Acrecent Financial Corporation v. Far Away Holdings, LLC et al

Filing 35

OPINION AND ORDER GRANTING 22 MOTION for Summary Judgment filed by Acrecent Financial Corporation; DENYING 21 MOTION for Summary Judgment filed by Sinercon C.A., Arrow International Investments, LLC, Far Away Holdin gs, LLC. Pursuant to Section 5 of the Settlement Agreement, Defendants, jointly and severally, shall pay to Plaintiff (a) 100% of the Deficiency, (b) interest on the Deficiency at 7.25 % per annum from June 9, 2011, until payment of all sum s due, (c) Disposition Costs and expenses incurred by Plaintiff, and (d) reasonable attorneys' fees and costs incurred by Plaintiff as a result of Defendants' default. Within ten (10) days of this Opinion and Order, Plaintiff shall file wit h the court an Informative Motion detailing current amounts for this award and shall include all supporting documentation that was not previously provided. Plaintiff shall also tender a Proposed Judgment. Defendants shall respond to the Informative Motion within ten (10) days after it is filed. Signed by Judge Jose A. Fuste on 07/13/2015.(mrj)

UNITED STATES DISTRICT COURT
DISTRICT OF PUERTO RICO

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ACRECENT FINANCIAL
CORPORATION,,
Civil No. 3:14-cv-01222 (JAF)
Plaintiff,
v.
FAR AWAY HOLDINGS, LLC, et al.,
Defendant.
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OPINION AND ORDER

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I.

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Introduction

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Plaintiff Acrecent Financial Corporation (“Acrecent” or “Plaintiff”) filed suit

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against Far Away Holdings, LLC (“Far Away”), Arrow International Investments, LLC

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(“Arrow”), and Sinercon C.A. (“Sinercon”) (collectively referred to as “Defendants”) for

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breach of contract. Plaintiff seeks in excess of $3,000,000 representing the deficiency

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owed under the contracts plus interest, costs, and attorneys’ fees.

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This matter is before the court on the parties’ cross-motions for summary

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judgment. Plaintiff moved for summary judgment against Defendants (Docket No. 22).

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Simultaneously, Defendants moved for summary judgment against Plaintiff (Docket

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No. 21). Plaintiff opposed Defendants’ motion (Docket No. 26). Defendants opposed

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Plaintiff’s motion (Docket No. 28). Plaintiff then replied in support of its motion (Docket

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No. 33). Both parties agree that there are no genuine issues of material fact and that the

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matter is right for decision by this court.

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II.

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Summary Judgment Standard

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Federal Rule of Civil Procedure 56 states, in pertinent part, that a court may grant

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summary judgment only if “the pleadings, depositions, answers to interrogatories, and

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admissions on file, together with the affidavits, if any, show that there is no genuine issue

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as to any material fact and that the moving party is entitled to judgment as a matter of

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law.” Fed. R.Civ.P. 56(c); See also Santiago–Ramos v. Centennial P.R. Wireless Corp.,

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217 F.3d 46, 52 (1st Cir. 2000). The court “must view the entire record in the light most

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hospitable to the party opposing summary judgment, indulging in all reasonable

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inferences in that party’s favor.” Griggs–Ryan v. Smith, 904 F.2d 112, 115 (1st Cir.

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1990). The court may safely ignore “conclusory allegations, improbable inferences, and

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unsupported speculation.” Medina–Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8

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(1st Cir. 1990). That standard is unaffected where, as here, cross-motions for summary

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judgment are in play. See Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 34 (1st Cir.

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2005). This court must “determine whether either of the parties deserves judgment as a

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matter of law on [the] facts that are not disputed.” Wightman v. Springfield Terminal Ry.

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Co., 100 F.3d 228, 230 (1st Cir. 1996). In so doing, “the court must consider each

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motion separately, drawing inferences against each movant in turn.” Reich v. John Alden

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Life Ins. Co., 126 F.3d 1, 6 (1st Cir. 1997).

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III.

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Facts

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Defendants and Plaintiff each filed respective statements of uncontested facts.

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The parties agree on the majority of the facts, yet they disagree how the application of the

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facts alters the outcome of this matter. The material facts are as follows.

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There are two loans forming the underlying debts of Defendants to Plaintiff. In

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December 2007, Plaintiff granted to Defendant Arrow the sum of $2,160,000 for the

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purchase of a Jetstream Aircraft model Jetstream 4101 (“Jetstream”). In April 2008,

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Plaintiff loaned $5,829,983.75 to Defendant Far Away for the purchase of a Hawker

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Beechcraft model King Air 350 (“King Air”). Defendant Sinercon guaranteed both of the

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loans on behalf of Defendants Arrow and Far Away.

