a test of the COSH system and

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of the RAVB’s ability to remain heavier than air and become lighter

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than air while carrying a weighted load.

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January 2013 inside the Tustin hangar with the hangar doors closed.

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RT 4/14/17 p.m. at 35:20-37:8; Exh. 486 at 5-6.

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of lead shot were loaded into the cockpit of the RAVB.

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p.m. at 36:3-24.

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into bladders inside the RAVB and the RAVB floated off the Tustin

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hangar floor to a height of approximately 10 feet.

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36:3-24.

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the RAVB descended to the hangar floor.

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unloaded and the RAVB remained on the ground, proving that it was

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heavier than air.

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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.

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7

Helium was then
RT

1

4/14/17 p.m. at 36:3-24.

2

RAVB descended to the hangar floor.

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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

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during this test as a result of the force acting on the RAVB from

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lifting off the ground and floating to a height of ten feet.

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4/14/17 p.m. at 37:1-17.

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experienced local buckling.

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engineers found that multiple end fittings had failed and several

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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

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37:1-17.

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buckled and that several of the cords on a number of trusses had

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broken.

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in-hangar static hover test the RAVB suffered “significant structural

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damage inside the internal air frame.”3

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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

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test, Aeros undertook repairs that NASA engineers believed were less

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than ideal and which were completed without conducting an analysis of

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the reasons for the failures.

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engineers wanted to determine the root cause of the failures but Aeros

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did not want to do so.

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repaired or replaced the broken structural components with the same

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materials that had failed in the hangar test.

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68:13-19; RT 4/14/17 p.m. at 38:13-39:9.

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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
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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

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None of these repairs allayed NASA’s concerns about the structural

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defects of the RAVB.

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20.

Aeros subsequently decided that it had to take the RAVB

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almost completely (70%) apart and rebuild it, a process that took four

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months at a cost of $5.5 million.

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4/17/17 a.m. at 88:14-90:8.

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its bare structure” and it was reassembled.

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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

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January 2013 test, was conducted during the summer of 2013.

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the final test for the RAVB under the contract and the test was

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successful.

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22.

This was

JSF ¶ 18.

In the spring of 2013, NASA learned that Aeros was planning

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to conduct an outdoor flight test of the RAVB.

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39:13-17.

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became very concerned.

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that an outdoor flight test would subject the RAVB to considerably

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more load than the in-hangar tests and they were worried that the

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RAVB’s structure could not handle the load.

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40:21-24.

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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

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determine the structural integrity of the RAVB under a rational set of

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outdoor loads, using a modest forward flight speed and modest wind

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speeds.

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fluid dynamics experts, one from NASA and one from outside NASA, to

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devise a series of pressure distributions based on loads for the RAVB.

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RT 4/14/17 p.m. at 41:5-9.

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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.

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when the forward speed was reduced to 10 knots and the wind speed

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reduced to 10 knots that failure could be avoided and then only

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barely.

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Ultimately, the engineers concluded that “unless they flew [the RAVB]

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at very, very low speeds and encountered, really, no gust loads,” the

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RAVB structure would likely be damaged.

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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

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4/14/17 p.m. at 42:19-24.

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management, warning that an outdoor flight of the RAVB demonstrator

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could be catastrophic.

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described the RAVB and Aeros’s engineering approach and presented the

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results of the analysis, concluding: “[f]rom a structural perspective,

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the lack of design requirements, loads and load cases, verification

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approach, complete engineering analysis and overall configuration

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management resulted in a RAVB structure that is thought by NASA to

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have been at the very limit of its structural ability in rising, in a

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level altitude, in still air.”

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69:20-70:17.

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cannot sustain any combination of buoyancy, forward speed, rational

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gust speed, intertial force and nominal angle of attack without

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inducing negative margins in structural elements.”

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response to the warnings, NASA management attempted to persuade Aeros

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not to conduct an outdoor flight.

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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

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to go forward with flight tests outside the hangar.

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day Experimental Research & Development Airworthiness Certificate from
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It obtained a 60-

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the FAA.

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certifying the RAVB for outdoor flight testing did not know that NASA

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had advised Aeros not to fly the RAVB outside when he approved the

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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.

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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.

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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

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presentation entitled “Initial Fleet Revenue Generation Secured

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Clients” (hereinafter “Fleet Presentation”).

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Presentation, Aeros’s proposed a production schedule that included 22

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Aeroscrafts--four 66-ton models and 18 250-ton models--by 2020.

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196 at 4.

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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

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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,

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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

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