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At some point, Defendants notified Plaintiff that the payments under the two loans

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could not be made as originally agreed. As of June 9, 2011, Defendants owed

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$5,122,030.27 and $1,879,055.22 on the two loans. (Docket No. 21-3 at 3, Docket No. 33

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at 9 fn 1). The parties executed an agreement on June 9, 2011, resolving all claims

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arising from the two loans (“Settlement Agreement”). (Docket No. 21-3). The purpose

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of the Settlement Agreement was “to avoid the expense, uncertainty, and inconvenience

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of litigation[.]” (Docket No. 21-3 at 1). The parties agreed and acknowledged that final

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settlement of all claims under the loans occurred “by virtue of their execution and

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delivery of, and performance of their respective duties and obligations” set forth in the

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Settlement Agreement. (Docket No. 21-3 at 2).

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The following is a chronological rundown of material events:

Civil No. 3:14-cv-01222 (JAF)
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April 21, 2011, Defendant Arrow delivered the Jetstream to Plaintiff;
June 9, 2011, Parties entered into the Settlement Agreement;
October 2011, Defendants made payment of $50,000;
October 2011, Defendants made second payment of $40,000;
December 2011, Defendants made payment of $100,000;
June 9, 2012, marked one year from the Effective Date of the Settlement
Agreement. It is unclear when Defendant Far Away delivered the King Air to
Plaintiff; there is no dispute, however, that Plaintiff sold both the Jetstream and the
King Air within one year from the Effective Date;
August 2012, Defendants made payment of $80,000;
October 12, 2012, Plaintiff sent letter to Defendants alleging default of the terms
of the Settlement Agreement;
November 2012, Defendants made payment of $80,000;
May 2013, Defendants made payment of $100,000;
December 2013, Defendants made payment of $50,000;
March 2014, Plaintiff filed the instant suit; and
August 2014, Defendants made payment of $187,577.37.

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Plaintiff alleges that Defendants breached the Settlement Agreement by failing to make

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the $350,000 initial payment within thirty days of the Effective Date, by delivering the

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Jetstream to Plaintiff in a condition not airworthy, and by failing to deliver the King Air

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free of liens and encumbrances. Plaintiff seeks to enforce Section 5 of the Settlement

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Agreement which sets forth the remedies in the event of default.

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Defendants argue that they are not in default since Plaintiff failed to notify them of

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the Deficiency amount and Plaintiff has been fully paid under the terms of the Settlement

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Agreement.

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IV.

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Law and Analysis

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Pursuant to Section 3 of the Settlement Agreement, Defendants agreed to deliver

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both aircraft to Plaintiff in order for Plaintiff to sell the aircraft. Defendants agreed to

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pay Plaintiff $350,000 within thirty days of the “Effective Date,” which was to be

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“applied against any Deficiency” as determined in Section 3.12. (Docket No. 21-3 at 3).

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The Effective Date of the Settlement Agreement was June 9, 2011. Far Away agreed to

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make all necessary repairs to the King Air in order for the King Air to be in airworthy

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condition, obtain appropriate certification that the aircraft was ready to fly, and deliver

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the aircraft to Plaintiff within seven days of the completion of the repairs. Both aircraft

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were to be delivered with clear title, free of all liens and encumbrances. Defendant

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Arrow delivered the Jetstream to Plaintiff on April 21, 2011.

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Section 3.12(a)(i) sets forth the method for determining the deficiency amount.

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Section 3.12(a)(i) defines “Deficiency” as the “balance of the debt remaining (“B”), if

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any, after all of the proceeds from the sale of the two Aircraft (“P”), net of all Disposition

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Costs (“DC”), are applied against the Debtor Loans (“DL”). The mathematical equation

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to determine the balance of the Deficiency is: DL - (P - DC) = B.” (Docket No. 21-3 at

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5). The contract sets forth the time frame for making final payment to Plaintiff in Section

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3.14. “Final Payment” is defined as “the aggregate of the Deficiency Reduction Payment

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plus 50% of every U.S. Dollar over US$650,000 with a maximum additional payment

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cap of US$300,000.” Final payment was due within one year of the sale of the last of the

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two Aircraft and the final determination of the deficiency. Defendants were to make Final

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Payment in twelve equal monthly installments, plus 7.25% interest per annum, on the

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fifteenth of every month beginning in the month immediately following the month in

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which the Final Payment amount was determined.

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Section 5 sets forth the procedure for default under the contract. An “Event of

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Default” includes when “Debtors breach their obligation to make any payment required

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herein when due and fails to cure such breach within ten (10) days;” or when “Debtors

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breach any of their other obligations and fail to cure such breach within thirty (30) days

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after written notice from Creditor to Debtors[.]” Notice to Defendants is effected upon

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receipt of letter sent via United States Mail or “upon receipt by the sender of a delivery

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confirmation of a facsimile or electronic mail” directed to Defendants as set forth in

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Section 8. (Docket No. 21-3 at 7).

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The Settlement Agreement states that “[u]pon the occurrence of and Event of

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Default and so long as the same shall be continuing, creditor may demand that Debtors,

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jointly and severally, pay as liquidated damages” the full amount of the Deficiency plus

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interest at 7.25% per annum, all Disposition Costs incurred by Plaintiff, and all costs and

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expenses, including attorneys’ fees, incurred by Plaintiff resulting from the Event of

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Default. (Docket No. 21-3 at 6) (emphasis added). However, the second paragraph of

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Section 5 only applies if the Event of Default is continuing. As of November 2012,

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Defendants had paid Plaintiff the full $350,000 initial payment.

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The question then becomes whether Defendants’ payment in November 2012

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cured this Event of Default such that Plaintiff is not entitled to collect liquidated damages

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under the second paragraph of Section 5. In cases such as this, where no factual dispute

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exists, but the question is rather an interpretive one, contract interpretation is construed as

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a “question of law” for the judge. Principal Mutual Life Ins. Co. v. Racal-Datacom, Inc.,

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233 F.3d 1, 3 (1st Cir. 2000). Under 31 L.P.R.A. § 3471 “[i]f the terms of a contract are

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clear and leave no doubt as to the intentions of the contracting parties, the literal sense of

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its stipulations shall be observed.” A contract is clear when it can be “understood in one

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sense alone, without leaving any room for doubt, controversies or difference of

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interpretation.” Executive Leasing Corp. v. Banco Popular de Puerto Rico, 48 F.3d 66,

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69 (1st Cir. 1995). Whether Plaintiff is entitled to 100% of the Deficiency plus interests,

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costs, and expenses or whether Plaintiff is entitled to the $350,000 initial payment plus

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the $300,000 additional payment cap plus interest turns on whether there is an Event of

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Default.

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There is no dispute that Defendants failed to pay $350,000 to Plaintiff within thirty

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days of the Effective Date of the Settlement Agreement. Defendants seemingly argue that

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their entire payment could be paid in installments beginning once the Deficiency amount

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was determined. There is simply no support for this argument. The Effective Date of the

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Settlement Agreement was June 9, 2011. Thirty days after the Effective Date was July 9,

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2011. As of July 9, 2011, Defendants had paid zero dollars. Accordingly, Defendants

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were in violation of Section 3.10(a) of the Settlement Agreement. Defendants failed to

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cure this breach within ten days of July 9, 2011.

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Despite Defendants’ immediate breach of the Settlement Agreement, Plaintiff did

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nothing until October 12, 2012. There is an argument that the Settlement Agreement did

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not require Plaintiff to notify Defendants of an Event of Default under Section 5(i).

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Section 5(i) reads “Debtors breach their obligation to make payments required herein

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when due and fails to cure such breach within ten (10) days;” compared to a breach under

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Section 5(iii) which specifically requires written notification by the Plaintiff: “Debtors

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breach any of their other obligations and fail to cure such breach within thirty (30) days

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after written notice from Creditor to Debtors[.]” (Docket No. 21-3 at 6) (emphasis

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added).

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In a letter dated October 12, 2012, Plaintiff formally notified Defendants of their
breach of the agreement, stating that:
(a) [Defendants] have not paid to [Acrecent] the amount of $350,000.00 on
or before the expiration of [30] days of signing the Agreement, (b) have not
carried out the maintenance, repairs and inspections required and have
delivered the Jetstream in a condition that is not suitable for flight
(affecting the product of the sale of said plane by not less than $400,000),
and (c) not having delivered the King Air free of liens and encumbrances
among other things (“the default”). Said default entitles Acrecent Air to
claim from the [Defendants] the amount of the entire deficiency in the loans
of $2,525,539.40 and $549,304.53 in interests earned for said amount at
7.25% until September 30, 2012, plus $11,035.62 owed for the payment to
Hawker Beechcraft Service Center by Acrecent, less $270,000 paid by the
[Defendants] for a net total of $2,815,879.55.

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(Docket No. 25-1 at 1). Plaintiff then proposed a reduced final payment “despite the fact

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that [it] is entitled to claim” the entire amount of $2,815,879.55. (Docket No. 25-1 at 1).

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To the extent that Defendants claim they had a reasonable disagreement over the

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due date for the initial payment or whether notice of default was required, Defendants

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were put on notice of Plaintiff’s position when demand was made by the October 12,

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2012, letter. As such, even under Defendants’ interpretation, Defendants had ten days

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from receipt of the letter to cure their breach. Defendants, however, did not pay the

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remaining amount of the initial payment until November 2012, over ten days later.

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This failure to pay the initial $350,000 and failure to cure the breach within ten

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days is a clear breach of the Settlement Agreement which thereby triggers the payment

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process stipulated under Section 5. Though in November 2012 Defendants paid the

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remaining $80,000 of the initial payment, this did not cure the breach. To accept the

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proposition that Defendants could cure the breach after the expiration of the ten-day

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grace period in order to avoid the Section 5 payment formula would render the payment

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formula meaningless. For example, once the Event of Default occurred, Defendants owed

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100% of the Deficiency plus interest and costs, amounting to nearly $3,000,000. Under

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Defendants’ interpretation, they could have begun paying off the $3,000,000 and

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whenever the payments totaled $80,000, the breach would have been cured and the

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payment plan under Section 3 would have been back in play. This is nonsensical. The

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court will not accept an interpretation that would render said Section meaningless. See

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e.g., In re Advanced Cellular Systems Inc., 483 F.3d 7, 12 (1st Cir. 2007). Accordingly,

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the court finds that once Defendants’ failure to correct the Event of Default within ten

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days of the written notice triggered the payment plan stipulated in Section 5, Section 3 of

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the Settlement Agreement no longer applies to the payment terms.

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The court also notes that Defendants also likely breached the Settlement

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Agreement by failing to deliver the Jetstream in an airworthy condition and by failing to

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deliver the King Air free of liens and encumbrances. Defendants failed to cure these

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breaches within ten days of the written notice.

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discussing these breaches of the Settlement Agreement, and the court will not do so now.

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“It is not enough merely to mention a possible argument in the most skeletal way, leaving

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the court to do counsel’s work, create the ossature for the argument, and put flesh on its

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bones.” United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). “Judges are not

The parties spend little to no time in

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expected to be mindreaders. Consequently, a litigant has an obligation ‘to spell out its

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arguments squarely and distinctly,’ or else forever hold its peace.” Id. (quoting Rivera–

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Gomez v. de Castro, 843 F.2d 631, 635 (1st Cir. 1988) (additional citation omitted)).

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Defendants argue that Plaintiff breached the Settlement Agreement by not

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notifying Plaintiff in writing of the Deficiency. Though there is no formal requirement in

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the Settlement Agreement that Plaintiff notifies Defendants upon the calculation of the

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Deficiency, it would be difficult of any payment of that amount to be made without first

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knowing what that amount is.

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breached the Settlement Agreement by not paying the initial payment of $350,000 within

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thirty days of the Execution Date of the Settlement Agreement. Plaintiff’s October 12,

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2012, letter served as written notice of the Event of Default and Defendants failed to cure

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the breach within ten days.

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The point, however, is moot. Plaintiff had already

Moreover, the October 12, 2012, letter provided notice of the calculation of the

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Deficiency.

There is no evidence that Defendants responded to or challenged that

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calculation. Assuming that Defendants had not defaulted and Section 3.12 applied,

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Plaintiff clearly notified Defendants of the Deficiency amount under the terms of the

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Settlement Agreement. Accordingly, Plaintiff did not breach the Settlement Agreement

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by failing to provide notice to Defendants of the Deficiency.

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V.

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Conclusion

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For the reasons set forth above, the court GRANTS Plaintiff Acrecent Financial

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Corporation’s Motion for Summary Judgment (Docket No. 22) and DENIES

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Defendants’ Motion for Summary Judgment (Docket No. 21). Pursuant to Section 5 of

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the Settlement Agreement, Defendants, jointly and severally, shall pay to Plaintiff

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(a) 100% of the Deficiency, (b) interest on the Deficiency at 7.25 % per annum from

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June 9, 2011, until payment of all sums due, (c) Disposition Costs and expenses incurred

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by Plaintiff, and (d) reasonable attorneys’ fees and costs incurred by Plaintiff as a result

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of Defendants’ default.

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Within ten (10) days of this Opinion and Order, Plaintiff shall file with the court

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an Informative Motion detailing current amounts for this award and shall include all

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supporting documentation that was not previously provided. Plaintiff shall also tender a

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Proposed Judgment. Defendants shall respond to the Informative Motion within ten (10)

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days after it is filed.

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IT IS SO ORDERED.

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San Juan, Puerto Rico, this 13th day of July, 2015.

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S/José Antonio Fusté
JOSE ANTONIO FUSTE
U. S. DISTRICT JUDGE